Taiwan, China
In terms of economic growth, Taiwan's manufacturing industry contracted and non-manufacturing industry expanded, and the prosperity of the two continued to diverge. The foreign trade surplus expanded slightly, driven by exports of machinery and equipment such as semiconductors, real estate construction and sales recovered steadily, and the consumer confidence index hit a two-year high, driven by a strong job market. Inflation moved lower after food prices retreated.
In terms of macro policies, the net redemption of government bonds was NT$25 billion, and the outstanding balance of government bonds was NT$608 million, up 1.9% year-on-year.
In the financial market, foreign capital has seen net inflows for five consecutive months, and the shareholding ratio has rebounded to 41%. Interest rates maintained a positive curve, interest rates of various maturities rose and the trend became flat, and the spread of U.S. and Taiwan maturities widened. The exchange rate of the US dollar against the New Taiwan dollar has shown signs of "over-depreciation" relative to the US dollar anchor and the interest rate spread anchor, and the relatively multi-term comprehensive interest rate spread has begun to show bearish signals. The monetary authorities' easing of liquidity interventions, coupled with exchange rate interventions by Japan and South Korea, will help alleviate the further upward momentum of the USD/NTD exchange rate.
In terms of cross-strait relations, General Secretary Xi Jinping put forward the "four firmnesses" when he met with Ma Ying-jeou in Beijing, guiding compatriots on both sides of the strait to jointly forge ahead in the direction of realizing peaceful reunification and reuniting their families and countries.
1. Macroeconomic situation in Taiwan, China
In March 2024, Taiwan, China recorded a manufacturing PMI of 47.9, which has been tightened for 13 consecutive months, a slight decrease from the previous value of 48.1. Because the industrial PMI data has not been seasonally adjusted, and the number of working days in March is much more than the number of working days in the Lunar New Year month in February, causing the base period effect, the PMI of the six major manufacturing industries has collectively rebounded upward, and only transportation equipment falls in the tightening range. The non-manufacturing PMI was 53.6, expanding for the 17th consecutive month and up from the previous value of 52.3. Most of the PMIs of the eight major non-manufacturing industries rebounded, with only the accommodation, catering and retail sectors contracting.
1.1 Economic growth
1.1.1 Foreign trade
In March 2024, Taiwan's imports were US$33.1 billion, up 40.8% month-on-month and 7.1% year-on-year, while exports were US$41.8 billion, the third highest in history, up 33.0% month-on-month and 18.9% year-on-year. The trade surplus was US$8.7 billion, up 10.0% month-on-month and 104.5% year-on-year.
From the perspective of trading partners, Taiwan's exports to China's land, Hong Kong and Macao continued to be at a historically low level and showed a year-on-year decreasing trend, while exports to the United States and ASEAN surged by 65.7% and 47.7% year-on-year respectively.
From the perspective of trade commodities, the surplus of machinery and equipment and electronic components with semiconductors as the core continued to rise. Taiwan's semiconductor industry has begun to de-inventory adjustment, and the supply chain has stepped out of high inventory pressure. TSMC, the world's largest chip foundry, announced its financial results for the first quarter of 2024, with total revenue of NT$592.64 billion, down 5.3% quarter-on-quarter and 16.5% year-on-year, and net profit of NT$225.99 billion, down 5.5% quarter-on-quarter and 8.9% year-on-year. The president of TSMC said at the earnings conference that he is optimistic about the prospects of AI chips, but should be cautious about the recovery of the overall semiconductor industry.
1.1.2 Investments
Taiwan's real estate construction and sales boom is steadily recovering. The Law on Promoting Private Participation in Public Construction, promulgated by the Finance Committee of the Legislative Yuan in December 2023, has included social housing in public construction, so private participation in the construction of social housing can follow the "participation promotion" model, and eligible projects can enjoy relevant tax incentives. According to the estimates of the Ministry of Finance, in the first quarter of 2024, the return rate of private investment participating in "participation" investment will reach 5% to 6%.
1.1.3 Consumption
In March 2024, Taiwan's unemployment rate was 3.38%, the lowest level in the same month in 24 years. By cause of unemployment, mainly due to the end of seasonal/temporary work or first-time job unemployment. The consumer confidence index rose for the sixth consecutive month, hitting a two-year high, supported by positive household income confidence.
1.1.4 Inflation
Taiwan's seasonally adjusted CPI in March 2024 narrowed slightly to 2.19% year-on-year, mainly due to the decline in the prices of food and other essential goods, of which the supply of fruits stabilized, and the price of eggs fell from a double-digit increase to 2.5% in March, while the price of eggs turned from rising to falling by 14.9% due to the high base period of egg shortage in the same period last year. Taiwan's statistics department said that although food prices have been effectively controlled, the CPI change in April is expected to be little different from that in March due to high international oil prices and the island's electricity price increase in April, which will push up prices.
1.2 Macroeconomic policy
In February 2024, Taiwan's "central" government issued NT$35 billion in new bonds, with redemptions of NT$60 billion and net redemptions of NT$25 billion, while local governments did not issue or redeem new government bonds, and the outstanding government bonds were NT$608 million, up 1.9% year-on-year.
