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Publications Topics Archive Topics Archive 2007 Vol.37- No.4 Taiwan Briefs
Publications Topics Archive Topics Archive 2007 Vol.37- No.4 Taiwan Briefs | Taiwan Briefs |
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By Jane Rickards
CONSUMER DEMAND UP, BUT BY HOW MUCH? The Asian Development Bank in its latest forecast said it expects Taiwan's GDP to grow by 4.3% in 2007 and a further 4.5% in 2008, figures that match the Directorate General of Budget, Accounting and Statistics projection for 2007. Goldman Sachs, in a February report, came in with a more optimistic forecast of 4.5% for 2007 and 5.5% for 2008. Generally economists have predicted a slowdown in the U.S. economy, which would soften demand for Taiwan's exports. The question is to what extent demand from other areas such as Europe and China will offset this. The ADB sees inter-regional trade and robust demand from China as likely to aid Taiwanese exports, with export growth expected to slow by around four percentage points to 8.8% for the first half of this year before an upturn in the global electronics cycle in the second half provides a lift to 9.4% export growth for 2008. Economists are also predicting that, with the worst of the credit-card cycle over, domestic demand will recover gradually, but again the question is by how much. The ADB says that investment is likely to increase modestly and private consumption is expected to accelerate to 3% this year. Goldman Sachs found that GDP growth in the fourth quarter of 2006 eased somewhat at 4%, from 5% in the previous quarter - but not nearly as sharply as the market expected. It said that while a slump occurred in exports, the improvement in domestic demand was better than expected, with growth in private consumption reaching 2.4% (compared with only 0.4% in the third quarter of last year). It said the government may also introduce policy or fiscal measures to stimulate the economy in the lead-up to the presidential elections, which could be a further catalyst for consumption. The optimistic GDP forecast, said the Goldman Sachs report, is also because "we expect economic and political realities to push for more breakthroughs in the liberalization of cross-strait economic restrictions in the next few years," although it duly noted the political uncertainties involved. The ADB found that inflation is likely to remain low this year at 1.6% before dropping even further to 1.5% in 2008. Nevertheless, as was widely expected, Taiwan's Central Bank shunned conventional economic theory by increasing its benchmark interest rate by 0.125 percentage points at the end of March for the eleventh quarter. Governor Perng Fai-nan told a press conference that the current rate was not a peak and had further to rise. Despite the Central Bank's non-stop rate hikes, money market interest rates have not followed suit due to excess liquidity in the financial system, with banks struggling to find borrowers following the credit-card crisis. Taiwan also has too many banks, creating an immensely competitive loan pricing environment. "The current environment has rendered the central bank's efforts in guiding interest rates higher rather ineffective....Real interest rates remain at historic lows," Goldman Sachs says. The Central Bank is still unwilling to stop raising rates, though, as this would indicate to the market that it is satisfied with the historically low real interest rates, which could spur capital flight. "We now expect the central bank to hike rates twice during 1H 2007, each time by an increment of 12.5 bp," Goldman Sachs said. Only the market can improve real interest rates, however, and they might start to rise in late 2007 or early 2008 as domestic demand strengthens and the credit-card crisis further eases, encouraging local banks to lend more, Goldman Sachs said. CROSS-STRAIT RELATIONS TAIWAN PROTESTS PRC MILTARY SPENDING Taipei in early March demanded that China make its opaque defense spending processes transparent after Beijing announced plans to boost military spending by 17.8% in 2007 to US$44.94 billion, the biggest recorded rise in the past decade. Cabinet spokesman Cheng Wen-tsang pointed out that China was increasing its deployments of missiles aimed at Taiwan in a threat to peace and stability in the region. "The Beijing government must make its military affairs open to the outside world and accept supervision from the international community," Cheng said. National People's Congress spokesman Jiang Enzhu said Beijing did not want to threaten other countries - an assurance that was unlikely to mollify an uneasy Washington or deter neighboring powers such as Japan and India from boosting their own defense spending. International experts have estimated that China's true military spending may be three or more times the official figure. VOLCANIC ISLAND THE NEW HONG KONG? In a time-saving twist to the cross-Strait travel problem, Taiwan's Far Eastern Air Transport (FAT) recently started operating flights to Beijing, Shanghai, and Shenyang via the small, volcanic South Korean resort island of Jeju, and plans to set up a Taipei-Jeju-Hangzhou route by late April. A FAT spokeswoman told Taiwan Business TOPICS that flying to Shanghai via Jeju takes around four hours, two to three hours less than flying there via Hong Kong or Macau. Passengers reportedly have around an hour's wait in Jeju before transferring to a mainland-bound Chinese airline carrier working in conjunction with FAT. Domestic air carriers have been hard hit by the recent opening of the high speed railway and are looking for new business opportunities. DOMESTIC NEWS CHIANG STATUTE DISMEMBERED, KMT DISGUSTED President Chen Shui-bian and other officials from the ruling Democratic Progressive Party (DPP) have stepped up a campaign to rid the island of reminders of Chiang Kai-shek, the Kuomintang (KMT) strongman who presided over an authoritarian regime on Taiwan after losing the Chinese civil war. In mid-March, Kaohsiung Mayor Chen Chu ordered that a 26-foot-high statue of Chiang at a cultural center be chopped into around 200 chunks and shipped to a park next to the former dictator's mausoleum in Taoyuan, which is already full of Chiang busts and figures removed from schools and government agencies in recent years. Many KMT members were outraged, arguing that Chiang should be remembered for guiding the nation's rapid