Taiwan works to reclaim Asian Tigers’ top spot

Upon becoming the new chairwoman of Taiwan’s Council for Economic Planning and Development in May, Christina Liu, outlined the ambitious goal of reclaiming Taiwan’s former spot at the top of Asia's Four Little Tigers. In a speech, she stressed this is an achievable dream. And, according to predictions by the International Monetary Fund (IMF), Taiwan does stand a real chance of surpassing the other tigers with an economic growth rate of 6.5 percent this year, higher than that of South Korea, Singapore and Hong Kong.

South Korea outperforms Taiwan since 2004

According to an Economic Daily News report, Taiwan was the leader of the four Asian Tigers from 1980 to 1987, when Taiwan’s average annual economic growth rate and export growth rate ranged from 8.2 to 16.3 percent. However, from 2002 to 2009, Taiwan's economic performance was ranked at the bottom of the four. In 2009, Taiwan's per capita GDP was US$16,423, less than half of Singapore's US$37,293. Taiwan’s exports totaled US$2,037 million, only 56 percent of South Korea’s. Taiwan’s unemployment rate also compared unfavorably at 5.7 percent, two and a half times that of Singapore’s 2.3 percent.

Among the four Asian tigers, Taiwan and South Korea have similar industrial development patterns, both promoting the manufacturing sector, while Hong Kong and Singapore are city-state economies, with more service-oriented economies.

Before the Asian financial crisis in 1997, Taiwan surpassed South Korea in economic growth, industrial development, and living standards. However, since 1997, South Korea has outperformed Taiwan by building up super brand names like Samsung, LG and others. In 2000, South Korea’s per capita GDP was only 77 percent of Taiwan’s. The two were tied in 2004. But in 2007 the Koreans enjoyed a 26 percent higher GDP than the Taiwanese.

Other factors behind South Korea’s rise

The Commonwealth monthly reported that the relative exchange rate has contributed greatly to South Korea’s growth. In the past ten years, 80 percent of South Korea’s per capita income increase came from its exchange rate rise, while only 20 percent was the result of real economic growth. However, Taiwan's central bank has been more careful, fearing its small and medium sized enterprises could not afford similar fluctuations as experienced by the Korean Won.

Ten years ago, Taiwan’s total export volume was similar to that of South Korea. But in 2009, South Korea’s exports were 80 percent higher than Taiwan’s. South Korea also invested a higher percentage of its GDP in research and development, upgrading its brand names and increasing its exports around the world.

The Commonwealth pointed out that Taiwan's electronics exports in 2009 were 27.8 percent, higher than those of South Korea. But South Korea has diversified industries of shipbuilding, automobiles, semiconductors, wireless communications, machinery, LCD displays, steel, and petrochemicals. Its diversification strategy has lessened the country’s economic risk while maintaining a market expansion capability better than in Taiwan.

Taiwan hopes for ECFA boost

In an interview with the NOWNews network, Liu said that the signing of the Economic Cooperation Framework Agreement (ECFA) with China will give Taiwan an advantage of enjoying investment protection in China. In addition, Taiwan has reduced its business income tax to 17 percent, much lower than South Korea’s 22 percent, which will make Taiwan more attractive to international companies. This is Taiwan’s big advantage over South Korea. According to the Directorate-General of Budget, Accounting and Statistics, Taiwan’s economic growth rate for the first quarter of 2010 is forecasted to be 13.27 percent, marking the largest quarterly increase since the fourth quarter in 1978. In a recent revision, the annual growth forecast is predicted to be 6.14 percent. Liu said the ECFA will not only impact cross-strait relations, bilateral trade and tariff concessions, but will also strengthen Taiwan’s competitiveness against South Korea, especially since the investment protection agreement which Korea and China will not take effect for another two years. This is Taiwan’s advantage over South Korea, in addition to lower business income tax. According to Liu, another advantage is that the Taiwanese have a better understanding of China than the South Koreans. With all these advantages, Liu believes that international enterprises would likely align themselves with Taiwan rather than South Korea.

In the Taipei-based China Times, Huang Chih-peng, Taiwan’s director-general of the Foreign Trade Bureau under the Economics Ministry, noted that almost 20 percent of the early harvest list deals are with competitive industries from Taiwan, Japan and South Korea. With the agreement, Beijing has agreed to cut tariffs on 539 Taiwanese products entering China. This cut will likely translate into a US$13.84 billion advantage, said Huang.