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Country Risk: Focus on
Taiwan |
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D&B Country Risk Indicator: DB2c |
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Prompt & late payments expected to remain stable
According to D&B’s payments performance data, the proportion of prompt payments
increased in Q3 2004 to 59.1% from 56.6% in Q2 2004, while payments made 30 days
beyond terms fell from 43.0% of the total to 40.6% over the same period.
Going forward, we expect prompt and late payments to remain broadly stable at
around their present levels.
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Usual terms |
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Minimum terms
Recommended terms
Usual terms
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SD
SD
30-60 days
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FX reserves hit record high
Taiwan’s FX reserves rose for the 40th consecutive month in November 2004 to
reach a record high of USD235.0bn, representing a 13.7% increase from the end of
2003.
The continued rise in reserves over the period reflects growing exports, large
inflows of foreign equity funds, and yen and euro appreciation against the US
dollar.
These factors are expected to continue in the short term.
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Transfer situation |
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Local delays
FX/Bank delays
Import cover
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0-1 month
0-1 month
16.2 months
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Risk factor
Although the short term economic risk outlook for Taiwan remains broadly
positive, recent data releases are consistent with earlier expectations of a
slowdown in the pace of economic growth.
In November, the island’s exports grew by 6.2% year-on-year to USD14.9bn, the
slowest pace in one and half years. This continued the declining trend that has
been in effect since August 2004 and was attributable to slowing global demand,
higher US interest rates and the impact of the stronger Taiwanese dollar (in
2004 the Taiwanese dollar rose by 6.5% against the US dollar).
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Economic
indicators |
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2002
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2003
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2004e
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2005f
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2006f
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Real GDP
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3.6
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3.2
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5.4
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4.1
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4.7
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Inflation,
annual average, %
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-0.2
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-0.3
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1.3
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1.9
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2.2
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Government
balance, % GDP
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-4.3
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-4.0
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-4.1
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4.7
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-4.3
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Unemployment, %
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5.2
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5.0
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4.6
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4.3
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4.2
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C/A balance, %
GDP
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9.1
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9.9
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7.2
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7.4
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7.0
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Exports
Closer inspection of the trade data show that Taiwan’s electronics exports, by
far the most important category, grew by 7.6% year-on-year in December, more
than halving from growth of 15.6% year-on-year in November.
Meanwhile, by geographic composition, exports to China and the US, the two
largest markets, grew by 5.6% year-on-year and 4.3% year-on-year respectively, a
marked decline from growth rates of 11.7% year-on-year and 15.5% respectively in
November.
Going forward, year-on-year export growth figures for 2005 will be adversely
affected by the general strength of trade in the previous year. For its part,
the government has forecast a sharp reduction in export growth in 2005 to 7.4%
from 20.7% in 2004.
In 2005, economic conditions in China and the US will continue to have a major
influence on the outlook for the Taiwanese economy.
Favourably, while we expect the pace of economic growth to decline in China,
overall conditions are forecast to remain buoyant, with the Chinese authorities
likely to be largely successful in steering the economy to a more sustainable
growth path.
With respect to the US, while growth is expected to decline at a measured pace,
an important risk factor will be the speed with which interest rates have to be
raised to combat inflation. In this regard, it is appropriate to note a somewhat
more hawkish tone in recent pronouncements by the US Federal Reserve.
Elsewhere, the prospects for relations between Taiwan and China may have
improved in the light of a recent agreement between the two sides to allow
no-stop Cross-Strait flights for a limited period between from 25 January to 25
February 2005. The latest agreement is a significant improvement on an earlier
temporary arrangement in 2003, which still required planes to stop in Hong Kong
while excluding mainland Chinese airlines from participating.
News of the agreement sparked a rise in the market value of Chinese and
Taiwanese airline shares as investors interpreted the latest agreement as a step
closer towards ending the 50-year long ban on direct transport links between the
two territories.
Going forward, the question of whether the latest agreement can be extended in
other areas will depend ultimately on whether the two sides can reach an
agreement on the critical issue of Taiwan’s territorial status; unfortunately,
the likelihood of this remains very low at present. |
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Transfer situation |
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US Eximbank
Atradius
ECDG
Euler Hermes UK
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Full cover available
Full cover available
Full cover available
Full ST cover available
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Source:
Credit Control
Journal
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