2006-04-08

Taiwan and Korea: what has gone wrong with Taiwan?

The Legislative Yuan in Taiwan is notorious for meaningless word fight. Now KMT is accusing DPP government for the lackluster economic performance, citing Korea as its benchmark. DPP retorted that Taiwan is only behind by about $1000 per capita.

Here are the data for your reference and judgment.

GDP/capita (Korea)

  • * 2000: 10882
  • * 2001: 10178
  • * 2002: 11468
  • * 2003: 12689
  • * 2004(EIU): 14116
  • * 2005E(EIU): 16897
GDP/capita (Taiwan)
  • * 2000: 13852
  • * 2001: 12508
  • * 2002: 12539
  • * 2003: 12692
  • * 2004(EIU): 13548
  • * 2005E(EIU): 14857
There are some valid points given by the KMT clan this time, although there are many reasons behind the economic development of an area.
  1. Taiwan's GDP is behind Korea's by $2000 per capita in 2005 according to EIU; from $3000 ahead in 2000
  2. Growth between 2000 and 2005: Taiwan 1.4%; Korea 9.2%
  3. Note this comparison is in USD, so exchange rate may affect the results a lot. However, even if one look at the data at local currency, it is hard to say Taiwan has done well
The comparison between Taiwan and S Korea is often made. Because they are both Asian Dragons, of similar size, focus in technology related industries (hence affected by industrial cycles synchronously), both inherited the problem of the cold war (with a communist neighbor up north, though Taiwan fared better as mainland China's economy took off since the 1980s), etc. It is quite irresponsible to dismiss the miserable performance as "only $1000 behind" for these legislators, especially when the net difference is $5000/capita .

One can look at other indicators, such as stock market performance (which are denominated in local currencies) and reach similar conclusion:

Or, look at the GDP growth (Source: ADB forecast) for the rest of CSB's term.

To be fair, it is not just the DPP government that is guilty. KMT (under the Chiang's and Lee) did not leave their successor CSB a star government. But the newly elected democrats in S Korea has similar legacy and perhaps tougher problems to fix.

So what has gone wrong in Taiwan? Here is one of the main reasons: Korea does not hesitate to take the China opportunity and make every penny it could. Taiwanese government tries everything possible to do the opposite. See, for example

Categories:

7 comments:

wcb said...

I gather you are writing from Taiwan... I am not sure.

Why do you think Taiwan is compared to Korea and not Japan or some other country?

Any thoughts?

Sun Bin said...

hi wcb,

thanks for stopping by.

i have listed above some of the reasons that makes Korea parallel to Taiwan,
"The comparison between Taiwan and S Korea is often made. Because they are both Asian Dragons, of similar size, focus in technology related industries (hence affected by industrial cycles synchronously), both inherited the problem of the cold war (with a communist neighbor up north, though Taiwan fared better as mainland China's economy took off since the 1980s), etc."

Japan is still much more advanced in development (hence has smaller room to grow) than Taiwan/Korea/rest of Asia. Its GDP/cap is 50-100% higher depending on exchange rate.

These are good reasons, but you could also try to compare Taiwan with an economic body that has similar GDP/capita and industry structure.

Please also look at the last chart in my post. I did list the GDP growth prediction (forecast by Asia Development Bank) for 10 Asian areas, for comparison in other dimensions. Sadly Taiwan is the line at the bottom.

Anonymous said...

I am a Taiwanese, my family and I blame solely the DPP government for the mess up economy in Taiwan, the middle class is becoming smaller and smaller and suffering the most. Hopefully Ma will clean up the big mess left by the inept Abian regime.

Sun Bin said...

A related article on Asiatimes about Taiwan's investment ($42 official, and "up to" $120bn if including from tax heavens), commercial link, and repatriation of profit to Taiwan ($44bn, official).

FDI in China (offical) in 2004: Korea $6.73bn, Taiwan $3.18bn. commersurate with the respective GDPs. But tax heavens (BVI, Cayman, W Samoa) represent over $10bn, Taiwan probably has higher share than Korea in such "FI(Indirect)I".

Anonymous said...

to solely blame abian wont do it, I fear, and saying hooray we cancel all investment limits and put our money 100% into china wont do it either, Ma promises a lot, but that is the thing the opposition usually does, I am still waiting to see some solid long term proposals from Ma for the economic development, until that happens I am not convinced Ma wont change anything

Sun Bin said...

anon,

if you understand economic101 you would know that the lowest value of an 'option' can only be zero, and that many options have values more than zero.

being able to invest in anywhere one wants is an option, therefore there is value, and such value adds to taiwan's NPV.

p.s. please do not confuse the issue with your political spin, allowing one to invest in mainland does not equal investing 100% in the mainland. the business can choose not to do so even if it can. and when it negotiate terms with investing in, e.g. vietnam, it can bargain for better tax incentive if it can say there is another option.
CSB is basically helping the other SE Asian countries to negotiate against Taiwanese businesses.

Anya said...

Hey there. I came across this article after googling "comparing Taiwan to South Korea," and saw that we were pondering the same questions. Just wondering what is your take on this issue now that South Korea as surpassed Taiwan by so much even after Taiwan's supposed reforms of financial policies with China? Personally I don't know too much about the details of the politics involved, but I would love to hear your spin on it.

Also, how much/through what means do you know about the socio-economic situation in South Korea? Are you Taiwanese? This is simply out of personal curiosity.

What do you think the biggest problem Taiwan needs to solve right now in face of fierce competitors such as South Korea?