Independent, objective Asian economic observers agreed that Taiwan's recovery was slightly faster than that of the region's other developing countries. Minister of Economic Affairs Sun Yun-suan predicted that the industrial production of this fall will match that of 1974, indicating that the bottoming-out process took place last winter and spring. He urged businessmen and industrialists to seize the opportunity to seek new and larger markets.
The Economic Planning Council pointed to an industrial upturn of 4 per cent in April. EPC's revised economic plan for 1975 posited real growth of 3.3 per cent in the gross national product this year. The planners predicted a GNP of US$15,97l million with these breakdowns in growth rates:
- Agriculture, 3.4 per cent.
- Industry, 2.7 per cent with 1.2 per cent for mining, 1.7 per cent for
manufacturing, 10.1 per cent for construction and 4.5 per cent for public
utilities.
- Transportation and communications, 3 per cent.
- Services, 4.1 per cent.
Miss Kuo Wang-jung, the vice chairman of the EPC, said Taiwan will show a faster rate of recovery than other Asian countries. This is a reflection of price stability and the competitive clout of export industries. According to Minister Sun, leading export industries have orders sufficient to last until late summer and in some cases into the autumn. Production levels of most industries were at 80 per cent or higher in June. Setting the pace for recovery were textiles, electrical machinery apparatus, machinery, metals and plastic foot wear.
The April index of industrial production was 1.6 per cent above the March figure. Gains included 5.9 per cent for construction, 1.5 per cent for mining, 1.3 per cent for manufacturing and 1.8 per cent for public utilities. Of major industrial products, only two declined and one remained unchanged in April. All the others were up. Transistor radio output was 495,000 for a decline of 1 per cent and pulp and paper stood at 52,000 metric tons, off by 3.7 per cent. Plastic powder was unchanged at 10,000 metric tons.
These were the gainers and the amount of the increase:
- Automobile tires, 60,000, 5.3 per cent.
- Plastic shoes, 16 million pairs, 6.7 per cent.
- Aluminum ingots, 2,500 metric tons, 1.5 per cent.
- Sewing machines, 140,000,22.6 per cent.
- Machinery, 21,000 metric tons, 5 per cent.
- Farm machines, 440, 3 per cent.
- Air conditioners, 6,500, 52.8 per cent.
- Refrigerators, 41,000,17.1 per cent.
- Washing machines, 20,000, 5.2 per cent.
- Color TV sets, 32,000, 6.7 per cent.
- Black and white TV sets, 185,000, 4.5 per cent.
- Electrical machinery apparatus components with value of US$15 million, 4.2
per cent.
- Automobiles, 2,300, 9.5 per cent.
- Motorcycles, 25,000, 8.7 per cent.
- Bicycles, 66,000, 17.9 per cent.
- Shipping, 33,000 tons, 6.5 per cent.
- Fluorescent lamps, 1,700,000,8.3 per cent.
- Rods, bars and shapes, 80,000 metric tons, 1.3 per cent.
Especially gratifying was the early recovery of textiles, which is led by knitted and embroidered products and garments. As of mid-year, sweater orders began to pick up. Mills called back workers and geared up for around-the-clock production to fill orders resulting from the depleted inventories of purchasing countries.
Coming back with a surge was electrical machinery apparatus, the glamour industry of the foreign investor. Ten years ago the electrical industry consisted of some fan factories and radio makers. Today there are about 650 factories with investment of more than US$300 million.
Employment is provided for some 165,000 workers and there are more than a hundred products.
Despite the recession, last year was the best ever for electrical machinery apparatus and components. Output of color TV sets a new line for Taiwan was down 24 per cent to 212,415 units (290,935 in 1973), but black and white sets were up 6 per cent from the 3,633,927 of 1973 to 3,849,167. Transistor radios managed to keep ahead of sagging sales with a 1.6 per cent increase to nearly 15 million sets. Electronic calculators gained by 140 per cent, climbing from 215,986 to 441,924. Phonographs and tape recorders were down.
Twenty-four companies are making television sets in Taiwan. Fourteen are Chinese-owned, 4 are joint operations and six are foreign investments. Nearly 90 per cent of the production comes from the big foreign factories and joint operations. Further foreign investment is expected in both American and Japanese companies. The Clinton Taiwan Corporation, which makes black and white TV tubes for sale all over the world, is contemplating expansion to make picture tubes for color sets.
