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Rising Phoenix An Unfinished Story of Taiwan’s Economic Development. Chi Schive President, the Taiwan Academy of Banking and Finance May 17, 2007. Contents. A prelude, a short or long story for Taiwan ’ s success? To make Taiwan economy grow again – U.S. Aids (1952-60) - PowerPoint PPT Presentation
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Rising PhoenixAn Unfinished Story of Taiwan’s Economic Development
Chi SchivePresident, the Taiwan Academy of Banking and Finance
May 17, 2007
Contents
• A prelude, a short or long story for Taiwan’s success?
• To make Taiwan economy grow again– U.S. Aids (1952-60)
• The first turning point (1958-60), a vital reform
• The second turning point (1986-90), the cure of Dutch disease
• An rising Phoenix, the final test
Two Heroes, Taiwan and Korea
• Taiwan and Korea took fifty years to reach the same development level as U.S. over two-hundred years since 1976, while Japan took one- hundred years. (Herman Kahn, The World Economic Development, 1979)
• Taiwan has maintained an average growth rate of 8.8 percent over forty five year since 1952.
• Taiwan barely over passed Philippines on GNP per capita only by 1970.
• By the end of 1990s Taiwan was ranked the top 14th by trade, 17th or 18th by GDP, 24th by GDP per capita.
Comparison of US Aid and Growth of GNP in Five Small Economies in the 1950s and 1960s
Growth rate % Taiwan
1953-63
Korea
1953-63
Philippines
1960-63
Thailand
1956-63
Turkey
1958-63
Population 3.2 2.9 3.3 2.9 2.9GNP 7.0 4.8 5.0 6.3 3.9Per capita GNP 3.8 1.9 1.7 3.4 1.0Percentages of GNP
Consumption 88.3 100.6 87.9 85.6 87.1Gross domestic investment
19.0 14.0 13.9 16.5 15.5
Aid per capita per
year (in dollars)9.7 11.4 2.0 1.3 6.1
8-point Suggestions (1959) for Economic and Financial Reform by U.S. Aid Mission
• Military budget control• Banking and loan policies for inflation control• Tax reform, removing obstacle to business
development• Unitary and realistic foreign exchange rate• Relaxing foreign exchange control• Proper pricing for public utilities• Securities registration and setting up stock
exchange• Privatization of public enterprises
19-Point Reform (1959) - Highlights
Pursuing Economic Growth with Stability• Fiscal balance• Tax reform• Relax restrictions on trade• Promote production and exports• Encourage savings• Simplify administrative procedures• Improve investment environment• Build capital market• Foster private enterprises
19-Point Reform (1959)
Economic Development1. Encourage savings and restraint consumption via
incentives2. Establish capital market3. Overhaul all emergent control measures4. Privatization of public enterprises5. Simplify tax, foreign exchange control, financing
measures for business6. Simplify procedures for business establishment and
operation, including entry/exit7. Mobilize idle capacity of public and military plants8. Rationalize pricing for public utilities
19-Point Reform (1959)Budget9. Streamline military force and fix military
expense at current level in real terms10. Reform tax system and administration for
encouraging capital formation11. Improve the performance of budgetary
execution12. Remove subsidies that would mislead the
assessment of military spending and revenue and the performance of public enterprises
13. Adjust salary for military and public employees, while canceling fringe benefits and implement retirement program
14. Strengthen the auditing of military expense
19-Point Reform (1959)
Financial Sector15. Establish central banking system for interest
rate and credit policy
16. Consolidate savings and loan institutions into banking system under the jurisdiction of the central bank through the agency of the Bank of Taiwan
17. Ensure that banks are carrying out their individual functions and avoid short-term use of long-term funds
19-Point Reform (1959)
Foreign exchange and trade18. Establish unitary foreign exchange rate system
and ease trade administration to enable free exchange of the New Taiwan dollars
19. Extend encouragement measures for exports, streamline export procedures, and expand links with foreign business
Major Reforms (1958-60)
• Multiple foreign exchange rate
Unitary exchange rate
• Devaluation of the New Taiwan dollar
• Statute for the Encouragement of
Investment
Imports NT$/US$
1.General import by traders 32.28
2.Industrial materials, machines & equipmentby private & public enterprises and importsby non-traders
24.76
Exports 20.35
1.Exports by public enterprises 26.35
2.Exports by civilian enterprises
Multiple Exchange Rate System in Taiwan
Source: W. A. Yeh, “Actual Exchange Rates Under the Measures for Promoting Export Sales of Products Processed with Imported Raw Materials.” (mimeo)
Exchange Settlement Certificate System
Retained Portion of ExportExchange Earnings (%)
Actual ExchangeRate (NT$/US$)
10 26.5215 26.6320 26.7425 26.8730 27.0235 27.2040 27.4045 27.6450 27.9255 28.2760 28.7165 29.2770 30.0175 31.0680 32.63
Source: W. A. Yeh, “Actual Exchange Rates Under the Measures for Promoting Export Sales of Products Processed with Imported Raw Materials.” (mimeo)
External Imbalances
Exports Imports Exports - Imports
1980 52.6 53.8 -1.2
1982 50.2 45.0 5.2
1984 55.6 44.5 11.1
1986 56.7 37.4 19.3
1988 53.0 42.5 10.5
1990 45.6 40.8 4.8
1992 42.6 40.5 2.1
1994 43.6 41.7 1.9
1996 48.2 44.3 3.9
1998 48.8 46.8 2.0
As a percent of GNP
Source: Council for Economic Planning and Development, Taiwan Statistical Data Book, 1999.
