News Report Clippings
Name of Media: The Marker (printed and online edition)
Date of report: 2.1.2015
Section: Markerweek
Nature of report: Article
Page: 22-24
Title: Isolated country – Financial success (No diplomatic relations and China's great shadow – Taiwan is thriving)
By Israel Fisher
A state that was created in the late 40s, in a deserted area, has become over the years a financial success, although it has no diplomatic relations with the neighboring countries. No, it is not Israel, it is Taiwan - illustrates how it is possible with the right financial planning to become one of the 20 largest economies in the world – despite the difficulties.
At the memorial to Chiang Kai-shek, the leader of China who was forced to withdraw with his army to the island of Taiwan and to establish on it the modern Taiwan, changing of the guard ceremony is held every hour. The ceremony is slow and many tourists who visit the large monument in Taipei find it difficult to keep up for 30 minutes in which the ceremony is conducted. The guard soldiers, accurately dressed in official uniform, walking slowly until they reach the main area already seem like an excessive pedantry. In similar ceremonies that attract tourists, as Buckingham Palace in UK, things are going in an organized and impressive mode, but they are going much faster.
As in the ceremony, it seems that everything is conducted slowly and patiently in Taiwan. Taiwanese do not rush to make personal connections and when they make a policy decision, it is done after a lot of thinking and planning. These features are also evident in the behavior of Taiwanese business man, they do not rush to undertake projects and you have to work hard to win their trust. "For Taiwanese, first trip to Israel is only an impression trip," says Doron Hemo, the economic attaché in the Ministry of Economy in Taiwan. "In the contrary, Israeli arrives in Taiwan will say: 'I paid for the ticket - I want my appointment book to be completely filled.' Taiwanese want to feel the atmosphere and check if there is a fruitful ground for businesses. At the second meeting he will check if it is profitable."
According to Hemo, this behavior has a direct influence on the activity of Taiwanese companies in Israel. "There is a lack of revival of Taiwanese companies in Israel. They are very conservative. They want to see first what other companies are doing in the world, and say it's not too late if they join at a later stage."
Taiwan, or the Republic of China, is similar to Israel in some ways, but it is considered much bigger and developed economy. Taiwan is ranked 14th in the index of competitiveness of the World Economic Forum (WEF), compared to Israel that is ranked 27th. Though it dropped two places compared to the rating in 2013, but the island's economy manages to find a balance in some areas, although there is no area where it stands out in particular. For example, Taiwan ranks 11th among the countries at the level of its infrastructure, and is characterized by high efficiency level of the commodity market. At the level of innovation Taiwan is located in 10th place, compared to Israel that is in the third place, but Taiwan's economy is characterized by a very high level of transparency of financial institutions, in a small and efficient government and low tax burden, and enjoys a high level of competition in the domestic market.
"Taiwan and Israel complement each other"
Taiwan and Israel were established in the late 40s, and both were able to move from a state of poverty and shortage to relative prosperity while changing their economic and industrial focus. Both are considered an "island economies"- countries isolated from their neighbors: in case of Taiwan because of its being an island without borders, and in the case of Israel because of its neighbors who are not keen, to say the least, on having a land trade. "Taiwan and Israel complement each other," says senior from the ministry of foreign affairs of Taiwan. "Israel is good in innovation and research and development, Taiwan is good in engineering and manufacturing."
Taiwan has managed to position itself as one of Asia's economic tigers - a group of relatively small economies that grew very rapidly from the 60s to the late 90s, along with South Korea, Hong Kong and Singapore - after conducting major changes in the composition of its economy through detailed economic plans. Paying attention to details of these economic plans is impressive. For example, in the early 50's the country's leadership realized that it must focus on agricultural exports, while maintaining economic stability and improving payment ethics; in 60s moved to target economy in light industry; In the 70s focused on heavy industry and has established its position as the world's factory; And early 2000s, Taiwan became the father of technology.
Now it stands at a crossroads, and wants to increase its importance in the global market. One of the problems she encounters on her way up is that Taiwan is currently recognized by only a little more than 0 countries around the world, excluding Israel, most of them are African or South-American countries and are not considered a major player in the global market. Most countries, although announce on their support for Taiwan, have only an economic and cultural office and not an official embassy – and this is what the country with 23 million people tries to change.
The reason for not recognizing Taiwan lies in the relationship with China. In the 40s of last century the Chinese Communist Party managed to lead a revolution and force the leader of China until then, Chiang, to flee with his army and a group of citizens to Taiwan and continue to control on what they have defined the Republic of China (ROC). China, which is known formally as People's Republic of China (PRC), claimed over the years that the island of Taiwan is part of it, and since the establishment of Taiwan there were some disputes between the two countries, which did not led to the Chinese regime in Taiwan because of the support of the West in the state of the island and the fear that it will lead to world war.
