As economists scramble for clues to predict when China will emerge from its recent slowdown, some of them are looking opposite the mainland: Taiwan.
Taiwan’s economy is only 5% the size of China’s (based on 2013 nominal GDP), but the island’s trade data—particularly export orders—have long been on economists’ radar. That’s because about half the orders counted in the Taiwanese data are actually filled in factories in China, and thus count as Chinese exports when shipped.
the WSJ reports,historically, Taiwan’s export orders for overseas factories “picked up well the turning points in China’s exports, and tended to lead the evolution of China’s exports by around two months,” RBS economist Louis Kuijs wrote in a recent research report.
April export orders rose 8.9% on-year – their fastest pace in 14 months – and showed growth to all regions.
China’s exports have also shown signs of stabilizing, after a slow start to the year.
The result “bodes well for a modest trade rebound” in the second quarter, Bank of America Merrill Lynch economist Marcella Chow wrote of the Taiwan export-order reading. It also “reinforces recent indications that a gradual recovery in the developed economies is gathering pace.”
Taiwanese manufacturers have flocked to China since the 1990s, when Beijing began offering tax incentives to help modernize the country’s manufacturing and provide jobs and training for a large pool of relatively unskilled labor.
Exports from China also enjoy lower tariffs in many countries, as Beijing has struck far more trade deals with other markets than Taipei.
Aside from its implications for China, the recent Taiwan data suggest the West’s recovery increasingly is feeding through to Asia.
April industrial production surprised on the upside, with Barclays Capital citing notable strength in personal computers and mobile phones, segments that had been weak for the past two years.
“The strength suggests that Taiwan’s until-recently narrowly based recovery led by semiconductors is broadening to finished consumer goods, and bodes well for the sustainability of the recovery,” Barclays’ Wai Ho Leong wrote.
With a slew of new consumer electronic devices hitting the market later this year, coupled with better demand from advanced and Southeast Asian markets, economists believe Taiwan is set to receive more orders in coming months —mostly for electronics–from overseas clients.
Still, the recovery is likely to be tame by Taiwanese standards: From 2002-2007, the island’s exports grew by an average of 12% a year and its gross domestic product by 5.3%, ING economist Tim Condon notes. This year, he expects GDP to grow just 2.6%.
Source: WSJ