Foreign Exchange Rate Change
36.0
40.3
28.626.2 25.4
38.0
27.5
32.2235.5
40.0
20
25
30
35
40
45
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
NT$ per US$
Source: CEPD, Taiwan Statistical Data Book, 1999.
Tariff ReductionNumber of goods for which
tariffs wereAverage
Nominal TariffRate (%)
Tariff Revenueas % of Total
Imports lowered removed raised
1980 31.17 8.97 1604 23 10
1984 30.81 7.72 281 2 23
1985 25.46 7.89 1058 35 1
1986 22.83 7.67 777 28 11
1987 20.60 7.46 1699 15 6
1988 12.10 6.13 3313 154 0
1989 12.57 6.30 4545 155 0
1990 9.65 5.87 - - -
1991 9.65 4.97 1492 279 18
1993 8.89 5.15 - - -
1997 8.89 3.2 - - -
Source: Yearbook of Financial Statistics of the Republic of China, Ministry of Finance, various issues.
Export Composition (1981-1999) by World Bank Classification
Agri1 Consumer2 Materials3 Intermediates4 Machin’y+Transp’t
1981 7.7 47.2 0.5 36.5 8.11983 6.7 48.4 0.9 34.4 9.71985 6.1 45.9 0.6 35.4 12.01987 5.9 45.2 0.5 33.4 15.01989 4.6 37.7 0.4 40.0 17.41991 4.6 30.5 0.3 46.4 18.21993 4.0 24.8 0.2 51.2 19.71995 3.4 18.3 0.2 57.0 21.11997 2.0 14.9 0.4 58.7 24.11999 1.5 13.3 0.2 61.1 23.9
Notes: 1. Agriculture, forestry, fishery, livestock, hunting, processed food, beverage, and tobacco.2. Consumer durables and non-durables.3. Energy, minerals, and construction materials.4. Intermediates ready or unready to be used for consumer or producer goods.
%
The Rationale of the APROC Plan
The Asia-Pacific Regional Operations Center (APROC) Plan seeks
• To accommodate the trend of regionalism.• To take advantage of Taiwan’s strategic
geographic position in the Asia-Pacific region.• Capacity building of Taiwan’s manufacturing
sector by enhancing its supportive services -- transportation, telecommunications, and finance.
Objectives of the APROC Plan
• To carry out full-range liberalization and globalization, i.e., to promote the free flows of 4 I’s -- individuals, investments, industries and information.– Liberalization means de-regulation.
– Globalization means to create an internationally compatible regulatory scheme.
• Center means an integrator
Flows of 4 I’s:•Industries•Individuals•Investment•Information
IT Industry’s Share of Stock MarketPercentage, Market Value
1990 1995 1999U.S. 18.3 21.8 33.3Canada 18.3 17.9 27.9France 10.7 8.8 19.8Germany 3.5 6.2 22.9U.K. 12.0 12.9 18.8Finland 8.7 40.2 71.3Japan 11.1 12.4 23.9S. Korea 0.4 5.1 18.2Hong Kong 16.0 10.9 18.0Singapore 3.9 28.9 27.0Taiwan 2.7 13.4 54.2Sources: IMF, World Economic Outlook, September 2000; Taiwan Stock Exchange.
Lessons from Taiwan
• If you do not have a market, then build it.
• In order to enlarge the market, you have to open it.
• If you well respect the market, the market will reward you sweetly.
Will the “flying geese” paradigm remain?
A Different Goose on The Rise
SCENARIOS for Taiwan
Warm Cross-Strait
Relation
Cool Cross-Strait
Relation
Weak Reforms Active Reforms
Limited growth and gradually absorbed into China
Rising Phoenix, bringing regional prosperity
Cooked Goose Slow growth and becoming peripheral