Books on Taiwan
New Taiwan dollar (TWD)
Update No: 026 - (28/02/06)
Giving China the finger!
Despite the clear message delivered by the electorate during the December 2005
provincial polls - the results from which were seen as a rebuff of the ruling
Democratic Progressive Party and in particular the bellicosity of Taiwan's
President Chen Shui-bian towards China - that the majority of Taiwan's people
(at least the 12 million voters) want to retain the status quo, President Chen
has once again gone on the offensive.
In his (lunar) New Year address to the people, Mr. Chen foreshadowed that the
government was considering abolition of the National Unification Council. True
enough by the end of February the NUC had "ceased to function" - a
semantic that enabled the President to avoid the charge that he had abolished
the body. Of course nobody was fooled.
The NUC was set up in 1990 by former President Lee Teng-hui of the KMT to handle
the issue of eventual reunification of Taiwan with China. It has lain dormant
since President Chen took over power in 2000. It was the NUC that had been
responsible for drawing up the unification guidelines approved by Taiwan's
Cabinet in 1991 and with the goal of achieving a "democratic, free and
equitably prosperous China." While no timetable was ever spelled out (at
least, not by the Taiwanese side) the guidelines recognised that both China and
Taiwan are parts of Chinese territory and that unification should be achieved in
phases under the principles of reason, peace, parity and reciprocity.
Not surprisingly, Mr. Chen also announced that these guidelines "will cease
Taiwan's National Security Council, the body that has oversight of the NUC,
proposed to the president that the way around the problem was that rather than
abolish the Unification body as had been earlier proposed, the NUC should simply
no longer be provided with a budget. In accepting this proposal Mr. Chen said
that his decision did not change the "status quo" in the Taiwan
Strait, but instead returned sovereignty to the people of Taiwan. He cited
China's ongoing military build up in the Taiwan Strait and its attempts to use
"non-peaceful" means to unilaterally change the status quo as the
reason for his action.
At the present time China has around 700 ballistic missiles targeted at Taiwan.
Mr. Chen's decision came in spite of US attempts at dissuading him from such a
course of action. Clearly while Taiwan's president claims that he has not
changed the status quo, Washington and Beijing do not share this view.
The move has been interpreted as a clear signal that Mr. Chen wants to put
Taiwan on the road to formal sovereignty and that any move towards rapprochement
with the mainland is dead - at least until Mr. Chen steps down in 2008. Despite
this latest action, Taiwan's conservative opposition parties, which still
control the legislature, will not allow any formal move towards independence to
prosper and are likely to step up their criticism of the president as one who is
prepared to gamble with the fate of his people.
China will no doubt be infuriated by the provocation but its freedom of action
short of a declaration of war on Taiwan is somewhat circumscribed. Any
belligerence shown by Beijing will only serve to show that President Chen was
correct in claiming that China is hostile towards the island.
One unintended consequence could be a chilling of Taiwan's relationship with the
United States. After all, Mr. Chen has effectively broken a promise he gave to
Washington upon assuming office that he would not make any move towards
independence but would maintain the status quo. Tearing up the unification
guidelines appears to be all the evidence necessary to show that he has broken
While we can write off any breakthrough in cross-Strait ties for the foreseeable
future any reaction by China is likely to be confined to hostile verbal
exchanges. This could cause some short-term volatility in Taiwan's currency and
stock markets, but little else.
2006 growth expectations raised
Taiwan's economic growth accelerated in the fourth quarter last year on
stronger-than-expected exports. This boosted whole-year GDP growth to 4.09
percent - up from the previous estimate of 3.8 percent. In the fourth quarter
alone, economic growth amounted to 6.4 percent. This was the fastest growth
spurt since the second quarter of 2004.
Against this positive outcome, the Directorate General of Budget, Accounting and
Statistics (DGBAS) has raised its economic growth forecast for this year to 4.25
per cent, up from its previous prediction of 4.08 per cent made in November last
year. The country's gross national product is expected to reach NT$11.92
trillion (US$368.7 billion), or US$16,208 per capita this year, up from NT$11.43
trillion, or US$15,676 per capita.
