2010Vol.40No.12 by AmCham Taipei

THE AMERIC AN CHAMBER OF COMMERCE IN TAIPEI

Inside 2011 Business Climate Survey

December 2010

Vo l u m e 4 0 N u m b e r 1 2

w w w. a m c h a m . c o m . t w

Taiwan’s Economy:

TAIWAN BUSINESS TOPICS

Back in the Race 台灣經濟重上軌道

December 2010 • VOLUME 40 NUMBER 12 中華郵政北台字第號執照登記為雜誌交寄 5000 12_2010_Cover.indd 1

NT$150 COVER SPONSOR

2010/12/28 2:49:35 PM

CONTENTS

NEWS AND VIEWS

6 Editorial

12 Issues

What the Survey Tells Us DECEmbEr 2010

VOlum E 40, NumbEr 12

九十九年十二月號

Publisher

Andrea Wu

發行人

吳王小珍

Editor-in-Chief

總編輯

Don Shapiro Art Director/

Mid-point Review of White Paper Issues

商業景氣調查的意義

8 Taiwan briefs

COVEr SECTION

沙蕩

17 Taiwan’s Economy: back in the race

美術主任 /

Production Coordinator

Katia Chen Staff Writer

Jane Rickards

後製統籌

陳國梅採訪編輯

李可珍

Manager, Publications Sales & Marketing 廣告行銷經理

Irene Tsao

曹玉佳

Translation

Zep Hu

《台灣白皮書》期中檢討

By Jane Rickards

翻譯

胡立宗

American Chamber of Commerce in Taipei 129 MinSheng East Road, Section 3, 7F, Suite 706, Taipei 10596, Taiwan P.O. Box 17-277, Taipei, 10419 Taiwan Tel: 2718-8226 Fax: 2718-8182 e-mail: amcham@amcham.com.tw website: http://www.amcham.com.tw 名稱：台北市美國商會工商雜誌發行所：台北市美國商會臺北市10596民生東路三段129號七樓706室電話：2718-8226 傳真：2718-8182 TOPICS is a publication of the American Chamber of Commerce in

台灣經濟重上軌道 After a dismal 2009, Taiwan bounced back vigorously this year to achieve what might even become its first double-digit GDP growth since 1989. Inevitably, the pace will need to slow next year, but most economists still expect healthy 2011 growth in the 4-5% range. Over the next several years, Taiwan is likely to do well in comparison with its fellow Asian Tigers. Although export growth may be modest, domestic consumption is seen as becoming a much more important contributor than it has in the past. Helping to boost that consumption is the increase in tourism, especially from the other side of the Strait. By Jane Rickards 撰文／李可珍

21 The Gain So Far is mainly in Tourism and Direct Flights 26 Interview: A Chat with CEPD minister Christina liu

Taipei, ROC. Contents are independent of and do not necessarily reflect the views of the Officers, Board of Governors, Supervisors or members. © Copyright 2010 by the American Chamber of Commerce in Taipei, ROC. All rights reserved. Permission to reprint original material must be requested in writing from AmCham. Production done in-house, Printing by Farn Mei Printing Co., Ltd. 登記字號：台誌第一零九六九號印刷所：帆美印刷股份有限公司經銷商：台灣英文雜誌社台北市105敦化北路222巷19之1號1樓發行日期：中華民國九十九年十二月中華郵政北台字第5000號執照登記為雜誌交寄 ISSN 1818-1961

OFFICERS: Chairman/ Alan Eusden Vice Chairmen/ William E. Bryson / George Chao Treasurer: Carl Wegner Secretary/ Stephen Y. Tan 2009-2010 Governors: William E. Bryson, George Chao, Cindy Shueh Lin, Neal Stovicek, Gordon Stewart, Carl Wegner, Alexander Duncan. 2010-2011 Governors: Alan Eusden, Revital Golan, Douglas R. Klein, David Pacey, Wei-Li Shao, Stephen Y. Tan, Lee Wood. 2010 Supervisors: Steven Lee, Dana McCarty, Charles H. McElroy, Bill Wiseman, Derek Yung. COMMITTEES: Agro-Chemical/ Mong Yang Tan; Asset Management/ Christine Jih, Derek Yung; Banking/ Carl Chien; Capital Markets/ William Bryson, Jane Hwang, Jimin Kao; Chemical Manufacturers/ David Price; CSR/ Lume Liao, Fupei Wang; Education & Training/ Robert Lin, William Zyzo; Greater China Business/ Helen Chou, Stephen Tan; Human Resources/ Richard Lin, Seraphim Mar; Infrastructure/ L.C. Chen, Paul Lee; Insurance/ Mark O’Dell, Dan Ting, Lee Wood; Intellectual Property & Licensing/ Jason Chen, Jeffrey Harris, Douglas Weinstein; Manufacturing/ George Chao, Albert Li; Marketing & Distribution/ Christopher Fay, Wei Hsiang, Gordon Stewart; Medical Devices/ Daniel Yu; Pharmaceutical/ David Lin, Jaime Robledo Cadavid, Wei-Li Shao; Real Estate/ Peter Crowhurst, Kristy Hwang; Retail/ Angela Chang, Prudence Jang, Douglas Klein; Sustainable Development/ Eng Leong Goh, Kenny Jeng; Tax/ May Lee, Cheli Liaw, Josephine Peng; Technology/ Revital Golan, R.C. Liang, Jeanne Wang, Deborah Yen; Telecommunications & Media/ Ben Way, June Su, Jason Wang; Transportation/ Gary Wu; Travel & Tourism/ Pauline Leung, David Pacey.

TAIWAN buSINESS

28 Taiwan's Export-Processing Zones: Shifting roles through the Decades

The EPZs are not the showcase of Taiwan’s development they were a generation ago, but they continue to make a significant contribution to the economy. By Steven Crook

31 Glass makers Tap Chinese and Tech-Intensive markets

Led by the Taiwan Glass Industrial Corp., the domestic glass industry is expanding rapidly on both sides of the Taiwan Strait. By Philip Liu

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decemb e r 2010 • Volume 40 n umbe r 12

COVEr SPONSOr

SPECIAl rEPOrT

2011 business Climate Survey

37 Analysis of the results of AmCham’s recent online survey of voting members

rEFErENCE

49 An index to TOPICS articles in 2010.

AmChAm EVENT

54 Spotlighting Green Innovations The 2010 Green Forum

microsoft: making a Difference for Society Microsoft has a long tradition of taking on tough challenges on a global scale. It started with our original vision of a computer on every desk and in every home. It continues with our current mission, which is to help people and businesses throughout the world realize their full potential. In addition to thinking about the effects of what we do as a business, we remain firmly committed to thinking about the effects of how we do business, with a strong commitment to responsible business practices. These commitments include promoting the well-being of our employees, reducing our environmental footprint, creating shared value with our business partners and suppliers, and many others. In 2003, we launched our Citizenship Initiative and significantly expanded it in 2007 with the launch of Microsoft Unlimited Potential, which focuses on increasing opportunities and helping solve societal challenges in communities around the world. In Taiwan, since 2005, WOMEN UP 1.0 and WOMEN UP 2.0 have helped and stood out with the expectation for bridging the digital divide for women by aligning with government policies and leveraging NPO resources. The program hopes to enhance the women’s employability through information-technology skill training classes and employmentsupport services. The program assists with entrepreneurial ventures as well as promoting employment opportunities. By the end of 2010, Microsoft Taiwan’s WOMEN UP program will have helped 55,000 women in improving their information application skills to realize the unlimited potential available in entrepreneurship and employment, contributing significantly to sustainable growth in society and the economy!

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E d i t o r i a l 商業景氣調查的意義

2010

年最後一期的《TOPICS》雜誌，主題是2011年及其後數

年的展望。

前景整體來說相當不錯。不論是本期封面故事訪問的頂尖經濟學者，或是台北市美國商會進行的「2011年商業景氣調查」，都看好台灣市場的近期與中期表現。受訪學者多數認為，台灣民間消費的顯著成長可望帶動國內生產總值（GDP）大幅成長；國際貨幣基金（IMF）更認為，台灣2012年至2015年的成長率可望躍居亞洲四小龍之首。對於未來五年，參與商業景氣調查的商會會員也抱持樂觀態度。調查顯示，81%的企業領袖對未來五年「樂觀」（20.3%）或「有點樂觀」（51.7%）商業景氣調查更重要的面向在於，既能反映台灣過去改善投資環境的成果，也指出化中期成果為長期優勢所必須推動的改革。商會上一次舉辦商業景氣調查是在2002年，對比相隔近九年的調查結果更能凸顯此一價值。 2002年的結果顯示，商會會員主要的擔憂都源自兩岸經貿領域，特別是空運需經第三地中轉的不便，以及台灣兩岸政策的過度緊縮。但今年的結果顯示，每週349班次的兩岸空運直航，以及促進雙邊關稅減讓與貿易流通的《經濟合作架構協議》（ECFA），使企業界普遍認為兩岸關係是進展最大的領域。然而，讓人失望的是，2002年列舉的部分主要問題，直到2011年仍然沒有改善，包括勞工聘雇等人力資源方面的問題，以及政府效能與法規透明度不足的問題。 2011年調查時間接近ECFA生效日期，標誌台灣的重要轉折點之一。行政院經濟建設委員會主委劉憶如接受《T O P I C S》訪時表示，台灣在國際舞台已經消聲匿跡很長一段時間，但ECFA使許多跨國企業與外國政府重新注意到台灣。如同本期封面故事的標題，台灣2010年亮眼的經濟成長率，以及ECFA 的簽訂，的確讓台灣經濟「重返賽場」。但台灣不僅要重返賽場，還要積極成為贏家。為未來打好基礎，商會希望政府嚴肅看待商業景氣調查，強化外商眼中的既存優勢，並改善跨國企業詬病的缺點，以迎頭趕上國際經濟舞台的領先群。

What the Survey tellS uS

his end-of-the-year issue of Taiwan Business TOPICS is primarily devoted to looking ahead at prospects for the coming year and beyond. The outlook is generally encouraging. Both the forecasts by leading economists outlined in the cover story and the results presented here of AmCham’s recent 2011 Business Climate Survey are quite optimistic about the near- and medium-term prospects for Taiwan-based business. Most of the economists interviewed by TOPICS foresee a boost to GDP growth from the significant increase taking place in private domestic consumption, and an International Monetary Fund projection even has Taiwan leading the four Asian Tigers in growth in the period 2012 to 2015. The AmCham members taking part in the survey were also buoyant when looking at the five-year outlook. An impressive 81% of the business leaders polled said they were either “optimistic” (20.3%) or “slightly optimistic” (51.7%) about prospects in that timeframe. The Business Climate Survey is even more useful, however, in identifying aspects in which Taiwan has made satisfactory progress in improving the investment environment – as well as aspects in which further strides are needed if the medium-term accomplishments are to be consolidated into long-term gains. Those assessments come into particular focus when comparing the 2011 survey with the most recent previous such exercise, conducted in early 2002. Nine years ago, some of the main concerns of AmCham member companies had to do with economic connections with China – the difficulties caused by the lack of direct flights and the need for more flexible cross-Strait policies. This year, with 349 direct flights operating per week and the signing by the two sides of an Economic Cooperation Framework Agreement (ECFA) to lower tariffs and boost trade, cross-Strait developments were cited as the area showing the most concrete progress. Dismayingly, however, some of the main problems discussed in 2002 are still just as relevant in 2011. Among the persisting themes are human-resource issues, including various labor-employment issues, and the need for greater government efficiency and regulatory transparency. The 2011 survey, being issued just as ECFA comes into effect, coincides with what should be a key turning point for Taiwan. As Minister Christina Liu of the Council for Economic Planning and Development notes in an interview in this issue, ECFA is prompting numerous multinational corporations and foreign governments to take a fresh look at Taiwan after years in which the island did not appear prominently on their radar screens. Together with the robust economic growth Taiwan achieved in 2010, ECFA has enabled the Taiwan economy to be “Back in the Race,” as the title of this month’s cover story puts it. But once in the race, will Taiwan emerge as a winner? To help ensure that it does, AmCham suggests that the government use the Business Climate Survey as reference. Building on what multinational business leaders view as this economy’s existing strengths and improving areas they see as weaknesses will give Taiwan the opportunity to compete with the best.

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ADVERTORIAL

Taimali’s Jizhenshan Offers Glorious Vistas of Mountains, Sea, and Flowers Enjoy a weekend getaway while helping the victims of the Typhoon Morakot flooding

aitung County was one of the areas most severely affected by the heavy floods brought by Typhoon Morakot in August 2009. After the storm had passed, Taimali Township was considered the worst hit part of the county, with the output value of its tourism industry reduced to just a third of the previous level. But the beauty of the mountains and water still remains, and Taimali’s Jinzhenshan (Day Lilly Mountain) is the most attractive scenic spot. With its magnificent location combining views of the mountains and ocean, and its profusion of colorful flowers in all seasons of the year, it is a blessed place that everyone should visit at least once in their lives. Currently Taimali’s bed and breakfast establishments (known in Taiwan as “homestays”) are offering special rates, hoping that visitors will come to show their support for the area’s efforts toward recovery. For the first time, township residents have been using digital connections to communicate directly with the outside world, and they are receiving an encouraging response, which is enabling Taimali’s tourism and leisure business to have a bit of revenue, improving their basic livelihood and shaking off the gloom that enveloped them since the disaster. The Typhoon Morakot Flood Digital Livelihood Program urges everyone to use mobile communication to help Taimali get completely back on its feet. To make reservations at homestays in the Taimali Jizhenshan area, please go to http://flood88.pixnet.net/blog >>

In August 2009, Typhoon Morakot battered southern Taiwan. The relentless wind and rain changed the fate of many families, but also prompted many people to get involved in the reconstruction process. Under the aegis of the Red Cross Society of the Republic of China, Microsoft Taiwan and more than 70 domestic NGOs established the “Typhoon Morakot Flood Service Union” to provide long-term aid to the flood victims. At the time, residents of severely damaged Siaolin Village took the last plums that had ripened before the flood and packaged them in attractive gift boxes. With the joint help of the Union’s team of experts and members of Microsoft’s team for narrowing the digital divide, they utilized the ability of bloggers to spread the word among the cyber community to build market interest – and some 10,000 gift boxes were sold out in a short span of three months. The sales volume from internet sales was six times that of conventional retail sales, demonstrating the important contribution that digital capability can make to rebuilding the livelihoods of people living far from urban centers. As a result, Microsoft and its partners in the Union have launched the second Livelihood Program, starting with Taimali’s Jizhenshan, in hopes of restoring Taimali’s splendor. Microsoft Taiwan’s Senior Vice President Hope Ong says: “This project vividly proves that the digital divide is a crucial factor in the gap between rich and poor! The study and application of information technology could enable flood victims with limited resources to get a fresh start, to have the ability to be self-reliant, and to help them regain their confidence in the future!”

Sunrise at Taimali You’re invited to visit Taimali for a moving and enjoyable holiday experience.

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BY Ja n e R i cka R d s

DOMESTIC

TAEKWONDO EPISODE AROUSES CONTROVERSY Political campaigning from ruling Kuomintang (KMT) and opposition Democratic Progressive Party (DPP) candidates in the months leading up to the November 27 municipal elections had mainly focused on local issues, such as building mass rapid transit systems. But this was all to change on November 17 with the sensational disqualification of Taiwan’s female Taekwondo champion, Yang Shu-chun, at the Asian Games in Guangzhou. Yang, one of Taiwan’s main hopes for a gold medal, was in the first round of her bout against a Vietnamese competitor in the under-49-kilogram category – and holding a 9-0 lead – when officials stopped her, accusing her of wearing unauthorized sensors in her footwear. Yang burst into tears and refused to leave the arena, protesting her innocence. The episode sparked wild Taiwanese conspiracy theories that China had rigged the match, perhaps in conjunction with South Korea, as a Chinese contestant eventually won and World Taekwondo Federation secretary-general Yang Jin-suk, who initially 8

UNDER APPEAL — A devastated Yang Shu-chun after the Taekwondo champion was disqualified in the middle of her bout during the Asian Games. Taiwan is planning to appeal the ruling to the Court of Arbitration for Sport in Switzerland. photo : ap photo/ GaB

supported the disqualification, is Korean-American. Anti-Korean sentiment, very rarely seen in Taiwan, flared up, with burnings of Korean flags, calls to boycott Korean goods, and increased security around the Korean mission. The DPP accused President Ma Ying-jeou of responding too slowly after a deputy sports minister initially suggested that Taiwan should accept the ruling. Afterward, Ma and other top officials vehemently insisted that Yang had been wronged. Yang's cause eventually became the focus of a 10,000strong KMT campaign rally in Taipei, where KMT politicians, decked out in white Taekwondo outfits, performed high kicks, as supporters signed petitions. As of press time in

late December, the federation had suspended Yang for three months for her ringside protest and Taiwan was preparing to appeal to the Swiss-based Court of Arbitration for Sports, citing videotapes as showing that Yang was not wearing the additional sensors during the match.

LIEN CHAN’S SON SHOT IN THE FACE Then on election eve came the mysterious shooting of Sean Lien, son of honorary KMT chairman and two-time defeated presidential candidate Lien Chan, who is a politically symbolic figure for his 2005 trip to Beijing that constituted the first formal contact between the KMT and the Chinese Communists in more than six decades. Sean Lien was

addressing a campaign rally for a Xinbei citycouncil candidate in the working-class suburb of Yonghe when Lin Chengwei, an alleged gangster that the local media says is nicknamed “Horseface,” stormed up and shot him clean through the face, injuring Lien and killing a bystander. After being apprehended, Lin claimed that he had mistaken Lien for someone else who was in a land dispute with his family. Lien made a quick recovery, and while prosecutors said the reasons for the shooting were still unclear, they ruled out the possibility that he had orchestrated the incident himself in an attempt to drum up a sympathy vote. DPP Chairwoman Tsai Ing-wen asserted that the shooting had a substantial impact on the polls, and a number of political analysts agreed.

