Easing restrictions on China-bound investments would help boost the global competitiveness of Taiwanese companies, but an overly aggressive expansion could also undermine their credit quality, Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s Ratings Service, warned yesterday.
“If [president-elect Ma Ying-jeou’s (馬英九)] policies materialize, the credit profiles of companies in Taiwan’s transportation, real estate/REIT [real estate investment trust], cement, petrochemicals and technology sectors would be the most heavily affected,” Taiwan Ratings credit analyst Daniel Hsiao (蕭黎明) wrote in a report released yesterday.
“But for many companies, the opportunities that open up from greater integration with China could far outweigh the costs involved,” he said.
In the report titled “Can Taiwan’s industries regain their global edge if more barriers with China are lifted?” Hsiao and three other credit analysts detailed why closer trade ties with China may offer mixed blessings to the future of local companies.
Hsiao referred to direct flights as a “double-edged sword.” Their implementation would help generate new revenue stream for companies like China Airlines Ltd (中華航空) and EVA Airways Corp (長榮航空), but such an opening-up would also mean less income from their currently lucrative Taipei-Hong Kong and Taipei-Macau routes.
Allowing Chinese to directly invest in Taiwan’s commercial properties could re-energize the local real estate market, but it could also drive up prices, making them too costly for new REITs to enter the market, the report said.
Furthermore, allowing Chinese to buy residential property remains a controversial issue for the new government — and “a housing bubble could emerge if the policy is not fully implemented,” the report said.
The local property market’s opening up to China could also benefit the local cement sector. However, excessive inventory buildup as a result of speculation over future expansion opportunities in Taiwan could backfire if the market does not grow as much as expected, the report said.
In the high-tech industries, Taiwan Ratings said that semiconductor foundry, assembly and testing would be the deregulation’s greatest beneficiaries, whose financial positions would not be significantly affected given their already strong balance sheets.
However, if the government continued to prevent technology companies from applying leading-edge technology in China, their competitiveness could weaken and their share of the Chinese market would decline, the report said, adding that even if the barriers were lifted, the impact in the first 12 months would be limited.
Manufacturers of thin film transistor liquid-crystal-display would see the least benefits from the proposed deregulation, but easing investment restrictions could allow them more flexibility to operate near their clients and counter threat from emerging Chinese competitors, the report said .
“Greater [economic] integration [between Taiwan and China] won’t be a panacea, but it could lead to the recovery of Taiwanese industries’ global competitive edge,” the report said.
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