Foreigners outside of Taiwan admire our high tech industries and rambunctious democracy, never realizing that what really makes Taiwan’s political economy go is something else entirely. The China Post today reminds us of two intertwined local problems in Taiwan: a quiet but urgent fiscal crisis among the island’s local governments, and the problems the island is having in obtaining its most important raw material: gravel.

The government will allow more dredging of Taiwan’s rivers to alleviate the shortage in sand and gravel supplies on the domestic market, a senior official said yesterday.

Wu Yueh-hsi, deputy director general of the Water Resources Agency under the Ministry of Economic Affairs, told reporters that his agency will allow an extra 4 million cubic meters of sand and gravel to be gathered through river dredging this year, raising the ceiling to 20 million cubic meters.

According to Wu, the county governments of Yilan, Hualien, Miaoli, Taichung and Nantou have all expressed interest in helping the Water Resources Agency to implement the expanded river dredging plan and at the same time creating extra revenues for their counties.

Taiwan’s construction industry needs about 70 million cubic meters of sand and gravel a year.

Taiwan began to import sand and gravel from China six years ago, with nearly one third of its market needs filled by imports from China.

China’s Ministry of Commerce and General Administration of Customs announced in April 2006 that it would ban the export of natural sand starting May 1, 2006, but postponed the date to March 1 this year after Chinese suppliers asked for more time to cushion the impact on their businesses.

As I noted in a longer piece on gravel last year, Taiwan has been suffering from gravel shortages that have had a severe effect on the construction industry and on local economies. Expect to see more such decisions ahead of the legislative elections in December 2007.