KMT EDGES OUT A WIN IN LOCAL ELECTIONS The elections involving mayoralties in five major Taiwan cities, along with numerous city-council positions, were considered to be both a bellwether for the next presidential race and a mid-term assessment of Ma’s administration. If this was indeed the case, Ma passed the test, but only barely.

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With the municipalities involved covering 60% of Taiwan’s overall electorate and with voter turnout of 71.3%, the KMT ended up winning three of the five mayoral races – in Taipei, Xinbei (formerly Taipei County), and Taichung. Yet it garnered only 45% of the total ballots, allowing the opposition DPP, victorious by landslides in the two southern cities of Tainan and Kaohsiung, to take encouragement from its majority in the overall

vote count. The outcome suggested that if this were a presidential contest, Ma, who is expected to run for re-election, might be in trouble. Compared with the 2008 presidential election results, KMT support in the five constituencies dropped by around 8%. And for the first time in Taiwan’s history, the DPP and KMT won equal numbers of seats in the city councils, which traditionally have been KMT-dominated. KMT incumbents Hau

Lung-pin and Jason Hu were re-elected in Taipei and Taichung respectively, though in Hu’s case by a surprisingly small margin. Eric Chu, a former vice premier, won in Xinbei, defeating DPP Chairwoman Tsai. The DPP’s popular Chen Chu was reelected in Kaohsiung and William Lai is the new Tainan mayor. Following the election, the city and county governments in Taichung, Tainan, and Kaohsiung will be merged to form special municipalities.

CHEN SHUI-BIAN BEGINS PRISON TERM

OFF TO PRISON — Following final rulings by appellate courts in two corruption cases, former President Chen Shui-bian was transferred to Taipei Prison from the detention center where he had been held for over two years. photo : ap photo/ ta IWaN oUt

Former President Chen Shui-bian, who in 2000 displaced the KMT from half a century of rule in Taiwan’s first-ever transition of power, in early December made history again by becoming the first ex-president to serve a prison sentence. Before that, Chen had been held in detention for 27 months while trials on various corruption charges proceeded. The transfer to Taipei Prison followed a final Supreme Court ruling in two of those cases. Chen faces at least 17-and-a-half years behind bars, pending the outcome of other cases still in the lower courts. In prison, his head shaved and sharing a small cell with a prisoner convicted of fraud, Chen will be known by

his identification number, 1020. Former first lady Wu Shu-jen, an invalid, faces an equally long term in prison. She is soon expected to enter the Taichung Prison hospital. CROSS-STRAIT

DPP TAKES NEW STANCE TOWARD CHINA The boisterous pre-poll campaigning saw nearly all the usual Taiwan election staples such as campaign trucks with blaring loudspeakers and flag-waving mass rallies with skimpily-clad dancing girls – but the China issues that generally pervade Taiwan elections, even local ones, were conspicuously absent. Instead, candidates competed with plans for public housing, job creation, and improving the justice system. It was highly unusual for the DPP not to mobilize voters by whipping up anti-China sentiment, and analysts said it revealed overwhelming public recognition that Chinese business is essential for the nation’s economic survival. “The point of no return has already passed,” said Antonio Chiang, a prominent Taiwanese newspaper columnist. As a result, Beijing will continue offering the island economic sweeteners as the vanguard of a long-term strategy to

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incorporate Taiwan into the Chinese fold, although political talks at this stage are unacceptable to Taipei. The elections also revealed that the DPP has reinvented itself. For 10 years, Chen Shui-bian was the party strongman, defining the DPP, but now under the leadership of Tsai Ingwen, a new generation of moderate DPP leaders has appeared, working to attract swing voters, women, and youths. The DPP is now trying to show it can engage with Beijing. Tsai announced on November 30 that she wishes to set up a party think tank to serve as a point of contact between the DPP and China, provided that Beijing does not set any preconditions, presumably referring to the possibility that Beijing would insist on the party’s acceptance of the “one China principle” before agreeing to the proposal.

LIEN CHAN IGNORES CONFUCIUS PRIZE In a protest against the decision by the Norwegian Nobel Committee to award this year’s Nobel Peace Prize to Chinese dissident Liu Xiaobo, someone Beijing regards as subversive and a criminal, a Chinese organization decided to give out a rival award, the “Confucius Peace Prize,” 10

a day before the Nobel Peace Prize was formally awarded to Liu in Oslo. The announced winner was none other than former Taiwan vice president Lien Chan, though Lien failed to show up at the ceremony. Instead, an unnamed nervous-looking girl collected the US$15,000 cash prize on Lien’s behalf. TOPICS contacted Lien’s office on the day the Chinese prize was announced and his staff said no one there had heard of it. Meanwhile in Oslo, Nobel officials poignantly delivered the Nobel Peace Prize to an empty chair when pro-democracy activist Liu, inside a Chinese jail, was unable to attend. I N T E R N AT I O N A L

BURHARDT URGES CLOSER TRADE TIES Raymond Burghardt, the U.S.-based chairman of the American Institute in Taiwan (AIT), visited Taiwan following the elections, where he met with Ma and other political figures. Ma reiterated Taiwan’s wish to buy U.S F16-C/D fighter jets to help alleviate the growing cross-Strait military imbalance, but according to the Presidential Office, all Burghardt would say on the subject was that the two sides would continue to discuss it.

Taiwan sTock exchange index & value

THE BLUE LINE SHOWS CHANGES IN TURNOVER AND THE SHADED AREA CHANGES IN THE TAIEX INDEX.

9000

160

8750

150

8500

140

8250

130

8000

120

7750

110

7500

100

7250

7000

6750

November chart soU rce: tWse

Burghardt also said the United Stsates wants to deepen its trade ties with Taiwan as part of its broader efforts to engage economically with Asia, a key priority for the Obama administration. “We know that much of the history of the 21st century will be written in Asia,” he said in a speech at AmCham’s Annual General Meeting. He criticized Taiwan for failing to implement a bilateral agreement on beef imports, with bans on some beef products and “unnecessarily burdensome import and quarantine measures” still in place. The row over beef imports has caused the normally annual Trade and Investment Framework Agreement (TIFA) talks to be suspended for three years, but they are set to resume soon.

UNIt: NtD BIllIoN

TAIWAN-SINGAPORE TRADE TALKS TO START Taiwan and Singapore will begin negotiating an economic cooperation agreement in early 2011, Taiwan’s Singaporean mission announced in a statement in mid-December. The mission said both sides “have completed their respective feasibility studies and concluded that an economic cooperation agreement between the two sides would offer significant mutual benefits.” Taiwan will reportedly enter into the pact under its World Trade Organization moniker of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, or “Chinese Taipei” for short. Beijing has raised no objection to the Taiwan-Singapore negotiations. When Taiwan concluded its Economic

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economic indicaTors Unit: US$ Billion Current Account Balance (2010 Q3) Foreign Trade Balance (Jan-Nov.) New Export Orders (Nov.) New Export Orders (Jan.-Nov.) Foreign Exchange Reserves (end Nov.)

8.99

Year Earlier 8.24

35.65 334.41 379.26

31.75 259.46 347.19

Unemployment (Oct.) Overnight Interest Rate (Nov. 30) Economic Growth Rate (2010 QIII)P Change in Industrial Output y-on-y (Oct.)p Change in Industrial Output y-on-y (Jan.-Oct.) Change in Consumer Price Index y-on-y (Nov.) Change in Consumer Price Index y-on-y (Jan.-Nov.)

4.92% 0.23% 9.80% 14.39% 28.20% 1.53% 0.94%

5.96% 0.11% -1.21% 7.38% -12.39% -1.62% -0.87%

Note:

p: preliminary

soU rces: Moea, DGBas, cBc, BoFt

26.3 37.8

2010

17.7 20.3

2009 Exports

try and AUO will continue to invest at home. Local media reports said AUO had promised to invest NT$400 billion (US$13.3 billion) to build two 11-generation fabs and two solar-battery production plants in Taiwan by 2022. The ministry also said it is studying a plan to allow Chinese appliance makers to invest in Taiwan LCD companies to help them stay competitive with Korean rivals Samsung and LG Display, which have received official approval from China to build US$6 billion worth of LCD plants in China. China is soon to be the world’s largest LCD TV market.

BILL WISEMAN NAMED AMCHAM CHAIRMAN The AmCham Taipei Board of Governors has

229.2 250.8 156.1 183.7

23.5 26.5

28.8

Europe

2010

TOTAL

17.8

2010

21.3

Imports

27.1

2009

U.S.

2009

47.5

2010

16.6

2009

32.3

The Ministry of Economic Affairs in midDecember finally approved a plan from Taiwan’s second-largest flat panel maker, AU Optronics Corp., to build a new liquid crystal display (LCD) flat panel plant in China. The 7.5 G generation fab will be set up in Kunshan with an investment of US$3 billion and is due to start mass production in 2012. The move will allow AUO to tap the rapidly-expanding China market. In accordance with conditions set by the Taiwan government, the fab will not utilize the most advanced technologies in the indus-

ASEAN

Japan

13.2

104.9

AUO’S CHINA PLANT GETS GREEN LIGHT

Ford Lio Ho, the Ford Motor Co. joint venture in Taiwan, in early December celebrated the company’s production of its 2-millionth car since its establishment 38 years ago. At the ceremony at the Ford plant in Jhongli, Joe Hinrichs, president of Ford Asia Pacific, announced plans for Ford to introduce four new models in Taiwan over the next three years. Director General Woody Duh of the Indus-

HK/China 75.2

FORD LIO HO MARKS 2-MILLIONTH VEHICLE

Taiwan's JanuarY-november Trade Figures (Year on Year comParison)

16.2

BUSINESS

trial Development Bureau praised Ford Lio Ho for its important role over the years in helping to develop the domestic auto industry.

22.8

Cooperation Framework Agreement (ECFA) with China earlier this year, Taiwanese leaders said that one of the benefits would be to pave the way for Taiwan to enter into trade agreements with other trading partners.

2010

2009

2010

Unit: US$BN Source: BOFT

elected Bill Wiseman, Managing Partner of McKinsey & Company’s Taipei office, as the Chamber’s Chairman for 2011. The other officers will be William E. Bryson, Jr. of Jones Day as Standing Vice Chairman, David Pacey of the Grand Hyatt Taipei as Vice Chairman, Carl Wegner of Standard Chartered Bank as Treasurer, and William J. Farrell of Boyden executive search as Secretary. Wiseman holds a B.S. in systems engineering from the U.S. Naval Academy, M.S. in electrical engineering from North Carolina State University, and an MBA from the Fuqua School of Business at Duke University. Before joining McKinsey, Wiseman had been a Navy SEAL and an integrated-circuit designer with IBM.

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Issues

Mid-point Review of White Paper Issues At this stage only a few Committees report satisfactory progress

t the mid-way point in AmCham Taipei’s 2010 advocacy cycle – six months following release of this year’s Taiwan White Paper – just a few of the Chamber’s committees express satisfaction with the rate of progress to date, with most others reporting little or no change in the status of their issues. Each year following the White Paper’s publication, the Executive Yuan’s Council for Economic Planning and Development (CEPD) contacts each government ministry or agency responsible for a White Paper item to request written responses to AmCham’s recommendations. This year, as usual, CEPD provided the Chamber with item-by-item comments within three months. Some of the committees have complained, however, that the responses they received were quite superficial, often consisting simply of reiterations of the existing government regulation or policy without addressing the committee’s argument for why the current approach is inadequate. In some cases, the response was merely an un-updated cut-and-paste version of comments from a year before. The Coast Guard, for example, repeated last year’s assurance to the Agro-Chemical Committee that it is cracking down on the smuggling of illegal pesticides into Taiwan, citing exactly the same figure – 62,235.5 kilograms – for the amount of such cargo intercepted “since 2009.” (If not a single additional kilogram was confiscated in a year, the statement was not in fact very reassuring). At a recent AmCham leadership meeting at CEPD, the Chamber brought the problem to the attention of Minister Christina Liu and suggested that instead of providing the response within three months, it would be worth taking the time to give the issues more in-depth consideration. Pharmaceuticals is among the relatively few committees reporting positive treatment of major issues. It credits the Department of Health – and its subsidiary agencies the Bureau of National Health Insurance (BNHI) and the new Taiwan Food & Drug Administration (TFDA) – with engaging in extensive communication with industry over the past year, leading to some regulatory reforms already announced and others hopefully on the way. In fact, it appears that the Pharmaceuticals Committee’s Issue 2 – “Liberalize procedures for Certificates of a Pharmaceutical Product (CPP) and accelerate the regulatory approval process” – may now be checked off as basically resolved. As discussed in more detail in an Advertorial in this issue, TFDA is implementing new risk-management procedures to speed up the time needed to register new drugs, benefiting patients by giving them quicker access to innovative medications and helping industry to bring products to market sooner. The new procedures also fit a common White Paper theme by bringing Taiwan’s regulatory approach more in harmony with international practices. In addition, with regard to drug-pricing policy under the National Health Insurance program, BNHI has conducted a series of dialogues

《台灣白皮書》期中檢討 2010年《台灣白皮書》發表半年之後，台北市美國商會照例進行「期中檢討」。然而，僅有少數委員會滿意迄今的改善進度，多數委員會的產業優先議題只有局部或根本沒有改善。

每

年的白皮書發表後，行政院經濟建設委員會都會協調相關部會，對優先議題以書面逐項回應。今年也不例外，報告發表後三個月內，經建會就已經提出逐項回應。但部分委員會抱怨，他們接到的回覆很敷衍，多半只是重申現行政策，卻沒有正視委員會對現行政策的質疑。某些單位的回覆甚至連更新都沒有，直接把去年的回應剪剪貼貼就交差了事。例如，行政院海岸巡防署就只是向商會農化委員會重申去年的承諾，強調會加強查緝偽冒農藥走私；但海巡署引用的數據卻跟去年一樣，「統計2009年迄今海巡署查獲偽農藥62,235.5公斤」。商會不禁要質疑，如果過去一年連一公斤的查緝量都沒有增加，海巡署的保證還有意義嗎？商會幹部最近與經建會主委劉憶如會面時特別指出，與其墨守三個月內正式回覆的慣例，還不如多等一段時間，以尋求更完整深入的回應。製藥委員會是少數幾個獲得積極回應的委員會。委員會認為，行政院衛生署與所屬的中央健康保險局、食品藥物管理局過去一年一直與業界維持良好溝通互動，除了部分改革措施已經上路，其他的也可望落實。事實上，製藥委員會的第二項優先議題– 「放寬藥品採用證明（CPP）的檢附要求並加速法規審查程序」，基本上已經獲得解決。如同本期廣編特輯所討論的，食品藥物管理

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Issue s

with industry representatives on how to better reward innovation. Although it has not yet acted on the industry’s proposal to adopt a Drug Expenditure Target system, the Bureau has promised to award preferential reimbursement prices to breakthrough drugs and to drugs whose clinical trials are conducted in Taiwan. The Medical Devices Committee, also in the healthcare sphere, has been gratified by the inclusion in draft legislation for the Second Generation National Health Insurance program of a provision to formalize the establishment of a balance billing program, giving patients the option of paying out-of-pocket to gain access to certain devices not covered by NHI. As of press time, the bill had not yet been enacted by the Legislative Yuan, however. The Human Resources Committee, which devoted the bulk of its position paper this year to suggestions for improving proposed amendments to the Labor Standards Law (LSL), reports that the Council of Labor Affairs (CLA) has indicated that it will adopt some of the Committee's detailed recommendations. In the series of suggestions relating to dispatched labor, CLA reportedly accepted one change raised by the Committee: dropping a requirement for prior approval from the labormanagement committee or labor union if the proportion of dispatched labor to be utilized is less than 3% of an enterprise’s total workforce. With respect to the mandatory assumption of the target company's employees after a merger or acquisition, CLA reportedly agreed with the Committee's suggestion to limit the conditions under which the surviving company of the M&A transaction needs to assume the target company's employees, and revised the amended Article 20 of the LSL to be consistent with the provisions of Articles 16 and 17 of the Business Mergers and Acquisitions Law. The amendments are still under discussion, however, and have not yet been fully finalized. Capital Markets Committee members also report some favorable progress, particularly with regard to their Issue 2: “Expand the scope of brokers’ research and trading to increase industry competitiveness.” As was made even more explicit in the 2009 White Paper, the Committee has sought revision in the rules that prohibited domestic securities brokerages and Securities Investment Consulting Enterprises to provide research to their clients on “foreign securities,” even including important overseas subsidiaries and affiliates of Taiwan-based companies. It argued that the restriction forces this kind of analysis to take place in Hong Kong or Singapore, to the disadvantage of Taiwan’s development in a regional role. In November, the Taiwan Stock Exchange revised its rules along the lines suggested. The new regulation allows research done in Taiwan to cover foreign stocks that are related to listed local securities, as long as brokers do not take client orders for such stocks and the research report carries a clear disclaimer that it is not a recommendation or solicitation. Some other committees have noted limited progress while the bulk of their issues have remained stalled: Retail. The Bureau of Foreign Trade released four categories of goods – all related to glassware or ceramics – from the list of items prohibited from being imported from China. But that leaves 15 categories from the Retail Committee position paper’s priority list still subject to the ban. (Products cited by the Medical Devices Committee also continued to be banned). Banking. With regard to one sub-item in the Committee’s requests for rationalizing the operating rules on offshore structured products, the Banking Bureau agreed to amend the regulations to permit the submission of Chinese translations of audited financial reports in abridged rather than full versions. The Committee remains concerned over other issues, however, especially the question of how cross-border transactions may be conducted.

