MONTREAL - The turn for the better in Taiwan's dealings with mainland
China, resulting in improved access for businessmen and tourists across the
Taiwan Strait and eased investment rules, could hardly have come at a better time
for the island as its export-dependent economy reels from the global
downturn.
Stimulus efforts by the governments in both Beijing and Taipei are also helping
to lift the prospects for economic growth after a dismal few quarters.
Gross domestic product (GDP) declined 10.2% year-on-year in the first quarter
of 2009, worsening a revised decline of 8.6% in the fourth quarter of last
year. This is equivalent to a seasonally adjusted annualized decline of 4.3%,
improving from an abysmal fall of 23.2% for the last quarter, according to an
estimate by DBS Group, who believe that a recovery has already begun based on
sequential increases in key indicators since February.
The government now projects a fall in gross domestic product (GDP) of 4.3% for
the whole of 2009, revised from a previous estimate of 3% growth. But it
forecasts a recovery throughout the year to post quarter-on-quarter increases
beginning with the second quarter, and ending with an annualized real growth
rate of 5.2% in the fourth quarter, as the government's monetary and fiscal
stimulus package begins to take effect.
The government plans to spend about US$25 billion over four years (equivalent
to 6% of GDP) on infrastructure, consumer grants and tax cuts. Citibank agrees
that the second quarter of 2009, at least, will see a return to
quarter-on-quarter growth.
Signs of a recovery are already evident in the important consumer electronics
sector. Taiwan Semiconductor Manufacturing, the world's largest custom computer
chip maker, has, after a rebound in sales, offered to take back hundreds of
workers earlier laid off.
A collapse of consumer electronics exports (down 36.5% year-on-year) was a
principal driver behind the recent decline in economic growth, according to
Bloomberg News.
The mainland's domestic US$586 billion stimulus package announced last November
had already redounded also to the benefit of Taiwanese exports to the mainland
as early as March, before the up-tick in consumer electronics demand.
While the recovery is clearly welcome, its duration may be limited. Citibank
six weeks ago did not expect the electronics pick-up to extend beyond autumn.
The near-term advantage from increased banking cooperation and exports to the
mainland is also likely to be limited, although spending by new tourists from
the mainland, resulting from increased air links, could provide a domestic
Taiwanese consumption effect that the global situation is unlikely to furnish.
The state statistics bureau estimates a boost of no less than 0.4% of GDP for
the year from increased tourism.
The Taiwan Stock Exchange Composite (TSEC) seems nevertheless to be tracking
rising projections as a leading indicator, as it has lifted itself from close
to 4,400 at the beginning of March to almost 6,900 (the highest in nine
months). That leaves some way to go before it reaches the high close to 9,300
touched just over a year ago on the day before the inauguration of President Ma
Ying-jeou.
Ma, the candidate of the then-opposition Nationalist Party (KMT), had during
his campaign promised greater economic exchanges with the mainland.
At the beginning of April, I wrote that the TSEC has "significant long-term
resistance at 7,000 (actually a range from 7,002 to 7,326, the latter figure
probably marking the upper bound of the lengthy run that it looks poised to
make)" and identified the midpoint at 7,162, on a purely technical-chart basis
as the likely, perhaps intraday target. (See
Taiwan's ambiguous recovery, Asia Times Online, April 2, 2009) and
On the cusp, but of what?, Asia Times Online, May 2, 2009).
The retracement from that level, if there is one, would reasonably descend to
the low 6,300s, but once there, it would be sorely tempted to fill the gap-up
from the beginning of this month from 5,600. On May 3 and 4, the TSEC jumped
from there to over 6,300 following the signature of agreements permitting new
investment on Taiwan from the mainland. Depending upon the evolution of the
chart in the next week, the index could justify a descent to only about 6,000
before regaining its upward rhythm.
That said, new capital inflows to Asia have lately targeted Taiwan country
funds, despite their rather high price-to-earnings valuation both absolutely
and relative to other Asian markets. An appetite for risk has returned, but it
is far from clear how long that will remain.
The Asian Development Bank recently noted that equity markets in the region are
generally inexpensive by historical standards, and the bank looked forward to
healthier equity markets at least through the end of the present calendar year,
thanks to fiscal and monetary stimulus policies and decreasing inflationary
pressures.
Still, no one is suggesting that Taiwan or anywhere else will see a return to
steady long-term growth in the absence of a generalized worldwide economic
recovery, including in the West, permitting a sturdy recovery of external
demand.
The corollary, specific to Taiwan, is that the restocking of depleted US
inventory in consumer electronics and the launch of new computer operating
systems and various handheld devices should not be mistaken for a return of
consistent demand.
Dr Robert M Cutler(http://www.robertcutler.org), educated at the
Massachusetts Institute of Technology and the University of Michigan, has
researched and taught at universities in the United States, Canada, France,
Switzerland, and Russia. Now senior research fellow in the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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