BMI View: We expect positive growth rates for Taiwan's total trade in 2015 despite challenges by slower Chinese demand growth. Modest economic growth domestically will sustain imports while a slower but growing Chinese economy will continue to consume significant volumes of Taiwanese exports. Further contributing to our positive outlook, Kaohsiung, the country's largest port, is part of several new shipping routes launched this year, driving throughput growth.
With 40% of exports from Taiwan headed to China, it is important to track Chinese demand when analysing Taiwan's shipping industry. We forecast a 6.7% real GDP growth in China this year and an average of 6.1% over the period 2015-2019. This compares to 8.5% averaged over the previous five years. Despite a slowdown in Chinese demand growth and consequently trade volumes with Taiwan, the continued increase in China's consumption will be able to attract Taiwan's production of raw materials, metals and more importantly manufactured goods. The potential election of a new government in January next year could however upset trade relations with China. Local concern about dependence on China has increased the opposition party's popularity in Taiwan, which has a far less friendly stance toward Beijing than the governing party. Public calls for greater independence, lead by the 'Sunflower Movement', have already delayed proposed extensions of trade agreements with China.
On a more positive note, we note ongoing investment at Taiwan's largest port of Kaohsiung. A new terminal and five new berths will significantly expand the port's capacity and provide the ability to accommodate mega-sized containerships over the medium term. BMI expects that with completion of the projects, major shipping companies operating larger vessels, will be extending and adding shipping routes to include Kaohsiung as a port of call. The interest of shipping companies in Taiwan is evident from the launch of a number of new services in 2015 that included the country.
Headline Industry Data
Port of Kaohsiung tonnage throughput in 2015 forecast to decrease by -1.3% to 121.38mn tonnes, after estimated growth of 6.9% in 2014. Over the medium term to 2019, we project an annual average increase of 0.7%.
Kaohsiung's container throughput forecast to grow 3.8% to 10.995mn twenty-foot equivalent units (TEUs) in 2015, down from 6.6% growth in 2014. Over the medium term, we project an annual average 3.9% increase.
The port of Keelung will see modest growth of tonnage in 2015, up 2.1% to 73.72mn tonnes, after growth of 4.1% in 2014. Container traffic will grow 3.6% to 1.746mn TEUs, down from growth of 4.5% in 2014.
Total trade is forecast to expand by 1.4% in real terms in 2015, down from an estimated 5.6% in 2014.
Taiwan has enjoyed increased trade with China over the past years, boosted by the Three Links Agreement of 2008 and the Cross Strait Trade Agreement of 2013. However this has kept Taiwan from reaching any significant agreement with other countries, to avoid the risk of upsetting Chinese relations. As a result, trade is heavily reliant on China and economic growth slowdown is negatively affecting Taiwanese trade volumes. The current government expressed their intentions to extend coverage of trade agreements with China from 1,000 products and services to up to 5,000. This was met by protests, led by the 'Sunflower Movement' which campaigns against further dependence on China, and delayed any developments on the matter. Presidential elections will be held in January 2016 and a possible election of the opposition party (deemed as favourites by recent polls) will further decrease the possibility of extending trade agreements with China as the party is far less friendly to Beijing. Erosion of trade relations between China and Taiwan holds the risk of limiting trade volumes with China. However, we note that it would also provide opportunities to diversify away from Chinese trade dependence - especially in light of the economic slowdown in China.
New Shipping Routes Calling at Taiwan: A new shipping route launched by Evergreen will connect three Southeast Asian countries but will also be used to transfer cargo heading outside the region. The latter function of the route is benefitting Taiwan with the port of Kaohsiung used as a transhipment hub for cargo shipped from Vietnam to the US. Furthermore the new Asia-Latin America Service, operated jointly by Hanjin, Hyundai and Yang Ming, has Taiwan as it starting and finishing point. This service utilises 10 container vessels of 4,500-5,500TEU capacity and calls at a number of Asian and South American ports. The inclusion of Taiwanese ports in new shipping routes is a growth driver for throughput volume.
Risks To Outlook
In our view, the main downside risk to Taiwan's economy continues to be the extent of the slowdown in China. Unlike regional peer South Korea, which has a larger and more diversified global footprint, Taiwan's economy is highly dependent on China. We expect China's economic growth to slow to 6.7% this year: should the slowdown be sharper, our Taiwan shipping forecasts will need to be revised down.
There is a more general downside risk linked to politics. The ruling Kuomintang (KMT) party suffered a landslide defeat in local elections in November 2014, increasing the likelihood that the opposition Democratic Progressive Party will win the 2016 general elections. This may trigger a period of instability this year with divisions within the KMT making themselves felt. It also signals a possible pause in the KMT policy of strengthening links with the mainland.