Foreign and overseas Chinese investment peak ed in 1973 at nearly US$249 million and fell to US$189 million last year. But the 1974 figure was considered highly satisfactory in view of the recession's severity. So was the US$32.3 million chalked up in the first five months of 1975. Seventeen investments capitalized at US$27.3 million were made by foreigners and 16 worth US$5 million by overseas Chinese in the 1975 period. Four investments from the United States totaled nearly US$11 million and 10 from Japan added up to US$11.6 million.
Hu Tsu-wan, the economic counselor of the Chinese Embassy in Washington, said Americans were still expressing interest in Taiwan investment. He predicted a sharp upturn of applications for new Taiwan plants and the expansion of old ones as the U.S. economy recovers. Increasing investment interest has been expressed by West German industrialists. Foreign investors remained strongly of the view that Taiwan has one of Asia's most favorable industrial environments. The price of intelligent, loyal labor is reasonable. Government is friendly and helpful.
Recession brought a trade deficit of more than US$1,300 million last year, a record and the first red ink since 1970. May produced the good news of a return to favorable balances. With a volume of US$826 million for the month, exports exceeded imports by US$18 million. The deficit was US$ 263.3 million for the first five months of 1975. Imports were US$2,250 million, a decrease of 16 per cent, and exports US$1,987 million, down by 15.4 per cent. The bete noir of trade continued to be Japan, which showed a favorable balance of more than US$100 monthly for the first five months of this year. This was down slightly from last year, when the Japanese deficit exceeded the Taiwan total. If Japanese trade had been balanced in 1974, the Republic of China would have been in the black. U.S. trade has been favorable to Taiwan - by nearly US$360 million in 1974 and just under US$725 million in 1973. For the January/May period of 1975, the United States had a favorable balance of US$39 million. Purchase of farm products from America continued to run at a high level. But the United States was not buying Taiwan textiles, electrical machinery apparatus and plywood in the volumes of the past.
Trade gains continued into June. The first week of that month showed a favorable balance of US$8.3 million. Industrial production indexes also were rising: more than 58 per cent for PVC, 13.8 per cent for auto tires, 27.3 per cent for natural gas, 3.8 per cent for refined petroleum, 3.6 per cent for electric power and 3 per cent for textile yarn.
Economic counselors and trade representatives stationed all over the world met at Taipei in late May to determine how they could pro mote Taiwan exports and attract foreign and overseas Chinese investment. More than 40 measures were discussed and adopted. The government will encourage the collection and prompt reporting of market conditions in all countries with which Taiwan trades. Representatives have been called upon to relay adverse criticisms.
Individual manufacturers and exporters were reporting good news and taking an optimistic view of the second half of 1975. These were examples:
- Plastic shoes. There were predictions of a US$200 million year and an
increase over 1974. Volume from the 270 manufacturers was US$70 million
in the first five months of 1975.
- Steel products. Volume was more, than 100, 000 metric tons in the first six
months of this year. The 1975 goal of 380,000 metric tons could be reached if
free world economies recover sufficiently in the remainder of the year. New
markets have been opened in Indonesia, the Middle East, Africa and Latin
America.
- Agricultural products. Gains of approximately 100 per cent for sugar (earnings
are expected to be up 421 per cent this year), 45 per cent for canned
mushrooms, 23 per cent for canned asparagus and 100 per cent for eels were
recorded in the first four months of 1975. Exports of processed agricultural
products were up 29 per cent in that period.
- Machinery. Improved quality and new markets are expected to result in orders
of US$200 million during 1975.
- Hand tools. Earnings of US$20 million are predicted this year, an increase of
four times. Japan and Southeast Asian countries are big buyers.
- Decorative lights. Twenty-four factories re opened the last week in May.
Taiwan is the world's biggest exporter.
- Textiles. Applications for export permits tripled in the last week of May. More
than half of European quotas and a third of U.S. quotas had been used as of
that time.
- Bicycles. More than 550,000 units will be exported this year for earnings in
excess of US$10 million.
- Plywood. Resumption of construction in the United States had raised the
production level to 60 per cent by the end of May. Orders in hand were
sufficient to last through September.
Imports afforded no special problems. The government continued working toward decontrol but discouraged luxury imports from Japan be cause of the trade imbalance with that country. The only serious shortage was of cement. The construction boom had again overtaken Taiwan productive capacity and the price was rising. The government rushed import of 60,000 metric tons in May and June. Buildings of less than six stories may no longer be built in Taipei high rise areas and along principal streets.
