Taiwan's flat-panel industry: a target for bailout?

l  Once considered a strategic industry vital to the island’s economic prospects, Taiwan’s LCD flat-panel display manufacturers are struggling to survive.

l  Burdened by heavy losses resulted from declining demands in Europe and the United States, the government is now considering ways to “consolidate” the island’s LCD industry. In fact, Taiwan's leading LCD companies have expressed willingness to “explore all options.”

l  According to the Council for Economic Planning and Development (CEPD), the government plans to inject funds into the flat-panel industry, as well as other sectors that show promise in terms of “meeting the larger global trends.”

l  Money from the government’s National Development Fund (NDF) will likely be invested in green power, bio-medicine, and flat-panel industries in light of their market competitiveness and growth potential.

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Closer Japan-Taiwan ties expected

l  Following the signing of an investment protection accord in September, Japan and Taiwan recently reached agreement on amendments to a bilateral aviation pact.

l It was an open skies agreement that no longer places restrictions on the number of airlines or weekly flights operating between the two sides. In addition, the latest open skies agreement makes passenger and cargo services more convenient, further tightening the economic and cultural links between Japan and Taiwan.

l  Japanese and Taiwanese air carriers that have serviced the various routes between the two sides have all welcomed the open skies agreement. There are plans already for Taiwanese air carriers to offer more flights to popular destinations, including Kagoshima and Shizuoka Prefecture, possibly by the first quarter of next year. Under the new agreement, the number of visitors traveling both ways is expected to increase significantly.

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The stage is set for a three-way showdown in January 2012

l  Taiwan’s presidential race continued to tighten as the three candidates—the ruling Kuomintang’s (KMT) Ma Ying-jeou, Democratic Progressive Party’s (DPP) Tsai Ing-wen, and People First Party’s (PFP) James Soong—have registered with the Central Election Commission (CEC) by November 25 and made their candidacy official.

l  The immediate task ahead remains to: (1) solidify their respective core support, (2) highlight differences along partisan and policy lines, and (3) apply the “abandonment tactics” to disintegrate rivals’ strength.

l  The gap between President Ma and DPP’s Tsai has been narrowing in recent polls that the race is now wide open. Policy blunders and strategic mistakes by the KMT have caused Ma’s recent decline.

l  At the same time, the DPP continued to attack Ma over the mismanagement of quality-of-life issues and blasted the KMT administration’s record in office.

l  Although his level of support has been hovering around 10%, the KMT has not taken PFP Chairman James Soong’s candidacy seriously until recently. There is increasing awareness that Soong’s 10% will not switch support behind others even if the PFP chairman withdraws from the race. This will, in turn, make Soong’s candidacy more of a variable than originally perceived.

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Taiwan seeks a role in the TPP

l  Upon the conclusion of this year’s APEC summit, President Ma Ying-jeou declared that Taiwan aims at joining the Trans-Pacific Partnership (TPP) within ten years to diversify the island's export markets and become more regionally integrated.

l  Moreover, the creation of the necessary conditions to enable Taiwan to join the TPP has now become part of Ma’s blueprint for a "golden decade" of development in Taiwan, thus making Taiwan’s participation in the TPP more of a long-term goal for the government.

l  Since the Economic Cooperation Framework Agreement (ECFA) was signed with China last year, only one-fifth of the goods traded between both sides are included in the “early-harvest” list (EHL) under the ECFA. Therefore, neither Beijing nor Taipei is happy with ECFA's impact so far.

l  While both Beijing and Taipei will likely review and discuss the new items to be included on the EHL by mid-2012, Taiwan still has a long way to go toward securing a comprehensive free trade agreement with a major trading partner like the United States and China.

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Exploring opportunities in times of economic uncertainty

l  The European sovereign debt crisis continued to deteriorate and led to sell-offs in stock markets around the world. The situation has been more acute in Taiwan by slowed exports and declining confidence. 

l  Although the risk of exposure to European debt crisis is minimal for most Taiwanese financial institutions, market volatility has raised concerns over consumer and investor confidence that may markedly slow down economic growth next year.

l  It has now impossible for Taiwan banks to maintain double-digit growth in 2012 as they did in the first three quarters of 2011. Against such a backdrop, some local banks have turned their attention to tourism, hospitality, medical services, and biotechnology sectors, in an attempt to boost their loan business.

l  There could also be some financing needs in merger and acquisition activities since a number of local business conglomerates may decide to take advantage of the investment cuts by manufacturers and larger amounts of loan funds available at most banks.

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It's now official: PFP’s Soong is in!

l  The People First Party (PFP) Chairman James Soong collected and submitted 463,259 signatures to the Taipei City Election Commission for verification in early November.

l  The total number of signatures submitted was, in fact, more than many had expected since doubts remained about: (1) whether Soong intended to run “until the end,” and (2) whether the PFP, without an islandwide organization to support the signature drive, would be able to collect more than 257,695 signatures necessary for Soong’s candidacy to become official.

l  The ruling Kuomintang (KMT) will likely downplay Soong’s candidacy, thus avoiding lending credibility to the PFP chairman and turning the presidential contest into truly a three-way race.

l  The Democratic Progressive Party (DPP), on the other hand, will have a near-opposite approach than the KMT’s. It is clearly to the DPP’s advantage to have Soong become a credible candidate early, thus splitting pan-Blue support and undermining President Ma’s chances at winning.

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Prospects of Taiwan's job market

l  According to the latest statistics released by Taiwan's Directorate General of the Budget, Accounting and Statistics (DGBAS), Taiwan’s jobless rate was 4.28 percent in September, down 0.17 percentage points from the previous month. The seasonally adjusted jobless rate was 4.27 percent, down from 4.36 percent in August, and identical to the 4.27 percent rate in September 2008, when the global financial crisis began battering the world economy and employment market.

l  The mild decrease in the jobless rate was a pleasant surprise since Taiwan’s trade performance began to slide last August and private investment this year has fallen considerably below government’s original projections.

l  In addition, reports have emerged recently that companies like Everlight (TaiEx 2393) have begun asking their employees to take furloughs because of renewed fear of another global economic slowdown. Under public pressure, however, Everlight later rescinded the decision.

l  Although the European sovereign debt crisis is far from over and the outlook on the US economy remains cloudy, we are not as pessimistic toward Taiwan’s, and the world’s, economic prospects in the 4th quarter this year.

l  Compared with the 2008-09 global financial crisis, governments around the world, particularly those in the euro-zone, have already acknowledged that there is a budding crisis and are formulating ways to address the problem. As such, Taiwan’s economy will probably slow down since demands will drop; however, large-scale layoffs and forced unpaid leave are not considered unlikely.

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Cross-Strait relations following leadership change in China

l  Although current cross-Strait relations appear stable, leadership transition in China could bring policy changes that may lead to a qualitative evolution in cross-Strait relations.

l  Chinese leadership under President Hu Jintao has so far taken a "moderate and pragmatic" approach toward relations with Taiwan, but Hu's policy will be reviewed when China ushers in a new generation of leaders next year. Hu may appear dovish toward Taiwan, but that might have little bearing on what the new leaders will do after the transition is complete.

l  Following the leadership change at the top, the political climate—particularly the attitude toward relations with Taiwan—may also change. On cross-Strait economic ties, the general impression has been that Beijing made some “concessions” to make the 16 agreements—including the ECFA—possible. That may not stay the same after next year’s leadership change since future cross-Strait negotiations will likely emphasize more on reciprocity as China also plans to seek benefits—economic and otherwise—from Taiwan in return.

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