• MACROECONOMICS

  PAIN, PAIN, GO AWAY

• CROSS-STRAIT
  

  TIANANMEN SQUARE MASSACRE REMEMBERED 

• DOMESTIC
  

  DPP SEEKS REFERENDUM ON THE ECFA ISSUE
  

  REDRAWING APPROVED  OF ADMINISTRATIVE MAP
  

  PROSTITUTION LEGALIZED

• INTERNATIONAL

  HONDURAN TIES  REMAIN IN PLACE
  

  CAREER DIPLOMAT NAMED TO HEAD AIT

• BUSINESS

  TAIWAN OPENS UP TO  CHINESE INVESTMENT

  AIG SELLS ITS TAIWAN CREDIT CARD BUSINESS

  MORGAN STANLEY RAISES STAKE IN CHINATRUST

By Jane Rickards

MACROECONOMICS

PAIN, PAIN, GO AWAY

Ouch. Taiwan hit the floor harder than expected. For the first quarter of this year, believed by many analysts to be the trough of Taiwan’s recession, GDP growth amounted to a whopping negative 10.24%, the government’s Directorate General of Budget, Accounting and Statistics (DGBAS) said in late May. The statistics agency also gloomily predicted that the GDP growth for the full year would be negative 4.25%, far worse than its February projection of minus 2.97%. Export-dependent Taiwan was hard-hit by the fall in world demand for electronics and other goods. The DGBAS said net exports contributed a negative 2.52 percentage points to GDP growth in the first quarter, while domestic demand – in a “domino effect” due to the Taiwan economy’s heavy reliance on exports – slumped even more sharply, contributing negative 7.72 percentage points to the change in GDP. Private consumption and private fixed investment decreased by 1.41% and 41% from the same period last year.

Meanwhile, private economic forecasters made similar predictions throughout June. The Polaris Research Institute raised its GDP projection for 2009 from negative 4.8% in March to negative 4.6% in late June. It said rush orders from China, which has been on a spending spree for Taiwanese consumer electronics as part of a policy of aiding rural regions, were stronger than expected and would buffer the global slump somewhat. The Taiwan Research Institute in late June predicted a contraction of negative 4.5%, while the Academia Sinica in mid-June also gave a forecast for this year of negative 3.6% (more than three percentage points better than its December projection), adding that the worst of the recession was over. Citibank, however, in mid-June adjusted its forecast for the year to negative 4.4%, from a previous prediction of negative 3.2%, on worse-than-expected exports in the second quarter. “We’ve just come out of the bottom and are now at the beginning of a slow, U-shaped recovery,” Citi’s chief economist Cheng Cheng-mount told the local media.

Judging from the latest actions of Taiwan’s Central Bank, the government also believes the worst is over. In late June, the Bank continued for the second quarter to leave interest rates unchanged at 1.25%. “In recent months, monetary easing and economic stimulus measures adopted by major countries have brought forth favorable developments, and international financial markets have also gradually stabilized,” the Bank said in a statement. “The global downturn has recently shown signs of abating. It is generally expected that the world economy will bottom out in the second half of 2009.” The bank also noted that government stimulus spending of NT$858.5 billion over four years on infrastructure, consumer grants, and tax cuts should help Taiwan’s economy somewhat.

Despite forecasts that the economy may be turning the corner, exports continued the sharp decline that started almost a year ago; total exports in June, at US$16.95 billion, were down 30.4% from the same month of last year, compared with May’s 31.4% decrease, the Ministry of Finance said. Total imports, at US$15.18 billion, were down 33.5%. Export orders, a sign of shipments to come in the next three months or so, posted a decline of 20.14% for May, the Ministry of Economic Affairs reported, slightly better than April’s 20.9%. The industrial production index also slumped 18.31% in May, with the biggest decreases registered in building construction and manufacturing. Unemployment hit a record high of 5.84% in May, up from 5.77% in April. The annual change in the consumer price index in June 2009, compared with the same month last year, dropped 1.97%, the most in nearly 40 years, a result of faltering domestic demand.