After Chiang came to Taiwan, he was forced to change the economy rapidly from agricultural economy to developed economy – which in 2013 was the 21st largest economy in GDP in terms of purchasing power parity, according to the IMF. In comparison, Israel is ranked 54th in the world.
Intensity of competition in the domestic market according to World Economic Forum
1. Japan
2. Taiwan
5. United Kingdom
10. United States
11. Turkey
44. China
49. Norway
125. Yemen
126. Israel
144. Angola
A tour around Taipei City reveals a busy and full of skyscrapers city, evidence of the need to establish houses for the millions of Chinese who entered the country in its early years. You can find almost all world-known luxury brands for the country's upper class. The city's business district, in which was build Taipei 101, one of the world's tallest buildings, presents a modern and bustling area where settled most of the foreign missions and major international companies.
Taiwan is well aware of the importance of communications infrastructure in the country, and in 2004, long before most of the world countries thought of it, began to build a Wi-Fi network under the name e-Taiwan, investment of 1.83 billion. This network deployment managed to improve the transparency of government and provide its citizens with Internet access - while perfecting the technology market on the island.
Another area in which Taiwan excels is the strong competition between domestic companies in the domestic market. Taiwan's government is aware of the importance of the fight against concentration and has taken steps to prevent the country becoming concentrated, there are a lot of medium-sized companies, and there isn't one company that dominates the market. According to the World Economic Forum, Taiwan is ranked second in the world in the level of competition in the domestic market – Japan is first. By comparison, Israel is ranked 126th - below countries like Yemen, Gabon and Tanzania. In fact, Israel is in the last place among the OECD countries on this index.
Also on ease of doing business index of the World Bank Taiwan ranked 19th, compared to Israel ranked 40th. The bank notes that electronic systems in Taiwan ease on the payment of taxes in the country as well as getting business credit. Taiwan government transparency eased on different processes like issuance of building permits, making it relatively easier for business owners in the country.
Taiwan residents have an entrepreneurial mentality, combined with effective government sector and low taxes allow businesses to thrive. An examination of the tax burden, or income taxes compared to GDP, shows that the tax burden in 2013 in Taiwan reached 12.6%, compared to 30.5% in Israel.
It is generally assumed that low tax burden, or a decrease in the tax burden may be caused by a decrease in services provided by the state and that the tax burden rate is not a measure of equality, but only to the overall. On the other hand, high tax burden may encourage emigration and damage economic growth. However, a lower tax burden can also encourage entrepreneurship towards economic growth and prevent smuggling and tax evasion. Also the indirect taxes are not particularly high in the country, reflecting that a significant portion of revenues from taxes comes from progressive taxes as income tax. But an even greater advantage in Taiwan is the accessibility of the tax system, which does not require from the residents and companies to get involved with the submission of complex documents – and everything is easy and available.
Taiwan has a large number of very wealthy executives who are managers of several well-known companies in the world, and on the other hand a broad middle class. However, unlike Israel, the relatively low cost of living in the country also allows the middle class to live in dignity. When lunch in one of the international fast food brands costs 8 NIS, no wonder that a large portion of disposable income remains for purchases technology and leisure products. For example, the cost of living in Tel Aviv is 36% higher than in Taipei, taking into account the differences in currency exchange rates to the dollar, however Taipei residents also complain about high housing prices.
The largest airport in the region
Housing prices have led to widespread social protests, which started in March 2014 all over Taiwan, and have been named "the sunflower movement" because of the flowers that were handed out to the protesters symbolize freedom and economic independence. "Today, young couples do not have children because it is too expensive for them", tells us Taiwanese at the night market of the southern city Kaohsiung, a major port city considered an industrial stronghold. However not only the housing prices inflamed the protest, but also the signing of a series of cooperation agreements - especially in the areas of economics - between Taiwan and China. So far, more than 21 agreements were signed since the president of Taiwan, Ma Ying-Jeou, sworn into office in 2008.
(Graph- Taiwan's trade balance in billion dollars)
After the protest, there was a dramatic decline in the popularity of the president and of the ruling pro-Chinese party, KMT. In local elections held in late November, the ruling party lost in five of six largest cities in Taiwan to its largest competitor, DPP, which calls for cooling of relations with China so that Taiwan will not depend on it economically. Even in Taipei, ruling party candidate won by 25 thousand votes only, slight victory in a city of about 3 million residents. The defeat in local elections led President Ma to retire from the leadership of KMT toward the elections in January 2015 and the appointment of the Vice President, Mao Chi-Ko, as prime minister and who probably would run for the presidency on behalf of the KMT.
