On Tuesday, representatives of Taiwan’s Straits Exchange Foundation (SEF) and China’s Association for Relations Across the Taiwan Strait (ARATS) signed agreements that will expand the charter passenger flights between the two sides, permit airlines to ply a more direct route to save fuel and time, make cross-strait cargo flights possible and allow for direct shipping links, in addition to agreements on postal services and food safety issues.
Advocates of the normalization of cross-strait economic ties said the agreements reflected popular demand and would boost bilateral trade. But as soon as investors turned their attention to reality, they found they faced the same old problems: slowing exports, rising unemployment, weakening consumption and stagnant salaries.
The performance of the stock market last week speaks for itself: Three consecutive sessions of decline in the local stock market following the signing of the agreements. This offered some important lessons to investors.
First, it will be a while before the agreements make a meaningful contribution to shareholder returns. The agreements will likely have a long-term impact on Taiwan’s economy, but they cannot revive it instantaneously.
Exports last month posted their largest decline in almost seven years, dropping 8.3 percent from a year earlier and following a decline of 1.6 percent in the previous month. This was just one of the latest indicators that Taiwan’s growth momentum is weakening fast.
Second, the benefits of the cross-strait agreements are not likely to offset the negative impact of the global economic slowdown. The equity performance on Wall Street and regional markets will remain a dominant factor on the Taiwanese stock market.
Market optimism over improved economic ties with China will be short-lived, especially after the latest exports figures showed that shipments to China, Taiwan’s largest export market, dropped 19.9 percent last month year-on-year, the biggest decline since February 2005, when it plummeted 20.7 percent.
The optimism will also be undercut by the likeliness of global economic recession. Last week, disappointing US employment and corporate earnings reports, along with a slew of weak economic data from Japan and the EU zone, indicated that advanced countries could be moving into recession next year. That didn’t spell good news for export-dependent Taiwan.
Third, before the meeting, the market had expectations for fast improvements in cross-strait relations, but the clashes between protesters and police last week signaled that improving cross-strait relations could be undermined by sovereignty considerations.
Just because the Chinese Nationalist Party (KMT) has the legislative and administrative power to implement any policy it likes doesn’t mean the ruling party can choose not to take into account the views of the opposition, or refuse to conduct negotiations with openness and transparency.
Any cross-strait policy changes will rely on a consensus among Taiwanese. While the SEF and ARATS seem ready to meet every six months to discuss economic and financial issues, it is not certain that the planned talks will proceed as smoothly as expected if protests, and perhaps violence, intensify.
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