Since publication of AmCham’s 2020 Taiwan White Paper last June, Taiwan rightly has continued to receive international praise and attention for a host of good reasons: maintaining one of the world’s very few expanding economies, presenting a model of vibrant democratic governance, and handling the COVID-19 pandemic in an exemplary fashion while generously assisting countries around the world with much-needed medical equipment.
At the same time, Taiwan remains excluded from participation in virtually all international organizations. Despite the vocal support of scores of countries, Taiwan was prevented from attending the World Health Assembly as an observer this May, the fifth consecutive year it has been turned away. Taiwan has also struggled to secure an adequate supply of vaccines to inoculate its population against the novel coronavirus. Taiwan’s needs in this area are becoming ever more urgent as it fights to contain a mid-May outbreak of locally transmitted COVID-19 infections on a densely populated island.
In the wake of a global shortfall in the supply of microchips for cars and electronics products, Taiwan has also come under the spotlight for its prominent role in the global semiconductor supply chain. In response, its chipmakers have been compelled to stretch the capacity of their foundries. Meanwhile, a severe drought has threatened to disrupt the operations of the semiconductor and electronics manufacturers that constitute the backbone of Taiwan’s economy.
If all that were not enough cause for concern, China has continued to intensify its belligerent military posture toward Taiwan, sending record numbers of fighter aircraft into the air defense identification zones around Taiwan proper and its territorial holdings in the South China Sea. This and other “gray-zone” tactics employed by China are considered by many military experts to be an attempt to exhaust Taiwan’s defense forces and psychologically wear down its population.
In the face of these challenges, however, Taiwan remains determined and strong. The International Monetary Fund has forecast that Taiwan’s economy will grow by 4.71% in 2021, and AmCham’s member companies have expressed similarly bullish sentiments regarding Taiwan’s economic prospects. In the Chamber’s 2021 Business Climate Survey, conducted between November and December 2020, over 85% of respondents expressed some degree of confidence that Taiwan’s economy would experience growth in the next 12 months, while another 78% were somewhat or very confident that it would continue to grow over the next three years. Taiwan’s strengths in high-value-added contract manufacturing, particularly in the ICT industry, make it an ideal supply chain partner for tech companies from the U.S. and elsewhere seeking to diversify their production processes away from China. Its exports of everything from electronics to machinery and automobile components continue to climb, while innovative Taiwanese firms that specialize in everything from 5G to smart vehicles look to break into the world ranks of systems providers and branded producers.
Nevertheless, a changing world economy and the pandemic’s ongoing strains on production and logistics are a clear reminder that Taiwan must continue to improve the efficiency, agility, and adaptability of its industries and regulatory regime in order to stay competitive.
ACCELERATING DIGITAL TRANSFORMATION
Despite its status as a hub for some of the world’s most advanced technology products and manufacturing processes, too large a portion of the operations of industry and government in Taiwan is still conducted manually or on paper. A noteworthy example is the financial services sector, where hard copies of documents for Know Your Customer (KYC) processes and physical signatures for verification or the execution of contracts are still required in many cases. Such practices are out of sync with international trends. They also present a significant obstacle to one of the Tsai administration’s more recent goals: transforming Taiwan into a regional financial center.
Also deserving attention is the digital preparedness of Taiwan’s industries. When the initial and current outbreaks of COVID-19 occurred in Taiwan, many businesses were caught off guard. They had put little digital infrastructure in place to help ensure the smooth continuity of operations or to quickly institute successful remote or hybrid work arrangements. For those businesses still struggling with this transition, AmCham would be eager to facilitate consultations with our member companies, many of which have developed remote work and contingency plans that could be useful in the case of strict lockdowns or other emergency scenarios.
While the sluggish pace of digitalization in Taiwan has been concerning, AmCham recognizes the Taiwan government’s efforts to correct shortcomings and drive progress in this regard. We particularly applaud the quick response of the Financial Supervisory Commission (FSC) to the current outbreak, introducing temporary measures to allow the sale of life insurance products and the filing of claims through mobile video calls, fax messages, or email. This move aligns with the suggestion made by the Insurance Committee in last year’s White Paper to “increase online insurance health-product types and relax online claims requirements.” The Chamber commends the FSC for its flexibility on this matter and encourages it to take further steps toward developing a better digital environment for Taiwan’s financial system.
The government’s intention to form a Ministry of Digital Development (MODD) to coordinate and expedite the development of Taiwan’s digital economy is a further step in the right direction. If given a clear mandate and staffed with digitally savvy and forward-thinking public servants, the MODD could contribute greatly to jumpstarting the island’s digital transformation. The main challenge will be determining how to resolve tensions that have arisen between digital industries and the more traditional practices of many government agencies and businesses, as well as untangling the web of regulations that hamper digital development.
Beyond the MODD, Taiwan’s government, industry, and society will need to come together to discover more and better ways to foster digitalization. Taiwan’s leaders must be prepared to devote as much effort and resources as possible to begin digitalizing more areas of business and public life. Doing so is imperative if Taiwan wishes to remain attractive as an investment destination.
BOLSTERING SUPPLY CHAINS
Taiwan benefits from having one of the most advanced and comprehensive semiconductor and ICT ecosystems in the world, an asset that makes Taiwan an ideal partner for companies that are now looking to cut back their supply chain dependency on China. Yet while Taiwan’s tech suppliers are strong, they are not invincible – as rising regional geopolitical pressures, the COVID-19 pandemic, and an increase in the volume and sophistication of cyberattacks have clearly demonstrated.