局已推出新的風險管理機制，以加速新藥查驗登記；此一作法，不僅使病患能更快使用到新藥，也縮短業者引進新藥的時間。新藥查驗登記的新規定，其實也回應了白皮書的一項主軸，即政府應使台灣法規制度更貼近國際慣例。此外，就全民健保的藥品定價政策，健保局也多次與業者溝通，希望制度能更有利新藥引進。雖然健保局尚未決定是否採取業界建議的藥品費用支出目標制度，但健保局已經承諾，突破性新藥與在台臨床實驗的新藥，將可獲得更為優惠的給付價格。醫療器材委員會的好消息之一是，二代健保將納入差額負擔制度，增加病患對健保不給付器材的自費選購空間。不過，至截稿為止，立法院仍未正式通過二代健保。人力資源委員會今年的優先議題多數與《勞動基準法》修正草案有關，而行政院勞工委員會也回應，將採納委員會的部分建議。就勞動派遣部分，勞委會據稱將納入一項建議：如果派遣員工未超過總員額的 3%，業者可不需事前徵求工會或勞資會議的同意。另外，就企業併購時，存續企業必須概括承受所有勞動契約，勞委會據聞也同意人力資源委員會的建議，存續企業得有條件接受被合併企業的受雇員工，並修改勞基法第廿條，以與《企業併購法》第十六條及第十七條一致。不過，相關規定仍在討論之中，尚未完全定案。資本市場委員會也回報一些好消息，特別是第二項優先議題–「擴大證券研究及交易範圍以促進產業競爭力」。如同2009年白皮書的建議，委員會希望投信投顧業者能為客戶提供外國有價證券的研究服務，研究範圍亦可及於台灣企業在海外的分支與關係企業。委員會認為，限制投信投顧提供這類服務，只是迫使業者將研究單位轉往香港或新加坡，有損台灣的區域競爭力。台灣證券交易所已在十一月依照建議修改規定。新規定允許投信投顧研究與國內有價證券有關的海外證券，但業者不可以接受客戶下單買賣，也必須在研究報告中清楚聲明，相關內容不代表業者的建議或促銷。零售與銀行委員會只有一部分的優先議題獲得局部改善，多數仍然維持現狀：零售委員會：經濟部國際貿易局已經同意，玻璃、陶瓷相關的四類產品，可以不再列為中國進口管制商品。但零售委員會優先議題列舉的另外15類產品卻仍然受限。（醫療器材委員會要求解禁的產品類別也仍未開放）。銀行委員會：委員會在優先議題中要求，境外結構型商品的限制應該放寬，行政院金融監督管理委員會銀行局已同意，發行機構最近一期、經會計師簽核的財務報告，申報時僅需摘譯部分內容。但委員會仍擔心其他議題的緩慢進展，特別是跨國交易的相關規定。

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AdvERToRiAl

A messAge from irpmA

New Review Procedures will Accelerate Taiwan Patients’ Access to Innovative New Drugs

he Department of Health (DOH) has recently taken a series of initiatives revising the regulations governing the review and registration process for new drugs. These reforms are important steps in helping to make innovative medications available to patients as early as possible, while still ensuring the quality and safety of the drugs. They also represent a major advance in establishing a pharmaceutical affairs administration system compatible with international standards. On behalf of the international research-based pharmaceutical industry in Taiwan, IRPMA commends Health Minister Yaung Chih-liang, TFDA Director-General Kang Jaw-Jou, and their colleagues for their continuous efforts to assure that Taiwan’s regulatory system for new drugs is efficient, effective, and consistent with international best practices. Among the most noteworthy of the recent changes are the following: Relaxing Certificate of Pharmaceutical Product (CPP) requirements. In line with suggestions made over the past several years in AmCham’s Taiwan White Paper, TFDA announced plans to liberalize previous regulations requiring the submission of CPPs from reference countries, which is often a highly time-consuming procedure. Under the new approach, which it is possible to adopt because Taiwan has already implemented its own drug review system for a decade under the Center for Drug Evaluation, the CPP will be defined as a supplementary document. New-drug applications without CPP will be allowed if early-stage clinical trials are conducted in Taiwan and a complete technical dossier is submitted for review. This more modern approach will

contribute to expediting patients’ access to the most advanced new drugs Creating a streamlined procedure for new-drug review and registration. This streamlined procedure will be implemented for New Chemical Entity (NCE) drugs already approved by the U.S. FDA and the EU’s European Medicines Agency (EMA), provided that there are no concerns over ethnical safety. Among the data that applicants would need to submit is a Risk Evaluation & Mitigation Strategy (REMS) report. Establishing a mechanism to issue approval letters. In a further move to reduce the lengthy lag – estimated to be as much as 43 months – in the average time after its first release for a new drug to be launched in Taiwan, TFDA has agreed to issue an approval letter after the technical dossier has been assessed but before all administrative procedures have been completed for licensing. With the approval letter, an applicant can begin preparing for product launch, hopefully including a request to the Bureau of National Health Insurance to set a reimbursement price. It is believed that the new system could save three months in bringing a new product to market. IRPMA appreciates DOH’s vision in establishing the TFDA, as well as the efficient and proactive conduct of the TFDA in its first year of operation. We look forward to continued communication with the TFDA regarding the introduction of the REMS system to Taiwan, and we strongly believe that the Taiwan public will benefit from quicker and wider access to new and innovative medications as the regulators adopt modern risk-management mechanisms.

IRPMA International Research-based Pharmaceutical Manufacturers Association http://www.irpma.org.tw 9F-8, 188 NanJing E. Rd., Sec. 5, Taipei 10571, Taiwan Tel: +886-2-2767-5661 Fax: +886-2-2746-8575

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AdvERToRiAl

藥品審查新制可使病患更易近用新藥政院衛生署近期採取多項措施，改善新藥審查登記制度的法規。此一改革除了使患者能儘早取得新藥，同時確保藥品品質與用藥安全，也可建立符合國際標準的藥事管理機制。IRPMA謹代表跨國開發性製藥業者感謝衛生署長楊志良、食品藥物管理局局長康照洲與幕僚官員，因為他們的持續努力使台灣的新藥管理制度得以更具效率、效能，也符合國際最佳慣例。

行

近期改變中最值得注意的包括：放寬藥品採用證明（CPP）相關規定：如同台北市美國商會過去幾年在《台灣白皮書》中建議的，食品藥物管理局（TFDA）決定放寬規定，不再要求藥廠提供所有相關國家的CPP，使得此一程序所需時間大為減少。新的作法顧及台灣過去已有醫藥品查驗中心的藥品審查機制，因此可將CPP視為輔助性證明文件。如果新藥是在台灣進行早期臨床實驗，而且廠商能夠提交包括上市後「風險評估暨管控計畫／風險管理計畫」（R E M S/ RMP）在內的完整技術檔案以供審查，新藥申請將不需隨付CPP。這項更為現代化的作法，將可讓病患更快使用到多數先進新藥。

中華民國開發性製藥研究協會（IRPMA）台北市10571南京東路五段188號9F-8

優化新藥審查與登記程序：特定新成份新藥（NCE）如果已經獲得美國食品暨藥物管理局（FDA）及歐盟藥品管理局（EMA）核准，且不具種族差異風險時，將可適用新的便捷審查登記程序。藥廠必須提交的文件包括上市後的REMS。改善藥品核准函發放機制：現行制度下，新藥取得許可至真正上市往往需要四十三個月；食品藥物管理局為求進一步縮短等待期，已經同意在技術檔案完成評估後，不必等相關證明的行政程序完部走完，即可先行發放藥品核准函。取得核准函後，廠商便能開始準備上市程序，包括向中央健康保險局申請核定健保給付價格。業界評估，新制實施後，新藥上市等待期可以少三個月。 IRPMA非常高興衛生署能成立食品藥物管理局，而該局成立一年以來也的確展現效率與積極作為。協會未來仍將與食品藥物管理局密切合作，以引進REMS相關機制。我們也相信，如果主管機關能採用更為先進的風險管理機制，民眾必將受惠於更迅速、更廣泛的國外新藥引進。

http://www.irpma.org.tw 電話：02-2767-5661 傳真：02-2746-8575

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COVER STORY

Taiwan’s Economy:

Back in the Race 台灣經濟重上軌道

fter a dismal 2009, Taiwan bounced back vigorously this year to achieve what might even become its first double-digit GDP growth since 1989. Inevitably, the pace will need to slow next year, but most economists still expect healthy 2011 growth in the 4-5% range. Over the next several years, Taiwan is likely to do well in comparison with its fellow Asian Tigers. Although export growth may be modest, domestic consumption is seen as becoming a much more important contributor than it has in the past. Helping to boost that consumption is the increase in tourism, especially from the other side of the Strait.

走過2009年的慘澹，台灣經濟今年出現強勢反彈，可望創下1989年以來首見的兩位數GDP成長。明年的成長幅度應會縮小，但多數經濟學者認為仍將維持4%至5%的水準。展望未來幾年，台灣的經濟表現應該都會優於其他幾個亞洲小龍。雖然外銷成長趨緩，但國內消費的成長將遠勝以往，主因是兩岸觀光帶動旅遊市場快速發展。 BY JANE RICKARDS

撰文／李可珍

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Cover StoRY

The Luzhou line of the Taipei MRT, opened in November, is part of the government’s package of transportation infrastructure projects. photo :CNA

r a d i t i o n a l l y, Ta i w a n ’s economic engine has been primarily fueled by exports such as computer products and other high-tech gadgets. But Taiwan’s heavy reliance on overseas consumer demand, especially from wealthy markets such as the United States, caused its economy to be ravaged by the global financial crisis before undergoing a remarkable V-shaped rebound throughout 2010. Next year, although exports will continue to be important, most economists expect other forces such as

直以來，台灣經濟的發展動力主要來自電腦與高科技產品的外銷。但台灣過度依賴海外市場，特別是美國等先進國家，卻在此波全球金融風暴今年觸底反彈之前，遭受嚴重的經濟衝擊。展望來年，雖然外銷仍將是主力，但多數經濟學者認為，國內民間投資與消費的成長將遠勝過去十年，為台灣帶來新的經濟動能。台灣經濟研究院景氣預測中心主任陳淼認為，經濟已經出現結構性改變，下一波經濟發展的火車頭將來自平民消費。全球金融風暴過後，台灣今年的經濟表現十分亮眼，不過部分原因也來自去年比較基期較低。行政院主計處十一月底上修今年國內生產總值（GDP）成長率至9.98%，高於八月推測的8.24%。行政院經濟建設委員會主任委員劉憶如則認為，今年的經濟成長率可望突破10%；如果成真，將是 1989年成長10.28%以來，首度出現兩位數成長。對比亞洲其他小龍的表現，香港經濟今年可望增

一

domestic private investment and private consumption of goods and services to be the key contributors to economic growth – something that has not been seen here for a decade. “I think there is a structural shift under way here,” says Chen Miao, chief of the Macroeconomic Forecasting Center at the Taiwan Institute of Economic Research. “And the next growth engine will be felt more down at the grassroots level.” In the wake of the financial crisis, Taiwan’s economic performance this year was stellar, though of course benefiting from the low base of 2009. The Directorate General of Budget, Accounting and Statistics (DGBAS) projected in late November that Taiwan’s GDP will grow by 9.98% this year, upping an earlier August forecast of 8.24%. Christine Liu, Minister of the Council for Economic Planning and Development (CEPD), says she expects the final figure to exceed 10%, giving Taiwan its first double-digit growth since the 10.28% of 1989. Compared with fellow Asian Tigers Hong Kong (with projected 6.6% growth this year) and Korea (with 6.1%), this was quite a good showing, although Singapore’s staggering 14.5% is expected to lead the pack.

長6.6%，南韓增長6.1%，台灣的表現的確不錯，但新加坡仍以14.5%驚人的成長率遙遙領先。政府預估明年經濟成長，雖然不像今年那麼驚人，但仍然有水準以上的4.51%；民間機構的平均預估值也有4.1%。主計處的聲明指出，最新預估顯示，2011年的全球經濟可望穩定成長。不過，全球經濟反彈的力道已經趨緩。台灣今年第一季的成長率為13.59%，第二季為12.86%，是卅年來僅見的快速成長期。但第三季已經降到9.8%，第四季預估只有4.7%。雖然多數經濟學者認為2011年的成長率應落在 4%至5%間，但本次受訪的兩位專家卻有不同看法。環球經濟社社長林建山認為，台灣很難降低對外銷的依賴，因此明年最多就是達到4%。曾任經建會主委、現為台大經濟系教授的陳添枝則非常樂觀，認為明年應該可以坐5%望6%。陳添枝認為，多數專家都太過悲觀，認為歐洲等其他海外市場的訂單一定會大幅減少；而且，2012年總統大選將屆，政府一定會提高公共投資。

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2011 Forecast

The government is projecting economic growth next year of a less torrid but still robust 4.51%, while the average among forecasts by privatesector institutions is an equally respectable 4.1%. “The latest world economic forecast indicates that the growth of the world economy in 2011 will be at a modest pace,” the DGBAS said in a statement accompanying release of its forecast. Already there are signs of the impact of a global slowdown. Taiwan’s first quarter growth this year came to 13.59% and the second quarter growth was 12.86%, together forming Taiwan’s fastest expansion in 30 years. But third quarter growth slowed to 9.8%, while the forecast for the final quarter is only 4.7%. Although most economists are estimating that economic growth for 2011 of between 4% and 5%, two of those interviewed for this report had other – and diverging – opinions. Bert Lim, president of the World Economics Society, a local think tank, expressing doubts that Taiwan will be able to significantly wean itself of export reliance anytime soon, says the domestic economy would be “lucky” to attain 4% growth next year. At the bullish end of the spectrum, Chen Tain-jy, a National Taiwan University economics professor and the first CEPD minister in the administra-

tion of President Ma Ying-jeou, predicts figures of 5% or even 6%. He believes that most forecasters are being too pessimistic about the likelihood of a sharp slowdown in export orders from Europe and other overseas markets, and notes that the government is likely to increase public investment ahead of the 2012 presidential election. Economists also differ on forecasts for 2012 and the years beyond. Tony Phoo of Standard Chartered Bank foresees a healthy 6% for Taiwan in 2012,

while Standard and Poor’s, in a late October report, put the number at 3.5% for both 2012 and 2013. CEPD has paid particular attention to a recent International Monetary Fund report that shows Taiwan trailing Hong Kong, Korea, and Singapore in economic growth in 2011, but then exceeding the pace of the other three Asian Tigers from 2012 to 2015. For 2015, the IMF study shows growth rates of 5% for Taiwan, 4.28% for Hong Kong, 4.01% for Singapore, and 3.96% for Korea.

NIGHTMARKET SHOPPERS — Increased retail spending, both by visiting tourists and the local population, is helping to spur economic growth.

