12 March 2020
Taiwan Government Acts to Counter Worst Economic Effects of Covid-19
New bill aims to arrest damage to local economy via US$2 billion stimulation package and enhanced control measures.
Late last month, Taiwan's Legislative Yuan – the body largely viewed as the territory's parliament – passed the Special Statute for Covid-19 Prevention, Relief and Restoration in a move aimed at mitigating the impact of the spread of the coronavirus on the local economy. A total of NT$60 billion (US$2 billion) was allocated in support of the new bill, with a third going to epidemic control measures (including NT$1.82 billion for daily quarantine compensation of NT$800-1,000 per person) and the remainder reserved for shoring up the economy.
Of the latter sum, NT$10 billion will go towards stimulating consumption and investment, including funding for 'consumption coupons' that can be redeemed in shops and restaurants across Taiwan, while as further NT$2.3 billion has been earmarked for supporting the cultural and creative sectors. All told, the measures are expected to spur economic growth by up to 0.08%.
These measures come at a time when Taiwan seems to have been spared the worst of the direct effects of the coronavirus, although it has reported a small number of cases and incidences continue to rise. Despite this, the impact on the territory's economy has been just as dramatic as it has in pretty much everywhere else in the world.
As has been the case throughout much of Asia – and now, increasingly in Europe and the US – many in Taiwan have opted to work from home, while also refraining from travelling and avoiding large gatherings. As a consequence, a number of sectors – notably catering, aviation, tourism, hospitality, transport, logistics and retail – have been particularly hard hit by the outbreak, with their revenue having flatlined over recent weeks.
In the case of the aviation industry, both China Airlines and Eva Air – Taiwan's two leading airlines – have suffered on account of many flights to and from infected parts of the world being officially grounded. With both China (which accounts for 17% of all of China Airlines' flights) and Hong Kong (5%) off limits, it is easy to see why the Taipei-headquartered carrier has been hit so hard.
The number of approved mainland flights to Taiwan has fallen from 180 to 14, representing just 8% of its operating capacity. At the same time, just 10 of its scheduled 70 Hong Kong flights have been given clearance.
With two other key destinations of China Airlines – Japan and South Korea – seen as particularly vulnerable to the outbreak, passenger bookings on these routes have also tumbled. As a consequence, it is expected that the airline will cut its flights to both countries by as much as 70%.
While there is little good news to be had on the passenger front, freight may be less downbeat. With the government on the Chinese mainland prioritising the widespread resumption of production, there is now a requirement for large quantities of raw materials, daily necessities and medical supplies to be shipped-in from abroad. With many countries having suspended all flights to China, the air-freight service maintained by China Airlines has come to be viewed as something of a lifeline.
Typically, since the crisis began, air-freight charges from North America and Europe to mainland China have increased fourfold, reaching a record high of US$6/kg – a huge increase on the $1.5/kg that was the norm prior to this year's Spring Festival (24-30 January). Over the same period, cross-Straits freight charges have also doubled, rising from NT$15-17/kg (US$0.50-0.57/kg) to NT$30-32/kg. With fees and volume set to surge as more mainland factories come back online and the demand for raw materials / components spikes, it is anticipated that enhanced freight revenue may cover the ongoing shortfall in passenger receipts.
No similar quick fix, however, seems in sight for the territory's tourism sector. The impact here is likely to be two-fold. Firstly, with holidays and flights off the agenda for many in the wider Asia region and beyond, visitor arrivals in Taiwan have tumbled, with some sources estimating that the territory's tourism revenue will be down by NT$120 billlion-180 billion in the first half of this year.
In a second blow to the sector, with many of the most popular destinations for the country's outbound tourists – including mainland China, Japan and South Korea – suddenly off-limits, tour, hotel and flight cancellations have hit unprecedented heights. Overall, it is thought that the territory's travel agencies stand to lose as much as NT$100 billion as a direct consequence.
In further bad news for the territory's domestic hospitality sector, the traditional uptick in restaurant visits throughout the Spring Festival period failed to materialise this year, with many virus-wary would-be diners opting to stay home instead. This saw personal and corporate bookings all but crumble away, plunging the hospitality sector into a major downturn. With even casual daily dining out still largely off the agenda, it is a problem that has only continued to worsen.
By the same token, while the virus has clearly been very bad news for the out-of-home hospitality sector, it has provided a huge boost to Taiwan's otaku (stay-at-home) sector. A clear beneficiary here has been online home food deliveries, many of which are booked via such locally popular apps as Foodpanda or Uber Eats.
In addition to the smaller restaurants, many of which have long been working closely with the established food delivery providers, many large catering groups and luxury hotels have entered the sector in a bid to make up their ongoing revenue shortfalls. It is a similar story in the retail sector, where e-commerce has prospered even as high-street outlets have struggled.
In terms of manufacturing, as alluded to earlier, the shuttering of many mainland production facilities saw demand for high-tech components – a specialty of Taiwan's economic base – falter somewhat. With production now resuming in all but the hardest hit regions of China, it is anticipated that orders will pick-up dramatically – something that is essential if the country is to have any hopes of reaching 2Q20 growth of 15%, as has been predicted by certain financial institutions.
In another challenge, however, the mainland remains the most important offshore production base for many Taiwanese businesses, with a significant number maintaining manufacturing facilities within its borders. As many of these are reliant on local supply chains, they are finding their requirements given a low priority compared to the needs of China's critical epidemic-support businesses and the many multinationals that rely on the country for their supply chain continuity. This has put many Taiwanese SMEs in something of a precarious position, a situation that is likely to remain unchanged until the overall environment normalises.
With the Special Statute having been in force for three weeks now, its efficacy is yet to be proven. Ultimately, the potency of any such measures could be wholly undermined should the most pessimistic predictions as to the likely spread of the virus be borne out.
Robert Kang, Special Correspondent, Taipei