"Taiwan and China will hold a special relationship while maintaining the status quo", says Vanessa Shi, Deputy Minister of Foreign Affairs of Taiwan. National Policy Foundation shows as an example of commercial cooperation between states precisely the partnership between Israel, Jordan and the United States. "Products in Israel and Jordan are treated as if it were produced in the NAFTA (North American Free Trade Agreement)", National Policy Foundation sources say, hinting that they would love a similar preferential treatment from the US.
Taiwan, joined the World Trade Union and almost entirely depends on foreign trade, is investing heavily in promoting the pilot of the free trade zones that will operate in six centers across the country and will be engaged with sea transportation, air transportation, agriculture, industry and services. The agricultural biotechnology park that was established in the south Ping Tong is a good example. In order to promote the park, which can provide technological solutions to the farmers in Southeast Asia, its chief executive arrived in Israel in order to learn about agricultural technology, and perhaps even to use things he learned to promote sales of energy-saving technology to the Middle East countries.
Taiwan is also building a new airport city in Taoyuan, a distance of about 40 minutes drive from Taipei that will serve as a services and business center in the region, at least what the government hopes for. Taoyuan will have to compete with similar centers in Shanghai and South Korea, but its founders say they have learned from the mistakes of other countries. In South Korea, for example, the government is building from the beginning of the previous decade a special city - Songdo City, designed to be a business center and one of the smart cities in the world. About 65 km south of Seoul and near the international airport of South Korea this city was established according to the most recent urban planning programs: there are no garbage trucks, because all the houses are connected to a pipe system that transports the trash directly to the recycling centers. Despite the smart planning, the city is considered a failure and residents of Seoul are not eager to move into it - for the simple reason that upon its establishment they forgot to connect it comfortably to all the transportation systems.
Without referring directly to Songdo, the new Taoyuan city planners boast about the 500 billion Taiwan dollars (about US $ 17 billion) government would invest in the project and which by 2030 will be the largest airport in the northeast Pacific - an ambitious goal, considering that not far from there you can find the airport of Hong Kong, considered one of the largest and effective airports in the world. In addition, the government wants to complete building other modes of transportion to the airport city, like the express train and the metro, just before the establishment of the airport city - probably in order to avoid the Koreans mistake.
If you rely on the past, the field of public transportation in Taiwan has shown that it keeps his promises. In the late 60s the minister of transport then, Sun Yun-Xuan, announced on the beginning of planning the metro of Taipei metropolitan area, however, budget problems postponed the beginning of the practical planning over and over. This may sound familiar and similar to the story of the metro in Tel Aviv, but the fate of the metro in Taipei was different: the impressive economic growth of Taiwan in the 70s raised again the need of the public transportation system, and in the late 70's began the practical planning process of the metro. Only in 1986 was established the main office responsible for the practical planning, the work began in 1988. The first line of the metro was opened in 1996, until 2004 constructions of six lines were completed in the metropolitans of Taipei and Keelung; contain 9 million people in total.
Taipei metropolitan rapid transit system often wins the title of the most efficient and reliable metro system in the world according to Nova COMMET, and since it was founded the congestion in the streets has decreased significantly and is considered one of the factors that help the development of Taipei as a global business center. A ride on the metro is a very pleasant experience, and in 25 NT (3.2 shekels) you can reach quickly and efficiently all parts of the city. The atmosphere in the train is very pleasant and there is a free access to a wireless network.
Also the need to connect between two largest cities in Taiwan – Taipei in the north and Kaohsiung in the south - was a national priority for government in Taiwan over the years, thus high-speed train was established in order to connect these cities, 450 km apart, in less than two hours. During rush hour there are four trains per hour between the two cities - making it possible for business man to travel comfortably and safely. The express train started operating in 2007 with an investment of $ 18 million, after many delays caused by budgetary problems, and its maximum speed reaches 300 km per hour.
According to Professor Li Wei, one of the consultants for establishing the new city of Taoyuan, its establishment "will motivate the economic development of Taiwan, with the understanding of a model of urban life in the future. In this framework innovation, entertainment and service industry centers will be set up, and production will stop in order to change the role of Taiwan back to economic role". These things are very prominent in view of the fact that Taiwan is heavily based on production. Taiwan is currently the world's largest chip maker, and Taiwanese companies, like Foxconn, produce the chips for Apple's iPhone. Also the foreign investment are concentrated primarily in the electronic components, while in the financial industry was a sharp decline in the flow of foreign investment in 2013.
