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Far East Memorandum: Taiwan

World Cement,

Read part one of Far East Memorandum here.

China and Taiwan: what next?

It seems incredible that after 65 years, China, politically, does not recognise Taiwan as an independent country, but still maintains it is a renegade province. In a recent article, Reuters reporter Faith Hung said that the historical standoff between the two countries needs to end for the sake of Taiwan’s economy. In October 2013, China’s President Xi Jinping said a political solution to the standoff could not be postponed forever. President Ma-Ying-jeou of Taiwan has said that if the Taiwan economy is to expand, the cross-strait standoff must end. The impasse has existed since Chiang Kai-shek and his ruling National Party fled from the mainland to Taiwan at the end of China’s civil war in 1949.

Taiwan’s export-driven economy has been hit by slower global growth, particularly slack demand from China. It is worth remembering that President Ma opened Taiwan to trade with China when he took office in 2008 and they have since signed economic agreements that have made mainland China Taiwan’s largest trading partner. Unfortunately, the booming trade since then has not seen progress on political reconciliation, with much sabre rattling by both countries from time to time. There is however a possibility, albeit quite slight, that the two presidents might meet later this year.

Ms Hung points out that Taiwan hopes to join the Trans-Pacific Partnership, which is a trade pact between a dozen countries. Taiwan’s integration into these international groups could be complicated by its standoff with China, with other countries withdrawing official recognition of the island state because of fear of upsetting China. The trade pact, which has US backing, aims to establish a free trade bloc stretching from Vietnam to Japan to Chile encompassing 800 million people and almost 40% of the global economy. The only response from China came in May 2013 when it said it would consider joining talks on the pact, but no word since then.

The deal between Anhui Conch and Taiwan’s Asia Cement, mentioned earlier, seems to ignore the political differences. Obviously cement is a great binder, not only in the production of concrete but also in joining opposing forces! The success of Taiwan Cement Company in China since it entered the country in 2004 has been mentioned in earlier articles. Its Chairman Koo Cheng-yun has said it will intensify its deployment in the Chinese market, which he believes promises 8 – 10 years of steady growth. At the end of November 2013, he said the company was in talks involving three to four acquisitions, some of which were offered by the target firms themselves, due to the outstanding success of TCC in China over the past 10 years. Taiwan Cement now operates 25 kilns with a total capacity of 60 million tpa, the sixth largest in China. The Group’s target is to achieve 100 million tpa by 2016, thereby consolidating its leading status in southern and southwestern China and becoming no. 5 in the country.

A more optimistic note on Taiwan’s economic outlook for this year was given in a statement by Australia and New Zealand Banking Group Ltd (ANZ) in December 2013, which said: ‘Although Taiwan’s economic recovery seemed to be running out of steam in the second half of 2013, it is expected to grow 3.6% in 2014 in line with global growth’. The improving economic outlook for the United States will positively impact Taiwan’s economy, as Taiwan’s exports are strongly linked to the performance of the US manufacturing sector. ANZ, however, issued a cautionary note about Taiwan’s electronics sector, which is expected to continue the boom and bust of the country’s performance drive. ‘Even though the electronics sector exhibited resilience in most of 2012 and 2013, the weakening of the Japanese yen and increasing competiveness of South Korea will always present uncertainty’.

Read part three of Far East Memorandum here.

Written by Paul Maxwell-Cook. This is an abridged version of the full article, which appeared in the March 2014 issue of World Cement. Subscribers can view the full article by logging in.

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