Government officials have bragged about the effectiveness of the cross-strait Economic Cooperation Framework Agreement (ECFA) that Taiwan signed with China in 2010, but the stock market plunges in the two countries last year — the two worst performers in Asia — seem to have raised doubts among the public, if the response of the closer economic relations across the Taiwan Strait to a slowing global economy is any indicator.
Amid the eurozone debt crisis, weakening external demand started to bite Taiwan and China during the second half of last year. This is because Europe is China’s largest trading partner and China is Taiwan’s biggest export destination.
Against this backdrop, in Taiwan, the government has predicted economic growth would fall to 4.19 percent this year from 4.51 percent last year, compared with the previous year’s 10.88 percent. Across the Strait, China’s economy is expected to grow 8.9 percent this year, the slowest pace in more than a decade, following projected growth of 9.2 percent last year and the 10.4 percent recorded the previous year, according to the state-run Chinese Academy of Social Sciences’ estimate.
Even so, few people would view the two countries’ GDP growth numbers as less attractive than that of their neighboring economies in the East or their trading partners in the West. However, the Shanghai Composite Index’s 21.68 percent fall last year, the biggest annual fall since 2008 and the worst performance in Asia, and the TAIEX’s 21.18 percent decline last year, the second-worst performance in Asia, seem to have caught many people by surprise.
Indeed, most of the Asian markets were battered by the continuous outflow of foreign capital in the second half, as investors increased demand for US dollar-denominated securities amid concerns about sovereign-debt problems in Europe. However, Taiwan’s 21.18 percent fall and China’s 21.68 percent drop were larger than the 19.8 percent decline in Hong Kong, and far steeper than the 17.3 percent fall in Japan, the 16.5 percent drop in Singapore and the 10.5 percent decline for South Korea. Interestingly, the US became the one bright star in the West last year as the Dow Jones rose almost 6 percent for the year, compared with London’s 5.5 percent fall, Frankfurt’s 14.7 percent drop and Paris’ 17.6 percent decline.
Nevertheless, stock markets in Taiwan and China still fared worse than those Western countries last year, and people have to wonder why the two countries’ relatively strong GDP numbers still could not convince investors to put in more money here instead of in the lackluster economies in the West. Yet, government officials in Taiwan did not think so, as one official said Taiwanese investors were too pessimistic about the market outlook and another official touted the nation’s economic fundamentals on the back of the ECFA with China.
However, what raised eyebrows was the response by Taiwan Stock Exchange chairman Schive Chi (薛琦) on Friday to questions from reporters about how well the local bourse performed last year. Schive said he would give the local bourse a score of 71 points on a zero-to-100 scale, adding that Taiwan’s market performed not too badly in comparison with many of its foreign counterparts — one wonders if Schive was only joking.
Heading into the new year with Europe on the brink of recession, the only sure thing for people is that last year was a bad year as investors lost an average of NT$580,000 for the year and the ECFA did not prove to be the panacea to the economy the government said it would be. As the worries about the global economy will continue to haunt people this year, with market prospects depending on the flows of foreign capital as much as on the recovery in the US and a soft landing in China, maintaining a more cautious attitude than the government did is appropriate at this stage.