2012vol42no.11

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A S Ta pe i DU wancial R ST 's De epor RY fen t on se

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THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI

Taiwan Business

Topics Taiwan Economy:

LOOKING FOR A REBOUND

TAIWAN BUSINESS TOPICS

期盼景氣反彈

November 2012 | Vol. 42 | Issue 11 中華郵政北台字第 號執照登記為雜誌交寄 5000 11_2012_Cover.indd 1

NT$150

November 2012 | Vol. 42 | Issue 11 www.amcham.com.tw

ISSUE SPONSOR

2012/11/28 9:08:18 PM

CONTENTS NEWS AND VIEWS

8 Editorial

Take TPP Seriously Now, or Regret it Later

NOvE mb Er 2 0 1 2 vOlumE 42, N umbE r 11 一○ 一年十一月號

正視TPP 切勿遲疑

9 Taiwan Briefs Publisher

By Jane Rickards

發行人

Andrea Wu

12 Issues

吳王小珍

Editor-in-Chief

總編輯

Don Shapiro

Improved Doing Business Ranking; Rating Corporate Governance

沙蕩 美術主任 /

Art Director/ Production Coordinator

後製統籌

Katia Chen

台 灣 經 商 環 境 排 名 進 步 ； 公 司 治 理 誰占鰲頭

陳國梅

Staff Writer

採訪編輯

Jane Rickards

李可珍

Manager, Publications Sales & Marketing 廣告行銷經理

Irene Tsao

曹玉佳

Translation

翻譯

Yichun Chen, Frank Lin, Sonia Tsai 陳宜君, 林怡平, 蔡函岑

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 Taiwan Business TOPICS is a publication of the American Chamber of Commerce in Taipei, ROC. Contents are independent of and do not necessarily reflect the views of the Officers, Board of Governors, Supervisors or members. © Copyright 2012 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108台北市萬華區長沙街二段66號 發行日期：中華民國一○一年十一月 中華郵政北台字第5000號執照登記為雜誌交寄 ISSN 1818-1961

COVER SECTION

19 Taiwan Economy: Looking for a Rebound

期盼景氣反彈

By Jane Rickards

Although prospects for the coming year very much depend on what happens internationally, Taiwan can probably look forward to improved economic conditions in 2013.

Exports are beginning to pick up, and Chinese tourism and investment is likely to increase. The government also plans to make a strong effort to induce Taiwanese companies on the mainland to engage in new investments at home.

28 Benefiting from the Rise of Southeast Asia 29 Confronting the Brain Drain Is it losing talent to overseas or enabling Taiwanese professionals to develop international skills?

OFFICERS: Chairman/ Bill Wiseman Vice Chairmen/ William E. Bryson / David Pacey Treasurer: Carl Wegner Secretary/ William J. Farrell 2011-2012 Governors: William E. Bryson, William Farrell, Christine Jih, Edgard Olaizola, Neal Stovicek, Carl Wegner, Bill Wiseman.

2012-2013 Governors: Richard Chang, Sean Chao, Michael Chu, Louis Ruggiere, Revital Golan, David Pacey, Lee Wood, Ken Wu. 2012 Supervisors: Agnes Ho, Douglas Klein, Richard Lin, Fupei Wang, Jon Wang.

COMMITTEES: Agro-Chemical/ Melody Wang; Asset Management/ Christine Jih, Winnie Yu; Banking/ Victor Kuan; Capital Markets/ John Chen, Jane Hwang, C.P. Liu; Chemical Manufacturers/ Luke Du, John Tsai; CSR/ Lume Liao, Fupei Wang; Education & Training/ Robert Lin, William Zyzo; Greater China Business/ Helen Chou; 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, Peter Dernbach, Jeffrey Harris, Scott Meikle; Manufacturing/ Alan T. Eusden, Thomas Fan; Marketing & Distribution/ Wei Hsiang, Gordon Stewart; Medical Devices/ Susan Chang, Albert Lim, Tse-Mau Ng; Pharmaceutical/ David Lin, Edgard Olaizola, Jun Hong Park; Private Equity/ William Bryson; Public Health/ Jeffrey Chen, Dennis Lin, Dan Silver; Real Estate/ Tony Chao; Retail/ Prudence Jang, Douglas Klein; Sustainable Development/ Kenny Jeng, Davis Lin; Tax/ Cheli Liaw, Jenny Lin, Josephine Peng; Technology/ Revital Golan, John Ryan, Jeanne Wang; Telecommunications & Media/ Thomas Ee, Joanne Tsai, Ken Wu; Trade/ Stephen Tan; Transportation/ Michael Chu; Travel & Tourism/ Anita Chen, Pauline Leung, David Pacey.

4

TAIWAN BUSINESS

30 Changes Ahead for Freeway Drivers

A new elevated section will open soon, and toll charges will be calculated by distance.

By Timothy Ferry

taiwan business topics • november 2012

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nove mbe r 2012 • volume 42 n umbe r 1 1

ANALYSIS

ISSuE SPONSOr

34 ITRI: Innovating Taiwan 38 Corning’s ITRI Experience

Integrate with Smart Control System

By Emily Chen

Online control & monitoring system, automatically dimming system, real-time emergency response system, analytics, and reporting system to increase operation efficiency

Lower maintenance & operating costs

BEHIND THE NEWS

39 Corruption Remains an Issue

Several recent scandals show that the new Agency Against Corruption will have its work to do.

Eco-friendly Amalgam adopted, 99% recyclable

By Debby Wu

INDuSTrY

F

Efficient, saving energy

CuS

Simple installation

Save more than 50% compared to traditional lamp Save up to 90% energy consumption

speciaL report on DeFense building a Credible Deterrence 勝方光電科技股份有限公司 AMKO SOLARA Lighting Co.,Ltd. 221新北市汐止區大同路三段218號3樓 3F., No.218, Sec. 3, Datong Rd.,Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.)

By Don Shapiro

tel:+886-2-8647-3072 fax: +886-2-8647-3221 www.amkosolara.com

Game changing innovator in energy-efficient lighting Game-changing innovation is a beautiful thing. Disruptive products and services are unleashed. New markets are created.

Amko SOLARA is a such an innovator in energy-efficient lighting. Our smart street lights and meters help governments do more with less. We

44 The Era of Asymmetry

At a time of unequal military power with China, Taiwan needs to adopt new and innovative methods to reduce the likelihood of attack.

help free up money and find extra energy capacity by investing locally and bringing a fresh perspective to energy efficient technologies. That enables governments to improve their administrations and social welfare with substantial resources and political capital.

48 The U.S. as Prime Arms Supplier A record US$12 billion in Foreign Military Sales to Taiwan was transacted in 20102011.

Our company has been growing in the energy-efficient lighting industry since 2005. We are now one of the leading businesses promoting induction lighting, LED, and smart control systems. Committed to improving energy

51 Uncle ROC Needs You!

At a time of unequal military power with China, Taiwan needs to adopt new and innovative methods to reduce the likelihood of attack.

efficiency, advancing global sustainability, and stimulating economic growth through technology and innovation, Amko SOLARA has developed exclusive technologies that can enhance lighting output and make lighting solutions even more efficient. Amko’s smart control and monitoring

AMCHAM EVENTS

solutions have been adopted by over 50 lighting projects around the world.

54 Carnival Comes to Taipei: The 2012 American Ball

Clients of Amko’s include Fortune Global 500 companies and government entities such as Coca-Cola, Kellogg’s, Kimberly-Clark, General Motors, Volkswagen, The Belle Grand Manila Bay Resort & Casino, Jaguar and Land Rover dealerships, Maserati and Ferrari, Bose Sound Systems, the Los Angeles Department of Water & Power, The City of Carlsbad California,

taiwan business topics • november 2012

11 Contents.indd 5

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EADS France, Bombardier, London Heathrow Airport, Dubai Ports World, The City of Puteaux France, and so on.

2012/11/28 10:27:14 PM

advertorial

a messaGe From irpma

Toward a Multi-Win Solution for Drug Pricing

D

iscussions of the long-term viability and effectiveness of the national healthcare system in Taiwan invariably come down to the question of how to set a fair and reasonable reimbursement price for pharmaceuticals. For the Department of Health (DOH) and its Bureau of National Health Insurance (BNHI), as well as for government policymakers as a whole, a major consideration is how to keep healthcare costs under control, so that Taiwan’s highly popular NHI program can be financially sustainable for the long-term. Since 1995, BNHI has carried out seven rounds of comprehensive, and often quite deep, price cuts on medications.

The pharmaceutical industry, while sensitive to the budgetary pressures faced by the NHI, has grown concerned in recent years as Taiwan’s drug reimbursement prices have fallen well below those of any other major market in the region. In some cases, the price has become so low that manufacturers find it no longer practical to maintain a product in this market, especially when other governments may be referencing the Taiwan price for use in their own pricing decisions. After spending billions of dollars on research to develop a new drug, manufacturers may also be hesitant to launch an innovative new medication in Taiwan if the price is far below what other markets are offering.

The risk is increasing that the quality of healthcare may be sacrificed to cost control, depriving doctors and their patients of access to various treatments.

In an effort to remedy this problem, BNHI has proposed adoption of a Drug Expenditure Target (DET) after much discussion. With this method, each year the government would set a target for the amount of increase in drug expenditure in the following year, according to the agreed growth rate for the NHI total budget. Industry would give a commitment that if the actual expenditure exceeds the target, a reasonable price adjustment would make up the difference.

The DET option was formally presented two months ago at the monthly meeting of the DOH’s Medical Expenditure Negotiating Committee (MENC), which consists of scholars and other experts, government officials, and representatives from the hospitals, payers and consumer groups. So far the deliberations have ended inconclusively, and the discussion is due to continue at the next meeting in December.

If at that point there is still no decision to adopt DET and control drug expenditure, BNHI will be bound to revert to the practice of conducting a Price Volume Survey (PVS). The PVS would be followed by the eighth round of cuts in the drug price.

Such price cuts cause the reimbursement level for thousands of drugs to change, setting off a retendering process that inevitably ends with many drugs dropped from the hospitals’ formularies. Patients are dismayed when they find that drugs they may have used for years are no longer available. The situation leads to high administrative costs

for the hospitals, while the doctors and patients lose access to familiar and effective medicines, including many items required for treatment. In the long run, an increasing number of important drugs will be pulled off the shelf after each price cut.

In addition, the continuous price cuts and resulting low drug-reimbursement rates have discouraged multinational companies from putting new investment into Taiwan. It is a worrisome sign that the amount of multinationals’ investment in conducting clinical trials in Taiwan, as well as the number of Taiwan patent applications from such firms, has been steadily declining.

Adopting DET would be in the best interest of all parties: • For physicians and patients, it would help assure a steady pharmaceutical supply and access to new drugs.

• F o r t h e h o s p i t a l s , i t w o u l d enable drug fees to be managed according to plan, without compromising on drug quality.

• For the pharmaceutical industry, it would provide a more predictable market environment for maintaining stable services.

• For BNHI, planned management would help control the overall growth of drug expenditures.

As Taiwan implements its Second Generation NHI program next year, IRPMA urges the government to put drug-reimbursement policy on a new track by adopting DET.

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

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taiwan business topics • november 2012

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2012/11/28 10:31:59 PM

來自中華民國開發性製藥研究協會的訊息

廣編特輯

邁向多贏的藥品定價

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台灣，討論全民健康照護制度長期實施的可行性和效能時， 總會回到一個問題：如何設定公平與合理的藥價給付。對衛 生署及所屬的中央健保局，以及全體政府政策制定者而言， 一個重大考量是如何控制健保成本，使頗受民眾支持的全民健保計畫 能在財務上維持下去。自1995年以來，中央健保局已七度對藥品進 行全面性、且通常幅度相當深的價格調降。 製藥業界雖瞭解全民健保所面臨的財務壓力，近年來卻越來越擔 心，因為台灣的藥品給付價格已遠低於亞太地區其它主要市場。某些 個案，藥價甚至低到讓製造商已無法在台灣市場上持續提供產品，尤 其是當其它國家政府在進行藥價決策時，可能會參考台灣的價格。在 為了開發新藥而花費數十億美元進行研究後，若台灣的價格遠低於其 它市場，製造商對於在台灣推出創新性新藥的時程，可能也會有所遲 疑。 為了控制成本而犧牲健保醫療品質的風險不斷升高，也剝奪醫師和 病患使用不同治療方式的權利。 為了補救這個問題，經過多方討論後，健保局提出設定藥品費用支 出目標（DET）的建議。每年政府依照全民健保總額預算被核准的 成長率，設定下一年度藥品費用支出的目標值。若實際支出超出目標 值，業界會承諾做出合理的價格調整，以補足差額。 藥品費用支出目標的提案，已於兩個月前在衛生署全民健保醫療費 用協定委員會的會議中正式提出，該委員會由學者、專家、政府官 員，以及來自醫療院所、付費者和消費者代表組成。目前相關討論已 在沒有得出結論的情況下暫停，預定在12月的會議中繼續討論。 若到時仍未決定採用藥品費用支出目標方法以控制藥費支出，中央 健保局將須恢復實施藥價調查（Price-Volume Survey）的慣例，接 著會是第八次的健保藥價調降。 藥價調降造成數千種藥品的給付標準出現變動，導致重新招標，最 後無可避免地，許多藥品從醫院處方集中消失。病患發現無法再取得 他們可能已經使用多年的藥品時，往往感到失措不解。醫療院所在付 出極高行政成本的同時，醫師與病人也失去了他們常用且有效治療疾 病的藥品，其中更不乏某些必要藥品。長此以往，每一次藥價調整 後，醫師與病人都將面臨越來越多重要的藥品退出市場。 此外，不斷調降藥價及其所造成的低藥品給付價格已令跨國企業氣 餒，對台新投資不斷減少。在台灣進行臨床試驗的跨國投資總額和這 類業者向台灣提出專利申請的案件數不斷下滑，是令人擔心的跡象。 採行藥品費用支出目標方法將符合各方的最佳利益： ．對醫師和病患而言，有助於確保穩定的藥品供應和新藥取得管 道。 ．對醫院來說，可照計畫管理藥費，無須犧牲藥物品質。 ．對製藥業而言，提供較可預測的市場環境以利提供穩定的服務。 ．對中央健保局來說，經過規劃的管理有助於控制藥品費用支出的 整體成長。 在台灣明年實施第二代健保的同時，中華民國開發性製藥研究協會 敦促政府，透過採行藥品費用支出目標方法，讓藥品給付政策步上新 軌。

中華民國開發性製藥研究協會 （IRPMA） 台灣台北市南京東路五段188號9樓之8 （郵遞區號10571） 電話：+886-2-2767-5661 傳真：+886-2-2746-8575 網址：http://www.irpma.org.tw

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Take TPP Seriously Now, or Regret it Later

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he meeting this month in Cambodia of leaders of the member countries of the Association of Southeast Nations (ASEAN) provided another wake-up call for Taiwan of the risk of being isolated economically as regional trade blocs are formed without its involvement. The ASEAN conference discussed a proposal for the group’s cooperation with China, Japan, Korea, India, Australia, and New Zealand to form a Regional Comprehensive Economic Partnership – an initiative that Taiwan is virtually certain to be excluded from for political reasons.

More likely, though by no means certain, is that Taiwan would be welcomed to join another incipient organization, the U.S.-led Trans-Pacific Partnership (TPP), now being negotiated by 11 countries. President Ma Ying-jeou has proclaimed a goal for Taiwan to enter the TPP within eight years. But political factors are not the only consideration as to whether that hope can be translated into reality.

As the ASEAN leaders were gathering in Phnom Penh, a forum at Tamkang University elicited comments from several prominent domestic academics warning that Taiwan is still unprepared to present a serious candidacy for inclusion in TPP. Professor of international relations Ho Szu-yin, a former deputy secretary-general of the National Security Council, for example, stressed that “Taiwan’s market liberalization is still far from reaching the threshold that the TPP requires.” He cautioned that failure to liberalize further, and the resulting marginalization of the Taiwan economy, would have significant consequences for national security.

Similar concerns about the potential loss of trade competitiveness were voiced this month by leading economists at local think tanks. Those fears echo what AmCham Taipei has been

saying for some time in our annual Taiwan White Paper and on other occasions.

The eight years envisioned by President Ma for TPP accession may seem like a long time, but to be successful, serious preparations need to start now. AmCham urges the president to establish a high-level bipartisan task force headed by a respected senior official or influential corporate leader – and including members with practical business experience – to lay the groundwork for Taiwan’s campaign for TPP accession. The group’s first order of business should be to clearly identify the extent of the gap between Taiwan’s current regulatory regime and the likely future requirements under the TPP, which is being characterized as a “high-standard, 21st-century trade agreement.” AmCham’s White Paper and similar documents from our European and Japanese counterparts would serve as important reference as to the views of multinational business.

The task force could then make concrete recommendations to the government on measures Taiwan should undertake to ready itself for TPP. Some of these steps would be aimed at demonstrating Taiwan’s commitment to liberalization and thus its suitability for TPP candidacy. Others would target a domestic audience, satisfying local industries whose interests might be affected by economic opening that the government will help to cushion any adverse impact.

Unless urgent attention is given now to building a political environment internationally and domestically that is conducive to TPP accession, Taiwan may later find to its sorrow that it has been reduced to second-class status in the global trading community. An economy that lives by foreign trade cannot allow that to happen.

正視TPP 切勿遲疑

東

書」和其他方式表達。

個形成中的貿易集團，恐將陷於經濟孤立。這次會

達成目標，現在就必須開始準備。台北市美國商會呼籲總統

議討論了東協與中國、日本、韓國、印度、澳洲和紐西蘭合

設立涵蓋兩大黨的高層小組，由受敬重的政府首長或有影響

作組成「區域全面經濟夥伴關係」的建議，而台灣幾乎確定

力的企業界大老主持，延攬具有實際商務經驗的成員，為台

將因政治原因遭排除在外。

灣加入TPP的行動打好基礎。TPP號稱是「高標準的21世紀

南亞國家協會會員國領袖本月在柬埔寨舉行的會 議，對台灣又是一記警鐘，提醒台灣若無法參與幾

馬總統設想在八年時間內加入TPP，也許看似很久，但要

美國主導推動的跨太平洋夥伴協議（TPP），目前有11個

貿易協定」，這個小組的首先要務應該是清楚確認台灣現行

國家參與談判，台灣比較可能獲歡迎加入這個也在草創階段

法規制度與TPP未來可能規定間的差距程度。跨國企業對此

的組織，但目前仍難預料。馬英九總統已宣示台灣要在八年

有何看法，台北市美國商會的白皮書以及歐洲、日本在台商

內加入TPP的目標，然而這個希望是否能夠實現，考量的不

會的類似文件可作重要參考。

只政治因素。

這個小組接下來可以對政府提出具體建議，指出台灣應該

東協各國領袖集會金邊時，淡江大學舉辦了一場座談會，

採行那些措施，為加入TPP做好準備。其中有些措施的目的

幾位與會的知名國內學者警告，台灣還沒有準備好展現是認

是要證明台灣致力自由化，因此適合加入TPP。其他措施則

真想要加入TPP。例如，曾任國家安全會議副秘書長的國際

以國內民眾為對象，要讓利益可能因經濟開放受影響的本地

關係教授何思因強調，「台灣的市場自由化離加入TPP的門

業者相信，政府會協助緩和負面衝擊。

檻還很遠」。他並警告，如果不能進一步自由化，導致台灣 經濟邊緣化，對國家安全會有重大影響。 本地智庫的重要經濟學家本月也表示，同樣擔心台灣可 能喪失貿易競爭力。這些憂慮呼應台北市美國商會長期以來

除非台灣現在立即注意此事，在國內外營造有助加入TPP 的政治環境，以後可能發現自己在全球貿易淪於二流地位， 追悔莫及。台灣這種高度仰賴對外貿易的經濟體不容發生此 種狀況。

的看法，這種看法己透過商會年度政策建言報告「台灣白皮 8

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2012/11/28 10:28:06 PM

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— BY jane ri ckards —

CROSS-STRAIT

Economic Indicators

XI JINPING TAKES REINS OF COMMUNIST PARTY In a once in a decade leadership transition in China, Xi Jinping in mid-November became general secretary of the Chinese Communist Party, succeeding Hu Jintao. Xi was also appointed head of the party’s top military body and will take over the presidency from Hu Jintao in March, giving him two of the PRC’s three most important posts. The line-up of the new Politburo that was also inaugurated is considered by analysts to be rather conservative, indicating that the new leadership will be unlikely to take radical approaches to solving China’s many social problems. Besides Xi, Vice President Li Keqiang and the Vice Premier in charge of economic affairs, Wang Qishan, were named to the decision-making Politburo Standing Committee. All are considered to be conservative on reform.

