Monthly Archives: March 2009

Taiwan’s Vouchers Spur Shopping Frenzy

Chinese New Year came early to Taiwan this year when the Republic of China (Taiwan) government handed out “red envelopes” containing NT$3,600 (roughly US$104) worth of shopping vouchers. Printed to resemble money, the shopping vouchers were part of Taiwan’s Economic Vitalization Package aimed at countering the effects of the global financial meltdown.

Conceived last November, the government rushed the shopping voucher program through so vouchers could be handed out the week before the Chinese New Year vacation, the island’s biggest holiday. By the end of the second day, over 91 percent of the vouchers had already been picked up.

Giveaways galore

Placed in “red envelopes” to symbolize traditional lucky money given out during the New Year, the program was timed to coincide with the island’s nine-day holiday. Right away, local governments, retailers and individuals all worked hard to entice Taiwan’s people to part with their voucher dollars. Innovative appeals and incentives came from many sources, from street vendors to artists, airlines to animal rescue centers. Partnerships sprang up between local travel agencies, hotels, theme parks, stores and tourist attractions to lure visitors. City governments throughout the island enticed visitors with giveaways of computers, cars, vacations, luxury apartments, real estate and cash drawings.

Suspecting most people would spend their vouchers on groceries, supermarkets even provided free shuttle buses at voucher stations ready to pick up shoppers. As a result, Carrefour Taiwan, the nation’s largest hypermarket chain, reported a 20 percent increase from last year, with 50 percent of this business coming from vouchers.

Bad for the planet

Although most people have reacted very positively to the voucher program, not everyone was a fan. Among the naysayers are several of Taiwan’s environmental groups (Green Party Taiwan, Green Citizen’s Action Alliance and Taiwan Environmental Action Network) who are opposed to the voucher program on the grounds that it encourages consumerism and excessive waste. The main opposition party, the Democratic Progressive Party (DPP), and some economists also remained skeptical about whether the vouchers will really help reignite the local economy.

Feel-good factors

However, the few dissenting voices were drowned out by those who supported it. An editorial in the Taipei-based China Times listed the voucher program alongside Taiwan’s feel-good blockbuster movie Cape No. 7 (See related article “Cape No. 7 trumps international blockbuster”) as last year’s happy highlights. Jeng-tang Wang, chairman of the Taipei Computer Association, was also a fan. “If I was asked to grade the result of the government’s voucher program, I would give it an A-plus,” he said.

Since 64 percent of the island’s GDP is derived from exports, Taiwan quickly felt the aftershock of the worldwide recession. According to The Economist, Taiwan has been hit hardest by the global economic recession, seeing its exports plunge by 44 percent in the year to January. Although Taiwan’s economic foundations are stable and its banking system remains strong, the island still has an export-dependent economy. Since relying on exports alone can no longer help Taiwan expand its markets, it has sought to expand domestic consumption with NT$83 billion (US$2.4 billion) worth of vouchers.

Back to basics

Like other governments, Taiwan is turning to the economics of John Maynard Keynes, believing that when times are tough, the government should directly or indirectly pump money back into the economy. The government’s plan also includes infrastructure development, which has already received a boost of NT$400 billion (US$11.5 billion) this year, with another NT$150 billion (US$4.3 billion) pending. At the same time, the government plans to cultivate investment from home and abroad for island-wide construction projects. Taiwan will also work to further stimulate exports by depreciating the New Taiwan Dollar, making its products more affordable. Lastly, the government will look at tax cuts and rebates, along with the plan for signing a pact with China to lower the trade and investment barriers between the two sides (See related article “Pres. Ma urges signing of cross-strait trade deal”). Taiwan’s government hopes to create at least 150,000 jobs this year, and aims to keep the island’s unemployment level below 4.5 percent.

With a population of 23 million looking for answers in these economically austere times, Taiwan’s government has to be active in tackling the downturn. Although Taiwan’s two major political parties are often at odds with each other, President Ma Ying-jeou’s own party, the Kuomintang (KMT), currently dominates the legislature, making it possible to fast-track legislation. Moreover, unlike President Barrack Obama’s US$787 billion Stimulus Plan, Taiwan’s NT$550 billion (US$15.8 billion) plan budgeted for 2009-2012 focuses on economic stimulus directly, excluding the broad spectrum of programs contained in the US plan.