學者對2012年之後的預測也出現分歧。渣打國際商銀首席經濟分析師符銘財認為，台灣2012年的經濟成長為6%；標準普爾（Standard and Poor's）十月底的報告則認為2012年與2013年都是3.5%。引起經建會特別注意的一份報告則來自國際貨幣基金（IMF），其中指出台灣2011年經濟成長率會低於香港、南韓、新加坡，但2012年至2015年都將高於其他三小龍。IMF預估，台灣2015年的成長率為 5%，香港4.28%，新加坡4.01%，南韓3.96%。

旅遊市場快速發展渣打的符銘財、台經院的陳淼，以及花旗銀行首席經濟學家鄭貞茂都同意，國內市場對明年經濟成長的影響將高於往年。隨著來台旅次首度突破五百萬大關（事實上今年前十一個月就已經達成），其中至少有150萬是中國觀光客，陳淼因而認為，旅遊消費的重要性將遠高於以往。陳淼推估，如果每個觀光客在台停留五天，每天平均花費250美元，

photo :CNA

總消費金額將達63億美元。此外，過去十年受製造業外移中國影響而失業的藍領勞工，也拜觀光業快速發展之賜有了再就業機會；找到工作的人，自然更有消費力。經濟部的統計數據明顯可見國內消費的成長：截至十月，食品服務業的銷售年增12.03%，零售業則年增7.11%。隨著中國觀光客每日入境人數可望由三千人提高到四千人，相關產業明年應該還出現類似成長力道。一旦允許自由行，經濟效益將更為廣泛，因為這些中國旅客將會進入更偏遠的地區、住宿更為平價的旅館、選擇更為小型的餐館。台經院的陳淼認為，隨著旅遊業快速發展，佔 GDP已達2/3的服務業今年可望成長10%，是十年以來首見。花旗的鄭貞茂則認為，受制於金融服務業表現不佳，服務業的整體成長應在5%至6%之間。渣打的符銘財在十一月底的一份報告中指出，「我們相信，雖然外銷成長趨緩，但消費支出的持續升溫，以及訪台旅次持續增加，將可協助台灣經濟持續復甦」。符銘財指出，2010年的民間消費持續

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Cover StoRY

PURCHASING IN VOLUME — Tourists from China are so taken with Taiwan’s pineapple shortcake that they often buy it by the case to bring home. photo :CNA

Tourism boom Tony Phoo, Chen Miao of TIER, and Cheng Cheng-mount, the chief economist at Citibank, share the view that next year's domestic demand will play a more salient role than Taiwan has been accustomed to. Chen Miao notes that tourist spending has become a more important factor than before, with Taiwan this year exceeding the five-million visitor mark for the first time – in fact, that level was reached in the first 11 months – including

at least 1.5 million Chinese tourists. He calculates that if each visitor on average spends US$250 a day over a five-day stay, tourism injected a total of US$6.3 billion into Taiwan’s economy. The influx of visitors has also provided more employment for blue-collar workers laid off when manufacturing businesses migrated to China over the past decade, he notes, and that also creates more consumption. The increase in domestic consumption is shown by Ministry of Economic Affairs (MOEA) data. For example, sales in the

增加，中央大學的消費者信心指數也在十月達到六年半以來的新高。花旗的鄭貞茂則指出，鄭貞茂認為，民間消費在2011年可望創下十年新高、成長3.8%，2012年也將維持3.8%的成長率。今年的消費成長雖然達到3.43%，遠優於2000 年至2008年平均的2.2%，但仍低於香港的5.2%與南韓的4.2%。實質薪資已經多年未見成長，但就業市場明年可望好轉，家戶財務也可望改善。鄭貞茂認為，民眾將更願意花錢購物。他推估2010年的人均 GDP為18,580美元，優於2009年的16,442美元，而個人收入將增加6%，其中2%來自薪資、4%來自紅利。他認為，人均G D P明年將持續增加，達到 20,477美元。鄭貞茂指出，過去中國的廉價勞力導致台灣薪資水準無法提高，但隨著中國部分產業的薪資每年調增15%，台資企業開始考慮將生產線搬回台灣。影響國內經濟的另一個正面因素是台商在台消費增加，因為兩岸直航，許多主管留在台灣的

food-services sector posted an increase of 12.03% year-on-year as of October, and retail trade grew by 7.11%. These effects are likely to increase further next year, based on China's recent offer to raise tourist arrivals from the mainland from the current 3,000 a day to 4,000. If regulations change sometime next year to permit solo Chinese travelers to make the trip, as is considered likely, the economic benefits will be spread even more widely, as individual Chinese tourists are expected to go to more far-flung locations, stay at cheaper hotels, and patronize smaller eateries. With the boost from tourism, Chen Miao says he expects the service sector, which accounts for over two-thirds of Taiwan’s GDP, to grow by 10% this year – something not seen in the past decade. Citi’s Cheng, on the contrary, projects service-sector growth in the range of only 5%-6%, mainly because the over-regulated financial-services subsector is underperforming. “We believe that a continuing revival in consumer spending, aided by rising tourist arrivals, will keep the economy on a recovery path, despite the anticipated slowdown in exports,” Standard Chartered’s Phoo wrote in a report issued in late November. He notes that private consumption has been steadily improving throughout 2010 and that the consumer

時間越來越長。

明年外銷展望出口仍然舉足輕重。十一月的出口總值為243.7 億美元，較去年同月增加21.8%，進口總值也達 239.6億美元，較去年同期增加33.8%，單月順差 4.1億美元。中國（含香港）是最大出口對象、比重為40.3%，其次是14.5%的東協國家，以及皆為 12.1%的美國與歐洲。台灣出口至中國的產品包括很多半成本與原料，在對岸加工處理後再轉銷其他先進市場。花旗的鄭貞茂說，如果納入此一加工出口過程，美國佔台灣外銷比重應該達到20%。他表示，美國的比重一度高達30%以上，但在亞洲經濟體成長、美國經濟停滯後出現變化；而在市場轉換過程中，台灣對電子與I T產品的依賴降低，因為東協與中國對石化與鋼鐵的需求較高。可以預測未來幾個月需求的外銷接單數量，十

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2011 Forecast

confidence index published by National Central University rose to a six-and-ahalf-year high in October. Perceptions of household finances gave the best performance in the history of the survey, adds Citi’s Cheng. Cheng predicts that consumption will increase next year by 3.8%, “the best in a decade,” and then by another 3.8% in 2012. That is far better than the 2.2% average from 2000 to 2008, yet the 3.43% achieved in 2010 still lags behind neighboring Hong Kong with 5.2% and Korea with 4.2%. The job market is expected to improve next year, along with household finances,

after a long stretch in which the Taiwanese saw little increase in wages. “People will feel more confident in spending money,” says Cheng. He forecasts GDP per capita for 2010 of US$18,580, up from the US$16,442 in 2009, and notes that personal income rose 6% this year – 2% from salaries and 4% from bonuses. He sees GDP per capita rising again rise to US$20,477 in 2011. In the past, the low wages in China caused Taiwanese salaries to stagnate, notes Cheng. But now with some parts of China experiencing wage increases of around 15% per year, some “Taiwanese companies want to cost down their

the Gain So Far is Mainly in tourism and Direct Flights

manufacturing operations by moving back to Taiwan.” Further contributing to the domestic economy may be the increased expenditures in Taiwan by executives with operations in China; thanks to the convenience of the crossStrait direct flights, they are now spending more of their time with their families on the island.

The export component Exports still matter. Total exports in November, at US$24.37 billion, climbed 21.8% from the same month of last year, while imports – at US$23.96

An October aviation-industry forum discussed the benefits being derived since the opening of cross-Strait direct flights. photo :CNA

he Ma administration’s 15 ground-breaking agreements signed with China since it came into office in 2008 may have eased military tensions, returned Taiwan to the radar screens of multinational companies, and muzzled the opposition’s anti-China rhetoric – but aside from tourism and associated direct flights, none so far are generating revenues with a significant economic impact, economists say. And there are already foreboding signs that political controversies are starting to stymie further cross-Strait economic integration. Despite the signing of the Economic Cooperation Framework Agreement (ECFA) with China in late June, the joint steering committee to oversee implementation of the pact had still not been formed as of press time. The tariff reductions for over 500 Taiwanese goods covered in the ECFA “Early Harvest” kick in from January 2011, and the tariffs on those items will be phased out over two years. “The impact on exportboosting will be quite marginal,” says Cheng Cheng-mount, Citibank’s chief economist, although the provisions may help Taiwan defend its market share in China against competition from Korea and Japan. Nextstage talks under ECFA for further tariff reductions and the liberalization of trade in services have not yet been scheduled. The removal of barriers to Chinese investment in 204 industrial sectors in Taiwan has also so far brought very limited results, economists say. They also say there are few signs so far that Taiwan businesses based in China are shifting investments back to Taiwan to a significant degree.

In addition, the various procurement missions China has sent to Taiwan have turned out to be mainly publicity exercises, with pledges of large volumes of purchases but little actual follow-up. The sheer technicalities of dismantling 60 years of Cold War restrictions on cross-Strait relations are also proving to be problematic. At talks between Taipei and Beijing at the end of last year, the plan to negotiate an agreement to end double-taxation was shelved at the last minute. And just this month, the two sides failed to reach accord on the terms of a long-awaited investment protection agreement, which was scrapped from the agenda shortly before the holding of a cross-Strait negotiating session. Officials cited technical difficulties but the sticking point was understood to be the location of arbitration in case of investment disputes. Taiwan wants to designate a third territory – probably Singapore – but China is unwilling to internationalize its dealings with Taiwan, which it believes should be a domestic matter. “The easier parts [of cross-Strait integration] have already been concluded and we will see more difficulties ahead of us,” says George Tsai, a professor of politics at Taipei’s Chinese Culture University, who is a frequent visitor to Beijing. More fundamentally, China appears to hope that the many economic sweeteners it has offered Taiwan will lead to political or military talks, an idea that still seems too politically sensitive in Taiwan for President Ma to accept. — By Jane Rickards

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Cover StoRY

WELCOME MAINLAND PLASTIC — Vendors such as the National Palace Museum gift shop are now able to ring up sales to mainland tourists using China UnionPay credit cards.

billion – were up by 33.8%. The monthly trade balance was in surplus by US$410 million. Mainland China (together with Hong Kong) was the largest market for the exports, absorbing 40.3%, followed by the ASEAN nations with 14.5%, and then the United States and Europe, each at 12.1%. Taiwan’s exports to China include many semi-finished parts and materials, which after processing on the mainland are re-exported to advanced economies. Once this effect is factored, the U.S. share of Taiwan’s exports is believed to accounts for 20%, says Cheng. That level was once an even higher 30%, he adds, but has declined as Asian economies improve while U.S. growth remains sluggish. In the process, notes Cheng, Taiwan’s export base has become less dependent on electronic and IT products, as demand increases from ASEAN and China for petrochemicals and steel. Export orders, an indication of demand in the months to come, slowed somewhat in October, posting 12.26% growth, but accelerated again in November, rising 14.34% on stronger-thanexpected demand for electronic items such as cell phones, with U.S. demand especially strong. This uptick caused MOEA to forecast record export orders for the full year of some US$405 billion, up more than 33%. Chen Miao of TIER

photo :CNA

月份成長減緩、為12.26%，但十一月又增加到 14.34%，主因手機等電子產品的需求高於預期，特別是美國市場的需求大幅成長。經濟部因而調高全年的外銷接單金額，達到歷史新高的4050億美元，成長33%。台經院的陳淼預測，2011年外銷成長6.4%，由於今年基期較高，表現還算不錯。投資也是今年經濟成長的主因之一。經建會統計顯示，今年的投資增加31%，但明年將是負成長 2.76%。經濟學者指出，電子業今年大幅增加資本支出，但主要原因是彌補2008年與2009年暫緩的投資。台經院的陳淼說，「明年不會出現資本支出的擴張，未來三年也不太可能」。美國明年的經濟成長不會太好， IMF預測約在 2.9%，結構性因素將導致失業率仍達9.6%。一般的看法是，外銷定單恐怕難以維持現有榮景，美國國內市場恐怕亦將供給過剩。經歷希臘與愛爾蘭的債務危機後，出口廠商也對歐洲前景表示擔心。曾任經建會主委的中央研究院院士胡勝正說，全球金融風暴後的復甦出現落差，東協與接

近已開發階段的國家，經濟恢復速度很快，但先進經濟體就顯得步履闌珊。美國聯準會十一月啟動第二輪量化寬鬆，收購公債以刺激貨幣供給。此舉波及亞洲國家，對美元失去信心的投資人開始買進亞洲貨幣。中國擔憂通貨膨脹的風險，也防備地產與其他資產市場的泡沫化，但過度緊縮銀根將限縮中國市場對台灣產品的需求。路透報導，中國的消費者物價十一月上漲5.1%，創28個月新高，但尚未影響到經濟成長。專家認為，為防堵國際熱錢炒作新台幣等亞洲貨幣，中央銀行2011年全年應該都會維持緊縮政策。2010年六月，央行決定進行兩年以來的首度升息；在此之前，為因應全球金融風暴與衰退，基準利率一直維持在歷史低點的1.25%。九月份的再度升息，使基準利率上升到1.5%。升息背後的訊息是，央行的重心已經由經濟危機轉向資產泡沫化，特別是，央行六月宣布升息時，同時決定大台北地區第二棟房屋的貸款比例

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2011 Forecast

where the exports Go predicts export growth of 6.4% for 2011 – not bad, considering this year’s high baseline. Investment was also a predominant growth driver this year. CEPD has investment growing by 31% this year, but the figure for 2011 is projected to be -2.76%. Economists say that electronics companies this year increased their capital expenditures substantially, but that much of it was to make up for spending deferred during the crisis years of 2008 and 2009. “There is a capex cycle that won’t be repeated next year – won’t be repeated for another three years,” Chen Miao says. Still perceptions linger that U.S. growth next year, which the International Monetary Fund forecasts at 2.9%, will be sluggish, with unemployment staying at 9.6% due to structural factors. That leads to worries that the current plentiful level of export orders may not be sustainable, with supply in the U.S. market soon outstripping demand. Europe, following debt crises this year in both Greece and Ireland, is also the source of some uneasiness among exporters. The world has recovered from the global financial crisis at “two speeds,” says Academia Sinica economist Hu Sheng-cheng, another former CEPD minister. “ASEAN and the nearly-developed countries are enjoying high growth rates while the advanced

3.9%

6.1%

4.4% 6.6% 41.8% 10.6%

11.5% 15.1%

China/Hong Kong

ASEAN

United States

Europe

Japan

Singapore

Korea

Others

SOURCE: BOFT, based on Jan.-Nov. 2010 figures

economies are not doing so well.” In November the U.S. Federal Reserve conducted a second round of “quantitative easing,” expanding money supply by buying treasury bonds. The move has had ramifications in Asia, where investors disillusioned with the greenback have sought to buy up Asian currencies. China is considered to be at risk of inflation, as well as of property and other asset bubbles, but over-aggressive tightening could cause China’s demand for Taiwan products to slow. China’s consumer-price

不得超過七成。央行表示會再勸說銀行強化不動產貸款的風險管控，並會持續注意市場流動性與資產泡沫化。另一個焦點則是通貨膨脹。雖然官員強調，與其他國家相比，台灣的通膨並不嚴重，但狀況顯然持續惡化。十一月的消費者物價指數上漲1.53%，是一年來最大增幅，主因是食品與交通費用。主計處認為，今年的消費者物價指數將上漲0.98%，明年則增加1.85%；但渣打的符銘財認為，明年的消費者物價可能上漲2.2%，因為「經濟持續成長，國內企業可能會將增加的成本轉嫁給消費者」。符銘財認為，央行十二月底應該會再度升息至 1.625%。他認為，2011年底前，基準利益應該會回升至2.125%。美國與台灣的利率差距擴大，勢必引發更多熱錢湧入，經濟學家認為，央行料將採取更嚴的管制措施因應。台經院的陳淼表示，但如果新台幣需求就是這麼強，央行能做的也有其限度。政府與高科技業希望匯率維持低檔以保護外銷，但正如同標準普

inflation hit a 28-month high of 5.1% in November, Reuters reported, but so far the impact hasn’t been felt on economic growth. In the face of continuing concern over the influx of “hot money” as foreign investors speculate on the New Taiwan Dollar as well as other Asian currencies, the Central Bank is likely to maintain its tight money policy throughout 2011, economists say. In June this year, the Central Bank made its first interestrate hike in two years. Before June, inter-

爾所指出的，對許多人來說，台幣的匯率實際上已經夠低了。

消弭預期心理今年一整年，央行不斷道德勸說業者以管控熱錢，行政院金融監督管理委員會十一月初更宣布，一年期以內的政府公債，海外基金持有比例不得超過三成。媒體報導指出，政府還在考慮進一步的管控措施。渣打的符銘財表示，財政部據報正在考慮對熱錢匯兌利得課徵20%的所得稅，而「此舉料將獲得立法院的高度支持，因為不必修改稅法就可以實施」。但中研院的胡勝正認為，央行很難管得住熱錢，因為主要動能來自國內。他指出，台灣今年出現超額儲蓄，「政府或許擋得住後續熱錢，但已經進來的錢卻不會出去，因為台灣以外的市場風險更高」。專家認為政府不會採取極端手段，以免資產大量外移。

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f 01 002 003 004 005 006 007 008 009 10 o 2 2 2 2 2 2 2 2 20

SOURCE: DGBAS

est rates stood at a historic low of 1.25% after a series of cuts in reaction to the global financial crisis and subsequent recession. Another rate hike in September has since brought the rate to 1.5%. Showing its shift in concern from sluggish global growth to Taiwan’s rising asset prices, including a housing bubble, the Central Bank in June also imposed mortgage restrictions, including a 70% cap on loans for second homes in the Taipei metropolitan area. It said it would further urge local banks to enhance risk controls associated with land acquisition financing, and remains concerned that if

4.9

5.9

4.1

3.9

4.1

0.7 -1.9

-1.7

-2

4.4

5.0

5.2

4 9.98

5.4

4.7

6.2

3.7

5.3

01 002 003 004 005 006 007 008 009 10 o 2 2 2 2 2 2 2 2 20

SOURCE: DGBAS

SourCe: DGBAS

Unit: %

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Unit: %

market liquidity is not reined in, further asset bubbles could arise. Another issue for policy makers is inflation. Although officials say the level is not worrisome, and remains modest compared to many other countries, it is nevertheless increasing. At 1.53%, consumer prices in November rose at their fastest rate in a year, sparked by increases for food and transportation. DGBAS has the consumer price index increasing by 0.98% this year, and by 1.85% next year, while Standard Chartered’s Phoo predicts an even higher 2.2% for 2011. “We fear local firms and business, encouraged by continu-

長期而言，匯率將由市場機制決定。花旗的鄭貞茂認為，強勢的貨幣正足以反應台灣經濟結構的改變，即國內需求與對外貿易齊頭並進。十二月中，新台幣匯率創十三年來新高，對美元升破 30:1關卡，達到29.85:1。雖然台經院認為明年新台幣對美元的匯率約在30.9:1，但鄭貞茂認為，明年底將達到29.6:1，後年為29:1。今年表現較佳的企業還是台積電與宏達電等高科技業者。相關業者的外銷佳績帶動台灣整體的反彈力道，抵消DRAM與LCD因價格下滑、獲利相對不佳的負面影響。標準普爾的擔憂則是，台灣體質欠佳的銀行業可能成為經濟發展的隱憂：一是過度競爭導致銀行甘冒過當風險以爭取客戶；二是公營行庫過多影響整體效率。標準普爾認為，最壞狀況下，銀行業對民間與非金融國營企業的放款，有三成將成為不良帳款。當被問到，政府最應該立即處理的經濟問題時，受訪者多半認為是急速擴大的貧富差距。雖

unemployment down From the peak

4.6

ups and downs of economic Growth

ing economic growth, will pass on higher input costs to consumers,” he says. Phoo expects the Central Bank to respond with another interest-rate hike at the end of December, bringing the benchmark policy rate to 1.625% at year-end. A further series of rate hikes, he predicts, will raise the benchmark interest rate to 2.125% by the end of 2011. The widening interest-rate gap between the United States and Taiwan is likely to cause more hot-money headaches for the Central Bank, leading to concerns among economists that the Central Bank may impose harsher capital control measures. At the same time,

然薪資水準在未來幾年可望提高，但貧富差距卻不見得因此縮小。標準普爾的研究指出，2005年至2009年，家戶可支配所得的平均成長率只有 GDP平均成長率的一半，代表高收入族群的家戶所得增加較快。台經院的陳淼認為，台灣整體薪資水準無法提升，源頭是央行壓低新台幣匯率以保護外銷的政策。中研院的胡勝正則認為，房屋、地價與贈予稅過低，等於變相鼓勵台商返台購置地產，推升房地產價格。房屋目前的平均市價已經十倍於年平均家戶所得。結構性失業可能讓問題更形複雜。主計處統計顯示，失業率十月份為4.92%，降低0.013個百分點；考量季節性因素調整後，減少0.12個百分點，為4.96%。雖然雙雙達成政府承諾的失業率低於5%，但勞運人士認為，隱藏性失業與低度就業仍然普遍。名嘴楊憲宏最近在一場研討會上指出，約一百萬人隨時可能失業。此外，環球經濟

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“if there is real demand for New Taiwan dollars, there is only so much [the Central Bank] can do,” notes Chen Miao. The government and the leading hightech companies want to keep the value of the currency low to protect exports, though as Standard and Poor’s points out, the currency appears to many to be substantially discounted in real terms.