In his capacity as chairman of the Kuomintang, President Ma Ying-jeou congratulated Xi on his promotion, saying he looked forward to strengthened mutual trust and closer cooperation between Taiwan and China.

Taiwan stock exchange index & value

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

8000

135

7750

120

7500

105

7250

90

7000

75

6750

60

6500

45

6250

30

6000

15

5750

0

October chart source: TwSE

Unit: NTD billion

Current Account Balance (2012 Q2) 10.00 Foreign Trade Balance (Oct) 3.255 Foreign Trade Balance (Jan-Oct) 22.87 New Export Orders (September) 37.663 Foreign Exchange Reserves (end Oct) 399.22

Unemployment (September) 4.32% Overnight Interest Rate (Oct 29) 0.385% Economic Growth Rate (2012 Q2) r -0.18% Annual Change in Industrial Output (Sept) p 3.00% Annual Change in Industrial Output (Jan-Sept) p -1.51% Annual Change in Consumer Price Index (Oct) p 2.36% Annual change in Consumer Price Index (Jan- Oct) p 2.00%

NOTE: P-PRELIMINARY, R-REVISED

T h e g o v e r n m e n t ’s M a i n l a n d Affairs Council said Beijing is likely to continue its existing policies towards Ta i p e i i n t h e s h o r t t e r m . S o m e analysts, such as Alice L. Miller of the Hoover Institution, consider that China under Xi may become more flexible towards Taiwan in the coming years, the Central News Agency (CNA) reported from the United States. Miller pointed to Xi’s long tenure in Fujian Province, where he eventually became governor. During this time, Xi became familiar with Taiwan when he sought to attract Taiwanese investment to boost Fujian’s emerging free-market economy.

Miller was quoted by CNA as saying “perhaps Xi is the guy” to consolidate cross-Strait links and “even to establish real political dialogue.” At the same time, she noted that there are still “quite powerful constraints” on Xi’s leadership.

THREE ALLEGED SPIES FOR CHINA ARRESTED Three retired Taiwanese military officials were arrested in late October on suspicion of leaking secrets to China in an incident highlighting underlying military tensions between

Year Earlier 11.01 3.34 21.3 37.0 393.33 4.28% 0.397% 4.52% 1.71% 7.73% 1.26%

SOURCES: MOEA, DGBAS, CBC, BOFT

Taiwan and the mainland despite warming business ties. The Ministry of National Defense said in a statement that it began an investigation into Chang Chih-hsin, former head of the political warfare division at the navy’s meteorology and oceanography office (METOC), in March this year, shortly before his retirement. "Chang, who initiated contacts with Chinese mainland officials while still serving in the navy, was suspected of luring his former colleagues and making illegal gains," the statement said. Two other former military personnel were arrested, but the ministry declined to give details or their titles. The ministry added that no classified information had been leaked and no active duty military were involved in the case. But the Chinese-language Apple Daily quoted a retired naval general as saying the naval METOC kept highly classified information such as oceanographic mapping and charts for use by the island's submarines and other warships. A retired general was quoted by the paper as saying if China obtained this classified information, it would be aware of the operations of Taiwan’s submarines.

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DOMESTIC COMMERCE UNDER SECRETARY SANCHEZ VISITS TAIPEI The highest ranking official of the U.S. Department of Commerce to visit Taiwan in many years, Under Secretary for International Trade Francisco Sanchez, met with AmCham Taipei leaders and a group of committee co-chairs on October 31. He received a briefing on important outstanding trade issues that the Chamber would like to see addressed.

Sanchez presented AmCham with a Certificate of Appreciation for Achievement in Trade “for sustained efforts to promote and grow the commercial relationship between the United States and Taiwan.” He was also the guest of honor at a reception hosted by the Ministry of Foreign Affairs to celebrate the granting of visa-waiver status by the United States to citizens of the Republic of China on Taiwan.

n

b

24.71 26.49

23.26 23.94

2012

2011

2012

21.68

19.79 27.58

227.26 250.13

46.1

Europe

2011 Imports

10

2012

30.76

U.S.

2011

238.34 259.63

2012

26.92

15.51

2011

TOTAL

27.75 41.99

15.31

2012

Exports

s

DPP APPOINTS JOSEPH WU AS NEW ENVOY TO U.S.

ASEAN

40.23

44.36

98.24 36.22

38.45 104.93

2011

f

I N T E R N AT I O N A L

TAIWAN'S JANUARY- october TRADE FIGURES (YEAR ON YEAR COMPARISON)

Japan

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ber 6. Declaring that in the past four years the U.S.-Taiwan relationship had reached its highest point in three decades, Ma said he looked forward to an even stronger partnership in the years ahead. A statement issued by the Ministry of Foreign Affairs said: “During President Obama’s first term in office, relations between Taiwan and the United States have steadily improved. Mutual trust has been enhanced, while exchanges, dialogue and cooperation in many different areas have reached new heights. The Republic of China (Taiwan) and the United States have long enjoyed strong relations and have shared values, such as democracy and respect for human rights. The continued stability across the Taiwan Strait is not only of extreme importance to peace and security in the Asia-Pacific region, but is also in the common interests of our two countries.”

President Ma sent a message of congratulations to President Barack Obama for winning a second term in office in the U.S. elections on Novem-

Former Executive Yuan secretary general Lin Yi-shih was indicted on corruption charges in late October,

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accused of pocketing about NT$60 million (US$ 2 million) in bribes and concealing illegal gains, among other charges, the Supreme Prosecutor’s Office Special Investigation Division said. Lin, 42, had already been taken into custody in July after a local magazine reported that in exchange for a NT$63-million bribe, he helped a Kaohsiung company secure a slag treatment contract from a subsidiary of China Steel Corp. in 2010 when he served as a KMT lawmaker. Lin’s mother, who allegedly also received a payment, was indicted as another principal offender in the case, while Lin’s wife and two of his maternal uncles were charged with money laundering for concealing the funds on Lin’s behalf. Lin was later released on NT$50 million bail. The case marked the first instance of corruption involving a member of the Ma administration.

TAIWAN CONGRATULATES OBAMA ON RE-ELECTION

LIN YIH-SHIH INDICTED ON GRAFT CHARGES

HK/China

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Unit: US$BN Source: BOFT

The opposition Democratic Progressive Party (DPP) in mid-November announced that it had appointed Joseph Wu, executive director of the party’s policy research committee, to be its representative to the United States. A noted political scientist, Wu also served as Taiwan’s de facto ambassador to the United States during the DPP administration of former president Chen Shuibian. DPP chairman Su Tseng-chang said the party will reopen its representative office in Washington, which closed 12 years ago after the election of Chen Shui-bian, but that Wu would divide his time between Taipei and Washington. We said his mission will be to help the party communicate with the U.S. executive branch, Congress, think tanks, and the Taiwanese expatriate community across the United States.

He expressed the hope that Su will visit the United States after the office becomes operational. The move comes after unnamed U.S. officials last year

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MR. WU AND MR. KING GO TO WASHINGTON — Joseph Wu, left, will be the opposition Democratic Progressive Party's representative in the U.S. capital, while King Pu-tsung (right) will be Taiwan's de facto ambassador to the United States. photos: cna

voiced doubts to the Financial Times about then DPP presidential candidate Tsai Ing-wen’s ability to handle cross-Strait relations, suggesting that the party is now seeking to improve its communication and relationship with Washington.

In a rel ated develo pment , the U.S. government in mid-November approved the appointment of the Ma administration’s new envoy to Washington, King Pu-tsung. King, who is one of Ma’s closest confidantes and political advisers, once served as a visiting scholar with the Brookings Institution. He will reportedly take up his post in early December, succeeding Jason Yuan, who is now secretarygeneral of the National Security Council.

BUSINESS HSBC LIFE TAIWAN SOLD TO ALLIANZ As part of a broader strategic alliance between Germany’s Allianz and HSBC Holdings PLC, the assets and liabilities of HSBC Life (International), Taiwan Branch have been

sold to Allianz Taiwan Life Insurance for US$18 million. HSBC Life’s statutory deposits estimated at US$10 million were not included in the transaction. The move is part of a 10-year exclusive bancassurance distribution agreement for life insurance in Asia whereby Allianz life insurance products will be distributed by HSBC in China, Indonesia, Malaysia, Australia, Sri Lanka, and Taiwan. Life insurance products will be provided by strategic partners of Allianz in Brunei and the Philippines. The agreement will allow Allianz to enlarge its bancassurance distribution reach to an additional segment of retail banking customers in its major growth markets in Asia Pacific. It also forms part of a business strategy for HSBC to significantly lower its stakes in Asian life insurance markets. The deal is still subject to regulatory approvals and is expected to be completed in the first half of next year.

ING TO MAKE UP FOR PENSION FUND LOSSES Dutch financial giant ING Groep in early November agreed to pay

US$8.8 million to the government’s labor and pensions fund to compensate for investment losses allegedly relating to irregular trading activities. ING will pay the full amount sought by Taiwan, saying in a statement that it was doing it as a gesture of good will in order to be able to continue to develop business on the island, although it had no legal obligation to do so. The move came after the Council of Labor Affairs said on October 31 that ING would be banned from investing on behalf of the Taiwan government for five years. According to Bloomberg, the Financial Supervisory Commission had sent a warning to ING Securities Investment and Trust Co., the local unit involved, asking it to fire the employee responsible for the trading.

The FSC action followed complaints from opposition lawmakers. ING initially rejected the compensation demands, saying the losses related to the employee’s activities were limited, but later changed its position. The employee’s contract was eventually terminated.

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Improved Doing Business Ranking Taiwan has moved up in the annual World Bank survey, but still has areas needing improvement.

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f the numerous international surveys of countries’ competitiveness, the annual Doing Business report by the World Bank is one of the most concrete, comparing specific business regulations in different markets and their practical impact on companies operating there.

Results of the 2013 survey, the tenth year the exercise has been conducted, were released in mid-October, and for Taiwan (or “Taiwan, China” as the World Bank insists on calling it) the outcome was heartening. From last year’s ranking in 25th place among the 183 economies surveyed, Taiwan moved up nine places to take the 16th spot on an expanded list of 185 economies. Within Asia, it was surpassed only

by Singapore (number 1 internationally for the seventh consecutive year), Hong Kong (2), Korea (8), and Malaysia (12). Globally, Singapore and Hong Kong were followed by New Zealand in third place, the United States fourth, and Denmark fifth. Poland (55) was rated the most improved economy, and Georgia was a new entrant among the top 10.

China was in 91st place.

This year the survey added a subtitle: Smarter Regulations for Small and Medium-size Enterprises. The introduction explains that SMEs usually lack the resources enjoyed by large corporations to deal effectively with regulatory challenges. In addition, in most economies SMEs are the “key drivers of competition, growth and job creation.”

Doing Business rates countries’ performance in 10 different categories. The area in which Taiwan made the most significant progress this year was in “Dealing with Construction Permits,” where it leaped 67 places from number 76 in the 2012 survey to number nine. The survey found that whereas it previously took 125 days to complete the 25 procedures required to obtain a permit to build a warehouse, Taiwan has now reduced the process to 11 steps that can be completed in an average of 94 days. The procedures include arranging for water, electricity, and telecommunications connections, as well as obtaining the actual building permit and presenting the construction plan. Taiwan has expedited the process by establishing a “one-stop shop” for applying for several approvals in one place, and by introducing a “risk-based and self-regulatory inspection system.”

A second category in which Taiwan dramatically improved its ranking was “Protecting Investors,” where it ranked number 32 this time as opposed to 79 last year, a gain of 47 places. The exercise examines a situation in which a director and majority shareholder of a publicly traded company arranges for the company to purchase equipment – at higher than the going price – from another company he owns.

Do such related-party transactions need to be disclosed and approved?

What legal remedies are available for the other shareholders if they wish to challenge the transaction?

The report noted that since release of the previous survey, Taiwan has “strengthened investor protections by increasing disclose require12

台灣經商環境排名進步 台灣在世界銀行年度經商環境評比的排 名上升，但仍有需要改善之處

有

關國家競爭力的國際性調查不少，世界 銀行年度經商環境報告是最具體的調查 之一，評比不同市場的特定商業法規， 以及它們對在當地營業公司的實際影響。 這項調查已進行10年，2013年的報告於10月 中公布，對台灣（或是世界銀行所稱的「中國 台灣」）來說，這次的結果相當令人鼓舞。去 年有183個經濟體接受調查，台灣名列第25， 今年增加到185個經濟體列名，台灣的名次上升 九名，排在第16位。放眼亞洲，排名領先台灣 的只有新加坡（連續第七年名列世界第一）、 香港（第二名）、韓國（第八名）和馬來西亞 （第12名）。就全球而言，新加坡和香港之 後是紐西蘭，美國名列第四，丹麥第五。波蘭 （第55名）是進步最多的經濟體，新秀喬治亞 躋身前10名。中國則排名第91。 今年這項調查報告增加了副題：更靈活的 中小企業法規。簡介中說明中小企業通常缺少 大企業享有的資源，以有效因應在法規方面遭 遇的挑戰。此外，在大部分的經濟體，中小企 業都是「推動競爭、成長和創造就業的主要力 量」。 經商環境報告檢視各國在10個不同項目的表 現。台灣今年進步最大的項目是「申請建築許 可」，由2012年的第76名一躍67個名次，提升 到第九名。這次調查發現，以往得花上125天時 間，才能完成25項規定手續，取得建築倉庫的 許可，但如今台灣已將程序簡化為11項步驟， 平均94天就能夠完成。這些手續包括申辦接 水電和電話，以及取得實際建築許可和提出建 築計畫。台灣為加速申辦流程，建立「單一窗 口」，可以一次辦好幾項手續，並且採行「基 於風險的自我監管檢查制度」。 台灣排名也有大幅進步的第二個項目是「保 護投資人」，由去年的79名提升到32名，進 步了47名。這項調查檢視一種狀況，就是公 開上市公司的董事兼大股東若安排公司向他擁 有的另一家公司採購設備，而且價格高於通行 價格。這類關係人交易是否需要揭露和獲得批 准？如果其他股東想要質疑這項交易，是否有 合法的補救措施？ 報告指出，自前一次調查的結果公布以來， 台灣已「增加關係人交易的揭露規定，以及改 善涉及這類濫權交易案件的公司董事的賠償責 任制度，以強化對投資人的保護」。 台灣在「電力取得」項目排名第六，是個別

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Issues SUMMARY OF TAIWAN’S PERFORMANCE

2013 Rank Ease of: Doing Business (Overall) 16 Starting a Business 16 Dealing with Construction Permits 9 Getting Electricity 6 Registering Property 32 Getting Credit 70 Protecting Investors 32 Paying Taxes 54 Trading Across Borders 23 Enforcing Contracts 90 Resolving Insolvency 15

2012 Rank 25 15 76 5 31 67 79 64 27 89 14

NOTE: 2012 RESULTS HAVE BEEN READJUSTED SINCE RELEASE OF LAST YEAR’S REPORT SOURCE: DOING BUSINESS 2013

ments for related-party transactions and improving the liability regime for company directors in cases where such transactions are abusive.”

“Getting Electricity,” where Taiwan was ranked in 6th place, was the individual category in which it had the best score. Doing Business found that in Taipei it takes just 24 days to go through the four procedures needed to obtain an electricity connection from the Taiwan Power Company for a new warehouse.

The category in which Taiwan was the weakest – ranked number 90 – was “Enforcing Contracts,” assessing the efficiency of the process for resolving a commercial dispute through the courts. Doing Business found that enforcing a contract in Taiwan takes 510 days, requires 45 procedures, and typically costs 17.7% of the value of the claim. In these respects, Taiwan was behind the average for the East Asia and Pacific region. In Korea, by contrast, the process involves 33 procedures over 230 days, at a cost of 10.3% of the claim.

Taiwan also ranked relatively poorly (number 70) in the “Getting Credit” category. The data collected reflects “how well the credit information system and collateral and bankruptcy laws in [Taiwan] support lending and borrowing.”

In recent years, the Taiwan government has referenced the Doing Business results as a means of benchmarking the country’s comparative strengths and weaknesses, helping to identify areas that need to be worked on. The latest report indicates that legal aspects of enforcing contracts and getting credit should be among the priorities for seeking improvement in the coming year.

The report’s Executive Summary notes the challenge for governments of devising regulatory regimes that “safeguard economic activity and facilitate business operations” without inadvertently posing obstacles to doing business. “Economies that rank highest on the ease of doing business are not those where there is no regulation – but those where governments have managed to create rules that facilitate interactions in the marketplace without needlessly hindering the development of the private sector,” it notes. “In essence, Doing Business is about SMART business regulations – Streamlined, Meaningful, Adaptable, Relevant, Transparent – not necessarily fewer regulations.”

—– By Don Shapiro

項目的最佳成績。世銀經商環境報告發現，在 台北只需要24天時間，就可以辦妥由台灣電力 公司取得電力所需的四項手續，為新倉庫接通 供電。 台灣表現最弱的項目是「執行契約」，排名 第90，這個項目評比透過法院解決商業糾紛的 效率。調查發現，在台灣執行契約需510天時 間，必須經過45項手續，而且通常得耗費求償 金額的17.7%成本。在這幾個項目，台灣的表 現不及東亞和太平洋地區的平均水準。相較之 下，韓國的相同程序只有33項手續，只需230天 時間，而且成本僅求償金額的10.3%。 台灣在「獲得信貸」項目的排名也相當糟， 只獲第70名。這個項目蒐集到的資訊，反映 「（台灣）信貸資訊系統以及抵押和破產法律 支持借貸的情況如何」。 最近幾年台灣政府參考經商環境調查的結 果，檢驗國家的競爭優勢和弱點，以助找出尚 須努力的地方。這份最新的報告顯示，執行契 約與信貸取得兩個項目的法律層面問題，都屬 於來年要改善的優先事項。 這份報告的綱要點出各國政府所面臨的挑 戰，在於訂定法規制度時，既要「維護經濟活 動與便利商業營運」，同時要避免無意間對做 生意造成妨礙。報告指出：「在經商便利性上 獲得最好名次的經濟體並非毫無規範，而是政 府能設法制定規則來便利市場的互動，又不會 不必要地妨礙民間業者的發展。本質上，經商 環境報告要強調的是商業法規必須靈活，這有 五個要素，就是效率高、有意義、有彈性、符 合現勢與公開透明，未必要減少法規。」

—撰文／沙蕩

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Issues

Rating Corporate Governance TSMC leads the pack among companies, but Taiwan’s country ranking is only fair.

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公司治理 誰占鰲頭 台積電在各企業中領先群雄，但與各國相比 台灣總體排名尚可而已

前

述經商環境評比「保護投資人」範疇所包括的 公司治理一項，在亞洲公司治理協會（ACGA） 最近發布其和券商暨投資集團里昂證券合作的 「2012年公司治理觀察（CG Watch 2012）」報告中， 有更詳盡的探討。 台灣在報告中獲得中等評價。該報告更新上次在 2010年所做類似調查的結果，指出：「過去兩年來，台 灣持續在公司治理上有長足進步。」「遺憾的是，這不 足以讓它免於在我們的2012年排名中滑落兩名，成為第 六名，因為該地區其它市場進步更多，而且更快。」新 加坡排名居冠，接下來是香港第二，泰國第三，日本和 馬來西亞並列第四／五名。 台灣積分中的弱點是執行。報告表示：「台灣當局對 於推動公司治理改革，似乎仍缺乏明確的組織策略或總 體願景。」報告指出，過去兩年來缺乏制裁內線交易、 市場操弄等市場不當行為的監管努力。報告還感嘆，台 灣政府至今仍未要求所有上市公司須擁有獨立董事和審 計委員會。 亞洲公司治理協會引述一個「惡名昭彰」的備受矚目 個案，就是在上市公司中石化的董事會控制權代理人戰 爭中，經營階層使用「具有高度問題的」手段對付一群 持有異見的股東，但監管當局並未出面干預。 至於正面部分，報告讚許台灣上市公司引入股東電子 投票系統，並要求上市企業在2011年底前設置薪資報酬 委員會。不過報告發現，台灣對董事會獨立性的規定仍 「零碎而迂迴」。報告指出，企業可以選擇指派至少三 名不必具備獨立性的監察人，取代設立由獨立董事組成 的審計委員會。 在各產業中，金融服務業者大多落在台灣排名倒數四 分之一的區間。報告表示：「這個產業之中企業違法案 例和被提報公開的公司治理問題尤其多。」報告還說，

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Subscriptions

orporate governance, touched on in the Doing Business section on “Protecting Investors” mentioned above, is dealt with in more detail in CG Watch 2012, a recently released report by the Asian Corporate Governance Association (ACGA) in collaboration with brokerage and investment group CLSA Asia-Pacific Markets.

