beyondbrics

Taiwan’s June export numbers, released Thursday, showed one of two possibilities: just a particularly bad month or a more significant turning point for Asian manufacturing economies. Either way, it was not good news.

For the first time since last November, exports declined on a month-on-month basis, falling 7.1 per cent compared to May. Most alarming is the fact that the biggest part of the decline came from shipments to China and Hong Kong, rather than direct exports to Europe and the US. There was a 15.6 per cent fall in exports to China, Taiwan’s biggest trading partner, from May to June.

This is worrying for Taiwan because rising exports to China was a major factor behind the island’s rapid recovery from the global economic slowdown last year. The share of Taiwan exports to China, and its economic dependence on a growing Chinese economy, are both only going to increase after the two sides last month signed a historic trade deal.

For the rest of the world, such a sharp fall in Taiwanese exports matters because it does not bode well for China’s June export numbers, which are scheduled to be announced next Thursday. The majority of Taiwanese exports to China are semiconductors, flat-panels, and other components that are then made into products such as computers and televisions and then shipped all over the world, and there are already mounting concerns that manufacturing is slowing across Asia.

Economists, who have long flagged a slower second half for Taiwan, are largely interpreting the June numbers as a blip not worth worrying too much about. Cheng Cheng-mount of Citi in Taipei, says that when viewed on a quarterly rather than monthly basis, second-quarter exports still grew at an above-average rate of 13.6 per cent compared to the first quarter.

Taken on a year-on-year basis, Taiwan’s export growth was in fact quite impressive. Exports in the first half increased 49.2 per cent from a year ago, the highest growth in Asia. Even the ‘bad’ June month saw a 34 per cent rise from a year ago.

Christopher Wong of HSBC says the June number “was actually very disappointing”, but it was inevitable that such breakneck speed of growth had to slow at some point. He maintains cautious optimism because inventory levels for Taiwanese manufacturers are still at historic lows, “so it’s not going to be a hard landing even if demand slows,” he says.

All eyes now will be on export data over the next few months, says Cheng, especially since the third quarter has traditionally been strong for Taiwan. “We’re expecting five to ten per cent growth in the third quarter, and whether that growth will be met will be a key indicator for the rest of the year,” he said.