Taiwanese executives were upbeat during their annual shareholder meetings last week about business prospects for the second half of the year, telling shareholders that a pick-up in seasonal demand would boost their businesses.
At the same time, they urged the government to take drastic actions to keep the New Taiwan dollar in check to help them sustain growth amid a looming currency devaluation race in the Asia-Pacific region.
Taiwanese exporters are losing orders to South Korean and Japanese rivals, who are offering lower prices for their often better-quality products, profiting from the depreciation of the won and the yen versus the US dollar. A strong NT dollar is undermining corporate profitability.
Taiwan Semiconductor Manufacturing Co chairman Morris Chang (張忠謀) has been loudest on the foreign exchange issue. He has repeatedly called for devaluation of the NT dollar to help companies fend off growing competition from South Korean firms, Samsung in particular.
Last week, Chang said that the NT dollar has been unfavorable to exporters over the past few years. He said Taiwan would need to take action along the lines of the “three arrows” policy launched by Japanese Prime Minister Shinzo Abe to fix his nation’s economic weakness. Monetary easing and fiscal stimulus are the two arrows that Abe has implemented so far.
As economic recovery in Europe and in the US stumbles, it seems that Taiwanese exporters are looking for any possible way to grow. Their complaints about foreign exchange issues seem convincing, justified by weaker exports figures.
Taiwan’s exports in the first quarter grew only 4.79 percent from a year ago, falling short of the 6.2 percent annual growth forecast by the Directorate-General of Budget, Accounting and Statistics.
Corporations are hoping that the central bank will exert greater influence on the movement of the NT dollar. Some have even proposed pegging the currency to the won, because 80 percent of South Korea’s exports compete with those from Taiwan.
Joining Chang was Gou Tai-chiang (郭台強), chairman of Cheng Uei Precision Industry Co, who told reporters last week that a weak NT dollar would help ease pressure on Taiwanese firms.
“The Japanese government is doing this, why not the Taiwanese government?” Gou said.
Eric Chuo (卓永財), chairman of the nation’s major machinery tool exporter, Hiwin Technologies Corp, said that the recent 30 percent depreciation in the yen versus the greenback undermined Taiwanese companies’ competitiveness because local firms used to undercut their Japanese rivals to secure more orders. To stave off competition from Japan, Chou suggested the government devalue the NT dollar by 10 percent, to about NT$32 per US dollar.
However, foreign exchange rate manipulation is a double-edged sword. Weakness in the NT dollar will come at the cost of reducing consumers’ purchasing power and private consumption as imports become more expensive. Private consumption and imports are also key components of GDP.
The central bank knows this and is keeping to its stance of holding the NT dollar within a flexible, but narrow range. The NT dollar weakened 0.3 percent last week to NT$29.97 against the US dollar after persistent intervention by the central bank.
The central bank is doing its job to safeguard the nation’s economic growth. Are exporters doing all they can to strengthen their competitiveness? It is clear that they have been relying on offering lower-priced products to compete for market share, while forgoing advancements to their technologies and creating more innovative products and services.