Curbing speculation Throughout the year, the Central Bank has frequently intervened to manage “hot money” by privately talking to dealers, and in early November the Financial Supervisory Commission banned foreign funds from investing more than 30% of their portfolios in government bonds with a maturity of a year or less. Reports have surfaced that the government is mulling further measures. For example, Phoo points to reports that the Ministry of Finance is considering imposing a 20% tax on forex gains made using hot money. “This is expected to receive strong support from lawmakers, as it does not require amending the current tax law,” Phoo says. But Hu of Academia Sinica cautions that the Central Bank’s ability to control hot money is limited because much of the phenomenon is actually home-grown. “Taiwan has excess savings this year,”

he notes, adding that “we might stop hot money from coming in, but the hot money [already here] will not go out because of increasing uncertainty outside Taiwan.” Economists doubt that the regulators will take drastic action for fear of triggering massive equity outflows. In the long-run, the exchange rate will be therefore be determined by the market, and Cheng points out that a stronger currency would reflect the anticipated transformation in Taiwan’s economic structure to focus on growth from domestic demand as well as exports. In mid-December, the Taiwan dollar rose to a 13-year intraday high of NT$29.85, breaking the NT$30 psychological barrier. While TIER is forecasting that the exchange rate next year will be NT$30.9 to the U.S. dollar, Cheng’s forecast is NT$29.6 for a year from now and NT$29 for the year after. Among the standout industrial performers this year were such famed high-tech companies as chip-foundry Taiwan Semiconductor Manufacturing (TSMC) and handset maker HTC Corp. The rebound in their exports contributed strongly to Taiwan’s growth this year, whereas D-RAM chip makers and LCD flat panel makers did not do so well because of substantial profit erosion from falling prices. Standard and Poor’s also cautioned

社的林建山指出，20歲至24歲的失業率接近8%，導致許多年輕人出國尋找工作機會，特別是投入中國就業市場。花旗的鄭貞茂指出，馬英九總統在本屆剩餘任期內應該特別注意貧富差距。他說，馬英九上任頭兩年，施政目標是降低金融海嘯的影響，因此經濟成長擺在第一順位；但四年任滿之後，如果收入差距越來越大，就代表整體政策失敗。鄭貞茂認為，教育也有問題，因為大學過多只會導致經濟失去應有效率。他說，非官方統計顯示，至少1/3的大學生都得借錢唸書，這是以前很少見的狀況；但這些背負學貸的學生，就算拿到大學學歷，也不保證一定能找到好工作。另一個需要改善的領域是政府效能。花旗的鄭貞茂指出，世界經濟論壇（WEF）最新一期的全球競爭力報告顯示，台灣整體排名雖為第13名，但政府效能僅排名第35。台大的陳添枝呼籲儘快推動政府組織再造，整併政府部會以解決疊床架屋的問題。台經院的陳淼則認為，往往在政黨輪替後，產業政

that Taiwan’s weak and fragmented banking system is a handbrake on growth. Over-competition is causing banks to engage in inadequate risk pricing in their bid to win over customers, the ratings agency says, while the high degree of state ownership in the sector impairs efficiency. In a severe downturn, it estimates, up to 30% of the banking sector’s credit to the private sector and to non-financial public enterprises could become problem loans. When asked which economic problems need to be addressed most urgently by the government, interviewees most frequently cited the rapidly widening gap between the rich and poor. Although salaries are likely to improve overall in the next few years, there are signs the gap may not lessen soon. “In 2005 to 2009, household disposable income grew at an average rate that was only half the corresponding average for GDP growth, reflecting a distribution of household income towards higher income groups,” Standard and Poor’s says. Chen Miao attributed the flat income levels in part to the Central Bank’s policy of keeping the New Taiwan dollar low to protect exports. A related problem cited by Hu is that the reduction in the estate and gift tax appears to have encouraged many Chinabased Taiwanese executives to return

策就會改變，「但台灣資源有限，如果真是為未來發展著想，就必須延續施政目標，因為知識是需要時間累積的」。長期的挑戰還有高齡社會。經建會草擬中的報告指出，如果人口趨勢不變，2060年之前，台灣 65歲以上的人口將佔41.6%，21歲以下的比例僅剩 14.2%。標準普爾警告，快速老化的社會將大幅增加因醫療看護衍生的政府債務。為扭轉人口年齡組成、活化經濟發展，花旗的鄭貞茂認為，政府未來五年必須修改移民法規，特別是放寬白領專業人才的移居規定。他說，放寬後五至十年，台灣經濟將更偏重服務業，但製造業水準也會提升，「如果能做到這點，長期來看，台灣還能維持5%的年成長」。中研院的胡勝正則認為，台灣的IT產業未來幾年將是新興產業的最佳後盾，協助雲端運算、汽車電子、醫療器材、綠色能源等產業發展茁壯。胡勝正說，台灣企業的特性就是快速靈活，「我對未來很有信心」。

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Cover StoRY here to buy luxury housing, pushing up property prices. The average price of an apartment is currently at least 10 times that of average annual household income. Structural unemployment may be exacerbating the problem. According to DGBAS data, the unemployment rate dropped .013 percentage points to 4.92% in October, and the seasonally-adjusted unemployment rate also dropped by 0.12 percentage points to 4.96%, enabling both numbers to hit the government target of under 5%. But labor activists complain of widespread hidden unemployment or underemployment. Television commentator Yang Sen-hong told

a recent seminar that an estimated one million people are in insecure temporary positions. In addition, points out Lim, unemployment for the 20-to-24-year-old age group is closer to 8%, causing a brain drain as many young people leave Taiwan to seek other opportunities, particularly in China. Citi’s Cheng urges President Ma to make the income-disparity issue a priority for the remainder of his term. In his first two years in office, “Ma’s logic was because we have just pulled out of the financial tsunami, the first priority is to stabilize economic growth,” he says. “But after four years, if you have not made

income more equalized, then I would say your policy is not successful.” Cheng says the education system also needs scrutiny, as the oversupply of colleges is bringing economic inefficiencies. According to unofficial statistics, he notes, at least onethird of college students have taken out loans, something that previously rarely occurred in Taiwan. These indebted students, he adds, may not necessarily obtain improved employment opportunities upon graduation. Another area singled out for improvement was government efficiency. Cheng points to the most recent Global Competitiveness report compiled by

I N T E R V I E W

A Chat with CEPD Minister Christina Liu Before taking her current post in May this year, Minister Liu was chief economist of the Chinatrust Financial Holding Co. She was previously a two-term member of the Legislative Yuan, economic advisor to various government organizations and private businesses, and a professor of economic and finance in the United States, taiwan, and China. She earned an M.S. in business administration and a Ph.D. in economics from the University of Chicago. Below are excerpts from a recent interview with taiwan Business toPICS’ Don Shapiro and Jane Rickards.

On investor interest in Taiwan and the impact of ECFA. We have received a great deal of interest recently from all over the world. In fact, a lot of multinational firms have scheduled time in December, January or February to come and talk to us. And we’re also doing a series of road shows, which are generating a lot of interest. On our recent trip to Singapore, where we visited 20 companies, we had a group of 85, including 10 different ministries, three local governments, and 40-something industry people. Next we’ll go to India in February, the U.S. in March, Japan in April, and then Europe in May and June. There are many reasons for the investment interest, but ECFA is a prerequisite. Without it, those other factors would be in vain. Because of ECFA, people in other countries are reopening their eyes to see Taiwan after having more or less forgotten about us. When they were choosing partners inter-

nationally, they were just not paying attention to Taiwan. But now once they look at Taiwan, they are finding some very impressive developments. For instance, some of the people we talked to in Singapore did not realize how far Taiwan has come in IPR protection – they thought we were still pretty much the same as China. Those in the tourism field were amazed at how fast the cross-Strait connections have grown. They knew we had direct flights now, but were very surprised to learn that there are already 349 flights a week – and each of them is fully booked. Also surprising was that tourism from China, which two years ago was zero, now comprises 30% of the visitors for a total of 1.5 million tourists this year. And we haven’t even opened the market yet to individual travelers, only groups. They can begin to imagine the potential for growth when Hong Kong, which is so small, is getting 10 million Chinese visitors a year. And the duration of stay for Chinese visitors is seven

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the World Economic Forum, in which Taiwan ranks 13th overall but only 35th in terms of institutions. Chen Tainjy urges the speedy implementation of government reorganization to reduce the number of ministries and agencies, eliminating overlapping responsibilities. And Chen Miao points to incidences of the government shifting plans for developing industries midstream, sometimes for political reasons after a change in administration. “We have limited resources. If we’re really trying to develop industries for the future, there needs to be continuity – knowledge needs to be accumulated.”

Longer term challenges include managing Taiwan’s aging population. By 2060, a CEPD draft report says, a staggering 41.6% of the population will be aged 65 and over if current trends continue, whereas those aged 21 and under would be 14.2%. Standard and Poor’s warns that government debt could escalate drastically with the burden of caring for a rapidly aging society. Both to balance the age distribution and to spur economic growth, Cheng suggests that Taiwan in the next five years will need to change its policy on immigration, especially to allow whitecollar talent to move here. Five to ten

days in Taiwan, compared with only three days in Hong Kong. ECFA is why they invited us to go there, but afterward they became aware of a lot of other aspects. On Taiwan’s comparative strengths and weaknesses. If we compare ourselves with Hong Kong, our industrial base is more diverse and more complete because they are focused mostly on finance and property development. Singapore is more diverse than Hong Kong, but the scale of its manufacturing sector is much smaller than Taiwan’s, but we have better connections and better knowledge in the China market. That’s why Taiwan is now very popular as a place for strategic alliances for many multinational firms, especially from Japan. They have had a lot of cooperation with Taiwanese firms over the long-term, so if they are aiming at the China market, naturally we become a very good partner. Our weak point is because for quite some we were rather isolated. We do a lot of business with China, and we have had a close long-time relationship with the United States, but Taiwan seems to have much less connection with other areas of the world. In terms of many of our institutions and regulations, we really need to catch up as quickly as possible – to get back to international standards. Since the year 2000 the world has been changing a lot. Many other Asian economies have already adopted international standards and regulations, but Taiwan is lagging behind. This is something that we should take very, very seriously. On how to elevate Taiwan’s investment climate from good to great, as suggested in AmCham’s 2010 White Paper. It’s not easy and will probably take some time. Recently I was saddened to see some figures comparing the decade of 1990-

years after that liberalization, he says, the economy will become more servicedriven, while the level of manufacturing sophistication can be upgraded. “If we’re able to do that, we might be able to maintain 5% growth” for the long-term, he says. Hu predicts that in the coming several years, Taiwan’s IT industries will increasingly make a contribution to the development of future growth areas such as cloud computing, automotive electronics, medical devices, and green energy. “Taiwanese businesses are nimble, flexible,” he concludes. “I am quite optimistic.”

2000 and that of 2001-2008, excluding the 2009 crisis. In the 90s, Taiwan ranked number one among the Asian Tigers in the percentage of increase in consumption and investment. That was really the Golden Decade. No wonder people at that time were very satisfied with the economic performance. But then we dropped from that number one status all the way to the bottom of the Four Tigers. Most younger people now don’t know what happened in the 1990s, when they were not yet in the workforce. Their memory is of the time when we were at the bottom of the Four Tigers, and so in general people in Taiwan have felt humbled. This year, even though the growth rate is 10%, people aren’t used to that anymore. If we tell them to aspire to something really great, I don’t think they are ready. They are satisfied with just doing okay. So it will take time. If we sustain this momentum and continue to lead the Four Tigers for two or three more years, then people will regain more confidence and more ambition. We first have to prove to our people that we really have our own unique niche and can do much, much, much better than we have been recently. On the reasons for the slip after the 90s. Both economic and political factors were responsible. I think everyone, blue and green, wasted too much time discussing politics. If everybody’s talking about politics, who’s minding the economy? When I was teaching in Beijing, I noticed that everyone – whether taxi drivers, college students, professors, or policymakers – was talking about business and how to make money. All the attention was on economics. In Taiwan, for so many years, all the energy was on politics. But fortunately, it’s not any longer. Finally we have come back to talking about economic issues.

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Taiwan's Export-Processing Zones: Shifting Roles through the Decades The EPZs are not the showcase of Taiwan’s development they were a generation ago, but they continue to make a significant contribution to the economy.

BY STEVEN CROOK ph o t o s: c o ur t esy o f Mo eA

ong before the science parks in Hsinchu, Tainan, and Taichung were established, Taiwan's government was administering areas specifically designed to attract foreign direct investment and nurture industries in the hope that they would help drive the island's economy. The first of these, the Kaohsiung Export Processing Zone (KEPZ), was established in December 1966. Because the original 68-hectare harbor-side enclave – the very first EPZ in the AsiaPacific region – was quickly filled with factories churning out radios, garments, and other items, additional zones were established in Taichung in 1969 and in the Kaohsiung suburb of Nanzte (now often spelled Nanzi) in 1971. The Export Processing Zone Administration (EPZA), a unit of the Ministry of Economic Affairs, now supervises seven EPZs and two other special economic development areas with a total land area of 586 hectares. As of late 1967, EPZ tenant companies were employing 5,625 people. By 1976, the total workforce had swelled to just under 75,000, four-fifths of whom were female. The image of thousands of young women on bicycles leaving the zones at the end of each shift

THEN AND NOW — The onetime heavily labor-intensive enterprises have given way to highly automated operations.

is part of the collective memory of Taiwanese who lived through the 1970s. According to the EPZA, the zones' c o n t r i b u t i o n t o Ta i w a n ' s e x p o r t s peaked in 1974. In that year, goods produced by tenant enterprises accounted for just over 9% of Taiwan's total exports of US$5.64 billion. By 2000,

exports from the zones amounted to US$8.7 billion, 5.86% of Taiwan's total exports. The zones' share of exports has continued to decline, and currently stands at around 3.5%. Until 1986, EPZ tenant enterprises were required to export all of their output. This rule was later relaxed and finally dropped altogether in 1997. The proportion of EPZ-made goods entering the domestic market has since been growing gradually, yet the zones still live up to their name. In 2006, 66.2% of EPZ output was exported. In their first 35 years, Taiwan's EPZs brought the country something like US$50 billion in foreign currency. “TVs and textiles really helped Taiwan earn a lot of foreign exchange in the 1970s,” says Shen Jong-chin, the director-general of the EPZA since May 2010. Since Taiwan’s introduction of the concept, dozens of countries around the world have established EPZs. Few, with the exception of China, have been nearly as successful as Taiwan was at providing the predictable, productive, and low-cost environments that investors seek. Nowadays, when so much of the talk is about such sectors as biotechnology and cultural-creative industries,

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Taiwan's EPZs seldom make business headlines. Yet it would be very wrong to speak of them in the past tense. According to EPZA statistics, the zones currently host 449 companies. Output in the first 10 months of 2010 was NT$313.1 billion (US$10.4 billion), and for the whole year the figure is likely to exceed NT$370 billion (US$12.3 billion). In the 1970s, typical EPZ products were hair dryers, fishing poles, and sewing machines. By the 1980s, factories in the zones were making cameras, microscopes, and golf clubs. Nowadays, semiconductor testing-and-packaging operations and LCD companies are mainstays. This progression is outlined in a small museum inside the EPZA's headquarters. Advanced Semiconductor Engineering Inc. (ASE), part of the ASE Group and the largest IC tester and packager in the world, has 12 factories in the Nanzte EPZ. “The science parks focus on industries that are capital- and technology-intensive, which is why wafer foundries and designers can be found in Hsinchu, Taichung, and Tainan,” says Shen. “For semiconductor testing and packaging, the technical requirements are not so high – it's lowerend but still high-tech – but the EPZ can provide very good tax incentives for packager-testers to locate here.” “Clearly, for the semiconductor industry, the EPZs do have an important role to play,” he adds.

