Neighbourhood Competition

Economic News

22 Jul 2010
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Taiwan's ranking has slipped slightly in the latest World Bank report on ease of doing business, dropping three places to 61st among global economies, though there is a good chance it will bounce back next year.

The World Bank's "Doing Business 2009" report ranks 181 world economies based on 10 indicators of business regulation, including the time and cost to meet government requirements in starting and operating a business, trading across borders, paying taxes and closing a business.

Taiwan came in ninth out of 24 countries in the East Asia and Pacific region, ranked just behind Vanuatu and before Samoa in overall ease of doing business. The East Asia and Pacific region is a competitive group, with Singapore being the World Bank's top ranked economy worldwide, Hong Kong coming in fourth and Thailand 13th.

In part, Taiwan's dip in the rankings can be attributed to the zeal that other countries, especially those in the region, have shown in opening up their economies.

"Countries in the region are clearly committed to reform agendas," said Dahlia Khalifa, a co-author of the report. "Regardless of their stage of economic development, they are recognizing the role that regulatory reform can play in staying competitive while boosting entrepreneurship and job creation," she said in a briefing that accompanied the report.

The report shows that Taiwan did not raise barriers against doing business in the past year, but that the East Asia and the Pacific grouping had the greatest momentum among regions in reforming business regulations, with 24 economies making a total of 26 reforms. In total, the 181 countries canvassed in the report instituted 226 reforms between them.

Taiwan introduced one major reform in the 12 month-period ending June 30, having amended its civil code to make secured lending more flexible. Since September 2007, parties to a mortgage or pledge agreement have been allowed to set the loan amount as a maximum line of credit.

By comparison, mainland China is a long way from matching Taiwan in terms of liberalised regulation of conducting business, even though it is climbing up the rankings, having jumped seven places in this year's report to 83rd overall. China was the leading reformer in the region, implementing changes to regulations that made it easier to obtain credit, pay taxes and enforce contracts. It also lowered its corporate income tax rate from 33.3% to 25%, and unified the criteria and accounting methods for tax deductions.

Importantly for a country that relies heavily on foreign trade to sustain its economy, Taiwan was ranked 30th in the world for ease of cross border trading. The country also scored well for the time it takes to complete the procedures to close a business (11th), the processes required to register a business (26th) and the protection of investors' rights (70th).

However, Taiwan was evaluated less favourably for the steps and time required to open a business (119th), construction permits (127th) and - at the lowest end of the scale - the difficulties that employers face in hiring and firing workers (159th).

While Taiwan's standing may have slipped in this year's report, it is likely that next year the country will make up for lost ground, or indeed climb further up in the rankings. Since coming to office in May, President Ma Ying-jeou - having campaigned on a platform of revitalising the economy - has been pushing a programme of reforms intended to reduce red tape and facilitate business activities.

These reforms have included allowing Taiwanese companies with more than 40% of their net assets in China to make public offerings in their home market and easing restrictions on Chinese institutional investors to invest in Taiwan.

These reforms did not fall within the timeline of the World Bank report's June 30 cut-off date. In a report issued by Moody's Investment Services on September 10 entitled "Taiwan: 2008 Credit Analysis", the ratings agency said Taiwanese financial reforms could reinvigorate the economy.

"If financial sector reform initiatives are complemented with closers relations with the mainland, it could raise productivity and result in faster service-sector growth," the report stated.

In a move seen as trying to speed up the pace of those reforms as well as respond to the current global downturn, on September 18 Ma announced the formation of a special panel to study financial and economic issues and to advise the cabinet.

Vice President Vincent Siew, who will head up the group, said many expect the effects of the economic crisis, especially in the US, to be felt for up to two years.

"If we can use this time to speed up reform and build our economy, when the global economy recovers, we'll have the biggest opportunities," he told local media.

According to Siew, the most urgent issue for the government is to increase investment and stimulate domestic consumption, while in the medium to long term the plan is to implement deregulation and reform policies intended to build a healthier economic system in order to enhance Taiwan's position in the international community.

Ma's administration has been criticised for not doing more in its first four months in office to boost and streamline the economy, culminating in street protests in late August prompted by rising inflation and the slowing of economic growth. If anything, the current international financial crisis could serve to give greater incentive to the government to act on its campaign promises.

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