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TAIWAN


 

 

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

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Update No: 097 - (26/06/12)


Taiwan–Winds of Change
Taiwan appears adrift in a tempest; not only is the government struggling with the vagaries of a global economy that appears uncertain at best, there is growing evidence of political struggles in China ahead of the leadership change later this year that add to the climate of uncertainty. Taiwan’s President Ma Ying-jeou has staked much on his soft-glove approach to China—many would call it obsequious—but so far the benefits are few to be seen and China’s present leaders may well tighten the screws and demand political talks in order to strengthen their hand ahead of regime change. This is something that Ma cannot deliver on without destroying whatever credibility he has left. Increasingly his much vaunted ‘golden age’ is looking more like a lead balloon.

We have said before that it was going to be a tough year for Taiwan – and so it is proving to be. Many emerging countries are doing it tough this year — problems in the US economy, in Japan and in the Eurozone, all of these major trading partners for the small island nation, have combined to shrink Taiwan’s export performance and with it, further downgrades of growth prospects for 2012. More on all of that in a moment.

But Taiwan has further problems, not faced by others —or at least not to nearly the same extent. Immediately to the north, Taiwan faces an aggressive and belligerent superpower that is not content to have Taiwan within its sphere of influence – which it now surely is—but which wants to swallow Taiwan up completely; irrespective of the views of the 23 million people who believe themselves to be Taiwanese first and Chinese second—and definitely not citizens of the PRC.

China has mounting problems of its own. Its own economy is slowing and that has an inevitable knock-on effect in Taipei since many of China’s export-oriented companies are owned by Taiwanese, and China is in fact now Taiwan’s largest export market. But there is more to China’s problems than a slowing economy.

This is supposed to be a year of decisive change; when the Chinese ‘old guard’ step aside in favour of younger blood and fresh talent. Indeed, one reason that China has been so successful since shucking off Maoism and embracing the expansionist policies of the late Deng Xiaoping back in the late 70s, is that it has successfully and periodically rejuvenated its central leadership.

We have known for some time, that a slowdown in China was inevitable and much debate and many words have gone into discussion as to whether, in economic terms, China would be able to achieve a ‘soft landing’. Now the focus has shifted slightly and talk among Chinawatchers is whether, faced with a visibly fractured polity, China will be able to achieve a ‘soft landing’ politically. There has even been a prediction––gleefully reported in Taiwan’s press—that the Chinese Communist Party Congress due in October this year and at which a new leadership, including president and prime minister, is to be appointed, may be postponed.

All of which adds a further dimension of uncertainty to Taiwan’s hapless leadership that is facing an unprecedented loss of public confidence. Much of the blame can be pinned on Taiwan’s President Ma Ying-jeou and his imperious leadership style; but the bind in which Taiwan now finds itself is not entirely of its own making; rather, poor decision making and poorer still communication, have conspired to compound the government’s problems.

Let’s deal with the economy
first: Taiwan’s exports in May declined for the third successive month, compared to the same period l ast year and with that has come predictions that—even with a hoped-for rebound (‘expected’ is probably too positive a term in current conditions)—first-half results will themselves show a contraction. Exports to China and Hong Kong (now aggregated), the United States and Europe, Taiwan’s three largest export markets which account for around 60 per cent of outbound shipments, dropped more than ten per cent from this month last year. Eight of the nation’s 10 major export sectors posted year-on-year declines in May, with shipments of information and communication technology (ICT) products marking the largest drop - almost 31per cent.

Imports too fell—by 10.5 per cent year-on-year due mainly to weaker demand for agricultural and industrial raw materials. The only positive sign to emerge from the latest data is that imports of capital goods actually picked up – rising by 7.7 per cent and picking up for the fourth straight month in a row. This is taken as a sign that domestic companies are increasing their investments in order to grow their competitive edge.

With exports still playing a crucial role in determining the health of the economy, a decline in this sector inevitably translates immediately into a downward revision of growth forecasts. The Taiwan Research Institute (TRI), one of Taiwan’s premier think tanks has slashed its GDP growth forecast to 2.52 per cent—a significant drop from the 4.02 per cent estimated in December. This is also considerably lower than the 3.03 per cent forecast issued by the Directorate-General of Budget and Accounting last month.

A number of foreign-owned banks have issued similar downgrades with estimates ranging from a low of 2.0 per cent (DBS Bank) to a high of 2.7 per cent (Standard Chartered Bank).

Cathay Financial Holdings, the nation’s largest provider of financial services also dropped its forecast from the 3.73 per cent estimated in March to 2.45 per cent currently.

Headline inflation is down to 1.74 per cent year-on-year; and while that figure is encouraging, consumers are still under strain as wage growth has also slowed and employment growth appears to have stagnated. Not surprisingly, the public’s confidence in the economy has slumped to its lowest level in two years. According to recent surveys, President Ma’s popularity continues to plummet with his popularity rating standing now at around 15 per cent. Public discontent has been sufficiently obvious that Ma has been forced to announce a restructuring of planned electricity price hikes and to abandon a proposed capital gains tax on stock transactions after stock transactions fell to a three-year low.

Even the normally tame legislature is showing signs of defiance and in what may well be a ‘first’ has refused the request [demand?] of the president to pass a draft bill that would allow the importation of US beef containing traces of ractopamine thereby solving a trade issue between Taipei and Washington that has been festering for months. Taiwanese are overwhelmingly against allowing in beef containing the pesticide and whether or not allowed levels are considered ‘safe’ is not so much the issue as the fact that the government has not explained itself to the people but rather has adopted the authoritarian approach of ramming (or seeking to ram) it through the legislature. But knowing how far and how quickly the government has sunk in the eyes of the people, legislators fear the public backlash even more than their president. That at least is one point to the democratic corner.

Again, a lot of the problem comes back to Ma’s leadership style. In order to win the election, he promised a bold but unspecified reform platform that would take Taiwan to ‘a golden age’. But so far the reforms he has announced have been underwhelming and many would actually add to the burden of struggling Taiwanese families. As he has done time and again with his China policy, he has announced his plan and then expected his party and the public at large to fall in lockstep behind him. It is no longer working.

It is doubtful that when it comes to initiatives to jump-start the economy, a DPP administration would have fared any better—and possibly worse with regard to China; but Ma still appears to have blind faith in his China policy as the panacea to cure the ills that beset Taiwan, at the present time. But with his instance on a ‘one country, two areas’ approach to match the PRC’s ‘one country, two systems’ he appears to have already given away too much without any guarantee of reciprocity. Ma’s golden age is looking more and more like a lead balloon.

His best hope is that the leadership in Beijing will be so concerned with domestic concerns that it will ease the pressure on Ma to commence political talks. That at least is the hope.

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