The Board of Foreign Trade urged plastics and synthetic fiber manufacturers to stockpile raw materials while prices are low. BOFT predicted price increases in the latter months of this year. Other raw materials expected to become more costly are scrap iron, pulp and scrap paper.
Led by the Central Bank of China, the banking system stood ready to serve the financial needs of a recovering economy. Bank interest rates have been steadily reduced since the latter part of 1974. Yu Kuo-hua, governor of the Central Bank, said another cut is in sight for this year and that the government will continue to relax the tight money policy to serve the needs of expansion and provide assistance to hard-pressed companies.
Three banking institutions are preparing to establish companies dealing in short-term credit bills, treasury bills, negotiable certificates of de posit and banker's acceptances. Not to exceed 25 per cent of company capital will come from the participating banks. Another 20 per cent may be supplied by foreign banks, Leading businessmen will be invited to invest. Each company will have capital of at least US$5 million. This step is one of several being taken to establish a money market in Taiwan. Premier Chiang Ching-kuo has emphasized the importance of easier and more flexible credit for business and industry.
The Central Bank will provide US$1,122 million in loans to local banks and industries in the 1976 fiscal year which started July 1. This is an increase of US$405 million over the last fiscal year. CBC will supply US$263 million to local banks for import letters of credit, US$205 million for long-term and medium-term loans, US$148.4 million for temporary accommodations, US$84.2 million for export loan discounts and US$18.4 million for rediscounts. The bank expects deposits of US$2,224 million in the fiscal year, a gain of US$440.5 million compared with fiscal 1975.
The United World Chinese Commercial Bank opened its doors in Taipei. Capital of US$12 million was contributed by overseas Chinese of 17 countries and 17 local banks. The bank is offering a full line of services with accent on overseas Chinese investment and trade between Taiwan and countries of overseas Chinese residence.
The Taipei stock market gave it own attestation of economic recovery with a sharp rise from the low of last December. At that time the index stood at 202. Despite some profit taking in early June, the index stood at 390.38 on June 17. In May, most issues were rising by the daily maximum of 5 per cent in the first few minutes of the session. Textiles, plastics and glass did especially well. In 1973, the market index stood at a high of about 500. Turnover of the 57 listed stocks was averaging close to US$20 million daily in May and June, the highest since the boom period of 1973.
Government economic philosophy is based on confidence that Taiwan must help itself in order to prosper. This is reflected in the Ten Basic Construction Projects, all of which are well under way and making scheduled progress despite inflated costs. These projects include two new international harbors, construction of a new airport to serve Taipei, electrification of the mainline railroad and construction of a new rail link to join the east coast and west coast systems, building of a North-South Freeway from Keelung on the northeastern tip to Kaohsiung in the southwest, development of nuclear power, and construction of a shipyard, steel mill and petrochemical industry.
Funds for the 1975-76 stage of Ten Projects construction are included in the fiscal 1976 budget, which is balanced at US$2,303 million, an increase of 14.8 per cent over the fiscal 1975 budget. On the expenditure side, the budget breaks down into these percentages: national defense and foreign affairs, 44; general administration, 5.4; education, 6.2; economic construction and transportation, 21; social welfare, 13; debt service, 3.4; subsidies to Taiwan Province and Taipei City,5; others, 1.9. Revenues will come from: taxes and monopoly sales, 73.5 per cent; government enterprise profits, 10.2; receipts from public establishments and fines, 2.7; sale of public properties, 0.9; bonds, 4; balance of current account, 5.6; and others, 3.1. A new law permits the government to issue bonds in an amount of up to 25 per cent of the annual budget. However, the government plans to finance a high percentage of the reconstruction projects from current income.
One possible source of additional funds could come from discovery of oil in the Taiwan area. Government is stepping up exploration through the state-owned Chinese Petroleum Corporation, which is cooperating with six American companies. Nine offshore wells had been drilled as of the end of April and one was producing oil and gas. Additional wells are being drilled to determine the size of petroleum and gas deposits under the Taiwan Straits southwest of Kaohsiung. Nineteen wells have been drilled on land in the last year. Five of these are yielding 900,000 cubic meters of natural gas and 57 kiloliters of crude oil daily. CPC produced 210,000 kiloliters of crude oil in 1974, a gain of 25.2 per cent over 1973. Natural gas output was 1,580 million cubic meters in the same period, an increase of 5.4 per cent. Despite the higher price of oil and subsidies to consumers, CPC registered a profit of US$68 million in 1974, sufficient to pay for some of the prospecting.
