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Publications Topics Archive Topics Archive 2006 Vol.36- No.7 Taiwan Briefs
Publications Topics Archive Topics Archive 2006 Vol.36- No.7 Taiwan Briefs | Taiwan Briefs |
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By Lucien Crowder
MACROECONOMICS
MACROECONOMICS INESTIMATABLE First-quarter GDP growth came in at 4.93%. This was a poor showing when compared to the fourth quarter's 6.4% rate of increase, and even compared to the 5.6% first-quarter growth that had been expected by the Directorate-General of Budget, Accounting, and Statistics (DGBAS) - but it was a tick or two above the consensus private-sector estimate of 4.7%. As is so often the case in Taiwan's economy, robust export growth drove the overall GDP number, with exports increasing 14.5% over the same period a year before (and IT exports to China, in particular, leading the way). Exports' contribution to GDP was counteracted, however, by rising imports, which jumped at a rate of 9.4%, largely due to high fuel prices. (As late as May, these basic trends in trade were still underway, with May exports rising 10.5% but imports growing by an even larger 12.4% - and April's fuel imports of US$1.97 billion outstripped by the next month's fuel imports of US$2.61 billion). The weakest element of first-quarter economic performance was private consumption, which grew at only 2.1%, much reduced from the 3.7% registered in 2005's Q3. Fuel prices played a role in the reduced buying, with automobile sales taking a particularly hard hit, but it was the ongoing consumer-debt problem that took most of the blame for the tucked-away wallets. The chairman of the Council for Economic Planning and Development (CEPD) went on record as saying that without the credit problem, first-quarter consumption growth might have come in as high as 5.3%. In the wake of the news about first-quarter growth, a slew of GDP estimates came out - and they were all over the lot. The DGBAS, encouraged by the first quarter's strong export numbers, raised its full-year GDP growth estimate to 4.31% from 4.25%. Goldman Sachs raised its estimate to 4.2% from 4% (and revised its 2007 number upward to 4.5% from 4.1%). Citibank held steady with a 2006 forecast of 3.9%. In early June, Global Insight projected uninspiring full-year GDP growth of 3.7% - while the International Monetary Fund, almost simultaneously, came in with a much sunnier 4.5%. Days later, the Taipei think tank Polaris Research raised its full-year estimate infinitesimally, to 4.32% from 4.3%. So there you have it - Taiwan's economy will grow this year at a rate somewhere between 3.7% and 4.5%. In keeping with the somewhat muddled picture that emerged from the GDP forecasts, the CEPD announced in May that its previous month's index of leading indicators had fallen, and that its color-coded economic indicator had gone "yellow-blue" after eight straight months of "green." In theory, the color change predicts slowing growth in the months ahead, but a CEPD representative said it remained to be seen if the fade to yellow-blue was just a one-month anomaly. An issue of special concern in May and June was the local equity market. Early June in particular offered investors a bumpy ride, and by the middle of the month the market had lost about 10% of its value compared to one month before. Everyone agreed that political uncertainty had some bearing on the market's performance, but so did high fuel prices and the likelihood of higher interest rates. Also, it may simply have been time for a readjustment after the market's buoyant performance in the early part of the year. May's 1.58% increase in the consumer price index and 6.24% increase in wholesale price index suggested to many market watchers that the Central Bank of China is likely to raise rates again at its June and September meetings. This supposition is strengthened by recent statements from the U.S. Federal Reserve that seem to presage continued stateside rate hikes. The Central Bank of China's June 29 announcement that it was raising the benchmark interest rate by 0.125 percentage points for the eighth consecutive quarter then came as no surprise. The rediscount rate was increased to 2.5%, while the secured accommodations rate was raised to 2.875% and the unsecured loan rate to 4.75%. Some concern was expressed, however, over the widening rate spread between the United States and Taiwan. CROSS-STRAIT RELATIONS CROSS-STRAIT FLIGHTS EXPANDED June brought a tangible breakthrough in cross-Strait relations as Taiwan and China - through their civil-aviation intermediaries, of course - reached an agreement allowing non-stop passenger flights across the Strait during four holiday periods every year, and