Five ways to boost Taiwan’s economy in the face of China’s overtures and threats

While Taiwan was viewed as one of the four East Asian tigers which produced an “economic miracle” in the 1980s, its global competitiveness is now in decline – its rank is down from 14 in 2017 to 17 in 2018, according to the Swiss-based International Institute for Management Development (IMD) in May. 

Although some question the methodology of the competitiveness ranking, Taiwan’s decline is alarming. Taiwan now lags behind the People’s Republic of China, whose rank rose from 18 last year to 13 and whose rise poses a serious economic threat to the island republic.

Asian tigers economies leave Taiwan behind as electronics cycle ends

With China’s implementation of 31 measures to lure more Taiwanese students and businesspeople to study, work and live on the mainland, the danger of a “hollowing out” of Taiwan’s talent is real.

Furthermore, Taiwan’s universities have dropped drastically in the global rankings, compared to the universities in mainland China and Hong Kong.

Not all indicators are negative for Taiwan: its digital competitiveness rank has risen from 16 in 2016 to 12 in 2017, while China’s has risen from 35 to 31. Overall, Taiwan still has a competitive edge over China in terms of technological know-how and development. Judging from the strong semiconductor industry in Taiwan and its ongoing development of artificial intelligence, such as the efforts made by the Southern Taiwan Science Park, the island is doing well in technological advancement.

Watch: Taiwan keen to boost domestic defence industry

As with other East Asian states, Taiwan is facing an ageing population. The Taiwan National Development Council predicts that the island’s population will decline from 2021 onwards, peaking at 23.8 million before falling to between 17.3 million to 19.7 million by 2060. This could cause a decline in economic productivity.

Taiwan is also plagued by hyper-politicisation. The bitter political rivalries between the ruling Democratic Progressive Party (DPP) and the opposition Kuomintang (KMT) do not bode well for the future. Worse, the DPP has not been effective in winning more people’s hearts and minds.

It has decided to abandon supporting the non-affiliated Taipei mayor Ko Wen-je and toyed with contesting the mayoral position itself in the November election. The political animosity between the two political parties and the lack of political compromise have jeopardised the governance of Taiwan, affecting its competitiveness.

Public maladministration has not been tackled effectively, as was exposed by the Kaohsiung gas explosion in 2014 that killed 32 people. Although the KMT officials resigned after the gas explosion, confidence in public management has declined.

Watch: Multiple gas explosions in Taiwan’s Kaohsiung streets

Ironically, the strong Taiwanese identity has failed to find a solution to cope with the rapid rise of China. The Sunflower Movement was successful in delaying the implementation of the KMT-led Cross-Strait Service Trade Agreement in 2014, but reflected the absence of any public consensus on how Taiwan should tackle China’s ascent.

Taiwan should counter China’s initiatives to win over the Taiwanese people with more innovative engagement policies and new efforts to boost competitiveness.

Taipei, Beijing spar over Taiwan premier's independence remarks

First, Taiwan must internationalise its society, economy and education system. Only 7 per cent of the programmes in Taiwan’s universities are taught in English. English should be taught widely at both secondary and university levels and subsidies provided for university students to go to English-speaking countries for internships and exchange programmes.

More financial incentives should be used to attract top-notch academics from around the world to local universities. Pay and benefits for university professors as well as research funding should be increased.

Although more students from Hong Kong and Macau are going to Taiwan for university, they should be incentivised to stay on after graduation. The loss of Taiwanese talent to the mainland can be arrested by luring students from Hong Kong, Macau and even the mainland to Taiwan. If China has opened up its economy, society and education to Taiwanese people, there is no reason for Taiwan to close its doors to mainland Chinese students.

Is Beijing planning to take Taiwan back ... by force?

Why are so many Hongkongers moving to Taiwan?

Second, Taiwan must internationalise its economy. Tax incentives should be given to global multinational corporations to set up their headquarters in Taiwan. Deregulation is a must. The strong labour movement in Taiwan may deter foreign investors, but a balance will have to be struck between respect for labour rights and the need for more foreign investment.

Third, the modernisation and renewal of infrastructure should be accelerated. The international airport in Taipei, for example, must increase its capacity and crisis management ability. The flooding of the Taoyuan international airport in June 2016 sounded an alarm bell to airport authorities in Taiwan, which needs a first-class international airport to compete with those in the region.

As US confronts China on trade, Taiwan tensions quietly build

Fourth, liberalisation of the labour market and Taiwan’s policy towards mainland China must be considered seriously. To tackle the ageing population, Taiwan must welcome Southeast Asians and people from Hong Kong, Macau and China. Taiwan has been quite successful in attracting more tourists from Southeast Asia, but a further liberalisation of its immigration policy will be needed to tackle the problem of the ageing population.

Finally, depoliticisation is necessary. Democracy in Taiwan is flourishing, but is tarnished by public mismanagement and bitter partisan rivalries. Good governance or clean administration free from corruption will have to be entrenched. Partisan rivalries need to be minimised by using intermediaries to mediate disputes among political parties.

It is time for the people of Taiwan to think about how to ensure their island continues to thrive.

Sonny Lo is a professor of politics at HKU SPACE