TAIWAN BRIEFS
TOPICS' monthly economic analysis and roundup of business news, including: Taiwan finally gets a budget, the latest on the fourth nuclear power plant, and more.
Compiled by Mat Matich
MACROECONOMICS
A Happy New Year
TAIWAN NEWS
Finally, A Budget!
Future of the Fourth
Singapore Pilots Released
Filipinos Welcome Again
Dalai Lama Delay
FINANCE
S&P Negative on Taiwan
Free for All
CROSS STRAIT TIES
Easier Investment
BUSINESS
Big Time Tax Break
Fast Track Business Tax
Slight Rise in CPI
Unemployment High
TRACKING THE TAIEX
Happy Year of the Snake?
Nouveau Riche
The Love Boats?
Hard Hours (to Decide)
Light Up and Help Out
Taiwan's Cabinet Connection
F.Y.I.
No Longer Just a Gentlemen's Agreement
Compiled by Mat Matich
MACROECONOMICS
A Happy New Year
The TaiEx ended the year without a bang, the island's trade numbers were less than stellar, and it looks more and more like the U.S. economy is about to kick into reverse. Despite these ominous signs, economists say there is still good reason for a little new year cheer ? even if the good tidings are not expected till later this year.
The year ended on a weak note. Taiwan's exports slowed to single-digit growth in December, in a year-on-year comparison. Imports into the island also slackened significantly, a sign that consumers are tightening their belts and investors have stopped pouring cash into the country's domestic improvement projects or manufacturing sector, says Hu Sheng-cheng, director of Academia Sinica's Institute of Economics. He expects this weaker appetite among consumers to continue throughout the year. Both the export and import rates will most likely see only single-digit growth in 2001, with the domestic consumption rate expected to grow by just 4 percent this year, Hu estimates. While semiconductors and other key IT products saw big boosts in demand, overall the world IT market is feeling sluggish. But Hu says Taiwan, and the Taiwan Stock Exchange, already "over-adjusted" for this in the fall. While he expects IT exports to slow a bit, he does not expect the industry to bottom out this year. He says the high-tech sector remains highly competitive and will carry its own in a tight global IT market.
Cheng Cheng-mount, an associate research fellow at the Taiwan Institute of Economic Research, agrees, pointing to Taiwan's high level of manufacturing technology and relatively sound financial base as key to its competitive edge. If the world IT market sinks during 2001, Taiwan still stands a good chance of staying high enough on the manufacturing totem pole to continue turning a profit, Cheng argues.
Cheng believes the first quarter should be a busy one for the TSE, as investors begin realizing Taiwan's exchange is largely undervalued. Cheng puts the true value of the TaiEx at around 6,000; Hu pegs the actual value at 6,000 to 7,000. Yet Hu does not expect investors to wise up too quickly. Investor confidence received a small boost from slightly more amiable cross-strait relations following the opening of the mini-links and from the belief that the Chen Administration is finally giving the economy some direction. The key factors of export orders and the Nasdaq will still take time to bounce back, Hu says, but when they do, the economy will brighten significantly. We'll see.
TAIWAN NEWS
Finally, A Budget!
After months of partisan battling that was more heated than many civil wars, the Legislative Yuan (LY) approved the central government's 2001 budget in the early morning hours of January 3. The governmen's 2001 budgeted expenditures will reach NT$1.58 trillion, 2.1 percent less than the Executive Yuan had hoped for. The long fight to finalize a budget was fueled mainly by disagreements between the Democratic Progressive Party (DPP)-controlled cabinet and the Kuomintang (KMT)-led LY, with charges of corruption, fraud, and just plain incompetence flying from party to party. This budget will finance the government through December 31, 2001.
Future of the Fourth
The latest dramatic twist in the long saga of Taiwan's fourth nuclear power plant came on January 15 when the Council of Grand Justices announced the results of their review of the plant's cancellation by Premier Chang Chun-hsiung. Chang had cancelled the plant on October 27, sparking a furor of criticism from the opposition Kuomintang party.
The Grand Justices found the premier's decision to have been "improper" because the Executive Yuan had not reported its plans first to the Legislative Yuan, and because the Legislative Yuan had not allowed the premier to make such a report. Thus the first step in settling the issue will be for the premier to issue a report to the LY recommending cancellation of the plant. Afterward, the LY can agree with the premier or can attempt to reinstate the plant by either passing a law or issuing a vote of no confidence against Chang Chun-hsiung and installing a new premier. Expect much political maneuvering in the months ahead. (See story, page 33.)
