China’s slowing economy would impact Taiwan in the form of decreased exports, supply chain lapses and increased risk and uncertainties in terms of investing in China, a report by the Chung-Hua Institution for Economic Research (CIER) said.
The report, which was commissioned by the Mainland Affairs Council (MAC), said that China’s economic growth this year would be limited due to an internal housing bubble, exorbitant debts accrued by the corporate sector and the government, weak domestic demand, reduced investment, and heightened external uncertainties.
Taiwan should diversify its export markets, strengthen its supply chain and introduce industrial upgrades to adapt to and weather a period of sluggish Chinese economic performance, the report said.
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China’s economic growth rate is to drop to between 4.5 and 5 percent this year, compared with 5.2 percent last year, estimates showed.
China has inherent risks in its financial sector, stemming from increased risks of Chinese banks seeing higher bad debt from real-estate loans, which could lead to a repeat or similar incident to the subprime mortgage crisis in 2008, the report said.
Although Taiwan’s exports — comprised primarily of semiconductors, electronic products and precision machinery — to China and Hong Kong last year dropped to 35.4 percent of its total annual exports, any weakening of China’s economy would impact cross-strait trade, it added.
Taiwanese businesses with production bases in China are reliant on local materials and other supplementary products, which would be greatly affected by China’s economic instability, the report said, adding that electronic and machinery production would be most affected.
China’s economic instability would also directly increase Taiwanese businesspeople’s risk when considering investments, it said.
China is expected to be caught in a middle-income trap that would see an extended period of slowed economy, while industrial autonomy and other policies are expected to impact the Taiwanese economy on multiple fronts, the report said.
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