By Faith Hung
TAIPEI, April 13 (Reuters) – A year after elections returned
the Nationalist government to power, significantly reducing the
chance of the Taiwan Strait becoming a global flashpoint, the
focus is firmly on how the export-dependent economy can navigate
a worsening global environment.
It expects economic growth of 3.59 percent in 2013, up from
an earlier forecast of 3.53 percent.
RATINGS (Unchanged unless stated):
S&P;: AA-
MOODY’S: Aa3
FITCH: AA-
Following is a summary of key risks to watch in Taiwan:
VULNERABLE ECONOMY
Taiwan is one of the most open of Asia’s exporters, with an
exports-to-GDP ratio of 74 percent. Around half of its exports
are hi-tech products, making it particularly vulnerable to falls
in external demand.
Orders for Taiwan’s exports in February shrank 14.5 percent
from a year earlier, far worse than expected, as orders from
China, Europe and the United States all fell, but the government
said it saw significant improvement in March.
The first quarter is traditionally the weakest for both
Taiwan and China, analysts said.
At its most recent quarterly meeting in March, the central
bank left its benchmark discount rate unchanged at 1.875
percent, the seventh straight quarter the policy meeting kept
the rate on hold.
For the latest poll of forecasts for GDP, inflation and
interest rates, see.
In the face of the global downturn, the government has
unveiled a series of initiatives aimed at increasing investment
into Taiwan by foreign companies and encouraging domestic firms
to invest more at home.
Taiwan also faces pressure from free trade agreements being
negotiated among its neighbours, which could put its exporters
at a disadvantage. It has started trade talks with New Zealand
and Singapore, and with South Korea on an investment protection
pact. It is also set to restart talks with the United States on
expanding economic ties.
The government has had a rough spell since winning
re-election last January. A series of policy flip-flops plus
rises in state-controlled fuel and power prices having brought
street protests and created the impression that the
administration lacks direction.
What to watch:
– Any further revisions to GDP growth expectations, and
interest rate changes.
– Government stimulus for the economy.
– Foreign investor interest in Taiwan stocks, a bellwether
of appetite for risk.
– Talks over free trade agreements.
GETTING ALONG WITH CHINA
China claims Taiwan as its own and has not renounced the use
of force to recover the island, even as it pursues a policy of
pushing economic integration through incentives that it hopes
will lead to a full political union.
The Chairman of China’s Securities Regulatory Commission
(CSRC) Guo Shuqing visited Taiwan in late January for an
unprecedented meeting with the island’s top financial regulator.
The CSRC said it will allot investment quotas of up to 100
billion yuan ($16 billion) for Taiwanese who want to put money
into China’s financial markets under the Renminbi Qualified
Foreign Institutional Investor (RQFII) programme.
The CSRC also announced a series of measures to open its
securities and futures markets to Taiwan.
As planned, a clearing system for yuan transactions has
started operating. Bank of Taiwan said late in March
that its Shanghai branch will start Taiwan dollar clearing
services in China, while Bank of China’s
Taipei branch is the clearing bank for yuan transactions in
Taiwan.
Taiwanese banks started to conduct yuan business in
February, and China said in April it will allow its banks to buy
or sell Taiwan dollars for clients.
Officially recognised Taiwan investment in the mainland has
reached about $120 billion since records began in 1991, and 1
million Taiwanese are estimated to be working in China.
Still, links with China remain a highly divisive issue in
Taiwan, where sentiment in favour of continuing the status quo –
if not for outright independence – remains very strong.
Several political irritants also remain despite booming
business ties, such as Taiwan’s counter-claims to islands in the
South and East China Seas, where the mainland has been
increasingly assertive about its own territorial claims. U.S.
arms sales to Taiwan also rankle with Beijing.
Taiwan’s President Ma Ying-jeou has said he has no timetable
for political talks, but has floated the idea of a peace treaty
with China in around decade, subject to a referendum in Taiwan.
What to watch:
– Progress of economic integration.
– Insistence from Beijing on political talks.
(Editing by Daniel Magnowski)
