Improved Taiwan-China relations spur investor confidence – Asia Q1 results

Taiwan’s strong performance in the survey this quarter was underpinned by improved political assessment, after economic and political cooperation between Taiwan and mainland China continued to expand in 2013. The developments had a positive bearing on Taiwan’s ECR score, which improved by 1.2 points to 74.9.

A recent report by Moody’s identified improved cross-Strait relations as a credit strength in 2013. “Trade and investment linkages have continued to expand with mutual benefits for both sides, culminating in the passage of the bilateral Economic Cooperation Framework Agreement in 2010,” notes Moody’s.

“Cross-Strait ties have been strengthened further with the start of offshore renminbi business in Taiwan in early February 2013.”

Closer Sino-Taiwanese economic ties and political cooperation were part of Taiwanese president Ma Ying-jeou’s election manifesto in January 2012.

ECR analysts have endorsed a closer bilateral relationship between the two sovereigns, as well as highlighting an improved business environment domestically, with improvements in Taiwan’s government stability (+0.3), institutional risk (+0.1), transparency (+0.1) and transfer risk (+0.1) indicators in Q1.

And political developments appear to have had a positive impact on real GDP growth, as Taiwan’s economy gathered momentum this quarter, growing by 3.8% in Q1 from 0.7 in Q3-2012.

Tony Phoo, economist at Standard Chartered and one of ECR’s expert contributors, says: “Taiwan is seeing improving growth outlook in 2013, which should carry forward into 2014. Other market factors, such as improving labour market conditions and lower unemployment rates, have helped aid economic growth.”

The improvements in economic growth were centred around increased exports in the high-tech industry.

“Exports started to register positive year-on-year increase in the second half of 2012 and that momentum also carried into the first quarter of this year,” says Phoo. “Taiwan’s strong presence in the high-tech supply chain is helping Taiwanese exports to gain strength as we move into 2013.

“Secondly, with the presidential and legislative election cycle over, we have seen less of a political risk in Q1 and last year. With the leadership changeover having gone smoothly in March, you could see more cross-strait dialogue, which has boosted confidence as well.”

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