economic development and protecting it from China's military threat. In Taipei, the KMT-controlled city government classified the landmark Chiang Kai-shek Memorial Hall as a cultural heritage site to thwart central government plans to knock down its outer walls and rename it the "Democracy Memorial Hall." On the last day of March, thousands attended a KMT-sponsored rally outside the hall to defend Chiang's memory. "He wasn't a saint - he made mistakes, just like you and me, which we will review," said former KMT leader Ma Ying-jeou. "But we won't write him off completely because of them." MA PLEADS NOT GUILTY Former Taipei Mayor Ma Ying-jeou declared his innocence on the first day of his corruption trial in early April. One of the KMT's brightest political stars, Ma in February resigned as KMT chairman after prosecutors indicted him for misusing a special allowance worth US$333,000 during his eight-year tenure as mayor. In court, Ma admitted he had taken the money in question for personal use but argued that special allowances have an uncertain legal status and should be treated like income, not public funds. Despite the trial, his party is still expected to formally name him the KMT presidential nominee in May. INTERNATIONAL FORMER MAC CHIEF NAMED U.S. ENVOY Mainland Affairs Council (MAC) Chairman Joseph Wu was appointed Taiwan's envoy to the United States in March, replacing career diplomat David Lee, who will be the new representative to Canada. Wu, who has a doctorate in political science from Ohio State University, acquired a reputation during his two-year stints as deputy secretary general of the Presidential Office and as MAC chairman for his abilities to explain the twists and turns of the president's stance on Taiwan, the United States, and China in ways that foreign audiences can understand. Wu will be the first DPP member to serve as Taiwan's man in Washington. The U.S. government welcomed his appointment. "I thank President Chen for picking you and I wish you good luck on a very tough job," American Institute in Taiwan (AIT) Director Stephen Young told Wu at AmCham's Hsieh Nian Fan dinner. Chen Ming-tong, a former MAC vice chairman, was appointed to succeed Wu at the Council. SEX SLAVE DENIAL PROMPTS OUTRAGE Taiwan joined other Asian nations to lash out at Japanese Prime Minister Shinzo Abe after he denied in early March that there is any evidence that the Japanese military directly coerced women from various countries in the region into serving in World War II army brothels. Abe's remarks were seen by many as a retreat from a landmark 1993 statement in which Japan acknowledged that many women, often euphemistically called "comfort women," were forced into prostitution. Historians say that up to 200,000 young women, mostly from Korea, but also from Taiwan, Indonesia, the Philippines, and China, were forced to serve as sex slaves. "We are against any government that refuses to tell the truth," Premier Su Tseng-chang told the legislature. In late March, Abe backed down, saying he stood by the 1993 statement. BUSINESS GOVERNMENT MAPS OUT PLANS TO EASE AVIATION INVESTMENT LAWS The Cabinet announced a series of revisions to civil aviation laws to greatly relax ceilings on foreign investment in local airline carriers and to permit private airports. Currently Taiwan-registered airlines are required to have two-thirds of the ownership in domestic hands and two-thirds of the seats on the boards of directors filled by Taiwanese nationals. The new proposal - which will now go to the legislature for consideration - would cut both these ratios to a little over 50%. The objective is to attract more international aviation expertise as well as capital, but analysts said the market would be considerably more attractive to foreign investors if regular direct cross-Strait transport links were established and if the government continued with plans to privatize China Airlines. MEDIATEK TO BUY STAKE IN NUCORE Taiwan's MediaTek, the world's main designer of chips used in DVD players, announced in late March it would buy a 69% stake stake in NuCore Technology for US$37 million through a share swap. The move was widely viewed as designed to help MediaTek tap into the market for digital camera components. NuCore, with headquarters in San Jose, California, develops digital and analog imaging devices for digital still and video cameras. Each MediaTek common share will be exchanged for 45.31 shares of NuCore, with the deal tentatively scheduled to close at the end of July. BENQ'S WOES FAR FROM being OVER Taiwan's biggest maker of branded consumer electronics, still recovering from a shaky takeover of Siemens AG's handset unit in Germany, saw its Taipei and Taoyuan offices searched by prosecutors in mid-March, with two senior executives detained for questioning over alleged insider trading. According to the allegations, some employees benefited from BenQ stock trading around March last year, just before the company posted a loss and saw its shares fall to a ten-year low. The share prices later plummeted further after the company reported an annual loss of US$836 million due to its purchase of the bankrupt German handset unit, and again following a newspaper report that the company may face US$667 million in claims from the former Siemens unit. In early April, the company announced that it had completed a share sale of US$137 million worth of AU Optronics stock to an unknown buyer, the latest in a series of share sell-offs to boost its finances. CLA MULLING MINIMUM WAGE HIKE The Council for Labor Affairs (CLA) is considering raising the minimum monthly wage for workers by 11%, a rise from the existing NT$15,840 (US$480) to NT$17,462 (US$529), CLA chairman Lee Ying-yuan told the legislature in late March. CLA officials pointed out that Taiwan's minimum monthly wage has been frozen for ten years. Meanwhile the legal work week has been cut from 90 hours to 84 hours over a two-week period, but the present wage, when averaged out to an hourly sum, fails to reflect this. Lee has been in talks with labor leaders over the issue before the CLA's wage screening committee decides on an upward adjustment. Lee said the CLA would consider the export competitiveness of the domestic economy before deciding on a rise, and Vice Minister of Economic Affairs Shih Yen-hsiang noted that the business community has reservations about the impact of any upward hike on production costs. |