Say “No” to protectionism

Distinct from the US Stimulus Plan which includes a “Buy American” clause, Taiwan’s Economic Vitalization Package does not have any protectionist overtones that favor local products. This is appreciated by Guy Ledoux, the head of the European Economic and Trade Office, the de facto representative office of the European Union in Taipei. “I welcome the fact that it isn’t discriminatory. It’s not a protectionist measure,” said Ledoux. “Taiwanese can go to a Taiwanese restaurant or buy a Gucci bag if they want.”

Major public works projects have worked before to kick start the economy, but since the Great Depression of the 1930s and two World Wars, many countries and individuals are now fighting a crisis of extreme indebtedness. This is less of a problem in Taiwan as credit cards arrived later to the island and the country still retains a culture of saving. According to MasterCard, Taiwanese consumers save over 25 percent of their incomes. Also, with the fourth-largest foreign exchange reserve in the world, Taiwan enjoys another edge in weathering this crisis.

Aiming high

Having studied other countries’ revitalization plans, Taiwan wanted to avoid certain pitfalls. Specifically handing out too large a sum to individuals for fear that people would feel inclined to save it rather than spend it. Critics of the recent US Tax Rebate plan gave it a poor grade for exactly this reason, saying too many people banked it or used it to pay down debts, missing the goal of revitalizing the economy. Nai-ping Yin, a professor of Finance at National Chengchi University (Taipei), said similar voucher plans in Japan in the early 1990s and last year, and cash handouts in Macau and Singapore last year failed for the same reason.

The government also wanted to avoid the flaws of Japan’s 1999 voucher plan, which had different regulations at local levels and a relatively narrow target, children under 15 and seniors over 65. In Taiwan, the plan includes all citizens, including resident foreign spouses. Instead of waiting for their checks, people were able to collect their vouchers from January 19 through April 30 at more than 14,000 nationwide distribution centers. Printed to resemble currency, the vouchers can be used and re-used or cashed in by companies before the program ends on September 31, 2009.

As the first country to combat this economic downturn by issuing shopping vouchers, other countries, including China and Japan, are taking note of Taiwan’s program to gauge its effectiveness. Whether the initial phase of Taiwan’s Vitalization Package will spur consumption is debatable since the raw data will not be available until this fall, when the voucher program ends. However, the vouchers have brought much needed cheer to the Taiwanese people, and increased President Ma’s approval ratings. With stagnant pre-Lunar New Year sales already lifted out of the doldrums, there is even talk of issuing a second round of vouchers. Ultimately, measuring the program’s success might not be about number crunching, but rather, the collective feel-good moments, restoring confidence in the financial system, even if only temporarily.

Pres. Ma urges signing of cross-strait trade deal

In remarks made to the American Chamber of Commerce (AmCham) in Taipei, President Ma Ying-jeou urged the signing of the tentatively named Economic Cooperation Framework Agreement (ECFA). His March 5th remarks stressed the importance of the agreement in lowering trade and investment barriers across the Taiwan Strait, which in turn would enable Taiwan to forge closer ties with other regional economies.

With an export-dependent economy that has suffered a decline of 8.36 percent GDP in just the last quarter, Taiwan needs all the competitive advantage that the ECFA would bring. Without such a deal, Taiwan is in danger of being excluded from the free trade agreement of the Association of Southeast Asian Nations Plus 1 (10 ASEAN members plus China) and that of ASEAN Plus 3 (10 members plus China, Japan and South Korea) when it comes into effect in 2010. Taiwan exclusion would leave it economically handicapped.

Formosa Plastics Corporation president Wang Wen-yuan said Taiwan’s exports of petrochemical products, including machines and chemical fiber, would suffer an immediate blow. As an example, China imposes a tariff of 6.5 percent on Taiwan’s petrochemical products while ASEAN members would enjoy tariff-free trade. This disadvantage would be exacerbated as Taiwan competes with countries manufacturing similar products and vying for the same markets. In such cases, China could impose a 6.5 percent tariff on imports of petrochemical products from Taiwan and a 6 percent tariff on imports from South Korea, with the latter tariff soon to be dropped, leaving Taiwanese companies greatly disadvantaged. According to Chiang Chih-cheng of the Chung-Hwa Institute for Economic Research in Taipei, being excluded from economic agreements in the region could cost the island 114,000 jobs and reduce GDP growth by 1 percent.

