The government’s unreasonable controls and inefficient handling of business proposals have taken a heavy toll on the country’s economy.

Consider the following examples:

Currently, the government is still trying to decide whether it should approve the country’s eighth naphtha cracking plant.

But the plan for the cracker was submitted by the Kuoguang Company in 2005; it had hoped to start construction in 2008. Unfortunately, the plan has still not received approval from the government.

What is worse, even if the government gives the green light now, the cost of the cracker plant is set to increase from NT$400 billion (US$13.39 billion) to NT$600 billion. Thanks to the government’s five-year delay, the company is also certain to miss out on the current booming market.

In addition, if the project is rejected, the company would have no choice but to move the project to China, and compete head-on with the many crackers plants that have been built on the mainland in the past few years.

Another example of government inefficiency comes from its delayed response to American group AIG’s decision in October, 2009, to sell its Taiwan insurance arm, Nan Shan government, to a Hong-Kong based consortium led by Primus Financial and China Strategic Holding.

However, the deal was rejected by government regulators after nearly one year of review. Why did it take so long for the government to come to this decision?

Even as the review dragged on, Nan Shan plunged into turmoil, and its market share declined from 9.6 percent in 2007 to 3.7 percent in 2009. It also fell out of the list of the top 10 insurance companies on the island.

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Taiwan has a dynamic capitalist economy with gradually decreasing government guidance of investment and foreign trade. In keeping with this trend, some large, state-owned banks and industrial firms have been privatized. Exports, led by electronics and machinery, generate about 70% of Taiwan’s GDP growth, and have provided the primary impetus for economic development.

This heavy dependence on exports exposes the economy to upturns and downturns in world demand. In 2009, Taiwan’s GDP contracted 1.9%, due primarily to a 20% year-on-year decline in exports. In 2010 GDP grew 10.5%, as exports returned to the level of previous years. Taiwan’s diplomatic isolation, low birth rate, and rapidly aging population are major long-term challenges. Free trade agreements have proliferated in East Asia over the past several years, but so far Taiwan has been excluded from this greater economic integration, largely because of its diplomatic status. Taiwan’s Total Fertility rate of just over one child per woman is among the lowest in the world, raising the prospect of future labor shortages, falling domestic demand, and declining tax revenues.

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