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Short and Long Run Challenges
to the Taiwan Economy
Short Run Themes
Long Run Themes
Action is Urgent
Policies Can Be Implemented Quickly
Impact of Policies Are Felt Soon
Relatively Easy to Coordinate
Public Can Be Mobilized
Highly Realistic and Practical
Action Not Quite So Urgent
Policies Can Be Implemented Slowly
Impact of Policies Are Felt Later
Relatively Difficult to Coordinate
Hard to Maintain Public's Motivation
Highly Philosophical and Abstract
One difficulty is that the long run is made
up of many short runs and therefore the
policies must be consistent and
compatible
Short Run Challenges
Long Run Challenges
Implementing Appropriate Fiscal &
Monetary Policies
Normalizing Interest Rates
Lowering the Risks of Business
Reducing Regulatory Barriers to Business
Expanding the Scope of TAITRA
Trade Diversification, Joining FTAs and
Enhancing Competition
Falling Fertility Rate
Political Relations with China
Rising Debt, Deficit and Dependency Ratios
Changes in the Structure of Industry
Education, Innovation, New & Quality Products, and
Governance
Wealth and Income Distributions
Incorporation of Robotics and High Tech into Production
One difficulty is that the long run is made up of many short runs and
therefore the policies must be consistent and compatible
These challenges cover most of the lists discussed in
2014-2016 by the Wall Street Journal, The Economist,
Channel NewsAsia, Bloomberg, The Brookings Institution,
Fortune Magazine and other think tanks and interested
media, scholars, etc.
However, most do not divide these into long and short
run by the nature of the goals sought and by the
constraints on their means used and results obtained.
The most important philosophical principle to maintain is that the government should be working to
create a positive business environment.
To produce this environment, government should be seeking to
Taxes and Government Spending
(1) lower taxes and make reporting and compliance easy and transparent
(2) produce public goods and services that can aid and support the expansion of
international trade and the diversification of markets (expand TAITRA and related organs)
(3) shrink the corporate business tax on all income reported in Taiwan, but maintain tax on
income reported abroad.
(4) lower asset transactions tax during periods when asset markets are stressed
and raise them during periods when there are apparent bubbles forming (Tobin Tax).
(5) reduce the size (budgets and employment) of the general administration of government
(6) provide less money for schools and more money (tax breaks) to support legitimate OJT including
capital expenditures
Regulatory Reform
(1) Institute a J1 visa program for foreign students who wish to remain in Taiwan upon
graduation so that they may work in expanding trade between Taiwan and their home countries.
(This in conjunction with the granting of more financial aid to foreign students who seek to
expand trade)
(2) Allow qualified foreigners a chance to establish businesses that can easily trade both exports
and imports between their home country and Taiwan.
(3) Speed and simplify the authorization of all products (especially pharmaceuticals and other
specialized goods) that can be sold in Taiwan on a reciprocal basis with foreign countries.
(4) Expand trade opportunities for ROC government authorized Chinese medicine
(5) Lower all environmental regulations on business except where there is a fully justified
reason to maintain strict controls on externalities. The bias should be upon less rules rather than
more rules. Each company should estimate the compliance costs of all environmental, safety, and
health regulations and these statistics should be submitted when taxes are reported and later
summarized and presented in aggregated form to the Legislative Yuan once a year for general
review of their impact. Currently there is no reliable estimate of regulatory costs to business.
Monetary Policy
(1) Normalize interest rates in a planned and transparent way so that
proper hedging can take place, with a stiff flexible transactions tax placed
on any speculation that may occur in tandem with the normalization.
(2) M2 growth should be consistent with a nominal GDP growth of 5-6%
minus the (low ended) predicted seasonally adjusted six month ahead
growth of monetary velocity, with little discretion above and below this
amount. The target should be made public as well. This will accommodate
well a 4% real growth and 1-2% inflation in the GDP deflator. The interest
rate should be allowed to adjust to this growth, with revisions in monetary
growth after six months.
Monetary Policy (continued)
(3) The exchange rate (price of the USD in terms of the NTD) should be left alone to find
equilibrium with possible imposition of transactions taxes if speculative attacks on the
NTD are attempted.
(4) TAITRA should be expanded to provide hedge advising and educational services to
smaller companies that may need to cost effectively reduce their risks in the presence
of fully flexible exchange rates.
(5) ECFA agreements proposed on financial services should be ratified implemented so
that cross strait branch banking and trade facilitating financing can take place more
easily.
(6) Repeal of Mortgage Rules was undertaken 3/24 and is once more a major
capitulation to construction companies and banks seeking to expand the housing
market, providing the wrong incentives for building and more mal-investment. The CBC
is completely involved in using its discretion to continue boosting this market.