Currently, Hong Kong and China account for nearly 40 percent of Taiwan’s exports. ASEAN countries account for over 10 percent. Should Taiwan be excluded from the East Asian Free Trade Area, over half of Taiwan’s exports would be affected. When ASEAN Plus 3 becomes a reality, Taiwan’s exports to Japan and South Korea, accounting for 10 percent, would bring the affected total to 60 percent. The Taipei-based China Times newspaper notes that Taiwan’s economy cannot afford the impact of ASEAN Plus 1 and ASEAN Plus 3, suggesting the government needs to take immediate action to sign the ECFA.

Recently, six major industry and business associations, representing nearly all of Taiwan’s enterprises and manufacturers, called on the government to negotiate and sign the ECFA with China and Free Trade Agreements (FTAs) with other countries. Without an agreement, they said, Taiwanese companies will not be able to survive in their present form, and out of necessity would need to relocate to China or ASEAN states. This in turn would increase domestic unemployment, lessen foreign capital investment and damage Taiwan’s economy.

The importance of executing the EFCA is even more crucial now given the World Trade Organization’s (WTO) stalled efforts to tackle the tariff issue. When Taiwan was admitted into the WTO as a “Separate Territory of Taiwan, Penghu, Kinmen and Matsu” (or Chinese Taipei) in 2002, there was great hope that the original multilateral agreements would protect Taiwan’s foreign trade. This proved otherwise after several Doha Rounds failed to reach a compromise to lower international trade barriers. While many WTO member states have bilateral FTAs with each other and other developed nations, Taiwan was shut out of FTA talks with WTO states due to its lack of diplomatic ties.

The government expects the signing of the ECFA with China will eventually pave the way to free trade deals with other countries. At present, Taiwan only has FTAs with five Latin American diplomatic allies, which amounts to less than 1 percent of Taiwan’s total exports. China’s position on this subject will be crucial for future talks with the US, Japan, EU and ASEAN members in negotiating FTAs with Taiwan.

Although the island’s export industries are strongly in favor of hammering out an ECFA with China, there are those who urge more caution. Some are concerned with the name, scope and timeframe of the proposed ECFA with China. The opposition Democratic Progressive Party (DPP) and Taiwan Solidarity Union have both come out against the proposed agreement, fearing that Taiwan might sacrifice its sovereignty in favor of economic benefits, resulting in more dependence on China’s markets. DPP Chairwoman Tsai Ing-wen stressed that such a deal has important implications for the island’s sovereignty, the Liberty Times newspaper reported. The policy development should be transparent and public, under the scrutiny and supervision of legislators before being signed, and rushing into a deal would only lead to social division in Taiwan, she said.

During the eight years Taiwan was governed by the independent-minded DPP, relations across the strait deteriorated. President Ma of the ruling Kuomintang (KMT) campaigned to improve relations with China and carried out his pledge by resuming a series of high level talks once he took office last May. Since then, he has succeeded in opening up regular scheduled direct flights for passengers, cargo, and mail across the strait.

As the next cross-strait meeting takes place this June, President Ma will get a chance to further advance Taiwan’s ties with China. He has emphasized that the ECFA will not open Taiwan to mainland labor, nor expanded agricultural imports from across the strait. Already he is careful to emphasize that the ECFA is purely economic in nature and will not involve the sensitive issues of sovereignty, independence or unification with China as critics have alleged.

Taiwan consolidates chipmakers

On March 5th, the Ministry of Economic Affairs (MOEA) announced the formation of the Taiwan Memory Company (TMC), a holding company that will buy or consolidate the island’s top six makers of dynamic random access memory chips (DRAM). The entire industry has suffered from years of chip oversupply and persistent low prices, and the global economic meltdown has dimmed prospects for recovery anytime soon.

In announcing the formation of TMC, Economics Minister, Yin Chi-ming, also appointed John Hsuan to head-up the new venture. An industry veteran, Hsuan was the former CEO of United Microelectronics Corp. (UMC). His first order of business will be to pursue a partnership agreement with Japanese memory maker Elpida Memory and/or American memory maker Micron Technology. Combined, they account for 28 percent of the DRAM market and also hold some crucial intellectual property.

