Friday, September 05, 2008

Our Bottomless stock market

The local Chinese papers had front page stories on our collapsing stock market today, with both the Apple Daily and Chinese Times observing that the 4 day fall in the stock market this week had totaled 633 points -- a sardonic comment on Ma's 6-3-3 promise, which Ma said this week was meant to apply for any time up to the last year of his second term. The Taipei Times reported today:
The Presidential Office yesterday defended President Ma Ying-jeou’s (馬英九) “6-3-3” economic policy, saying it was announced before the global economic downturn, that Ma had not abandoned it and that it would apply until 2016.

Presidential Office Spokesman Wang Yu-chih (王郁琦) said that the administration would strive to achieve its goals in spite of the global economic slump.

“2016 is the year by which we plan to achieve all three goals. It does not mean that we have to wait until 2016 to accomplish them all,” he said. “As long as the global economy recovers, it is possible that we can achieve some of the goals earlier.”

Wang made the remarks in response to media inquiries about Ma’s comments that his “6-3-3” campaign pledge was unlikely to be realized anytime soon, but he hoped it could be achieved by 2016 — the end of a possible two terms in office.

The “6-3-3” economic policy refers to the goal of achieving annual GDP of 6 percent, average annual earnings of US$30,000 and an unemployment rate of less than 3 percent.

As of this writing, at about 1:00 on the 5th, the market has continued to fall another hundred points or so. The DPP is calling for a cabinet reshuffle, but it is hard to see what a new cabinet can do about the skidding global economy and falling investor confidence. Why did the stock market fall again yesterday? The Taipei Times reported it was due to Ma's comments on his economic promises:

The TAIEX plunged 172.3 points, or 2.61 percent, to close at 6,412.63 on turnover of NT$91.19 billion (US$2.81 billion), Taiwan Stock Exchange data showed.

Analysts attributed the fall chiefly to panic selling by domestic investors after President Ma Ying-jeou (馬英九) said a day earlier that he could not honor his campaign pledge to achieve economic growth of 6 percent and raise annual per capita income to US$30,000 during his four-year term.

Winson Wang (王榮旭), a stock analyst at Marbo Securities Consultant Co (萬寶證券投顧), said foreign fund managers could not be blamed for the market’s bearish performance yesterday, as they sold only NT$7.7 billion in shares.

“Rather, domestic investors calculated it was better to sell their stock now since the government has no intention of fixing the economy in the near future,” Wang said by telephone.
This was followed by calls to lower the corporate income tax and similar moves. Short-term solutions......

Speaking of leadership and taxes, remember when Vincent Hsiao was touted as the experienced economic development specialist who would take us all to the promised land? He's been working on the tax reform that will lower taxes on business. The Ma government has been arguing that the tax regime should be altered, and industry groups have been using the Milton Friedman Foundation as the apparent source of some simpleminded ads (picture above) that claim that low taxes (left) lead to high economy (right). A commentary the other day in the Taipei Times discussed the proposals:

The Chinese National Federation of Industries (CNFI) is running a TV commercial urging tax cuts to stimulate the economy. The federation has spent large sums on propagating spurious theories in a tedious campaign to brainwash the public and pressure the Cabinet’s Tax Reform Committee in an attempt to manipulate the direction of tax reform. Is the commercial telling the truth?

First, it claims that low taxes equal economic growth, and that high taxes equal economic decline. If this theory is correct, shouldn’t tax havens such as the Virgin and Cayman islands be the world’s most developed economies?

The commentary is long, but points out that high-tax environments are coincident with good economic growth and high living standards, and noting that low tax regimes, like the US, are known for high income inequality and rising government debt. It also rebuts claims that Taiwan's taxes are higher than either Singapore's or Hong Kong's. Well worth a read.


Anonymous said...

Notice how the KMT's been pretty quiet lately about raising investment caps for Taiwanese businesses in China?

Maybe their polls are showing them that promoting capital flight to an enemy country isn't as popular as they thought it would be.

Haitien said...

Unfortunately, I'm starting to wonder if anyone is going to notice all of Ma's pre-election checks bouncing. A quick look at the major Chinese language news aggregators shows most of the content is still fixated on the real and imagined misdeeds of Chen Shui-bian. Makes you wonder at the convenience of it all doesn't it?

