Losing Ground

Economic News

22 Jul 2010
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After decades of enjoying a reputation as one of Asia's strongest economic forces, Taiwan has received warning signals that its competitive edge is under pressure.

On November 5 the European Chamber of Commerce in Taipei (ECCT) presented its position papers for 2007-2008. Looking to the upcoming legislative and presidential elections in 2008, the papers urge the coming government to tackle basic economic development issues that have not made sufficient progress under the various governments of the last decade.

The ECCT outlined 10 recommendations for the coming government to improve Taiwan's economic prospects and revive its prosperity. Their first priority was to improve economic relations with China, removing barriers to investment and imports. The ECCT believes this would provide a boost to the sectors of retail, tourism and real estate, while creating new jobs and generating revenues.

Other recommendations included deregulating the financial services sector, improving the tax system, opening up the public procurement market, upgrading infrastructure, accelerating the development of the service industry and stepping up intellectual property rights protection, as well as creating a sustainable healthcare environment.

The ECCT said that compared to neighbouring developed economies, such as Hong Kong and Singapore, Taiwan ranks lowest in terms of gross domestic product growth, gross national product per capita, number of initial public offerings, number of inbound tourists and overall consumer confidence. In addition, the country shows the weakest growth in exports of information and communications technology products and imposes the heaviest tax burdens.

The ECCT also announced the results of a recent joint study by the ECCT and financial advisors KPMG Taiwan on Taiwan's tax environment compared to those of its neighbours. The report found that Taiwan's tax policies are a disadvantage when it comes to attracting investment. Taiwan imposes higher tax burdens than competitors, and has unclear tax legislation. Personal income tax rises to a maximum of 40%, compared to 22% in Singapore and 19% in Hong Kong.

In September Taiwan ranked behind its regional competitors in the World Bank's Doing Business 2008 report, which surveyed 178 countries in terms of business regulations and the protection of property rights. While Singapore took first position for the second year in a row and Hong Kong took third position, Taiwan placed at 50th.

In the Global Competitiveness Report 2007-2008, released by the World Economic Forum (WEF) at the end of last month, Taiwan fell just one place from its previous position of 13 to this year's 14, though the country held eighth position in 2005. The report assesses the economic competitiveness of 131 countries, drawing on data from international sources and business surveys. In this year's report, Taiwan ranked behind all of its major rivals in the region, including Singapore, Japan and Hong Kong, while being overtaken by South Korea for the first time. The latter saw its position rise from 24th last year to 11th this year.

The most problematic factors for doing business in Taiwan, according to the WEF report, are insecure policies, inefficient government bureaucracy and government instability. Out of 12 categories, Taiwan had the most work to do in financial market sophistication, placing at 58th. Taiwan's lowest score came in the sub-category of soundness of banks, ranking 114th.

Ho Mei-yueh, the chairwoman of the Council for Economic Planning and Development, blamed Taiwan's overall low ranking on its score for financial market sophistication and expressed confidence in the government's ability to improve the management of the sector and to see a positive change in next year's WEF report. The council, which advises the legislative branch, has already made progress in finalising measures to strengthen controls over insider trading, improve the soundness of banks and create a legal framework for setting up financing companies.

In response to the ECCT papers, Ho stated that the Council for Economic Planning and Development would hold a roundtable meeting to address the concerns raised. At the same time, she urged the EU to sign a free-trade agreement with Taiwan and pointed to South Korea's free trade agreements with the US and EU as having been instrumental in boosting the country's competitiveness.

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