Better-educated workers Just as the products coming out of the EPZs have become more complex, so has the workforce become better educated. In 1968, 57% of those working in the KEPZ had no more than an elementary school diploma. Including foreign workers, who in 2010 accounted for 7.5% of the EPZs' entire workforce, the proportion of those working in the zones who hold at least a college degree grew from below 8% in 1986 to more than 52% in 2010. Shen points out that in 1986, around one in a thousand workers held graduate degrees. The proportion is

now almost 2%. In terms of annual productivity per worker, the EPZs are closing in on the three science parks. In 1991, the average annual productivity of an EPZ employee was NT$1,675,000 (US$62,500 at that year’s exchange rate) – half of what a science-park worker produced. Ten years later, the annual value of an EPZ worker’s output had increased to NT$4,867,000 (US$162,233), 71% as much as their science-park counterparts. If EPZ enterprises are compared with factories in conventional industrial parks (of which Taiwan has more than 60), their progress becomes even more obvious. Until the late 1980s, EPZ companies were, in terms of output per-worker, slightly behind factories elsewhere in Taiwan. But by 1996, perworker productivity in the EPZs was 42% higher than in industrial parks. By 2001, it was 69% higher. In the mid- and late 1980s, around 90,000 people worked in the EPZs, three quarters of them women. Over the past 15 years, the total workforce has fluctuated, but averaged about 60,000. “From these figures, it's clear we've moved on from labor-intensive to high-tech industries that hire fewer workers,” says Shen. “It's strong proof of our industrial development.” “We have to face the rise of mainland China, and entrepreneurs must understand the changing economic structure,” Shen says, pointing to the data as “strong proof of how the EPZs are successfully developing.” ASE has facilities in Zhongli in north Taiwan and other places, but Nantze continues to be its “largest and most important production base,” says Allen Kan, ASE Group's deputy spokesperson and investor relations manager. “Our headquarters are located in the EPZ, and this is also where we do most of our R&D for new packaging technologies and designs.” “Around 45% of our global ATM [assembly, testing and materials] sales in the first three quarters of 2010 were generated by our Kaohsiung site, and we currently have close to 15,000 employees working there,” Kan explains. “In the first three quarters of 2010,

we invested move than US$300 million in expanding our capacity and operations in the EPZ. We will continue to invest in capacity and technologies for the new copper wirebond, Fan-Out WLP [wafer level package] and aQFN [advanced quad flat no-lead package],” he says. Kan explains that ASE chose the zone to be its base, “mainly due to our founders being from Kaohsiung,” which meant that “the EPZ in Nantze became the obvious choice when setting up an export-oriented operation.” “Most semi-backend operations are located outside the science parks because they're relatively labor intensive. Also, Kaohsiung is an ideal location due to the fact that there are not that many other technology companies competing for talents, and the cost of labor is cheaper relative to the areas surrounding the science parks,” says Kan. Kan lists four ways in which the EPZA makes life easier for companies such as his: “There's a sharing of resources, such as recruitment and waste management. Acquiring space for expansion is easy. We don't have to worry about nearby residents complaining about pollution. Also, the logistics for import-export are easy.”

Stable, reliable workforce The relative ease with which techoriented companies can find skilled workers is a plus mentioned by other E P Z t e n a n t s . J a y Wu , s e n i o r AV P and company spokesperson at Taiflex Scientific Co., Ltd., a maker of flexible copper-clad laminates and back sheets for photo-voltaic modules, says that if his company were located in the Hsinchu Science-based Industrial Park (HSBIP) rather than KEPZ, “we'd be competing with the likes of TSMC and UMC. The workforce here is more stable and reliable.” He adds that “some people are willing to forgo higher salaries so they can return to their hometowns in the south.” Taiflex – now Dupont's no. 1 customer in Taiwan – was incubated at the Industrial Technology Research Institute (ITRI) in Hsinchu, yet the company's founders decided to launch

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the business in the KEPZ in 1998. “There used to be negative connotations [about being located in an EPZ],” admits Wu, a New Yorker. “People would think that if you're not in a science park, you're not really high-end. But that's changing, because companies like ours and Radiant Opto-electronics Corp. are doing very advanced work.” When discussing Taiflex's China facility, Wu makes an interesting point: “Now the cost of production in China is, for us, about the same as the cost of production in Taiwan. However, the skills and education level are higher here, and Taiwanese workers are generally more productive.” According to Wu, Taiflex's decision to set up in Kaohsiung rather than Hsinchu was simply a matter of money. “If we'd set up in a science park, the costs would have been higher. We wouldn't have been very competitive,” he says. At the time the company's founders were scouting sites, land rental in the KEPZ was about one-third of that in the HSBIP. “When we moved in, there were a lot of empty plots” in the KEPZ,” Wu recalls. “It was easy to find a good location. Moreover, one of our major customers was already here. Such proximity is vital as we need feedback on our products.” Taiflex's largest customer is just a 40-minute drive from the KEPZ, Wu notes. “In terms of logistics, we're only about 15 minutes from the airport, and the harbor is right here.” Proving his point, cranes can be seen lifting freight containers onto ships less than 100 meters from Taiflex's newest factory. According to the EPZA's Shen, the government has made efforts to equalize land costs in Taiwan's various science parks, the EPZs, and industrial parks. “We have to offer our clients, especially foreign investors, reasonable land fees,” he says. “We shouldn't be competing with the science parks, but rather promoting the industrial upgrading of Taiwan.” S he n e xpla in s th a t g o v e r n m en t policy is to direct very high-tech companies to the science parks, what he calls “technology-oriented” investments to the EPZs, and traditional manufac-

12_10_EPZ.indd 30

Kaohsiung Software Technology Park

turing to ordinary industrial parks. The KEPZ and the nearby Linkuang EPZ now host a cluster of LCD companies. While he sees no particular benefit to being part of that cluster, Pauli Wang, president and COO of Emerging Display Technologies Corp. (EDT), does regard the zone as a good location for the company. “Being in one of the science parks would make life more difficult for us, for logistical reasons,” he says. “We focus on industrial customers, not consumer items, and more than 96% of our output is exported, mostly to Asian countries like China.” Wang notes that for the past four years, Cisco Systems Inc. has been their biggest customer, and that Lexmark and Rockwell Automation are also important buyers of EDT products. Arima Display Corp., which has been making small and medium-sized flat-panel displays for mobile phones and other items since 2001, is located in the Linkuang EPZ. According to Lin Chia-yu, an assistant vice president in the company's Utility and Construction Department, Arima Display set up there for three reasons. “First, the core technical team came from Hitachi, which still operates in the KEPZ,” says Lin. When Arima Display was founded, however, no vacant plots in the KEPZ were large enough for the startup, so the decision was made to locate in Linkuang. “Secondly, the supply chain is right here in the KEPZ and Linkuang EPZ. This cluster makes it very convenient for R&D, and it saves time and money, especially when setting up a production line. Thirdly, the management and land rental fees here were much lower than in the science parks.”

Like EDT, Arima exports much of its output to China. For that reason, Lin says, the EPZ's proximity to Kaohsiung's airport and harbor are important. No part of the EPZ system more clearly shows the shift away from traditional manufacturing than the Kaohsiung Software-based Technology Park (KSTP), established in September 2005. So far, the main investor in the park, which is expected to focus on IC design and digital content, is Foxconn Technology Group. Foxconn's Cloud Computing Center is expected to be completed there by July 2011. Just as the brainpower of National Chiao Tung University and National Tsing Hua University have been crucial to the success of the HSBIP, the KSTP is hoping to leverage expertise at National Sun Yat-sen University and other nearby schools. Shen, who played a role in the development of the Nangang Software Park (NGSP) in Taipei, says: “It's very important to use the experience we have accumulated from establishing the Nangang Software Park. The NGSP and KSTP can collaborate to further develop Taiwan's knowledge-based economy.” Shen is especially excited about the prospect that CGCG Inc. and Etron Technology Inc. will soon invest in the KSTP. “These two corporations are flagship companies. They'll attract other investors,” he says. CGCG is a 3D animation studio that has worked with the likes of California-based Lucasfilm Animation. Etron is a fabless IC design company. “The boards of both Etron and CGCG have approved proposals to invest in the KSTP, and the latter is very close to completing negotiations to rent office space,” says Shen. “CGCG Chairman Su Wen-siang told me that he believes the human capital of southern Taiwan is now ready for him to invest. It's very important to find talented people,” says Shen. “Nicky Lu, Etron's chairman, has said that the investment environment here is excellent because of the human resources that are available. He has said he expects to employ at least 100 people in the KSTP.”

2010/12/30 12:29:21 PM

taiwan busines s

Glass Makers Tap Chinese and Tech-Intensive Markets Led by the Taiwan Glass Industrial Corp., the domestic glass industry is expanding rapidly on both sides of the Taiwan Strait.

BY PHILIP LIU ph o t o s: c o ur t esy o f ta i wa n t ea m g l a ss

tion lines at its factories in ith the economic Taichung, Kunshan of Jiangsu downturn caused Province (two producby the global tion lines), and Chengdu of financial crisis now behind Sichuan Province, with total them, Taiwanese glass manannual capacity totaling 7.8 ufacturers have gained fresh million square meters. growth momentum by tapping the huge potential of To meet the fast-rising the Chinese market and by d e m a n d , Ta i w a n G l a s s i s meeting emerging demand for investing US$200 million to solar-energy and electronicsexpand its low-E glass capacity related glass. on the mainland and Taiwan. The Taiwan Glass IndusThe aim is to boost annual trial Corp., the dominant The Taiwan Glass Gallery in the Changhua Coastal Industrial Park capacity on the two sides of showcases the industry's products. domestic manufacturer, has Taiwan Strait to 36 million been carrying out ambitious square meters, quintupling investment projects in both China and Taiwan that this year the existing level, in another two years. The expansion project entailed capital outlays of some NT$9 billion (US$290 milincludes the construction of new low-E factories, installed with lion), the highest since the company’s share listing in 1973. cutting-edge production equipment, in the Changhua Coastal A major item in the mega investment initiative is low-E Industrial Park in northern Taiwan, and in China in Chengdu, (emissivity) glass, an energy-saving product that can lower Tianjin, Taichang of Jiangsu Province, and Dongguan – as well indoor temperatures by warding off sunlight’s infra-red rays. as the enlargement of existing production lines. A huge market for the product is emerging in China, whose Completion of the expansion plan will make Taiwan Glass government has mandated the use of such glass for a minthe second largest low-E glass supplier in China, trailing CSG imum percentage of 50% for all new buildings in major Holding, China’s largest glass firm. Taiwan Glass is turning cities, including Beijing and Shanghai. In 2010, demand for out high-end low-E glass in sizes as large as 18 square meters low-E glass hit 1 million metric tons in China, double the and in a choice of 24 different colors. It was the material used domestic supply. in producing the Taiwan-motif glass lantern that was a major The surging demand is straining the capacity of Taiwan attraction at the Taiwan pavilion at the Shanghai World Expo Glass’s existing low-E glass production lines, extending 2010. Expansion of its low-E glass capacity is expected to the waiting time for delivery of new orders to two to three greatly improve Taiwan Glass’s profitability, since the product months. Currently, the company has four low-E glass producoffers a gross margin of 25%, almost double the 13% for flat

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taiwan busines s

glass, the company’s mainstream item. In a further new project, Taiwan Glass has decided to invest US$138 million to build a low-E glass factory in Wuhan of Hubei Province, which will contain three production lines. And it is proceeding to build a second production line at its Fujian Province plant making photovoltaic cover glass, used in solar cells. Built with an investment of US$16 million, the existing plant now boasts annual capacity of 50,000 metric tons, capable of generating US$60 million in annual revenue. But capacity at the first production line has been overtaken by demand since its inauguration in June this year. The second line is scheduled to kick off operations in November 2011, and will provide a further boost for company profits, since the gross margin of photovoltaic cover glass exceeds 30%. In addition, Taiwan Glass has joined hands with the Yueda Group of Jiangsu Province in establishing an auto-glass company, scheduled for inauguration in the first quarter of 2012. Its output, projected to be enough for 200,000 vehicles annually, will be supplied to Chinese automakers on an OEM (original equipment manufacturer) supplier basis. The two companies have just agreed to install a production line in the factory for solar-cell mirror panels, with annual capacity of 55,000 metric tons.

Going upstream Taiwan Glass is even extending its reach to the upstream sector by teaming up with foreign firms in establishing Shihlien China Holding, which has invested in the Shihlien Chemical Industry (Jiangsu) Co., Ltd. for the production of pure soda ash, a key material for glass production. Taiwan Glass is the largest shareholder in Shihlien Holding, with a 30% stake and paid-in capital of US$100 million. The Shihlien Chemical factory, due to open in the first half of 2012, will have annual capacity of 1 million metric tons of soda ash, 70% of it for supply to Taiwan Glass and the remainder for export. The plant will make Taiwan Glass fully self-sufficient for supply of soda ash, relieving it of the headaches of price fluctuation and supply shortages. Moreover, Taiwan Glass is actively expanding its capacity in China for two mainstream products: flat glass and fiber glass. It is investing US$70 million to build two factories to make floating law glass, a high-end flat glass featuring a mirror-like surface. The two plants – one in Xianyang of Shaanxi Province and the other in Anhui Province – will have combined annual capacity of 700,000 metric tons. Meanwhile, the company is also building a fiber glass factory in Chengdu with projected annual capacity of 30,000 metric tons. The output will be used in the production of printed circuit boards. The flat-glass and fiber-glass investment projects underscore the strong upturn in market demand in 2010. The company’s flat-glass factories on both sides of the Taiwan Strait are running at full capacity to meet the influx of orders, whereas in 2009 the capacity utilization rate had plunged to 40-50% under the impact of the global financial tsunami. The

product was a major drag on the company’s profitability in 2009, but this year the influx of rush orders has caused the price of fiber glass to rise by 50%. In the first three quarters of 2010, Taiwan Glass took in after-tax net profits of NT$4 billion (US$129 million), a 20-year high. The total included NT$1.54 billion (US$49.7 million) contributed by the Taiwan operations, up 172% year-on-year, and NT$2.43 billion (US$78.4 million) from the Chinese operations, skyrocketing by 1,000% from the year before. For the whole of 2010, after-tax net profits are expected to top NT$5 billion (US$161 million), a record high, with EPS (earnings per share) reaching NT$2.4, compared with NT$0.66 in 2009. Consolidated revenue will reach NT$40 billion (US$1.3 billion) in 2010, including NT$17 billion (US$548 million) from the Taiwan operations, making Taiwan Glass the fifth largest glass company in the world. It is now also the largest flat-glass supplier in Greater China. Parallel to the vigorous investments in China, Taiwan Glass is also making a major initiative to upgrade its Taiwan operations. In addition to the projected low-E glass factory in the Changhua Coastal Industrial Park involving NT$3 billion (US$96.8 million) in investment, the company will also commit NT$300 million (US$9.7 million) to expand its glassware factory in Hsinchu County as part of a plan to launch its own brand of glassware in 2011. A glassware design team is currently at work on the preparations. Moreover, the company this month announced a new plan to make ultra-thin glass, measuring 0.5-1.1 millimeters in thickness, for use in touch-panels for consumerelectronics products, at the existing factory site. Estimated to cost NT$3 billion (US$96.8 million), the facility will have annual capacity of 35,000 metric tons and is scheduled to go onstream in the third quarter of 2012. P.S. Lin, managing director and chief executive officer of Taiwan Glass, says the group’s strategy is to consolidate its foundation in its traditional products, while extending its reach both upstream and downstream. Substantial capital outlays are needed to secure the company’s future, he notes.

