Taiwan’s 2020 economic growth looks to outpace mainland China’s for first time in decades
Taiwan’s economic growth rate may exceed that of mainland China for the first time in nearly 30 years, according to official estimates and those from economists.
The Taiwanese government revised up its annual growth estimate to 2.5 per cent at the end of last month. Although the mainland government has not announced a growth target for this year, economists have said it could be around 2 per cent, in light of a relatively quick recovery from the coronavirus this year.
If confirmed when the figures come out early next year, it would be the first time Taiwan’s growth has surpassed mainland China’s since 1991.
Both mainland China and self-ruled Taiwan emerged as two of the best-performing economies in containing the coronavirus, despite their different approaches. China has also tried to retain foreign investment from Taiwan, which has been falling.
“The main reason why Taiwan may end up with average growth data that is about the same or even higher than China’s is that Taiwan was able to avoid a very large fall in output at the beginning of the year,” said Louis Kuijs, head of Asia economics at Oxford Economics.
“In China, we saw a lockdown and the closing down of a huge part of the economy in the first quarter. Taiwan is probably the best example that didn’t have to [resort to] such a broad-based closing down of the economy.”
In the third quarter, the island’s economy grew 3.9 per cent from a year earlier, and it is expected to grow 3.3 per cent in the fourth quarter, according to the Taiwanese government. The island’s economic growth has been propelled by strong domestic investment, particularly in the semiconductor industry, and by exports of electronic products.
“World demand shifted this year towards goods that the island excels at – namely consumer electronics. With work-from-home arrangements raising demand for laptops and other electronics, Taiwanese exporters directly benefited,” said Frederic Neumann, co-head of Asian economic research at HSBC.
“Related to this was also a continued surge in global semiconductor demand, a wave that Taiwan has been riding for quite some time.
“More broadly, Taiwan’s impressive economic performance this year reflects a little renaissance in its economic dynamism in recent years, being well positioned for high-end electronics and semiconductor manufacturing, all while remaining deeply embedded in regional supply chains.”
The US-China trade war and the United States’ expanded restrictions over exports of semiconductor components to China partly pushed up Taiwan’s exports to China to a record monthly high in November.
In the first 11 months, the island’s exports to mainland China rose 11 per cent to US$92 billion – accounting for a third of its total exports – as many mainland firms have been stockpiling chips in preparation for future US export bans.
“In many chip factories in Taiwan, most processes are fully automated. Even if Taiwan is affected by Covid, chip factories are ready to continue running because of automated processes,” said Lloyd Chan, an economist focused on Taiwan from Oxford Economics.
While demand created by the pandemic for electronics might die down in 2021, as the virus gradually comes under control globally, new technologies such as 5G and the reshoring of manufacturing from mainland China to Taiwan will sustain shipments from Taiwan to the rest of the world, Chan said.
Data from China’s Ministry of Commerce showed that, since 2019, foreign investment from Taiwan, including that which goes through free ports such as the Cayman Islands, has been falling sharply. In the first half of the year, it dropped 46 per cent from a year earlier.
Charles Wu, an associate professor of diplomacy at National Chengchi University, pointed to Taiwan’s strong exports to mainland China this year as evidence that the island could not decouple from the mainland market.
“The increasing reliance on mainland China only implies Taiwan’s limits in its economic environment, especially after the signing of two major regional trade agreements: the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which Taiwan is not part of,” Wu said.
At the same time, it is not guaranteed that Taiwan’s economic growth will ultimately outpace the mainland’s this year, given that the latter’s recovery in late-2020 has been particularly strong, with a 4.9 per cent rise in the third quarter.
In October, the International Monetary Fund (IMF) put Taiwan’s 2020 gross domestic product forecast at zero, revising it up from a negative 4 per cent. The Taiwan government responded by saying that the IMF had underestimated the island’s potential.
If Taiwan does manage to surpass the mainland in terms of growth this year, most analysts expect it to be a one-off occurrence, as they foresee a stronger rebound for the mainland economy next year. Taiwan’s government estimates economic growth to increase to 3.83 per cent for next year, which would still be strong for a developed economy.