Taoyuan Nights

Dear readers,

I’m rather busy writing academic papers these days, so please do forgive the tardiness of my recent posts. Still, I thought I’d gather together a few economic nuggets that pertain to Taiwan for you to feast upon. Let’s begin with a pretty picture of the damage so far…

Take a look at this, from John Mauldin’s E-Letter. Eek! Taiwan’s exports have been hit the worst in all the world… and the country that Taiwan is relying upon for a bailout, has been hit just as badly.

Now, Japan’s economy relies far less on exports than Taiwan’s economy. And Japan’s exports have contracted less, year-on-year, than Taiwan’s have. So how is it then that Japan’s government is admitting to a greater than 15% drop in GDP, and yet Taiwan’s government is claiming only a 4.25% drop will take place in the current recession? Hmm? Something here does not add up. Even that 4% drop was suggested grudgingly from the previous estimate of 3%.

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Also, as Michael Turton correctly (and regularly) points out, these numbers are hilarious in other ways too. They are invariably given to 2 decimal places. It is never a “3% drop”, it’s a “2.97%” drop. It’s never a “4-6% drop”, it’s always a “4.25% drop”. Frankly, if the people in charge of government statistics actually believe their predictions are meaningful at this level of accuracy, then Taiwan is perhaps in even more trouble than I think it is. And that’s a lot of trouble.

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Taking a look at the latest quarterly GDP numbers, it seems that the shrinkage of Taiwan’s economy has accelerated, even in the government’s own data, despite a huge improvement in sentiment and financial markets:

“The Directorate-General of Budget, Accounting and Statistics (DGBAS) unveiled the latest economic data yesterday, which showed GDP sinking by a record 10.24 percent, worse than the revised 8.6 percent fall in the fourth quarter of last year.” (Taipei Times)

These are the worst numbers ever recorded for Taiwan’s GDP growth.

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In other hilarious news, to try and make things look less bad than they actually are, the government are now changing the yardstick of measurement to one that looks less bad for them.

“Council for Economic Planning and Development Chairman Chen Tain-jy (陳添枝) told a press conference later on Thursday that GDP dipped 0.37 percent based on a quarterly annualized formula, and would show improvement for the rest of the year.” – and swoosh, with the wave of a magic formula, the recession ended, and everyone lived happily ever after!

“The DGBAS has promised to compute economic data using both formulas starting in November, when third-quarter figures will be published.”… Perhaps Taiwan could get out of recession even faster by simply using 20 different formulas, and picking whichever gives them the nicest numbers? Maybe they can even find one that will give them 6% GDP growth, no matter what… ^_^

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“Premier Liu Chao-shiuan (劉兆玄) yesterday said the country’s economic growth rate should turn positive in the fourth quarter this year if economic trends continued.”. (Taipei Times). Technically, this is true. By then, 12 months worth of terrible data will be used as the baseline for the next year’s calculation. Unless things get considerably worse again, we should expect the GDP growth numbers to turn positive… eventually. But to some extent, it’s a little bit like saying “Once everyone is dead of the disease, there will be no more new infections!”.

Also, “As to whether the government would consider extending for another year a 100 percent state guarantee on all bank deposits, Liu said this was under deliberation by a team led by Vice Premier Paul Chiu (邱正雄). … Liu said the guarantee was the policy he was most satisfied with over the past year as it had stabilized the financial market without costing the government a penny, while the US government had spent US$300 billion and the UK government ￡80 billion (US$124 billion) to help their economies.”. Err… the fact that it didn’t cost anything, doesn’t mean that it couldn’t. The cost was the terrifying risk of having to stump up unimaginably vast sums of cash for bank depositors. It’s like being proud that you kicked a snake off your doorstep, without getting bitten. Being smart and being lucky are not the same.

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The quarterly drops in Taiwanese exports are getting smaller, which is something, so the total drop in GDP probably won’t be more than 20% unless a new phase of this global crisis kicks off… again, to some extent, this is perhaps because we’re getting closer to ‘1 year since the pain began’, rather than ‘things getting better’.

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Unemployment is about to become much more of a problem. Unemployment is still rising, and now that we’re about 8 months into the worst part of the crisis, Taiwan’s unemployed will have their benefits cut off (there’s a 6 month limit). (China post)

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From that same link: despite the government handing out time-limited shopping vouchers that had to be spent, i.e. free money, consumer spending still dropped noticeably during the first quarter of the year. What a surprise…

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Meanwhile, Taiwan’s stockmarket has rocketed upwards. The TAIEX is at 6700 and everyone is happy. But.. wait a minute… wasn’t it less than a year ago, when the TAIEX was over 6800, that we saw headlines like this:
“The Financial Supervisory Commission urged investors to remain calm”… “Taiex plunges”…
(Taipei times)

It never ceases to amaze me that the market can be priced at the same level repeatedly over a short period of time, yet people – particularly journalists – can have such wildly different emotions and reactions to the same news…

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I continue to be amazed by the price placed upon bare land in Taiwan…

“A 203m² piece of land located near Nanhai Road and Ningbo West Street in Taipei has a floor price of NT$93.4 million, or around NT$1.4 million per ping, which is close to market price.”

NTD$93.4 million for 20×10 metres in Taipei. Hmm… or, with that kind of money, you could buy a few castles in Europe, with plenty of land. You could hardly expect the quality of life in France and Italy to be up to that of Taipei, of course.

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Some comedy advice from April, that I forgot to mention…

“He wasn’t upbeat about the residential property market, which he said had not hit bottom. Investors should put their money into the rallying stock market rather than into the residential property market, which is still on a downward slope, he said. “

Yes, imagine how silly it would be to consider buying things that have recently become cheaper, when they have the alternative of buying things that have become recently much more expensive. Can you believe though, that the person offering this advice is the general manager of a real estate firm?

I think I’ll finish this blog post here. By the way, I am no longer living in Taiwan. So if anyone can give me news about what is happening ‘on the ground’ currently in the Taiwanese real estate market, I’d be interested to hear it.

I’ll leave you with this cheerful article that talks about Taiwan’s declining economic competitiveness and the possibility that there will be no sudden recovery in the economy.

Ciao for now.

Mu