11 Feb 2020
Second Term for Tsai Sees Taiwan Recommit to Development Blueprint
With the recent Taiwanese presidential elections seeing Tsai Ing-wen returned to office for a second term, the expectation is that the territory will keep its commitment to its major economic strategies, including the New Southbound Policy.
Taiwan's presidential election, which drew attention from all over the world, was held on 11 January 2020, with incumbent Tsai Ing-wen winning her second term. Meanwhile, the Democratic Progressive Party (DPP) won 61 seats to the Legislative Yuan, which not only means a parliamentary majority, but also that the DPP will once again be the controlling power in the coming four years.
After Tsai began her first term in 2016, a policy blueprint for the financial and economic sector was rolled out that embodied three main programmes. First, the Forward-Looking Infrastructure Development Program aimed at laying a sound foundation for Taiwan's renewed economic take off. Second, the 5+2 Innovative Industries Plan, which drew up specific directions for the transformation and upgrading of Taiwanese industries. Third, the New Southbound Policy, formulated to help Taiwanese companies diversify foreign investment risks and identify new areas of growth.
The Forward-Looking Infrastructure Development Program included eight infrastructure projects, namely railway construction, water environment, green energy, digital infrastructure, urban and rural projects, child-care facilities, food safety, and human resources to nurture talent and boost employment. This programme, started in 2017, was carried out in two phases of two years each. According to government reports, at the end of October 2019, the phase 2 budget execution amount was NT$68.5 billion (US$2.28 billion), while the budget execution rate was 94.4%.
The 5+2 Innovative Industries Plan included: smart machinery, Asia Silicon Valley, green energy, biomedical industry, defence industry, new agriculture, and 'circular economy'. Figures released by Taiwan's Ministry of Economic Affairs in July last year showed that in 2018 the output of smart machinery reached NT$1.18 trillion, growth of 7.3% over 2017; the output of the internet-of-things industry amounted to NT$1.17 trillion, up 19%; and the biomedical industry revenue was NT$514.1 billion, an increase of 5.5%.
Where the New Southbound Policy is concerned, according to data compiled by the Office of Trade Negotiations under the Executive Yuan, as of the third quarter of 2019, Taiwan received more than 1.9 million people from the New Southbound countries, and a total of 1,082 manufacturers in Taiwan were halal certified. In terms of e-commerce, Taiwan companies on New Southbound e-commerce platforms had uploaded more than 277,000 product items. As for engineering project exports, Taiwanese industry players had secured foreign tenders totalling NT$23.4 billion in value.
According to Tsai's political views put forward during the election campaign and after her re-election, in the next four years Taiwan will roll out its New Model for Economic Development 2.0 covering five major areas: (1) building Taiwan into an advanced manufacturing and R&D centre in Asia; (2) developing Taiwan into Asia's capital movement and high-asset wealth management centre; (3) establishing Asia's green energy development centre; (4) building a high-tech and industry talent fostering hub; (5) and setting up Taiwan's financing guarantee mechanism and achieving justice in income distribution.
In building Taiwan into an advanced manufacturing and R&D centre in Asia, the Tsai administration, taking into consideration the development and application of artificial intelligence (AI) and 5G around the world, places emphasis on these technologies and has formulated four major strategies: strengthening industry clusters and creating complete value chains; deepening software and hardware integration by way of going smart and AI; promoting a so-called deep ploughing R&D programme of leading enterprises; and building a green supply chain in a bid to enhance industrial competitiveness on the international market.
Concrete measures to be taken include: building an international AI R&D innovation cluster in Linkou, New Taipei City and Shalun, Tainan City; integrating heavyweight AI teams from Taiwan and abroad; and setting up an AI fund aimed at making joint investment with leading international funds in a move to develop Taiwan into Asia's top AI cluster.
Meanwhile, following the implementation of the 5+2 Innovative Industries Plan during her first term, Tsai and her government will unfold 5+2 Innovative Industries Plan 2.0 in the next four years, with emphasis on strengthening the semiconductor industry and building an ecosystem combining 5G and AI applications with the 5+2 industries. In a bid to develop Taiwan into Asia's R&D hub, the government will encourage leading enterprises to map out forward-looking strategies by offering R&D funding subsidies for a period of three to five years, with the ratio of subsidies not exceeding 50% of the total expenditure of the plan.
On developing Taiwan into Asia's capital movement and high-asset wealth management centre, the Tsai administration will adopt two strategies. First, regulations governing account opening and foreign-exchange remittance with international offshore banking units (OBU) will be relaxed. For instance, domestic corporate clients will be allowed to open an OBU account with a certain amount of funds and regulations governing the remittance of funds by these corporations will be liberalised appropriately. Second, wealth investment products will be relaxed by introducing 19 liberalisation measures to be implemented gradually after March 2020. It can be expected that this policy will translate into more than NT$1 trillion in investment in the Taiwan stock market.
Hong Kong, with its advanced financial sector, has long been an important international financial centre in Asia Pacific. As Taiwan strives to promote the development of financial services, such as capital movements of companies and wealth management, it can be expected that Hong Kong will serve as a key point of reference. This will create huge room for co-operation in the financial sector between the two.
The move to establish Taiwan as Asia's green energy development centre is set to attract manufacturers to continue to invest and set up their Asia Pacific bases in Taiwan. Photovoltaics, where power is mainly generated by rooftop photovoltaic systems, is an example. The government objective is to raise solar power generating capacity from 3GW to 6GW and to encourage more households and factories to take part in installing photovoltaic systems. As for ground photovoltaic systems, action will be taken to promote co-generation of solar power by making use of existing land, such as mounting solar panels over agricultural land and fishing ponds. Efforts will also be made to promote the concept of covered playgrounds by installing solar panels above them in schools. These panels can not only generate solar power but also provide shelter from wind and rain, creating a win-win situation.
For offshore wind-power generation, the Tsai administration has set the objective of reaching a generating capacity of 10GW in the next 10 years. This move aims to develop Taiwan into a 15.7GW market by 2035 and achieve an economic scale of sustainable operation. The Ministry of Economic Affairs is planning phase 3 development and will release 1GW a year to deepen the co-operation between foreign companies and local industry chains. It is hoped that with the support of the financial sector, this industry can enter the international green energy industry chain and make a foray into the wind-power market in Asia.
To implement justice in income distribution, the Tsai government is set to proactively introduce social policies for senior care, public housing and urban redevelopment. Action will also be taken to solve the problem of young people's low wages, and subsidies will be granted to improve living standards and child care. Minimum wage standards will be reviewed regularly so as to meet people's basic needs. The tax base will also be broadened to generate more revenue and reduce the tax burden on the working class and underprivileged families.
In an effort to narrow the gap in regional development, Tsai proposed the Great South Development Plan, under which, 22 key development industrial clusters are prioritised and offered preferential policies in order to lure industrial investment to Taiwan's central and southern regions to achieve balanced regional development. These preferential policies include tax concessions, such as 20% of the total investment amount being eligible for exemption or deduction from corporate income tax, house tax and land value increment tax, as well as offering long-term concessional loans.
Robert Kang, Special Correspondent, Taipei