Taiwan received a middling evaluation in the report, which updates a similar exercise last done in 2010. “Over the past two years, Taiwan has continued to make incremental improvements to its CG regime,” the report said. “Alas, this was not enough to prevent it from slipping two places to sixth in our 2012 rankings, since some other markets in the region did more, and faster.” Singapore topped the list, followed by Hong Kong second, Thailand third, and Japan and Malaysia tied for fourth/fifth.

The weak point in Taiwan’s score was in enforcement.

“Taiwan authorities still seem to lack a clear organizing strategy or overarching vision for CG reform,” the report said. It noted the dearth of regulatory efforts in the past two years to crack down on market misconduct, such as insider trading and market manipulation. And it lamented that independent directors and audit committees are still not required for all listed companies.

ACGA cited a “notorious” high-profile case in which regulators did not intervene despite “highly questionable” tactics used by management against a group of dissident shareholders in a proxy fight for board control at a listed company, China Petrochemical Development Corp.

On the positive side, the report applauded the introduction of e-voting for shareholders in listed companies and the requirement that listed companies set up remuneration committees before the end of 2011. But it found that Taiwan’s rules on board independence remain “piecemeal and convoluted.”

It pointed out that instead of establishing an audit committee comprising independent directors, companies can choose to appoint at least three supervisors who do not need to be independent.

Of the various industry sectors, companies in financial services dominated the bottom quartile of the Taiwan rankings.

“This is the sector with the greatest history of corporate malfeasance and reported CG issues,” the report states. It adds that as Taiwan prepares to adopt stricter international accounting standards next year, the regulators have specifically exempted insurance company liabilities from this standard because of the impossibility of Taiwan’s insurers meeting those principles.

The report notes that due to their “worryingly insular”

Issues mindset, corporate executives in Taiwan typically are unaware that many of the widespread practices in use in this market are “outdated by global standards and are seen negatively by outside investors.” In a presentation about the report at a recent AmCham luncheon meeting, Peter Sutton, head of research for CLSA Taiwan, stressed repeated findings that “good corporate governance pays off in terms of returns to shareholders” through improved company performance – and so should be something that management seeks to champion.

What may inspire greater appreciation in Taiwan of the value of good corporate governance is the fact that the highest ranked company in all of Asia Pacific in CG Watch 2012 was Taiwan Semiconductor Manufacturing Co. (TSMC), Taiwan’s most respected enterprise and one of its most profitable. “This is a huge accolade for TSMC,” said Sutton, one reflecting “the real institutional framework with which they run the business.”

Although TSMC was the only Taiwan entry on the list of the 40 large-cap companies in the region with the best corporate governance, four were included among the top 50 mid/small caps: China Steel Chemical, Novatek Microelectronics, Delta Electronics, and Far EasTone Telecommunications.

就在台灣準備明年採行較嚴格的國際會計準則之際，監 管當局免除保險公司在這項標準下的責任，因為台灣保 險業者不可能達到新的準則要求。 報告指出，由於台灣企業高層主管「罔顧現勢，令人 擔憂」的島民心態， 通常未察覺台灣市場上廣泛使用 的許多常規「在全球標準中已經過時，且被外來投資人 視為負面作法」。里昂證券台灣區研究部主管蘇廷翰日 前在台北市美國商會午餐演講會針對這份報告發表簡報 時，強調調查結果反覆顯示，透過改善公司表現，「就 股東獲得的利益而言，公司治理成果好，有助獲利」— 所以管理階層應為此積極投入心力。 在2012年公司治理觀察報告中，所有亞太企業中排 名最高的公司是台積電，這可能也有助於台灣對於公司 治理的價值有更正確的認識。台積電是台灣最受尊重的 企業，也是獲利最高的公司之一。蘇廷翰表示：「這對 台積電而言是極大的肯定」，也反映「他們用於經營公 司的真正制度架構」。台積電是唯一登上亞太區擁有最 佳公司治理前40名大型資本企業排行榜的台灣業者，不 過另有四家公司擠進前50名中小資本企業：中鋼碳素、 聯詠科技、台達電，以及遠傳電信。

—撰文／沙蕩 —– By Don Shapiro

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2012/11/28 6:19:02 PM

Cover story

Taiwan Economy

Taiwan Economy: Looking For A Rebound 期盼景氣反彈

BY JANE RICKARDS

撰文 / 李可珍

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Cover story

T Soaring housing prices and property speculation have been a concern. photo : cna

Although prospects for the coming year very much depend on what happens internationally, Taiwan can probably look forward to improved economic conditions in 2013. Exports are beginning to pick up, and Chinese tourism and investment is likely to increase. The government also plans to make a strong effort to induce Taiwanese companies on the mainland to engage in new investments at home. 展望2013 年，儘管前景將與國際情勢高度連動，台灣民眾 應該能夠樂觀期待景氣逐漸回溫。出口開始回升，中國遊 客人數與投資金額均可望攀升。政府也計畫加強推動中國 台商回台投資方案。

近

一年以來台灣經濟籠罩在低迷氣氛中，景 氣近來似乎逐漸好轉，不過還不到開香檳 慶祝的時候。台灣仰賴出口的經濟能否復 甦，將取決於美國經濟穩步成長（即使成長幅度 不大）、歐盟經濟情勢趨於穩定、以及中國內需 市場回溫。然而這些發展前景仍充滿不確定性。 十月底，行政院主計總處將今年經濟成長 率（G D P 年增率）預估由八月的1.66%下修至 1.05%。主計總處認為，民間消費衰退使得第三季 成長率僅達1.02%，遠不如預期，但相較於第二季 負成長0.18% 已有所提升。目前，主計總處預測 2013年經濟成長率可望達3.09%，低於八月預估 之3.67%。主計總處公告指出：「全球經濟展望不 佳、多項不確定因素、加上內需不振，仍使台灣 貿易成長動能受限。」 其他國內和國際預測機構的看法較為樂觀。 渣打銀行首席經濟分析師符銘財形容其預估數字 「稍微樂觀」，他預測今年經濟成長率可望維持 在2%，2013年預估可達4.5%。中華經濟研究院 經濟展望中心主任劉孟俊預估2012年成長率為 20

aiwan appears to be heading into a gradual recovery after almost a year in the economic doldrums – but don’t pop open the champagne bottles just yet.

Any resurgence for the island’s export-dependent economy will be contingent on steady (even if slow) U.S. growth, a stabilizing European Union, and improving Chinese demand, but prospects for all these developments are clouded with uncertainty.

At the end of October, the Directorate General of Budget Accounting and Statistics (DGBAS) pared this year’s GDP growth forecast to a mere 1.05%, down from the 1.66% it was projecting as recently as August. It cited a slump in private consumption that held third-quarter growth to 1.02%, much lower than expected, but still higher than the -0.18 growth in the second quarter. For next year, the agency is now forecasting economic growth of 3.09%, revised downward from the 3.67% it released in August.

“Gloomy global economic prospects and various uncertainties still restrict the momentum of Taiwan’s trade sector, incorporated with weak domestic demand,” DGBAS said in a statement.

Other local and international forecasting agencies are a bit more upbeat. Describing his forecasts as “slightly on the optimistic side,” Standard Chartered Bank economist Tony Phoo puts growth this year at 2% and 2013’s at 4.5%. Liu Meng-chun, director

1.52%，2013年將達3.59%；瑞銀（UBS）經濟學 家劉醒威對今、明年的經濟成長預測分別為1.4% 和 4%。 經濟學家的預估國內景氣可望緩步回溫，其 中一項假設為美國可避免「財政懸崖」危機，且 2013年經濟可望以2%的速度緩慢而穩定成長。 花旗銀行首席經濟學家鄭貞茂預測今年美國經濟 成長2.2%，明年成長1.9%。他說，財政懸崖若未 能設法控制，恐大幅衝擊美國成長動能；而減緩 財政赤字的措施包括：大幅刪減支出和布希時代 減稅政策退場，兩項將於2013年自動生效，除非 在這個問題上分歧嚴重的國會採取行動。鄭貞茂 說：「我們認為這個假設（潛在）後果嚴重，應 該不會發生 ，但是我們已經看到財政懸崖對企業 的影響。不確定性讓企業恐懼，於是縮減資本支 出。」他預估今年台灣經濟成長率1.7%，明年為 3.6%。 經濟學家預估，未來數月歐元區情勢可望趨於 穩定，但在歐洲主權債務危機尚未解決之前，歐 元區成長率仍將處於低檔，甚至微幅負成長。例

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Taiwan Economy

of the Center for Economic Forecasting at the Chung-Hua Institution for Economic Research (CIER), looks for 1.52% in 2012 and 3.59% for 2013, while UBS economist Silvia Liu predicts 1.4% this year and 4% next year.

One assumption economists are making when predicting a moderate Taiwan recovery is that the United States avoids the so-called “fiscal cliff” and experiences slow but stable growth of around 2% in 2013. Citigroup Cheng Cheng-mount forecasts U.S growth this year of 2.2% and next year of 1.9%.

Cheng says that if unchecked, the “fiscal cliff” – deep U.S. spending cuts and the expiration of Bush-era tax cuts, both scheduled to take place automatically in the beginning of 2013 unless Congress, sharply divided over the issue, takes action – could cause American growth to plunge dramatically. “We assume that as it is [potentially] so severe, it probably won’t happen,” Cheng says. “But we’ve already seen the impact on business.

Companies are afraid of this uncertainty, and so have cut capital spending.” Cheng foresees the Taiwan economy growing at 1.7% this year and 3.6% next year.

Economists expect the Eurozone to stabilize over the coming months, though growth will still be flat or slightly negative as resolution of the sovereign debt

crisis is worked out. Cheng, for example, puts Eurozone growth at -0.6% for this year and -0.9% in 2013. Uncertainties surround plans by the European Central Bank (ECB) to buy an unlimited amount of debt from struggling Eurozone members; while the move could ease global market tensions over the debt crisis, it could also expose the ECB to substantial risk.

China is also starting to recover after a slowdown that caused its economy to weaken badly in the third quarter, Phoo says. The slowdown was attributed partially to earlier policies aimed at cooling the Chinese housing market; it was also related to China’s current leadership transition, with Beijing unwilling to launch any aggressive economic stimulus policies until the political reins are handed over to President Hu Jintao’s designated successor, Xi Jinping. China and Hong Kong together buy some 40% of Taiwan’s exports, nearly half of them semi-finished goods and components that are assembled in China and shipped to Western countries. Citi puts Chinese economic growth at 7.9% this year and 7.6% next year, figures significantly lower than the levels China has been accustomed to.

An encouraging sign for Taiwan, economists say, is the pick-up in export volume. Following six straight months

如，鄭貞茂預測該區今年經濟成長負0.6%，明年為負 0.9%。歐洲央行紓困計畫（買下成員國債務，金額無 上限）存在許多不確定性， 符銘財說，中國經濟也開始回溫；之前成長放緩， 嚴重衝擊第三季景氣，部分是因為政府實施房地產降 溫措施，另外也和中國政權交接有關。在國家主席胡 錦濤將政權移交給繼任的習近平的此刻，北京當局不 願推出大幅度的經濟振興政策。台灣對中國與香港出 口之和約佔總額的40%，其中近半數是要運到中國組 裝的半成品與零組件，加工完成後將出口至西方市 場。花旗銀行預測今年中國經濟成長7.9%，明年為 7.6.%，增速遠不如以往。

經濟學者指出，台灣出口 動能回升，是個令人鼓舞的跡象。根據財政部公 布的最新海關進出口貿易統計快報，台灣九月出口 271.7億美元，較去年同月增加10.4%，為連續6個月 負成長後首度轉正；進口230.9億美元，較去年成長 1.3%；貿易出超達40.8億美元。

of declines, exports in September rose 10.4% year-on-year to reach US$27.17 billion, according to the latest trade report from the Ministry of Finance. Imports rose 1.3% from a year earlier to reach US$23.09 billion, making for a favorable trade balance of US$4.08 billion.

Exports to Europe were down by 10.5% in September, but sales to other major destinations all showed modest growth. Shipments to China and Hong Kong rose by 6% and to the United States by 2.7%. The standout export market was Southeast Asia. Sales to the six largest economies belonging to ASEAN (the Association of South East Asian Nations) grew by a whopping 41.4% from a year ago [see the accompanying article in this section].

Rise in export orders The month also brought the first increase since February in export orders, an indicator of trade performance in the months ahead. At US$37.66 billion, the value of export orders in September rose 1.9% ahead of the upcoming Christmas season. In addition, the Ministry of Economic Affairs reported, the Industrial Production Index increased by 3.08%.

But then in an apparent setback, October export figures came in much

九月對歐洲出口年減10.5%，而對其他主要市場均 有小量成長：對中國大陸及香港出口年增6%，對美國 出口較去年同期成長2.7%。對東協主要六國出口成長 表現最亮眼，較去年同期大增41.4%（請參閱相關報 導）。

外銷訂單上揚

外銷訂單自二月以來連續衰退，九月首度負轉正， 顯示未來幾個月貿易表現可望回溫。在耶誕旺季前 夕，九月外銷訂單為376.6億美元，較去年同期成長 1.9%。此外，經濟部公告指出，九月工業生產指數 （當中的製造業）年增3.08%。 然而好景不常，十月出口數字卻遠不如經濟學者先 前預估，出口總值265.3億美元，年減1.9%，進口總 值年減1.8%，貿易出超32.6億美元。出口地區方面， 對歐洲、美國出口則分別年減11%及9.5%，但是對中 國大陸和香港出口年增0.3%，對日本出口年增2.2%， 對東協六國年增7%。然而，經濟學家大多把重點放在 九月的亮麗表現，認為十月下挫只是暫時性現象。

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Cover story lower than what economists expected.

At US$26.53 billion, they amounted to a 1.9% drop year-on-year, with imports falling 1.8% from a year earlier, for a favorable trade balance of US$3.26 billion. Exports to Europe and the United States slumped by11% and 9.5% respectively, but the value of shipments to mainland China and Hong Kong rose by 0.3%, to Japan by 2.2%, and to the ASEAN-6 nations by 7%. But most economists put more emphasis on the September uptick than on what may be only a temporary weakening in October.

Phoo of Standard Chartered predicts that exports will increase by 1-5% in 2013, providing that external factors such as the Eurozone situation do not worsen substantially. He notes that Taiwan’s exports declined by more than 5% over the first seven months of this year as Europe worked on resolving its debt crisis and slowdowns occurred in China and the United States. Phoo also attributes the decline in part to Taiwan’s tech products’ underperformance in the first half of this year. But he considers that the launches of new products ahead of the holiday season (for example, the unveiling of iphone 5 in September and Windows 8 in October) should benefit the component suppliers in Taiwan. Citi’s Cheng also expects export growth of around 5% in 2013, after a

2.5% contraction this year.

A dissenting opinion was voiced by Darson Chiu, deputy director of the Taiwan Institute of Economic Research (TIER) forecasting center, who is less optimistic about the possibility of an export rebound ahead. He argues that the baseline for measuring export growth year-on-year was particularly low in September, as exports did poorly in September 2011 due to a severe fire at a Formosa Plastics plant. If not for this dip a year ago, Chiu contends, this year’s September exports would have showed a serious decline. In addition, he does not see any significant improvement underway in the tech sector.

“If there is a pick-up next year, it will be due to emerging markets, not the U.S. or Europe,” Chiu says. But he also expresses concern about the mainland market, since China is upgrading its technology industries and has become more of a competitive threat to Taiwan in sectors such as solar panels and DRAM memory chips. “That has had a bad impact on Taiwan exports and I really doubt in the short term if we are able to fix it,” he says.

In other respects, economic relations with China are likely to have a positive influence. Analysts note that tourism – spurred by arrivals of Chinese visi-

渣打銀行首席經濟分析師符銘財預測，只要歐債危 機等外部因素保持穩定，2013年台灣出口年增率可 達1-5%。他指出，今年前7個月台灣出口衰退幅度逾 5%，同時間歐洲正設法解決債務危機，中、美兩國經 濟趨緩。符銘財認為，出口萎縮一部分可歸咎於台灣 科技產品上半年表現不佳；但他預估，由於新產品在 耶誕假期前夕上市（如九月上市的iPhone 5和十月推 出的 Windows 8），台灣零組件供應商可望受惠。鄭 貞茂也預估，今年出口將下滑2.5%，明年則將成長5% 左右。 台灣經濟研究院景氣預測中心副主任邱達生則持不 同看法，他認為未來出口能否回溫仍有待觀察。 邱 達生指出，九月的出口基期（衡量出口年增率的標 準）特別低，因為去年九月台塑六輕發生大火。如果 不是因為去年基期降低，今年九月出口數字將大幅萎 縮。此外，邱達生認為，科技產業似乎看不到重大進 展。 邱達生說：「若明年出口攀升，動能將來自於新興 市場，而非歐美國家。」但他對中國大陸市場也感到 憂心，因為中國的科技產業不斷提升，對於台灣的太 22

tors – is already contributing significantly to the economy by boosting retail sales and employment, as well as prompting new investments in hotels and other areas of the hospitality sector. Chen Miao, an Asia-based economist with U.K. investment firm Rowberry and Partners, notes that the growth in tourism is creating a large portion of Taiwan’s service sector that is independent of manufacturing and therefore less vulnerable to export downturns. From the opening to Chinese visitors in 2008 through the end of last year, almost 3 million Chinese tourists had visited Taiwan, where they spent almost US$5 billion. Minister of Transportation and Communications Mao Chi-kuo recently predicted that overall foreign visitors this year will pass the 7 million mark, a new record. Chinese visitors are expected to account for more than 2 million of that total.

Other cross-Strait initiatives introduced this year, such as an investment protection agreement and a currencyclearing agreement, both inked in August, are likely to have some positive effect. Silvia Liu of UBS and TIER’s Darson Chiu both see these developments as confidence boosters, even if they don’t make substantial contributions to economic growth. Phoo of Standard Chartered considers that these agreements

陽能面板及DRAM記憶體晶片等產業的競爭威脅越來 越大。他指出：「這已經對台灣出口造成嚴重衝擊， 我很懷疑在短期內會有辦法解決這個問題。」 從其他角度觀之，台灣與中國的經貿互動可望帶 來正面影響。分析師指出，受惠於陸客來台人數增 加，旅遊業已帶動零售業和就業率，並吸引飯店業和 餐旅服務業進行新投資案，為提振經濟貢獻良多。 Rowberry and Partners經濟學家陳淼指出，旅遊業的 發展為台灣服務業創造了一個不受製造業影響的大區 塊，因此在出口衰退之際所受衝擊較低。台灣自2008 年開放陸客觀光以來，截至去年底為止，已有近三百 萬名陸客來台旅遊，消費金額近五十億美元。交通部 長毛治國最近預估，今年外國觀光客總數將突破七百 萬關卡，創下新記錄；其中中國遊客可望超過二百萬 人次。 今年推出的海峽兩岸合作機制（如兩岸投資保障 協定和貨幣清算協定）均於八月簽署，可望帶來一些 激勵作用。瑞銀經濟學家劉醒威和台經院邱達生都認 為，這些進展雖然不見得能夠大幅帶動經濟成長，卻 有助於提振信心。渣打銀行符銘財認為這些協議可能

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could impact next year’s GDP growth but has not yet factored them into his forecasts as it is still uncertain how soon they will be implemented. Citi’s Cheng, however, looks to cross-Strait relations, particularly the currency clearing agreement, as a major driver of growth for Taiwan, which is why his forecast of 3.6% growth in Taiwan next year is higher than Citi’s global growth forecast of 2.6%.