The recession and energy conservation efforts cut Taiwan's consumption of refined petroleum by 12 per cent in 1974. Energy requirements of 1975 were expected to bring an upturn in refining and consumption. Refining capacity is now 15 million tons annually but will reach 25 million tons by the end of 1976 with new plants at Talin in the south and Toufen in the north. Each will have capacity of a million tons.
An oil strike would assure the burgeoning of petrochemicals, which are now held back by the rising price of petroleum as a raw material. Several contemplated upstream plants have been deferred until the oil price situation is clarified. Even if oil is not found in commercially important qualities, natural gas could serve as both raw material and fuel. There is hope that the Taiwan Straits deposits already located will be sufficiently large to make the high cost of exploitation worthwhile.
Any economy is made up of people as well as machines, materials and products. The people of Taiwan are acknowledged to be among the best workers in Asia. They have profited by their hard work, too, although the standard of living is still well below that of Japan. According to the Central Bank, growth in per capita income has ranged from 4 to 10 per cent annually for the last 10 years. The figure for 1974 was just under US$700, compared with only US$178 in 1964.
Huge cranes are required to install a 400-ton reactor at Taiwan's first nuclear power plant. (File photo)
What the prospering economy has meant to the average household was indicated in a report of the Provincial Department of Accounts and Statistics. Average income per Taiwan household was NT$94,191 (NT$38=US$1) last year, an in crease of 38.2 per cent over 1973. The average family expenditure was NT$76,026, up 37.42 per cent from 1973. Computed on a basis of 1971, there was a drop of 4.74 per cent from 1973, but this was considered satisfactory in a recession period.
Wages and salaries made up 60.19 per cent of household income, followed by income from mixed sources at 27.44 per cent, that from real estate at 8.91 per cent and others 3.46 per cent. Manufacturing was the leading source of income at 19.85 per cent. Then came agriculture, 17.94 per cent; commerce, 11.73 per cent; transportation and warehousing, 7.42 per cent; and others (including mining, power, banking and services), 43.06 per cent.
Management personnel were the best paid with family income of NT$185,097, followed by specialists and technicians at NT$123,731.
Expenditures for the 4,500 families surveyed were led by food at 48.08 per cent. Then came housing and water, 13.29 per cent; fuel and light, 4.55 per cent; entertainment and recreation, 5.76 per cent; medical care, 4.16 per cent; transportation and communications, 3.94 per cent; clothing, 5.84 per cent; furniture and household supplies, 2.12 per cent; tobacco, 3.1 per cent; beverages, 1.3 per cent; household management, 1.44 per cent; and miscellaneous, 6.42 per cent. gas stoves. Washing machines were up 142 per cent, color TV sets 198 per cent and black and white TV receivers 109 per cent.
Yet with this high standard of living second to Japan in the Asian region - the Chinese of Taiwan were patient. They didn't expect to get rich overnight, they were willing to work for what they had, and they eschewed social violence in attaining their ends. Employers and the government reciprocated. Every effort was mad~ to keep the recession employment rate at the lowest possible level, and this meant under 5 per cent or about half of the U.S. level. Work was shared. Factories kept operating on curtailed production schedules.
Wages rose about one third in the five months that followed the Economic Stabilization Program ordered by the government at the end of January, 1974. Thereafter the increase was only about 1 per cent monthly. The average monthly wage in manufacturing rose from NT$1,225 in 1968 to NT$2,964 in 1974. As of January, 1975, workers in mines and quarries had the second highest average wage - NT$5,250 - because of the risks involved. Only public utility workers made more at NT$5,429. Transportation, storage and communications employees were paid an average of NT$4,972, followed by those in construction at NT$4,265 and manufacturing at NT$4,195. Services brought up the rear at NT$3,275, down from 1974 largely as a result of the decline in tourism, the entertainment curfew and much higher taxes on night clubs, dance halls and the like.
