is china deindustrializing taiwan: an objective look at the facts ( 產業空洞化 )

50
Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產產產產產 )

Upload: loraine-lang

Post on 18-Jan-2018

244 views

Category:

Documents


0 download

DESCRIPTION

China today is not dragging on. The dragon has risen.

TRANSCRIPT

Page 1: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Is China Deindustrializing Taiwan:

An Objective Look at the Facts(產業空洞化 )

Page 2: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Lin Yutang“Will the dragon of China someday rise and conquer the world?”

“Yes, if the Chinese people don’t drag on…”

Page 3: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

China today is not dragging on. The dragon has risen.

Page 4: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

But….does this mean that Taiwan must decline as China ascends?

Will Taiwan’s economy be “hollowed out” by the rising dragon

of China? Will Taiwan be deindustrialized by China?

Page 5: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

What do We Mean by “Deindustrialization”?

There are several suggested definitions

Page 6: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Bluestone and Harrison (1982) – “By deindustrialization is meant a widespread and systematic disinvestment in the nation’s basic productive capacity.”

Rowthorn and Ramaswamy (1997) – “…employment in manufacturing as a percentage of total employment has fallen…a phenomenon widely referred to as ‘deindustrialization’ .”

Page 7: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Rowthorn’s definition of deindustrialization is very clear, but all

advanced economies appear to be going through deindustrialization. It is a

natural process to him.

Consider the following graph showing employment in

manufacturing and services

Page 8: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 9: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

My definition –

Deindustrialization is a general, multifaceted deterioration of the manufacturing sector relative to

the rest of the economy.

Page 10: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Basic Symptoms of Deindustrialization

1.Declining manufacturing employment to total employment

2.Declining investment in manufacturing

3.Declining manufacturing output as a percentage of GDP

4.Large scale out migration of industries

Page 11: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

How Could China Deindustrialize Taiwan?

1. Industries, Brain Power and Investment Move from Taiwan to China – Immigration and Outbound DFI

2. Taiwan Buyers Import Competing Products from China – Import Trade Displacement

3. Taiwan Loses Valuable Foreign Markets to China – Export Trade Displacement

Page 12: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

However, China’s booming economy is not the only possible cause for Taiwan’s

possible deindustrialization. There are many natural reasons why that

manufacturing in Taiwan might begin to decline...completely apart from trade with

China.

1. The income elasticity of demand for manufactures is low.

2. Service sector of the economy is becoming more important

3. Productivity in the manufacturing sector may be rising

Page 13: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Income Elasticity for Manufactures is Less than One

Natural Reason #1

Page 14: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

As Our Incomes Grow We Typically Buy More Services and Relatively Less Manufactured

Goods

Double Income ≠ Double Demand for Cars

Double Income ≠ Double Demand for Refrigerators

Double Income ≠ Double Demand for Washing Machines

Double Income = Double or Triple Vacations

Double Income = Double or Triple Eating Out

Double Income = Double or Triple the Financial Services

BUT

Page 15: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

The Natural Rise of the Service Sector Causes the Manufacturing Sector to Shrink in Relative Size and Importance

Natural Reason #2

Page 16: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

)}/(1{ LBKCAY ooo

),(~),( KCLBFAKLFY ooo

Aggregate Manufacturing Production Function

Specific Example of Bo Increasing and the Demand for Labor Decreasing

Natural Reason #3

Page 17: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

})(){( 11 LBKCAY ooo

Specific Example of Bo Increasing and the Demand for Labor Increasing

Page 18: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 19: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 20: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

What Does the Most Recent Data Tell Us?

Page 21: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Data dates back to 2009

Page 22: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Data Updated to 2014

Page 23: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 24: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 25: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

No Clear Deindustrialization According to this Data

Page 26: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 27: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Recent Data 2010: 28% 2011: 27% 2012: 28% 2013: 29%

.... still expanding but slower

Page 28: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Increased Imports Can Lower Domestic Output and Raise Exports

Page 29: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Recent Data 2010: 27.3 % 2011: 27.5 % 2012: 27.4 % 2013: 27.2 %

Page 30: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 31: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

This shows that there is very little evidence of deindustrialization in Taiwan using Rowthorn’s definition

Page 32: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 33: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 34: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

)ln()ln()ln( 14

24

14

ttot CYC

Simple Permanent Income Model of Consumption Tracks the Data Well – Until 2003

Page 35: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Taiwanese Can Save DueTo Low Priced Chinese Imports

Page 36: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 37: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 38: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 39: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 40: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Strong and Stable Productivity Growth in Manufacturing

Page 41: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Labor Productivity Growth in Manufacturing, Metals, Electronic Parts, and Computers and Parts

Page 42: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 43: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 44: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 45: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Low Prices Mainland Products May Be Contributing to a Fall in Manufacturing Prices Relative to the General Price Level

Page 46: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )
Page 47: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

20% of 5% unemployment rate = 1%

1% of 10 million workers = 100,000 workers

Cost per worker per month = $40,000 NT/month

$ 4,000,000,000 NT/month or $48,000,000,000 NT/ year

Taiwan’s GDP in 2009 = $ 12, 512,678,000,000 NT

Proportional Cost to Taiwan = $48,000,000,000/$12,512,678,000,000

= 0.38% of GDP (Not Large)

Worst Case Scenario

Page 48: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Should Taiwan Fear Free Trade with China?

Page 49: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

Some Conclusions

1. There is only limited evidence that Taiwan is being deindustrialized.

2. Manufacturing Output/GDP was relatively constant last 15 years

3. Manufacturing Employment/Total Employment was relatively constant last 15 years

4. Small drop in investment growth in manufacturing last 10 years

5. Service sector rising in Taiwan, manufacturing sector steady

6. Strong productivity growth over last 20 years, but little change in employment in manufacturing – capital & tech not replacing labor

7. Unemployment rose mid-1990’s with cost of about 0.5% GDP per year to workers – however there have been benefits as well

8. Manufacturing prices have strong downward pressure from China, but this can help maintain export markets

Page 50: Is China Deindustrializing Taiwan: An Objective Look at the Facts ( 產業空洞化 )

9. Taiwan enjoying large and expanding trade surpluses with China and this will probably continue for the next decade

10.Expansion of markets is the key to any future success – this is best accomplished with both exports and imports expanding

11. Markets should be gradually opened, rather than suddenly opened, to allow for rational adjustment to changing conditions

Special Note: ECFA is only a stepping stone to a larger integration of Taiwan with the expanding Chinese economy. But, economic integration is not the same as political integration. The people of Taiwan must be always seek to protect the achievements they have made in liberty, democracy, and the rule of law. This is what Taiwan was – and this is what Taiwan will always be.