Books on Taiwan
New Taiwan dollar (TWD)
Update No: 009 - (04/10/04)
Taiwan is having a good year - certainly as far as the economy
goes. GDO grew by 7.7 per cent year-on-year in Q2 leading the government to
revise upwards its full year growth forecast to 5.9 per cent for the year as a
whole. However, newly released figures show just how much Taiwan's economy is
dependent on investment in - and exports to - China. Despite an official
"go south" policy that officially encourages local business people to
diversify their investments and seek more opportunity within the ASEAN
countries, the call has gone largely ignored. ASEAN politics has not helped much
either with countries of the region now taking cognisance of the growing
importance of China and less willing to bend to Taiwan's will when it comes to
visits by political figures from the island - witness what happened to
Vice-President Annette Lu last year when she tried to make a visit to Jakarta
and was unceremoniously denied entry and side tracked to Bali. Local business
people see Southeast Asia as inhospitable territory.
The irony of course is that the least friendly country towards Taiwan,
especially as far as the political relationship goes, is the People's Republic
of China. Yet the business community has decided to opt for "the devil it
knows" rather than the one it does not.
But of course, therein lies the rub. The latest figures show that last year
Taiwan's combined investment into seven ASEAN countries - Cambodia, Indonesia,
Malaysia, the Philippines, Singapore, Thailand and Vietnam totalled a paltry
US$937 million - paltry that is when you consider that the amount poured into
China - and officially recorded (much that goes to China is not officially
sanctioned) - amounted to US$7.7 billion. And the China dependency is getting
worse. While in 2003, China received 53.66 per cent of total outbound investment
from Taiwan, in the first quarter of this year the figure reached 67.43 per cent
of the total.
Taiwan's business community has played its own part in over-heating the Chinese
economy. Now with the Chinese government officially trying to cool those sectors
where there has been too much investment, the impact is being felt immediately
on Taiwan's export orders. Yes, as we point out below, Taiwan has done well this
year and export performance has been quite remarkable, but the danger signs are
there - the domestic economy is showing signs of over-heating and exports are
showing signs of slowing.
The China factor
Relations between Taiwan and China continue to perplex many observers. While
at the level of person-to-person exchanges and in terms of investment into China
from Taiwan, relations are business-like and in most instances, cordial. Yet at
the government-to-government level, China continues to vilify Taiwan as a
renegade province. Some long-time observers see a new shrillness in China's
denunciation of the Taipei government and fear that the Chinese sabre rattling
may be becoming more acute. This, so the argument goes, is making the external
environment less hospitable for Taiwan and is reducing its freedom to manoeuvre.
September saw the final passing of the mantle from former President Jiang Zemin
to his successor, President Hu Jintao. At the 4-day annual plenary meeting of
the Communist Party in Beijing, the 77-year old Jiang finally relinquished his
final post, that of Chairman of China's Central Military Commission, in favour
of his successor.
A power struggle between the Jiang and Hu factions had been brewing for some
time and many "China watchers" had feared that had Jiang not stepped
aside those differences could have erupted into a public row. That did not
happen. Differences it seems were largely over economic policy and the feeling
within the Hu camp that Mr. Jiang had let capitalism become just too unbridled.
With clear signs of overheating in certain areas of the Chinese economy they
probably had a point. The last thing that is needed now is a crash of one of the
world's largest emerging markets, yet that could have been on the cards had
unbridled investment continued unabated. Bubbles have a way of bursting.
In the short term it is difficult what, if any, effect the change in leadership
- or rather the final emergence of President Hu as a power centre in his own
right - will have on Taiwan. For the short-term, the answer is probably not
For the meantime Taiwan Inc. will continue to do what it does best.
Export orders rise by a further 25 per cent in August but are danger signals
on the horizon?
Taiwan's export-oriented economy has thriven so far this year with a
year-on-year export growth of 25.54 per cent recorded for the month of August
and totalling NT$613.31 billion (US$18.06 billion) - the third highest monthly
level on record. It was down slightly from the level of July of NT$629.61
billion per cent rise from the $14.66 billion exported in July.