CROSS-STRAIT

TIANANMEN SQUARE MASSACRE REMEMBERED

Taiwanese across the island on June 4 commemorated the 20th anniversary of the bloody crackdown in Tiananmen Square that saw People's Liberation Army troops and tanks crush democracy protests and kill hundreds if not thousands of people. “This painful chapter in history must be faced. Pretending it never happened is not an option,” President Ma Ying-jeou said on his Office of the President web site. But Ma also angered the opposition Democratic Progressive Party (DPP), human rights activists, and even some lawmakers from his own Kuomintang (KMT) by failing to condemn China and also noting that “over the past decade, the mainland authorities have paid greater attention to human rights than before.” Through a spokesman, the DPP accused Ma of staging a “retreat on the moral front” and making a concession to China in hope of achieving further liberalizing of cross-Strait commercial ties. Wu’er Kaixi, one of the best-known dissidents from the Tiananmen Square protests and now a Taiwan resident, tried to enter China via Macau to see his parents but was refused entry.

TAIWAN AND HONG KONG UPGRADE THEIR TIES

In signs that relations between Taiwan and Hong Kong have improved markedly since President Ma took office, Stephen Lam, Hong Kong’s Secretary for Constitutional and Mainland Affairs, arrived in Taipei in early June in the first high-level visit since the former British colony reverted to Chinese rule in 1997. During his talks with Taiwan officials, the two sides agreed to set up trade and economic cooperation councils to further promote bilateral trade, which amounted to US$34.2 billion in 2008. In addition, each year Taiwanese make about 2.3 million trips to Hong Kong for business or pleasure. Despite the good feeling, the result of eased cross-Strait tensions since Ma’s election, Hong Kong Chief Executive Donald Tsang still declined an invitation to visit Taipei in September at the invitation of Taipei City Mayor Hau Lung-pin, citing the need to prepare for his annual policy address the following month.

DOMESTIC

DPP SEEKS REFERENDUM ON THE ECFA ISSUE

Following large street protests in late May against the government’s China policies, the DPP said it would organize a referendum opposing President Ma’s plans for a free trade pact with China that the government is calling an Economic Cooperation Framework Agreement (ECFA). Such a pact “will have a vital, critical impact on our people and our children,” DPP chairwoman Tsai Ing-wen said in an open letter in mid-June. “The power to decide something of this importance cannot be left solely in the hands of the president and a minority of the ruling class.” The DPP said it would seek more than 80,000 signatures to petition for the referendum. If that goal is reached, under Taiwan law a further 800,000 people, or 5% of the electorate, must sponsor the motion for a referendum to be scheduled. For the referendum to pass and become legally binding, votes must be cast by more than 50% of the estimated 16 million registered voters, with more than 50% of the ballots voting in favor. President Ma has said he does not support the referendum, as he regards ECFA as purely an economic and not a political issue. Previous referendums sponsored by the DPP during the Chen Shui-bian administration, such as one calling for entry into the United Nations under the name “Taiwan,” failed to reach the threshold of participation by at least 50% of eligible voters.

REDRAWING APPROVED  OF ADMINISTRATIVE MAP

The government in late June announced a sweeping plan to restructure local government administrative units across the island, including upgrading Taipei County to the level of “special municipality” and merging Kaohsiung City and Kaoshiung County as well as Taichung City and Taichung County. Eleven out of the total 23 cities and counties had applied to be upgraded, hoping to get more resources and higher status. Among the applications turned down were those of Taoyuan County and Changhua County. Some critics called the plan tantamount to gerrymandering, with an eye to benefiting the KMT in the year-end county and small-city elections. Since the elections for special municipalities will not be held until next year, the KMT now has more time for the incumbent Taipei County commissioner Chou Hsi-wei to revive his popularity or else decide to turn to another candidate. This delay also prevents Su Tseng-chang, a former Taipei County commissioner and the DPP’s main presidential hopeful for 2012, from running for his old post this year and gaining a strong base from which to campaign for president. The DPP roundly condemned the restructuring, though it welcomed the government’s decision nearly a week later to add its approval for a merger of DPP strongholds Tainan City and Tainan County. 