Higher technology Taiwanese enterprises are also stepping into more technology-intensive glass sectors, notably products needed by the island’s well-established electronics industry. JTOUCH Corp., a major touch-lens supplier, for instance, is scheduled to begin shipping its plastic glass to Samsung and other major electronic firms after having passed those companies’ certification

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taiwan busines s

processes. The plastic glass will be a substitute for reinforced glass, which has been in chronic short supply. Samsung will use the JTOUCH plastic glass for its first model of Android tablet PC, dubbed the Galaxy Tab. G-Tech Optoelectronics Corp., part of the Hon Hai Group, is expanding its capacity on both sides of the Taiwan Strait for FPD (flat panel display)-related glass, including reinforced glass and ITO (indium tin oxide) electricity-conductive glass. The aim is to meet the surging demand from both the Hon Hai Group and other Taiwanese contract manufacturers resulting from the influx of OEM orders from Apple for iPhones and iPads. The company is building a second reinforced-glass plant in the Southern Taiwan Science Park in Tainan, scheduled for inauguration in the first quarter of 2011. Monthly capacity will be 50,000 pieces, similar to that of the existing plant in the park. At its plant in Miaoli, the site of the company headquarters, monthly capacity now reaches 30,000-40,000 pieces. G-Tech is also installing a new production line in China at its Shenzhen plant at a cost of US$5.2 million. Stanley Glass is another leading supplier of technologyintensive glass products, including electricity-controlled lightadjustable glass, LED glass, color-changing glass (“Rainbow Glass”), liquid crystal glass, and low-E glass. This October, it opened the Stanley Glass Technology Center in its factory in the Tawulun Industrial Zone of Keelung City. The 11,880square foot facility, which cost NT$30 million (US$967,000) to build, showcases the company’s technology-intensive glass products, including its multi-point, touch-control optical glass. A highlight of the display center is a suspended glass walkway, eight meters long and three-stories high, similar to the Grand Canyon Skywalk. Joseph Lan, a glass-industry specialist at the Industrial Development Bureau, predicts that technology-intensive glass products, now still at the fledgling stage, will reach NT$5 billion (US$161 million) in annual output value in several years. That would equal one-fifth of the local glass industry’s current estimated yearly output value of NT$25 billion (US$806 million). In the downstream sector, Taiwanese glass manufacturers have been seeking to enhance their competitiveness by increasing the added value of their products, intensifying their marketing, and strengthening intra-industry cooperation. Their efforts has been facilitated by the growing popularity of glass in interior decoration – in many cases as a substitute for wood or wallpaper – thanks to its cleanliness, variety, and brightness. Kuo Tai Glass has transformed its Hsinchu plant into a tourist destination, allowing visitors to observe the production process of its various high-end glassware items, including candle stands, vases, lamps, cups, glasses, and tea utensils. The new approach has created new income sources, including admission fees and retail revenue, ending the previous total reliance on export sales. The transformation, which involved revamping the plant layout, received financial assistance from the Ministry of Economic Affairs (MOEA) as part of a project to revitalize the glass industry in Hsinchu, the traditional center

of glass manufacturing in Taiwan. MOEA is encouraging the development of greater sophistication and artistry in glass products, as well as more applications to daily life. In another example, T.G.A. Glass Enterprise has branched out from its original line of architectural glass to make commercialized artistic glass, mainly for interior decoration. Its main products include stained glass, piled glass, and mosaic glass, embodying the company’s advanced techniques in inlaying and embedding, color painting, and sand blasting. A highlight of its product lineup is a bathroom mirror featuring relief figures and 3D effect. The company maintains a 12,000-square foot display center, accommodating some 1,000 items, within its headquarters in Tainan City, facilitating its communications with construction firms, hotels, and architects. The company has also been penetrating overseas markets under the auspices of Taiwan Team Glass (TTG), an export alliance of Taiwan glass firms organized by Taiwan Mirror Glass Enterprise, the largest supplier of glass furniture to IKEA worldwide. Formally established in 2005, TTG provides a mechanism for joint marketing and the division of labor in filling orders among its 72 members. Team members often exhibit as a group in domestic and international furniture shows. The plan is to market its products under the newly created “White Dolphin” brand. TTG was the brainchild of Jackson Lin, president of Taiwan Mirror Glass Enterprise, who first invited peers to jointly accept and fill orders from IKEA eight years ago. The arrangement enabled Taiwan Mirror Glass Enterprise to greatly augment its capacity without the risk of over-expansion. The company now farms out to other team members about half of its glass-furniture orders from IKEA. The total orders are valued at about US$70 million a year, representing 80% of IKEA’s total purchase for such furniture products worldwide. To help unify and strengthen the team, Taiwan Mirror Glass Enterprise has established a warehouse, with capacity of 12,000 metric tons, at its headquarters in the Changhua Coastal Industrial Park. In addition, in 2006 it spent NT$40 million (US$1.3 million) to build the Taiwan Glass Gallery on a 36,000-square-foot plot of land to showcase TTG members’ products and the works of domestic glass artisans. Items on display are mainly glass handicrafts, glass artworks, fused glass works, glass furniture, and glass utensils. So far, 3 million people have paid visits to the facility. Some 15 TGG members have transplanted their factories to the Changhua Coastal Industrial Park, where they form a glass industry cluster and enjoy convenient access to glass supply from Taiwan Glass’s factory inside the park. They will market their products under the “White Dolphin” brand. Jackson Lin of Taiwan Mirror Glass says that this kind of cooperative effort in upgrading quality and tapping the international market is the only way for Taiwanese downstream glass manufacturers to stay competitive, especially against Chinese rivals. He says he is upbeat about the prospects for Taiwan’s glass industry, citing the stable material supply by Taiwan Glass and the benefits of industrial clustering.

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ADVERTORIAL

Mercer: Managing Key Talents and Human Capital Envisioning a New Era after the Financial Crisis By Guo XIN MaNaGING DIrECTor , GrEaTEr ChINa

Guo Xin

Trends and Impacts China’s rapid growth has long been evident, but when its GDP passed Japan’s in the second quarter of 2010 to become the world’s second largest economy, the achievement underscored just how far and how fast China has come in its economic development. Although China remains well behind the United States as an economic power, significant trends currently underway make it clear that it will have an increasing impact in the coming decades on the Greater China region, ASEAN countries and the global economy: • Over the next two decades, the population of Chinese cities will grow by more than 350 million, equal to the entire current population of the United States. • China will then have more than 200 cities with more than a million inhabitants, compared with only 35 cities of that size in Europe today. • By 2025, more than two-thirds of China’s citizens – nearly 1 billion people – will be living in urban areas.

All of the above trends, on top of China’s continuing rapid economic growth, will have an enormous positive impact on the Greater China area, including Hong Kong and Taiwan. Last year’s signing of the Cross-Straits Economic Cooperation Framework Agreement (ECFA) was a major milestone, and recently there have been suggestions in China that the ECFA be taken into account as the country prepares its 12th Five-Year Economic Development Plan.

Challenges and Suggestions As companies in Taiwan consider how to take advantage of the opportunities brought by this dynamic economic growth, Mercer Greater China is calling their attention to some growing challenges regarding the availability of key talent. For example, senior executives with global experience are in great shortage, with very high turnover rates, in the Greater China area. Over the next 10-15 years, 75,000 senior executives with global experience will be needed – but only 3,000-

5,000 are currently available. This huge gap between supply and demand will become an increasingly crucial issue for all companies in Greater China – and especially for those in Taiwan. Following the 2009 financial crisis, the most important question for 2011 and beyond becomes how to retain and recruit key talent. In a recent Mercer survey of regional executives about their main HR priorities, 23% cited Talent Retention and 22% mentioned Recruitment – by far the top two categories. Consequently, how to train and optimize the large but raw talent pool will be a critical issue for all crossborder companies. Based on Mercer’s experience, we would like to suggest the following HR management priorities for Taiwan companies for the coming years: • Proactively plan for future workforce needs. • D i f f e r e n t i a t e y o u r w o r k f o r c e through appropriate total reward strategies • Focus on high performance and key staff • Manage the change process

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Mercer: Managing Key Talents and Human Capital

Positioning Taiwan for Greatest Leverage By aLEX WaNG MaNaGING DIrECTor , MErCEr TaIWaN

Alex Wang

Golden Decade Since taking up my current position, I have been looking at identifying the primary factors with the potential to drive Taiwan’s economy for the next 3-5 years or even longer. Undoubtedly, one of the most important elements will be the ECFA and its ramifications. For Taiwan, the main purpose of entering into the ECFA agreement is to help Taiwanese companies export goods to China’s domestic market with lower tariff barriers and eventually to the ASEAN countries based on the “ASEAN +1” model. Many analysts expect the ECFA to usher in a “Golden Decade” of economic growth for Taiwan. It is also seen as inducing increased in-bound M&A from Japan, the United States and elsewhere, as companies seek to acquire Taiwanese enterprises to leverage the preferential treatment available under t h e E C FA . T h e r e a r e a n u m b e r o f reasons why the ECFA is likely to spur such in-bound M&A activity: • Japanese companies may face difficulty getting approval to set up factories in China, especially after the Senkaku Islands (Diaoyutai) incident. • Labor costs in China are mounting,

diminishing the cost advantage of producing there. • China lacks the specialized labor skills needed for some industries. • Logistics expenses from Taiwan to China’s coastal cities may be even lower than for in-land logistics within the mainland.

employees’ behavior with the goals needed to achieve the human capital and business strategies. • E v i d e n c e - b a s e d a n a l y t i c s – Conduct comprehensive analyses to provide the factual foundation required for sound human-capital decisions.

Competitive advantages

Talent Management

To remain competitive in the rapidly changing economic environment in the Greater China area, Taiwanese companies – whether or not they operate factories in China – will have to adjust their business, marketing and human capital strategies. Mercer Taiwan is well-known for its clientcentric professional services in the following areas: • People strategy – Gain a sustainable competitive advantage through better utilization of your human capital. • Organizational development and design – Align your organizational structure for better business-strategy execution. • HR infrastructure design – Improve human-resource effectiveness for better business performance. • C h a n g e - m a n a g e m e n t – A l i g n

Under current economic conditions, companies are facing serious challenges in finding sufficient supplies of the right talent, including senior executives – talent that is vital to leverage new business opportunities to ensure sustainable growth and performance. To help companies conduct the most effective talent management, Mercer Taiwan can offer expertise based on extensive experience in the following areas: • Talent strategy and workforce planning – Align the right talents to meet your business needs. • Workforce capabilities – Build or improve your workforce capabilities to meet business requirements. • Leadership – Build or develop a pipeline of future leaders with the requisite leadership skills and other capabilities.

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Mercer: Managing Key Talents and Human Capital

ADVERTORIAL

Devising the right Employee Benefits for recruitment and retention Average Salary Increase of Taiwan A comparison across years by industries

By arThur LEE DIrECTor , hEaLTh & BENEFITS MErCEr TaIWaN

*All salary increase data excludes salary freezes 4.0%

Salary Increase Rate % (Avg.)

health and Benefits To attract key talent, it is essential for business organizations to have suitable rewards programs in place, including healthcare and other benefits. But the provision of these rewards needs to be commensurate with performance. Because of the existence of the National Health Insurance program in Taiwan, some potential benefits – such as dental, vision, health examinations and medical coverage with co-insurance – are not available in this market as insurance products. In addition, some local insurance practices, such as medical claims with copy receipts, are not in line with international best practices, causing insurance costs to escalate. As a result, the cost of self-administered and self-funded benefits has been soaring – becoming a heavy burden to the HR budget and a financial risk for the company. Mercer offers a wide range of innovative solutions to address different companies’ varying HR needs. It also provides a comprehensive, one-stop service from design to implementation and administration. As more and more Taiwanese companies expand their businesses to operate in multiple locations across borders, they find themselves facing unique HR challenges in each country, from talent retention and the rising cost of benefits to dealing with healthcare reform. Mercer’s regional network stands ready to help Taiwanese companies obtain information from different markets, and Mercer’s local expertise in each country can assist them with local implementation. In short, an integrated Regional Benefit Management approach can help

3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0 Chemical

Consumer

Hi-Tech

Pharma

All Industries

2009 (Actual) Excl. Freeze

2.8%

3.1%

2.9%

3.8%

3.1%

2010 (A/E) Excl. Freeze

3.7%

3.1%

3.8%

3.9%

3.5%

2011 (Forecast) Excl. Freeze

3.7%

3.5%

3.8%

4.0%

3.8%

SOURCE: 2010 Mercer Taiwan All Industries TRS Reports

2009 Taiwan Voluntary Turnover Rates by Industry

12% 10% 8% 6% 4% 2% 0

Executives

Management

Professional Sales

Professional Non Sales

Para-Professional White Colar

Chemical

3.8%

2.0%

4.5%

5.5%

2.3%

4.5%

Consumer

6.6%

7.2%

11.8%

9.0%

6.7%

11.5%

Hi-Tech

0.1%

5.4%

7.7%

9.0%

3.7%

7.2%

Pharma

1.8%

5.3%

7.5%

3.8%

5.7%

9.5%

All Industries

3.9%

5.0%

8.0%

7.4%

5.1%

8.4%

Overall

SOURCE: 2010 Mercer Taiwan All Industries TRS Reports

a company achieve its regional objectives by aligning its benefits program across the Asia Pacific. With Mercer’s widespread presence in the region, we can help Taiwanese multinationals maintain effective control over their benefits program by providing regional coordination together with local expertise and delivery.

Mercer (Taiwan) Ltd. 4F, 2 Minquan East Road, Sec. 3, Taipei 104, Taiwan. Tel: +886-2-2508 0188 Fax: +886-2-2501 1199 www.mercer.com

taiwan business topics • december 2010

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Two Solid Years for Profitability

2010 Was a Good Year for Business

2011 Business Climate Survey

Almost 3 out of 4 respondents say 2010 was either “very profitable” (20.5%) or “relatively profitable” (53%). No one reported suffering a “very large loss,” and the few who experienced a “relatively large loss” (2.6%) were mainly younger, developing companies. Entities established in Taiwan for more than 30 years were almost twice as likely as others to report a “very profitable” performance in 2010. [Question 6 chart]

And 2011 is Expected to be as Good, or Even Better

Asked for their forecast for the coming year, almost 80% of respondents projected an increase in profits over 2010 – with 17.1% anticipating “substantial growth” in both revenue and profits, and 53.8% expecting “modest growth” in both categories. Another 7.7% forecast “substantial growth in revenue and modest growth in profits,” while 2.6% expect “modest growth in revenue and substantial growth in profits.”

[Question 7 chart]

Results of the online survey conducted during November 2010 by Independent Marketing Pty Limited on behalf of AmCham Taipei. The 351 voting representatives of AmCham member companies were invited to take the survey, and 117 did so for a 33% response rate.

American Chamber of Commerce in Taipei Suite 706, Worldwide House 129 MinSheng East Road, Section 3, Taipei 10596, Taiwan Tel: +886-2-2718-8226 Fax: +886-2-2718-8182 www.amcham.com.tw

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2011 Business Climate Survey

Continued optimism, but reinforcing the need for several crucial changes Message from 2011 AmCham Chairman Bill Wiseman

AmCham Taipei ran our first Business Climate Survey since 2002 to get a read on our members’ view of the Taiwan’s economy and investment environment. The Chamber recently asked our 351 voting delegates from corporate sustaining and company members – a strong representation of CEOs and business leaders from across a wide spectrum of industries – to answer 22 questions on the subject. I would like to express AmCham’s gratitude to the 117 members (33%) who took the time to fill out the online questionnaire – and our congratulations to Larry Chang of BRS Nike, the respondent who won the lucky draw of a round-trip plane ticket within Asia. The results of the survey will be of great value to AmCham in crafting policy and advocacy positions to more effectively represent members’ needs and interests. We also offer the results to Taiwan government policymakers as reference on the views and expectations of multinational companies based on their practical experience conducting business in Taiwan. The results of the survey reflect the broad themes put forward in AmCham’s 2010 Taiwan White Paper: Taiwan currently enjoys a strong business climate, but Taiwan must do better to compete on equal terms with top investment locations in Asia. Our members expressed their baseline optimism on the economy and doing business in Taiwan. The majority of respondents reported 2010 to be an excellent year for business performance, with 2011 shaping up to be as good or possibly even better. Over half of the companies responding indicated plans to increase investment in the coming year, and more than 80% had positive views of the five-year outlook in Taiwan. ECFA was seen as good for Taiwan and good for their businesses, and Taiwan was described as a safe, friendly, easy place to live. On the basis of the survey results, the Taiwan government clearly deserves commendation for several important achievements. The respondents cited the noteworthy progress in cross-Strait transportation, cross-Strait economic links, improved IPR protection, and the adjustment in corporate income tax rates to make Taiwan more competitive within the Asian region. But in a number of other areas – many of them related to human resources – our delegates view progress as disappointingly slow or lacking altogether. The same conclusion emerged on their views of major risks facing enterprise in the coming years. Many companies face problems of recruitment and retention within Taiwan, yet still confront constraints on their ability to freely hire qualified technical or managerial personnel from outside Taiwan. Our delegates see the strong qualities of the available labor in Taiwan – hardworking, loyal, and easy to train – but also the gaps, in particular less creativity and initiative, relative to the world-class talent available in other markets. Additionally, there is concern that in several sectors – presumably for relatively senior technical and financial services personnel – there is a serious and growing under-supply of available talent, creating a constraint to further growth in these sectors. The high tax rate on personal income was cited as a significant burden to business performance, as it discourages many talented individuals from accepting assignments to Taiwan. At up to 40% in the highest bracket, it is arguably the steepest rate among key markets in the region. When asked what the Taiwan government can do to facilitate business, “reduce personal taxation” was mentioned second only to “simplify government bureaucracy.” Cutting taxes, and thereby putting more money into the economy to stimulate consumption, would also address the concern raised by many respondents about the level of local demand. Our delegates continue to express frustration on the topics of government inefficiency, inconsistent regulatory interpretations, and outdated or inadequate laws – again, very much in line with AmCham Taipei’s 2010 Taiwan White Paper. In meetings with the AmCham leadership, high-level government officials have indicated that they recognize these problems and are working to make improvements. Electronic copies of the complete survey will be shared with respondents, and they are also available to other AmCham members and other interested parties upon request. In closing, I would like to extend the Chamber’s hearty thanks to Gordon Stewart of Independent Marketing Pty Limited for his invaluable guidance in the planning and execution of this project. Best regards,

Bill Wiseman 2011 AmCham Taipei Chairman

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2011 Business Climate Survey

EXECUTIVE SUMMARY 2011 Forecast for revenue and profit growth

2010 Profitability

Increased Investment in 2011

Taiwan is a Good Environment for Doing Business • Revenue and profits were strong in 2010 • 2011 is expected to be at least as good, possibly better • Over half of respondents plan to increase investment in 2011 • A full 81% are optimistic about the five-year business outlook • Companies believe ECFA will have a positive impact on their businesses, and even more so on the Taiwan economy as a whole. • Taiwan is a safe, friendly, easy place to live in, though a number of aspects – such as storm drainage and drinking water supply – need improvement. • Many companies are considering strengthening their operations in Taiwan through M&A activity, if they can find an appropriate target.

But Slow Progress in Certain Areas Remains a Constraint on Growth • Significant progress has been achieved in cross-Strait relations and good progress in reducing corporate tax levels and tightening IPR enforcement. • But little or no progress has been seen regarding inconsistent regulatory interpretations, human resources restrictions, employment expenses, the ability to recruit appropriate new personnel, domestic protectionism, and financing costs. • Taiwanese employees have many excellent attributes. They are hardworking, productive, loyal and trustworthy, and easy to train. • Yet HR concerns are among companies’ biggest headaches. Taiwanese employees are still far from reaching “world-class standard,” falling short in terms of initiative, creativity, and well-roundedness. In many sectors, it is also difficult to find enough talent with the needed skills.