The currency-clearing agreement,

economists say, could ultimately revive the sluggish banking industry, while also helping Taiwan’s small and mediumsized enterprises to save money and even encouraging them to move operations back from China. Central Bank Governor Perng Fai-nan was quoted by the semi-official Central News Agency as saying the currency-clearing mechanism will become operational December 1.

But the two sides will still need to negotiate a currency-swap arrangement to

enable Taiwan to hold yuan assets in its foreign reserves. Cheng says he expects quick progress in this area. Currently, local banks can only engage in renminbi business on a small scale through their offshore banking units.

Once the currency-clearing agreement takes effect, Taiwan companies – which have an estimated US$180 billion in cumulative investment in the mainland – will no longer need to raise capital for their mainland operations offshore in places like Hong Kong, reducing transaction time and costs. At present, the booming cross-Strait trade is conducted in foreign currencies, mainly U.S. dollars. Citing data from Taiwan’s Banking Bureau, an October report by Standard Chartered put inward and outward remittances across the Strait at US$551 billion last year, compared with US$73 billion in 2003. The amount of remittance is about four times the level of trade in goods and services, since the China-based Taiwan businesspeople known as Taishang prefer to fund their

Crop damage from typhoons, causing vegetable prices to increase, was one reason for higher inflation. photo : cna

會推升明年的GDP 成長率，但是否將於近日生效仍 是未知數，因此還未納入預估值。鄭貞茂則認為，兩 岸關係──尤其是貨幣清算協定──是刺激台灣經濟 成長的主要動能，因此預測明年經濟將成長3.6%，優 於全球成長率預估值2.6%。 經濟學者指出，兩岸貨幣清算協議最終可望為低迷 的銀行業注入生機，同時也能幫助台灣中小企業降低 成本，甚至提供大陸台商回流的誘因。中央社引述央 行總裁彭淮南的話說，貨幣清算機制將於12月1日生 效。然而，兩岸仍須協商貨幣交換協定，讓台灣能夠 將人民幣資產納入外匯存底。鄭貞茂預期貨幣交換協 商應能進展迅速。目前本國銀行僅能透過國際金融業 務分行（OBU）承做少量人民幣業務。 兩岸貨幣清算協議一旦生效，據估計在大陸投資 總額高達1800億美元的台商，將無需再透過香港等 境外地區取得中國業務所需資金，可降低交易時間 與成本。現階段，熱絡的兩岸貿易是以外幣（主要 是美金）結算。渣打銀行十月公布的研究報告引用 銀行局數據指出，去年兩岸之間匯出與匯入匯款達 5510億美元，遠高於2003年的730億美元。匯款金

額大約是貨品及服務業貿易總和之四倍，此係因中 國台商多半選擇向台灣的銀行貸款，因利率比大陸 銀行來得低。 鄭貞茂說，正因兩岸銀行的利率不同，貨幣清算 協議將能有效提振台灣經濟。他說，如果人民幣債 券在台上市，本國銀行可以提高放款利率（目前處 於1.5% 的低點），同時仍可提供客戶低於大陸銀行 （約3%）的優惠利率。 渣打銀行的報告指出，貨幣 清算協議將帶來雙贏的局面：台灣過度飽和的銀行業 有機會提升獲利率，而大陸台商則能可藉此取得較低 成本的融資。該報告預測，跨境貿易人民幣結算將呈 「爆炸性成長」，並預期在2013年底前，台灣全體 銀行的人民幣存款將成長至人民幣1500億元，佔總 存款比重的2%；且根據香港經驗，2015年底前該比 重可望達到5%。 渣打銀行補充說，貨幣清算協議是否成功的一個關 鍵因素，在於台灣法規能否開放人民幣可在本國銀行 與國際金融業務分行（OBU）之間自由流通，或是台 灣的人民幣存款能否獲准進入香港市場。渣打銀行於 九月公告指出：「初期任何阻隔台灣人民幣市場的措

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Cover story operations with loans from Taiwanese banks, who charge cheaper rates than their mainland counterparts.

The interest rate differential between Chinese and Taiwanese banks, says Cheng, explains why the currency-clearing agreement will be such an economic boost. If RMB bonds are available in Taiwan, he says, local banks can raise their lending rates from the extremely low current level of about 1.5% while still offering customers more attractive rates than the roughly 3% in China. A Standard Chartered report describes this result as a win-win situation in which Taiwan’s overcrowded banking sector can improve its profitability, while Taiwan companies operating on the mainland get access to cheaper financing. Predicting “explosive growth” in RMB trade settlements, the report estimates that Chinese-currency deposits in Taiwan could grow to RMB150 billion by the end of 2013, accounting for 2% of all deposits, and – based on Hong Kong’s experience – to as much as 5% by the end of 2015.

A critical factor for success, Standard Chartered adds, is whether Taiwanese regulators will allow the RMB to be freely transferred between Taiwanese banks and their offshore banking units, and whether RMB holdings in

Taiwan are allowed to access Hong Kong markets. “Any attempts to initially fence in the [Chinese yuan] market in Taiwan will limit its room for growth, as it will hinder direct foreign participation in the new market,” the bank said in a September statement.

Chinese investment With the government preparing for a fourth wave of liberalization on regulations governing Chinese investment in Taiwan, the amount of such investment is also expected to grow significantly over the next few years, providing a long-term economic boost, says Citi’s Cheng. Currently, the amount of mainland investment in Taiwan is only about US$315 million. Under the existing rules, Chinese investment is permitted in 97% of the business categories in the manufacturing sector, 51% in the service sector, and 51% of public infrastructure categories. Economists note that as the rules governing Chinese investment are complex and often unclear, many prospective deals have been deterred from going forward.

Cheng expects the liberalization of services under the Economic Cooperation Framework Agreement (ECFA) to go into effect as early as December,

施，將限制市場成長空間，因此舉將阻礙外資直接 投資新市場。」

陸資來台 花旗鄭貞茂表示，有鑑於台灣政府正在研議第四 波鬆綁陸資來台投資，預料未來幾年投資金額將會 有明顯成長，長期而言有助提振經濟發展。目前陸 資來台投資額僅3.15億美元左右。根據現行法規， 開放陸資來台投資的業別與幅度分別為： 製造業 97%，服務業51%，公共建設51%。經濟學家指出， 由於陸資來台法規既複雜又不夠明確，許多潛在的 交易進度因而受阻。 鄭貞茂表示，兩岸經濟合作架構協議（E C F A） 之下開放服務業，最早可望於十二月生效，預期在 中國需求旺盛的情況下，應可為台灣教育及醫療產 業相關企業帶來利多。他指出，台灣人口逐漸高齡 化，部分大專院校已面臨招生不足的問題。 鄭貞茂說，另一波可能的景氣春燕，來自於政府 計畫吸引大陸或海外台商回台投資，尤其是擁有關 24

which would be a boost to Taiwanese companies in such industries as education and healthcare, for which there is high demand in China. He notes that an aging population has led to excess capacity in Taiwan’s universities.

Another possible economic lift, Cheng says, could come from government plans to entice Taiwanese companies operating in China or elsewhere overseas to return to invest in Taiwan, particularly if they possess key technology or their own brands, or are engaged in high-value added industries. Among various inducements, the government recently loosened restrictions on hiring foreign blue-collar workers; they may now account for up to 40% of a company’s workforce, up from the previous 35%. The government is also considering permitting foreign labor to work for less than the Taiwanese minimum wage of NT$18,780 in specific areas such as free trade zones, but the proposal has run into considerable opposition from labor organizations.

In the trade sphere, the government has been seeking to diversify Taiwan’s markets by negotiating free-trade-style pacts with Singapore and New Zealand.

The agreements are said to be likely to be concluded soon, possibly by the end of this year. Preliminary trade talks are also underway with India, and a stream

鍵技術或自有品牌的廠商，或是高附加價值的產業 的業者。政府釋出的政策誘因當中，近期鬆綁產業 外勞比例，最高進用比率由先前的35%提升至40%。 此外，政府也考慮修法，讓自由貿易區等特定地區 之本勞與外勞的基本薪資脫鉤（本勞基本工資為台 幣18,780元），但是該提案已引起勞工團體的強烈 抗議。 貿易方面，政府正積極與新加坡和紐西蘭洽簽自 由貿易協定，協助國內市場多元化。據說兩國協定 可望於近期簽署，最快可能年底前會有結果。政府 也正與印度進行初步貿易商談。此外，近期也有多 位美國高層官員訪台，如十一月初到訪的美國商務 部主管國際貿易事務次長桑傑士，顯示在台灣放寬 懸宕多年的美牛輸台限制後，台美政府間貿易關係 已有進一步提升 。 鄭貞茂表示，南韓已搶先與美國和歐盟簽訂自由 貿易協定，我國與新、紐洽簽自貿協定，可望提振 出口力道，改善台灣產業面臨的不利情勢。然而， 貿易談判的進展相當緩慢，唯有將眼光放遠，期待 未來可觀的經濟效益。台經院邱達生指出，台灣與

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of visits from high-level American officials, most recently Under Secretary of Commerce for International Trade Francisco Sanchez in early November, indicate that government-to-government trade relations with the United States have been improving after years of problems due to Taiwan’s restrictions, now relaxed, on the import of U.S. beef.

Free trade agreements potentially could deliver a much needed stimulus to exports, says Cheng, repairing some of the disadvantage Taiwanese businesses have suffered due to the FTAs rival South Korea has signed with the United States and European Union. Progress in trade talks has been very slow, however, and any substantial economic benefits will likely be felt only in the long-term. If signed, the Singapore and New Zealand pacts would bring very limited economic benefits in 2013, notes TIER’s Chiu.

On the foreign direct investment front, the Investment Commission of the Ministry of Economic Affairs (MOEA) approved 1,642 applications worth US$3.08 billion in the first eight months of this year. Although the value represented a slight increase of 4.49% from the same period of the year before, it remained a relatively low figure compared to the amount of FDI attracted by other Asian countries.

I n t h e a r e a o f m o n e t a r y p o l i c y, Taiwan’s Central Bank – unlike South Korea and some other nations in the region – has not responded to slumping global demand by cutting interest rates.

The bank announced on September 20 that the discount rate would remain at 1.875%, the fifth consecutive time that the rate was put on hold, and most economists expect rates to remain flat until at least mid-2013. The Central Bank explained its decision by noting that the recent third round of quantitative easing by the U.S. Federal Reserve could attract short-term capital inflows that might be detrimental to price and financial stability. Along with elevated crude oil and grain prices, such a development could contribute to imported inflation.

Analysts say the Central Bank wishes to focus on maintaining the stability of the foreign exchange market and preventing Taiwan’s currency from appreciating.

Inflation – at 3.4% in August on the back of rising vegetable prices caused by typhoons – was at a four-year high, and DGBAS is predicting that the Consumer Price Index (CPI) will rise 1.93% this year and 1.25% next year. The mid-year hikes in electricity and fuel prices have also been contributing to the inflationary pressure, says Phoo of Standard Chartered. Although the government has since

新加坡、紐西蘭的自貿協定若順利簽署，2013年能夠 展現的經濟效益其實相當有限。 外國直接投資部分，今年1-8月經濟部投資審議委 員會核准僑外投資件數為1,642件，投（增）資金額 計30.8億美元，雖比去年同期微幅增加4.49%，但相 較於其他亞洲國家所吸引的外資，金額仍然很小。 在貨幣政策方面，台灣央行並未以調降利率因應 全球需求衰退，與南韓或部分亞洲國家央行的反應不 同。央行9月20日宣布重貼現率維持在1.875%，這是 央行連續五度維持該利率不變，多數經濟學者預期 2013年中之前，重貼現率將維持現有水準。為說明決 策依據，央行指出美國聯準會採行第三輪量化寬鬆政 策，可能帶動國際短期資本流入亞洲，影響物價及金 融穩定。再加上原油及榖物價格居高不下，可能導致 輸入性通膨。分析師認為，央行著重於維持外匯市場 穩定，並阻止台幣升值。 因颱風侵襲導致蔬菜價格上揚，八月通膨率為 3.4%，創下四年來新高；主計總處預估今、明年消費 者物價指數（CPI）將分別上漲1.93% 及1.25%。渣打 銀行符銘財說，今年年中油電價雙漲，也推升了通膨

The government of Premier Sean Chen is seeking to encourage greater investment as a means of raising salary levels. photo :ap/ wally santana

壓力。雖然政府決定暫緩第二波電價調漲（原訂於今 年十二月實施，延至2013年十月之後），符銘財認為 價格調漲的外溢效果將使國內通膨處於相對高檔。他 認為明年CPI 將上漲1.8%。

台幣升值幅度有限 談到匯率，台經院邱達生指出，央行擔心台幣升 值將降低本國出口競爭力，頻頻進場干預以維持外匯 市場穩定。花旗銀行預估短期內新台幣匯率將維持在 29.5元兌1美元；瑞銀劉醒威預測未來幾個月新台幣 兌美元匯率約29元。 她表示，考量出口疲軟，台幣 升值空間有限，但由於美國採行量化寬鬆，恐帶動輸 入性通膨，使央行不會放手讓台幣繼續貶值。 鄭貞茂說，除了通膨以外，央行也密切注意房價飆 漲和炒房風氣，也因此近期調降利率的可能性不高。 央行啟動打擊炒房措施後，六月宣布將雙北市八千萬 元以上，其餘縣市五千萬元以上房屋定義為豪宅，限 縮貸款成數以六成為限。 就業市場方面，今年以來經季節性調整失業率盤旋

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Cover story delayed a second round of electricity price hikes (originally slated for December this year, they have been postponed until at least October 2013), Phoo sees a spillover effect from the price hikes that will keep inflation at a relatively high level for Taiwan. His reading is that the CPI will rise 1.8% next year

Limited NT$ appreciation With regard to foreign-exchange rates, TIER’s Darson Chiu notes that the Central Bank, concerned that an appreciating Taiwan dollar would hurt export competitiveness, has frequently intervened in the market to keep foreign exchange rates at a certain level. Citi forecasts that the New Taiwan dollar will stay at around NT$29.5 to the U.S. dollar in the short-term, while Silvia Liu of UBS puts the level at about NT$29 to the dollar within the next few months. There is limited room for appreciation given export weakness, she says, but concerns about imported inflation related to U.S. quantitative easing could also prevent the Central Bank from allowing the New Taiwan dollar to weaken too much.

Besides inflation, another Central Bank concern is soaring property prices and housing speculation, says Cheng – another reason why the monetary author-

ity is unlikely to lower rates soon. In the latest in a series of moves to cool the property market, the bank in June announced it would cap housing loans for properties worth over NT$50 million (NT$80 million in greater Taipei) by setting a loan-to-value ratio of 60%.

In the labor market, the seasonally adjusted unemployment rate has hovered at a little over 4% throughout this year.

The DGBAS reported that the September seasonally-adjusted rate stood at 4.3%, while the raw unemployment rate stood at 4.32%, both roughly in line with the levels in July and August. The unemployment rate is not generally expected to rise dramatically, with Cheng putting the 2013 level at 4.3%, for example.

Salaries in Taiwan have stagnated over the last decade compared with such Asian neighbors as Korea, although economists note some recent modest growth.

Silvia Liu of UBS points to 1-2% growth in nominal wages this year, better than in the past decade when the figure stayed below 1%.

Many attribute the flat salary growth to Taiwan’s dependence on contract manufacturing, which brings much lower profit margins than branded business, and to the emphasis of Taiwanese employers on holding down costs.

Taiwan crucially needs more investment,

在略高於4%的水準。主計總處公布九月失業率（經 季節性調整）為4.3%，調整前為4.32%；相較於七、 八月的水準大致持平。一般預期失業率不致於大幅 提高；鄭貞茂預期2013 年失業率將維持在4.3%左 右。 相較於南韓等亞洲鄰國，過去十年來台灣薪資水 平停滯不前，儘管經濟學家指出近期已微幅成長。 瑞銀劉醒威說，今年名目薪資可望成長1-2%，略優 於過去十年成長低於1%的水準。 薪資零成長，許多人認為問題在於台灣經濟仰賴 代工製造業，獲利率遠不如品牌大廠，以及雇主注 重壓低成本。經濟學者認為，台灣亟需更多資金挹 注，協助扭轉薪資凍漲的窘境。此外，陳淼指出， 國內業者有97%為中小型企業，他們的CEO 通常也是 主要股東，把自己的薪資壓得很低，因而影響全體 員工的薪資結構。只要公司獲利，股東就能分紅； 但受薪員工不見得能從中受惠。 陳淼指出，工會力量薄弱且組織零散是一般薪資 原地踏步的另一個原因。此外，2000年民進黨上 台執政之後，當時的總統陳水扁決定不鼓勵給公務 26

which would help turn the salary situation around, economists say. In addition, Chen Miao notes that 97% of Taiwan’s companies are small and medium enterprises, where typically the CEO is also the main shareholder and keeps his or her own salary low, affecting the pay scale for the whole company. The shareholders gain if the company earns profits, but salaried workers don’t necessarily benefit from the company’s performance.

A further reason for salary stagnation, Chen says, is that labor unions are weak and fragmented. And another was President Chen Shui-bian’s decision when the Democratic Progressive Party took office in 2000 to discourage public-sector pay rises out of a perception that civil servants had been favored by the previous Kuomintang administration. Chen suggests that the government follow Singapore’s example of regularly hiking public servant salaries, which forces the private sector to follow suit.

As a result of the stagnating income levels, consumption is faring poorly.

DGBAS reported consumption growth of only 0.37% in the third quarter, the lowest level for Taiwan since the global financial crisis, though the new capital gains tax and electricity and fuel price hikes may have also been partly responsible. TIER’s Chiu estimates that introduc-

人員調薪，因為公務員被認為在之前的國民黨執政 時代已經占了便宜。陳淼建議政府參考新加坡的作 法，定期調高公務人員薪資，驅使私部門也跟進。 薪資停滯不前，使得民間消費欲振乏力。主計總 處公告指出，第三季民間消費年增率僅0.37%，創下 全球金融危機以來新低；新上路的證所稅和油電雙 漲應是部分導因。台經院邱達生預估，即將施行的 證所稅已使得第三季股市交易量萎縮約三成。預估 今年民間消費僅成長0.88%，明年可望成長1.97%。 有鑑於公共債務已逼近法定舉債上限（過去三 年國民生產毛額平均值的四成），政府可能不再採 取2008-2009年因應經濟衰退的作法，避免用擴張 性財政政策來振興經濟。經濟學者指出，在此情況 下，政府提振國內景氣的最佳策略是積極推動法規 鬆綁及自由化。華府保守派智庫美國企業研究所在 最新報告《台灣公司：全球商務之家》（T a i w a n Inc: A Home for Global Business）中指出，台灣經濟 如果更開放，將能吸引外國投資，因為台灣具有其 他優勢，例如技術實力深厚、地理位置便利。美國 企業研究院舉例說明：台灣政府有許多程序透明度

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Taiwan Economy

tion of the capital gains tax caused stock market transactions to decline by around 30% in the third quarter. Consumption is projected to grow at 0.88% for 2012 as a whole and 1.97% next year.

With public debt approaching the legally mandated ceiling of 40% of the average GNP of the previous three years, the government will presumably need to refrain from stimulating the economy with expansionary fiscal policies, as it did to combat the 2008-2009 recession. Under those circumstances, the best way for the government to try to improve Taiwan’s economic performance would be through aggressive deregulation and liberalization, economists say. A new report from the conservative think tank American Enterprise Institute (AEI), Taiwan Inc: A Home for Global Business, notes that a more open economy will draw foreign investment due to Taiwan’s other advantages, such as its technological prowess and geographic location. For example, AEI cites the inadequate transparency in many government procedures, which adds to the time and cost of getting things done. Cheng of Citi says it is often difficult for ministries to implement plans because of the complicated coordination efforts needed within the central bureaucracy and with local governments.

In recommending tax reform, AEI

urges that Taiwan not merely match the tax policies adopted by neighboring countries, but provide even better conditions to attract foreign business. It compares the maximum personal-income tax level of 40% unfavorably with Singapore’s 20%.

AEI also suggests setting up a world-class business school in Taiwan with Englishlanguage instruction. Economists maintain that liberalizing the services sector in areas such as finance and education could provide considerable growth momentum.

