Taiwan's exposure to global electronic product development cycle is greater

Summary: The IMF forecast last month that the real GDP growth rate in Taiwan this year will be 1.3%, at the bottom of Asia's rankings. Compared with other developed regions of the electronics industry, Taiwan has a greater risk of global electronic product development cycles, analysts said.

The IMF forecast last month that the real GDP growth rate in Taiwan this year will be 1.3%, the bottom of the Asian rankings. Compared with other developed regions of the electronics industry, Taiwan has a greater risk of global electronic product development cycles, analysts said.

Taiwan's exposure to global electronic product development cycle is greater

Taiwan's heavy reliance on exports of electronics has left the region at the bottom of its economic growth rate in Asia, as demand for PCs has weakened and the temporary boost from a big-name device release has been "on its own".

The release of the Apple iphone 5 smartphone and the ipad mini tablet may represent a high point in the latest technology-product development cycle, economists say, and the market is sceptical about the release of products based on Microsoft's Windows 8 operating system. Question whether these products are enough to boost the electronics industry in Taiwan.

"Taiwan has a greater exposure to the global electronic product development cycle than other developed regions of the electronics industry," he said. Donna Kwok, an economist at HSBC Holdings, said Guo Haozhong. "Growth prospects are not promising, but between 2008 and 2010, Taiwan has performed better, in part because of the release of a number of heavy products." ”

China's Taiwan authorities expect GDP growth to grow at 1.05% this year, down from 4% in 2011. According to the International Monetary Fund's forecast last month, the real GDP growth rate in Taiwan this year will be 1.3%, the bottom of the Asian rankings. Since the 1960s, Taiwan, with only across in the southeastern border of China, has relied on exports to support its own economy, which accounts for about 70% per cent of its gross domestic product.

But the challenge is quietly coming. As China's economy slows and the eurozone faces difficulties in resolving its sovereign-debt crisis, the US faces the so-called "fiscal cliff", which the Fed Chairman Ben Bernanke used first to describe the "time node" of January 1, 2013. On this date, the contribution of exports to Taiwan's GDP growth next year is likely to be less than half of the threat posed by the Bush administration's tax breaks and the Obama administration's 2% payroll tax cuts and the extension of unemployment compensation measures.

"If the US fails to solve its ' fiscal cliff ' problem, it will have a very serious impact on Taiwan's exports and its economy," he said. "Woods Chen, an economist at Taiwan's Volkswagen Bank, said Chong.

In the Asian region, many countries and regions are closely related to the supply chain in the electronics industry. But even for the region, Taiwan is often dependent on the electronics industry. Last year, total exports of electronic products to Taiwan accounted for 47% of the total, and ranked top among Asian countries and regions, according to data from HSBC Holdings.

The Taiwanese brands such as HTC and Asus, the smartphone maker, have risen to global market dominance in their respective industries, thanks to a lot of investment in research and development. But the slowdown in global growth has swept the island like a typhoon, leading to heavy losses for PCs, smartphones and tablet makers. Companies such as HTC, Acer and Compal electronics have cut their targets for the remainder of the year and next year's shipments, profits or capital spending. Some companies have already taken redundancy measures or have asked employees to take unpaid leave, while others have closed production lines.

TSMC, the world's largest manufacturer of foundry chips, predicted last month that its revenue performance would be weaker in the current quarter and the next quarter, and that its existing inventory was still not clean.

The company's weak earnings performance and gloomy outlook have penetrated the overall economy of Taiwan. In the third quarter of this year, Taiwan's GDP growth rate was only 0.86%, with domestic consumption falling at its highest level in almost 4 years. In September, unemployment in Taiwan fell slightly to 4.32%, but it still hit its second-highest level in the past year.

"Exports remain weak, which has hit private consumption. Mei Jia (Jasmine Mei), Senior executive officer, Directorate-general of Budget,accounting and Statistics, Taiwan's executive Yuan, said. "Consumer confidence is likely to remain sluggish because of the lowest wage growth and the risk of unemployment." ”

The stock market in Taiwan is also facing a dire situation. Taiwan's benchmark TAIEX index has fallen 3.7% per cent in the last 12 months of trading, less than most of the benchmark indices on the stock markets of South Korea, Malaysia, India and Thailand, according to data from financial information provider FactSet.

China's Taiwan authorities do not have much monetary or fiscal leeway to provide the stock market, because its public debt has reached around 37% per cent of the three-year rolling GNP, close to the legal limit of 40%. At present, the benchmark interest rate in Taiwan is 1.875%--for the region, which is a fairly low interest rate-and any further interest-rate cuts will be largely symbolic in the face of massive liquidity in the market.

"The Taiwanese authorities ' recent plans are to launch more public infrastructure projects and try to attract investment from Taiwanese businessmen who do business in mainland China, but these measures will not in the near term help boost the economy in Taiwan. Welo, an economist at Fubon Finance (Fubon Financia), said.

At the same time, local consumption is unlikely to fill the gap. Real wages in Taiwan have fallen into stagnant growth, largely because manufacturing jobs have shifted to mainland China, and university graduates outnumber market demand; Meanwhile, the "wealth effect" of capital gains tax on equity trading will come into effect next January, This will limit the desire for people to spend.

"2013 years of private consumption is destined to be weak because weak corporate investment cannot help create more jobs and boost wage growth," he said. "says Woods Chen of Volkswagen Bank.

But the outlook for economic growth in Taiwan is not a dark one-even in the tech world.

"While the number of new products that will be released in the next few quarters is likely to be relatively small, according to recent data, final demand in the US market will not be a mess", and demand from mainland China is also finding a firmer foothold, says Guo Haozhong of HSBC Holdings. "It is too early to estimate whether future demand is sufficient to keep Taiwanese manufacturing activities at their current level, because some of the most important products that have recently been released are just beginning to take off," he said. ”

But Guo Haozhong pointed out that in the past two months, Asia's electronics industry output has achieved continuous growth, which makes her believe that Taiwan can avoid falling into the fate of the recession, continue to achieve small growth.