Written by Erik Tollefson.

The current protests in Taiwan can plausibly be seen as the concatenation of several issues: 1) a crisis of democratic governance; 2) an extant political struggle between the ruling and opposition party; 3) an unsettled economic vision of the nation’s future. Copious ink has (rightly) been spilt on the myriad dimensions of the first two: Ma Ying-jeou’s and the protesters’ arguments over justifiable tactics in a democracy, and the continuing schism between the KMT and DPP over representing the “authentic” Taiwan. Economic issues, however, have primarily been framed through the asymmetrical lens of the Cross Strait Service Trade Agreement’s potential negative impact on Taiwan’s economy.

There is certainly more than a kernel of truth to these concerns, and they should be properly vetted through a robust democratic process. However, they tend to obfuscate the larger economic picture and Taiwan’s difficult choices vis-à-vis globalization. This dissonance may explain why Perng Fai-nan, the nation’s central bank governor and one of the most respected political figures, offered seemingly positive support for the highly contested trade agreement yesterday during the central bank’s monetary policy meeting in Taipei.

In response to reporters’ questions, Perng stated that the disputed trade agreement symbolized the inherently difficult political tradeoffs that one country must “give” concessions in order to “get” benefits; otherwise “no one will be willing to play with you.” He also conceded that the agreement would definitely exert a negative impact on some sectors of Taiwan’s economy; in response, the government must promote policies to reallocate fiscal resources to those businesses hurt by trade liberalization measures.

Perng sharpened his general comments via a comparison with regional competitor South Korea: Although Taiwan arguably has greater openness to international trade than South Korea (measured as the percentage of imports and exports of total GDP), exports from free-trade agreements compose a greater proportion of South Korea’s economy (36.1%) than Taiwan’s (9.3%). This substantial difference is due to South Korea’s aggressive FTA strategy to sign agreements with large economies such as the US, EU, and ASEAN. If Taiwan doesn’t seize the opportunity to leverage free trade opportunities, other countries will, putting the economy and sectors like the panel industry at a distinct disadvantage for export markets.

At first glance, it may be tempting to dismiss Perng’s analysis as inherently biased. After all, Perng serves as the central bank governor under an administration that has advocated the arguably ill-fated agreement in spite of considerable public opposition. However, there are some notable caveats to this position. Perng has served as the nation’s central bank governor since 1998, the longest term in Asia, taking the reigns as the country faced the worst fall out of the Asian Financial Crisis. Perng has also worked under both KMT and DPP administrations and garnered high marks in a highly partisan environment: Perng served under Chen Shui-bian during his two-term presidency (2000-2008); he was also reportedly courted by DPP presidential candidate Tsai Ing-wen to serve as her potential running mate in 2012.

Indeed, Perng’s analysis, while perhaps more than a little politically inconvenient, arguably puts its finger on the uncomfortable indecision regarding Taiwan’s economic strategy towards globalization. Taiwan’s languid economic performance over the past few years have intensified fears. Taiwan’s economy has registered roughly 2.9% real economic growth, on average, since Ma Ying-jeou became president in 2008. While not a terrible performance, particularly factoring in the external shock of the global financial crisis, the average annual growth rate is below the long term average of 4.5% since 1992. It is also below regional competitor Singapore (4.2%), and roughly on-par with South Korea (2.9%). Tepid economic growth has been amplified by a higher than average unemployment rate that has hovered around 4%, while wage growth has remained sluggish, particularly after the global financial crisis.

The situation is particularly acute for young adults: college graduates currently expect a salary of NT $22,000 upon graduation, an amount less, when adjusted for inflation, than a college student earned 14 years ago. While there are a number of explanations for these phenomena, including increased global competition and a slow economic recovery, some attribute Taiwan’s current economic situation to increased engagement with China that has effectively “hollowed out” manufacturing and human resources from Taiwan.  One survey estimates that 61.1% of higher education graduates have emigrated from Taiwan over the past few years; the highest percentage in the world. The trade agreement may, for good reasons, seem like a doubling down on a failed economic and political strategy by increasing cooperation on Taiwanese soil.

Ironically, however, while some may attribute Perng’s comments to supporting the trade pact and, by extension, a closer relationship with China, he is actually propounding a positive vision of Taiwan’s economic development that aims to address its main competitor: globalization. Due to Taiwan’s inherent political constraints, it is difficult to sign free-trade agreements; the increasing global and regional influence of China’s economy is even more difficult to hide from. Thus, the ultimate economic decision is not one of engaging or not engaging China. If the current trade agreement is ultimately not signed, Taiwanese will continue to vote with their feet and money to seek opportunity globally, including China. The detestable parliamentary tactics and crack down on students is to be condemned; however, Perng is undoubtedly right to broaden the discussion of economic vision to not only what type of relationship does Taiwan want with China, but perhaps more importantly, what is Taiwan’s future economic position in the world?

Erik Tollefson is a freelance economic analyst.


  1. 61.1% of higher education graduates have emigrated from Taiwan over the past few years; the highest percentage in the world. … 2.9% real economic growth, on average, since Ma Ying-jeou became president in 2008.

    If the current trade agreement is ultimately not signed, Taiwanese will continue to vote with their feet and money to seek opportunity globally, including China.

    So greater economic integration with the Mainland has led a high number of graduates to emigrate, but if further integration is not agreed upon then more people will emigrate?

    How would the liberalisation of trade in services between Taiwan and the Mainland stop emigration and increase employment rates and salaries? The 2010 ECFA has contributed to the situation you describe, so how can the CSSTA reverse the trend?

    Trying to use the economic stick and carrot to scare the Taiwanese into accepting more of the old failed policy (neoliberal globalisation) or face decline and poverty?

  2. Taiwan would do well, clearly, to put FTAs with Japan, the USA, and the EU on the front burner. All share Taiwan’s democratic priorities, none have hostile intentions toward Taiwan, and all have made similar agreements with Taiwan’s neighbours in the Asia Pacific.

    Taiwan’s current Administration has been too provincial–literally–in its obsession with a hostile China as the solution to all Taiwan’s problems.

    Thanks for sharing the observations.

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