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HSBC doubtful cap lift will matter

“As a matter of fact, they are already thinking of an exit plan [to leave China] … because of surging production costs there.”

Wang Wanli, head of research at HSBC Securities (Taiwan)

One day after minister-designate of economic affairs Yiin Chii-ming (尹啟銘) vowed to lift the 40 percent capital cap on China-bound investment immediately after he takes office next month, an HSBC economist said yesterday that the policy may not affect the local economy at all.

China-bound businesses “won’t increase their investments there even if the capital cap is lifted,” Wang Wanli (王萬里), head of research at HSBC Securities (Taiwan) Co (匯豐證券), told an European Chamber of Commerce Taipei (ECCT) gathering yesterday.

“As a matter of fact, they are already thinking of an exit plan [to leave China] … because of surging production costs there,” he said.

The economist said the local economy is facing two swing factors, one being climbing production costs in China that would further squeeze Taiwanese exporters’ future profit margins.

The other impact would be a ripple effect from deteriorating US and global economic performance.

HSBC said that after a 1 percent drop in GDP growth this year, the local economy would likely take an additional hit from a slowdown in China, which could lead to a decline of 0.8 percent of GDP in Taiwan, Wang said.

A drop of 1 percent in US GDP growth would take away 0.3 percent of GDP from Taiwan and another percentage of GDP growth from China, which would have an additional “ripple” impact on Taiwan of another 0.5 percent of GDP, he said.

The bank has cut its GDP forecast for both the US and Taiwan, but Wang did not provide figures.

The economist also said that the New Taiwan dollar had substantial room to appreciate if the central bank allowed it.

He said that Taiwan has enjoyed robust export growth over the past two years amid deteriorating terms of trade and national incomes because of a relatively weak currency compared with other Asian markets.

“The world has enjoyed Taiwanese products at better prices in the past,” Wang said.

Despite a more than 10 percent appreciation against the US greenback recently, the NT dollar “needs to strengthen further to match some 30 percent to 40 percent gain by other Asian currencies and a huge flow of capital will enter [Taiwan],” Wang said.

As a stronger NT dollar could hurt the high-tech sector, which accounts for about 60 percent of the nation’s exports, Wang said high-tech companies will have to find ways to mitigate their foreign exchange losses.

Another speaker, Wang Lee-rong (王儷容), director of the Chung-Hua Institution for Economic Research’s (CIER, 中經院) Center for Economic Forecasting, was more optimistic about future performance in Taiwan and China.

She said the biggest challenge to the nation’s economy was inflationary pressures triggered by the local currency’s gains.

The best solution, she said, would be to give a salary raise to civil servants, with private companies likely to follow suit, she said.


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