Taiwan Economic Outlook and International Affairs– December 2017

THE ECONOMIC NEWS IS MOSTLY POSITIVE

On November 17 economist Chen Shin-hui, assistant research fellow at the Center for Economic Forecasting, part of the Chung-Hua Institution for Economic Research (CIER), offered a lively presentation and discussion on the state of Taiwan’s and the world’s economy. As the compiler of CIER’s Purchasing Managers’ Index (PMI), a monthly survey of Taiwan’s major industries that is widely viewed as a leading indicator of the economic health of the manufacturing sector, Chen has a comprehensive view of Taiwan’s economy.

Chen noted that Taiwan has benefited from the recent global upturn in growth and trade. The global economy is looking to post higher growth rates in 2017 – in the vicinity of 3.6% on the strength of modest growth in the United States (2.17%), the Eurozone (2.22%), and China (6.8%), according to the Global Insights website. Chen noted that Global Insights remains particularly bullish on anticipated tax cuts and business growth in the United States. The OECD, meanwhile, though more cautious, likewise sees broad-based recovery throughout the economies it tracks.

This global recovery has resulted in a 20-month long expansion in Taiwan’s exports, up 13% in year-to-date annual comparisons as of October, according to the Bureau of Foreign Trade under the Ministry of Economic Affairs (MOEA).

The PMI tracked by Chen reflects this upward trend, coming in at 57.7, although it fell a slight 1.7% from September’s 58.7. Anything over 50 is considered expansion. Chen noted that both New Export Orders and Industrial Production Indexes also recorded healthy scores of 58.6 and 57.9, respectively, although both were down slightly from the previous month. What’s more, this expansion was seen in all of Taiwan’s major industrial sectors.

Taiwan’s exports were up 13% for the year through October, to US$259 billion, according to figures released by MOEA’s Bureau of Foreign Trade. Taiwan’s crucial Machinery and Electronic Equipment sector, which contributes 54.8% of total exports, has also surged by 14.8% for the year to date, to US$144.4 billion, on the strength of IT exports, especially components for the new smartphone offerings from Apple. Trade to all major partners was up, with exports to China (together with Hong Kong), representing 40.5% of the total, up 15.9% year-to-date. Exports to the United States, 11.6% of the total, were up 9.6%, while trade with ASEAN, an important focus of Taiwan’s trade policy and 17.9% of total exports, were up 3%.

Chen noted that despite these rosy numbers, Taiwan’s economy still faces major challenges, so far preventing it from meeting its full potential. Despite the massive contraction Taiwan experienced in the recession of 2009, it failed to diversify its trade partners to reduce its overreliance on cross-Strait trade, resulting in a downturn in exports whenever China’s economy slows, and leaving it vulnerable to trade declines as China’s domestic supply chain upgrades and gains competitiveness against Taiwanese manufacturers.

Even more significantly, Taiwan’s non-export sectors remain underdeveloped and sluggish. More than two-thirds of Taiwan’s GDP comes from services, but more than two-thirds of the economic growth is tied to exports, pointing to weakness in the service economy and an overreliance on trade.

 

Taiwan’s Non-Manufacturing Index (NMI), which tracks the service economy, is likewise up –with growth seen in several major components, including Finance and Insurance, Transportation and Storage, and Education. But costs have also risen this year by 2 percentage points, indicating upward pressure, causing a decline in activity in several categories, including Construction and Real Estate. Cross-Strait tensions are also playing a role, with Chinese tourism down significantly. Chen noted that while many have observed that the drop in Chinese tourism numbers has been offset by visitors from other countries, the Chinese tourists are particularly lucrative for the Taiwan market, as they tend to stay longer and spend more.

She also noted that recent legislation, particularly the newly amended Labor Standards Act, is also impacting costs across the economy in both manufacturing and service industries.

Chen’s diagnosis of the problems facing Taiwan came complete with some suggestions for how to improve its prospects. Liberalizing the financial sector was one, as well as encouraging the government to consult more with industry on how to improve conditions.

PRESIDENT TRUMP VISITS CHINA ON ASIAN TRIP

U.S. President Donald Trump and First Lady Melania had what was widely considered a pleasant and productive trip to China on November 8-9. The First Couple were given a tour of Beijing’s Forbidden City, Trump oversaw the signing of letters of intent for US$250 billion in trade deals by U.S. business executives who accompanied him, and he praised both China’s President Xi Jinping for his leadership and China for its surging economy.

TRUMP-XI SUMMIT –
Despite the U.S. president’s previous sharp criticism of China for taking advantage of the United States in trade relations, he maintained a mild tone when meeting his Chinese Counterpart. PHOTO: AP/ Andrew Harnik

While the two presidents discussed a range of issues including North Korea, Taiwan wasn’t on the agenda, and that was fine with the Tsai administration. Some political commentators feared that Trump might use Taiwan as a bargaining chip to gain trade concessions from China or more support in handling North Korea. The United States adheres to a “One-China Policy” but also supports Taiwan’s right to self-determination and is Taiwan’s main defense supporter. Trump upended 40 years of U.S. policy even before he took the oath of office by taking a phone call from Taiwan’s President Tsai before he was inaugurated.

Relations between China and Taiwan have been put on ice ever since Tsai’s election, with direct communication channels between the two rivals across the Taiwan Straits suspended and tourism from China drastically cut, though trade remains strong.

TAIWAN PROTESTS CHINA’S VERDICT ON LEE MING-CHE

Stating that “spreading pro-democracy ideas is not a crime,” Taiwan’s Presidential Office expressed regret at the verdict a Chinese court handed down on Taiwanese human rights activist Lee Ming-che on November 28, sentencing him to five years’ imprisonment on charges of “subversion of state power.” It was an unsurprising end to what critics have called another sham trial in China.

Lee, 42, who worked for Taiwanese organizations advocating democracy and human rights, was arrested when entering China in March. He went on trial in Hunan province in September after 170 days in detention, during which he was not allowed to see his family and had a lawyer appointed by the court.

He pleaded guilty to charges of subverting state power by promoting Western-style democracy using online messaging groups, and said that he had been misled by inaccurate portrayals of China in Taiwanese media in the past. Lee’s wife told the Taiwanese public earlier that any such confession given by her husband could only have been given under duress. Mainland Chinese activist Peng Yuhua was tried alongside Lee, pleaded guilty to similar charges, and was sentenced to seven years in prison.

SCHRIVER TO TAKE HIGH U.S. DEFENSE POST

Taiwan’s Ministry of Foreign Affairs (MOFA) welcomed the appointment of Randall Schriver, president of the Project 2049 Institute and a staunch supporter of Taiwan, to be Assistant Secretary of Defense for Asian and Pacific Affairs, stating it hopes Schriver can further advance Taiwan-US relations.

Schriver had previously served as Deputy Assistant Secretary of State for East Asian and Pacific Affairs from 2003 to 2005 under Richard Armitage, during which time he reiterated U.S. support for the Taiwan Relations Act. He later took the helm at the Project 2049 Institute, a U.S. think tank focused on security trends in Asia, which has done considerable research on cross-Strait relations.

In response to Schriver’s support for Taiwan, in 2005 he was awarded the Order of the Brilliant Star with Violet Grand Cordon, Taiwan’s highest non-military honor. Schriver has visited Taiwan frequently.

Leave a Reply

Your email address will not be published. Required fields are marked *