December 2015: The Taiwan Economy in Brief

Taiwan’s Economy Contracts in Q3

The economy shrank by 0.63% in the third quarter this year, the first contraction since the recession of 2009, following lackluster second-quarter growth of only 0.57%. The Directorate-General of Budget, Accounting and Statistics (DGBAS) forecasts continued sluggishness through the end of the year, predicting growth of just 0.49% in Q4. It downgraded its forecast for the year from the 1.56% announced in August to 1.06%.

Taiwan’s export-driven growth is being hampered by a variety of factors, most importantly anemic demand in the world economy. Economists see total global trade for the year growing by a low 1%. The slowdown has impacted all of East Asia’s trade-dependent economies, including Korea and China. Taiwan’s exports declined by 9.6% between January and October, particularly with its biggest trading partners. Exports to China/Hong Kong, Taiwan’s largest trading partner and the destination for some 39% of Taiwan’s exports, declined by 11.1% in the January-October period, according to the Bureau of Foreign Trade (BOFT) under the Ministry of Economic Affairs (MOEA). Exports to ASEAN-6 nations, Taiwan’s second largest trade partner, taking nearly 18% of Taiwan’s goods, declined even more precipitously, by 13.8% in the first 10 months of the year. Exports were also down sharply with other major trade partners, including the European Union (minus 12.1%), Japan (minus 2%) and the United States (minus 0.2%).

Economic indicator

According to DGBAS, a significant factor in the slowdown has been the “sluggish demand” in electronics, Taiwan’s largest export sector (along with machinery, it comprises over 50% of all exports by value). Taiwan’s exports in the Electronics and Machinery sector were down 7.3% for the year to date, while transportation-related exports – including aerospace, vehicles, and ships – also declined 2.3%. Taiwan’s important semiconductor sector, however, looks set to post 4% growth in earnings, according to the Industrial Economics and Knowledge Center (IEK) of the Industrial Technology Research Institute.

Low oil prices have had a mixed impact on Taiwan’s economy. With crude oil hovering below US$50 a barrel, consumers have benefited from lower prices at the pump, providing greater opportunities for spending. Private consumption in Taiwan has not increased accordingly, however, recording just 0.5% growth in Q3. In response, the government announced a US$134.8 million stimulus package, which is expected to boost consumption to 2.5% growth in Q4. Taiwan’s petroleum product exports plunged 34% for the year to date, owing to declining oil prices, and the chemical industry also slumped 11.3%.

DGBAS also considers “the crowding-out effects from the expanded supply chain in mainland China” as a significant factor in the drop in exports. Nevertheless, DGBAS is confident that Taiwan’s economy will grow slightly in Q4, by 0.49%, and forecasts 2.32% GDP growth in 2016 following the overall improvement in the global economy and increased domestic consumption.

At the Taiwan Institute of Economic Research, Gordon Sun, director of the Macroeconomic Forecasting Center, told the media that “we believe Taiwan’s economy has bottomed out in the third quarter.”

Unemployment rates held steady through October at 3.9%, its lowest rate in the month of October in 15 years, and salaries are up 3% for the year to date. Still, consumer confidence as tracked by National Central University’s Research Center for Taiwan Economic Development (RCTED) continued its steady slump, from 85.32 points in September to 84.6 in October. The index hit an all-time peak of 92.93 in April this year, but according to the survey, anything below 100 is considered pessimistic.

TAIEX Rallies as Tax is Dropped

Although it had not yet gone into effect, a proposed capital gains tax on shareholders earnings was scrapped by the Legislative Yuan on November 17, with instant results on the stock exchange, which rallied 1.5% the next day. The tax, scheduled to be implemented from 2018, was to be aimed at individuals earning more than NT$1 billion on the local bourse, but still managed to upset a large number of investors, who blamed diminishing trading volumes on just the threat of the tax. The Taiwan Securities Association said it welcomed the change but warned that it would take some time for trade volumes to climb back to previous NT$100 billion daily levels. As Taiwan already levies a 0.3% tax on stock transactions, many in the investment community were outraged by what they see as double taxation.

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Alleged China Ties Affect EBC Deal

A proposed acquisition of Taiwanese media company Eastern Broadcasting Co. (EBC) was the focus of discussions in Taiwan’s legislature over the acquiring company’s alleged ties to Chinese money and political honchos. Dan Mintz, a U.S. citizen and co-founder of the Dynamic Marketing Group in China, is seeking to purchase the Washington-based Carlyle Group’s 60% stake in EBC. The controversy stems from Mintz’s previous ties to Dynamic Marketing, which he co-founded with Wu Bing and Peter Xiao, two Chinese entrepreneurs considered to have deep ties to China’s military and political elite. Chinese firms are specifically banned from investing in Taiwan’s broadcast media. Although Mintz says he is acting as an individual U.S. citizen, the DPP is pressuring Taiwan’s National Communications Commission (NCC) to hold up the deal for further evaluation. Meanwhile, EBC’s share price skyrocketed to the 10% daily limit in the aftermath of the news that Mintz was seeking to make the purchase.

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