A decade ago, Wu Wen-nan earned $726 a month at a Taiwan factory run by Foxconn Technology Group, maker of Apple Inc.’s iPhones and iPads. Today, he peddles magazines and takes handouts from a charity.
“I lost my job after the company moved production lines to China,” said Wu, 47, as he sold copies of “Big Issue” magazine by a Taipei subway stop. Homeless for much of the past year, he’s been unemployed since losing his Foxconn job 10 years ago. “I don’t have the skills needed for the big change.”
Wu belongs to a generation of Taiwanese who relied on the island’s success as a manufacturing centre, from clothing and Mattel Inc.’s Barbie dolls in the 1960s to computers and HTC Corp. (2498) mobile phones in the past three decades. Policy makers’ slowness in easing investment rules and boosting finance, transport and tourism has hampered the creation of new jobs and restrained income growth.
As warmer ties with former civil-war foe China encourage an exodus of factories to the lower-cost mainland, Taiwan’s failure to develop new growth industries has caused it to fall behind Singapore and Hong Kong. That has bolstered opposition claims that the economic embrace with China championed by President Ma Ying-jeou has hurt workers. He is running neck-and-neck with opposition leader Tsai Ing-wen ahead of the January election.
“Taiwan has done too little, too late,” said Chu Wan-wen, a research fellow in Taipei at government-funded institute Academia Sinica and author of “Globalisation and the Taiwan Economy.” “Taiwan’s competence in the service sector is quite limited because it opened up the sector too late.”
The risks have partly been masked by a rebound in exports since the 2009 global recession, including a surge in shipments to the mainland that helped stimulate one of the world’s fastest expansions last year. Overseas sales are equal to more than two- thirds of the economy of Taiwan, home to the world’s biggest contract makers of semiconductors and laptop computers.
While electronics manufacturers including HTC and Foxconn benefit from producing at a lower cost on the mainland and reaching the Chinese market, Taiwanese companies tied to the domestic market, such as retailer Uni-President Enterprises Corp. (1216), have reported smaller sales gains.
Uni-President, Taiwan’s biggest food supplier based in Tainan, posted 18 percent revenue growth in 2010. By contrast, Foxconn’s flagship company, Taipei-based Hon Hai Precision Industry Co., had a 53 percent sales increase.
HTC, which overtook Finland’s Nokia Oyj this year as the world’s third-largest phone maker by value, reported record profit and sales for the three months ended March 31. The Taoyuan, Taiwan-based smartphone maker said today it posted second-quarter revenue of NT$124.4 billion ($4.3 billion), beating the NT$118.9 billion average of 20 analyst estimates compiled by Bloomberg.
The island ended a mainland-investment ban in 1991. Since then, officials have approved 38,685 projects, creating an estimated total of at least 7.7 million jobs in China, data compiled by the Economy Ministry’s Investment Commission show. Foxconn alone employs more than 1 million people in China. By comparison, Taiwan had 2.9 million manufacturing jobs as of May.
Taiwan’s unemployment rate of 4.4 percent, while less than half that of the US, compares unfavourably to competitor economies. It’s more than twice as high as Singapore’s and exceeds levels in Hong Kong and South Korea, which along with Taiwan form the International Monetary Fund’s group of newly industrialised economies.
Joblessness is about four times higher than a low reached three decades ago, while household income adjusted for inflation was lower in 2010 than in 2000.
“It’s not a cyclical problem, it’s a structural problem,” said Mark Williams, an economist at Capital Economics Ltd in London and a former adviser on China to the UK Treasury. “A lot of big employers have moved across the Taiwan Strait, and there have not been enough new job creations to offset that.”
Manufacturing’s share of gross domestic product fell to 26.3 percent last year from 30.4 percent in 1991. Factory jobs accounted for 27 percent of total employment last year, from 35 percent in 1987. Fixed-asset investment growth on the island averaged 0.06 percent annually in the 10 years through 2010, versus 7.5 percent in the previous decade.
While Singapore and Hong Kong have also seen a decline in the importance of manufacturing to their economies, Singapore has lured pharmaceutical and biotechnology investments, and opened two casinos, to spur growth. Hong Kong has attracted China’s biggest companies to list on its stock exchange.
“The government needs to speed up to shift its economy from low-margin, low-value manufacturing services to high-margin, high-value services,” said Wu Chung-Shu, chief economist at Taipei-based Chinatrust Commercial Bank and a former consultant at the Asian Development Bank.
Another competitiveness hurdle is a relative lack of English compared with Hong Kong and Singapore, which were British colonies.
Wu, the former Foxconn worker, said “I don’t have a good education, I don’t know English.”
“Taiwan isn’t a very internationalised place,” said Scott Chen, an economist at Bank SinoPac in Taipei. “Its English proficiency trails behind that in Hong Kong and Singapore, and when multinationals want to set up their Asia centers, Taiwan is always a low priority.”
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Ma, 60, is trying to stoke growth by allowing more Chinese tourists to visit as he aims for re-election on a platform of improved economic ties with China. Taiwan allowed organised Chinese tour groups to start coming in 2008 and on June 28 let individual travellers from the mainland visit for the first time in more than six decades. The tourism bureau expects visitors from its neighbour to increase about 29 percent this year to as many as 2.1 million.
The Taiex Tourist Index, which tracks eight companies, has surged 30 percent in the past year, according to data compiled by Bloomberg. The benchmark Taiex stock index has climbed 20 percent, while the 33-member Other Electronic Industry Index has gained 2.2 percent.
“We are expecting the contribution of mainland visitors to Taiwan’s service sector to pick up exponentially,” said Donna Kwok, an economist in Hong Kong at HSBC Holdings Plc., Europe’s biggest bank. “Not only do we expect them to spend more on retail, but increasingly a future avenue of growth could include mainland visitors spending more in terms of medical services, education services, and other services inside the economy.”
Ma’s opening to the mainland includes reductions in barriers to commerce, with a trade deal signed in June 2010 that will cut tariffs on more than 800 products this year and boost access to services including banking, securities and insurance.
China, which views Taiwan as part of its territory, is the island’s closest market. Its population of 1.3 billion dwarfs Taiwan’s 23 million. Relations between the two have historically been strained since the Kuomintang, or Nationalists, fled to the island after being defeated by Mao Zedong’s Communists in 1949.
The deepening in ties with the mainland hasn’t been universally welcomed. The opposition rallied tens of thousands of people in the capital in June 2010 to protest the Taiwan- China trade accord that took effect this year, saying it will damage the local economy and undermine the island’s autonomy.
DPP presidential candidate Tsai, 54, has benefited from the growing dissatisfaction among Taiwanese voters, with the most recent polls showing a statistical dead heat. Ma would get 44 percent of votes to Tsai’s 39 percent, the TVBS survey of 1,158 adults conducted June 16 to 20 showed. It had a 2.9 percentage point margin of error.
A former student at the London School of Economics, where she earned a doctorate in law, Tsai has yet to specify her own economic programme or outline how she would boost jobs.
“My main concern with Taiwan is that the world has totally changed and their mindset has not changed yet,” said investor Jim Rogers, chair of Rogers Holdings, adding that he hasn’t invested in Taiwan “in a while.”
“Other Asian countries like Singapore have opened up so much more,” he said. “Taiwan, because of its history, while it’s changing dramatically, unbelievably has still not opened its economy fast.”