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Publications Topics Archive Topics Archive 2004 Vol.34- No.12 Taiwan Briefs
Publications Topics Archive Topics Archive 2004 Vol.34- No.12 Taiwan Briefs | Taiwan Briefs |
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by Lucien Crowder
MACROECONOMICS MACROECONOMICS SLOWDOWN ON THE WAY-STILL Economists keep revising upward their estimates for 2004 GDP growth, even as the economy slows down. Why the apparent contradiction? Because while Taiwan's economy is no longer accelerating at the frantic pace of early 2004, the long-expected slowdown has been, well, slower than expected. In November, the Taiwan Institute of Economic Research (TIER) estimated that 2004 growth would reach 5.93%, up from a July forecast of 5.67%. In early December, the Chung-Hua Institution for Economic Research (CIER) revised its estimate to 5.91% from an earlier 5.35%. Though these strong annual numbers owe much to growth in the first half of 2004 - which the government's Directorate-General of Budget, Accounting, and Statistics (DGBAS) reports at 7.17% - the upward revisions were based mainly on the still-strong performance in the third quarter (5.27%, according to DGBAS). While the consensus view among economists is that the global growth cycle peaked in the second quarter of 2004, Taiwan's export sector has remained hot throughout the year, with November exports totaling US$15.51 billion (the second-highest total on record). November imports, on the other hand, declined to US$14.95 billion from October's US$15.05 billion £Sand because imports are an important leading indicator in an export-oriented economy, this seems to indicate that a moderate slowdown is in fact coming. It's numbers like this one that cause economists, when looking forward to 2005, to predict a drop in Taiwan? GDP £S2005 growth is pegged at 4.37% by CIER and 4.21% by TIER. An apparent slowing in regional economies is among the factors that could contribute to a more moderate pace in the local economy. South Korea, for instance, cut its interest rates in November in response to slack growth, while the Japanese and Singaporean economies both registered a shrinking GDP in the third quarter. China, meanwhile, is still doing what it can to engineer a soft landing for its overheated economy. In the United States, job numbers and Christmas sales look a little soft £Sbut these factors didn't stop the Fed from raising U.S. rates by a quarter point in mid-December. This marked the fifth increase in 2004, and the bank indicated that more increases are on the way. (Regarding local interest rates, JP Morgan predicted - following reports that Taiwan's consumer price index had risen by only 1.49% in November, compared to October's rate of 2.37% - that Taiwan's Central Bank of China [CBC] would raise rates at the end of December by only an eighth of a point, rather than a quarter point.) But more important at the moment than U.S. interest rates may be the U.S. currency. On December 2, the NT dollar was trading at NT$31.99 against the greenback, its highest level since October 2000, and over the next two weeks it remained at historically high levels of about NT$32.4. Appreciation of the NT dollar presents serious potential problems for Taiwan - partly because a weak U.S. dollar makes local exports more expensive to buy, but also because it cuts into the value of Taiwan-held, dollar-denominated assets. Presumably the CBC will do what it can to protect the NT dollar from catastrophic appreciation - but if the U.S. budget deficit and current-account deficit continue to erode international confidence in the greenback, the CBC's ability to influence the exchange rate could become constrained. Not all causes for concern reside abroad - Taiwan's fiscal health is increasingly being called into question. On November 30, Standard and Poor's lowered its outlook on Taiwan to "negative", meaning that the country's double-A-minus sovereign rating could be lowered soon. S&P based its decision partly on cross-Strait tensions - but also on concerns about Taiwan's budget deficit, which is expected to come in at NT$292.9 billion (US$9.04 billion) in 2005. The ratings agency blamed the budget problem on a "leaky" tax structure, one characterized by low tax rates and by a failure on the part of Taiwanese businesspeople operating in China to repatriate earnings. Despite all these factors pointing toward slower growth, significant cause for optimism remains. TIER suggests that Taiwan's economy could benefit in 2005 from public spending on projects like the high-speed rail and from new investments by firms making 12-inch wafers and TFT-LCDs. CROSS-STRAIT RELATIONS ENVOY MEETS HU AT APEC SUMMIT In theory at