Actual imports in August jumped by 33.7 per cent - to $13.9 billion (July:
$13.77 billion). As a result of the import surge, Taiwan's trade surplus for the
month declined to $846.7 million.
Despite the surge, export growth is expected to lose steam in coming months as
global demand peaks. Chipmakers have already confirmed that market demand is
weakening and are cutting their sales forecasts. Government economists
nevertheless remain hopeful that exports will continue to come in at around $14
billion a month for the remainder of the year on the strength of demand from the
China market. Exports to the Chinese mainland - both direct exports and through
Hong Kong - continue to grow at a strong pace despite attempts by China to cool
some sectors of its economy. Greater China took more than a third of Taiwan's
total exports during August and were up by more than 22 per cent from a year
Industrial output in August rose 8.79 per cent year-on-year and slowed from 9.21
per cent recorded in July. Traditionally, August output is higher than July but
this year Taiwan has been hard hit by typhoons and this, in part, can account
for the lower output.
Taiwan continues to benefit from strong demand for its electronic products,
particularly from the US and Asian markets. Electronics orders rose 36.5 per
cent year-on-year in August to $4.08 billion while information and
communications products increased by 11.7 per cent to $3.1 billion.
Manufacturers appear to be cautious
Local manufacturers, faced with the rising cost of raw materials, appear to
be becoming more cautious on the economic outlook for the next six months
according to a new report from the Taiwan Institute of Economic Research.
Manufacturers are not only faced with the steep increase in oil prices but also
other raw material inputs including cement and steel. Small and medium
enterprises appear to have been caught unawares by the rising prices, which they
have so far been forced to absorb for the most part. Despite the buoyancy of
economic conditions beneath the surface, profit margins are contracting and that
is worrying producers. What is more, local utility companies now plan to raise
prices in the near future. Both the Taiwan Power Company as well as Taiwan Water
Supply Corporation have announced price-hikes.
The change of attitude has been dramatic, although admittedly, Taiwan's business
and investment community is notorious for its short horizons. In a July survey
no less than 48.2 per cent of polled companies claimed that business conditions
were "good." Contrast that result with that of the August survey in
which only 23.1 per cent gave a similar answer. The level of pessimism rose to
23.5 of respondents compared to 16.2 per cent the previous month.
The official government view is that GDP growth this year will be around 5.67
per cent - up from the 5.08 per cent predicted in April. "Stable
growth" are the watchwords. Next year will not be quite so good as this
Taiwan still ranks as one of the top investment destinations
Taiwan remains one of the world's top investment destinations and has been
ranked equal fifth in terms of low investment risk according to the U.S.-based
Business Environment Risk Intelligence (BERI). BERI surveyed 50 economies and
Taiwan ranked alongside Norway and was beaten only by Switzerland, Singapore,
the Netherlands and Japan on the proprietary Profit Opportunity Recommendation
(POE) scale, a scale that combines three elements of evaluation: political risk,
operational risk and remittance & repatriation.
Taiwan scored 72 and has been awarded the POE highest level of 1A.
Jobless rate jumps to a nine month high
Employment growth bucked the trend and rose to 4.67 per cent last month -
the highest jobless level in nine months - and up from 6.62 per cent in July
On a seasonally adjusted basis however, the jobless rate fell to 4.43 per cent
in August from 4.49 per cent in July and was the lowest monthly level recorded
since May 2001 when the indicator stood at 4.37 per cent.
The government has targeted an unemployment rate of 4.5 per cent for the year as
In August 2004, Taiwan's business indicators continued to display a
softening on the financial and real sides of the economy. Among the indicators
compiled by the Cabinet's Council for Economic Planning and Development (CEPD),
the leading index decreased 0.8 per cent and the coincident index remained the
same as July. The monitoring indicators flashed "yellow-red" for the
third consecutive month. According to a government statement, with the global
economy and world trade remaining favourable, and both domestic and foreign
demand encouragingly buoyant, the outlook for the economy remains bright.
The exchange rate to the US dollar as of 24 September 2004 stood at 33.7800.