The government hopes that negotiations can be concluded in three months so that TMC can begin working on research and development. MOEA plans to have the new company established within six months. Although Taiwan is not lacking in hi-tech capacity, it is short on world-known brand names and key intellectual property that would make it more competitive. MOEA is hoping that an alliance with one or both of the companies will strengthen Taiwan’s DRAM position, enabling TMC to gain a competitive edge over Samsung Electronics.

According to Dramexchange Technology, the Korean chip giant Samsung accounts for 25 percent of worldwide sales, while the six Taiwanese companies combined account for 23 percent. Samsung has greater bargaining power, enabling it to set higher prices, while the scale of its multi-billion dollar chip factories allow for lower production costs.

“Local chipmakers are more vulnerable to an economic downturn than Samsung, because they lack price power,” said Cheng Cheng-mount, an economist with Citigroup Inc. in Taipei. With TMC, Taiwan’s DRAM companies will gain greater economies of scale.

Although the consolidation is partly for the sake of survival, it is certain that the overcrowded DRAM industry is likely to see yet more consolidation in the near future. Both Micron and Elpida have current agreements with Taiwanese DRAM companies, while other chipmakers have forged alliances with each other. It is likely not everyone will be happy with the new alignment as individual companies begin to break alliances in favor of more lucrative deals.

In an industry that has bleed money in the last years, the TMC will give chipmakers a chance to halt the downward spiral. According to Andrew Norwood, an analyst at Gartner Inc. in London, the chip industry lost a combine US$12.5 billion in 2007 and 2008, the most ever. For the first nine months of 2008, Taiwan’s publicly traded DRAM makers’ combined losses exceeded NT$94 billion (US$2.7 billion). With global sales of chips predicted to fall another 15 percent this year, Taiwan’s chipmakers were in desperate need of the cash injection from the government to remain competitive.

Minister Yin said that the TMC will not be a state-run business, with the government holding less than 50 percent of total capital. No concrete figures have been mentioned on how the government will fund the TMC, but the six players involved are likely to be Nanya Technology Corp., Inotera Memories Inc., Powerchip Semiconductor Corp, Rexchip Electronics Co, ProMOS Technologies Inc. and Winbond Electronics Corp.

One complication in the creation of TMC could be Taiwan’s two largest DRAM companies, which already have agreements with Micron and Elpida. In speaking to the Central News Agency, Liu Szu-liang, a memory chip industry analyst at Yuanta Securities believes, “The success [of the plan] will, however, largely depend on whether the nation’s two biggest DRAM companies [Powerchip Semiconductor Corp] and Nanya Technology Corp will join TMC.”

With the government’s backing, TMC has the means to secure intellectual property, update their manufacturing facilities and build a world-renowned brand that can truly compete with the Korean chipmakers. If all goes according to plan, the eight combined DRAM companies would make up 51 percent of the global market, giving Samsung a real run for their money.

Cape No. 7 trumps international blockbusters

Last year’s Cape No. 7 surprised many in Taiwan by earning over US$15.6 million at the box office. By November 1st, it had already established itself as the second top grossing film on the island, behind Titanic. Made without any big name actors and using some non-actors, the film has not only become a commercial success but has also won its share of international awards. Not bad for a film that only cost US$1.6 million to make.

The movie interweaves two stories, one in present day Taiwan and the other, 60 years ago, immediately after Japanese occupation. One story is centered on the lost love between a Japanese teacher and a Taiwanese girl, the other focuses on a failed singer’s return to his hometown and the unexpected possibilities that unfold.

Cape No.7 appeals to a wide assortment of viewers, from the MTV-teen pop generation to the older crowd, some of whom still remember Taiwan under Japan. The success of the movie can be attributed to the way in which it recalls Taiwanese history and highlights the island’s unique pluralist society. The movie delves into Taiwanese identify by using Japanese, Mandarin and Taiwanese languages.

The film uses an effective mix of comedy and romance, with a serious tale of lost love at its center. In the Taipei Review, Peggy Chiao, a film critic and a director at the Graduate Institute of Filmmaking at Taipei National University of the Arts, attributes the film’s success to the feel good element. “The movie’s celebratory feel has long been missing in our society,” she said. A tale of lost love and new found love is a wonderful vehicle to give people hope.

