Essay on Economic: Investment and Taiwan

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Economic essay MQP Johnny

Taiwan is a country located in a small island in Asia, surrounded by China, Japan, South Korea. Due to the small size of internal market, most of our economic activities are linked with other countries. And because of this reason, Taiwan’s economic can be dramatically effected by national event. To describe Taiwan’s current economic situation, “A frog boiling in a warm water” can be the most suitable sentence. Even though there are some optimistic data such as 4% GDP growth and 4.51% of unemployment shows that Taiwan’s economic is climbing back since the 2007 world financial crisis happened. However, many big issues are behind these beautiful numbers, and normally Taiwanese do not realize it’s importance to our future economic.

Taiwan government’s debt overtake Italy government’s debt

These is a rapid rise of Taiwan’s debt, the government has a “hidden“debt black hole which refers to the public servant pension. According to data showed by Taiwan Bureau of Labour Insurance, if the government could not make a practical strategy toward this problem, Taiwan’s national pension will bankrupt in 10 years period. And how big is this black hole? Taiwan’s hidden debt 15.7 trillion Taiwan dollar plus nation debt 4.87 trillion Taiwan dollar is about 20.57 trillion Taiwan dollar, and this is about 138% of Taiwan’s one year GDP, compared with Italy which debt is about 121% of their one year GDP. This problem is as serious as some European countries which are already bankrupt. But the most horrible truth is nearly half of Taiwanese do not aware of it.

Moreover, Taiwan public servant welfare are better than Greece. The average earning replacement rate is about 90%, just slightly lower than Greece (93%). It shows that rather than filling the debt hole, the government is making it become even bigger.

There are two solutions usually taken to tackle debt problem. The First one is rubbing Peter to pay Paul and second one is reduce the rediscount rate rise space. Rubbing Peter to pay Paul is not a very surprising way of dealing with debt. However, if centre bank is forced to slash the rediscount rate, it will make a big impact to in banking and financial aspect. Low rediscount rate can lead to skeptical investment, which might cause bubble economic. In fact, the resource shows that Taiwan already showed some sign of bubble economic, from 2002 to 2012, the price of house in Taipei increased 176%, which is even higher than Madrid (150%).

Taiwan’s average income and living expenditure

Taiwan’s salary problem can refer to “ insufficient internal investment.” Because investment is not enough, the demand of human resources can not rise. And the situation that demand is lower than supply can finally lead to the diminishing of human resource value. A person’s value of working is salary, therefore what reflecting on salary is after calculating the inflation our salary is actually decreasing every year rather than increasing.

Why insufficient investment happened? It is not because of the insufficient human resources in Taiwan, but the cheaper price of China’s human resources. Moreover, using same language and the promotions China gives to foreign entrepreneurs are big benefits when Taiwan entrepreneurs want to move their business to China. Since 2010 Taiwan and China concluded and signed ECFA (Economic Cooperation Framework Agreement), the investment capital in Taiwan has been continuously throwing to China. According to Taiwan ministry of economic affair, in 2011, 131 hundred million USA dollars has exam and approved to invest in China, which nearly stands 80% of the total foreign investment. If Taiwan’s economic is largely depend on China, it will make Taiwan more easier to be effected by world economic circumstance. Also when China’s cheap products come into Taiwan, it will seriously attack the businesses which related with those product. In the same time, putting Taiwan’s
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