Corporate debt defaults and a stretching real-estate bubble have complicated China’s economic outlook, although the risk to Taiwanese markets remains low, the Mainland Affairs Council said in a report published in February.
The report assessing the potential effect of Chinese economic conditions on Taiwan is part of a set of briefings on China and cross-strait affairs commissioned by the council.
Chinese financial markets have since November 2020 been rocked by a wave of debt defaults at state-owned enterprises, wrote lead author Li Chi-keung (李志強), an associate professor at Tamkang University’s Graduate Institute of China Studies.
Photo: Reuters
Available data show at least 143 debt defaults last year totaling 185.45 billion yuan (US$29.14 billion), a 30 percent increase over the previous year and a new record, Li said, adding that the trend is expected to continue this year.
Meanwhile, it remains unknown whether the collapse of troubled developer China Evergrande Group could end a real-estate bubble, the report said.
Evergrande’s 1.9 trillion yuan debt is “only the tip of the real-estate iceberg,” Li said.
As of June last year, developers had collectively amassed debt totaling 32.5 trillion yuan — about 28.4 percent of China’s GDP — of which 960.3 billion yuan is due this year, he said.
Real estate likely accounted for 6.8 percent of China’s GDP last year, Li said.
When the construction industry is included in the figures, the proportion rises to 13.8 percent, and to 29 percent if related services such as sales are included, he said.
Once the bubble bursts, the financial impact would be just as extreme as what occurred after the 2007 subprime mortgage crisis in the US, Li said.
Even if housing prices do not collapse, the depressed market would dampen China’s economic growth this year, challenging its 5.5 percent growth target, he added.
Despite these risks, Li said he does not foresee any major or imminent impact on Taiwan.
A full-scale financial crisis is unlikely in the near term, considering the nature of China’s state-run financial system and strict capital outflow restrictions, he wrote.
China and Taiwan also have relatively independent finances, meaning that a financial collapse in China would have limited direct effects on Taiwanese markets, he said, adding that outstanding debts owed to Taiwanese supply-chain firms pose the greatest challenge.
However, Chinese efforts to mitigate risk might have some effect on Taiwanese firms, Li said.
Beijing is to “deleverage” by tightening lending and monetary policy, further depressing corporate investment, with a domino effect on demand for raw materials and components from Taiwan, he said.
Effects would vary across industries, with steel, concrete and plastics experiencing the most significant losses, he wrote, citing a 21.9 percent decline in steel exports to China and Hong Kong in December last year.
However, demand in the electronics industry remained steady, he added.
In investment terms, production capacity by Taiwanese firms has gradually moved out of China in the wake of the US-China trade dispute and the COVID-19 pandemic, the report said.
Taiwanese firms last year invested US$5.86 billion in China, excluding Hong Kong, a decline of 0.7 percentage points year-on-year, it said.
Considering carbon curbs and electricity restrictions in China, coupled with financial risks and a cooling economy, the downward trend is expected to continue into this year, it added.
The heads of three major US banks on Wednesday pledged that they would withdraw from the Chinese market if Washington imposed sanctions on Beijing in response to an invasion of Taiwan. JP Morgan Chase chairman and CEO Jamie Dimon, Bank of America chairman and CEO Brian Moynihan and Citigroup CEO Jane Fraser told lawmakers at a hearing of the US House of Representatives Committee on Financial Services in Washington that the three banks would follow the guidance of the US government to exit China if necessary. The three bankers made the pledge after US Representative Blaine Luetkemeyer asked the three if they
HIGH STAKES: An attack on Taiwan could prompt a joint response from the US and Japan, and trigger a global conflict that could bring down the CCP, Liu Tai-ying said The Chinese People’s Liberation Army (PLA) would not be able to launch an invasion of Taiwan for at least another 10 years, Taiwan Research Institute founder Liu Tai-ying (劉泰英) said on Friday. To occupy Taiwan, China needs to transport at least 300,000 to 400,000 troops across the Taiwan Strait during battle, but it would lack the ability to do so for at least another decade, said Liu, a former Chinese Nationalist Party (KMT) treasurer and a close aide to former president Lee Teng-hui (李登輝). The challenges that China would face during an attempted invasion of Taiwan would be even greater than those
CHINA CRITIC: Prime ministerial candidate Giorgia Meloni, the front-runner in today’s election, said that she would not renew a Belt and Road Initiative deal with Beijing Italian lawmaker Giorgia Meloni, the front-runner to become the country’s next prime minister, is expected to reverse course on Italy’s support for China’s Belt and Road Initiative and strengthen ties with Taiwan if a coalition headed by her party wins the country’s general election today. “Without any doubt, if there is a center-right government, it is sure that Taiwan will be an essential concern for Italy,” Meloni told the Central News Agency in an interview. Italians are to vote in a snap election triggered by the resignation of Italian Prime Minister Mario Draghi following a failed attempt to get his coalition partners
Taiwanese on average first use pornographic material at the age of 14, an international survey found on Wednesday. Researchers at National Cheng Kung University, who conducted the survey in the nation, said 50.2 percent of Taiwanese respondents said they used pornographic material two to three times per month over the past year. Lin Chung-ying (林宗瑩), an associate professor at the university’s Institute of Allied Health Sciences, said the results indicate that Taiwanese are less sexually active than people in other countries, especially in the West. Taiwanese on average masturbate 10 percent less often than respondents from other nations in the survey, Lin said. The
RSS