TAIPEI (AFP) — Investors have been pumping funds into the Taipei market on the prospect of an opposition win in Saturday's presidential vote and closer ties with China -- and relief for cab driver Liao En-tsu.
For Liao, the flip side of the sluggish economy has seen his salary almost halve in five years and he sometimes waits hours to pick up a fare.
He says the poll will give him a chance to vote for the Kuomintang's (KMT) candidate Ma Ying-jeou over Frank Hsieh of the ruling Democratic Progressive Party.
"As a taxi driver, I can feel the pain when consumers want to save money, preferring public transport to a private taxi," he told AFP as he waited at a corner for a call from cab control.
In the last five years the Taipei stock market has under-performed against other Asian bourses amid slowing economic fundamentals.
But the last few months have seen investors pump funds into the market on expectation of a KMT win, sending the Taipei weighted index up over 10 percent since late January despite the global credit crunch ravaging most exchanges, dealers say.
Ma has vowed to tap into booming China via a "common market" on trade.
He has urged closer economic exchanges such as lifting a ban on direct air links, relaxing rules on China-bound investment, allowing mainland investors access to Taiwan's manufacturing sector, letting in more Chinese tourists and establishing a mechanism to protect mutual investments.
On the surface Taiwan -- the world's 17th largest economy -- rumbled along nicely in 2007. Gross domestic product grew 5.7 percent, exports were up 10.1 percent, and inflation held steady at 1.8.
Electronics and information technology are the core of the economy, making up nearly 30 percent of GDP.
Analysts say the underlying picture is not so rosy.
IBT Securities analyst Ma Chi-zen said the benefit of surging exports was not trickling down to the public.
He said a large chunk of the exports actually came from growing Taiwanese investment in China. Exclude those, he said, and last year's GDP growth falls to less than three percent.
The share of exports from China "shows the benefits (for Taiwan) on paper, not the real benefits. The mainland market is the real beneficiary."
Aidan Wang, an analyst with Yuanta Securities Investment Consulting, said inflation had eroded wage growth to just one percent in real terms, prompting consumers to tighten their belts.
Except for a blip in 2004, annual consumer spending has risen between 0.67 and 2.61 percent in the eight years the DPP has run the country.
"Taiwan's private consumption has been weak in recent years," Wang added, partly because of the high number of jobless aged 25 to 44.
While the 2007 jobless rate was steady at 3.91 percent, more than half the total were between 25 and 44, an age when they should be spending, he said.
The DPP government has also been accused of failing to map out a long-term economic strategy.
Critics cite a decision in October 2000, a few months after taking office, to scrap a partly-constructed nuclear plant without consulting parliament or outlining an alternative energy policy.
Construction eventually resumed in 2001 after an opposition uproar.
Mega Securities economist Lucas Lee said the case showed the government had failed to live up to public expectations.
"What's on the DDP administration's mind is all political considerations, resorting to anti-China sentiment to solicit support," Lee said.
"Taiwan needs strong leadership to reverse its economic troubles."
Local businesses have ploughed some 150 billion US dollars into China since Taiwan lifted an investment ban in the early 1990s.
However, the government has placed a cap on China-bound investments of 40 percent of a company's net worth, restricting expansion.
Wang Lee-rong, director of the economic forecasting centre at the Chung-Hua Institution for Economic Research, said Taiwan should ease such policies.
"Control only turns Taiwan investors away. Openness, in particular in fund flows, will encourage them to stay," she said.
More importantly, she said, foreign investors would be more willing to use Taiwan as a base for expansion into China.
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