Unload container in 10 minutes
As an island economy, Taiwan realized that it depends mainly on foreign trade, so it developed the seaports in the 70's as a very important trade tool. In the 90s the southern port city of Kaohsiung is considered third in the world in terms of the movement of goods. Since its establishment Taiwan was an open economy, but the military government ruled the country until 1987 didn't allow the development of unionized labor unions. Since the country became a democracy in the 90s, labor organizations have increased. In the last decade many working associations in different areas have been recorded, because of the very active merges and acquisitions in the private sector, and labor organizations in the country are still not particularly prominent and there is a relatively lively cooperation between them and the employers.
This relationship has enabled the country to establish a system of six sea ports, most of them in the western part turns to China. However, the strengthening of the ports in China led to a decline in the power of Taiwanese ports. Kaohsiung Port, for example, dropped from third to 14th place on the list of the world's busiest ports of World Shipping Organization. To increase the power of the ports, the government makes significant part of them as a free trade zones and private companies compete for the operation of the ports, while upgrading their capacity tremendously. Private companies are given ports development leased, they are responsible for their own development and they should return the ownership of the port at the end of a 50-year agreement.
74 companies currently operate five ports in free trade zones, mostly in manufacturing, in which foreign companies, like London Metal Products, are marketing to the world products from Kaohsiung. Foreign companies do not pay income taxes or customs in the free trade zones and they can employ 40% foreigners of their work force with special permits, compared to 15% in companies that do not operate in the free trade zones. Ti Ci Chen, chairman of Kao Ming, which operates a container terminal at the Kaohsiung port, seems very enthusiastic when a group of foreign journalists came to visit the port. He was proud of the efficiency of the port with six major container centers. According to him, the time delay of a truck entering the port to load or unload container is 11-10 minutes, compared to at least 30 minutes in a parallel port in the United States.
The work is mostly computerized, and is managed by automatic cranes with joystick operators control centers, different situation from the ports in Israel run by a man who sits on the crane. Therefore, only 16 people are required to operate container unloading area, compared to a standard port with 100 people, he said. When he was asked about labor relations in the port, he was a little hesitant, but replied that it is a free economy, and when there is a demand for work, there are also good conditions. Kao Ming terminal was established four years ago, so most of the workers are new, but the competition between the companies that operate the ports promotes efficiency and also manages to maintain proper working conditions.
You can not underestimate the importance of Taiwan's free trade zones project, which tries to teach the whole world how such a small economy becomes so important in the global production chain. Level of development of business centers in Taiwan ranked second among all countries in the world, according to the World Economic Forum. To increase its international partnership, Taiwan is trying to position itself as a gateway to Asia in the light of relations warming between the two countries, but it is not sure it is really the case.
"I do not think that Taiwan is a gateway to Asia. If anything, it is the gateway to China, Hong Kong or Macau," said Hemo. "We have to distinguish between business areas, because, for example, water delegation is expected to be here and wants to sell its products. For the delegation, it's not the right way to go through Taiwan in order to enter China. If water companies want to work with China, they should work with China. Water companies here are engaged mainly in the local market. However, there are many Taiwanese companies that do business with China and are working there. If you are connected to this kind of company as a supplementary solution or subcontractors, you can enter the Chinese market.
"It is true that there is no poverty here and nearly everyone has something to eat. It's not a big deal: you can have lunch with 8 NIS. The cost of living here is not high. At the basic level people do not live in poverty. On the other hand, there is a level of very rich people, all their money made in China and there are huge differences with the rest of the population."
The importance of China for Taiwan demonstrated by Hemo with a simple example: "Imagine, Israel has a neighbor country with 1.3 billion people, they speak the same language, understand the culture, and you know how to do business with them. They are like the Israelis, but this is actually a separate state within an hour flight distance. Taiwanese has China as their playground, but they are more Western, speak better English, more advanced. In China they make all their money. Sometimes they take Western companies or by them selves are doing business in China. There is a huge market everybody tries to understand how to work with, and Taiwan has a comparative advantage."
Israeli businessmen claim to have difficulties entering China because of the difficulty of building trust with Chinese businessmen. This also goes for the Taiwanese?
"Yes. Eventually Taiwanese are more advanced Chinese, you can trust their word – when you get it. They are very reliable. I would say that at any given time more than 20 thousand Taiwanese students studying at colleges and universities in the US, some remain and some are coming back, so their English is good, and they have a special patent court," says Hemo to demonstrate what steps to take to calm Western businessmen who are concerned about their businesses in Taiwan after being burned out with issues related to patent violations in China" in other words, when you do business with Taiwanese, in 99% of the time you'll meet honest and reliable people. Once you establish the relationship, you will have business. From stories I hear, it's not like that in China and businessmen often burn out. So, if you know how to work with your partner, you can enter China with him - it can help ".