least, the Asia-Pacific Economic Cooperation (APEC) forum focuses more on money matters than on purely political ones. But given Taiwan's exclusion from most international bodies, the country's participation in APEC's annual summit inevitably takes on strong political overtones. So it was this year as Lee Yuan-tseh - president of Academia Sinica and co-winner of the 1986 Nobel Prize in chemistry - traveled to the summit on behalf of President Chen Shui-bian, who is never able to attend personally because of China's objections. The highlight of the gathering turned out to be a brief interaction between Lee and Chinese President Hu Jintao. The heart of the conversation, according to a representative of China's foreign ministry, was Hu's unsurprising emphasis of the "one China" principle. Lee, for his part, reported that he had introduced issues like energy supply and regional economic development, though he had no chance to deliver a goodwill message from President Chen. Hu and U.S. President George W. Bush, meanwhile, had time for a more substantive conversation. According to reports, they spent their time reiterating well-known positions on arms sales and the Taiwan Relations Act. DOMESTIC POLITICS LEGISLATIVE ELECTIONS RESULT IN LITTLE CHANGE The legislative elections that took place on December 11 were mercifully free of the drama that surrounded the presidential elections in March - no assassination attempts, no need for recounts or lawsuits. Perhaps the most surprising aspect of the voting was what didn't happen. Speculation had centered on the possibility that the pan-green alliance could achieve a legislative majority - the lack of which had prevented President Chen from realizing many of his policy goals over the previous three years. When the counting was over, however, the Democratic Progressive Party had won only two more seats than it had managed in the 2001 voting. With the allied Taiwan Solidarity Union losing one seat, the pan-green coalition came out of the voting 13 seats short of an outright majority in the 225-seat Legislative Yuan. (In response to the pan-greens' perceived failure, President Chen subsequently stepped down from his position as chairman of the DPP.) The Chinese Nationalist Party (KMT), meanwhile, gained 11 seats - but the KMT's gains came at the expense of its pan-blue ally, the People First Party, which lost 12 seats. The bottom line is that the pan-blues still have enough seats to win any up-or-down vote without the help of the Legislative Yuan's independents and minor-party representatives. The question now is how well the government, in face of the continuing rancor between the executive and legislative branches, can manage to serve the public interest over the next several years. Hanging in the balance are measures that range from providing additional funding to the Financial Restructuring Fund to appropriating NT$610.8 billion (US$18.84 billion) for purchases of weapons from the United States. One thing seems certain - that leading politicians won't often be repeating the more controversial statements that they made during the campaign. One can assume, for instance, that President Chen won't elaborate much on his claim that high-ranking military officials had planned a "soft coup" after the March election. Nor is KMT Chairman Lien Chan likely to insist that the pan-blues be allowed to name the premier and cabinet members with the start of the new legislative session, as he had said they would do if they retained their legislative majority. FORMER FIRST LADY DIES Faina Chiang, widow of former President Chiang Ching-kuo, died on December 15 at the age of 88. The Russian-born former first lady had been ill for years and was rarely seen in public. She had met her husband in 1935 in the Soviet Union, where he had traveled to study communism. The couple left the Soviet Union for China in 1937 and came to Taiwan along with the KMT army in 1949. Faina Chiang was known as a reclusive person with a simple lifestyle. She and her husband had four children together £Sthree sons are no longer living, and a daughter residing in the United States. INTERNATIONAL VANUATU FLIPS AND FLOPS The dozens of South Pacific islands over which Vanuatu's 200,000 residents are scattered don't offer much in the way of natural resources - it's pretty much limited to manganese and fish. But it's just this sort of country that gets lots of attention when Taipei and Beijing compete for diplomatic recognition. In July, Vanuatu chose Serge Vohor as its new prime minister. In November, Vohor made a "secret" trip to Taiwan - and ended two decades of Vanuatuan recognition of Beijing by signing a diplomatic communique with Taipei. These actions by Vohor, who was already facing