The movie’s success is credited to director and screenwriter Wei Te-sheng, who worked for three years to finish the film, at one point borrowing US$937,000 to make sure Cape No. 7 was made according to his vision. It is a testament to Wei’s tenacity. “All the people around him discouraged him from spending so much on the movie. It’s too risky. But his insistence is the biggest reason for the movie’s success,” said Jimmy Huang, the film’s executive producer.

Wei also received help from the Government Information Office (GIO) that awarded him a grant of US$156,000. It is no secret that Hollywood dominates the global box office. From 1996-2006, Taiwanese films accounted for less than 2 percent of total ticket sales in Taiwan, with Hollywood movies taking more than 90 percent, and the rest going to movies from Hong Kong and China. Since 1990, the GIO has promoted local films by giving incentives, in the form of a set grant and/or government-guaranteed bank loans of up to US$3.1 million. The latter was used by Wei to secure US$469,000 from two local banks. The GIO also offered subsidizes to pay off the interest on the loans.

Last October, the GIO announced a new program that would offer extra funding if a movie earns more than US$1.56 million at the box office. Film directors can then apply for a subsidy equal to 20 percent of the total box office income. This could mean a windfall of at least US$2.8 million dollars for Wei’s next movie, Seediq Bale, a story about an aboriginal hero fighting the Japanese during Taiwan’s occupation. Slated to cost US$9.4 million to make, Wei has had the screenplay ready since 2000.

With the release and popularity of Cape No.7, other Taiwanese films have ridden on its coattails. When Taiwan-made Winds of September was released in June 2008, it was ignored by local audiences, however after Cape No. 7’s success, Winds of September was re-released in September 2008 with greater success. The current craze for Taiwanese movies also helped Orz Boyz, a movie about two mischievous boys from broken homes. With Cape No. 7 leading in the box office, “Taiwanese films accounted for 8 percent of the total ticket sales in the first 10 months of 2008,” according to the Taiwan Review.

Currently, Cape No. 7 is showing in four other Asian countries. It was released in Hong Kong and Singapore in November, Malaysia in December and China on Valentine’s Day. The Chinese authorities, considering the film to fuel Taiwanese nationalistic feelings and to be counterproductive to peaceful dialogue between the two sides, cut 30 minutes from China’s version.

According to the Taipei Times, the part that China found offensive was the portrayal of Taiwanese who had been subjected to “colonial brainwashing” by the Japanese. The two countries’ differing experiences with Japan might play a significant part in the film’s success. As much as the Japanese occupation of Taiwan was brutal, with 14,000 Taiwanese dying at Japanese hands, the Japanese also helped build the infrastructure of Taiwan’s rail, telecommunication and educational systems. So the country’s collective memory of the Japanese is not purely bad, but somewhat more bittersweet. While China’s experience was far more brutal, with resentment still lingering to this day.

Since much of the popularity of Cape No.7 is attributed to its unique Taiwanese flavor, it will be curious to know if the movie will appeal to Chinese audiences in the same way.

Kaohsiung Mayor Visits Bay Area

Chen Chu, the mayor of Kaohsiung, was in the Bay Area betweem February 21-23 leading a delegation to promote business relations with Silicon Valley, as a means of heading off the economic downtown. She was welcomed by San Jose City Mayor Chuck Reed on Monday, February 23 and later toured Sun Microsystems and Cisco Systems Inc. During her visit, she emphasized Kaohsiung’s dual attractions – cheaper real-estate and preferential tax benefits.

Later that evening, Mayor Chen signed letters of intent with two Californian companies, AnanSpec Incorporated and Atman Hospitality Group. The former will invest in Poly Peptide facilities while the latter will build an eco-friendly hotel in Kaohsiung.

A Night of Taichung in Tacoma on Feb 26

This year’s annual Tacoma Sister Cities International Film and Food Festival featured Summer’s Tail, an uplifting Taiwanese movie about four seemingly mismatched high school friends. In addition to the film, attendees were treated to a full evening of Taiwanese culture and food at the Blue Mouse Theatre.

Summer’s Tail is a beautiful, light-hearted movie that does not shy away from life’s darker realties. The main character, Yvette, played by Enno Cheng, a Taiwan-based indie singer-songwriter, is especially captivating. For her portrayal, Cheng was nominated for the award of best new performer at the 2007 Golden Horse Awards, Taiwan’s equivalent of the Academy Awards. Besides acting and singing in the movie, Cheng also wrote the script when she was just 18.