Wed, Dec 19, 2018 - Page 12 News List

Possible crisis in China greatest risk for Taiwan

By Ted Chen  /  Staff reporter

While trade tensions between Washington and Beijing would dampen economic and trade growth across the globe, the greatest threat to Taiwan next year could be contagion risk from a financial crisis originating from China, Taiwan Research Institute (TRI, 台灣綜合研究院) founder Liu Tai-ying (劉泰英) said yesterday.

As a nation with an immense trade surplus, China should be flush with liquidity, but the opposite is true amid signs of a growing credit crunch as Beijing imposes increasingly stringent capital controls on overseas withdrawals, Liu told a forum in Taipei.

Default risks are expected to loom larger as the trade tensions add pressure on businesses and lead to a financial crisis in China, he said.

The Chinese Communist Party does not make a distinction between state coffers and funds held by state-run banks, Liu said, adding that the mentality has led to questionable loans across all levels of government, with many turning into bad debt and leading to the credit crunch.

“This could severely affect Taiwan’s equity and housing markets, and the TAIEX could tumble to as low as 6,000 points,” he added.

“The greatest challenge in China is whether its leaders can navigate the contradiction of opening the country’s economy while holding on to its brand of communist ideology, and the imposition of heavy-handed fiscal and financial controls,” Liu said.

As the trade tensions have dampened external demand and made Taiwanese businesses wary of expansion, the nation’s GDP growth might slow to 2.64 percent this year and 2.34 percent next year, the institute said.

The projected growth rates are not too bad and are within the average range of 2 percent among developed economies, Liu said.

With external demand facing uncertainties stemming from growing protectionism, Taiwan’s export-oriented economy is expected to be tested next year, the institute said.

Domestic investment, in particular the execution of government expenditures — which have been forecast to grow more than 10 percent this year and 20 percent next year, and have outperformed spending since 2011 — would become vital in Taiwan’s economic growth next year, it said.

The institute’s electric prosperity index, which gauges the growth rates of industrial sectors by their energy consumption, has detected waning momentum in electronics manufacturing in the past month, while chemical and materials have maintained robust growth, institute president Wu Tsai-yi (吳再益) said.

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