Workers are not dissatisfied. They understand the difficulties of employers and the government. Then, too, Taiwan depends heavily on the family system. Those with more take care of those with less. Girls who lost their jobs in factories temporarily went to their homes which often were in the countryside. This is one of the reasons the minimum wage has remained at NT$600 a month since 1967. Almost no one works for that amount. The government considered raising the amount to NT$900 and held off for psychological reasons. A raise could trigger wage demands and encourage inflation. Since everyone makes more than the minimum, there is no point in rocking the boat in a time of economic difficulties. Government employees did not get a wage increase this year but had their fringe benefits increased. They can now buy essential goods at from 10 to 30 per cent less than usual retail prices. They also receive housing, edible oil, rice and educational allowances and a transportation subsidy.
Even at the bottom of the recession, Taiwan showed great confidence in resurgence of the economy. There have never been any prognostications of despair. As times get better, the economic horizon expands. One Taipei newspaper put it this way at mid-year:
"Economic officials are having a field day upgrading estimates of this year's growth in the gross national product. They started out hoping to break even. The GNP estimate then went to 2.7 per cent and now stands at 3.3. If recovery continues, we could wind up in the 5 to 6 per cent range. But let's not count on it: the economic gods night be watching.
"Construction has been growing at 10 per cent since the high-rise ban was terminated. But there is the catch of not enough cement and high prices. American builders are hoist on the same petard. How long can you go on building new houses if you can't sell the old ones?
"Textiles, our biggest export industry, has orders enough to last through July. Some mills will be okay into October. This is renewed testimonial to the wisdom of filling your own economic niche and not overextending yourself. Heavy industry is all very well. But it is the first to falter and the last to recover.
"The U.S. economy is picking up, too, but unemployment will probably remain at 8 to 9 per cent well into next year because of the automobile industry's doldrums. When pants wear out, you have to buy new ones. The old car can be made to last another year or you can take buses for a while. Then, too, our textile production is not overly sophisticated. For now and some years to come our stock in trade will be children's wear, underwear and other low-priced garments.
"Maybe the day will come when a lower wage country will push us out of this market. That will be a long time from now, however, provided we stay modern and don't get delusions of grandeur. If you make a better mousetrap and sell it at a reasonable price, the world will beat a path to your door. The same is not always true for a steamship.
"Economic success too often gives a country the idea that it can make everything for itself. This attitude still prevails in Japan. Self-sufficiency is only partly attainable. Each country must do its own thing, and well. Ours is textiles and other light and medium industrial products. We are already competing successfully with Japan in the electrical apparatus industry and will do better as time goes on.
"Textiles will soon be a US$2,000 million export earner. Even quotas cannot stop us, largely because of the mousetrap effect. Waiting in Africa and other developing lands are huge markets which have barely been tapped. The same is true of electrical apparatus, which may one day overtake textiles. Hundreds of millions of people are waiting for their first transistor radio. Then it will be their first recorder, their first TV set and so on.
"Audiovisual apparatus is on the edge of a great breakthrough to taped programming. Countries that manufacture the players (which operate through an ordinary TV set) and turn out the tapes will be assured of a bonanza. Our movie and TV industries will have opportunity to make Chinese language tapes for the world. When the mainland market is opened up, we shall be ready with a thousand and one products that our own people want and need."
Taiwan's economic successes are all the more remarkable in the face of political difficulties faced by the Republic of China. President Marcos of the Philippines went to Peiping and recognized the Chinese Communists. The Thai government is expected to do likewise. Its hopes high, the Peiping regime told visiting American editors that it would sweep up Taiwan "like a spot of dirt." To paraphrase Winston Churchill's remarks after French defeatists had said Britain would have its neck wrung like a chicken: Some spot! Some dirt!At their Canton trade fair this spring, the Chinese Communists found business dull. Their products sold poorly even at reduced prices. This year, for the third time in four years, the foreign trade of Taiwan is expected to exceed that of the whole Chinese mainland. Free Chinese of Taiwan, 16 million strong on an island of 14,000 square miles, are out trading enslaved Chinese, 800 million strong (some reports now say 900 million) on a subcontinent of 3.7 million square miles.
The difference is not hard to find. People work harder when they are free. They are prepared to sacrifice more. And they act with intelligence. Workers of Taiwan are anti-Communist with more than ideologically motivation. To make their choice of freedom, they need look no farther than the current Communist attempt to remove all incentives and wage differentials. People of free China know where and when they are well off. Production as well as politics is best served by liberty.