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Key Economic Data 
  2003 2002 2001 Ranking(2002)
Millions of US $  406,000    
GNI per capita
 US $ 18,000
Ranking is given out of 208 nations - (data from the World Bank)

Books on Taiwan

Update No: 071 - (18/12/09)

News that exports are starting to rebound after more than a year of decline has added to the new wave of optimism that the worst effects of the economic recession may be over. A number of key forecasting agencies have again revisited their growth estimates for 2010 and, generally, are now taking a more positive outlook. Nevertheless Taiwan’s own output next year is expected to fall short of that of other Asian economies outside of Japan and will again be dependent on demand from China, which now takes more than 30 per cent of Taiwan’s export products.

While the KMT government did less well than it had hoped in the recent round of mayoral elections, the result was not an unexpected one to most observers. While President Ma Yong-jeou has promised that the government would try to do better, it would forge ahead with new pacts with China. The next round of cross-straits talks will be held in Taichung, central Taiwan, on December 22 to 24.

The local government mayoral and county commissioner elections were held on Saturday December 5. A total of 17 positions were up for election of which the ruling KMT won 12 while the opposition DPP won four of them. One went to an independent candidate who was a former KMT member. Overall voter turnout was 66.32 per cent which was relatively high as compared to other recent polls in Taiwan where at times voter turnout has been below 50 per cent. The opposition increased its share of the overall vote to 45.9 per cent from 38.2 per cent in the elections held four years ago. The DPP took back Ilan County in Taiwan’s north-east which it lost to the KMT in the last election while in Hualien, on Taiwan’s eastern seaboard, the independent candidate defeated the incumbent by a massive margin of almost 47,000 votes. The DPP also won in Yunlin, Pingtung and Chiayi.

President Ma Ying-jeou placed the blame for the government’s disappointing performance on the state of the economy and high unemployment figures while, unsurprisingly, the DPP saw the result as a rebuff by the electorate of the KMT’s cross-straits policies.

On this front however, the government remains undeterred. Taipei and Beijing will hold a fourth round of talks from December 22 to 24 in Taichung. The talks are expected to focus on four issues: those dealing with fishing industry cooperation, quality checks on agricultural products, cross-strait cooperation on standards inspection and certification and finally, prevention of double taxation. A panel discussion has also been scheduled to promote Chinese investments into Taiwan.

Investment by China into Taiwan is expected to be a major catalyst boosting the local stock exchange. According to one investment house, the infusion of Chinese capital into Taiwan’s bourse is hoped to have the same effect of the opening of the Mexican and Hong Kong exchanges. The Mexican bourse rose by 271 per cent in the five years after signing the free trade agreement with the United States in 1995 while Hong Kong had risen 282 per cent by 2007 after the SAR signed a closer economic partnership arrangement with China in 2003. Taiwan and China are expected to sign a similar Economic Cooperation Framework Agreement (EFCA) with China sometime next year.

Integration is happening already with Taiwan increasingly reliant on sales to China to drive its export growth. According to the latest statistics released by the Bureau of Foreign Trade, 32.2 per cent of Taiwan’s exports went to the PRC in September representing an export value of US$6.14 billion. For the January to September period as a whole, cross-straits trade amounted to US$60.35 billion, down almost 30 per cent compared to the same period a year ago and a major cause of Taiwan’s poor economic performance. The September figure, however, was down by only 0.6 per cent as compared to September 2008 fuelling hopes that the rapid recovery in China would flow on to a rapid recovery of demand for Taiwan’s manufactured products. Indeed, the export statistics show that the tide began to turn in July after months of sluggishness and with month-on-month growth accelerating since that time.

According to the November trade figures, exports indeed, have started to increase once again after 14 consecutive months of decline. Not only China but also in Europe and Southeast Asia, demand has picked up. Exports to Europe increased Year-on-year, exports to Europe grew by 3.9 per cent in November, to Southeast Asia by 17.5 per cent. For China the increase was a significant 48 per cent rise. Overall, Taiwan’s November exports rose by 19.4 per cent to US$20.02 billion.

For the full year however, Taiwan’s exports are still expected to post their deepest ever decline at around 20 per cent compared to a 17 per cent fall during the last recession in 2001. Imports are also on the increase once again with the fastest growth being recorded in capital equipment which rose by 35.6 per cent – an encouraging sign of a return to business confidence.

With prospects of economic recovery now becoming more robust, the economic think-tanks have once again revisited their expectations for 2010. The Polaris Research Institute has adjusted its GDP forecast for next year to growth of 4.57 per cent (up from 4.10 per cent previously) and above the government’s own current forecast of 4.39 per cent. The Chung-Hwa Institute of Economic research (CIER) has also updated its own forecast albeit from 4.65 per cent in October to 4.66 per cent in December. It has factored in the expectation that the economy will shrink only 2.96 per cent this year as compared to a dip of 3.72 per cent forecast two months ago. Despite the expected recovery, the labour market may still be sluggish with unemployment remaining high by historic standards as companies remain cautious about hiring new workers.

Finally, UBS-AG expects Taiwan’s economy to rise by 4.4 per cent in 2010 which, while still an indication that Taiwan is on the road to recovery, it will likely be the worst in Asia. Of course, Taiwan’s economy is more advanced than many others and so a slower rate of increase is not unexpected.

Overall, and as we indicated in our report last month, the worst of the recession may be over for Taiwan but much is riding on China’s own recovery. In this regard, Taiwan continues to put all its eggs in the China basket believing that as far as regional integration is concerned, this may be its only option. Many are worried by China, but with the international community not prepared to rock the Chinese boat, they can offer little by way of alternatives. With the ECFA all but a done deal, Taiwan is likely to end the decade on a very different road from that which it took with the election of Chen Shui-bian in 2000. He of course, remains incarcerated.

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