On May 1, China formally approved Taiwan-bound investment by qualified domestic institutional investors. Four days later, it announced a plan to step up development of a cross-strait economic zone in Fujian Province. Taiwanese auto, banking and other companies added to the euphoria by announcing investment tie-up plans with mainland companies.
The response to all this has been a stock market frenzy, especially by foreign institutional investors. JPMorgan Chase announced a target of 8,000 for the Taiex by year-end (the Taiex closed at 6,485 on Wednesday).
Goldman Sachs upgraded Taiwan shares in general to “overweight” this month. “The rapidity and scope of recent cross-strait initiatives,” it said in a note, “are welcome signals that Taiwan may finally reap the economic benefits from a warmer relationship with China.”
Kevin Yang, chief investment officer at Paradigm Asset Management, added that for now, Beijing was capping Taiwan-bound investment at about 7.2 billion Taiwan dollars, or about $219 million.
“That’s very little,” he said. “I think the market’s overreacting.”
Phil Chu of Grand Cathay Securities and other analysts say foreign investors are betting that Taiwan will be another Hong Kong, where the stock market boomed following its opening to mainland investment. “I think it’s possible Taiwan’s stock market could double by 2012,” Mr. Chu said. “But it won’t go up as much as Hong Kong’s did.”
Time feels that China’s consumer is not ready to take the place of the US consumer.
China’s economy cannot stand on its own without the U.S. economy recovering its foundation, which is consumer spending. That means that the prospects of rapid GDP growth in the world’s most populous nation remain doubtful.
Morgan Stanley raised its forecast for China economic growth to 7-8 percent from 5 percent for 2009 but warned the pace will slow next year as a protracted global slowdown deals a blow to the export-led economy. (a W shaped recovery)
Goldman Sachs raised its China growth forecast to 8.3 percent for 2009 and 10.9 percent for 2010, citing strong expansion in both fixed-asset and private sector investment.
Morgan Stanley Asia Chairman Stephen Roach suggested that China should strengthen its social safety net so that people will become more willing to spend.
China should double the size of the country’s social security fund to $160 billion immediately and boost the private consumption share of the Chinese economy to 50 percent from currently 36 percent in five years, he said.
“China needs to stop depending on the over-extended American consumer and needs to rely more on the untapped potential of its own consumers,” Roach said.
During the current downturn, China’s National Bureau of Statistics has tried to provide more and better information. It is publishing data on food prices more frequently, and promises more detailed figures on output, jobs and wages. New penalties for falsifying statistical reports are also now in force.
There are signs the government is more open about bad economic news. As factories started to close last year, officials ordered special surveys of migrants in January, and publicized the shocking tally: around 20 million lost jobs.
The economic census has been commended as a serious effort to grasp the contours of China’s economy. But it’s not clear how the census results are reconciled with existing figures based on less-comprehensive surveys, and the statistics bureau publishes little information about its calculations. Among outside analysts, confusion persists over internal inconsistencies in the numbers.
“China is becoming such a big country that we expect some normalcy and some international standards,” said Carsten Holz, an economist at the Hong Kong University of Science and Technology who has written about Chinese statistics. “I would describe it as a rather professional bureaucracy, but the final stage is political.”