Saturday, November 22, 2008

Economic Round-up

At last the sigh of recession: the land
Wells from the water, the beasts depart, the man
Whose shocked speech must conjure a landscape
As of some country where the dead years keep
A circle of silence, a drying vista of ruin,
Musters himself, rises, and stumbling after
The dwindling beasts, under the all-colored
Paper rainbow, whose arc he sees as promise...
-- WS Merwin

Ma save us! The Recession Monster cometh, as the newspapers were all reporting yesterday:

The Directorate-General of Budget, Accounting and Statistics (DGBAS) said that GDP shrank 1.02 percent in the third quarter from a year ago and could contract another 1.73 percent in the fourth quarter, dragging down this year's full-year growth rate to 1.87 percent, from the 4.3 percent it estimated in August.

As the economic contraction is expected to persist into the first quarter of next year, the DGBAS slashed its GDP growth forecast for next year by more than half to 2.12 percent from the 5.08 percent it predicted in August in the face of slumping exports and tight consumer spending.
Party time is over: in 2006, 2007, and 2008 economic growth rates accelerated, and in just six months since Ma has been elected, growth rates have plummeted to a seven year low. Great work by my two favorite Administrations, those of Ma and Bush. Reality has also hit Ma's promises on Chinese tourists and on income:
The voucher plan is forecast to lift the economy by 0.64 percentage points next year, while Chinese tourists are expected to contribute an extra 0.5 percentage points.

The DGBAS put the number of Chinese tourists visiting Taiwan at 3,000 a day next year — although the number averaged 273 in the third quarter and is expected to rise to 500 in the last quarter.

Annual per capita income is estimated at US$18,020 this year and to fall to US$17,651 next year, the report said.
Remember, during the election one of Ma's promises was to raise per capita income to US$30,000 annually. Then it became $30,000 eight years. At present, Ma would have to double incomes in seven years to do that. Even if we have 7% growth for the next seven years, and the population doesn't grow, we won't be able to do that.

Further observe that they are still in Cargo Cult mode -- Chinese tourists will flood in to save the economy! With Japan, an important source of tourists for Taiwan, moving into recession, Chinese tourism may become more important. Too bad things are not looking up in China either. Maybe we'll reach a thousand tourists a day....

The driver of growth here for the last few years has been tech exports. Sure enough, "Taiwan's tech sector in peril", says the NYTimes in the International Herald Tribune.
The souring world economy has spotlighted the weaknesses in Taiwan's semiconductor and flat-panel screen industries, which trail rivals from South Korea and Japan in technology, customer base, scale and currency valuation. The shortfall has become particularly evident during the recent supply glut and, now, a decline in orders from the United States and Europe.

Some Taiwanese technology companies remain in good shape to ride out the downturn. Taiwan Semiconductor Manufacturing Co. , or TSMC, retains a leading edge in chip-making technology, for example, and contract electronics giants like Hon Hai are somewhat insulated by their big economies of scale.

But the smaller players in lower-margin businesses are vulnerable, analysts say, companies like the memory-chip maker ProMOS and the flat-panel makers Chi Mei Optoelectronics and Chunghwa Picture Tubes.

For now, the gravest concern is focused on memory-chip makers. Taiwanese firms account for 40 percent of worldwide production of latest-generation dynamic random-access memory, or DRAM, chips, compared with 30 percent to 35 percent for South Korean companies, according to the market researcher DRAMeXchange, based in Taiwan.
What's the problem with the memory chip makers?

Memory-chip companies are at a disadvantage in technology, analysts say, because they lease technology from South Korean and Japanese manufacturers and in exchange provide those foreign companies with DRAM chips at below-market cost. That saves research and development and other costs in good times. But it is a punishing pricing arrangement in bad times, when memory chips are selling on the open market at below the cost of production.

"If you don't have technology, you can't drive down costs," said Joyce Yang, an analyst at DRAMeXchange.

The article gives a good look at Taiwan and some of the policy choices the government faces.

Speaking of policy, the government gave out the latest set of restrictions on the voucher plan.

Also forbidden is the use of vouchers to purchase non-business services. For instance, patients can’t use vouchers to see doctors.

“Moreover,” Chen Tain-jy, chairman of Council of Economic Planning and Development (CEPD) told the press, “nobody is allowed to buy or sell vouchers.” In other words, collection of vouchers to purchase an expensive item, such as a car, is prohibited.

Otherwise, all nationals of Taiwan, old and young, can pay for anything anywhere with their vouchers, like cash.