David said...

I don't know who is more stupid. Ma and the KMT for making such ridiculous promises or the Taiwanese voters for believing them.

Tommy said...

I particularly like the comment on the article about the administration defending Ma's promises that said that Ma had made over 400 promises during the campaign and that each one had a different timeline. This, combined with the 6-3-3 admission sounds like they are giving themselves carte blanche to break any promise they please.

Basically, Ma has admitted that he is helpless in the face of the global economic downturn. That may be true to some extent, but he did campaign based on economic miracles. Is it so wrong to hold him accountable when he doesn't seem to be able to fulfill any of them?

Anonymous said...

Lower taxes very much do attract economic investment in the long term.

I have a great counter-example to your US example--Taiwan has an effective tax rate much, much lower than the US (zero capital gains) and is much more equal than the US is.

Also, I think you are not realizing that many of Taiwan's taxes are actually regressive and lowering them would be a great boon to Taiwan's poor.

Taiwan needs to institute tax reform and that includes both raising some taxes and lowering others. Capital gains taxes should be implemented and carbon/pollution/per gasoline taxes need also to be levied.

On the other hand, income tax for the poorest should really be "negative" as it is in the US (the government gives you money) and overall, the tax rates even for high income earners really should be lowered.

Sales tax should also be abolished since that's just a tax on the poor anyways.

Chaon said...

I'll go with "Taiwanese voters" for $500, David.

Anonymous said...

(Disclaimer- Repeat comment. Only my personal opinion about investment and stock market.)

The first two rules of thumb for short term traders (who go on 100% margin are:) "buy on the rumor sell on the news" and "buy on fear sell on greed". March to May was precisely the time to sell Taiwan stocks- all the good news was out & the global economy was starting to show signs of trouble!! For long-term investors: just buy stocks with great fundamentals, great management, earning potentials, $ cost average and based your long term financial goals. INGORE the day to day market move if you are in for the long term.

The biggest problem is that many Taiwanese treat "investing" like "gambling" and make too many risky bets by going into margin. Investors only have themselves to blame if they go on insane margin and have to keep selling their positions at lower and lower price in order to cover their margin call!! Another problem with Taiwanese investors is that too many trade on emotions and word of mouths.

Ma should focus on setting economic policies and make investments for the future so that when the global market recovers Taiwan will be ready to beneift and go with the ride. Ma should not care and should never have commented how many points the stock market will go up or down yesterday, today or tomorrow or next months during the election! I hope he learned his lesson.

Unknown said...

The situation is pretty clear: the confidence of the people (specially those who invested in the stock market) is at a low level, and only some gigantic turn of events will help the Taiex. I believe that many companies will be loosing and loosing value until they are kicked out of the stock exchange (Kolin anyone), and can either declare bankruptcy or being bought at a low price by someone with a good insight.

In the end, dropping the value of the companies is a good way to make Chinese want to buy them... this might be a big conspiracy thought, but one never knows what was really signed between the KMT and the CCP...

Anonymous said...

Maybe Ma wants to take a page from China's book to crash the economy first so that he will have room to achieve a double digit growth in the 8th year? But if this continues he definitely will not have a 2nd term.

On the tax cut, here is an excellent piece from IHT:
With US as a live experiment ground, the data show it all.
This should shut them up if they want to use the Republican's dumb tax policy as an example to support their stupid theory.

On the other hand, as November draws near, I am really worried that the unpredictable US citizens will be tricked by this same old lie once more and get themselves 4 more years of hell.

Runsun said...

About a month ago, it was reported that in average each stock investor lost ~ 700,000 NTD. During this week alone, each one of them lost 200,000 NTD. So Ma's empty promise has caused ~1,000,000 NTD ( around 30,000 US dollars) lost per individual stock investor since May 20.

Convinced by Ma's 633 promise, a guy borrowed money to buy stocks. He has committed suicide 'cos he has no way to recover the lost.

Ma's government tries to solve the slow economy by asking his cabinet heads to go out and buy something, saying that it will "stimulate the economy" ...

