South Korean workers’ wages are rising faster than those of regional rivals and the power of the nation’s sprawling family-run conglomerates, or chaebols, remains unchecked, highlighting a lack of serious economic reform. Yet, manufacturing exports are booming.
Taiwan’s labor costs are cheap and its effective exchange rate far more competitive, yet overseas shipments have been flailing.
The divergence, set out in an Oxford Economics report, deepens given the similar export mixes of the two developed economies — indeed, an indicator of trade similarity stands at 0.67, high given that 1.0 represents an identical mix.
The two also essentially ship goods to the same markets. Yet, South Korean export volume surged 5.3 percent yearly from 2010 to last year, compared with just 1.4 percent for Taiwan.
The difference is the extent to which South Korean companies have moved up the value chain and developed global brands, especially in the electronics and auto manufacturing industries, Oxford Economics senior economist Oliver Salmon said.
“Taiwan hosts many technologically sophisticated companies, especially in semiconductors and electronics, but few true global brands,” Salmon said, contrasting Foxconn Technology Group (富士康科技集團) with Samsung Electronics Co. “In part, this is because Taiwan is handicapped by its relatively low profile and uncertain status.”
South Korea has also forged ahead with free-trade accords.
Oxford Economics said that since signing a deal with the US, average tariffs have fallen from 3.8 percent in 2011 to 0.4 percent in 2015.
That underpinned growth in merchandise exports to the US of 3.4 percent per year in nominal US dollar terms through last year. In contrast, Taiwanese exports over the same period fell 1.7 percent a year.
Taiwan was among the losers in Oxford Economics’ survey of Asian economies’ trading performances since the 2008 global financial crisis.
Most in this category were relatively developed — Hong Kong, Japan, Thailand and Singapore — and lost manufacturing to regional competitors as their costs climbed without offsetting gains in innovation or productivity.
Singapore was particularly hard hit. Its electronics exports have slumped by one-third since 2010. Part of the explanation is stricter controls on migrant workers since 2010 that tightened the labor market and resulted in nominal wages in manufacturing surging 20 percent in US dollar terms through 2015.
However, while wages rose, productivity stagnated, resulting in unit labor costs climbing faster than in any other developed Asian economy in the survey.
Meanwhile, Malaysia and the Philippines have picked up the slack, spurred by cheaper production and increasing foreign investment.
India, in turn, has benefited from its cheap labor and a low base of comparison to work off.
Thailand has also struggled to adapt to increasing competition from regional rivals, particularly in labor-intensive manufacturing, with the emergence of the “CMLV [Cambodia, Myanmar, Laos and Vietnam] group of economies in ASEAN,” the survey said.
Oxford Economics predicted that world trade growth will accelerate to 3.5 percent this year and to 4 percent by 2020, which is still below the long-term average of almost 5 percent.
As a result, competition for market share “will be fierce,” it said, adding that medium-term forecasts of winners and losers in Asia should broadly mirror the recent past.
“The old adage may say that ‘past performance is no indicator of future results,’ but in this instance, it might be,” Salmon said.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
RSS