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Central Bank of the Republic of China


Statement by the Governor for the Republic of China at the 33th Annual Meeting of the Asian Development Bank

Statement by the Governor for the Republic of China
at the 33th Annual Meeting of the Asian Development Bank
Fai-nan Perng

Mr. Chairman, Fellow Governors, Ladies and Gentlemen:

On behalf of my delegation, I wish to thank the government and people of Thailand for hosting the ADB's annual meeting. I also appreciate the staff of the Bank for their efforts. The Bank's membership has continued to grow. We wish to welcome, most warmly, Azerbaijan as the 58th member of the Bank.

Since President Chino took office, the Bank has dedicated much work to fighting against poverty. A new unit was set up and at least 40 percent of all public sector lending will be for poverty reduction. The mandate is built around three pillars: pro-poor sustainable economic growth, social development, and good governance. By providing access to basic education and health care, improving social safety nets, and upgrading infrastructure, the strategy will benefit a large number of the poor. During the past year, the Bank launched 52 projects, with total lending amounting to US$5 billion. Lending for social infrastructure, and transportation and communication made up for 28 percent and 20 percent of total lending, respectively. I believe that, under the able leadership of President Chino, the Bank will greatly enhance the welfare of Asia.

Turning to our own economy, 1999 was a challenging year. We quickly emerged from a severe earthquake with help from the international community and joint efforts from our people. Economic activities were restored to normal within a short time. GDP still expanded a brisk 5.67 percent for the year. Driving this impressive growth were strong external demand and a pickup in private consumption and public investment. Abroad, as the U.S. economy surged forward and the Asian economies revived, our exports went up 10 percent last year. At the same time, import grew 5.8 percent, resulting in a trade surplus of US$10.94 billion. The current account registered a surplus of US$5.9 billion and the overall surplus reached US$18.6 billion. At the end of this April, foreign exchange reserves built up to US$ 113.7 billion. Not surprisingly, the level of our external debt is negligible. On the domestic front, improved sentiments and a buoyant stock market fostered a 5.72 percent growth in private consumption. Moreover, government measures to stimulate domestic demand and reconstruction work after the earthquake pushed up public fixed investment 5.57 percent. In the face of robust economic expansion, inflation however remained remarkably subdued. CPI edged up a mere 0.18 percent, and core CPI 1.16 percent last year. The changing industrial structure and the major earthquake were mainly responsible for the moderate rise in the unemployment rate last year. At 2.92 percent, it was still among the lowest in Asia.

Looking ahead, our economy will continue to prosper. For the first quarter of 2000, exports grew 18.5 percent. Coupled with a pickup in private investment, GDP expanded a remarkable 7.5 percent for the quarter and is expected to grow 6.5 percent for the year. The economic expansion was mirrored by an improved labor market, with the unemployment rate for the first quarter of this year declining to 2.82 percent. Meanwhile, CPI went up 0.85 percent, and core CPI up 0.41 percent. Owing to the run-up in the prices of energy, other international staple commodities, and domestic tobacco and alcohol, CPI for the year is expected to rise by less than 2 percent, and core CPI inflation will remain below 1.7 percent.

The Central Bank of China (CBC) has adopted open market operations and other fine-tuning measures. The purpose is to maintain the monetary aggregate M2 at the target level and to meet the funds demand for real economic activities. M2 grew 8.33 percent for 1999, close to the 8.5 percent midpoint of the target zone, and 8.27 percent for the first three months of this year. To facilitate a favorable environment for economic recovery, the CBC lowered the rediscount rate and the interest rate on accommodations against secured loans in February last year. Since the beginning of this year, the economic recovery has gathered momentum and international inflationary pressures have built up. The CBC therefore took a preemptive measure by raising the rediscount rate and the interest rate on accommodations against secured loans both by 0.125 percentage point on March 24.