The DGBAS predicts that exports will grow 7.6 per cent this year from last
year, with imports expanding by 5.4 per cent from the previous year and with
Taiwan's trade surplus (including all goods and services generated) widening to
US$17.1 billion from US$13.7 billion last year.
Export orders, a good indicator of actual shipments in one to three months, last
month fell 11.2 per cent to US$22.11 billion from December, according to the
Ministry of Economic Affairs.
However, on a year-on-year comparison basis, the figure in January 2006 was up
20 per cent. While a good outcome this was slightly lower than December's
year-on-year rise of 24.2 per cent. This was largely due to the extended lunar
New Year holiday of late January and early February. A better picture will have
to await the March figures when the effects of the holiday break have coursed
through the system.
Encouraging to note was that export orders from the US were up 22.7 per cent
year-on-year in January to US$6.11 billion, while orders from Europe were up
29.6 per cent during the same period to US$3.89 billion. Orders from Hong Kong
rose 9.7 per cent year-on-year to US$4.97 billion, while orders from Japan
increased 33.9 per cent to US$2.64 billion.
Domestic manufacturers remain cautious about their outlook, however. According
to a poll taken in January by the Taiwan Institute of Economic Research, only
14.8 per cent of respondents thought the economy at the time was in good shape.
This was down from 20.5 per cent in the previous month, while 38.9 per cent said
the economy was bad, up from 26.7 per cent from December last year.
Unemployment continues to fall
The unemployment rate fell to a five-year low in January. The jobless rate
dropped to 3.8 per cent last month, down from 3.86 per cent in December,
according to a statement released by the Directorate DGBAS. This is the first
time the unemployment rate has fallen below 4 per cent since February 2001, when
it was 3.76 per cent.
In terms of numbers, actual people unemployed fell to 397,000 last month from
403,000 the previous month, the report showed.
Problems remain in the financial sector
Taiwan's domestic banks continue to tighten their consumer lending because
of snowballing bad loans in the sector. Nevertheless, because of the brighter
employment prospects, consumption is expected to continue robust growth -
increasing by around 3 per cent this year.
The sector is in urgent need of some fundamental structural reform and
consolidation but prospects of this occurring any time soon appear to remain
dim. Taiwan's banking sector remains overcrowded with too many banks chasing too
few customers to sustain their viability. One major inhibitor to early
rationalisation is the general lack of attractive take-over targets according to
financial sector analysts. The government has vowed to halve the number of
financial holding firms to seven by the year's end and have at least one bank
run by a foreign operator.
The falling approval rate of the ruling Democratic Progress Party (DPP) will
reduce the government's willingness to privatise the state-owned and
state-controlled banks. This rationalization is seen by many as the precursor to
private sector bank consolidation. However, resistance from the labour unions is
strong and if pursued could send the DPP's ratings even lower. In the present
climate and with continued gridlock between the ruling and the opposition
parties no early movement is expected.
Two Taiwan bank groups will link up
Chinatrust financial Holding Co said it plans to buy as much as 10% of
government-controlled Mega Financial Holding Co to take advantage of the
company's dividend, the Wall Street Journal reported on 10th February.
The plan links two of Taiwan's biggest banking groups. Mega is the second
largest of the island's 14 financial holding companies by market capitalisation,
after Cathay Financial Holding Co. Chinatrust, the fourth-largest financial
group by market value, controls Taiwan's largest privately owned lender in terms
Chinatrust didn't disclose what it intends to spend in the stake, which Chief
Financial Officer, Perry Chang, said Chinatrust would accumulate by buying
Mega's shares on the open market. A 10% stake in Mega is currently valued at
about US$479m, based on the company's market capitalisation of NT$242.66bn
The plan comes amid a flurry of mergers and acquisitions by Taiwanese lenders as
they seek to improve their competitiveness by bulking up.
Chang said Chinatrust is buying the Mega stake as a long term investment for
financial reasons. "Mega Financial's profitability has been stable and its
cash dividend payout was over NT$1.50 a share in the past two years," he
said. Chang said Chinatrust's board approved the plan recently.
Chang said Chinatrust already owns some Mega shares, but he declined to say how
many. Chinatrust isn't listed among Mega's 20 largest shareholders, with stakes
of at least 0.23%, according to Thomson Financial.
The Taiwan government, with a stake of more than 22%, will remain Mega's largest