AmCham 
Publications Topics Archive Topics Archive 2005 Vol.35- No.7 Taiwan Briefs
Publications Topics Archive Topics Archive 2005 Vol.35- No.7 Taiwan Briefs | Taiwan Briefs |
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BY LUCIEN CROWDER
MACROECONOMICS MACROECONOMICS MIXED BAG Since it was announced in May that first-quarter GDP growth had come in at a disappointing 2.54%, the big question has been whether Taiwan's economy is merely recalibrating after the white-hot growth of last year's second half or whether it is in danger of sinking into stagnation. So far, signals are mixed. The most worrisome news comes from the export sector. High fuel costs and slowing economies abroad held May export growth to its lowest level in two years. New export orders, while not slowing as much in May as exports themselves, fell in absolute terms over March and April levels. Overall, export growth over the first five months of the year slowed dramatically compared to the corresponding months of 2004. But sluggish exports can be compensated for by domestic consumption, and that's what appears to be happening in Taiwan. Sales of new cars, for example, grew in May at a rate of more than 20% year-on-year - though the increase was partly attributable to automakers' aggressive promotion programs. Other factors contributing to domestic demand are a vibrant real estate sector and a healthy employment environment (with May's slight increase in unemployment attributable to new graduates' entering the work force). Putting all these factors together, Academia Sinica projects that domestic consumption will register growth of 3.26% on the year, a strong number by Taiwan's historical standards. At the end of June, the Central Bank of China took stock of the muddled situation and decided to raise rates 12.5 basis points across the board, putting the rediscount rate at an even 2%. The bank made clear that inflation was among its main concerns, noting that price increases on the year may exceed the 1.7% projected by the Directorate-General of Budget, Accounting, and Statistics. And in fact prices rose by 2.3% in May over the same period a year before. But price increases are to be expected in an economy experiencing solid growth in domestic consumption - and outside economists seem less concerned with inflation than do Taiwan's central bankers. In any case, observers doubted that the rate hike would affect inflation very much, given that the ample liquidity in Taiwan's money markets often prevents the Central Bank's rate increases from flowing through to the capital markets. The bank also noted that Taiwan's real borrowing rates remain lower than those in major overseas economies, a situation that can lead to the capital outflows that are among the bank's longstanding concerns. When the bank earlier in the month reported a smallish increase in the nation's foreign exchange reserves, it noted that capital appreciation had done more to pump up reserves than had capital inflows. Adding a little more confusion to a confused situation, the Council for Economic Planning and Development announced that its index of leading indicators had increased at a rate of 0.8% in May, after declines the previous two months - but cautioned observers not to read too much into the mild increase. No one really knows where the economy is headed, but that doesn't stop people from guessing. Academia Sinica's best guess at present is that GDP growth will come in at 3.74% on the year, while UBS Securities Asia Ltd. puts the number at 3% (the lowest projection among investment banks). Both projections are downward revisions. CROSS-STRAIT RELATIONS FLURRY OF U.S. STATEMENTS June was a slowish month in cross-Strait relations - no controversial laws passed, no trips to China by Taiwanese politicians, a relative dearth of PRC bluster. But U.S. officials kept things interesting nonetheless by making a series of frank statements on cross-Strait affairs. Secretary of Defense Donald Rumsfeld set the tone by expressing misgivings about China's military build-up, saying that the PRC's democratic development had not kept pace with its military spending - and specifically criticizing China's targeting of Taiwan with missiles. An even higher-profile statement came from President George W. Bush, who said that in the event of a unilateral Chinese attack against Taiwan, the United States "would rise up in the spirit of the Taiwan Relations Act." (Bush also cautioned, however, that a Taiwanese declaration of independence would change the United States' attitude.) But perhaps the most significant statement was the one made by Assistant Secretary of State for East Asia Christopher Hill, who called on China to engage in talks with President Chen Shui-bian without setting conditions - such as Taiwan's acceptance of the "one China" policy. June also saw several important military developments. First it was reported - though not confirmed by the Ministry of Defense - that Taiwan had successfully test-fired locally developed cruise missiles that could strike the PRC. Shortly afterward it was reported that China had launched a submarine-based ballistic missile whose range exceeds anything currently in the Chinese arsenal. Meanwhile, military types on both sides of the Strait were working hard to acquire defense capabilities from outside their countries' own borders. Taiwan had some success, with the U.S. Defense Department saying it would supply key gear for air and missile defense. Beijing had less luck, however - its efforts to end the European Union moratorium on arms sales to China seems dead for the time being. DOMESTIC NEWS ENERGY CONFERENCE HELD A conference on energy policy held in Taipei last month and attended by government officials, businesspeople, academics, and environmentalists, produced one clear conclusion - that nuclear energy is on the way out and coal is going to replace it. Minister of Economic Affairs Ho Mei-yueh was quoted after the conference as saying that Taiwan would sooner or later become a nuclear-free country. Strong public opposition to nuclear power - opposition heightened because of Taiwan's frequent earthquakes - not only means that nuclear power is destined to be phased out, but that the nation's fourth nuclear power plant, on which US$7 billion has already been spent on construction, may never open. Ho said that the conference attendees