Percent Exports Increase by 1.2％ Thanks to New Southbound Policy？
The Storm Media Editorial, July 14, 2023
The Office of Trade Negotiations (OTN), Executive Yuan, recently pointed out that the proportion of exports to the New Southbound countries has increased by 1.2 percent in the past six years. Furthermore, in the first five months of this year, the proportion of exports to Association of Southeast Asian Nations (ASEAN) countries has surpassed that of either Japan or South Korea, indicating the increasing effectiveness of the New Southbound Policy. However, although OTN has made these assertions based on accurate data, they do not reflect the full truth.
The shift in Taiwan's economic and trade focus towards Southeast Asia can be traced back to the presidency of Lee Teng-hui in the 1990s when the so-called "Southbound Policy" was first proposed. In 2003, during President Chen Shui-bian's term, the "New Southbound Policy" was introduced. In 2016, President Tsai Ing-wen's administration revived the New Southbound Policy, expanding its scope to a total of 18 countries across Southeast Asia, South Asia, and Oceania.
The policies, despite having slightly different appellations and purviews, have served the common objective of transferring the heft of Taiwan's export and investment from mainland China to countries in Southeast Asia, South Asia, and Oceania. The strategy is driven by concerns over the risks to national security that arise from an over-reliance on the mainland in terms of exports and investments. By diversifying trade and investment destinations, Taiwan aims to mitigate potential vulnerabilities.
Based on an analysis of Taiwan’s foreign trade and investments over the past 30 years, it is evident that the government's Southbound Policy has been a continuous failure since the era of President Lee. Despite riding the wave of businesses investing in mainland China in the early 1990s, Taiwan's proportion of exports to the mainland at that time stood below 20 percent. However, this number has gradually risen over the last three decades. By the late-1990s, just before the first transition of power to the Democratic Progressive Party (DPP), the proportion of exports to the mainland had exceeded 23 percent. After President Chen Shui-bian took office in 2000 and proposed the New Southbound Policy, the number increased to 25 percent ironically. By the end of President Chen's tenure in 2008, the number had already risen to around 40 percent.
There hasn't been a significant shift in terms of Taiwan's exports and investments to mainland China since the Tsai administration reintroduced the New Southbound Policy and expanded the initiative to more countries in 2016. The proportion of exports to the mainland has continued to hover around 40 percent, and at times even reached around 44 percent. If the objective of the Southbound Policy is to reduce economic reliance on the mainland, it is evident that these three iterations of the Southbound Policy have been entirely unsuccessful.
How did such a policy revive from its failure for nearly 30 years suddenly gain momentum this year, resulting in the proportion of exports to New Southbound countries surpassing that of those to Japan and South Korea?
Actually, the government has either deceived the public by playing the numbers games, be it intentionally or unintentionally. The official statement claims that in the first quarter of this year, the proportion of exports to New Southbound countries has increased by 1.2% percent compared to that six years ago. While that may be true, what was not made explicit is that the total value of exports to New Southbound countries has actually decreased significantly. In the first quarter of this year, the total trade value with New Southbound countries was $37.54 billion, a 13 percent decrease compared to the same period last year. Further, a more detailed analysis reveals that the monthly export value to the 18 targeted countries in the first half of this year ranged between $6.5 billion and $7.5 billion, which is 20 percent to 30 percent lower than last year's peak of $9.2 billion reached in July.
It is indeed incorrect, even absurd, to claim that the success of the New Southbound Policy can be proven solely based on the economic and trade data from the first half of this year. The fact is that the both exports volume and bilateral trade volume with the 18 New Southbound countries have declined. The increase in the proportion of exports to these countries is actually due to the significant overall decline in Taiwan's exports. In the first quarter of this year, Taiwan's overall exports declined by 19.2 percent, and in the first half of this year, exports decreased by 18 percent. In this context, as long as the decline in export volume to the New Southbound countries is lower than the average level, the proportion of exports to these countries naturally increases. Indeed, exports to the New Southbound countries decreased by about 13 percent in the first quarter, which is much lower than the 20 percent decline in overall exports.
Obviously, the main contributing factor to the drastic decline in Taiwan's overall export volume is the sharp decrease in exports to mainland China. In the first quarter of this year, the cross-strait bilateral trade volume decreased by 26.5 percent, with exports declining by 28 percent, which is higher than Taiwan’s overall export decline of 19.2 percent during the same period. As a result, the proportion of exports to China (including Hong Kong) has dropped to below 35 percent. However, this decline is not the result of the New Southbound Policy or other effective government policies, but rather a natural consequence of mainland China's economic downturn. The mainland’s consumer electronics market has suffered a sharp contraction due to the impact of U.S. decoupling policies. Although the mainland Chinese economy experienced a brief rebound after lifting the coronavirus (COVID-19) lockdown, its recovery has not been as strong as anticipated. As a result, the mainland’s demand for imports from Taiwan has significantly decreased.
We have no doubt that Taiwan's proportion of exports to ASEAN countries has surpassed that of Japan and South Korea and that Taiwan’s investment in ASEAN countries has increased significantly. The former indicates an increase in Taiwan's competitiveness in exporting to ASEAN while the latter reflects the fact of the diversification of Taiwan’s investment away from mainland China. However, these outcomes are primarily driven by the trade war between the United States and China, which has led to the realignment and restructuring of global supply chains. It is self-evident that the fluctuation of Taiwan’s foreign trade in the last few years is closely related to geopolitical competition, rather than government policies, such as the New Southbound Policy.
The use of trade data by the government to emphasize an increase in the proportion of exports to New Southbound countries further validates the worries of observers regarding the improper use or deliberate distortion of data interpretation. Mark Twain once said, “There are three kinds of lies: lies, damned lies, and statistics." In the past, experts have warned that if you torture data long enough, it will confess to whatever answer you desire.
We would like to remind the DPP administration that an increase of 1.2 percentage points in exports to New Southbound countries is really insignificant under the current international economic environment. If the mainland Chinese economy rebounds and there is a slight increase in the proportion of exports to the mainland, or if there is a minor decline in exports to New Southbound countries, this increase will disappear immediately. While the government may make good use of data, it should be careful not to misuse it. If the intention is to simply gloss over the policy's shortcomings, this practice is even more needless.