Pacific Money

A Cross-Strait Chill? You Wouldn’t Know It From Taiwan’s Economic Data.

Taiwan posted higher-than-expected growth in 2017, and is predicting solid numbers for this year as well.

A Cross-Strait Chill? You Wouldn’t Know It From Taiwan’s Economic Data.
Credit: Flickr/ sese_87

This week, Taiwan boosted its growth forecast for 2018 to 2.42 percent, up from the previous 2.29 percent. That comes after unexpectedly high growth for 2017 – 2.84 percent, according to the Directorate General of Budget, Accounting and Statistics (DGBAS). The higher growth stemmed from an increase in private consumption, plus over 6 percent year-on-year growth in exports – far above the 2.74 percent export growth that was estimated originally.

Taiwan’s reported GDP growth in 2017 and its forecast for 2018 both beat out the latest IMF prediction, from October 2017. That month’s edition of the Asia-Pacific Regional Economic Outlook had Taiwan’s economy growing by a flat 2 percent in 2017 and 1.9 percent in 2018.

The higher growth figures are particularly encouraging given that cross-strait relations remain thorny. Taiwan’s President Tsai Ing-wen is seen in China as a supporter of Taiwanese independence, despite her repeated statements that she wants to maintain the “status quo” in cross-strait relations. Beijing signaled loudly ahead of Tsai’s inauguration that she must formally embrace the “1992 Consensus” for cross-strait ties to move forward. The 1992 Consensus, which holds that there is only one China, encompassing both Taiwan and the mainland, was reached between the Kuomintang (KMT) or Nationalist Party and the CCP; Tsai and her Democratic Progressive Party have not been keen to commit themselves to the same framework. In 2016, when Tsai was inaugurated, Beijing moved to cut official cross-strait dialogues, claiming Tsai’s lack of support for the 1992 Consensus made such engagement impossible.

The freeze in cross-strait ties has had a number of worrying political effects for Taiwan, from its exclusion at international meetings it had attended in the past (including those of the World Health Assembly and International Civil Aviation Organization) to the loss of diplomatic allies like São Tomé and Príncipe and Panama. On top of this, there were serious concerns about the potential impact on Taiwan’s economy. Taiwan remains heavily dependent on the mainland, which accounts for 24 percent of Taiwan’s external trade and nearly 28 percent of all Taiwan’s exports.

Despite that, the economic impact of the chill in cross-strait ties has been muted, as Taiwan’s encouraging growth numbers in 2017 would suggest. According to the latest statistics from Taiwan’s Mainland Affairs Council (MAC), through the first 11 months of 2017, cross-strait trade was valued at $125.6 billion, up 17.6 percent from the same period in 2016. Taiwan’s exports to the mainland during that period were up even more year-on-year, rising 20.4 percent to $80.1 billion. While there was a slight drop in overall trade values from 2015 to 2016, when Tsai assumed office, figures are now back above 2015 levels (but still below their peak, reached in 2014).

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Rather than politically motivated coercive economic measures from the mainland, Taiwan’s economy faces a more mundane threat: competition from Chinese firms moving up the value chain into Taiwan’s industrial niche. In particular, Beijing’s push into the semiconductor industry, part of a government initiative to reduce China’s dependence on foreign technology companies, could threaten a mainstay of Taiwan’s manufacturing industry. Currently, Taiwan Semiconductor Manufacturing Co. accounts for over 50 percent of the global market, resulting in a net income of $11 billion in 2016 – an impressive figure, especially given that Taiwan’s total GDP was just under $590 billion in 2017.

While icy cross-strait relations aren’t helping, it’s unlikely that Beijing would change its strategy even if ties warmed. The mainland’s move into semiconductors and other high-tech products is not being primarily driven by its relationship with Taiwan; it’s part of a far broader economic and national security strategy that will move forward regardless of developments in the Beijing-Taipei relationship. That particular economic challenge can’t be solved by improving cross-strait relations.