Singapore Pilots Released
Their detainment almost brought Taiwan's air traffic to a standstill. The three Singapore Airlines' pilots flying the October 31 flight that crashed while taking off from Chiang Kai-shek International Airport had been detained for six weeks as Taoyuan prosecutors mulled over the prospects of charging the pilots with homicide through professional negligence. International pilot associations worldwide decried Taiwan for allowing local prosecutors to press charges -a move that goes against international standards for crash investigation - and threatened boycotts. Taoyuan prosecutors said the pilots were free to go in December, provided that they return to aid in the investigation if need be.
Filipinos Welcome Again
New Filipino workers are once again welcome to enter Taiwan after a six-month ban. The Council of Labor Affairs (CLA) lifted the ban on December 6. The council had banned new Filipino workers from coming to Taiwan on June 1, after it failed to reach any agreement with the Manila Economic and Cultural Office (MECO). The CLA has repeatedly complained that MECO has interfered with local firms in negotiations with Filipino workers, and sought to have MECO cover all medical expenses for illegal Filipino laborers. Though not all the issues have been resolved, the CLA is hoping MECO will soon sign an agreement to serve as the official agent for hiring Philippine labor. Presidential Pardons
President Chen Shui-bian granted amnesty to 21 prisoners on December 10, International Human Rights Day. The prisoners were jailed for refusing to serve military service or on convictions handed down without sufficient evidence.
Dalai Lama Delay
Back in October, the Dalai Lama announced plans for his second trip to Taiwan. So where is he? Local Taiwan media reported the Tibetan spiritual leader has not canceled his visit to the island, but postponed it. Officials at the presidential office confirmed the Dalai Lama plans to meet with President Chen Shui-bian to discuss non-political matters.
FINANCE
S&P Negative on Taiwan
Standard & Poor's moved Taiwan's sovereignty rating down a notch in December, shifting the island's rating from stable to negative. In a report detailing reasons for Taiwan's downgrade, S&P said domestic political squabbles had further weakened the island's equity and property markets. Despite the change, Taiwan maintained its "AA+" and "A-1+" short-term credit ratings, applying to both local and foreign currency obligations.
Free for All
It's gone. Completely gone. Taiwan's limit on foreign investment in local firms listed on the Taiwan Stock Exchange went the way of the dodo on January 1. The cabinet removed the investment ceiling in a move largely seen as an effort to boost the island's financial sector.
CROSS STRAIT TIES
Easier Investment
The Executive Yuan (EY) agreed to ease high tech and large-scale investment restrictions on Taiwan firms investing in the mainland. Economics Minister Lin Hsin-Yi said the cabinet was looking to ease the government's "no haste, be patient" policy following strong criticism from the island's business leaders. The new measures will allow Taiwan firms to invest in eight-inch wafer foundries, notebook computer plants, and upstream petrochemical facilities in China. Lin said the government is also considering raising the current ceiling of investment in a single project in the mainland from its current US$50 million. President Chen Shui-bian was expected to address the issue in full in late January.
BUSINESS
Big Time Tax Break
Banks, insurance companies, and other financial institutions will no longer pay business tax, the cabinet announced in December. The elimination of the 2 percent business tax will take NT$30 billion from the central government's annual revenues. The Ministry of Finance hopes to make up for this by raising revenues from the National Property Bureau by NT$20 billion. The tax revision must receive approval from the Legislative Yuan before going into effect.
Fast Track Business Tax
In an attempt to beef up tax enforcement, the cabinet announced in December that the government will collect business tax on imported products immediately upon their entry into Taiwan. Currently, business tax on imported items is collected when they are sold in Taiwan. The new measures are designed to keep importers from evading business taxes.
Slight Rise in CPI
The NT dollar goes just about as far as it did last year, according to the latest government statistics. Taiwan's 2000 consumer price index rose by a mere 1.26 percent over 1999's CPI boost of just 0.18 percent, a 13-year low according to the Directorate General of Budget, Accounting, and Statistics (DGBAS). The DGBAS predicts the CPI will jump by 2.01 percent in 2001 as the NT dollar loses value at the exchange counter. But the DGBAS says the depreciation of the local currency will be greatly offset by increased competition and lower tariffs expected with Taiwan's hoped WTO ascension late this year.
Unemployment High
Taiwan's jobless rate hit its highest level in 15 years in November with 3.23 percent of the population unemployed. The Directorate General of Budge, Accounting and Statistics (DGBAS) reported that November's unemployment rate matched a high set in February 1986. The DGBAS blamed the trend on plant closures in Taiwan's traditional industries along with a general economic slowdown.
TRACKING THE TAIEX
Happy Year of the Snake?
