Q: The ROC's net rate of capital outflow has continued to climb recently, causing concern among many. Could you explain what's going on in terms that most of us can understand?
A: It's very simple. One fact tells all.
From January to August this year, our foreign trade surplus totaled US$9.4 billion, but our foreign exchange reserves, instead of increasing, actually declined, from US$74.8 billion to US$73.4 billion. That shows that our international outlays and receipts are running a deficit, which means more money is flowing out than coming in. It's the first time that's happened in our country in several decades, so it's no wonder there's been some discussion.
Q: From those figures, it seems that about US$10 billion has flowed out of the country. What categories does it fall under?
A: More than US$2 billion is due to a deficit in our "labor and services account" related to foreign trade, such as payments to foreign airlines and shipping companies and payments to foreign service industries like hotels and restaurants by Chinese travelers abroad.
Another US$7 billion or more comes under the "capital account," which includes part of the hot money that was drawn into the country over the past two or three years by the appreciation of the NT dollar and is now flowing out again. Then there's immigration and overseas investment by the private sector plus government loans and aid to foreign countries, such as that provided by the International Economic Cooperation Development Fund.
There's also some short-term flow of capital overseas, of course, including financial investments, such as stocks or bonds in the U.S., but that area doesn't seem too active. Frankly speaking, it's hard to say just how much money is involved, because ever since the Central Bank lifted foreign currency controls, allowing each person to send out up to NT$5 million a year, we haven't been able to analyze the real reasons for the outflow. The Central Bank really has to bring back its registration system, so that at least there'll be a record of where the money is going.
Q: There are several different ways of looking at the situation. The Executive Yuan would like capital to stay inside the country, but the Central Bank is happy to see hot money go. What do you think?
A: Each agency has a different viewpoint. The Ministry of Economic Affairs is worried about deindustrialization, but the Central Bank is afraid the NT dollar will appreciate more, so it wants hot money to leave.
Actually, I don't think it makes any difference whether it's hot money or overseas investment. Hot money is other people's money, and if it stays in the country it not only spurs appreciation but also gets mixed up in the stock market and real estate, so it's better that it goes.
If it's overseas investment we're talking about, then what we should be concerned about is which industries are being invested in overseas. If it's marginal industries that are leaving, then I don't think it matters. But if it's major industries that we've been going all out to develop, such as electronics and computers, then we'd better watch out: Do we have a problem with our system here? Has the investment and production environment of our society suddenly deteriorated? That's the point we need to clear up.
Q: What sort of effect will the outflow have on Taiwan's economy?
A: The effect depends on what the money is going for. If it's direct investment, then that's a good thing, even if it's direct investment by individuals in overseas financial instruments. The Central Bank didn't make good use of its foreign exchange reserves in the past. It kept most of them in banks in the U.S. Overseas investment by ROC citizens means that people are helping the government put our foreign exchange reserves to use and sharing the risk, and that's a way of storing the wealth among the citizenry. As for hot money getting out, it should.
[Picture Caption]
Pien Yu-yuan, chairman of the department of international trade at National Taiwan University, believes that capital outflow is one way of harboring wealth among the people. (photo by Wen Chin Yang)
So much free capital on hand has made many Chinese excited about oversea s real estate investments, one of which is touted in this ad. (photo by Vincent Chang)
A rapid increase in the number of local firms setting up factories in Southeast Asia has also contributed to the outflow of capital.
So much free capital on hand has made many Chinese excited about oversea s real estate investments, one of which is touted in this ad. （photo by Vincent Chang）
A rapid increase in the number of local firms setting up factories in Southeast Asia has also contributed to the outflow of capital.