Taiwan’s External Negative Factors to be Addressed—
(1) Mainland China slowdown and import substitution policies creating a Red Supply
Line
(2) Impact of Fed actions on demand, international financial markets, exchange rates,
etc.
(3) Possible debt fueled collapse in emerging markets due to Fed interest increases
(4) Possible continued collapse in commodity prices in emerging markets
(5) terrorism and refugee crisis in Euro Area
Some Recent Policies to Achieve the
Macro and Micro Goals
ide@ Taiwan 2020 -- Five Digital Policy Aspects
National Development Council
(1)
(2)
(3)
(4)
(5)
Infrastructural Environment – create better digital backbone
Transparent Governance – use backbone to hear public demands
Intelligent Lifestyle – cloud based learning museums, etc
Internet Economy – e-business, cross border transactions, finance
Smart Homeland – unite data across borders to help protect public
Consumption Boosting Policies
National Development Council
Four major aspects — energy and water conservation, digital lifestyle,
online purchases and domestic tourism
Several concrete measures —
(1) encompassing subsidies for purchasing energy- and water-saving
products,
(2) acquiring small-scale agricultural tools,
(3) upgrading fixed broadband and cable broadband service (2G) to (4G)
(4) upgrading mobile phones from 2G to 4G,
(5) conducting joint promotional activities for online shopping
(6) and promoting domestic travel and accommodation
Retaining Talented Foreign Students in Taiwan
Premier Jiang Yi-huah today approved an action plan to retain
outstanding foreign students at Taiwanese universities to work in the
ROC after graduation.
Starting July 1, 2014, the government will adopt a points- and quotabased mechanism—similar to those adopted by many other countries
around the world—to evaluate the work-permit applications of foreign
graduates of Taiwan’s tertiary education institutions.
HeadStart Taiwan Project
Background
In order to accelerate the development of innovation and entrepreneurship, the National Development Council (NDC)
initiated the HeadStart Taiwan Project aiming to consolidate the power of the private sector and international startup
community to create a positive and effective startup ecosystem in Taiwan, nurturing innovation and high added value
startups here.
Strategies
Deregulation, global fund attraction and cluster building are the three major strategies of the project to assist young
people in Taiwan in starting business and expanding into the international market. It also aims to make Taiwan a regional
innovation and entrepreneurship center, adding new momentum to the growth of the economy.
1. Deregulation: To align Taiwan’s regulatory environment with international standard.
2. Global Fund Attraction: To attract global venture capitals (VCs) for international connections and early-stage
investment.
3. Cluster Building: To build a physical cluster with co-working space and mentoring and professional services,
accommodating incubators, accelerators and various startups for global networking.
Industrial Development Bureau Policies
Very Recent Monetary Policies
by the Central Bank of China (CBC)
3/24/2016 The Board of the Central Bank of China decided unanimously on the following measures, effective
March 25, 2016:
1. The discount rate, the rate on accommodations with collateral, and the rate on accommodations without
collateral are cut by 12.5 basis points each to 1.5%, 1.875%, and 3.75%, respectively.
The global economy is still faced with downside risks. The domestic economy is likely to show some signs of
improvements but the pace of recovery remains sluggish. Moreover, interest rates across countries have
largely trended down following further monetary easing by most of major economies (Appendix 2), inducing
surges of capital inflows to the domestic market. To maintain financial stability while taking into
consideration subdued inflation expectations and a widened negative output gap, the Board judged that
reducing policy rates will help create a stable financial environment and in turn stimulate the
economy.
2. The Regulations Governing Home Mortgage Loans and Land Loans Extended by Financial Institutions are
amended (Appendix 3) to repeal most rules imposed on home mortgage loans and land loans, except
for high-value housing loans.
Environmental Policies – Intended to Raise the
Viability of Green Energy Industries in Taiwan
Taiwan recently enacted a greenhouse gas reduction and management act that ushered the
nation into the era of carbon reduction and underscored its commitment to shouldering its
share of the responsibility. The new law was ratified by the Legislature June 15 and promulgated
by the president July 1 to provide the government with legal basis for taking action against
climate change.
In addition to specifying adjustment mechanisms and carbon reduction goals for 2050, the act
calls for a gradual, phased process with control targets every five years. All measures—
including inventory and registration, inspection and management, efficiency
standards, and a cap-and-trade system—are aligned with current international
practice. Combined with economic incentives, these policy tools are expected to create green
jobs, raise Taiwan’s competitiveness, protect companies from the impact of international
trade barriers, and ensure the nation’s sustainable development.