corruption allegations, created a controversy that soon threatened to bring down his government. Things took a turn for the ridiculous when Beijing's envoy to Porto Vila accused Vohor of having punched him on the shoulder during a discussion about an R.O.C. flag that was flying over a hotel in the capital city. Punch or no punch, Vohor lost his job when 16 legislators belonging to his own party switched to the opposition and joined them in a no-confidence vote against the prime minister. Subsequently, Vanuatu's new cabinet decided to overturn the agreement that Vohor had signed with Taipei. Meanwhile, the prime minister of R.O.C. ally Grenada had undertaken a visit to Beijing - but Taiwanese officials said that Grenada should not expect Taiwan to match any aid packages offered to it by Beijing. BUSINESS IBM SELLS OFF ITS PC BUSINESS Taiwan's IT industry was presented with a new set of concerns and opportunities on December 8 when IBM announced that it had sold off its PC business to China's Lenovo (formerly called Legend) for US$1.75 billion. Though the deal had certain political implications - for the first time, a company part-owned by the PRC will employ workers in Taiwan - the most immediate questions centered around which companies in Taiwan's IT supply chain stood to gain or lose business as a result of the deal. Some speculated that important IBM suppliers like Wistron and Universal Scientific Industry could suffer a decrease in orders. Others suggested that it was Lenovo's smaller suppliers in Taiwan, like Elitegroup Computer Systems, that could get squeezed out. New opportunities might exist for companies like Quanta and Compal, which are major suppliers of Dell, and for own-brand vendors like Acer. IBM will retain an 18.9% stake in the combined company, with the deal apparently structured to give IBM a continuing voice in how the business is run. Lenovo gets ownership of the ThinkPad and ThinkCentre brands, and the rights to use the name "IBM" for five years. IPO PLANNED FOR LAND BANK As part of its efforts to achieve greater privatization and consolidation in the banking sector, the government plans to sell off 13.5% of the Land Bank of Taiwan - the country's largest provider of mortgages, and of loans for land development and construction - in an IPO scheduled to be completed in the second or third quarter of 2005. Through this and two additional offerings, the government hopes to reduce its 100% equity position in the bank to less than 73% by the end of 2005 and to under 50% £Sthe threshold for privatization £Sby the middle of 2006. The government hopes to raise NT$24 billion (US$740.4 million) through the first offering, and also hopes that one of the offerings following the IPO will attract investment from a foreign insurance firm. Land Bank is also interested in pursuing mergers or acquisitions involving local financial holding companies. REACTION TO WTO AGREEMENT Last month's World Trade Organization meeting in Geneva produced what is being called the "July Package", a framework agreement that, though it lacks something in specificity, appears to have pulled the world trade body out of the abyss into which it fell last year in Cancun. From official statements, Taiwan would seem to have gotten some of what it wanted - as well as some of what it didn't want. Lee Chin-lung, chairman of the Council of Agriculture, was quoted in the Taipei Times as saying "We think the pact will not pose an instant and negative danger to the nation's agriculture" - leaving open the possibility of danger when the WTO manages to implement a more detailed package. UNION BANK ACQUIRES CHUNG SHING BANK When the Central Deposit Insurance Corp. (CDIC) held an auction on December 9 to enable the government to divest its ownership of Chung Shing Bank, whose debt-ridden condition had caused it to become a public possession in 2001, four financial institutions made offers - Chinatrust Financial Holding, Taishing Financial Holding, Cosmos Bank Taiwan, and Union Bank of Taiwan. In the end it was Union Bank whose offer of NT$7.108 billion (US$219.28) won the day. The acquisition will increase from 40 to 87 the number of branches that Union operates - and reportedly, it was branch licenses that motivated Union to make the deal. Kong Jaw-sheng, chairman of the Financial Supervisory Commission, commented favorably on the acquisition, saying that it demonstrates what small banks can achieve when they manage their resources well. Under the terms of the deal, Union Bank is required to provide continued employment to one-tenth of Chung Shing's employees for one year, while the government's Financial Restructuring Fund will subsidize an early-retirement program for the remaining staff members. |
