Tuesday, February 23, 2010

Economic Recovery at last?

Lots of news reports out there saying Taiwan's economy is a'booming. That's good news for all those suffering from unemployment and poorly-performing family businesses. A Christian Science Monitor "blogger" has the news:
Taiwan's GDP rose as much as 8.5% compared with a year earlier in seasonally adjusted terms and 9.2% in unadjusted terms. Compared with the previous quarter it rose 4.2%, or 18.0% at an annualized rate.

Bloomberg in its version claims that only now did Taiwan exit the recession, because only now did the yearly change turned positive, but usually the criteria for this is when the quarterly change turns positive, and the quarterly change turned positive already in the second quarter.

Not only has Taiwan exited the recession, it has in fact now recovered the entire loss in output during it, so that real GDP is slightly higher now than the previous peak in output reached during the first quarter of 2008. By contrast, while America, Japan and the EU has all recovered in the sense that quarterly change has turned positive, the absolute level of output remains below the peaks.

The main cause of Taiwan's recovery is the boom in neighboring mainland China. While political relations are still frosty (and turned even frostier after Taiwan recently bought advanced military equipment from America), trade and investment relations have increased dramatically, causing higher growth in both countries, and making war less likely.

Another reason for Taiwan's boom is its low tax and low government spending (only about 18% of GDP) policies.
Businessweek said it was even higher:

Taiwan's economy saw its strongest growth in five years in the fourth quarter, surging 9.2 percent with help from stimulus-fueled demand from China for the island's high-tech exports.

For all of 2009, Taiwan's economy contracted 1.9 percent, the Directorate General of Budget, Accounting and Statistics said Monday. That was the biggest contraction since 1951, the agency said. It predicted economic growth of 4.7 percent for 2010.

Those of us walking around and looking at the packed restaurants and wondering "what recession?" were actually onto something. The NY Times looked at the Asian economies, which by and large are doing well. Their comments on Taiwan are pretty good:
Political disputes between Taiwan and the mainland also are a question mark going forward. Taiwan’s president, Ma Ying-jeou, has been working to complete agreements that would lift some barriers on cross-Straits trade and investment. The agreements, Mr. Ma has argued, would aid Taiwan’s economy and help keep the island competitive with neighboring countries that have recently signed free-trade deals with China.

But the political opposition has mounted street rallies against Mr. Ma’s efforts, warning that the pacts could cost Taiwan jobs by, among other things, reducing tariffs on low-cost mainland imports. His political foes have also complained that his representatives have conducted negotiations with Beijing out of public view and warn that the deals may erode Taiwan’s de facto political independence from the mainland.
Certainly the big Chinese stimulus drove much of the recovery in Taiwan, but from my perspective another factor was that Asia's banks, under conservative regimes of control and in many cases state-owned, had been spared the "financial innovation" of Wall Street that had resulted in unregulated, criminal casino markets whose implosion had wreaked havoc across the West and destroyed many banks.

Economic growth, if it is for real, is good news for KMT in the upcoming elections, especially in December.

Speaking of trade with China, I blogged before on the problem of how smuggled crap from China is killing industries in all the countries it trades with. The CNA ran a piece today on smuggled day lilies, apparently brought in through Vietnam.

But banned Chinese agricultural products have found their way into Taiwan either through smuggling or being represented as the product of a third country.

Citing customs statistics, DPP Legislator Pan Men-an said Tuesday that 73,830 kilograms of dried day lily, purportedly from Vietnam, were imported into Taiwan in 2009, a 27 percent rise from the 58,108 kilograms that entered Taiwan's market in 2008.

Last month alone, another 39,984 kilograms of dried day lily were imported into Taiwan to satisfy higher demand during the Lunar New Year holiday, Pan said.

The shipments have invariably been accompanied by Vietnamese certificates of origin, but Pan said Vietnam does not produce a lot of day lily, and he contended that fake certificates of origin were used to get around the ban on importing the agricultural product from China.

Naturally, the day lilies in question are a third the price of local day lilies, have too much sulfur dioxide, and are whiter, implying they've been bleached.
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Dixteel said...

This is actully very interesting. IMO Taiwan's economy can be described in 1 word - "vibrant". It does not have the same problem of NA or Europe. However, it does have some issue/delimma.

For one thing, the average real wage stays the same or even going backward. Another one is the unemployeement rate.

Both pan blue / pan green likes to bash Taiwan's economy. That is a good thing to some extend as it helps identifying potential problems and also put some pessimism among investors so there won't be a huge bubble.

However, it can also create problems. Pan Blue, for example, try to create a false sense of urgency in order to tie Taiwan closer to China economically. This is an issue because 1st of all tie Taiwan closer to China might not solve Taiwan's economic problems but instead adding oil to the fire. Secondly the political implication could be so significant any economic issue becomes irrelevent in comparison. (What's the point of gaining 1% GDP when Taiwan becomes part of China).