1.3 Financial Markets
1.3.1 Benefits
In April 2024, the TWSE weighted share price index and the FTSE Taiwan Technology Index corrected as U.S. technology stocks fell. Foreign capital has seen net inflows for five consecutive months, and the proportion of foreign ownership has rebounded to 41%. Among the major industry sectors, only the market value of biomedicine continued to decline year-on-year, but with the decline of the base period effect, the high growth of semiconductors, electronic components, photovoltaics, computers and peripherals, telecommunications and other industries is expected to continue to decline.
1.3.2 Interest Rates
Interest rates in Taiwan remain in a positive curve, with interest rates of all maturities rising and flattening. After the Fed's interest rate cut expectations were reshaped, the spread between the United States and Taiwan on various maturities widened again. In March 2024, bond issuance in Taiwan was basically flat from the previous month, with the maturity renewal of issuers of large enterprises in the industrial, power, banking and other industries to make up for the decrease in net issuance of government bonds.
1.3.3 Exchange Rates
In April 2024, the NTD performed relatively weakly in an environment where the US dollar interest rate exchange rate was exerting pressure on non-US currencies, only slightly stronger than the Japanese yen and the British pound in the SDR basket. The Japanese yen and South Korean won led the decline in Asian currencies, and the USD/NTD exchange rate fluctuated upward, with deviations of 3.97% and 4.27% relative to the US dollar anchor and the spread anchor, respectively, and the signal constructed according to the spread anchor indicates the initial bearish signal.
Looking at the orientation of the open market operation of Taiwan's "central bank" from the perspective of the exchange transaction balance[1], the exchange transaction balance has a negative correlation with the exchange rate of the US dollar against the new Taiwan dollar. In order to stabilize exports after the epidemic, the monetary authorities adjusted in the direction of the depreciation of the NTD as a whole, and fell to a low level after the US dollar broke through the 30 mark against the NTD. The balance of $84.1 billion in March 2024 is the third lowest monthly value since the tool was announced in 2020, or it may imply a loosening of adjustments. In addition, the joint intervention of the Japanese and South Korean authorities in the exchange rate in the future will also help alleviate the further upward momentum of the US dollar against the New Taiwan dollar.
2. Cross-strait relations
2.1 Political Relations
On April 10, 2024, Xi Jinping, General Secretary of the Central Committee of the Communist Party of China, met with former Taiwan leader Ma Ying-jeou and his entourage in Beijing and delivered an important speech. This is the first time that General Secretary Xi Jinping has met with Taiwan compatriots and delivered an important speech after the 20th National Congress of the Communist Party of China [2].
General Secretary Xi Jinping put forward the "four firmnesses" for compatriots on both sides of the strait, that is, firmly guarding the common home of the Chinese nation, firmly creating the long-term well-being of the Chinese nation, firmly forging the sense of community of the Chinese nation, and firmly realizing the great rejuvenation of the Chinese nation, and guiding the compatriots on both sides of the strait to jointly forge ahead in the direction of realizing peaceful reunification and reunion of the family and country. General Secretary Xi Jinping said: "Compatriots on both sides of the strait belong to the Chinese nation. The Chinese nation is a great nation in the world, and has created a long-standing, brilliant, and unparalleled Chinese civilization, and every son and daughter of China is proud of it. General Secretary Xi Jinping pointed out that compatriots on both sides of the strait have always been a family, and they should come and go often, get closer and closer, and get closer and closer.
2.2 Economic and Trade Relations
In terms of trade, the total cross-strait trade accounted for 4.3% and 19.2% of the respective trade of Chinese mainland and Taiwan, respectively. In terms of investment, Taiwanese investment in the mainland accounted for 12.0% of Taiwan's ODI. Affected by factors such as changes in Chinese mainland's business environment, Sino-US frictions and concerns about geopolitical uncertainty, Taiwanese businessmen tend to be cautious and wait and see when investing outside the mainland, including emerging markets such as Southeast Asia and Central and South America. At the same time, the DPP authorities are more focused on attracting American capital than Chinese mainland investors. On March 28, Tsai Ing-wen attended the American Chamber of Commerce's New Year's dinner in Taipei, reassuring American investors that the next DPP administration would provide them with a better investment environment.
Annotation:
[1] The use of foreign exchange transactions by the monetary authorities to borrow the local currency and withdraw the foreign currency at the beginning of the period has the effect of recovering the liquidity of the local currency and releasing the liquidity of the foreign currency, and vice versa, it is to recover the liquidity of the foreign currency and release the liquidity of the local currency. What are the monetary policy tools of the Bank?[EB/OL],2020/03/18[2024/04/24],https://www.cbc.gov.tw/tw/cp-2172-106398-8579e-1.html
[2]新华社，为两岸关系指明正确方向——习近平总书记重要讲话激励两岸同胞同心共创光明前景，[EB/OL]，2024/04/12[2024/04/23]，http://www.news.cn/politics/leaders/20240412/d12b560eb0624b56ba6dacfd6e11f39a/c.html
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