The NT dollar exchange rate is determined by market forces. However, when seasonal factors or irregular disruptions entail an imbalance in demand and supply, the CBC is ready to step in to maintain dynamic stability of the exchange rate. In addition, the CBC initiated a real-time reporting system for monitoring large-volume foreign exchange transactions. The system serves to reflect market conditions and to enhance information transparency for market participants. On April 30 this year, the NT dollar appreciated 6.69% year-on-year against the US dollar due to the trade surplus and foreign capital influx.

Beginning from last year, the Ministry of Finance and the CBC have jointly initiated a series of measures for financial reform. Following these measures, the non-performing loan ratio of domestic banks is expected to drop to 2.5 percent by June 2003. With the government's effort to encourage banking consolidation, three state-run banks plan to merge to increase their competitive edge. A new supervisory authority will also be set up to assume overall responsibility for supervising all financial institutions. In addition, to prevent non-economic factors from disrupting our economy, we have established a national financial stabilization fund with a capital of NT$500 billion. It has successfully accomplished its goal in several contingencies.

From supply-side adjustment, the engine of our economic growth has been a marked acceleration in capital accumulation and total factor productivity, which translate into profound changes in our economic structure. The share of heavy industrial and technology-intensive products relative to total manufacturing output went up from 65.8 percent to 79.2 percent between 1990 and 1999. The export structure has also changed accordingly. During the last decade, high-tech exports leaped from 26.7 percent to 42.1 percent of total exports, while low-tech exports dropped from 34.7 percent to 15.1 percent.

A sustained current account surplus, low-inflation environment, cutting-edge technology, and full-fledged democracy explain our sustained economic growth. In the past, the international community has been making high remarks on our economic performance. Recently in its World Economic Outlook, the International Monetary Fund predicted our economic growth rate to rank third among advanced economies for this year and next year.

Internationally, the Republic of China economy is closely linked with the rest of Asia. Our external trade with neighbors in the region added up to US$119.8 billion for 1999. Exports to Asia made up US$59.2 billion, or 48.7 percent of total exports, while import from Asia came to US$60.6 billion, or 54.7 percent of total import. Asia also accounts for the bulk of our overseas investment. By the end of 1999, our direct investment in the region had exceeded US$66 billion. Portfolio investment and credit extended to Asia by our banks was over US$16 billion. We also invested in and provided revolving credit facility to the Asian Finance and Investment Corporation (AFIC). We are pleased to see an improvement in the performance of the AFIC over the last couple of years and hope the company will further contribute to Asia with more support from the Bank. After the Asian financial crisis broke out, we actively participated in the Bank's co-financing program for Thailand. Over the years, the Bank has raised more than US$800 million from our bond market. We have given our full support to the Asian Development Fund to combat poverty. Although the earthquake imposed a heavy burden on our fiscal budget, we are more than willing to work with the Bank to improve the living standards in Asia.
The worst of the Asian financial crisis being over, the time is opportune to reflect on directions for international cooperation. Many countries have put forward constructive frameworks, such as capital flow monitoring mechanism and development in international financial architecture. We are pleased to note that currency swap arrangement was reached. To make this arrangement more effective, more members, especially those with enough liquidity, should be included. In recent decades the international economic system has changed dramatically. Countries have established close linkages through which economic activities take place intensively. And in times of regional crises the global economy can be negatively affected through this international transmission mechanism. We therefore give our full support for closer cooperation across borders to contain regional crises preemptively and to secure order in the world economy.

Before closing, I would like to pledge once again our readiness to work closely with the Bank. However, my delegation continues to protest against the unilateral alteration of our membership designation and to seek a reasonable solution to this issue through consultation with the Bank. We believe that the satisfactory resolution of this issue will serve to strengthen our relationship with the Bank. Last but not least, I wish to extend our gratitude to the international financial institutions, including the Bank, who have expressed their concern over our country after the earthquake of September 21st last year. Finally, may I wish the meeting every success and good health to you all. Thank you.