China’s reiteration of its goal to bring Taiwan into its fold and rejection of negotiations are credit negative for Taiwan, as cross-strait tensions would hurt Taiwan’s economy and balance of payments, as well as the effectiveness of it policies, despite its strong economic and financial buffers, Moody’s Investors Service said on Monday last week.
The ratings agency’s warning came after Chinese President Xi Jinping (習近平) on Jan. 2 said that Taiwan’s unification with China is “inevitable” and there is no room for negotiations on Beijing’s stance.
Taiwan and China “must and will be united,” Xi said, proposing a “one country, two systems” framework similar to that used in Hong Kong and Macau.
China would not renounce the use of military force to deter separatists, nor would it tolerate external interference, Xi said.
Political discord with China already weighs on Taiwan’s economic activity and has a bearing on its policymaking, including President Tsai Ing-wen’s (蔡英文) New Southbound Policy, Moody’s said, adding that Beijing’s opposition to its diplomatic allies developing ties with Taipei constrains the initiative, and the trade dispute between the US and China could aggravate such strains.
China remains Taiwan’s biggest trading partner, accounting for 40 percent of exports, although it has suspended official exchanges with the nation after the Democratic Progressive Party came to power in May 2016, Moody’s said.
Moody’s in its latest regional sovereign report card maintained its “Aa3” rating with a stable credit outlook for Taiwan.
It forecast that the local economy would to grow 2.2 percent this year, after a 2.4 percent expansion last year.
Despite slowing growth and rising downside risks ahead, the credit rating outlook for economies in the Asia-Pacific region this year is stable overall, Moody’s said in a separate statement on Thursday.
Of the 24 Asia-Pacific sovereigns rated by Moody’s, 21 had stable rating outlooks as of Wednesday, while three had negative outlooks, it said.
“Solid domestic fundamentals, including rising incomes and competitiveness, generally ample foreign-exchange reserves and often sizeable domestic savings, will continue to underpin government credit quality,” Moody’s said.
The pace of economic expansion in the region should soften from this year to next year, due to tensions between the US and China, tightening global financing conditions and shifts in political and policy priorities domestically, the report said.
Emerging and frontier market economies are likely to experience the sharpest deceleration this year, with median GDP growth rates of 5.5 percent and 5.2 percent respectively, while growth in advanced economies in the region would likely slow to 2.5 percent, it said.
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