Taiwan says China economic ties make more sanctions unlikely

Taiwan is also having to contend with a slowdown in the global economy, which will likely weigh on demand for its electronics products. - Reuters

TAIPEI (Bloomberg): China’s economic measures against Taiwan are unlikely to have a major impact on trade between the two economies given how closely they’re intertwined, a finance ministry official said.

The electronics industries in both economies are "highly dependent on each other,” and Taiwan is China’s biggest source of imported integrated circuits, Beatrice Tsai, the ministry’s chief statistician, told reporters in Taipei on Monday (Aug 9).

Beijing-Taipei tensions worsened last week, with China firing missiles over Taiwan and slapping trade curbs on some agricultural goods and construction materials following US House Speaker Nancy Pelosi’s visit to the island.

"We expect very little chance of China imposing stricter economic sanctions on Taiwanese businesses due to our highly reliant economic relations,” said Tsai.

Taiwan on Monday reported stronger-than-expected trade data, with export growth rising 14.2% in July from a year ago. That was faster than the most bullish estimate in a Bloomberg survey of economists, and drove total shipments to US$43.3 billion, the second-highest amount on record.

Export growth to China has been sluggish this year as Beijing contends with Covid outbreaks and lockdowns. Shipments to China and Hong Kong increased just 3% year-on-year in July after contracting in June, compared with double-digit growth earlier in 2022. By contrast, shipments to the US surged 24.8% last month.

Even so, China and Hong Kong combined remain by far Taiwan’s largest export market. Shipments totalled more than $16 billion in July, compared with nearly $7 billion in total exports to the US.

Economists have said the risk for Taiwan would depend on whether Beijing widened restrictions to cover the manufacturing sector and semiconductors. Agricultural exports from Taiwan to China accounted for only 0.6% of total exports last year, according to DBS Group Holdings Ltd.

The import bans announced thus far "are manageable for overall trade,” Adrienne Lui, an economist at Citigroup Inc., wrote in a research note. "But given the fluid geopolitical situation, there remain risks to other key export items to China” that enjoy no tariffs.

Another main concern was whether a series of military drills surrounding Taiwan would have a significant impact on the shipping industry. By Monday, however, shipping in the Taiwan Strait showed signs of returning to normal.

Tsai said Monday the developing situation across the strait was difficult to predict. She pointed out, though, that exports were largely unaffected the last time Beijing significantly ramped up pressure on Taiwan in 1995 and 1996, even as financial markets and consumer confidence took a hit.

Barring any major disruption to shipping lanes or new trade measures from China, Tsai said Taiwan’s total exports are likely to rise between 8% and 12% in August.

Taiwan is also having to contend with a slowdown in the global economy, which will likely weigh on demand for its electronics products. Momentum in Taiwan’s tech sector demand will likely moderate in the second half of the year as work-from-home tech demand eases, said Grace Ng, an economist at JP Morgan Chase Bank NA.

"There are some worrying signs on general global demand conditions,” Ng wrote in a research note. "In particular, recent loss of momentum in Taiwan’s tech exports seems rather concerning, as the level of tech exports appears to have peaked” in the first quarter.

Exports of electronic product parts rose 15.6% from a year ago, the slowest rate of growth so far in 2022. On a month-on-month basis, semiconductor exports fell 1.8%.

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Taiwan , China , economy , sanctions


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