When a South Korean graduates from university, his starting salary is, on average, 2.6 times higher than that of a graduate in Taiwan. The average salary on the island is the same as it was in 1997.
These startling figures were revealed at the end of last year by the official Directorate General of Budget, Accounting and Statistics (DGBAS). It said that, in the first 10 months of 2013, the average real monthly wage was NT$45,112 (US$1,507.2), lower than the NT$45,514 of 1998. This wage is inflation-adjusted.
Over the last decade, the Taiwan economy has grown. In 2003-2012, per capita GDP grew by an average 2.75 percent a year, but real wages fell by an average of 0.49 percent a year, DGBAS figures show. The salaries of middle and senior managers in China’s coastal cities have started to overtake those on the island.
The plight of the hard-working people in Taiwan is due to several factors – the downward pressure exercised by wages on the mainland, the threat of delocalization, the caution or meanness of their employers and the recessions in major export markets.
During the decade, Taiwan firms built up large cash reserves. The finance department of National Chung Hsing University found that the cash-asset ratio of the firms listed on the Taiwan Stock Exchange and the GreTai Securities Market doubled from 9 percent in 2003 to 18 percent in 2012. In 2003, their total cash reserves were the equivalent of 10 percent of Taiwan’s GDP; by 2012, this figure had risen to 26 percent. This has taken Taiwan’s savings rate to a 24-year high.
The companies explain this conservatism by saying the outlook in their traditional export markets – the United States, European Union and Japan – is poor. They also cite the increasing challenges of selling to China, and the fear of Taiwan’s exclusion from free trade agreements (FTAs) being negotiated in the Asia-Pacific region.
This mountain of cash is idle – not being invested and not being given to employees or shareholders who could spend it to stimulate the economy.
In an interview published in the latest issue of Commonwealth magazine, Economics Minister Chang Chia-juch said the government met its 2013 foreign direct investment target of US$10.5 billion. “But I am very concerned. We have had very few large-scale projects in recent years. The manufacturing industry invests less and less. It is not a very rosy picture.”
He said that, for a long time, Taiwan had relied on exports of manufactured goods. “Prolonged recessions in Europe and the United States are harming our exports. China has been promoting an import substitution policy in many sectors of manufacturing industry in recent years, which has led to rising domestic output. So you need to be highly competitive if you want to export to China.”
He also said Taiwan was not moving fast enough to sign FTAs. “We need to sign agreements with China on trade in goods and services. If we cannot normalize and systemize our trade relations with China, we do not need to even think of negotiating FTAs with other nations and will not be able to open up other markets.”
Last June, the two governments signed a services trade agreement under which the mainland committed to deregulation in 80 service sectors and Taiwan in 64. But the Legislative Yuan has not ratified it and may refuse to do so: public opinion is hostile, because it fears that small and medium-sized enterprises which dominate the service sector will not be able to match the scale and spending power of their mainland rivals.
For example, hair dressing, beauty services, printing and tourism will be opened up. In the online market, which is already open, Taobao, operated by Alibaba, has made significant inroads into the Taiwan market.
Taiwan has signed FTAs with New Zealand and Singapore. Chang said that, whenever they discussed FTAs, the counterparts mentioned the China problem. “We need to convince them that Taiwan, China and the signatory nation have a trilateral relationship.”
On the question of falling wages, he said companies needed to change their thinking. “They need to retain talent on their own account and regard it as an investment, not a cost.” He ruled out tax breaks because Taiwan had already too many tax incentives.
Several major companies share Chang’s view. Taiwan Semiconductor Manufacturing, apparel maker Makalot Industrial, precision machinery components maker Hiwin Technologies and Sin Yi Real Estate have granted pay rises nearly every year in the past decade.
Their employees are the lucky ones. With the government unwilling to intervene, the majority of workers will have to wait for the generosity of their employers. In the meantime, they can only tighten their belts.
– Contact HKEJ at [email protected]