Michael Turton said...

I know the taxes are regressive, but I also believe that when people talk about "tax reform" they don't mean helping out the little people. Reforming the corporate tax code isn't going to mean getting rid of the regressive fuel tax, for example, or changing it in a progressive way so that it favors smaller vehicles over larger engine vehicles. But that is what they are advocating.


Michael Turton said...

David: Being from the US, where people are still willing to vote for Bush/McCain after 8 years of utter failure and catastrophe, well...can't really comment on the taiwanese voters.


Anonymous said...

I consider myself a liberal and had been voting for the Democrates until 2004. My vote went to Bush all because of his off camera comment "whatever it took" concerning defending Taiwan.

I was going to go with Democrate in November. However, I hear Biden is not exactly Taiwan's friend. I am now sitting on the fence.

What do you say, Michael?

channing said...

Um, I don't think it's wise to buy stocks when a presidential candidate says so...

It can be said that Ma's promises were exorbitant, but botched gambles of laobaixing isn't a good example.

Anonymous said...

'The Presidential Office yesterday defended President Ma Ying-jeou’s (馬英九) “6-3-3” economic policy, saying it was announced before the global economic downturn..'

The credit crunch started around Oct 07. If the election had been then I might give this opinion the benefit of the doubt. It was in March and by this time everyone was aware that the world economy was in for a very rocky time.

He's not responsible for the plummeting stock market but we shouldn't let him weasel his way out of paying the political price for his pre-election bluster.

When the Taiex was falling early in the decade from the bursting of the tech bubble in the US, I don't remember many people with a sympathetic attitude to Chen Shui-bian (though I guess we have to note that he went on to win a second term...)

Anonymous said...

And Chen didn't promise on the economy either... at least not the way Ma did. His promise was a more democratic, transparent, and clean government, which he might have actually achieved relative to the previous KMT administration, but with very public, major scandals that have greatly blemished his record as you can see from the news today.

Anonymous said...

It is stating the obvious to readers of this blog, I'm sure, but the most basic thing to understanding the essence of Ma as a politician (and his teflon appeal to the masses) is that his policies and promises all sound wonderful, but are by nature basically unquantifiable.

Probably an intentional strategy which has worked well for him for many years. If anyone calls him on the specifics of this or that promise, he merely has to re-interpret the meaning to fit the present circumstances. And smile.

Examples: Before the election he assured people that sovereignty was very important to him. In his first speech as president he actually said that it was NOT important. Has he ever stated clearly what he consideres sovereignty to mean? Or at what point he would consider soveriegnty to compromised? Of course not, that would be getting too specific. Which would be below such a great statesman.

He promises to adhere to the "1992 Consesus", a solid promise which sounds quite reassuring-- to people with only a superficial understanding of the real issues involved in China-Taiwan relations. But what that means exactly is anybody's guess. How can the issues and outcomes of this policy be quantified, when the Consensus is interpreted differently by both sides, and in fact exists only in the imaginations of the KMT and their supporters. Yes, the PRC is playing along somewhat, but everyone but KMT supportes have to admit that there exists no such consensus.

--scott in tainan

channing said...

I should note that while people are accusing Ma of saying that "sovereignty is not important," he must mean that Sovereignty in terms of the ROC jurisdiction is not currently threatened in any meaningful, physical way. Fujian Province of the PRC is not about to absorb the ROC functions and the Fujian Province public security bureau is not going to supplant any police powers on ROC soil. Beijing and Fujian provincial governments are not going to legislate and expect Taiwanese to follow.

In the short term (i.e. Ma's presidential term), ROC sovereignty isn't going to go anywhere. In that context, he is downplaying the importance of sovereignty as a topic of debate within Taiwan.

Any political leader who thinks sovereignty of his own land is unimportant would have to be insane. International status is one thing, those supporting Taiwan Independence can understandably complain about Ma taking Taiwan in a different ideological direction. But it doesn't have a significant overlap with jurisdiction.

Sovereignty will be maintained in the foreseeable future. You just won't see Ma using that word.

Anonymous said...

Anyone else think the KMT is just messing with everything just to make Taiwan easier to get brought out by the PRC Chinese?