Against the UK Pound the rate was 60.43710. Against the Euro the rate stood at
Taiwan chip makers post record August revenue
Despite widespread pessimism that the industry's current upturn may have
peaked, Taiwan's major contract chip makers reported record monthly revenue in
Taiwan Semiconductor Manufacturing Co, the world's dominant contract chip maker,
recently said revenue hit a record for a fifth successive month in august.
Revenue rose 28% to NT$23.41bn (€567.4m) from NT$18.32bn in the same month a
The company, which produces chips on a made-to-order basis for such customers as
Texas Instruments Inc, of Dallas, and Motorola Inc, of Schaumburg, Illinois,
beat its previous revenue record of NT$23.15bn set in July.
The report of Taiwan Semiconductor's strong August comes on the heels of a
similar performance report from the world's second-biggest contract chip maker
by revenue, United Microelctronics Corp.
United Microelectronics said recently its August revenue rose 64% to NT$11.51bn,
beating its previous record of NT$11.20bn in July.
Johny Chen, chip industry analyst in Taipei at Deutsche Bank, said that while
TSMC's August revenue was slightly stronger than expected, investors already
have turned their attention to the outlook for the fourth quarter and the next
New chips take months to produce, which means chip makers normally have orders
filled months in advance and aren't immediately affected by a downturn in the
Recently, Merrill Lynch reduced its 2004 and 2005 earnings-per-share targets for
both Taiwan Semiconducter and United Microelectronics, saying the third quarter
may represent the peak of the current semiconducter cycle.
The semiconductor industry tends to run in boom-bust cycles of three to five
years. On a chip upswing, rising profits prompt companies to spend heavily on
new factories. But heavy competition and bloated expectations often lead to
overbuilding of capacity, and the increased supply of chips causes prices, and
shares to fall.
Indeed, expectations of a downturn are weighting on investors. Recently Taiwan
Semiconductor's share price slid to NT$43.70 in trading on the Taiwan stock
Exchange, nearing its 52-week low of NT$40.70, while United Microelectronics
shares closed at NT$21.70, compared with their 52-week low of NT$20.70.
Still, Mr Chen said TSMC's Augus performance suggests that the chip maker's
revenue in the third quarter may increase between 7% and 8%, beating the
company's own expectations.
Taiwan's Acer picks a European as president
Acer, the Taiwan computer company, named Gianfranco Lanci of Italy as its
president recently, an appointment that signals the company's ambitions to
expand its global market share. Lanci, who is based in Milan, headed
international operations for the company, the International Herald Tribune
reported on September 2nd.
Lanci, 50, succeeds J T Wang, who will replace Stan Shih, the company's
co-founder, chairman and chief executive, when he is 60 and retires in December,
Lanci joined the company in 1997 after Acer bought the notebook computer unit of
Texas Instruments. He will remain based in Italy and visit Taiwan once a month,
Acer said. Europe produces about half of Acer's sales.
"It's going to be challenging outside Europe," Lanci said. "It's
a decision showing how Acer wants to be a global company. We can really become a
top three, US$10 billion company in the next three years."
Acer, which ranks fifth in the global market for computer sales, has predicted
it will take the No 3 position in three years, as deliveries of desktop
computers double this year and laptop sales continue to rise.
Wang and Lanci are credited with rescuing the company after it sank to seventh
in market share in 2000. At the time, Acer was juggling dual strategies of
selling computers under its own brand and also making computers for competitors
like Dell. The two executives jettisoned computer making for others to focus on
sales of Acer's own brand.
Eve Jung, a PC industry analyst at UBS Securities Taipei, applauded Lanci's
promotion. "Mr Lanci has demonstrated his strength in expanding the
European market," she said.
Acer overtook Hewlett-Packard as the No 1 notebook PC brand in Europe in the
first half of 2004, Jung said. Globally Acer had a 3.3% market share with a 37%
increase in shipments in the first quarter of this year, the research firm
International Data Corp, said.
Still, the company had lower-than-expected net income in the second quarter,
hurt by smaller gains from sales of shares in affiliates and other companies.
Net income fell to 1 billion Taiwan dollars (US$29.4m), from 1.4 billion dollars
a year earlier.
Acer will continue to buy back its own shares next year to enhance the value of
its stock, Lanci said. The company in May said it planned to spend as much as
600 million dollars to back 10 million shares.
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