Taiwan currently has the world's third largest foreign exchange reserves, US$185.7 billion at the end of August. Japan has the largest reserves, US$555.1 billion and China is second with over US$320 billion.
Last month, Taiwan's forex reserves increased by US$3.46 billion. According to the Central Bank's Foreign Exchange Department, the main reason behind this increase was a large influx of foreign capital, attracted mainly by Taiwan's stock market and interest on central bank investments.
In the late 1980s, Taiwan's accumulation of reserves led to pressure on the New Taiwan dollar to appreciate, which in its turn led to the transformation of Taiwan's infrastructure and the liberalization of capital markets. Ten years on, Taiwan has joined the WTO, and liberalization of capital markets continues. In the past, Taiwan accumulated huge amounts of foreign exchange as a result of trade surpluses. Today, the reason is foreign investment in Taiwan's capital markets, leading to gains of hundreds of millions of dollars in a single month.
Large amounts of foreign capital arrive quickly and leave just as quickly. As a matter of fact, the Central Bank did not mention Taiwan's greatest source of foreign capital apart from foreign investment -- Taiwan's trade surplus with China.
The reasons behind this surplus are changes in the distribution of work in the international economy, which means that China needs to import a lot of materials from Taiwan, and that Taiwanese businesses in China use the import of equipment and materials from their headquarters in Taiwan as a cover for transferring profits back to Taiwan.
Now that Taiwan is about to allow Taiwan-invested companies in China to be listed on the over-the-counter and the TAIEX and TAISDAQ stock markets, people are worried because such a move will cause Taiwan's capital markets to be more greatly affected by China. From a positive point of view, however, it will also allow the movement of capital in Taiwan-invested companies to become more transparent and this will help improve Taiwan's capital market operations.
From a Chinese perspective, China experienced a foreign exchange shortage in the early 1990s. Ten years on, it has become the world's second largest holder of foreign exchange reserves. On the one hand, China's accumulation of foreign exchange has created pressures on the yuan to appreciate. On the other hand, it has made Chinese officialdom and industry think about how to spend this foreign currency and how to find better investment opportunities overseas.
Hong Kong will be the main beneficiary. Chinese officialdom is gradually relaxing restrictions on foreign travel for Chinese citizens. Tourists may now bring 20,000 yuan out of the country instead of the previous 6,000 yuan.
According to an estimate by Hong Kong's Chinese-language daily Wenwei Po, this means that about 1.2 trillion yuan will flow into Hong Kong next year. In addition, Chinese industry will begin to invest and acquire companies overseas or import even more equipment. In short, China has to come up with ways of spending part of its foreign currency to alleviate pressures on the currency to appreciate and enjoy some of the fruits of development.
For Taiwan, the question of how to earn some of China's foreign currency reserves will become increasingly important. In the past, the worry was that China would attract all of Taiwan's capital. Someone described it as Taiwan giving money to China, allowing it to purchase weaponry. Now it is the Chinese people's turn to invest abroad. How will Taiwan spend the money? On education and social expenditures or even Aegis destroyers?
Ku Er-teh is a freelance writer.
Translated by Perry Svensson
The past few months have seen tremendous strides in India’s journey to develop a vibrant semiconductor and electronics ecosystem. The nation’s established prowess in information technology (IT) has earned it much-needed revenue and prestige across the globe. Now, through the convergence of engineering talent, supportive government policies, an expanding market and technologically adaptive entrepreneurship, India is striving to become part of global electronics and semiconductor supply chains. Indian Prime Minister Narendra Modi’s Vision of “Make in India” and “Design in India” has been the guiding force behind the government’s incentive schemes that span skilling, design, fabrication, assembly, testing and packaging, and
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s