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Publications Topics Archive Topics Archive 2006 Vol.36- No.8 Taiwan Briefs
Publications Topics Archive Topics Archive 2006 Vol.36- No.8 Taiwan Briefs | Taiwan Briefs |
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By Charmaine Pretorius
MACROECONOMICS MACROECONOMICS MOSTLY SOUR, VERY LITTLE SWEET July had a whole lot of bad news and very little good news for financially battered Taiwan consumers confronted with higher inflation (particularly fuel prices) and higher interest rates. Inflation rose at its fastest pace in five months, with the consumer price index (CPI) up 1.73% in June compared with the same month last year, lessening government hopes to maintain CPI growth within 2% this year. According to Chou Ji, director of the economic forecast center of the Chung-hua Institution for Economic Research (CIER), the full-year CPI index is projected to reach 2.19% - and if international oil prices escalate to US$80 per barrel next year, Taiwan's GDP growth for 2007 could drop to 3.87% while the CPI could reach a disturbing 6.15%. CIER pared its GDP outlook for this year back to a growth rate of 4.11%, down from the 4.17% projection it made in April. It also revised downward its economic growth forecast for next year from 4.18% to 4.15% and slashed the prediction for growth in private investment from 4.06% to 2.14% on expectations that political factors could influence investment willingness. This more conservative outlook follows predictions that the Central Bank of China (CBC) will maintain a stance of gradually tightening credit. In late June the CBC upped its rediscount rate for the eighth consecutive quarter to reach 2.5%. Goldman Sachs said it expects the CBC to hike rates again at its next meeting in September and possibly further in December. The continued surge in international oil prices prompted the nation's two oil refiners - Chinese Petroleum Corp. (CPC) and Formosa Petroleum - to raise prices at the pump last month by NT$1 per liter, the third increase this year. And that was not the only major news of upward price adjustments. The Ministry of Economic Affairs approved a 15% price hike for liquefied natural gas, Taiwan's two major air carriers - China Airlines and EVA Airways - got the go-ahead to raise fuel surcharges, and inter-city bus companies were permitted to raise fares by 18%. Further dampening optimism were some developments in the financial sector. Mckinney Tsai, president of the International Commercial Bank of China, warned that by December the nation's banks are expected to accumulate NT$252.5 billion (US$7.71 billion) in non-performing loans. He said bad debt from credit cards could reach NT$100 billion (about US$3 billion), while that from cash-advance cards would hit NT$69.8 billion and from personal consumer loans another NT$82.7 billion. In addition, following penalties against Chinatrust Commercial Bank from the Financial Supervisory Commission (FSC), Moody's Investor Services downgraded its outlook rating on Chinatrust - the country's largest credit-card issuer - from "positive" to "stable." The FSC penalties relate to irregularities and misuse of funds. BNP Paribas downgraded the institution's shares from "hold" to "reduce" and cut its earnings forecast by two-thirds. At the same time, stronger-than-expected exports provided a beacon of hope for the Taiwan economy. Exports rose 16.5% in June (beating Bloomberg's forecast of 12.5% growth) to top US$18.1 billion, the fourth highest figure ever. This boom was mainly driven by the electronics sectors' export growth rate of 18.3% year-on-year. Imports for June totaled US$16.8 billion, up 12% over the same month in 2005. In its latest report on economic indicators, the government's Council for Economic Planning and Development (CEPD) said its color-coded monitoring system flashed "yellow-blue" in June, signaling deceleration in major economic activities. A June survey by the CEPD also indicated that only 16% of manufacturers expected the economy to improve over the next three months, while 14% remained negative and the remainder believed that economic performance would be unchanged. CROSS-STRAIT RELATIONS LIFT-OFF FOR CROSS-STRAIT RELATIONS? Under new regulations announced by the Mainland Affairs Council (MAC) in June, China Airlines' first non-stop cross-Strait cargo flight took off for Shanghai's Pudong Airport on July 20. The new policy allows Taiwanese companies to apply for cargo charters to ship equipment, machinery, and parts - but not finished goods - to the mainland. It also expands the number of passenger flights, previously limited to the Lunar New Year period, to include other festivals such as Tomb Sweeping Day, Dragon Boat Festival, and the Mid-Autumn Festival. The first non-stop flights under this agreement (they will still have to pass through the airspace of another territory such as Hong Kong) will operate for the Mid-Autumn Festival in October. In a related development, the MAC agreed to permit multinational corporations to bring over more employees from China for regional company meetings held in Taiwan. The previous limit was 30 such visitors, but MAC Chairman Joseph Wu said that applications for "hundreds" of visitors would now be approved. A relaxation of currency exchange regulations to allow prospective mainland tourists to directly change renminbi into New Taiwan dollars is also in the pipeline. But the government remained firm about retaining the cap on investments to China at 40% of a listed company's net worth, saying that with 70% of Taiwan's foreign investment concentrated in China, there is already too much exposure in a single market. Wu said that any future revisions of the policy would not simply entail increasing or decreasing the cap, but would employ various indexes to monitor the amount of investment flow. DOMESTIC NEWS SU RESHAPES HIS CABINET In his first major personnel reshuffling since he was delegated expanded powers by President Chen Shui-bian in June, Premier Su Tseng-chang announced nine key appointments, including the elevation of Vice Minister of Economic Affairs Steve Chen to head the ministry and the selection of Shih Jun-ji as chairman of the Financial Supervisory Commission (FSC). Su indicated that additional Cabinet appointments would be made soon. Steve Chen's selection may be a sign of Taiwan's seriousness about trying to obtain a Free Trade Agreement with the United States. A trade specialist, Chen played a key role in Taiwan's negotiations for accession to the World Trade Organization when he was based in Switzerland. He later served as director general of the Bureau of Foreign Trade (BOFT) and Taiwan's top trade negotiator. Outgoing minister Morgan Hwang, who formerly was chairman of the Taiwan Power Co., stepped down after only 192 days in the job, citing his age and poor health. The new FSC chairman had just taken office as a member of the commission on July 1. A Ph.D. in economics who had served as a researcher at Academia Sinica, Shih had previous experience in public service as a member of the Fair Trade Commission from 1998 to 2001. Former chairman Kong Jaw-sheng was suspended due to allegations of corruption during his previous service as chairman of the Taiwan Sugar Corp. Another Cabinet portfolio had changed hands in July when Henry Ho, chairman of the economics department at National Taiwan University and a onetime principal economist at the U.S. Internal Revenue Service, took over as finance minister. He replaced Joseph Lyu, who will now be a minister without portfolio. PRESIDENT STILL UNDER FIRE The storm around President Chen's administration has not abated, and July saw a fresh round of allegations, calls for him to step down voluntarily, and threats of action to force him out of office. Following the failure of a recall motion in the Legislative Yuan in June, People First Party (PFP) legislators said they planned to bring up impeachment charges after the next legislative session convenes on September 19. Already inured to attacks from the opposition pan-blue bloc, the ruling Democratic Progressive Party was shaken when even a group of pan-green academics took up the call for the president to "take political and moral responsibility and seriously consider stepping down." Kuomintang (KMT) Legislator Chiu Yi kept up his barrage of allegations of misconduct against the President and First Lady Wu Shu-jen. He charged, for example, that invoices from hotels and other commercial establishments were provided by Wu's friends and then used to justify expenses charged to a Presidential Office fund. In a display of political tit-for-tat, the ruling party hit back by accusing Taipei Mayor Ma-Ying-jeou of having funds from a special city government allowance deposited directly into his personal bank account. The saga of the Chen family's woes also continued to provide grist for the Taiwan media. Presidential son-in-law Chao Chien-ming remained at liberty despite two appeals by prosecutors against a District Court decision to release him on bail of NT$17 million (US$523,000) pending his trial on charges of profiting from insider trading. Hoping to distance itself from Chao, who resigned from the party after the scandal broke, the DPP leadership issued a statement accusing him of "severely damaging" the party's image. Wu Shu-jen has had problems of her own. She was quizzed by prosecutors as to whether she had benefited from the Pacific Sogo Department Store "gift-certificate scandal." Chen-family physician Huang Fang-yen allegedly accepted vouchers worth NT$6 million on her behalf, presumably in return for assistance to the winning side in a shareholder fight for control of the company. And domestic helper "Auntie A-ching" received her 15 minutes of fame after allegations that her salary had been illegally footed by taxpayers since 2001. She has looked after a residence owned by President Chen but lived in by his daughter and her husband. The daughter returned NT$2.4 million to the government to cover back wages. INTERNATIONAL A LESSON IN DIPLOMACY If Taipei Mayor and KMT Chairman Ma Ying-jeou had hoped to allay perceptions that he harbored anti-Japanese sentiments by making a visit to Japan in July, there seem to be questions about how well he succeeded. It did not help that while on a trip arranged by the Taipei City Government to promote city-to-city exchanges, he criticized Prime Minister Junichiro Koizumi's visits to the controversial Yasukuni war shrine. The following day he was grilled by Japanese Diet members, among them about 70 members of a pro-Taiwan parliamentary group, who expressed concern over his stance on the disputed Diaoyutai (Senkaku) islands and on Taiwan's long-stalled weapons procurement plan. Ma returned to Taiwan two days ahead of schedule, saying he needed to make sure emergency preparations were in place for Typhoon Bilis. BUSINESS VALUE ADDED ISLAND Participants in the Conference on Sustaining Taiwan's Economic Development managed to come up with a total of 516 "consensuses" despite bickering, threats, and a walkout by the ruling DPP's ally in the pan-green camp, the Taiwan Solidarity Union (TSU). Most prominent was the proposal to create a "green value-added island," which aims at achieving an economic growth rate of 5%, a per capita GDP of US$30,000, and an unemployment rate of below 4% by 2015. The TSU walked out during the conference after a proposal to ease restrictions on economic exchanges with China was accepted for reference, saying it would staunchly oppose what it called Premier Su's attempts to revise a longstanding policy laid down by the president. HIGH-TECH GIANTS LEAPING FORWARD In other business news, Taiwan's high-tech giants continued to shine with record earnings. Taiwan Semiconductor Manufacturing Co. (TSMC), benefiting from strong overseas demand for consumer electronics, reported an 85% increase in Q2 earnings. But it cautioned that revenue was likely to drop by about 2% in Q3 due to unsolved inventory problems. United Microelectronics Corp. (UMC), the world's second biggest contract chipmaker after TSMC, said Q2 earnings had soared nearly 20-fold from a year ago because of recovering demand and further asset sales. The growth is expected to continue at double-digit rates. UMC posted NT$6.05 billion (US$184.1 million) in net income for the three-month period ending June. Both companies continued to see rising shares. Advanced Semiconductor Engineering, the world's top chip testing and packaging service supplier, also posted record high quarterly earnings with its Q2 income of NT$7.32 billion (US$225 million). The company saw a 33% increase in Q2 earnings, compared to the previous quarter. On the downside, AU Optronics Corp., the world's third-largest maker of liquid crystal display panels, saw its Q2 net income drop by 60% from a year earlier as panel prices plunged due to overcapacity. |