In the end, 2000 was not the kindest year toward the Taiwan Stock Exchange (TSE), but it was not overly damaging, either. The TaiEx did lose more than half of its value at the end of 2000 since the heady days of early spring when the TaiEx looked as if it might bust through the 10,000 mark. Yet Cheng Cheng-mount, associate research fellow at the Taiwan Institute of Economic Research, says the TSE could see a slight recovery in the first months of 2001. From late November through mid January, the TaiEx was rattled by both a shaky worldwide IT market and an even shakier Nasdaq. But Cheng believes the market will revive, expecting Taiwan's continued competitiveness in the IT sector and helpful outside factors, such as the drop in the U.S. interest rate, to push investors to the trading floor. Hu Sheng-cheng of Academia Sinica's Institute of Economics agrees that the Nasdaq heavily influenced the TSE this winter, but expects it will take several months for the government and the market to woo investors back. The TaiEx bottomed out at 4,614.63 on December 27, then peaked at 5,436.78 on January 10.
Nouveau Riche
There are two sides to every coin, even a NT$1 coin. The NT dollar has kept a relatively steady course, thanks to both the Central Bank of China (CBC) and a strong U.S. dollar, says Hu Sheng-cheng, director of Academia Sinica's Institute of Economics. The bright side to this stability, Hu points out, is that it adds a little more competitiveness to Taiwan's IT sector just as the global market gets tighter. But Cheng Cheng-mount, of the Taiwan Institute of Economic Research, warns Taiwan may lose its edge if the U.S. economy goes south in 2001. The U.S. dollar is expected to depreciate by 3 percent this year and as the U.S. dollar sinks, Cheng says, the NT dollar should climb by at least 3 percent. Either way, at least the new, flashy bills beginning to circulate will make it a pretty, if not a powerhouse, currency.
The Love Boats?
Cross-strait relations have not blossomed into love just yet (and few ? especially the likes of Vice President Annette Lu ? would view the two sides as ready for marriage). But at least relations got a little friendlier between Taiwan and the mainland as 2001 rolled in. Taipei opened its much-heralded ini-links,? allowing direct cross-strait travel and commerce between the frontier islands of Kinmen and Matsu on January 1. Two ships made the historic first (legal) direct journeys: one loaded with 190 Taiwan government officials and community leaders who visited Xiamen for four days, a second filled with Matsu worshippers who toured the Xiamen area for a week-long pilgrimage.
Although largely seen as simply legalizing long-running illegal direct shipping between the Taipei-controlled islands and the nearby mainland, the mini-links do represent a significant political change. They were opened just as Beijing announced China would welcome further direct links ? provided they be classified as domestic rather than international routes. The dispute is far from over, but at least the two sides are back on speaking, and visiting, terms.
Hard Hours (to Decide)
Labor groups have protested and many of the island's industrial leaders have bemoaned it more than they probably would a tax on oxygen. We're talking about Taiwan's new work hours, an issue that is still, believe it or not, in dispute. The cabinet is still pushing for a 44-hour workweek while many KMT and New Party legislators are fighting hard for a schedule of 84 hours per two weeks. Premier Chang Chun-hsiung has promised his cabinet will follow the will of the Legislative Yuan. Whatever the final decision, don't start planning new hobbies for your free time just yet. Both sides are promising long-term buffer periods of up to two years to sweeten their sales pitch.
Light Up and Help Out
Smoking is bad for your health, but it may indirectly help someone else's. The Ministry of Finance announced in early January it will levy a NT$5 "health welfare charge" on every pack of cigarettes sold in Taiwan. Revenues from the tax will fund the National Health Insurance Bureau, which will receive 70 percent of the new tax revenues, the Department of Health section for Tobacco Hazards (20 percent), and the Ministry of the Interior's social welfare funds (10 percent).
Taiwan's Cabinet Connection
Most likely there will be little, if any, KTV-ing or betelnut chewing in the White House during George W. Bush's administration, but there could be a strong Taiwan connection. Bush nominated Elaine Chao, former head of the United Way, the Peace Corps, and a regular fixture in the previous Bush and Reagan administrations, as his candidate for Labor Secretary. Chao was born, though not bred, in Taiwan. As of press time, Chao had yet to face confirmation hearings on Capitol Hill, but perhaps the Chen Administration can take heart that it might soon gain some extra pull in Washington.
F.Y.I.
No Longer Just a Gentlemen's Agreement
Manners are not just a good idea, they may soon be law. A bill before the Legislative Yuan seeks to outlaw spitting in public and the law would carry some pretty tough measures to encourage the island's litterbugs and betelnut-chewers to behave. Under the Environmental Protection Agency's (EPA) proposed law, the central government will slap those found guilty of littering or public spitting with fines ranging from NT$400 to NT$1,500. To cut down on the number of repeat offenders, the EPA also wants to require those prosecuted to attend two-hour classes on good manners. That'll teach'em, the EPA hopes.
