U.S. Markets open in 7 hrs 41 mins

Taiwan unveils US$29 billion stimulus amid uncertainty over U.S., China

By Faith Hung and Jeanny Kao
A demonstrator holds flags of Taiwan and the United States in support of Taiwanese President Tsai Ing-wen during an stop-over after her visit to Latin America in Burlingame, California, U.S., January 14, 2017. REUTERS/Stephen Lam/Files

By Faith Hung and Jeanny Kao

TAIPEI (Reuters) - Taiwan announced a T$882.4 billion ($29 billion) stimulus package on Thursday to boost its export-driven economy in the face of uncertainty from its two largest trading partners, the United States and China.

Taiwan's trade-reliant economy is showing signs of recovery, but it is highly vulnerable to protectionist policies from U.S. President Donald Trump and increasing competition from Chinese manufacturers, as well as political tensions with Beijing.

In a bid to make the economy more balanced, Taiwan's government is looking for domestic growth drivers that dovetail with President Tsai Ing-wen's push to roll out green energy, improved utilities, better transport and telecommunications networks, and innovative technology.

The stimulus plan, which had been well flagged, is expected to focus on infrastructure, but spending will be spread over eight years.

Premier Lin Chuan told reporters the plan could add nearly T$1 trillion to the island's gross domestic product (GDP), while conceding that growth will remain largely export driven.

"But I must admit that when economic growth is not solid, it's still necessary to take this action to bolster the economy. It's better to do this sooner rather than later," the premier added.

Taiwan's GDP is about T$16 trillion.

"We are happy to see the government is planning to implement this package. However, its contribution to Taiwan's GDP would be limited," said Hsu Kou-an, an analyst of Capital Securities in Taipei.

"So it comes down to a question of whether the government will actually persist in implementing the package through the entire eight years, and how much growth it can really generate,” Hsu said.

Taiwan last month raised its 2017 economic growth target to a three-year high of 1.92 percent.

Its central bank is widely expected to hold interest rates steady later in the day as the government turns to fiscal stimulus to keep the recovery on track.

Taiwan's export orders grew at their fastest pace in six-and-a-half years in February on strong global demand for electronics that's bolstering makers of memory chips, flat panels and smartphones.

"It would be appropriate to expand consumption at home," central bank Governor Perng Fai-nan said in a statement earlier in the day, saying that would provide some cushion from external risks.

"China has been upgrading its supply chains. President Trump is also asking for manufacturers to go back to the U.S.," the governor said.

The stimulus package is subject to legislative approval.

($1 = 30.4810 Taiwan dollars)

(Additional reporting by Jess Macy Yu; Editing by Kim Coghill)