allowing certain direct cargo flights as well. Several times in recent years, Taipei and Beijing have reached one-time-only deals allowing Taiwanese businesspeople to return home for the Lunar New Year on charter flights that, while they had to touch down at or at least fly through the airspace of Hong Kong or Macau, were still immeasurably more convenient than other transportation options. The new arrangement will build on this by allowing regular passenger flights, instead of just charters, and allowing flights during four holiday periods each year instead of just one. The flights will be open to Taiwanese businesspeople operating in China, their employees, and PRC citizens who also hold passports from other countries. Cargo flights won't be liberalized quite so much, but at least Taiwanese businesspeople operating in China will be able to apply, on a case-by-case basis, for permission to transport equipment to their manufacturing facilities across the Strait. WHA EFFORT FAILS AGAIN This spring, for a 10th consecutive year, Taiwan launched an effort to gain observer status at the World Health Assembly (WHA), the most important decision-making body of the World Health Organization. As had happened nine times before, the effort failed in the face of China's fierce opposition. Several countries with which Taiwan has no official diplomatic relations - including the United States, Australia, Canada, Japan, and Mongolia - spoke out in favor of Taiwan's effort. But this year more than most, the bid's failure seemed a foregone conclusion, with Taiwan admitting ahead of time that, should it fail to gain observer status, it would be reasonably satisfied with "meaningful participation" in the WHA's meetings. Evidently, Taiwan's low expectations were due to a "memorandum of understanding" signed last year by the WHO and China, a memorandum that allows Taiwan, in certain situations, some of the benefits of WHO membership. It was China rather than Taiwan that signed this memorandum, but no matter - the PRC seems to have won this round of cross-Strait sparring, having weakened Taiwan's ability to argue for WHA observer status while conceding nothing on the question of sovereignty. DOMESTIC NEWS SCANDAL HITS FIRST FAMILY Is it just another of Taiwan's periodic overblown political crises, full of sound and fury and signifying nothing but a not-yet-mature democracy? Or is it a political earthquake that could cause President Chen Shui-bian's administration to collapse? "It" is a scandal centering on presidential son-in-law Chao Chien-ming, who has been formally indicted on charges that he traded his influence - though crucially, not influence on the president - for inside information about a publicly traded company called Taiwan Development Corp. (TDC). If prosecutors' suspicions are correct, Chao used the information he received to help his mother, a novice in the stock market, make a killing on buying and selling TDC shares. The details of the case are mind-bendingly confusing, but they produced in the Taiwanese public an overriding sense of disappointment in the president. President Chen attempted to stabilize his crumbling political foundations by volunteering at the end of May to limit his own power - basically, leaving Premier Su Tseng-chang to run the Executive Yuan without input from the president. But how could anyone verify that power had actually been relinquished? Was the president merely engaging in a ritualistic assumption of responsibility? Was he trying to position Su for a presidential run in 2008? No one could say for sure. OPPOSITION ATTEMPTS TO RECALL PRESIDENT All of the above and more, of course, provided an ideal opportunity for the opposition parties to push their luck with a recall motion to force President Chen to step down. But as widely predicted, the recall motion failed when the 119 votes garnered fell short of the two-thirds majority needed to push it through, ending almost a month of severe political hostility and social antagonism that seems to have equally tested the popularity of Kuomintang (KMT) Chairman Ma Ying-jeou. According to surveys by two local newspapers, his support rate dropped in the wake of the recall's failure by about 10 percentage points from the previous 60% percent. In comparison, support for President Chen, already very low, appeared to remain unchanged at between 19% and 22%. Meanwhile the KMT, for the moment at least, has decided to hold off on its alternative option - a vote of no confidence against the government of Premier Su - which would be easier to pass as it needs the votes of only half of the legislators to be successful. But that would give the president the choice of replacing the premier or calling a new legislative