The Taiwanese economy is not doing well : Really?

Before the previous elections – when I asked Taiwanese I know down at Tainan DPP land what they were going to vote, most of them were saying “The Taiwanese economy is doing so bad, we need to change to a KMT president”.  It is ? this usually made me wonder  “What’s so bad about the Taiwanese economy?”. This is where things became a bit more blurry.

In courses I’m taking in NCKU we are sometimes asked to pick our own implementation of the material taught in class. So in two of those courses I went on to try and compare East-Asian strong economies Japan, South Korea, HK, Singapore and Taiwan on various scales to see whether the claim that Taiwan is the worst performer of the Asian tigers and Japan holds true. It doesn’t, or rather – it’s not clear that it does. On some scales, Taiwan is actually the best performer, some problems were on a global scale which Taiwan recovered quite nicely, and so the main question remaining is what you believe and what stats you’d like to follow.

It was a few months ago during election time that I read two interesting articles with the Taipei Times that emphasize this problem. Here’s a bit from  “Taiwan’s economy is not bad off”  which is a good summary of some of the figures I presented in class:

[…] It has been 11 years since the implementation of the "no haste, be patient" policy in 1997. Singapore’s real GDP growth rate during that period averaged 5.6 percent a year, South Korea’s 4.4 percent and Taiwan’s 4.5 percent. Apparently Singapore’s was the strongest — but only on the surface.

During the same period, Singapore’s population grew by 2.01 percent annually, while Taiwan’s and South Korea’s only increased by 0.55 percent and 0.61 percent respectively. If the population growth rate is deducted from real GDP growth rate, then the real GDP growth rate per capita becomes 3.96 percent for Taiwan, ahead of 3.83 percent for South Korea and 3.55 percent for Singapore.

In the eight years of DPP rule, South Korea’s real GDP per capita grew by 4.6 percent, ahead of Singapore’s at 4.01 percent and Taiwan’s at 3.65 percent. Looking at the DPP’s second four-year term, Taiwan’s real GDP per capita growth rate rose to 4.9 percent. Though this is slightly lower than Singapore’s 5.28 percent, it is ahead of South Korea at 4.38 percent. It is difficult to observe any systemic evidence that Taiwan has lagged behind its two rivals.

As for Singapore, its economic growth potential is between 4 percent and 6 percent, data from its trade and industry department shows, equivalent to Taiwan’s 5 percent. However, Singapore’s distribution of income has worsened considerably: its Gini coefficient, an indicator of distribution of wealth between 0 and 1, where higher numbers indicate greater disparity, outstripped the US in 2006 and reached 0.485 last year.

As for South Korea, its terms of trade has worsened in successive years, causing real income to be grossly overestimated based on GDP. […]

The latest statistics from the Central Bank of South Korea show the terms of trade index for the country continued to deteriorate last year, dropping 4.1 percent below the previous year and dipping to its lowest point since 1988. The reason is that import prices are rising whereas South Korean semiconductor and electronics export prices continue to decline.

On Feb. 18, Chosun Iibo advised the South Korean government to prioritize the problem: in the fourth quarter last year, South Korea’s real GDP expanded by 5.5 percent compared to the previous year, but real GDI — real income — was only 2.4 percent, after deducting losses from terms of trade.

Confusing, isn’t it?  OK, here’s from “Some economic truths for the KMT” regarding the GDP variable :

[…] Ministry of Economic Affairs statistics show that while GDP growth in 2000 was 5.77 percent, it dropped to 2.77 in 2001 and, with the exception of 6.07 percent growth in 2004, never managed to surpass the 5 percent mark since. Nevertheless, GDP growth in Taiwan since 2000 outperformed most of the major economies and only lagged behind a handful of growing markets in Asia, such as China, Singapore, South Korea and India.

Those attacks and their subsequent impact on the world economy are often overlooked by the DPP’s critics, which exposes their failure to see Taiwan as part of the global trade system. The more an economy was tied to the US for its success, the more it suffered from the impact of Sept. 11. Trade data since 2001 shows us how connected world economies were to the US. In most instances, the more a country depended on the US for its growth, the weaker its growth was following the attacks.

I believe that economies are trend based. In stable economies of developed countries – if people believe the economy’s good, it will help the economy perform better, as newspapers write positive things, investors comes in, cash flows, infrastructure is built and so on and on, and naturally there’s exactly the opposite result when the trend turns to saying things are bad. Raw data shows that Taiwan, facing an almost impossible political situation, is actually doing pretty well. There’s a reason for the Taiwanese to take pride in their economy. What would happen with the new president, then? I hope the Taiwanese chose well, and that the Taiwanese economy will grow even stronger. Time will tell.

(BTW – It was fascinating to see that all criticism on the issue of Taiwanese economy was targeting the DPP president rather than the KMT controlled legislative Yuan.)