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Economic Daily News: Taiwan's stagnating private investment

2013/08/07 11:00:57

Official statistics released recently showed that Taiwan's economy grew 2.27 percent in the second quarter, 0.29 percentage points higher than the final forecast for the quarter made in May.

The government described the growth as "soft expansion," but a closer look into the data reveals that such a description is completely off base.

The country's economic growth was higher than expected mainly due to unexpected increases in consumption and net exports.

According to the Directorate General of Budget, Accounting and Statistics, the increase in consumption was driven by rises in stock transactions and mutual fund fees. This demonstrates that the consumption increase had nothing to do with real consumption.

The rise in net exports, meanwhile, was the result of slower growth in imports, due to slower demand for equipment. Consequently, capital formation contracted 3.03 percent in the second quarter, cutting 0.52 percentage points off overall economic growth.

More worrying still, over the past five years, there have been four years in which private-sector investment recorded negative growth, despite various efforts made by the government to promote investment.

This is probably because the government's industrial policy is heading in the wrong direction. Although investment in hardware and equipment will remain important, soft investments will be a crucial factor in defining the competitiveness of companies in the future. The United States has already included expenditures on research and development and copyrights as part of investment spending, and the European Union is planning to follow suit next year.

How about Taiwan? The pledge to upgrade soft power should not remain a mere slogan. (Editorial abstract -- Aug. 7, 2013)

(By Y.F. Low)
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