election, and few incumbents of any party relish the idea of having to go to the polls prematurely. Although seeking a vote of no confidence is being urged on the KMT by its pan-blue partner, the People First Party, the KMT has set up a team to "carefully" study the implications of such a move. Following the June 27 recall vote, President Chen reiterated that he wishes to promote broad cross-party political consultations and the promotion of more cross-Strait contacts. A similar offer for renewed cross-Strait negotiations shortly before the recall vote was rejected by the opposition because they said they "do not trust him enough." HSUEHSHAN TUNNEL OPENS AT LAST On June 16, after a mere 15 years of construction and NT$100 billion of expense, the Hsuehshan Tunnel opened for business. The tunnel, at 13 kilometers the longest of several tunnels that are part of the 55-kilometer Chiang Wei-shui Freeway, helps connect Taipei with Ilan County's Suao. The project will reduce a two-hour drive between the two cities to a 30-minute affair. The freeway is expected to bring increased tourism and economic development to Ilan County, along with lots of traffic and pollution. Work on the Hsuehshan Tunnel was severely delayed when a vast underground cache of water was breached, causing a collapse that buried the machinery being used to build the tunnel. This and other technical difficulties were finally overcome - but the 25 lives lost in the freeway project are irrecoverable. INTERNATIONAL CHEN TRAVERSES THE GLOBE When President Chen Shui-bian set off in May to visit allies Paraguay and Costa Rica, the question - as always before his foreign trips - was how he would get where he was going. The usual procedure is to schedule a "transit stop" in a major U.S. city like New York or Miami. But President Chen's recent scuttling of the National Unification Council and Guidelines apparently caused the United States to offer him a chillier reception than usual. Chilly as in Anchorage, Alaska. President Chen declined the U.S. offer and attempted an alternate route - one that, with twists and turns, took him not only to Paraguay and Costa Rica but also to the Dominican Republic, the United Arab Emirates, Libya, Indonesia, and even the Netherlands (for a brief touch-down). The last four of these countries recognize Beijing, so Chinese officials were smoking mad, but fume was all that it could do. Perhaps they'd have preferred the Taiwanese president to spend a week promenading down Broadway? AIT CHAIRMAN VISITS TAIWAN By early June, whatever irritation the United States might have felt toward President Chen following his snub of Alaska appeared to have dissipated - or at least to have been superseded by new concerns. With the scandals surrounding the first family seeming to push Taiwan into (yet another) political crisis, Taipei received a visit from a prominent U.S. representative - the Hawaii-based Raymond Burghardt, chairman of the American Institute in Taiwan. Whatever message Burghardt may have delivered to President Chen is not known. What is known is that Chen told Burghardt that he would abide by a group of pledges he had made when first inaugurated as president - namely, that he would not declare Taiwanese independence, change the country's name, alter the Constitution in any way that would affect sovereignty, or promote a referendum on sovereignty. After the meeting between Chen and Burghardt, the U.S. State Department said that it was "pleased." BUSINESS TOPPOLY MERGES WITH PHILIPS UNIT Back in April, the Mainland Affairs Council announced the relaxation of regulations that had prevented Taiwanese firms from making China-bound investments in the fields of semiconductor testing and of manufacturing small LCD screens. In late May, the Investment Commission put the new regulations to use by approving the merger of Taiwan's Toppoly Optoelectronics Corp., a mobile display firm, with a similar unit of Royal Philips Electronics NV - a merger whose go-ahead depended on relaxed regulations because Philips' display unit included factories in Shanghai and Shenzhen. The merger creates a new company called TPO, whose largest shareholders are Compal Electronics and Philips itself. It is projected to become the world's second- or third-largest maker of small and medium-sized LCD devices. Toppoly alone had occupied the 12th spot. After the deal, Toppoly announced that, in order to comply with a government requirement that China-bound investments be offset by investments within Taiwan, the company would spend NT$10 billion over three years to expand its local production capacity. Soon afterwards, however, Toppoly announced that it was postponing a planned share sale whose proceeds were to have funded expansion. |