Silvia Liu of UBS suggests Taiwan in this respect again follow the example of Singapore, where exports of services stand at around 40-50% of GDP compared with Taiwan’s 10%.

Most importantly, Taiwan may need to rethink its role as a manufacturing intermediary between the developed world and emerging markets, as the U.S. and European economies flounder and as countries like Malaysia and Thailand move up the economic ladder to become competitors in many of the industries Taiwan has specialized in. Three or four decades ago, Chen Miao notes, Taiwan was ahead of the curve among developing countries looking to carve out a role in the global economy by utilizing know-how gleaned from the United States and Japan. “That has all stalled,” he says. “Taiwan was once at the beginning of the queue, but unfortunately

不足，徒增處理事情的時間和成本。鄭貞茂說，政 府部會要落實計畫往往很困難，因為在中央政府官 僚體系之間，還有在中央和地方政府之間，都需要 有繁複的協調工作。 稅制改革部分，美國企業研究所敦促台灣政府勿 一味跟進鄰國施行的稅賦政策，而要提供更具誘因 的條件吸引外國企業。相較於新加坡個人所得稅稅 率最高 20%，台灣綜所稅最高稅率高達40%，相當 不利。此外，美國企業研究所建議台灣應打造世界 級的商學院，並全英文授課。經濟學者認為，開放 金融、教育等服務產業應能創造可觀的成長動能。 瑞銀劉醒威建議，這部份台灣亦可參考新加坡的模 式。新加坡服務業出口佔國內生產毛額（GDP）的四 至五成，反觀台灣僅佔一成。 最重要的是，有鑑於歐美經濟疲弱，而馬來西 亞、泰國等國家經濟實力提升，在許多台灣向來擅 長的產業成為台灣的競爭對手，台灣可能需要重新 思考在先進國家和新興市場之間扮演生產中介的角 色定位。陳淼指出，三、四十年前，台灣在發展中 國家當中排名領先，藉著善用向美、日習得的專業

now it is at the end.”

High-end branding is one possible direction for Taiwan to take, but SMEs, accustomed to contract manufacturing, tend to lack the cash and scale to undertake innovative research or international marketing campaigns. Smartphone maker HTC, once the poster child for Taiwan branding, is now struggling to maintain its status as a global brand after four consecutive quarters of dramatic slumps in profits, partially because it lacked the financial resources to compete with the marketing prowess of Apple and Samsung.

Liu Meng-chun of CIER adds that with the gap between the rich and poor steadily widening, income distribution is another important issue for the economy.

The numbers of families living below the poverty line has been increasing sharply, while housing prices remain extremely high. The most effective way to combat salary stagnation, economists say, is to create more profitable industries and increase investment.

Despite all this uncertainty, concludes Phoo, fears that Taiwan may slip back into a severe recession like the one of 2008-2009 are unfounded, largely because Taiwan’s economy is now more balanced as a result of the growth in tourism and other aspects of the domestic service sector.

技術，在全球經濟中佔有一席之地。他說：「但一 切都陷入停滯。台灣曾經排在隊伍的前端，可惜現 在卻屈居末位。」 走精品品牌路線是台灣可以考慮的方向之一，然 而習於代工製造的中小企業往往缺乏資金和規模， 無法從事創新性研究或國際行銷活動。智慧型手機 大廠HTC曾經是打造台灣品牌的模範生，在獲利連續 四季暴跌後，如今只能勉力維持國際品牌地位，部 分是因為HTC沒有足夠的財力，去跟蘋果和三星的行 銷能力競爭。 中華經濟研究院劉孟俊補充說，台灣貧富差距持續 擴大，所得分配是另一項重要經濟議題。生活在貧窮 線以下的家庭大幅增加，但房價仍然高不可攀。經濟 學家表示，擺脫薪資停滯困局的最有效方法，在於扶 植更多具獲利潛力的產業，並增加投資。 最後，渣打銀行符銘財提出總結說，儘管存在 許多不確定性因素，憂心台灣經濟恐再陷入嚴重衰 退、2008-2009年的低迷不振將重演，其實毫無事實 根據。主要是因為受惠於旅遊業及其他國內服務業 的成長，現今台灣經濟結構已更加平衡。

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Cover story Benefiting from the Rise of Southeast Asia

P

erhaps the best piece of news in Taiwan’s trade picture recently has been the strong performance in exports to Southeast Asia. Sales to the six largest ASEAN countries (Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam) showed robust 41.4% growth year-on-year in September, in contrast with 10.4% export growth overall. The ASEAN-6 market accounted for almost one- fifth of Taiwan’s total exports.

The month before, even though exports fell by 4.2% overall, shipments to the ASEAN-6 nations still posted a cheery 24.2% increase.

At a time of sluggish worldwide growth, economists say that Southeast Asia is becoming a bright spot for Taiwan and the world economy in general. The region is powered by domestic consumption from a population of about 600 million people who are wealthier than they were in the past. Southeast Asia is also fast becoming an attractive alternative to China as a manufacturing base for Taiwan’s costsensitive small and medium enterprises as they look for locations with cheaper labor. The trend toward diversifying markets and reducing dependence on the mainland is one that the Taiwan government will undoubtedly welcome.

Citibank is forecasting GDP growth of 6.1% next year for Indonesia, a nation with a population of over 238 million, more than half the size of the European Union. The other ASEAN nations are also expected to enjoy healthy if somewhat lower GDP growth, according to Citibank.

One reason why the region has been so resilient during the global downturn, says UBS economist Sylvia Liu, is that some of its economies (such as Indonesia) are much less reliant on exports than countries like Taiwan. For example, Indonesia’s exports equal only about 20% of its GDP compared with Taiwan’s 70%, she says In addition to growing domestic markets, these countries tend to have much younger populations than aging Japan, Taiwan, or

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Taiwan companies participate in a green energy exhibition in Singapore as part of efforts to promote their products for the Southeast Asian market. photo : cna

even China, and the region is also rich in natural resources.

Investment in ASEAN countries by Taiwanese companies has also driven the rise in exports to that region.

“Taiwan’s companies may be relocating their production bases because labor and other production costs are now significantly higher in mainland China,” says Liu Meng-chun, director of the Center for Economic Forecasting at the Chung-Hua Institution for Economic Research. A prominent example of this trend was the announcement by the Foxconn Technology Group in August of plans to invest up to US$10 billion in Indonesia over the next few years.

Economist Cheng Cheng-mount of Citibank notes that since the early 1990s, the Taiwan government has hoped to increase economic involvement with Southeast Asia as a way to prevent over-dependence on China. But former president Lee Teng-hui’s “Go South” policy was not successful, he says, as it was promoted by the government without strong support from industry. This time around is different, Cheng says, as business is leading the push. Seeing the increased flow of trade and investment, Taiwan’s banks are aggressively seeking to get a foothold

in the region. In early October, Financial Supervisory Commission Chairman Chen Yuh-chang told the legislature that Taiwan is trying to sign agreements with Cambodia, Indonesia, Malaysia and Thailand to facilitate the entry of Taiwanese banks into those markets.

Cheng says that Taiwan’s companies are especially interested in Myanmar, which has an enormous pool of cheap labor. “Right now, Myanmar is the new target for Taiwan,” he says. “We know that Korea and Japan are already there.”

Darson Chiu of the Taiwan Institute of Economic Research cautions, however, that Southeast Asia represents a threat as well as an opportunity for Taiwan. He notes that some ASEAN nations – such as Thailand in the case of the automotive industry and Malaysia for ICT products – are becoming Taiwan’s competitors. In addition, he says, Taiwan is excluded from a growing network of regional free trade agreements centering around ASEAN, putting Taiwan at a competitive disadvantage. Without a green light from China, Chiu says, Taiwan will face problems concluding any FTAs with ASEAN countries other than Singapore.

— by Jane Rickards

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Taiwan Economy

Confronting the Brain Drain Is it losing talent to overseas or enabling Taiwanese professionals to develop international skills?

D

ereck Devlin, general manager for compressor techniques at Atlas Copco Taiwan, a Swedish manufacturer of industrial tooling and equipment, bemoans how difficult it is to hang on to his Taiwanese sales managers.

Two of them recently resigned within months of each other, lured by salary offers in China that were double what they were making in Taiwan. “I didn’t realize how serious the brain drain was,” a surprised Devlin said.

One of the sales managers, for the Atlas Copco medical products division that sells gas and equipment to hospitals, resigned after working for the company for just over four months at a monthly salary of about NT$90,000. When Devlin found that the new position in China would pay the equivalent of about NT$180,000, “there was no point in arguing with him,” Devlin says.

“We gave him a salary in line with Mercer’s recommendations for Taiwan,” Devlin says, referring to the human resource consulting firm. “We also checked the local market and everything we offered him was in line.”

Then the sales manager for general industrial equipment also left for a job in China with much higher pay, after working for Atlas Copco for a year.

From the hotel industry to the tech sector to academia, managers across Taiwan are complaining about a serious shortage of talent as stagnating salaries cause Taiwan’s best and brightest to seek more lucrative opportunities elsewhere.

Although this trend may not have much impact on the economy in the short-term, economists say, in the long run the quality of the workforce could be eroded, damaging productivity and deterring industrial upgrading.

“In the long-term, this could become a vicious cycle,” says Cheng Cheng-mount, an economist with Citibank. “Taiwan could become like the Philippines.” He notes that roughly 8% of GDP in the Philippines comes from remittances back home by Filipinos working overseas. In past decades, the equivalent figure in Taiwan has been roughly zero, but in the past few years the ratio has risen to 2%. And unless the trend is arrested, the ratio can be expected to continue to increase.

Standard Chartered economist Tony Phoo says labor markets internationally are much more mobile than they were a few decades ago, and cosmopolitan Taiwanese tend to adapt successfully to life in foreign environments. He adds that higher wages are not the only pull for Taiwanese moving to positions abroad. Taiwan’s market is relatively small and less diversified than others such as China, so overseas postings can offer more challenges and opportunities for career growth. Since China is rapidly catching up to Taiwan in technology industries, Chinese tech firms are able to match professional opportunities offered in Taiwan or offer even

better career prospects.

An area where the brain drain is most serious is academia. With the declining number of students as Taiwan’s population ages, and with Taiwan’s public universities capping professors’ salaries because of budgetary pressures, many Taiwanese scholars have been poached to work in foreign universities, especially in China, Singapore, and Hong Kong, at far higher salaries. Their departure lowers the quality of education and research in Taiwan, with a potentially adverse effect on students who are the next generation of job holders in the local market.

Liu Meng-chun, director of the Center for Economic Forecasting at the Chung-Hua Institution for Economic Research, says the think tank has been unsuccessful in its attempts to recruit talented foreigners who have recently obtained doctorate degrees. Despite their respect for CIER, Liu says, they regard the salary offers as far too low. He was also turned down by a highly qualified former student who chose to take a well-paid post in Japan instead.

Economists generally caution against making too much of recent sensationalist stories in the local media about young Taiwanese using working holiday programs in nations like Australia to take on menial jobs and send money back home.

They dismiss the reports as media hype, with the issue also inflated by the opposition in an effort to score points against the Kuomintang. The buzz began with a story in a Taiwanese business magazine about an economics graduate from prestigious National Tsing-hua University who was working in an Australian abattoir to save money to pay off hundreds of thousands of New Taiwan dollars in student loans.

The economists note that while top talent is being poached to work abroad, Taiwan is in little danger of becoming a labor-exporting country overall. At the same time, Chen Miao, an economist with Rowberry and Partners, offers the view that the “brain drain” can also be looked on as an opportunity for Taiwan’s professionals to gain new skills, wider experience, and an international outlook. “What’s so bad about that?” he asks.

The government has a few policy options if it wishes to reverse the trend. An important one is increasing investment, which in turn will cause job opportunities to flourish, economists say. Darson Chiu of the Taiwan Institute for Economic Research also recommends that the government further deregulate restrictions on foreign professionals working in Taiwan, as Singapore has done, to ensure that the flow of professional talent is two way.

— by Jane Rickards

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Changes Ahead for Freeway Drivers A new elevated section will open soon, and toll charges will be calculated by distance.

BY TIMOTHY FERRY

2

013 promises to be a watershed year for motorists in Taiwan who use the freeway, with two major projects nearing conclusion that promise to dramatically impact the driving experience.

One is the highly visible construction project to expand National Highway 1 (also known as the Zhongshan Expressway in honor of Sun Yat-sen) in the 40-kilometer stretch between Wugu in New Taipei City and Yangmei in Taoyuan County. The NT$70 billion (about US$2.3 billion) highway expansion, consisting of express lanes running on viaducts above the existing freeway, has been under construction for the past three years. The project, part of the NT$500-billion stimulus package passed in 2009 to jump-start

the economy, was fast-tracked at all stages. Though the accelerated schedule added to costs, the effort of workers and engineers alike has already brought the project to 90% of completion, and the Taiwan Area National Expressway Engineering Bureau (TANEEB), a division of the Ministry of Transportation and Communications (MOTC), is hoping for an opening in early 2013.

TANEEB planning director Chen Kuo-long says that with a fast-growing population in the suburbs of Taoyuan County as prospective homeowners flee the high cost of real estate in Taipei City, the freeways now crawl at an average rush-hour speed of 40 kilometers per hour. This congestion is “not only a waste of drivers’ time but also affects national economic devel-

opment,” he says, noting the resulting wasted energy, higher pollution and carbon emissions, and reduction in the quality of life.

The highway bureau estimates that when the project is operational, rushhour traffic should be able to move at an average of 80kph and the elevated sections at 90kph. The change should cut the average commute between Taipei and Taoyuan by 20 minutes.

The second development – Taiwan’s move to electronic distance-based freeway tolling instead of the current toll-booth system – will be far less visible (consisting mainly of radio waves on a spectrum), but is likely to have an even greater impact on drivers. Sometime in mid-2013, all of the freeway toll booths will be dismantled and all charges will be paid through electronic RFID (radio-frequency identification) tags, the same kinds of bar codes used to track everything from groceries to ID badges. Advances in RFID technology now allow scanners mounted on gantries above highways to read bar codes even at high rates of speed – achieving The eTag, using RFID technology, is expected to achieve nearly 100% accuracy. photo : fetc

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over 99% accuracy in working results.

The Far Eastern Electronic Toll Collection Co. (FETC), the private company contracted by the MOTC to build the system, already offers the technology to drivers as an option for electronic toll collecting and in less than a year has signed up over 1.4 million users. Drivers attach the eTag to the lower-right corner of the windshield, not on the dashboard below the rearview mirror as in the older On-Board Unit (OBU) ETC system. The tag, which has no power source, is tied to a prepaid account that users can top up at Taiwan’s nearly 10,000 convenience stores or through FETC’s website.

When drivers use the highway, scanners read and note entrance and exit points, plus the distance traveled, and draw from the account accordingly.

Currently the eTag system is one of several choices available for drivers to make toll payment, including the older OBU device as well as cash or coupons.

FETC – part of the Far Eastern Group that is also prominently involved in such other industries as textiles, department stores, telecommunications, and banking – says that as of last month

they had over 2.5 million users of either eTags or the OBU units.

According to FETC, vehicles have passed through ETC lanes a total of 110 billion times since the system was first launched in 2006 to decrease traffic congestion and pollution. The company notes that the ETC system has already saved Taiwan 4.7 million liters in fuel, reducing carbon emissions by 110,000 metric tons and generating 110 billion fewer paper receipts.

Consumer advocates are not necessarily pleased with all aspects of the program, however. First, once eTag uptake reaches 65% of the approximately 5 million regular freeway users, all other toll-paying options – cash, coupon, or OBU – will cease.

Toll booths will be removed and consumers will be left with eTags as the only choice, making Taiwan the first country in the world to transform its entire highway system to distance-based tolling on a single day.

The second concern is that all freeway drivers, even those traveling just short distances of less than a kilometer, will need to pay at least a minimum toll. The amount has not yet

been determined, but is expected to be between NT$10.2 and NT$18.6 per trip.

FETC managing director Y.C. Chang says this proposed change is understandably encountering resistance.

“Just imagine,” he says. “All the drivers on the freeways will have to pay – no exceptions.” On the other hand, the company says, distance-based tolling will actually save long-distance commuters anywhere from NT$20.1 to NT$47.9 per trip.

The new payment policy should further the aim of reducing traffic congestion by deterring short-distance drivers from using the freeway at all. But consumer advocates argue that rural drivers will be unfairly disadvantaged, as they often have little alternative but to use freeways for relatively short trips. The company responds that distance-based, “pay-asyou-go” tolling is fairer overall, because all users – not just long-distance drivers – share the costs. But an FETC spokesperson concedes that “it will be a challenge to communicate to residents of rural areas that the new policy is not a punishment.”

The 40-kilometer stretch of elevated highway was divided into three segments, with each section using a different technology. photo : timothy ferry

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The new elevated section construction and the upcoming conversion to distance tolling are both the culmination of longstanding plans that gained momentum in recent years because of changes in global economics and advances in technology.

In the months following the 2008 financial crisis, Taiwan’s export-reliant economy contracted sharply, registering -0.8% GDP growth in 2009. To help restore economic momentum, the Ma administration devised an extensive economic stimulus plan filled with infrastructure projects intended to revitalize supply chains and put people to work. Projects financed under the stimulus had to pack a fast punch. For TANEEB, this criterion meant a sharply curtailed project timeline. In the end, the elevated expressway took only three years and two months to build, whereas the existing 20-kilometer Xizhi-Wugu elevated section took six years. “Here the distance is twice as long, but construction time is only half,” says Chen, the planning director, proudly. But he also notes that the accelerated schedule was “very tough” on both workers and engineers. “I wouldn’t want to do this again,” he says.

Added expense “Because the time was so limited, more resources, more equipment, and more manpower needed to be put into the project, so of course the cost was higher than usual,” explains Chen.

Initial planning estimated the total cost at NT$88 billion, but that calculation assumed the use throughout the project of the fastest, and costliest, construction method –viaducts assembled from steel “box girders” manufactured in contracted factories. But the planners quickly realized that Taiwan falls far short of sufficient manufacturing capacity to produce so many steel box girders in time, forcing them to seek alternatives.

A possible solution was to assemble part of the elevated highway from precast concrete spans. Precast concrete is cheaper than box girders and can actually also be relatively fast to assemble 32

on pillars, notes Chen. The problem was that precast spans must be manufactured in mammoth casting yards of five acres each. And because of the challenges of moving such massive spans – special trailers with multiple tires to disperse the weight more evenly needed to be imported before the spans could pass across certain bridges – the casting yards had to be within five kilometers of the construction site. In the densely populated vicinity of the construction sites, land is in short supply, however.

Normally, contractors are responsible for arranging whatever land is needed, but because of the time urgency of this project, TANEEB received permission from the central government to enter into leasing arrangements at five sites – abandoned factories or unused farmland – to serve as casting yards for the duration of the project. The sites are then to be restored to their original, or even an improved, condition, says Chen. For farmland, this requirement means removing the top soil at the beginning of the project, storing it offsite, and then returning it at the end.

The owners are paid market values for the use of the land, bringing them additional income.

An added bonus was that while girders and spans were being made, work could start on the foundations, further saving time.

The project was eventually divided into three sections employing three different construction methods. The northern third was built with steel box girders, the southern third with precast concrete spans, and the middle section using cheaper but slower conventional techniques. But even here the process was able to be speeded up. Box girders and precast concrete, though quite expensive, require less manpower and fewer resources, allowing TANEEB to pour more resources into the conventionally built middle section, in which bridge sections were constructed directly on the pillars and extended out along launching girders.

To r e duc e the time ne e de d, the bureau also deviated from the standard practices for planning and bidding. In a typical infrastructure project, Chen

explains, the basic and detailed designs are completed, usually taking around a year, before the construction work is opened for bidding. But for this project, Chen says, “we started bidding at the end of the basic design,” less than three months into the design work. He says that this arrangement cut the total project time by seven months. Because of the scale of the project, only large contractors with abundant experience in roadway construction were allowed to enter a bid.

Nine major contractors were finally selected for 12 sections, or lots.

While conducting the bidding before detailed design work had been completed reduced the time needed, it also created an array of new headaches.

Chen admits that specifications supplied to contractors were sometimes inaccurate and were revised often as engineers struggled to keep pace with the bidding.

