Books on Taiwan
New Taiwan dollar (TWD)
Update No: 020 - (13/09/05)
August was "Ghost Month," traditionally regarded as
an inauspicious period for major undertakings. Nevertheless, the main opposition
Kuomintang snubbed its collective nose at superstition and went ahead with its
party congress. In the process, the new paramount leader, Taipei mayor Ma
ying-jou showed that he is indeed going to be a formidable opponent for the 2008
On the economic front, Taiwan is still feeling the pinch from the global
slowdown, especially in its electronics sector but is pinning hopes on an
upsurge of orders ahead of the Christmas season so as to end the year on an
The new broom is sweeping clean
The new Chairman of Taiwan's main opposition Chinese Nationalist Party (KMT),
Chairman Ma Ying-jeou, has reiterated his determination to clear up problems
regarding the party's assets by 2008. He made this pledge during the first
meeting of the party's Central Advisory Committee prior to its national
The KMT is rumoured to be the world's wealthiest political party, much of it
coming originally from the Burmese opium trade (and what was taken out of China
when the nationalist fled in 1949) but which over the past half-century has been
invested into what is commonly referred to as Taiwan Inc. Under former martial
law, when the KMT was the sole legal political party on Taiwan, the party owned
the banks, TV broadcast stations, utility companies and even the local salt
"Party assets are not filthy money, but it is time to deal with it. I will
clean up the asset problem in accordance with the law by 2008 and turn our party
back into a clean and efficient organisation," Mr. Ma said.
Addressing the party's reform plans at the (rather chaotic) 17th national
convention, he said that the KMT, which is still seen by many as the party of
"mainlanders" should establish its own Taiwan dialogue. While Ma also
stressed the importance of passing on the party's wealth of experience to the
next generation as part of its reform plan, the KMT's asset problem is seen as
the most critical issue the party needs to address in its reform.
The pan-green camp challenged Ma's pledge to reform the party after taking over
the party leadership. Both Democratic Progressive Party (DPP) Chairman Su Tseng-chang
and Cheng Chen-lung, secretary-general of the Taiwan Solidarity Union, said that
if Ma wants the pan-blue alliance to take power in 2008, he must deal with the
baggage of the party's ill-gotten assets, return the party to the middle ground
and respect the people's right to choose between unification and independence.
Mr. Su called on Ma not to sell the KMT's "stolen party assets" at low
prices and then claim to have solved the party's most thorny problem. "The
KMT cannot claim that it has dealt with the party's assets that it stole from
the national treasury by selling them off and then racking up those
spoils," Su said.
Some are backing down in their support for democracy
Obviously fearing a backlash from Beijing if they are seen to be supporting
a pro-democracy line too ardently some of Taiwan's leading industrialists and
commercial taipans are adopting the traditional kowtow in order to gain favour
with China. Douglas Tong Hsu, Chairman and CEO of the Far Eastern Group, went on
record saying that Taiwan's democratic governance is a hindrance to further
investment. Hsu praised China's system as more favourable to industry given its
clearly defined and staunchly adhered to system of rule. Mr. Hsu was critical of
the high number of opinions voiced in response to government decision-making. In
particular, he appears to have been annoyed by the decision by President Chen
Shui-bian to enforce more stringent emission standards. This new standard has
caused a delay in construction of a planned US$11.6bn petrochemical complex in
Southern Taiwan, to be constructed by the Far Eastern Group. The more stringent
environmental safeguards have also led to the reversal of a project to de-bottlekneck
the No. 5 naphtha cracker of state-run Chinese Petroleum Corp, which has also
affected Hsu's plan for a new downstream ethylene glycol plant.
The lower costs, massive market and centralised decision-making apparatus
characteristic of China appeal to Hsu. His concerns bode ill for Taiwan, which
has suffered from the rise of China over the past decade. Where democratic
principles stand in the way of commercial decision-making, it is not difficult
to guess which will be the loser. Mr. Hus is skilfully playing a Chine card
against the government. Taiwan businesses are thought to have invested over
US$100bn in China since the late 1980s. The business community largely supports
the opposition Kuomintang party, owing to its support for closer ties with China
and its more accommodating stand towards big business.
Ghost month takes its toll on the economy
The seventh month of the lunar year, known as Ghost Month, fell between Aug.
5 and Sept. 3 this year. This is the Chinese equivalent of "all souls
day" but which lasts for much longer. It is a month in which many Chinese
will bow to superstition and refrain from making any major business or personal
One consequence of Ghost Month is that local automobile vendors reported a
decline of over 40 per cent in car sales in the first half of August because of
the so-called "Ghost Month effect." The decline in sales was reported
to be industry wide. However, local car officials believe that economic
sentiment remains positive and that sales will pick up in the remaining months
of the year.
More importantly, weak economic fundamentals have been exacerbated by the
"Ghost Month" effect contributing to a marked depreciation of the
currency over the past two months. According to the Ministry of Economic Affairs
July's industrial output was down 1.13 per cent year-on-year, against a 1.95 per
cent year-on-year gain in June. Although manufacturing slipped by 1.34 per cent
year-on-year, electronics and information technology output rose by 4.88 per
cent. Export orders grew by 8.7 per cent year-on-year in July, down sharply from
16.7 per cent growth level recorded in June. Manufacturers are now pinning their
hopes on an upsurge ahead of the Christmas buying season.
Taiwan's unemployment rate in July rose to 4.32 per cent from 4.22 per cent in
June because of a rise in first-time job seekers. Nevertheless, the July jobless
rate was lower than the 4.62 per cent a year earlier, according to the
Directorate General of Budget, Accounting and Statistics.
On a seasonally adjusted basis, however, unemployment in the month fell to a
four-year low at 4.15 per cent, down 0.05 percentage points from the preceding
month and down 0.28 percentage points from a year earlier, as expansion by
companies including Taiwan Semiconductor Manufacturing Corporation (TSMC)
created new jobs. Falling unemployment could serve to boost consumer confidence,
helping the government achieve its 4.5 per cent economic-growth goal for this
year. Growth accelerated to 3 per cent in the second quarter from 2.5 per cent
in the first three months of the year as consumer spending increased 3.2 per
cent. According to government statisticians, unemployment in the first seven
months to July averaged 4.17 per cent, down 0.33 percentage points from a year
earlier. A total of 449,000 people were out of work in July, an increase of
12,000 from June, largely because of the rise in first-time job seekers. The
eligible workforce in July was 10.39 million.
Key economic targets not met in 2nd quarter
In the second quarter, Taiwan's trade surplus narrowed to US$146m from
US$301.9m in the first quarter. For the whole year the surplus could fall to as
low as US$2.1bn, which would be the smallest amount in 24 years (since US$1.41bn
recorded in 1981) according to the Bureau of Foreign Trade.
Although July export growth accelerated to 5.3 per cent year-on-year from 3.1
per cent year-on-year in June, imports continue to rise at a faster pace, up 9.7
per cent year-on-year in July, against 2.5 per cent year-on-year a month
earlier. Rising interest rates in the United States has dampened demand in that
key market causing a slowdown in export growth while high oil prices are largely
responsible for the rising import bill and narrowing trade gap. Overall, the
government forecasts export growth of 6.7 per cent this year, which would be far
below the 21 per cent achieved in 2004.
In order to boost exports - a key driver of the economy - Taiwan needs to tap
into growing demand in non traditional markets - from Britain, France, South
Africa, and Malaysia in particular according to a government spokesperson who
also stated that small and medium-sized enterprises needed more capital to
expand their reach into foreign markets.
Overall second quarter GDP growth has come in at 3.03 per cent. This was much
better than the 2.54 per cent rise achieved in the first quarter but was still
well short of the government forecast of 3.6 per cent.
Government sells more shares in Chunghwa Telecom
Meanwhile, the government efforts at privatisation of state assets
continues. Last month the government sold a 3.0 per cent stake in Chunghwa
Telecom for NT$16.3m ($511m), having sold 289.4m shares at a 7.7 per cent
discount on its closing price of NT$61.00. A further 13.0 per cent stake will be
sold in the form of American Depository Receipts (ADRs) in the near future,
which would take state ownership of Chunghwa to below 50 per cent. The
government is keen to speed up its privatisation programme in order to generate
revenues to plug the fiscal deficit, which is officially projected at NT$277bn
this year. The divestiture of Chunghwa Telecom had been delayed by opposition
from legislators and labour unions.
S&P believes asset quality of banking sector is improving
Standard & Poor's said last month that the Taiwanese banking sector
asset quality has improved significantly, following four years of concerted
reforms, but that plenty of room for improvement still exists. Stronger risk
controls and continuing write-offs have acted to restrict the development of
additional problem assets and clean up pre-existing non-performing loans.
Notably, a new regulatory definition that defines bad loans as those being 90
days overdue rather than the 180 days previously, has effected positive change.
However, the ratings agency is wary of potential credit losses stemming from
still inadequate provisions to safeguard against bad loans. Risk management must
improve to keep pace with a series of current and planned banking expansions
into new products and markets.
Overall, heightened competition, privatisation, and reform of insolvent banks
are leading toward a healthier sector going forward.