Taiwan may be a pariah state to the World Health Organization and its highly politicized bosses, but to anyone else, it should seem about the safest haven on earth, at least compared with other high-income, industrialized nations.
The despised non-nation exhibits two remarkable characteristics. These are particularly noteworthy given its very high dependence on foreign trade at a time of sharp decline in world trade, and its fraught relationship with an increasingly aggressive, nationalistic China.
Two bits of data tell one aspect of the story. The Taiwan stock exchange is the only one in Asia to be higher than a year ago – by 3.3 percent as measured by the FTSE 50 index. That is in local currency terms. Meanwhile, the NT dollar is almost the only currency in the world to have appreciated against the US dollar – by about 3.5 percent over a year ago.
Nor is this the result of speculative surge driven, as on Wall Street, by a central bank desperate to rescue the over-leveraged companies which a decade of cheap money has fostered. In contrast, the Central Bank of the Republic of China (Taiwan) has remained a model of conservatism.
Behind Taiwan’s outperformance lie several factors:
The early action to contain Covid-19, as Asia Sentinel reported on March 22, which has kept infections so far to just 426 with only seven deaths. Credit for this goes in the first place to the very close eye which it keeps on what is actually happening on the mainland – as opposed to what Beijing is prepared to announce. Memories of SARS in 2003 also played a part in staying alert as did high levels of trust that prevail which enabled concerted action.
In turn, the resulting lack of need for severe lockdowns has enabled much of local business, retail restaurants, etc, to operate almost normally. Travel and tourism have naturally slumped but there has been no sudden slump in overall demand or steep rise in unemployment.
So far too, exports have held up fairly well, driven by demand for the high-end electronics in which it specializes. Orders have even increased. Meanwhile, a fall in import prices, notably oil, has boosted an already high trade surplus.
The export picture may prove short-lived as demand in China and in the west contracts as even for some IT products as investment collapses in the wake of profits collapses. But Taiwan’s export profile remains relatively robust and generally, very low levels of corporate debt enable companies to withstand sharp falls in profits.
The overall outcome in GDP terms is hard to gauge. Forecasts range from a 4 percent fall as suggested by the IMF to a gain of 1 percent with most estimated around -2 percent. The IMF forecast looks especially negative as it is similar to the Fund’s forecast for both Hong Kong and Singapore, both of which appear far more vulnerable from trade, tourism and corporate debt perspectives.
Taiwan may yet face new shocks, whether from a resurgence of the virus, the sudden end of the IT mini-boom, or a rise in unemployment as hard-hit sectors lay off workers. Another threat is more actions from Beijing to punish Taiwan for its successes and for its temerity to demand to be recognized as a legitimate state which sets a better example than most – not least the US – for sustaining liberal democracy, social cohesion and economic well-being.