Without reliable numbers, Chen says, there was a “risk of contractors underbidding and losing money.” The bureau was forced to revise regulations to give it more flexibility in dealing with contract disputes.

The massive 40-kilometer construction site by the side of the freeway has been a familiar scene for commuters since work started in 2009. Squeezed between the highway on one side and mountains or densely populated urban areas on the other, the worksites had to go vertical, looming over the highway as traffic moved below. Over 90 cranes sprouted up along the roadside in what became one of Taiwan’s biggest civil engineering projects in years, employing an army of engineers (654), local workers (2,345), and foreign laborers (1,214) working day and night to bring the project together in record time.

The project includes Taiwan’s two longest bridge spans – 216 meters each – and is forecast to be completed 14 months ahead of schedule in three years and two months, down from an original estimate of four years and four months.

New technology Distance-based tolling, for its part, has been made possible by recent

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From Toll Booth to PAID -BY-DISTANCE System Removal of the toll booths will in itself help speed up the traffic flow.

Gantry

photo : fetc

antenna

enforcement

Toll Booth

advances in RFID technology. The main technology being employed by FETC was developed by U.S.-based Federal Signal Company’s Technology Division, recently acquired by 3M. Robert Karr, director of Federal Signal’s Hong Kong office, says that the fifth generation RFID technology being used in the eTag system represents a significant improvement over earlier incarnations.

The system can read a bar code 40 times from a car moving at over 180kph before the vehicle passes out of range, he says.

FETC notes that the system is sturdy as well, working effectively in a wide range of temperatures, and since it is a form of machine-to-machine communication, there is no chance for human error. Equally important have been advances that prevent the tags from being cloned or data from being stolen.

FETC reportedly approached Federal Signal in search of a new technology after the original OBU system failed to take off as expected. The OBU device cost users NT$1,199 for each unit. In contrast, the eTag – basically a passive label with an antenna and a chip – is cheap enough to be given away for free.

Federal Signal was invited to participate in a series of tests to determine if the technology meets the stringent reliability requirements set by the gov-

ernment – an extraordinarily high accuracy rate of 99.94%. “This is unique in the world,” notes Y.C. Chang.

ETags are now being distributed at 1,000 locations, such as gas stations, auto repair shops, and car dealers around Taiwan. FETC says that two versions of the eTag are being made available, one that affixes to the windshield and the other to the headlight. Personnel at the outlet can help determine which tag best suits each particular model of auto.

The ETag accounts can be charged up through the FETC customer-service network (www.fetc.net.tw) or at convenience stores. Consumers need only enter their personal identification numbers and license plate numbers to increase the amount of stored value.

Starting next year, FETC will also issue an eTag card to customers who prefer charging up by means of a card. To activate the system, drivers will need to have at least NT$400 in their account.

Users will be able to access their eTag accounts through the kiosk services at convenience stores, the FETC website, and customer-service phone lines.

“Smart-phone holders can also keep track of the eTag balance through an ETC APP offered free of charge,” the FETC spokesperson notes in an email.

The company further explains that

when distance-based tolling begins, OBUs will no longer function and the “amount of money drivers paid to purchase an OBU will be transferred into their eTag account.”

FETC is investing over NT$6 billion of its own money in building the system, stretching gantries holding scanners across the highways, and leasing data space in Far EasTone’s Donghu data center, with a backup data center i n Ta i c h u n g . I n e x c h a n g e , F E T C receives an NT$3.4 service fee for each toll collected through the ETC system.

Drivers using eTags or OBUs to access ETC lanes currently enjoy a 10% discount on toll fees, as long as they have enough money in their accounts and the transaction is completed.

After eTags become the only payment option, any cars without them that access the freeway will be videotracked, and a bill for the amount of toll incurred – minus any discount – will be mailed to the registered address.

Compared with RFID technology, though, license plate recognition technology is not nearly as effective – achieving only 80-90% accuracy rates – and often requires the input of human operators to make a final determination. How this shortcoming will impact overall system efficiency remains an open question. taiwan business topics • NOVEMBER 2012

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ITRI: Innovating Taiwan

BY EMILY CHEN

O

n November 1, R&D Magazine in the United States presented Taiwan’s Industrial Technology Research Institute (ITRI) with six R&D 100 awards, known as the “Oscars of Innovation” in the field of science and technology. Marking its fifth consecutive year as a winner, ITRI was chosen as a leading global innovator in the categories of materials science, energy technologies, electrical devices, electronic instrumentation, and thin film and vacuum technologies.

The six awards ranked ITRI second

overall among participants that also included Intel, Dell, 3M, and Hitachi.

The first-place winner – Oak Ridge National Laboratory of the U.S. Department of Energy – won seven awards.

One of the institute’s new technologies that earned a 2012 R&D 100 award is SideLighter, a solar-energy technology that enables a transparent plasma-jet film to deflect sunlight sideways to solar cells arrayed in panels.

The technology allows users to save on the cost of silicon cells used in tra-

ditional photovoltaic (PV) systems, and the transparency of the plasma-jet film makes possible a broad range of potential applications – for example, in office-building windows, on the roofs of homes, and in greenhouses. ITRI will seek private-sector partners to cooperate in developing the technology for mass consumption and to work out feasible business strategies and plans.

The work for which ITRI was recognized only scratches the surface of the myriad ongoing projects at the Hsinchu-based organization's headquarters. The government founded ITRI in 1973 with the three-fold mission of expediting the development of new technologies, helping to upgrade existing industrial-technology techniques, and promoting greater efficiency and sustainability in Taiwan’s industrial technologies.

The institute aims to bridge the gap between academic research and industry. The U.S. White House Office of Science and Technology Policy has referred to this gap as “the missing middle,” caused by lack of access to SideLighter, winner of the 2012 R&D 100 Award, enables a transparent plasma-jet film to deflect sunlight sideways to solar cells arrayed in panels. photo : itri

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capital or other key resources at a crucial step in the development process.

“Some industries are stuck in their traditional categories – they can’t move out,” says Johnson Sher, ITRI’s vice president responsible for commercialization and industry services.

“However, ITRI can help them start early-stage investment in terms of R&D or pilot projects, moving them forward.”

ITRI is a non-profit R&D organization. The government provides strategic guidance as well as about half of the annual funding, including some US$60 million a year for “innovative forward-looking projects,” according to Sher. The remainder of the funding is generated by revenue from the commercialization of technologies it has developed and by providing services to industry. With respect to human capital – it employs 5,797 full-time personnel, 1,354 of whom hold a Ph.D. – ITRI is the largest research institute in Taiwan.

“Our mission is to be a world-class research institute, but we also want to be a pioneer for innovation on behalf of industry,” says Stephen Su, general director of ITRI’s Industrial Economics and Knowledge Center. “Our definition of innovation is to convert research into business through commercialization.

Typically, we work on advanced technology three to five years in advance of industry taking it over.”

L a s t s u m m e r, i n a r e p o r t f o r President Obama on how to ensure American leadership in advanced manufacturing, the president’s Council of Advisors on Science and Technology cited ITRI and Germany’s Fraunhofer Institutes as two R&D organizations that the U.S. could learn from.

“Through ITRI, the [Taiwan] government covers about a fourth of the cost of private sector research in new technology areas,” the report notes. “Unlike any U.S. agency, ITRI has the sole mission of developing technology for commercialization purposes.”

In the almost four decades since its founding, ITRI has made notable strides in implementing its mission.

The institute has accumulated nearly 18,000 patents, cultivated 70 CEOs,

FlexUPD is a thin and transparent, soft plastic substrate developed by ITRI to enable the manufacture of flexible flat panel displays. photo : itri

and assisted in the creation of over 170 start-ups and spinoffs.

ITRI is widely credited with having established Taiwan’s semiconductor industry by signing a “CMOS IC Technology Transfer Licensing Agreement” with RCA in 1976, initiating the transfer of integrated-circuit know-how to Taiwan. RCA-trained ITRI engineers set up Taiwan’s first wafer fabrication plant at ITRI, eventually spun off as United Microelectronics Corp. (UMC) and Taiwan Semiconductor Manufacturing Co. (TSMC).

Staying sharp Today, ITRI’s leaders face the continuing challenge of performing cuttingedge R&D with the potential to spawn new business opportunities, develop new markets, and advance Taiwan’s industrial development – even as

demand for Taiwan’s exports remains sluggish in Western countries and competition within the Asian tech sector is heightening. The institute is now particularly focused on R&D in six fields of research: information and communications; electronics and optoelectronics technologies; materials, chemicals, and nanotechnology; green energy and environmental technologies; mechanical and systems technologies; and medical device and biomedical technologies.

Executive Vice President Liu Jongmin says that over the years ITRI has evolved from being a “fast follower” – using technology transfer to catch up with breakthroughs abroad – to being a “pioneering” technology developer through indigenous innovation and international collaboration.

He describes ITRI’s goal in conducting R&D as producing “forward-looking, differentiated, key-enabling technology” taiwan business topics • november 2012

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A view of part of ITRI's sprawling campus in Hsinchu, Taiwan's equivalent of Silicon Valley. photo : itri

that can be successfully commercialized by domestic industry.

Part of that evolution, says Liu, has been a gradual change in ITRI’s culture to train researchers to think like businesspeople and help businesspeople to think like researchers. That effort is important not only to improve communication with the private sector but also because an ITRI researcher may one day become the CEO of a spin-off company.

After 27 years at ITRI’s material and chemical labs and two years in the institute’s headquarters, Liu has become a firm believer in the importance of globalization. “Taiwan is a small island, so if we think only about Taiwan, the value is probably not big enough and the infrastructure may not be suited to the commercialization of a given technology,” he says. ITRI maintains overseas offices in Silicon Valley, Tokyo, Berlin, and Moscow. The role of these outposts runs the gamut from facilitating R&D collaboration to seeking partners for technology transfers.

In addition, the international offices organize outreach activities to help ITRI expand its network and increase t h e v i s i b i l i ty o f n e w t e c h n o l o g i e s that are ready for commercialization. ITRI boasts cooperative research relationships with 143 public and private organizations overseas, including 36

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Stanford University, the Massachusetts Institute of Technology, Carnegie Mellon University, IBM, Microsoft, and Sun Microsystems.

Under a program initiated by ITRI President Shyu Jyuo-Min in 2010, each year the institute sends about 50 of its most promising researchers under the age of 40 overseas to spend a year or two conducting research at a partner organization. ITRI supports their salary and living costs as they develop a global perspective and gain a better idea of how advanced countries perform original research.

Senior managers, such as lab managers and division directors whose teams have developed a breakthrough technology, will soon also have more opportunity to go abroad – in their case for three to six months to market the technology. ITRI plans to begin sending 10 to 20 such managers to the United States, Europe, and Japan each year to seek to link their innovations with complementary technologies abroad and to generate new product ideas for the technology’s commercialization.

“This approach gradually changes ITRI’s culture, ITRI’s thinking,” reflects Liu. “Globally, companies already know Taiwan is a good place to develop new products, because our infrastructure is very good for technology development. But they don’t recog-

nize that Taiwan also has differentiated [meaning proprietary] technology. If we can bring in our differentiated technology, plus our capability to develop product and eventually manufacture product, this will draw a lot of interest from top-tier global companies.”

ITRI established its Industrial Economics Knowledge Center (IEK) in 2000 to function as a think tank to conduct global market research and strategic development. It is one of the few units within ITRI that does not focus on technology R&D. Rather IEK offers its expertise in industrial strategy to ITRI’s technology-oriented labs to help them understand industry’s needs and the market demand for technology applications. It also advises the government on which emerging industries deserve promotion, and provides infor-

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a n a ly s i s The Ministry of Economic Affairs’ press conference on July 7, announcing the six 2012 R&D 100 Awards received by ITRI and one by the Institute for Information Industry. photo : itri

mation on consumer trends for the guidance of private industry. “This is what we call ‘market-driven,’ says Stephen Su. “Both ‘technology push’ and ‘market pull’ have to be combined if we want to better catch future directions.”

Some of IEK’s market-research reports are provided free to industy associations and individual companies, while other studies are made available on a paid basis. Su says that about three-quarters of IEK’s activities involve industry-development projects for the government, while the rest is for the private sector. Although consulting cases or market research for individual companies are rare, IEK has done technology-development strategy projects for such firms as TSMC and Siemens.

Staying business-savvy Through its Commercialization and Industry Service Center, ITRI provides a full value-chain of business services to support technology innovation in local industry. Vice President Johnson Sher is responsible for managing four major segments of the value chain: intellectual property, industrial services, incubation, and commercialization. In the past three years alone, he notes, ITRI has transferred over 1,700 technologies to local and foreign businesses. The transfer of know-how other than intellectual property is covered under industrial services; companies can seek assistance from

ITRI for such services such as product and process development, pilot production, and testing.

The Incubation Center at ITRI provides high-tech startup teams with access to resources and insights that they might not otherwise be able to afford. The service is intended for firms that are less than 18-months old, with less than US$2.35 million in capital but a desire to develop advanced technology. The first incubator in Taiwan, the ITRI Incubation Center’s goal is to add value to local industry by supporting innovation and improving Taiwan’s global competitiveness.

The institute’s Open Lab is a popular choice for established domestic and foreign companies, government agencies, universities, and other research organizations that wish to run joint R&D projects with ITRI. It is currently home to over 850 individuals from some 68 companies. Since founding in 1996, the Incubation Center and Open Lab have together housed approximately 326 companies, including 174 newly established companies - of which 15 were publicly listed. In total, over 4,300 external employees have made use of the Incubation Center and Open Lab. Most companies utilizing the Incubation Center and Open Lab are attracted by the opportunity to shorten their learning curves, achieve cost-efficiency in R&D, and access the crossdisciplinary expertise available at ITRI.

“Companies join ITRI not only to save costs on office space but because they want to get close to ITRI resources,” says Sher. “We call ourselves a ‘superincubator’ since ITRI goes through [the entire] process to help them with the space, operation, research, learning experience, industry guidance, future marketing, and future eventualization.

This is much bigger scale than traditional incubation.”

The Commercialization and Industry Service Center aims to adopt international best practices in technology commercialization models. It promotes new ventures by searching for technology transfer opportunities, publicizing new technologies to target industries, and taking advantage of ITRI’s international presence to find collaboration opportunities.

Sher estimates that ITRI spins off five to 10 companies per year. Around 75% of the companies spun-off since the institute’s establishment are still in operation today, he says.

“ITRI is kind of a technology farm,” explains Sher, “but through the commercialization process, it also becomes a risk-taker and a trend-setter for the local companies. Industry feels close to us because we aren’t competing with them. Rather, they treat us as a collaborator.”

Room to grow Since winning its first R&D 100 award five years ago, ITRI has enjoyed a significant growth in global recognition. Liu believes that these honors, along with such others as the Wall Street Journal Technology Innovation Awards and the United Kingdom’s Solar Industry Awards, have demonstrated to the world that Taiwan can be a trendsetter in original innovation. “When we go to Europe [now], they say ‘you don’t have to introduce ITRI, we know ITRI very well,’” he remarks.

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is a restriction on the number of foreign nationals it can hire, whether in Taiwan or overseas. In addition, the Taiwanese employees stationed at ITRI’s international offices are limited to nontechnical liaison roles. Besides the special program for young researchers, ITRI does not place permanent R&D personnel outside of its home country, unlike most global research institutes of ITRI’s caliber.

“Going forward, even though we are able to leverage international collaboration, we need to develop some

organizational strategy about being more international,” says Stephen Su. “It’s not just about sending people from Taiwan; it’s about having local hires [overseas] as well.”

In 2006, ITRI introduced an international internship program to host 40 undergraduate and graduate students for 10 weeks each summer in Hsinchu.

Over 200 students from approximately 25 countries have completed the internship in various ITRI labs and departments. Dan King of ITRI Human Resources says the program has helped

expose ITRI employees to diverse backgrounds, raise international awareness of ITRI’s capabilities, and expand the institute’s long-term channels for collaboration, marketing, and even recruiting. One or two interns each year have been hired for full-time positions. King explains that the ultimate goal is “to attract a more international workforce on the premise that combining different points of view is important for promoting creativity, innovation, and research breakthroughs.”

Corning’s ITRI Experience

C

orning – well-known for its Gorilla Glass, used in many high-end smartphones and tablets – set up the Corning Research Center Taiwan (CRCT) at ITRI’s Open Lab in 2006 to conduct R&D in the display, energy, biotechnology, and telecommunication sectors. Corning had originally considered locating the facility elsewhere in Hsinchu, but in the end the benefits of joining the Open Lab outweighed other considerations. orning maintains three to five ongoing collaboration projects C with ITRI at any given time. The company’s experience at ITRI has been so positive that CRCT Director Jay Zhang says he has helped persuade others to set up shop there, including the German chemical manufacturer Evoniks, which is now a neighbor of CRCT’s. he primary advantage of being situated at the Open Lab is the T close proximity to high-end researchers across different fields, Zhang explains. “If you start out knowing five people, and they each introduce you to five more people, it becomes 25 very quickly, and you have a network you can reach out to,” he says, “You run into people in the hallway or cafeteria and it helps build the relationship. If you have a collaboration idea, you can pick up the phone and arrange a meeting with two hours’ notice. Ideas can go from concept to execution very quickly. The cycle of innovation is faster by being on campus.”

RCT’s mission is to provide access to “differentiated capabiliC ties” and partnership opportunities that Corning did not have at its New York headquarters or its research labs in Japan, Russia, and France. Corning was looking for a location and partner with the appropriate infrastructure, processing capability, and human capital to conduct R&D in areas of commercial interest to the company, and ITRI fit the bill. Under the partnership, ITRI typically provides 38

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equipment and processes that cater to Corning’s specific needs, allowing Corning materials to be constructed into new devices with novel performance abilities. In June, for example, Corning unveiled Willow Glass, a paper-thin flexible glass that can be wrapped around a device or structure, opening the possibility of roll-to-roll (R2R) processing of future smartphones and tablets, similar to the way newspapers are printed. ITRI has been working with Corning to design the “ecosystem” for producing Willow Glass in Taiwan.

ITRI “isn’t a typical research institute where engineers are focused on publishing papers and patenting new products,” says Zhang. “All ITRI people understand that their mission is to create new industry for Taiwan, and consequently people invent things with a product or market in mind.” hang views ITRI as Taiwan’s R&D center, since most Taiwanese Z companies tend to focus mainly on manufacturing and relatively little on early-stage research. ITRI fills that gap. Another contribution is the prominent role of ITRI “alumni” in the Taiwan economy. “A lot of the industry leaders have spent time at ITRI,” says Zhang. “The people at ITRI don't just create IP; they create future leaders.”

— By Emily Chen

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behind the news

Corruption Remains an Issue Several recent scandals show that the new Agency Against Corruption will have its work to do.

BY DEBBY WU

W

hen he started his first presidential campaign in 1999, former president Chen Shui-bian of the Democratic Progressive Party (DPP) attacked the ruling Kuomintang (KMT) for allowing gang influence and bribery to run rampant in local politics. He vowed to eradicate corruption if he won election.

Chen is now himself behind bars, convicted of embezzlement, taking bribes, and money laundering, and still faces additional corruption charges. He was arrested just a few months after stepping down from the presidency in 2008, and his wife Wu Shu-chen, an invalid, has also been convicted but excused from starting her 19-year prison term because of her poor health.

Amid public uproar over Chen’s malfeasance, his successor as president, Ma Ying-jeou, declared during his 2008 presidential campaign that he would eliminate the culture of corruption that the Chen family represented. Ma defeated his DPP opponent in a landslide victory.

To fulfill his campaign promise, Ma set up the Agency Against Corruption under the Ministry of Justice in

Former First Lady Wu Shuchen after pleading guilty to forgery and money laundering in 2009.

July 2011 to help prevent and uncover corruption in government. The move received general public approval, although some critics argued that the Agency could wind up being a paper tiger, lacking sufficient power to fulfill its mission.

The new organization’s reputation recently suffered a blow when a major corruption case involving a senior official was uncovered not by the Agency but by the media. Next Magazine revealed this past June that then Cabinet Secretary-general Lin Yi-shih received a bribe of NT$63 million (over US$2 million) from a local businessman in 2010 when he was still a member of the Legislative Yuan, in exchange for his help in securing a procurement contract from a subsidiary of the government-invested China Steel Corp. The report said Lin had demanded payment of another NT$83 million earlier this year when approached for help in getting the contract renewed.

