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Taiwanese export orders and industrial production improve sequentially on Chinese demand...

RESEARCH EDGE POSITION: Long China (via the CAF fund)

Tuan Tuan and Yuan Yuan, the two giant pandas which arrived in Taiwan in the last week of 2008 as a gift from the People's Republic to the Island they still consider a prodigal state; bear names that are a naked reflection of mainland desires. Smash the two names together and you get the word "Tuan Yuan" which translates to "reunion" in Chinese.

Mainland dreams of reunion have propelled negations forward rapidly year-to-date as last year's Panda diplomacy has given way to the newly opened floodgates of direct investment and direct trade  -all at a critical time when Taiwan desperately needs a friend. 

For the island nation, the collapse of export markets in North America and Europe has set them on course to get cozy with "The Client" (China) despite profound misgivings on the part of many leaders inside the KMT as well as the opposition DPP.

China has yet to make any concrete indication that it intends to respect the political or human rights of their own citizens (let alone those of subjugated territories) while continuing to expand its military strength; so it is easy to understand why a future as a satellite in its orbit is not a uniformly appealing thought.

In the here and now, the Panda's bear hug is propelling Taiwanese export industries back into motion in a big way, as evidenced by export order and output data released by the Ministry of Economic Affairs yesterday.

While Export orders for April declined by almost 21% Year-over-year, the numbers still reflected a sequential improvement and beat economists' forecasts significantly. Orders for Electronic goods, a critical component that accounted for just shy of 25% of total orders for the nation in April,  were even stronger at -14.76% as Chinese demand for consumer electronics continues to rise in the wake of stimulus measures aimed at rural consumers. Production data showed similar sequential improvements.

PANDA BEAR HUG - ch1

PANDA BEAR HUG - ch2

Yesterday also saw the debut of notebook-computer hardware manufacturer Ju Teng International on the Taiwanese Stock Exchange, which decided to launch its latest capital raise in Taiwan rather than Hong Kong as appetite for mainland investment opportunities increases with thawing relations.

This increased order flow is yet more confirmation of increasing consumer demand on the mainland, but it would be a mistake to read too much into it with respect to the Chinese economy: The true measure of Chinese recovery will come in the form of increased output domestically, not in orders for subsidized notebooks and flat screen TVs from abroad.

For the Taiwanese the political tightrope of increasing trade dependence without being forced to compromise politically will continue as economic ties draw the two nations closer. We have traded the Taiwan equity market on the long side in the past and we continue to believe that they will be among the primary beneficiaries of increasing demand for high tech goods on the mainland.

Andrew Barber
Director