had settled on coal as the prime replacement for nuclear power partly because world supplies of coal are expected to last far longer than those of petroleum. She said that Taiwan would adopt a "clean coal" policy in order to limit emissions of greenhouse gases. According to a proposed structure for energy use that was approved at the conference, coal will become the nation's largest energy source by 2020, fulfilling more than 40% of Taiwan's energy needs by that time. Petroleum is seen as providing 32%, with natural gas and other energy sources accounting for the balance. INTERNATIONAL FISHING DISPUTE HEATS UP with japan Japan and Taiwan usually get along pretty well. But things took a turn for the worse in June as a fishing dispute caused Taiwan to dispatch military vessels toward a patch of ocean that has long strained relations between the countries. At issue was water around the Diaoyutais, a group of islands that are claimed by Taiwan, Japan, and China. Taiwan and Japan have quarreled over these fishing waters for years, and have held more than a dozen rounds of negotiations on fishing issues in less than 10 years (though to little effect). The dispute recently got testier than usual when Taiwanese fishermen began complaining that they were being chased, arrested, and fined by Japan's coast guard. Certain Taiwanese politicians prevailed on the government to dispatch a pair of frigates to the area. One of the frigates, stocked with reporters and elected officials, managed to provide the politicians with lots of face time on television, though it did little to intimidate Japan, which declined to react at all. Subsequently, Premier Frank Hsieh said that the dispute should be resolved through talks - a 15th round of negotiations is scheduled - and also called on the Council of Agriculture and the Coast Guard Administration to provide financial assistance to fishermen to help them acquire global positioning systems. That way, they'll no longer stray "unwittingly" into areas recognized by Taiwan as Japan's exclusive economic zone. BUSINESS BENQ ACQUIRES SIEMENS UNIT It wasn't quite as sexy a deal as Lenovo-IBM. But by acquiring the cell-phone operations of Siemens AG, including all of its R&D and manufacturing facilities, BenQ showed that Taiwanese companies can pull off high-profile international acquisitions too. In some ways the deal was an odd one. Siemens' cell-phone unit has lost money for four consecutive quarters and had amassed debts totaling more than US$600 million. Siemens had reportedly shopped the unit to other industry heavyweights like Motorola, but no one had wanted to take on its liabilities and its highly compensated employees. Finally BenQ stepped in - paying nothing in cash to acquire the business. Instead, BenQ will take over the unit and its liabilities, while Siemens will provide BenQ with over US$300 million in cash and will spend over US$60 million to buy newly issued BenQ shares. For the first 18 months after the deal's completion, which is expected in the fall, BenQ will have the right to use the name "BenQ-Siemens." After that, "BenQ" will be the official designation of the cell-phone brand. CHINESE LENDERS GET CLOSER Economists frequently call on Taiwan's government to allow closer economic integration with China. In June the economists got a bit of what they wanted, when the government announced that it would allow Chinese banks to open representative offices in Taiwan. As rep offices, they won't be allowed to engage in banking per se - rather, they'll be limited to conducting market research and preparing to enter the market - but branch offices are presumably next. Analysts said that the immediate effect of the liberalization would be small, as Chinese banks are probably not competitive enough yet to challenge established Taiwanese and multinational businesses. But the relaxed rules may signal the beginning of an era in which more and more Chinese firms are allowed to move into the Taiwan market. FOUL-UP AT FUBON Misplaced decimal points are the bane of accountants worldwide. But rarely do they result in consequences as grave as those that befell Fubon Securities Co. when one of its senior traders, placing an order on the Taiwan Stock Exchange on behalf of Merrill Lynch, spent NT$8 billion on stocks when he should have spent only NT$80 million. The trader who made the blunder was suspended from work. For his employers, there was nothing to do but review internal risk controls and buy the stocks back from Merrill. Fubon said it would not attempt to unload the stocks for the time being, partly because the firm expects the market to perform well in the second half of the year. JOINT VENTURE LAUNCHED General Motors and Yulon Motor have officially launched a joint venture established for the sale and distribution of GM vehicles in Taiwan. The venture, known as Yulon GM Motors Co. Ltd., will import Cadillac, Buick, and Opel vehicles - and by the end of next year it will also begin handling Buick vehicles that Yulon will assemble locally. The joint venture's capital is NT$2 billion (US$62.5 million), with Yulon Motor holding a 51% equity stake and GM the remainder. A large nationwide network of showrooms and service centers is in the works, and Yulon Motor also plans to establish an engineering center to adapt Buick designs for the local market. NANOTECH CONFERENCE SLATED FOR SEPTEMBER A Taiwan International Nanotechnology Week will take place September 21-25, organized by the Ministry of Economic Affairs together with the Taiwan External Trade Development Council. The event will incorporate the 2005 Taiwan Business Alliance Forum and will also feature: * Speeches by two specialists from the United States - Clayton Teague, director of the National Nanotech-nology Coordination Office, and Matthew M. Nordan, vice president of Lux Research. * Panel discussions on nanotech's relevance to traditional industries, the energy industry, electronics, and the biomedical sector. * An International Nano-technology Exhibition. * Private business appointments by application. Interested parties are invited to register online at http://investintaiwan.nat. gov.tw/. CORRECTION Due to an editing error, the Kansas Taipei office, which is an AmCham member, was not identified as such in the chart on page 26 of the June TOPICS, accompanying the article on state trade offices in Taiwan. |