What Government Can do to Help • Simplify government bureaucracy and improve regulatory efficiency and consistency. • Reduce personal income tax rates, now among the highest in the region, to a level enabling Taiwan to be more competitive in attracting talent.

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2011 Business Climate Survey

Two Solid Years for Profitability

2010 Was a Good Year for Business Almost 3 out of 4 respondents say 2010 was either “very profitable” (20.5%) or “relatively profitable” (53%). No one reported suffering a “very large loss,” and the few who experienced a “relatively large loss” (2.6%) were mainly younger, developing companies. Entities established in Taiwan for more than 30 years were almost twice as likely as others to report a “very profitable” performance in 2010.

■ How would you characterize your Taiwan business' financial performance in 2010? 20.5%

Very profitable

53%

Relatively profitable 23.9%

Break-even or small profit/loss 2.6%

Relatively large loss Very large loss

Answered question: 117

0.0%

60 %

And 2011 is Expected to be as Good, or Even Better Asked for their forecast for the coming year, almost 80% of respondents projected an increase in profits over 2010 – with 17.1% anticipating “substantial growth” in both revenue and profits, and 53.8% expecting “modest growth” in both categories. Another 7.7% forecast “substantial growth in revenue and modest growth in profits,” while 2.6% expect “modest growth in revenue and substantial growth in profits.”

is is your Taiwan business' revenue and profits forecastforecast for 2011 compared with 2010? with 2010? ■ What What your Taiwan business' revenue and profits for 2011 compared Substantial growth in both revenue and profits Modest growth in both revenue and profits

17.1% 53.8% 7.7%

Remain the same Modest decline in both revenue and profits Substantial growth in revenue and modest growth in profits Modest growth in revenue and substantial growth in profits Modest growth in revenue and modest decline in profits Modest growth in revenue and no change in profits Answered question: 117

6% 7.7% 2.6% 2.6% 2.6% 0

60 %

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2011 Business Climate Survey

Continuing Plans for Investment

More than half to increase investment levels in 2011 A total of 54.3% of respondents say their company will increase its investment in Taiwan in the coming year, with 16.4% describing the increase as “substantially” more and 37.9% as “slightly” more. The proportion of expected new investment is even higher – 65% – from companies employing more than 850 full-time equivalent employees (FTEE). Only 8.6% of the companies are expecting to make any reduction in their level of investment.

■ What is likely to happen yourlevel entity's level of investment in the Taiwan over the next 12 What is likely to happen to your to entity's of investment in Taiwan over next 12 months? months? Substantial increase

16.4%

Slight increase

37.9%

No change

36.2%

Slight decrease

5.2%

Substantial decrease

3.4%

Don't know/can't say Answered question: 116 Skipped question: 1

0.9% 0

Five-year outlook is overwhelmingly positive A resounding 81% of the business leaders surveyed characterized the business outlook in Taiwan over the next five years as either “optimistic” (29.3%) or “slightly optimistic” (51.7%). Only 2.6% referred to themselves as “pessimistic,” and another 9.5% said they were “slightly pessimistic.”

■ How would you describe your five-year business outlook for Taiwan? How would you describe your five-year business outlook for Taiwan?

29.3%

Optimistic

51.7%

Slightly optimistic Neutral

6.9%

Slightly pessimistic

9.5%

Pessimistic

Answered question: 116 Skipped question: 1

2.6%

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2011 Business Climate Survey

Favorable View of ECFA

Positive results seen for their businesses Taiwan and China signed an Economic Cooperation Framework Agreement in June 2010, with Early Harvest provisions to come into effect from January 2011. When asked what effect they expect ECFA to have on their businesses, 57% of those answering the question said they foresee a favorable impact – with 15% describing the likely impact as “very positive.” Another 27.1% did not expect ECFA to have a significant impact on their business one way or the other, while 8.4% believe there will be a negative effect (1.9% calling it “very negative”).

■ What effect do you think ECFA will have on your business?

15%

Very positive Some positive

42%

Neutral

27.1%

Some negative

6.5%

Very negative

1.9%

Don't know/can’t say Answered question: 107 Skipped question: 10

7.5% 0

Even more positive results for Taiwan The overwhelming consensus of those surveyed is that ECFA will be good for Taiwan. A total of 88.8% of respondents said ECFA would bring net benefits to Taiwan, with 40.2% characterizing the likely outcome as “very positive.” Only 2.8% anticipate no major impact one way or the other, while 6.6% said ECFA will have “some negative” (4.7%) or a “very negative” (1.9%) impact on Taiwan.

■ What effect do you think ECFA will have on Taiwan? Very positive

40.2%

Some positive

48.6%

Neutral

2.8%

Some negative Very negative

1.9%

Don't know/can’t say

1.9%

Answered question: 107 Skipped question: 10

4.7%

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2011 Business Climate Survey

Taiwan is an Excellent Place to Live

Safe, friendly, and easy to live in Asked to rate 28 aspects of life in Taiwan, the respondents picked “My family feels safe in Taiwan” as number one in importance. Other key factors include the friendliness of the Taiwanese people, the quality medical and dental care, the ease of living in Taiwan, and the availability of alternative transportation options (i.e. buses, bike lanes, taxis, trains, sidewalks) when not using one’s own car.

■ The Top 10 Pluses for Living in Taiwan

Safe environment Friendly people Quality medical/dental care Taiwan is easy to live in Good transportation options Reliable electricity Excellent postal service Adequate shopping Excellent internet connectivity Excellent mobile phone coverage

Answered question: 98 Skipped question: 19

A. Strongly agree

B. Agree

C. Disagree

100

Net total (A+B-C)

But not everything is perfect Aspects that the respondents consider least desirable include: • Water runoff after storms is not well-controlled and results in flooding. • Insufficient activities are available for young people. • Taiwan does not provide quality drinking water. • Banking and other financial services need improvement. • Community library services are inadequate. Also rated low were the quality of the police and fire/rescue services, the sewage system, and the ability to travel by car to locations in Taiwan with minimal delays.

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2011 Business Climate Survey

Degree of Involvement in Mergers and Acquisitions

Moderate interest in M&As In the past 12 months, 15.3% of respondents pursued mergers or acquisitions with Taiwanese entities (3.6% of them failed to be completed). Another 23.4% considered M&As but did not pursue the idea. For the coming 12 months, 6.5% said they would definitely consider local M&A activity, while 22.4% said they would possibly consider it. The main drivers behind M&A were efforts to increase market access, enlarge the customer base, and acquire capacity.

■ Did your company pursue or consider M&A activity with a Taiwanese entity in the past 12 months?

■ Would your company consider M&A activity in Taiwan in the next 12 months?

4.5% 7.2%

6.5%

11.2% 3.6%

Definitely

Yes, and it was completed 19.6%

Yes, but it failed

23.4%

Possibly

22.4%

Yes, and it is still in process

Unlikely Definitely not

No, but considered

61.3%

No, did not consider

Don't know

19.6%

20.6%

Prefer not to answer

Answered question: 111 Skipped question: 6

Answered question: 110 Skipped question: 7

Some difficulties encountered in pursuing M&A The number-one challenge faced by companies attempting a merger or acquisition was finding an appropriate target. Other major barriers cited were negotiating the valuation gap, conducting due diligence, financial issues, the transparency of regulations, and obtaining government approvals.

■ For M&A attempted in the past 12 months, what were the three greatest challenges? Finding an appropriate target Negotiation of valuation gap Conducting due diligence Financial issues Transparency of regulations Negotiating the letter of intent Post-deal restructuring Cultural issues Obtaining government approvals Obtaining permission for target to be sold Language issues Other issues Answered question: 17 Skipped question: 100

Major Challenge

Second

Third

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2011 Business Climate Survey

Coming to Grips with Constraints to Growth

Areas of progress – and lack of progress Survey-takers were asked to evaluate the degree of progress made in Taiwan in the past three years (2008-2010) in 29 different categories. From the 111 responses to this question, three categories – all related to cross-Strait connections – stood out as enjoying “significant progress”: • Direct flights to the mainland • Cross-Strait economic relations • China-Taiwan government relations Other aspects showing a high degree of progress were: • Taxation levels • Intellectual property rights But respondents viewed the following areas as having had the least progress or even worsening conditions: • Inconsistent regulatory interpretations • Human resources constraints • Employment expenses • Ability to recruit appropriate new personnel • Domestic protectionism • Financing costs

Rating the impact on business For the same 29 categories, respondents were asked to rank the degree of their impact on their operations. The following categories were identified as the 10 having the greatest overall impact: 1. Changes in local demand 2. Government bureaucracy 3. Inconsistent regulatory interpretations 4. Ability to recruit appropriate new personnel 5. Inadequate/out-dated laws 6. Taxation levels (company and personal) 7. Currency exchange rate fluctuations 8. China-Taiwan government relations 9. Employment expenses 10. Lack of transparency

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2011 Business Climate Survey

The major worries confronting business

HR concerns are among the most prominent The survey asked “what are the major risks facing your entity in the coming years?” The most numerous responses were a “global economic slowdown” and a “slowdown in Taiwan’s domestic consumption.” But on a more microeconomic level, the most frequently cited answer was “lack of human resources.” Another question dealt with the quality of that human capital. For the most part, the business leaders praised Taiwanese employees as being hardworking, very trustworthy, well-educated, easy to develop and train, highly loyal, and productive. But the survey-takers were divided on whether talent in Taiwan is easy to recruit and retain (it may well differ by industry sector and the size of the enterprise). Many responses also pinpointed weaknesses in the Taiwan workforce. In particular, they cast doubt on whether Taiwanese employees are “of world-class standard,” sufficiently well-rounded, and demonstrate enough initiative and creativity. Significantly, companies with larger workforces (more than 850 full-time equivalent employees – FTEE) are likely to be less positive than others in their assessment of Taiwanese human capital in such respects as EQ, creativity, productivity, and wellroundedness.

■ How would you describe the quality of the Human Capital in Taiwan? Hard working Very trustworthy Extremely well educated Very loyal Easy to develop/train Highly productive Show a high degree of Emotional Intelligence (EQ) Well-rounded Show a great deal of initiative Show a good deal of creativity Easy to recruit Easy to retain Of world-class standard Answered question: 107 Skipped question: 10

Strongly Agree

Agree

Disagree

Strongly Disagree

100

120

Don't Know/No opinion

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2011 Business Climate Survey

What the Taiwan government can do to help business

Cut bureaucratic red tape and personal income tax rates The survey asked business leaders to name the three main government actions that would help their entity’s business in the coming year. Cited by nearly half of all respondents was “simplify government bureaucracy,” indicating continuing frustration with regulatory inefficiency. Next came “reduce personal taxation,” reflecting widespread concern that while Taiwan has lowered its corporate income tax rate from 25% to 17%, the maintenance of a steep individual income tax rate of up to 40% for the top bracket makes it difficult for Taiwan to compete for talent with other countries in the region. Respondents also called for increased incentives for Foreign Direct Investment, acceleration and broadening of the ECFA process, further reductions in corporate taxation, improved R&D incentives, liberalization of the labor market, and the introduction of stronger rules on corporate governance.

■ What are the top 3 things the Taiwan government could do to help your entity in the next 12 months? Simplify Government Bureaucracy Reduce Personal Taxation Increase Direct Foreign Investment incentives Speed-up ECFA Reduce Corporate Taxation further Broaden ECFA Improve Research & Development incentives Liberalize the Labor market Introduce stronger Corporate Governance rules Reduce Tariffs Tighten enforcement of illegal imports Sign more bilateral trade deals Increase direct flights to/from the Mainland Improve Training Incentives Tighten enforcement of Intellectual Property rights Open up the tertiary education market to foreign players Other

Answered question: 107 Skipped question: 10

No.1

No.2

No.3

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Notes on the Sample

• The survey was conducted during November 2010 and was addressed, via email, to the principal leaders within AmCham’s corporate membership (usually the CEO), who each received unique links to take the survey online. • A total of 117 responses were received, for a 33% response rate. The survey consisted of 22 questions. • For 78.6% of the companies in the sample, the primary business goal in Taiwan is to provide or source goods or services for the domestic market. The next largest group described its objective as providing/sourcing goods or servicves for the Greater China market. • When broken down by industry classification, the sample was considered to be a very good representation of AmCham’s corporate membership and a fairly good representation of business in Taiwan in general. • By type of legal entity, the biggest group in the sample (41.9%) is made up of wholly owned subsidiaries of foreign companies. Next largest are branch offices (23.9%), wholly foreign-owned firms (17.1%), and wholly locally-owned companies (11.1%). • By length of time in business in Taiwan, 29% of the sample has had a physical presence in Taiwan for less than 15 years, 46% have been established here for 15-30 years, and 25% have been present for more than 30 years. • The sample covers a wide spectrum of companies by size of employment – from the very small to the very large. More than half employ fewer than 100 Full-Time Equivalent Employees (FTEE), with 27% employing between 100 and 500 people, and 22% with a workforce of more than 500.

American Chamber of Commerce in Taipei Suite 709, 129 MinSheng East Road, Section 3 Taipei 10596, Taiwan Tel: +886-2-2718 8226Fax: +886-2-2718 8182 www.amcham.com.tw

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expressing our appreciation to TOPICSâ&#x20AC;&#x2122; 2010 cover sponsors

The following four pages are devoted to an index of the articles that appeared in Taiwan Business TOPICS over the past year. In addition to the reference value, the index serves as a reminder of the broad assortment of subject matter that the magazine has covered during the past 12 months. If you have found these articles to be enjoyable reading and useful in your business, thanks are due to the companies that were instrumental in supporting the magazine through their role as cover sponsors: 3M, Corning Display Technologies, Ford Lio Ho, Fubon Financial, Grand Hyatt Taipei, Lockheed Martin, Mercedes-Benz, Microsoft, Pfizer, and Standard Chartered.

december 2010 â&#x20AC;˘ taiwan business topics

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Taiwan Business TOPiCs 2010 index Of arTiCles

section

category AGRICULTURE

Issues Issues Business

AMERICAN CHAMBER AmCham Events AmCham Events AmCham Events AmCham Events AmCham Events AmCham Events AmCham Events AmCham Events

page no. 15 12 31

article Peeling Away the Potato Problem Growing Risks from Smuggled Pesticides In Agriculture, the Goal is "High-Value"

issue March July September

Record Attendance at Hsieh Nien Fan AmCham Holds First CSR Forum Releasing the White Paper Happy Birthday, America Anniversary: 59 Years and Counting American Ball: "Out of Africa" Telecom Symposium: Focus on Digital Convergence Green Energy Symposium

March April July July September October November December

44 46 3 48 49 48 56 54

AUTOMOTIVE

Industry Focus Industry Focus Industry Focus Industry Focus

Auto Market: Back to Stability Tire Makers Expanding Vigorously in China Foreign Brands Cater to Diversifying Local Demand China's Aftermarket Brings Big Opportunities for Auto-Parts Makers

November November November November

38 41 42 44

BOOK REVIEWS

Books Books Books

Doing Business with the "Enemy" China Past, Present, and Future Tzu Chi: the Story of Taiwan's Charitable Powerhouse

February March November

31 30 34

BUSINESS CLIMATE

Issues 2010 Taiwan White Paper Editorial Taiwan Business Editorial Issues Issues Editorial Issues Cover Section Business Climate Survey

A White Paper for Southern Taiwan AmCham's annual macro and micro analysis Targeting the Investment Climate Make Profits in China, Invest in Taiwan Time to Promote Investment New Center Aims to Serve Investors More Gains in the Ease of Doing Business What the Survey Tells Us Mid-point Review of White Paper Issues Taiwan Economy: Back in the Race Analysis of membership survey results

April June July July October October November December December December December

CHEMICAL MANUFACTURING

Issues

New Idea for an Old Problem

July

COMPANIES

Cover Section Business Industry Focus Industry Focus

High-Speed Rail Gradually Getting Back on Track Chunghwa Post Diversifies Operations Uni-President has a Hit with Foreign Retail Brands High-Speed Rail Looks to Break Even

February July September October

18 26 41 42

CROSS-STRAIT

Editorial Cover Section Industry Focus

In Support of ECFA Thrashing Out ECFA Coming Soon: College Students from the Mainland

April April August

6 15 37

6 30 6 13 11 6 12 17 37

taiwan business topics â&#x20AC;˘ december 2010

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Taiwan Business TOPiCs 2010 index Of arTiCles

page no. 6 23 21

Editorial Cover Section Cover Section

article Whittling Down the Prohibited List From Next Year, Self-guided Chinese Tourists Gain So Far is Mainly in Tourism and Direct Flights

issue September October December

DEFENSE

Cover Section Cover Section Cover Section

Coming to Taiwan's Defense Can a "Brave Wind" Hit China? A New Direction for Offset

July July July

15 19 24

EDUCATION & TRAINING

Industry Focus Industry Focus Industry Focus Industry Focus

Raising the Bar for Taiwan's Higher Education Coming Soon: College Students from the Mainland Circumscribed Role for Foreign Universities Where the Taiwanese Learn Their English

August August August August

34 37 40 42

ENERGY

Industry Focus Industry Focus AmCham Events

Threat of Power Shortages Lies Ahead Using the Wind in the Energy Mix Green Energy Symposium

April April December

34 40 54

ENVIRONMENT

Industry Focus Cover Section Cover Section Issues AmCham Events

Ambitious Goals for Carbon Reduction Going for Green Tech Taipei 101 Aims to Go Green Cutting Greenhouse Gases at the Company Level Green Energy Symposium

April August August November December

37 18 21 12 54

Emerging vs. Developed Market Taiwan's Bond Rates Among World's Lowest Acceptance Growing for Futures Products Mid-point Review of White Paper Issues

March March March December

34 37 40 12

section