After resigning his position, Lin was detained by prosecutors in early July and released on NT$50 million bail on October 22. Three days later he was indicted.

photo : ap

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behind the news

RELEASED — Former Cabinet Secretarygeneral Lin Yi-shih and his wife leave Taipei District Court after Lin paid NT$50 million in bail. photo : cna

The scandal was a heavy setback for the Ma administration, which had prided itself on its cleanliness and integrity. But the Lin case was only one of several incidents to come to light in recent months. Currently former National Fire Agency Director-General Huang Chi-min is being detained for receiving bribes, and several Taiwan Railway Administration officials are under investigation for allegedly accepting bribes and favors from a contractor. In addition, the KMT mayor of Keelung, Chang Tong-rong, is facing charges for allegedly trying to pressure police to release a supporter who had been arrested for drunken driving.

Considering that cases of high-level official wrongdoing have plagued both DPP and KMT governments in recent years, showing that corruption remains a major issue in Taiwanese politics, experts say that the two major political parties and the public need to work together to address the problem.

The root of all evil Some trace the origins of the problem to Taiwan’s political history. After the Nationalist government retreated to Taiwan in 1949, the island 40

was ruled by authoritarian regimes, first under Chiang Kai-shek and then his son Chiang Ching-kuo. Chen Yawshyang, an assistant professor of Public Administration and Policy at National Taipei University, says that corruption occurred under the two Chiangs as underpaid public servants were allowed to supplement their income with “red envelopes” as a way for the leadership to secure the loyalty of the bureaucracy.

With Taiwan’s gradual democratization beginning in the 1980s, the mode of corruption also evolved. “Black gold politics,” a reference to gangsters and moneyed figures getting elected as lawmakers or mayors by extortion or vote-buying, became a fixture in local politics. To consolidate their power and ensure handsome returns from their newly minted political influence, “black gold” politicians often cooperated with local entrepreneurs to run illegitimate businesses or secure infrastructure contracts by bid rigging.

The phenomenon arose as the KMT, led by then-president Lee Teng-hui, faced increasing challenges from the DPP and sought to stay in power by cultivating individuals wielding considerable influence in city- and county-level affairs. One of the most notorious politicians from this period was the late county council speaker in Pingtung, Cheng Tai-chi, who ran an illicit gaming business and shot a competitor to death while in office. He was later executed for the crime.

There were also prominent gangland figures who made it into the national legislature. Yen Chin-piao, who served time for illegal possession of firearms and has also faced corruption charges, remains an influential non-party but KMT-friendly lawmaker to this day.

Although few have been charged or jailed on these grounds, since the 1990s a number of Taiwanese lawmakers were reputed to have accepted money in exchange for help in securing contracts or amending laws. The best-known – almost legendary – such figure was the late KMT lawmaker Liao Hwu-peng, nicknamed “Red Envelope Peng” for his acceptance of ample financial rewards

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behind the news

for his services.

Experts on Taiwan politics say that while black gold influence has now diminished significantly on the national scene due largely to media scrutiny, it remains an issue at the county and city levels. Chen of National Taipei University says city and county councilors and officials, local entrepreneurs, and gangsters often form a “symbiosis” to pursue lucrative business projects on the basis of inside information and opportunity, and to protect their common interests. It is usually very difficult for the media and goodgovernment NGOs to uncover these practices at the local level.

Chen’s comments are echoed by Kevin Yeh, executive director of the Taiwan chapter of Transparency International (TI), the global anti-corruption organization. He notes that corruption involving local public infrastructure projects is often tied to election activity.

“If a politician relies on the resources provided by the ‘black gold’ symbiosis rather than his political beliefs to get elected, he is unlikely to cut ties with these associates once in office,” he says. Yeh suggests that the government impose tighter controls on campaign donations and expenditures as a way of curbing this tendency.

For the past few years, Taiwan’s Corruption Perceptions Index as estimated by TI has remained stable at around 5.6 to 6.1 out of 10. Out of some 180 countries surveyed, Taiwan ranked in 32nd place in the most recent (2011) report. In East Asia, it trailed only Hong Kong, Japan, and Singapore.

Betrayal of ideals When the DPP's Chen was elected president in 2000, supporters looked to him to renovate the corrupted political culture as he had promised. By the end of the Chen administration, many were bitterly disillusioned.

Chen is now hospitalized for severe depression following three years in detention and then prison. He has been sentenced to 18.5 years’ incarceration and is still standing trial on other cor-

ruption charges.

The crimes he is serving time for include receiving NT$10 million from former Taipei 101 Chairwoman Diana Chen in exchange for helping her become the chair of a local brokerage, and ordering the government to purchase a piece of land from the Taiwan Cement Corp. for NT$7.6 billion after company chairman Leslie Koo paid Wu Shu-chen NT$300 million to arrange the deal. Besides the conviction of Chen’s wife, their son and daughter-in-law, as well as other close aides, are also standing trial on related charges.

Following public indignation over Chen’s misconduct, Ma pledged a crackdown on corruption, setting up the Agency Against Corruption (ACC) modeled on a counterpart in Hong Kong to carry out his promise. AAC Director-General Chou Chih-jung says his agency, established according to standards set by the United Nations Convention against Corruption, “shows the government’s determination in preventing and eliminating corruption by following the international standard.”

Currently, says Chou, the AAC is focusing on integrating its personnel, including resident prosecutors and ethics officials embedded in the offices of the various ministries and bureaus, into a cohesive team to uncover illegal behavior within government. But eventually he also wants his organization to work on promoting a culture of zero tolerance toward corruption in Taiwan society.

“We are urging the public to refrain from paying bribes to civil servants at all levels,” he says. “At the same time, we want to see government simplify and accelerate the administrative process for things such as applying for business licenses and to make the procedure transparent so people will not feel the need to pay to get things done.”

Since his agency started operations last year, Chou says, it has received some 4,290 complaints regarding possible corruption, and has successfully pressed corruption charges against 73 people. He adds that his team is now putting special emphasis on monitoring

and investigating cases in connection with government procurement, particularly those involving major infrastructure contracts, acknowledging longtime problems of malpractice in those deals. “We are now reviewing flood-prevention construction projects and open contracts for disaster relief very carefully as those pacts have a great impact on people’s lives and assets,” Chou says. His determination is reflected in his agency’s key role in initiating an ongoing investigation of senior Water Resources Agency officials for bid rigging in flood-prevention contracts in southern Taiwan.

However, Chou still faces tough challenges in convincing the public about his agency’s capabilities and effectiveness. Shortly before the agency was officially launched, Apple Daily said in an editorial that it was doomed to fail. “The agency is just a subordinate unit to the Ministry of Justice… it will not be able to investigate senior government officials,” the newspaper said. “Further, the agency is made up of existing internal affairs officials, and the thing they do best is actually protecting their colleagues in the government. It is simply impossible for them to investigate their peers.”

The Lin Yi-shih affair then appeared to lend some credibility to the Apple Daily viewpoint, setting back the Agency’s efforts to prove its usefulness. Judicial Reform Foundation Executive Director Lin Feng-jeng was among those criticizing the organization’s failure to catch Lin before the media did. “Lin Yi-shih’s transgression was exposed by a whistleblower and the media,” Lin Feng-jeng says. “The Agency has flopped, as it did almost nothing in uncovering his crimes.”

Countering that criticism, Chou says his office passed useful information on Lin Yi-shih’s foul play to the Special Investigation Division of the Supreme Prosecutors Office that helped the division advance the case after the Next Magazine story was published. But the public will certainly be watching whether any future cases are instigated by the AAC or depend on media or other sources.

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INDUSTRY

F

CUS

A Special Report on Taiwan’s Defense

Building a Credible Deterrent

BY DON SHAPIRO ph o t o s: c o ur t esy o f mi ni st ry o f def ense

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INDUSTRY

F

CUS

The Era of Asymmetry At a time of unequal military power with china, taiwan needs to adopt new and innovative methods to reduce the likelihood of attack.

IN THIS SURVEY

F

• The Era of Asymmetry

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• The U.S. as Prime Arms Supplier

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• Uncle ROC Needs You!

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or most of the period since the Communist takeover of mainland China and the withdrawal of the Chiang Kai-shek government across the Taiwan Strait in 1949, Beijing constantly exhibited its bellicosity toward Taiwan with threats of military action to bring the “renegade province” back to the fold.

Yet in those days there was relatively little doubt about Taiwan’s ability to successfully defend itself.

The 100 kilometers of water separating Taiwan from the mainland provided a comfortable “moat.”

In addition, the decades of internal instability on the mainland – with the failed Great Leap Forward followed by the devastation of the Cultural Revolution – thwarted China’s economic development and military modernization. In Taiwan, in contrast, rapid economic growth spurred by booming export trade ensured ample budgets to support defense requirements.

Today, the situation is quite different. In place of the tensions of the past, cross-Strait relations are now marked by close business and cultural interaction. China (including Hong Kong) absorbs some 40% of Taiwan’s exports, and is home to perhaps US$200 billion in Taiwanese

private investment. The two sides have signed an Economic Cooperation Framework Agreement, and millions of tourists and other visitors are crossing the Taiwan Strait in each direction every year on direct flights.

Prominent Taiwan political figures who have made the trip include three former presidential candidates: the Kuomintang’s Lien Chan, Democratic Progressive Party’s Frank Hsieh, and People First Party’s James Soong.

To the general public, polls have shown, the possibility of military conflict now seems exceedingly remote.

But defense specialists are highly conscious not only that an official state of hostility still exists between the two sides, but that upwards of 1,600 ballistic missiles aimed at Taiwan remain installed along the mainland coast and that there is no guarantee that the current rapprochement will last forever.

Defense experts, whether uniformed or civilian, are also sensitive to how much else has changed in the security balance in recent years.

While Taiwan’s GDP growth has slowed substantially, placing severe strains on the national budget, China has become an economic powerhouse able to pour enormous resources into strengthening its military capability.

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A Special Report on Taiwan’s Defense

In both quantity and quality, it now has a formidable array of weaponry at its disposal, including precision-strike missiles that render the safety of a “moat” obsolete. The new circumstances present huge new challenges for Taiwan in devising strategies and tactics to keep the island secure.

As he entered office in 2008, President Ma Ying-jeou vowed to maintain a strong military presence, but at the same time he publicly recognized the impossibility of engaging in an arms race with Beijing. Taiwan’s military leaders and defense strategists increasingly speak of the need for an “asymmetric” approach to the country’s defense. Rather than seeking to preserve a balance of force with the enemy, matching weapons system for weapons system, this approach

acknowledges the differences in the level of strength compared with the antagonist, and attempts to utilize those differences to one’s own advantage.

In a controversial paper a few years ago entitled Revisiting Taiwan’s Defense Strategy, William S. Murray, a professor at the U.S. Naval War College, proposed a perhaps extreme version of that theory that he dubbed the “porcupine” strategy, after the animal that defends itself by rolling into a ball with its sharp quills protruding, causing predators to attack it to their regret. Murray and other scholars who have espoused the porcupine theory argue that Taiwan, having already lost the ability to control the air and sea in case of an all-out attack, would be ill-advised to devote a huge portion of its limited defense budget

to high-performance aircraft and large naval vessels that could be quickly taken out by enemy missiles (hitting airfields and destroying runways in the case of aircraft). Instead, these analysts stress the importance of placing more resources into capabilities to repel an amphibious invasion, including such weaponry as mobile coastal-defense cruise missiles, truck-mounted Multiple Launch Rocket Systems (MLRS), attack helicopters, missile boats, and sea mines.

Adopting a porcupine approach, writes Murray, would render Taiwan “patently useless to attack” and thus would deter Beijing from launching an invasion or even a long-range precision missile bombardment that might soften up the target but eventually would need to be followed up with putting boots on

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the ground. It would also give Taiwan “a better defense for fewer dollars,” he maintains, as well as ease U.S.-Taiwan and U.S.-China relations by reducing the need for the kind of big-ticket, high-visibility arms sales from the United States that Beijing is certain to vehemently protest.

Similarly, James R. Holmes, another U.S. Naval War college professor, earlier this year wrote that “Taiwan must admit defeat in the arms race – and then work around it.” Instead of trying to maintain “sea-control,” for example, the ROC Navy should opt for “relatively inexpensive ‘sea-denial,’” which gives the advantage to the force protecting its home turf, he said. “The weaker navy still has options,” noted Holmes, “if its commanders and their political masters can bring themselves to admit they are the weaker competitor and devise strategy accordingly.”

Publicly admitting the comparative weakness one’s military, of course, would

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be difficult for any political leaders, opening themselves to widespread criticism. Nor would it be easy to totally reject the idea of procuring advancedtechnology but costly weapons systems from the United States – whether sophisticated jet fighters or naval vessels – in favor of complete reliance on instruments of stealth and mobility useful for blocking an amphibious landing.

It is not simply a matter of the various military branches each wanting the latest “shiny toys,” as some suggest. The purchase of new F-16 fighters from the United States, for example, would have a far greater psychological impact on public confidence than any investment in domestically made weaponry. Randall G. Schriver, president of the Project 2049 Institute and a former Deputy Assistant Secretary of State for East Asian and Pacific Affairs, notes that these big-ticket marquee items are the “most concrete and visible sign of the

continuing U.S. commitment to Taiwan’s defense, especially when Washington has to take heat from the PRC to go forward with these deals.”

But while going to a porcupine defense (whether or not militarily viable) seems politically unrealistic, and while Taiwan will undoubtedly continue to seek some high-profile arms from the United States within its budgetary capacity, it is clear that asymmetric warfare is taking on increasing importance in Taiwan’s defense posture. That direction was already set in Taiwan’s first Quadrennial Defense Review (QDR) issued in 2009, and is likely to be stressed even further in the second QDR due to be released early next year.

Domestic development Much of Taiwan’s growing asymmetric capability is the fruit of R&D conducted at the Chung Shan Institute

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of Science and Technology in Taoyuan County, the MND’s research arm. A few examples: • Kuanghua-VI fast-attack patrol boats armed with Hsiung Feng (“Brave Wind”)-II missiles. Reportedly 31 vessels have already been commissioned in the past several years.

• A four-meter-long unmanned aerial vehicle (UAV) that was unveiled at the annual Han Kuang military exercise this April. The drones w o u l d h e l p Ta i w a n t o d e f e n d a g a i n s t i n v a d i n g s h i p s o r a i rcraft from the air even if air-base runways were damaged. In peacetime, they can provide surveillance to report on typhoon damage in remote valleys.

• A recently test-fired, powerful and supersonic anti-ship missile, a variant of the Hsiung Feng-III that was described as a “carrier killer” when it was introduced last year.

According to the U.S. publication Defense News, Taiwan is also developing an anti-ship cruise missile that could be deployed on the island’s east coast and use the central mountain range as cover to fire at ships in the Taiwan Strait. The UAVs could serve as one form of sensor to help guide these missiles.

The United States has sought to encourage Taiwan’s development of asymmetric concepts and technologies to supplement its purchases of limited numbers of advanced weapons systems. “Taiwan defense spending cannot match the mainland’s, nor can it develop the same type of military the mainland is developing,” said Peter Lavoy, principal deputy assistant secretary of defense for Asian and Pacific security affairs, in testimony to the House Foreign Affairs Committee last fall. “Taiwan needs to focus its planning and procurement efforts on nontraditional, innovative, and asymmetric approaches. There’s no single solution.”

Lavoy urged Taiwan to invest in “maneuverable weapon systems to increase agility and survivability,” and to make “greater use of camouflage, concealment, deception and decoys to

Defense Spending 2000-2011 CAGR

Countries Total Defense Investment China* India Japan South Korea Taiwan

15.1% 3.6% 3.5% 4.8% 1.8%

15.1% 3.2% 2.3% 3.1% 3.6%

*NOTE: CAGR FOR CHINA IS FOR 2000-2009 Source: CSIS

Budgetary Pressures In newly democratic Taiwan, both major political parties feel pressure to gain votes by supporting programs for increased social welfare and infrastructure development. The military brass, in addition, no longer enjoys the political influence it had in the era of authoritarian Kuomintang rule. The result, especially since the easing of cross-Strait tensions, is diminishing support for heavy expenditure on defense.

A report on Asian defense spending published this October by the Washington-D.C.-based Center for Strategic and International Studies (CSIS) found that Taiwan had the smallest defense budget, US$10.1 billion in 2011, of the five countries studied (the others were China, India, Japan, and South Korea).

At a mere 1.8%, it also had by far the lowest compound annual growth rate (CAGR) between 2000 and 2011. In addition, Taiwan’s defense budget is extremely personnel heavy, with that category accounting for 47.5% of expenditures last year.

During his first presidential campaign 2008, President Ma Ying-jeou set a goal of devoting 3% of GDP to defense, but that target has so far been elusive. Although the Ministry of National Defense estimates the current level to be about 2.7%, other sources consider it to be closer to 2.3%. The difference lies in which expenditures are defined as belonging to the military portion of the budget.

Another factor affecting the defense budget is the larger role assigned to the military for assistance with disaster relief since Typhoon Morakot of 2009, when the government was sharply criticized for its slow response. Some military officers reportedly grumble that they are now “Taiwan’s FEMA,” referring to the Federal Emergency Management Agency in the United States, and that the new function detracts from defense-related training. Other sources, however, view the relief role as an opportunity to build greater public support for the military.

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degrade PRC targeting.”

The objective should be less for Taiwan to survive an actual conflict than to prevent such a conflict from occurring in the first place by discouraging Beijing from undertaking any adventurist military action. “We have to redefine what ‘win’ means in this context,” says an American defense specialist knowledgeable about the cross-Strait military situation. “If a conflict breaks out, everybody loses. We just hope to prevent the PRC from accomplishing or even attempting their mission of forcing capitulation.”

The goal for Taiwan, he says, should be to sow doubts in the minds of the civilian leadership on the mainland about the advisability of launching an attack, even if the People’s Liberation Army assures them it can achieve a quick and easy victory. “How to convince them that it won’t be a one- or two-day event, but a prolonged effort – with fighting in the hills, in the cities, and with resistance going on for years or even decades? Then they won’t want to start anything. Their regime survival will depend on quick results. They can’t afford thousands of

casualties.”

Taiwan is already doing many of the right things, but needs to do more, says the specialist. He mentions: • Improved camouflage of aircraft and keeping them in hardened shelters, including hangars carved out of mountainsides.

• Providing equipment and training for rapid runway repair to fix craters after a missile strike.

• Increased use of UAVs, which can be hidden in a warehouse or under a bridge. “They can operate from anywhere and take off from anywhere. Now you’re no longer so vulnerable by being tied down to eight fixed points – your eight air bases.” And instead of putting pilots through long and expensive training, the UAVs can be “flown” by youngsters proficient as computer gamers.

• Laying sea mines along the coast once there are signs the other side is mobilizing for an invasion.

“They’re cheap – the most costeffective force multiplier there is.”

• High-speed patrol boats like the

Kuanghua-VI craft, armed with cruise missiles. “Frigates are tied to four naval bases, but there are scores of fishing ports around the island. The patrol boats can even be put on trailers and moved around, and they’re made of fiberglass, making them hard to detect with radar. With enough of these, Taiwan can employ swarm tactics as a way to counteract the threat from the PLA navy.”

• Tanks and mobile artillery suitable for Taiwan’s terrain.

“If you buy the right stuff, there would be plenty of money in the Taiwan budget,” he says. “A missile could have the same kill capacity as an F-16, and you could buy 60 of them for every plane. With thousands all around Taiwan, how could the enemy target?”

Increased indigenous development and manufacture of defense equipment, if it can be shown to contribute to the domestic economy, could also open new opportunities for local industry and diminish some of the public resistance to spending on the military.

The U.S. as Prime Arms Supplier A record US$12 billion in Foreign Military Sales to Taiwan was transacted in 2010-2011.

O

ne element that has not changed over the decades is Taiwan’s heavy dependence on the United States as a source of military equipment. With a few exceptions unlikely to be repeated – such as France’s sale of Mirage fighters and Lafayette frigates in the 1990s, as well as the Netherlands’ supply of a pair of submarines – the United States has been the only government willing to risk Beijing’s wrath by helping to arm Taiwan. Although Washington ended formal diplomatic relations with the Republic of China on Taiwan in 1979, at the same time terminating the

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1954 Mutual Defense Treaty between the two countries, the Taiwan Relations Act (TRA) passed by Congress that year commits the United States to “provide Taiwan with arms of a defensive character” and to “maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan.”

