Taiwan Outlook Brightened in Tsai's First Year, But Risks Remain

(Bloomberg) -- When Taiwan elected Tsai Ing-wen in January last year, the economy was in the grip of three quarters of contraction, the currency was the weakest since 2009 and China, its biggest trading partner, warned of dire consequences of challenging its "One-China" policy.

Now it’s a very different picture as she nears her first anniversary as president on May 20.

Rebounding global trade has prompted the government to raise its growth forecast to 1.92 percent for this year, the benchmark Taiex stock index climbed to a 17-year high above 10,000 points last week, and the Taiwan dollar is the best-performing Asian currency over the past year. Equity fund inflows are among the largest in Asian markets in the past year. As Taiwan remains on U.S. currency monitoring list, the central bank has refrained from intervening, adding to the currency’s strength.

Expectations surrounding the next version of Apple Inc.’s iPhone have driven the Taiex up 23 percent under Tsai’s watch, outperforming the Standard & Poor’s 500 Index. A gauge of electronics companies on the Taiwan Stock Exchange has risen even more, in near-lockstep with Apple shares as investors have chased suppliers, such as Hon Hai Precision Industry Co. and Catcher Technology Co., a maker of aluminum casings for iPads and MacBooks.

A record number of people visited Taiwan in 2016 as increasing arrivals from Southeast Asia made up for plunging numbers from mainland China. Chinese visitors fell by 45 percent in March versus a year earlier. Arrivals from Southeast Asia rose by a similar amount over the same period after Taiwan introduced incentives including visa-free entry.

Still, economic challenges remain, including stagnant wage growth, which Tsai promised in her inauguration speech to tackle. The average monthly pay rose 0.6 percent in 2016 from the previous year to NT$48,790 ($1,512), while the average annual rise was 1.46 percent over the past two decades, according to the statistics agency. South Korea wages increased 3.8 percent last year.

Another challenge for Tsai is finding a new central bank chief to oversee monetary policy and one of the world’s largest foreign reserves. The stockpile rose to a record $438.4 billion in April, equal to more than three quarters of economic output. Governor Perng Fai-nan, who’s overseen the hoard for almost two decades, is set to retire in February.

One thing that hasn’t changed over the intervening year though is Beijing’s stance toward Tsai. China has refused contact with Taiwan’s government, insisting Tsai must first acknowledge both sides belong to the same country, a position that would alienate supporters of her independence-supporting Democratic Progressive Party.

Tsai has responded by proposing a new model for relations with the mainland but to little success, meaning there’s no end in sight to the long-standing and ambiguous status quo that has kept the peace across the strait since the end of the Chinese civil war in 1949.

--With assistance from Lee Miller

To contact the reporters on this story: Adela Lin in Taipei at alin95@bloomberg.net, Yu-Huay Sun in Taipei at ysun7@bloomberg.net, Argin Chang in Taipei at achang153@bloomberg.net, Chinmei Sung in Taipei at csung4@bloomberg.net.

To contact the editors responsible for this story: John Liu at jliu42@bloomberg.net, Malcolm Scott at mscott23@bloomberg.net, Samson Ellis, Jeff Kearns