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.
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.
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.
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.