PROSTITUTION LEGALIZED

Taiwan in late June began the process of legalizing the world’s oldest profession. The decriminalization of prostitution and adoption of new regulations to regulate the sex trade are due to take effect five months from now. Lawmakers were acting on complaints from sex workers that they were subject to a NT$30,000 fine or up to 12 months in a correctional institution while clients were not deemed to not have committed a crime. Local governments in future will have the power to allocate certain regions as red-light districts, but it is still unclear whether the new regulations will stipulate punishments for prostitution if it occurs outside these areas.

INTERNATIONAL

HONDURAN TIES  REMAIN IN PLACE

Despite a coup that ousted democratically elected Honduran President Manuel Zelaya, Taiwan said that ties with the Central American nation, one of only 23 diplomatic allies, would remain in place. President Ma was forced to cancel a planned two-day stay in Honduras just hours before leaving Taipei in late June for a state visit to Latin America that centered around the inauguration of Panamanian President Ricardo Martinelli. Some other nations, including France and Spain, recalled ambassadors as protests against the coup, but as of press time Taiwan’s ambassador was still at his post.

CAREER DIPLOMAT NAMED TO HEAD AIT

William Stanton, a career foreign service officer, has been appointed the new director of the Taipei office of the American Institute in Taiwan and is due to arrive in late August. He succeeds Stephen M. Young, who completed his three-year Taiwan posting in July. New Jersey-born Stanton previously served as deputy chief of mission at the U.S. embassies in South Korea and Australia. He has also had tours of duty in China and the Middle East.

BUSINESS

TAIWAN OPENS UP TO  CHINESE INVESTMENT

Taiwan has opened various industrial sectors to mainland Chinese investors in a further sign of improved ties with Beijing. The Ministry of Economic Affairs announced in late June that 100 business sectors, including 64 in manufacturing, 25 in services, and 11 public infrastructure projects, were being opened to Chinese investment. Excluded were technology-sensitive areas in which Taiwan enjoys a competitive edge, such as semiconductor foundries and the LCD industry. The telecoms sector was also omitted from the list, despite landmark plans by China Mobile to buy a 12% stake in Taiwan’s Far EasTone. In addition, Chinese companies will be allowed to buy commercial and residential real estate. In an effort to coordinate with the new policies, the Financial Supervisory Commission announced at the same time that it would allow banks to conduct foreign currency loans to Chinese companies with branches in Taiwan, and would also permit Chinese citizens to apply for mortgages from domestic financial institutions.

AIG SELLS ITS TAIWAN CREDIT CARD BUSINESS

The American International Group (AIG) announced in late June that it was selling its credit card business in Taiwan – run through its AIG Credit Card (Taiwan) Ltd. subsidiary – to the Far Eastern International Bank. The terms of the deal were not disclosed and few details were provided. The transaction is expected to be completed in the third quarter, provided it wins the approval of regulators. Troubled AIG, which was hit badly by the global financial crisis, is selling assets to help repay the U.S. government after a US$180 billion bailout.

MORGAN STANLEY RAISES STAKE IN CHINATRUST

U.S financial giant Morgan Stanley received approval from the U.S. Federal Reserve Board in late June to acquire an additional 5.1% of voting shares in the Chinatrust Financial Holding Co., increasing its stake to 9.9%, the Fed said in a statement. The move will make the U.S. bank Chinatrust’s largest shareholder, although the acquisition will not give Morgan Stanley any control over the Taiwan bank’s operations.