KMT likes to give the impression that China is the only solution, China is the only savior, when Taiwan's economy is also closely tied with the US and Japan. Thinking only of China and see China as the only solution to everything is the real economic danger of Taiwan now.

Anonymous said...

It's still a weak recovery with regard to employment and salaries (though it's encouraging). The only way to tilt the imbalance between labor and capital back towards labor is to make it really easy for smart capital to come to Taiwan and compete against some of the big money idiots here.

Actually Taiwan is a complete undiscovered gem when it comes to foreign capital. No capital gains taxes (yes really)!!! 10% gift and inheritance taxes! Low corporate taxes! Low income taxes!

But Taiwan isn't some city-state with a chip on its shoulder whose only real advantage is regulatory arbitrage. It has cheap, high-quality national health-care, a workforce culture that is highly accepting of pay-for-performance, flexible wages, temp positions, contracting, and bonus-heavy salaries, and the workforce is highly, highly educated. Taiwan actually knows how to make and designs stuff!

Everything on the island being within two hours of each other with the high speed rail. That is just unbelievable compared to the commutes and wide dispersal of clusters in China or the US.

If the government were smart, they would be cutting down on red-tape for applications and getting the word out. That's the only real solution to wages in Taiwan--not introducing more cheap Chinese laborers in competition with Taiwanese laborers.

Richard said...

While Taiwan may seem to be doing better off, the global economy is still in the drenches. If the global economy continues to lag (i.e. the US), then I see Taiwan having a hard time maintaining these growth numbers. I'm more inclined to say that the U.S. and the global economy has a "lost decade" ahead of us, similar to what Japan has gone through.

Arty said...

Everything on the island being within two hours of each other with the high speed rail. That is just unbelievable compared to the commutes and wide dispersal of clusters in China or the US.

When is the last time you've been to China? It has 6 lane highways that goes to rural areas now just like US except they are brand new. Flees of brand new Boeing 737 for most domestic flights. Now it is building high speed rail-road etc.

Are you starting to worry now pan-green?

jerome said...

I concur whole heartedly to Anonymous5:4am tribute to the assets Taiwan holds. I also agree with Dixtel’s assumption that the Pan Blue evinces a false sense of urgency in order to tie Taiwan closer to China economically.

Take the number of Chinese tourists the KMT proposed foisting on the Taiwanese tourism industry. Alarms rang in my mind when I noticed that it was the number of Japanese tourists, according to government or industry data of preceding years. And it pointed at a pattern which, I would assume, applies to all Taiwan-made exports to Japan, starting with agricultural produces.

What made the Taiwanese economy what it is owes mainly to the business acumen of all those Japanese era-educated Taiwanese who where forced into private enterprise owing to various KMT policies, including that of making public service a Waishenren-only fiefdom.

With their background and silenced but deeply ingrained abhorrence of all things Chinese, those Taiwanese entrepreneurs did the only thing available to them. They quietly, relentlessly fostered economic ties with Japan. Meanwhile, KMT officials pretended overlooking the goings-on. Those preferred looking towards the US and Europe.

A day will come when a KMT insider will spill the beans on how aggrieved KMT economic planners used recorded Japanese-Taiwan trade data and simply copied and pasted these in their cross-strait trade extrapolations work-sheets. And next, it’s all vintage KMT propaganda. All fib.

Anonymous said...

I don't think that Taiwan's economy is eventually recovered provided by the remained high unemployment rate & low wage level.
Especially there is a term called "Oder in Taiwan & manufactur in China" which will also boost the economy growth however the actual job is not in Taiwan. I trust that when ECFA siganed, unemployment rate as well as wage level will be deteriorated.

channing said...

Arty, to be fair, transportation is almost always convenient on small islands with developed economies. Also, the high-speed travel infrastructure in China is currently accessible only to the middle-plus classes, not benefiting the average blue-collar.

And asking about the last time MT visited China is probably beyond the scope of this blog--wait, he IS in China, LOL. Right?!

Marc said...

I'd love to believe the economy has turned around, but it seems that the week before CNY, the economy had not recovered. Makes me think of that labor slogan: "If you think the system is working, as someone who isn't"

Marc said...

that should read: "ASK someone who isn't"

Anonymous said...

"When is the last time you've been to China? It has 6 lane highways that goes to rural areas now just like US except they are brand new. Flees of brand new Boeing 737 for most domestic flights. Now it is building high speed rail-road etc."

My favorite troll Arty. While China's infrastructure gains are impressive, no matter what, because China's major cities are so far spread out from each other, Taiwan will continue to have a huge advantage in this regard. Also the provinces compete against each other in a self-defeating way. Every coastal province wants a semiconductor industry. The result? None of them do because no cluster can properly form. Information just can't travel that fast in China--it's too big.

Actually if anyone should worry, it is the US. The US has a good cluster in the Northeast but a "high speed" rail that runs maybe 75 mph. That is just unacceptable. The US might be breaking ground on one high speed rail system in Florida while China completed five or more. The benefit to real estate and business in China is quite huge.