Books on Taiwan
Update No: 057 - (03/11/08)
The present crisis confronting the global economy is affecting
Asia in various ways. Taiwan, as a major exporter (both direct and through
Taiwan-owned factories in China and elsewhere) is likely to be among the first
to be affected by weakening consumer demand from the developed world and export
orders are already showing signs of contraction. Yet, Taiwan is well positioned
to weather the longer-term effects better than many other countries. It is a net
capital exporter and able to finance its own liquidity requirements. In this
aspect, its very isolation over the past 30 years may prove to be a blessing.
The government and private think-tanks are already lowering their growth
expectations for next year and investor sentiment has already sunk to a new
recent low. The Taiex, the main index of the Taiwan Stock Exchange has dropped
to its lowest level since 2003 on panic selling and Taiwan's currency is at its
lowest level in a decade (relative to the US dollar). Foreign investors are
deserting the market in order to refinance their global headquarters.
The only recent "high" is in the unemployment figures: the jobless
rate has hit a four- year peak. The global financial turmoil has already pushed
Taiwan's unemployment rate up to 4.27 percent, a figure expected to continue
climbing as the crisis unfolds. According to the surveys, about 31 percent of
the nation's unemployed lost their positions because of company downsizing or
Taiwan's new President Ma Ying-jeou must be wondering what he has done to
deserve all this. His grand plans to boost Taiwan's economic performance has
collapsed around him. Now he is fighting a rearguard action to prevent Taiwan
from falling into recession. Support for him and his government is in negative
territory with more than 65 percent of respondents in a recent poll claiming
they were unhappy with his performance.
A recent and unofficial telephone sampling of voter sentiment showed that 67.6
percent of respondents did not approve of his performance since assuming office
in May.. A total of 43.4 percent said they did not trust him, while those who
approved of his performance dropped slightly to 23.6 percent from 24.9 the
previous month. The same survey also showed that 61.7 percent of respondents
were dissatisfied with the performance of KMT lawmakers. Even among pan-blue
supporters, 47.5 percent voiced their discontent.
An official poll conducted by the Cabinet's Research, Development and Evaluation
Commission in August showed that Ma's approval rating had slipped to 47 percent
from 70 percent in March. A third poll conducted by the Democratic Progressive
Party in the same month showed Ma's approval rate was 37 percent. Each of these
polls show that support for the government is 'heading south.
'Now such surveys are admittedly fickle and Mr. Ma has had incredibly bad luck
but these results will force the government to act quickly to alleviate the
fears and anxiety of the populace, which is undoubtedly a major factor in the
sharp decline in confidence shown across each of the surveys. The problem is
that quick fixes will provide only temporary respite. Tactical measures without
a strategic plan may prove to be dangerous.
Despite some analysts predicting an economic contraction in the third-quarter,
Mr. Ma has come out publicly stating that there is no recession on the horizon
for Taiwan. In a recent public statement before the Taiwan Chamber of Commerce
and Industry, he sought to allay the fears of the business sector and of
investors (and in the Taiwan context that means just about everyone: Taiwan's
stock market is supported by a swath of 'mom 'n pop' investors). He claimed
(correctly we believe) that Taiwan's economic fundamentals were sound and its
industrial base "vibrant." A slowdown there would be, but no more.
Striking a positive note, Ma said his administration had adopted several
measures in response to the financial crisis in the US and the global economic
downturn and that he believed the initiatives would yield results.
So how is the present crisis impacting on Taiwan?
All seven of the leading economic "trend" indicators lost ground over
the last month with export orders and industrial output showing the largest
decline. Domestic consumer spending has also taken a hit suggesting that
opportunities for Taiwan to spend itself out of a downturn may be hard to
manipulate. With demand from China weakening, export orders fell 1.6 percent in
September and have gained only a disappointing 2.8 percent -year-on-year in the
first nine months. The September figure was the worst since April 2002 and with
the full brunt of the financial storm yet to be recorded, we can only expect a
worse result for the month of October. The indicator for the manufacturing
sector fell to its lowest level since August 2001. The TAIEX dropped by 31.6
percent last month and has fallen again in October. As a result, the
government's "economic barometer" turned blue for the second time in
three months. According to the Council for Economic Planning and Development,
the agency that monitors the health of the economy, the present figures suggest
a slowdown that could last between 10 and 15 months.
This may be overly optimistic. In a recent issue of The Economist it was pointed
out that on average the period of economic downturn following previous financial
turmoil has been four years. With the present crisis seen as being the worst
since the Great Depression, the present fix may take even longer.
Already, the government has cut its forecast for annual economic growth for this
year from 4.78 percent to 4.3 percent and is expected to announce revised
expectations for 2009 within the next few weeks.
In terms of the likely 2008 outcome, the Chung-Hua Institute for Economic
Research (CIER) which advises the government on major policy issues, has, for
the second time this year, adjusted downward its projected GDP growth from the
4.5 percent it estimated in July. In April, the research body put the figure at
4.67 percent after the nation posted robust growth of 6.25 percent in the first
quarter. However, growth slid to 4.32 percent in the second quarter and is
predicted to drop to 2.41 percent in the third quarter. Chung-Hua is now
forecasting domestic growth to come in at 3.82 percent this year.
The institute's revised GDP forecast is lower than the government's forecast of
4.3 percent, the Taiwan Institute of Economic Research's 4.27 percent and
Polaris Research Institute's 4.1 percent.
CIER is even more pessimistic about the economic outlook for 2009 and has
forecast growth to slow to 3.34 percent and unemployment to rise to 3.94
percent. The Council for Economic Planning and Development (CEPD) believes that
in present conditions it will be difficult for the economy to achieve an
economic growth rate of 5.08 percent for next year as earlier predicted, but has
yet to release its revised forecast.
Despite oil prices returning to reality (Brent North Sea Crude Prices are now at
around US$61 per barrel) the impact of high commodity prices, especially oil, on
Taiwan's economy has been severe. As part of the package of mitigation measures
now being developed, Cabinet is expected to endorse a plan to lower commodity
prices. Government also plans to boost the state-owned venture capital fund
five-fold to NT$1 trillion (US$29.95 billion) to give local enterprises a leg up
amid the global financial crisis.
All of this, of course, was before the latest meltdown and the numbers may yet
But there is always China to help cushion the impact.
China's economic growth slowed to 9 percent in the third quarter as global
financial woes started taking a toll. It was the first time since late 2005 that
quarterly growth slipped into single digits, providing the most powerful
indication yet that China was not insulated from the international economic
downturn. Growth in the world's fourth-largest economy weakened to 9.9 percent
over the first three quarters of the year. This was down from 10.4 percent in
the first half of this year and 12.2 percent in the first three quarters of last
Taiwan's relationship with China, in its economic aspect, has little to do with
China's domestic market and much to do with its export-oriented manufacturing
base. Taiwan is, by far, the biggest overseas investor in China's economy and
Taiwan is pushing ahead with strengthening its links to the mainland.
Chairman Chen Yunlin of China's Association for Relations Across the Taiwan
Straits (ARATS), will travel to Taipei in early November for meetings with his
Taiwanese counterpart, Straits Exchange Foundation (SEF) Chairman Chiang
Pin-kung. With widespread demonstrations expected from those opposing closer
relations with China, President Ma has been at pains to explain that these talks
will focus on economic issues.
Indeed, anything that can be done to lessen the cost of Taiwanese companies
doing business in China, in the present souring economic climate, is to be
welcomed. Taiwan still has room to manoeuvre but the question to be asked is: at