Yet Another Willfully Blind Government
China Times Editorial (Taipei, Taiwan, ROC)
November 24, 2016
Executive Summary: External uncertainties have increased. Internal consumption and investment remain low. The ruling administration must not underestimate the risks. It must not be overly optimistic. It must not reduce investment because business prospects are dim. It must not turn a blind eye to TransAsia Airways early dissolution. It must remain pragmatic, and reform the laws and regulations. It must free up the economy, create a sound environment for investment. Only then can industry upgrade itself and the economy prosper. Wishful thinking, assuming that "If you plan it, they will come" is no answer. How would this government be any different from past governments that turned a blind eye to harsh economic reality?
Full Text Below:
The board of directors of TransAsia Airways, the oldest airline company in the ROC, has decided to close the company down. The news came as a shock. Two consecutive years of air disasters imposed a heavy burden on TransAsia Airways. It also undermined the image of its brand, making the resumption of normal operations difficult. Financially speaking, TransAsia shares were selling at over seven NT per share. But the board decided to close the company's doors because its "prospects were dim". Major shareholders were reluctant to continue investing. According to Chairman Lin Ming-sheng, it was better to close the company down while assets still exceeded debt. This would enable the company to better deal with debts, staff salaries, and accident compensation.
Before this, only the impact of reduced Mainland tourism on restaurants and souvenir shops went noticed. Travel industry related businesses went belly up. The powerful Lealea Enterprise Company turned pessimistic about the domestic economy, including domestic industries. It announced the closing of its Kaohsiung International Youth Hostel. Investment incentives declined across the board. The domestic housing market continued to fall. The risk of power shortages continued to rise. Private sector business leader Formosa Plastics Group announced a reduction in domestic investment. Over the next several years it would focus more on overseas investments, especially in the United States. The Apple supply chain is critical for exports. During the second half of this year, iPhone7 sales were disappointing. Orders will be cut by the end of the year. Bad news continues to roll in.
People are pessimistic about the economy. Only the ruling administration remains optimistic. One news report quoted Tsai government "chief aides and officials" who said that the past six months was merely a stage during which "obstacles would be cleared away, and a foundation laid for the future". Now, they said, several industrial projects are “in the pipeline”. By next year the economy will be better than this year. Therefore “the economic environment will be more beneficial to the ruling administration".
Frankly, the ruling administration has misjudged the situation and is being much too optimistic. They are equating rhetorical flourishes with economic achievements. Their “Five Plus Two Industrial Innovation Program” includes an Asian Silicon Valley, biotech medical treatment, green energy technology, and smart devices. They assure us that these are now in the pipeline, therefore the economic outlook is bright.
But what precisely is “in the pipeline”? If administration officials define the completion of planning and design, and Executive Yuan approval of them as being “in the pipeline”, then of course, they are “in the pipeline”. But the completion of an economic plan or industrial plan, the approval of the plan by the Executive Yuan, and the completion of administrative procedures, has nothing to do with the economy or industry. The real question is how much capital investment will these projects bring? What benefits do they offer? Do any watershed examples exist that one can point to? Eight years ago, when Liu Chao-hsuan was premier, he approved "Six New Industrial Projects". The plans long been "in the pipeline" forever. But what benefits and results have they yielded over the years? None. Therefore how can anyone claim that “It's in the pipeline, and the economy is looking up”?
Equating completion of paperwork with completion of a plan that leads to real world benefits, is wishful thinking. Leave aside the ridicule industry insiders have heaped upon these plans for the moment. Can these plans be implemented? Can they lead to real world benefits? Can they contribute to industry and the economy? That all depends on business investment. But given the concerns of the business community and their responses, it is clear that private investment will be quite limited.
The ruling administration has declared that "The economy is expected to be better next year than this year, and the economic environment will be more favorable to the government next year". Its blind optimism fails to understand business cycles and ignores business risks. According to statistics released by the Executive Yuan General Administration of Taxation, the estimated third quarter economic growth rate is 2.06%, higher than the 1.99% forecast in August. The estimated growth rate for the entire year is 1%. Three consecutive quarters of economic recession, plus two consecutive quarters of positive growth, have led to an economic bottom. But suppose the estimated growth rate of 1.88% is achievable next year? Suppose as suggested by the SDC, it reaches 2%? Is that really anything to cheer about? Whether it is 2% or 1.88%, both are low growth rates.
This means that Taiwan may be facing an L-shaped economic trend rather than a V-shaped economic trend. They economy may no longer be declining. But the recovery may remain weak, and maintain a low rate of growth. In fact, almost all major economies have experienced L-type recoveries in recent years. Japan has has remained at the bottm for many years. Europe is in the same situation. The United States has made a comparatively strong recovery. But following the financial tsunami, it too spent several years at the bottom before finally making a clear recovery. Even the Mainland has remained mired in L-type growth for three years.
Domestic economic risks are exceedingly high. Foreign economic risks are far from low. Mainland economic prospects are cautiously optimistic. Trump being elected President of the United States has led to uncertainty. So far, no one is sure what his presidency means. Trump's trade protectionism is obviously detrimental to Taiwan's economy, which relies on export trade. Our exports and export orders in September were positive. October was disappointing. Clearly the economy has yet to begin a smooth upward trend. Volatility and risk remain high.
External uncertainties have increased. Internal consumption and investment remain low. The ruling administration must not underestimate the risks. It must not be overly optimistic. It must not reduce investment because business prospects are dim. It must not turn a blind eye to TransAsia Airways early dissolution. It must remain pragmatic, and reform the laws and regulations. It must free up the economy, create a sound environment for investment. Only then can industry upgrade itself and the economy prosper. Wishful thinking, assuming that "If you plan it, they will come" is no answer. How would this government be any different from past governments that turned a blind eye to harsh economic reality?