Recently, some of Taiwan’s supporters in the United States, including prominent members of Congress, have questioned whether the U.S. government has been upholding that commitment to maintain Taiwan’s ability to defend itself.

They point mainly to the Obama administration’s apparent reluctance to meet Taiwan’s request to purchase 66 F-16C/ D fighter aircraft under the U.S. Foreign Military Sales (FMS) program. Instead the U.S. administration has so far been willing only to approve a deal covering the upgrading of the 145 less-advanced F-16A/Bs already in service in the Taiwan air force. Lockheed Martin will serve as the systems integrator for the upgrade, while Northrop Grumman and Raytheon are competing to supply the Active Electronically Scanned Array (AESA) radar systems.

In an effort to press the White House to approve the F-16C/Ds, Republican Senator John Cornyn of Texas went so far as to hold up the confirmation for half a year of President Obama’s nominee to become Assistant Secretary of Defense for Asian and Pacific Security Affairs.

Cornyn let the appointment go through only after receiving a letter from the White House this past April that promised to give “serious consideration” to selling the F-16C/Ds without explicitly promising to do so.

More encouraging to proponents of the arms deal was a statement in the letter acknowledging the widening gap in air power between Taiwan and China, and providing assurance that the United States would find a way to deal with the problem in the “near term.” Previously the U.S. position was that the A/ B upgrades alone would adequately meet Taiwan’s current needs.

The Looming Taiwan Fighter Gap, a

Recent U.S. Arms Sales Packages January 2010 • 60 UH-60M Blackhawk utility helicopters.

• 2 PAC-3 firing units, one training unit, and 114 missiles for upgraded missile defense.

• Technical support for Taiwan’s C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) system.

• 2 Osprey-class mine-hunting vessels.

• 12 Harpoon telemetry missiles.

September 2011 • Retrofit for 145 F-16A/B fighter jets, including radar, weapons and structural upgrades.

• Five-year extension of F-16 pilot training at Luke Air Force Base in Arizona.

• Aircraft spare parts for sustaining Taiwan’s F-16s, F-5s, and C-130s.

report released last month by the U.S.Taiwan Business Council, analyzes the extent of the problem. It notes that Taiwan is preparing to retire its fleet of 45 aged F-5 aircraft, while the availability rate of its 56 Mirage 2000 fighters and 126 F-CK-1 Indigenous Defense Fighters (IDF) is steadily declining due to the need for increased maintenance or retrofitting. With up to a squadron of the F-16A/Bs now due to be out of service each year while undergoing upgrading between 2016 and 2023, the report notes, “Taiwan may be left with as few as 73 operational F-16A/B fighters to handle

its peacetime and wartime contingencies.”

It is unclear what “near-term” solution the United States may have in mind, although one rumored option is the lending of 24 F-16A/Bs to replace those being taken out of commission in phases for upgrading.

U.S. officials have sought to rebut the notion that American hesitation to supply the advanced F-16C/Ds represents any diminishing of Washington’s commitment to Taiwan’s defense or a sign of unwillingness to anger Beijing. In testimony before the House Foreign Affairs

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The fiberglass Kuanghua-VI fast-attack missile boats provide the Taiwan navy with increased mobility, speed, and stealth.

Committee last fall, Assistant Secretary of Defense Peter Lavoy noted the US$5.85 billion package covering defense systems and training announced in September 2011 “demonstrated our resolve to fully live up to that commitment.” He added that “this is matched by the US$6.4 billion in sales to Taiwan in 2010 that brings us to a total of over US$12 billion in sales in a two-year period – more than any comparable two-year period since the passage of the TRA.” Inclusion of an additional arms package in 2008 would bring the total to nearly US$19 billion in the past four years, most of which Taiwan is still paying for. Some sources raise the question of whether Taiwan would in fact have the money – as much as another US$10 billion – to purchase the 66 F-16C/Ds. On the other hand, Taiwan officials and legislators have reportedly assured the U.S. government that the budget would be forthcoming if Washington were to approve the transaction.

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Voices both for and against an F-16C/D deal can be heard in both the United States and Taiwan. The “anti” position emphasizes that Taiwan can get “more bang for the buck” by using the same money for other weapons systems, especially since aircraft could be vulnerable to Chinese precision missile strikes while still on the ground. On the other side of that question, Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council, argues that “the requirement for the air force is for a whole range of contingencies to protect the national air space – all-out war is not the only situation for which you need a robust air force.” He notes that seventyplus planes will be insufficient, and that “Korea and even Singapore have significantly larger air forces.”

Next to jet fighters, the most controversial defense issue is whether Taiwan should spend additional billions of dollars to buy or build submarines. The argument in favor is that the best defense against submarines are other submarines,

and that without its own operational subs, Taiwan would be unable to adequately carry out air and sea training in anti-submarine warfare (ASW). Currently Taiwan has four submarines, but two of them – World War II-era Guppy-class vessels – are too old to be safely operational.

The two Dutch-built Zwaardvis-class subs are also out-of-date, and given maintenance and training requirements, they are usually available only one at a time for sea duty.

In 2001, the George W. Bush administration approved an arms package for Taiwan that included eight diesel-electric submarines, but the catch is that the United States no longer produces such vessels – its own fleet is now wholly nuclear-powered. The design would have to come from a third country. With that political complication, plus budget concerns and debates over whether the subs should be built in a Taiwan shipyard rather than in the United States, more than a decade has passed without sub-

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stantial progress.

According to Vice Defense Minister Andrew N.D. Yang, the latest plan is to request help from the United States in arranging for Taiwan to acquire two used subs from another country. Without additional vessels, the Taiwan navy will be hard-pressed to maintain a well-trained force of submarine crewmen.

Taiwan is also hoping to obtain two or more Perry-class frigates from among a number of vessels that the U.S. Navy is preparing to decommission. Legislation reportedly is being drafted to enable Congress to grant approval.

In terms of arms sales cooperation, training assistance, and overall military-to-military communication, Vice

Minister Yang speaks positively of the current U.S.-Taiwan defense relationship. “We’re quite satisfied with the current interactions and the mechanisms that have been established to facilitate constructive discussions and exchanges,” he says. “We’ve achieved a great deal of mutual confidence and trust, and that’s a good sign.”

Uncle ROC Needs You!

A

fter studying the experience of the United States, Japan, and other countries that converted from a conscription system to an allvolunteer military, Taiwan is embarking on the same course, with the aim of completing the transition by the end of 2014.

The main impetus for the change is the sophistication and complexity of modern weapons systems. “Our ongoing military transformation requires more professionalism in terms of operating the technologies,” notes Vice Defense Minister Andrew N.D. Yang. With a draftee serving for only for 11 or 12 months, training is barely completed before the period of service is over. A secondary reason is Taiwan’s changing demographics. The number of young people is falling, which will make it increasingly difficult to meet manpower needs through conscription, says Yang.

The transition is unlikely to be easy, however. Vice Minister Yang notes that “it takes a lot of money to support this program – that’s the biggest challenge.”

Although official figures have not been made public, defense analysts have estimated that gradually introducing an allvolunteer force will cost an additional US$5 billion annually between FY2012 and FY2016.

So far, necessary funding has been allocated for this year and next, Yang says. The additional budget is needed to

adjust the pay structure and fringe benefits to levels sufficient to attract and retain more talent for military careers, and to provide more on-base housing and social, healthcare, and recreational services for servicemen with families.

Besides the funding, many of the needed changes require revisions to existing laws and regulations. Some of those proposed amendments have yet to be acted on by the Legislative Yuan. The Ministry of National Defense (MND) also needs to coordinate with a number of other government departments, such as the Ministry of Education in expanding the ROTC-like military training offered as an elective at high schools and colleges.

The on-campus training will be an important channel for attracting future recruits.

The courses will also give draftees a head start in their introduction to military life, since the nominally “all-volunteer”

force will in fact not eliminate conscription entirely. Instead of one year of service, all males under the age of 19 will be required to serve just four months for basic training, after which they will be assigned to a reserve unit until they turn 35. The result is that instead of reaching a full 100%, the proportion of volunteers in the service will be capped at 90% at the end of 2014. Before that time, the total authorized force is to be reduced to 215,000 from the current 275,000 (the number on active duty is put at 235,000). The decrease is part of a streamlining effort set out in MND’s Quadrennial Defense Review in 2009 with the aim of making the armed forces more efficient.

Yang says the proportion of professional personnel in the armed services has already been brought up to about 70% – compared with under 50% previously – “so we need to reach another 20%.”

Some sources consider that the goal may be hard to achieve – in part for cultural reasons. Unlike the United States, where the military traditionally has enjoyed a high degree of respect and many young people choose to volunteer out of a combination of pride and patriotism, in Taiwan a military career has not been among the options that the best and brightest students typically look at.

Many people still take to heart an ancient Chinese proverb that says “the highestquality metal doesn’t go to make nails,

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and the highest-quality manpower doesn’t go to make soldiers.”

“The biggest hurdle will be convincing parents that it’s a wise move for their children – if not in itself, at least as a steppingstone or viable path to a good career,” says an American defense specialist who is highly familiar with Taiwan’s security situation. He suggests that MND devise recruitment programs that emphasize opportunities to receive language and computer training, and otherwise obtain marketable technical and management skills, including those recognized by certification. He also sees a need to recruit more women into the armed services to take advantage of their potential contribution to an advancedtechnology modern military.

“Young people are Taiwan’s most important resource,” he notes, and they will become an increasingly scarce resource in future as Taiwan’s population starts declining. “How can the military recruit enough people in competition with business and academia?”

He suggests that MND work out “cooperative programs with domestic industries and universities to share this resource” – for example, allowing a certain amount of time each day or

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week for military personnel to spend in a private-sector workplace or in a university classroom.

The opposition Democratic Progressive Party (DPP) has expressed doubts about the plan to move to a career military. “We have strong reservations about going to a full-volunteer force,” says Michael Tsai, who served as vice minister and then minister of defense in the Chen Shui-bian administration. The DPP views the program as having originated as a campaign promise by Ma Ying-jeou as a presidential candidate in 2008, to appeal to young voters. So as not to alienate those same voters, Tsai acknowledges, the DPP has refrained from being too vocal about its opposition.

“Eliminating the conscription system implies that the military threat from China is no longer a concern,” says Tsai.

“But how can you say that when China is rapidly increasing its military budget and building up its capability to use coercive means against Taiwan? We still need young people to perform military service when we’re faced with a big potential enemy only 100 kilometers away.”

A second reason for the DPP’s reservations, Tsai says, is concern about the budgetary impact. In the past decade,

he notes, personnel costs, including pensions, have grown to the point that they now account for around 50% of the national defense budget – compared with less than 30% in the United States and 15% in Korea. The move to an all-professional military will place even more pressure on the budget, he argues, leaving less money for equipment procurement, operations, and other necessary expenses.

Alexander Huang, professor of strategic studies at Tamkang University, also worries about the consequences if the push to form an all-volunteer force squeezes the defense budget too hard.

Postponing implementation of the new system would be almost impossible, he says, “because we’ve already restructured the barracks and the command structure.” Since payment schedules to contractors for equipment systems are fixed, the only choice to save significant amounts of money may be to reduce training and maintenance – in effect reducing readiness. “That’s the compromise we’d have to make,” he says. “Do we want to see that happen? No. Do we have another solution? Maybe only one – get the economy in better shape to generate more tax revenue.”

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Carnival Comes to Taipei The 2012 American Ball

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he Grand Ballroom of the Grand Hyatt Taipei took on the dazzling spectacle and pulsating rhythms of the world’s most famous carnivals on the evening of November 3, as AmCham Taipei celebrated the 2012 American Ball, jointly hosted with the American Institute in Taiwan (AIT).

The more than 300 merry-makers enjoyed an evening of fine food and drink, dancing to the music of a live band, dance performances arranged by KOChen Entertainment, and a host of attractive raffle prizes. Brief remarks were delivered on behalf of the host organizations by AmCham Chairman Bill Wiseman and AIT Deputy Director W. Brent Christensen.

Emcee Alan Tousignant guided the audience on a vicarious globe-trotting journey that started with the sambas of Rio de Janeiro, crossed the Atlantic for the pageantry of Nice, and ended in picturesque Venice on the Piazza San Marco.

After a welcome drink of Jacob’s Creek Sparkling Chardonnay Pinot Noir, diners supped on a delectable and creative five-course meal. The menu featured seared spiced tuna, coconut and rice soup, cachaca lime granite, roasted U.S. beef tenderloin with sweet potato mash and Chimichuri sauce, and bolo de banana with vanilla cream and cinnamon.

The dinner was accompanied by Jacob’s Creek 54

Shiraz Cabernet, Jacob’s Creek Chardonnay, and The Glenlivet 12-year-old Single Malt Scotch Whisky. Available at the bar were cocktails made with Beefeater, Absolut Vodka, Malibu, Kahlua, Dita, and Ballantine’s.

The ball was made possible through the generosity of a number of sponsoring companies. These included Grand Prix Sponsor United Airlines, Wine & Liquor Sponsor Royal Salute Scotch Whisky, Gold Sponsors Ermenegildo Zegna, HSBC, Grand Hyatt Taipei, JTI, and Standard Chartered, and Silver Sponsors Air Products, Capital Machinery, Corning, ELCA Inc., Taiwan (Estee Lauder Companies), Lion Travel, and Philip Morris Taiwan.

The raffle grand prize from United Airlines was two round-trip business-class tickets from Taipei to any destination served by the carrier. The other gift sponsors were the Macau Government Tourist Office, Banyan Tree Hotels & R e s o r t s , 3 M Ta i w a n , Hotel Eclat Taipei, ELCA Inc., Fleur de Chine, Grand Hyatt Taipei, the Howard Plaza Hotel Taipei, HTC, the Landis Ta i p e i , L e M e r i d i e n Taipei, Novotel Taipei, Palais de Chine Hotel, Procter & Gamble, the R e g e n t Ta i p e i , H o t e l Royal Taipei, ShangriLa’s Far Eastern Plaza Hotel, the Sherwood Taipei, W Taipei, and the Westin Taipei.

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Taiwan is a Hot Springs Heaven

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ate fall is a lovely season in Taiwan, an ideal time to visit t h e i s l a n d . I n Ta i p e i , t y p i cal daytime temperatures are 18 or 19 degrees Celsius. Evenings are cool, however, and you’ll feel a bit of a chill as soon as you venture into the mountains, which cover some two-thirds of the island. No wonder, then, that during these months so many people – locals and tourists alike – head for the country’s hot springs.

These natural spas are a result of the volcanic and tectonic action that shaped Taiwan’s stunning landscape.

The volcanoes are long extinct, but just below the surface, the island is still unusually hot. Geothermally warmed mineral-enriched waters bubble to the surface at some 120 locations throughout Taiwan. Luxurious hotels have been built at some of these places, allowing hot-spring devotees to stay overnight and soak in comfort in private suites.

Other springs, by contrast, remain gems of unadulterated Mother Nature.

Taiwan’s hot springs are amazingly varied. In terms of temperature, mineral content, and scenic setting, no two are alike. Taipei residents are fortu56

nate in having the hot-springs mecca of Xinbeitou on their doorstep. The sheer number of soaking options here – together with the convenience of the capital’s rapid-transit MRT system – means that on chilly winter evenings, many people choose to go for a soothing dip on the way home from work.

One of the area’s leading hotels is Villa 32, which Conde Nast Traveler described as an “exquisite five-room retreat.” Villa 32’s daytime packages include excellent Italian food as well as use of the pools. At the other end of the spectrum is Longnai Tang. Surrounded by modern buildings, Longnai Tang offers a thoroughly traditional bathing experience in a Japanese colonialera bungalow. There’s a pool for each gender, so no swimsuits are needed.

Admission is just NT$90 (about US$3); remember to bring your own towel!

It was in Xinbeitou that a Japanese entrepreneur opened Taiwan’s very first hot-springs hotel in 1896. Long before that, however, the island’s indigenous peoples were enjoying natural hot springs in places like New Taipei City’s Wulai District. These days, Wulai – little more than an hour’s drive from

downtown Taipei – boasts hotels to suit all budgets.

From the international tourist’s perspective, Taiwan’s hot springs have certain advantages over their Japanese counterparts. Whereas segregation by gender and nudity are standard (and required) at Japan’s famous onsen, swimsuits are worn at the majority of public hot-spring pools in Taiwan.

Families can splash and relax together in these places, many of which are

交 通 部 觀 光 局 廣 告 TTB AD

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open-air and set against a backdrop of mountains and forest.

As in Japan, each hot-spring guest is expected to wash his or her body thoroughly before getting in the water. In many springs, the temperature exceeds 45 degrees Celsius, so before getting fully immersed, you should gradually acclimate your body to the temperature by pouring scoops of water over yourself, then slowly lowering yourself in, one limb at a time. Many firsttimers are surprised when told that after indulging in a hot spring, they shouldn’t shower before dressing, but rather let their skin benefit from the trace quantities of sulfur, sodium carbonate, and other minerals in the water.

Luxuriating in a hot spring isn’t the only fun thing to do in wintertime.

Because crisp, dry weather is the norm, November to March also happens to be prime hiking season in Taiwan’s lowand mid-elevation mountains. It’s an activity that naturally meshes with hot springs, and visitors staying in Xinbeitou have plenty of choice. The area is right beside Yangmingshan National Park, which offers hiking trails of various lengths and steepness. For those heading to Guanziling in Tainan, there’s no better way of working up a pre-soak sweat than tackling Mount Dadong, the top of which is 1,241 meters above sea level.

October 20 saw the launch of the 2012 Taiwan Hot Spring Fine-Cuisine Carnival. This year’s carnival involves 17 hot-springs resorts and lasts until January 31, 2013. Seven of the resorts – including Xinbeitou and Wulai – are in the north of the island. Another four are in the central and western parts of Taiwan. Three, including Guanziling, are in the south, while the other three

are in the eastern counties of Hualien and Taitung.

Hot springs and good food go together like movies and popcorn, because bathers do not eat much before enjoying a hot spring, and usually emerge with healthy appetites. The Tourism Bureau has put together a website (www.taiwanhotspring.net) that introduces all 17 resorts and provides details about 121 participating business enterprises. Except at locations popular with day-trippers, such as Jinshan in New Taipei City, the majority offer well-appointed accommodations for overnight guests. The website also contains photos of mouth-watering delicacies that await visitors’ enjoyment.

The Tourism Bureau has issued a thick booklet called the 2012 Taiwan Hot Spring Fine-Cuisine Carnival Passport. Free of charge and available from tourist-information counters around the ROC, the passport introduces scenic spots near each resort, as well as establishments where one can soak, enjoy an excellent repast, and then spend the night.

One featured hotel is the Dong Tair Spa Hotel in Taitung County’s Zhiben, where the bathing facilities are designed along the lines of a German Kurhaus. Throughout the carnival, a double room can be had for a bargain NT$2,888, less than half the rack rate.

This one-night package includes buffet breakfast for two and a hot-spring themed dinner.

Hot-spring fans shouldn’t limit

themselves to places listed in the carnival’s passport. Far from Taipei, there are some very special, albeit hard to reach, springs. Lisong in Taitung County has what could be the island’s most remote springs, the wild waters of which are available only to those willing to drive deep into the mountains and then hike down a steep trail to the banks of the Xinwulu River. Seekers of unique experiences should also consider heading to Green Island off Taiwan’s southeastern coast. This island of just 2,700 inhabitants has one of the world’s few saltwater hot springs. Wallowing in sulfurous brine while waves break just a few meters away is an unforgettable way to spend daybreak.

T h e 2 0 1 2 Ta i w a n H o t S p r i n g Fine-Cuisine Carnival also features aboriginal dance performances, art, and live music. An especially notable concert series is the Guanziling Hot Spring Music Festival. This year’s festival runs until November 24, when it concludes with a “starlight concert.”

For additional details in Chinese, English, Japanese, or Korean, visit the carnival’s website (www.taiwanhotspring.net). For additional information about visiting Taiwan, please contact the tourism hotline at 0800- 011-765, or go to the ROC To u r i s m B u r e a u ’s w e b s i t e ( w w w. taiwan.net.tw).

taiwan business topics • november 2012

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