Making supply chains more resilient will take more than just the work of individual companies and governments. It will require cross-border collaboration and public-private partnerships, as well as creative thinking on how to develop supply chains across like-minded economies based on shared values, free from political coercion. Taiwan’s participation in international forums like the U.S.-Pacific Economic Prosperity Partnership Dialogue (EPPD) and the Global Cooperation and Trade Framework (GCTF) is a great way for it to develop cooperative approaches to strengthening global supply chains. Fielding the world’s largest delegation to the virtual SelectUSA Investment Summit in Washington for the third consecutive year is a strong statement from Taiwan’s corporate sector. The government can do more to support second- and third-tier suppliers, some of whom are making their first forays abroad. Making progress toward entering into bilateral or multilateral trade agreements will also prove essential in preventing Taiwan from being left on the sidelines.
The rise in local COVID-19 infections this May led many companies to allow their employees to begin working from home. This shift to remote work, combined with a drought-induced shortage of pumped-storage hydropower and earlier than usual high temperatures, has recently caused peaks in power demand and a couple of temporary disruptions to supply. These incidents have once again raised serious questions regarding Taiwan’s energy sufficiency as the government works to transform the energy mix by 2025.
Increased foreign investment in large data and R&D centers in Taiwan, as well as the continued reshoring of Taiwanese manufacturing operations from China, have certainly been positive developments for Taiwan’s economy. But the tempo of this investment will not be sustainable if power supply disruptions become a common occurrence.
To ensure the continued supply of stable, reliable, affordable, and ever cleaner energy, the government should now redouble its efforts to accelerate the development of new gas-fired, solar, and wind generating capacity. It can accomplish this by simplifying the application and approval process, developing new policies to promote grid-scale energy storage, and liberalizing the Taiwanese energy market. More flexibility in the power transmission and distribution system and better grid stability are also overdue as the recent power outages have highlighted. If these issues are not properly addressed, the consequences for both industrial capacity and cybersecurity could be severe.
MAKING TAIWAN BILINGUAL
AmCham strongly supports the government’s initiative to make Taiwan bilingual by 2030. While this timeline is ambitious, the Chamber believes that significant progress can be made toward bilingualism if the correct steps are taken.
Above all, Taiwan needs to look at the way English will be used in the future. Already, software on personal computers and phones automatically corrects spelling and grammar. Soon typing may become completely obsolete. The focus of today’s English education therefore needs to be on comprehension and oral communication – not on spelling and grammar as has long been the model in Taiwan. To help develop these skills, Taiwan should be more open to English-language multimedia content and encourage its use in teaching and learning.
Technology will play an increasingly important role in how English is taught. The pandemic has already accelerated the use of online learning at all levels, and the U.S. and other countries have gained valuable experience in how to make online learning more effective. Taiwan will never be able to hire enough English teachers to accommodate all its children. Instead, it should incorporate the best examples of online training into its education program.
In addition, Taiwan should form partnerships with foreign educational institutions at all levels to increase the availability of English-language curriculums. It should support educational projects including joint degree programs with the U.S. and other English-speaking jurisdictions. It should also offer online courses from foreign partnering universities as part of its own degree programs. Only by leveraging the capabilities of foreign educational institutions can Taiwan get enough English-language exposure to enhance the learning experience for its students. For its part, AmCham has begun encouraging its members to find ways to improve both the language capability of their staff and the English-language services they provide to the public in Taiwan. Indeed, participating in AmCham events is an ideal way for Taiwanese to develop English communication skills.
As Taiwan continues to build on the opportunities brought about by the shift in global supply chains and develop its international profile, it still lacks one of the most powerful tools that could help it build international connectivity: an internationally focused sovereign wealth fund (SWF).
An SWF would be an effective mechanism for extending Taiwan’s international relevance by giving it direct access to members of the global business elite. Through ownership in Fortune 500 companies, Taiwan would have the ear of international industry leaders, bringing up Taiwan’s value for their consideration when they make investment and corporate policy decisions.
Such a fund would also address one of Taiwan’s big challenges going forward by boosting the returns on its foreign reserves. At over US$500 billion, Taiwan’s reserves are among the largest in the world. But they are currently managed in a way that cannot meet Taiwan’s most pressing needs, including its looming pension shortages, the burden of a rapidly aging population, and unforeseen events like another pandemic. The Central Bank has an excessively conservative investment approach. Furthermore, Taiwan runs the risk of being labeled a currency manipulator. SWFs are commonly used to address exactly these types of challenges and for Taiwan, the added benefit of global participation would increase its prosperity and stability.
Since 2017, the Taiwan government has made substantial progress in addressing and working through the tough regulatory and industry issues raised annually in AmCham’s Taiwan White Paper. These efforts, initially led by former National Development Council (NDC) Minister Chen Mei-ling and now by her successor, Kung Ming-hsin, have resulted in successively higher numbers of issues being awarded a score of “1” – or solved – by AmCham’s industry committees. This year, the Chamber is pleased to report that another record has been broken. Of the 92 issues presented in the 2020 White Paper, 13 were deemed completely resolved, surpassing the previous record – the 11 issues resolved in both 2017 and 2019. Meanwhile an impressive 23 issues were rated as making satisfactory progress.
Of the newly resolved issues, two were from the Asset Management Committee, two from Banking, and one from Capital Markets, demonstrating a strong willingness by Taiwan’s FSC to work constructively with our members in the financial services sector. In addition, suggestions provided by the Technology, Intellectual Property & Licensing, and Private Equity Committees were adopted by the NDC and the Judicial Yuan. Other resolved issues included those broached by the Energy, Infrastructure & Engineering, Cosmetics, and Chemical Manufacturers Committees.
AmCham appreciates the positive and cordial working relationship it has maintained with the Taiwan government over the years, as well as the government’s receptive attitude toward core items on our advocacy agenda. We look forward to working together to make more breakthroughs on White Paper issues in the years to come.