Even vendors are allowed to accept vouchers. You can buy a bowl of beef noodles from one of them and pay for it with one of your vouchers.

But, Chen said, licensed vendors alone can accept vouchers. All they have to do is to reuse them somewhere else where what is known as a unified invoice is issued as receipt.

Unlicensed vendors, though not officially allowed, can accept them and reuse them just like their licensed counterparts.

“You can stay in a hotel or visit a karaoke bar and pay with vouchers,” Chen said. “Of course, you can even buy gold as an investment.”

One can also purchase caregiver services; the caregiver can reuse the voucher.

Vouchers will be available in a book of nine, according to the CEPD. There will be six NT$500 vouchers and three NT$200 vouchers in a book.

" as an investment." Taoyuan Nights sent me an amused email yesterday: isn't buying investments a saving? And thus, entirely contrary to what the voucher is supposed to be doing?


Anonymous said...

" as an investment." Taoyuan Nights sent me an amused email yesterday: isn't buying investments a saving? And thus, entirely contrary to what the voucher is supposed to be doing?


What is Cargo Cult mode?

Anonymous said...

Actually Michael,

Like he said, it's a global crisis. Liek where the hell do these Chinese Tourists get the money to come and tour Taiwan when they can't even feed themselves.

Anonymous said...

Hmmm... it sounds like.... like... money.. but with restrictions.

So essentially... they're just going to print more money and hand it out.

Anonymous said...

There is so much easy fruit for a government with such a strong mandate to pick, but with their credibility so severely damaged and their complete lack of vision, I am very afraid it's going to have to wait for another four years.

What about privatizing all those idiotic government industries? A fairly wealthy, modern democracy still has its dirty government hand in steel, oil refining, "sugar", ship building, among others. The worst part of all this is there are successful private sector counterparts to all of these companies, so there is no real reason for any of this!

There's much more, but all they can think about is China and Chinese tourists--look how great that turned out. They completely screwed investors in the tourist industry by creating huge expectations that they couldn't follow up on. Who's going to rescue all those investments in hotels and other property? Who encouraged them to put all that money into renovations?

Michael Turton said...

Cargo Cult -- where they petition the Gods to give them cargo, like South Sea Islanders.

Anonymous said...

This is supposedly why Ma picked Vinnie Shaw as his running mate and not because he is the only token Taiwanese in a position of power in the KMT who is not a gangster (though his family is a Chia Yi gang-family). Shaw was to be Ma's great economic advisor.
I see this a lot in Taiwanese politics... Mickey Mouse gimmickry and silly stunts (not saying other countries don't resort to gimmickry...but Taiwan has a flair for the kind you'd find coming out of a 9th grader's run for class president.

Anonymous said...

Chinese President Hu Jintao met here with a senior Taiwan envoy in the highest-level meeting to take place overseas between the rivals since their split in 1949.

Taiwan's former premier Lien Chan, who is honorary chairman of the island's ruling Kuomintang party, met with Hu for about 40 minutes at a hotel in Lima, Peru, where leaders are meeting for an Asia-Pacific summit.

Tommy said...

If you have access to the SCMP, there have been many articles over the last few days about this. Hong Kong's government is thinking of introducing a similar voucher plan, and they are looking to Taiwan as a model. All of the questions that people in Taiwan are raising about this are being discussed:
a) Limited benefit
b) Vouchers spent in the place of usual spending
c) Money going to prop up a limited set of retailers rather than benefit the broader economy

Dixteel said...

The Vouchers plan just doesn't sound right...why don't they just have the tax cut (they should have done this much earlier)? The Vouchers thing in my opinion really "put people down." I might feel less of myself if I am going to get the vouchers. Maybe that's what Ma and Hong Kong gov trying to tell people to "behave, and Big Dady has presents for you." Plus it looks almost like communism...and makes you wonder if this plan will have the same bad side effect of communism economy: degradation of value/pricing exchange system in the economy.

And like those experts already pointing's probably useless in terms of relieving economy down turn pressure.

StefanMuc said...

If you can pay someone with the voucher, and they in turn can pay someone else with it - then the restriction on selling the voucher is bascially gone. It's just awkward currency. I'm pretty sure there'll be a trade of vouchers for money soon, with the buyers offering less than the official price.

That said - it might still work somewhat - some people may not think of voucher money as coming out of their normal budget, and be more willing to spend it on consumer goods - especially because it's awkward to spend it on necessities (like food from street vendors or medical treatment). I'm not totally convinced, but maybe I'm underestimating the psychologcial factor.

For those wondering about the term cargo cult: