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Top 2000 CEO Survey

How the Economy is Turning Around


How the Economy is Turning Around

Source:Kuo-Tai Liu

Seventy percent of Taiwanese CEOs are upbeat about the 2018 global economic outlook. Almost 80 percent of CEOs are planning to grant pay raises, and their intention to invest at home and abroad is also getting stronger.



How the Economy is Turning Around

By Elaine Huang
From CommonWealth Magazine (vol. 637 )

The CEOs of Taiwan’s Top-2,000 companies are optimistic about economic growth and the economic outlook globally as well as at home. Companies are more willing to invest in the coming year, while estimated revenue and profit growth stand at a two-year high. The only potential dark clouds on the horizon are cross-strait instability in the wake of China’s 19th Communist Party Congress. The CEOs view uncertainties in the relationship with China as the biggest challenge in the year ahead.

In its “Global Economic Prospects – A Fragile Recovery” report published this June, the World Bank predicted that economic growth would reach 2.9 percent in 2018 and 2019. The report points out that this would be the fastest economic growth in seven years.

The positive outlook for the world economy is reflected in the latest CommonWealth Magazine survey of Taiwan’s Top-2,000 CEOs. More than 70 percent of CEOs from various sectors, including the manufacturing, service and financial industries, are upbeat about the economic prospects in 2018. This figure represents a three-year high and is 30 percentage points higher than that of the 2017 survey. (Table 1)

Boom or Bust - China and the US Hold the Key

As for the two main reasons for optimism, 60 percent of CEOs cite “an improving U.S. economic situation”, thanks to a declining unemployment rate and the continued improvement of the job market. As many as 43.4 percent believe that “China’s economic recovery” will positively affect the global economy. (Table 2)

It is worth noting that the CEOs again point to China and the United States when asked to cite the two biggest causes for a pessimistic global outlook. Forty-four percent of CEOs believe the biggest risk factor is “the volatility brought about by the Trump administration.” The second-highest negative factor was 37.3 percent of CEOs pointing to the “slow pace of China’s economic transformation.”  (Table 2)

The encouraging signs observed by the CEOs in the domestic economy owe partly to their general optimism for 2018. In its August 2017 forecast, the Directorate-General of Budget, Accounting and Statistics (DGBAS) expects the Taiwanese economy to grow 2.27 percent in 2018. Close to 20 percent of CEOs are more optimistic in their economic growth forecasts than the government, representing a five-year high. (Table 3)

Prospects: A Two-Year High

In a warming economy, corporate revenue and profits are bound to improve. The share of CEOs anticipating negative revenue and profit growth has markedly declined in comparison to surveys of the previous two years. At the same time, the share of CEOs predicting revenue and profit growth to exceed 30 percent has reached a two-year high. (Table 4)

Encouraged by the expected economic uptick as well as anticipated revenue and profit growth, companies' willingness to invest is on the rise.

The ratio of companies who do not plan to invest abroad in 2018 has come down to 57 percent, and the overall willingness to invest is higher than in 2017. Companies are most likely to continue investment in China and Southeast Asia (Table 5-1). The share of companies planning to invest in North America has reached a four-year high (Table 5-2), with the lion’s share of projects initiated by the technology and manufacturing industries.

Rock Hsu, chairman of the Chinese National Federation of Industries (CNFI), observes that China and Hong Kong account for 40 percent of Taiwanese exports, whereas the Association of Southeast Asian Nations (ASEAN) and the United States account for 17 percent and 11 percent, respectively. If Taiwanese enterprises consider not only production costs but also proximity to markets in their investment strategy, these three regions naturally become the three major target areas for overseas investment, Hsu believes. 

It is worth noting that the share of companies who are ready to invest in Southeast Asia has fallen below the 2016 level despite the efforts of President Tsai Ing-wen’s Democratic Progressive Party government to promote its New Southbound Policy since its inauguration in May of 2016.

Investment: ASEAN Down, China Up

Ironically, under a DPP administration that wants to shift investment away from China, corporations’ willingness to invest in China has increased. More than 45 percent of companies are positive about the investment climate in China, the highest ratio in five years.

On the political and economic front, Chinese President Xi Jinping further consolidated his leadership at the 19th National Congress of the Chinese Communist Party in October this year. Chiang Pin-kun, chairman of the Third Wednesday Club (San San Fe, a business networking organization), believes that in the wake of the party congress, “China’s new leadership group is firmly in place and will aggressively push for economic improvement.”

On the other hand, global manufacturing demand has not markedly increased, so there is less need to set up new plants in other countries.

A top executive of an Apple supplier with factories in China frankly admits that expanding existing facilities rather than investing elsewhere seems the obvious solution.“The focus is on improving plant efficiency and expanding output nearby. Given that China is a manufacturing base in the first place, you naturally directly expand production locally,” the business executive points out.

On top of that, China offers an ampler supply of workers than Southeast Asia. “Particularly if, for example, Apple is in a rush to ship goods, China is more able to quickly find sufficient workers,” explains the executive, who did not wish to be named.

Challenge: CEOs Worry about Cross-strait Ties 

Asked what they consider the biggest challenge for Taiwan-invested companies in China after the 19th party congress, 65.9 percent of CEOs points to “cross-strait instability,” the highest ratio since 2012 (Table 6). At the same time, at 41.1 percent, the lion’s share of CEOs “remain pessimistic” about the future development of cross-strait relations. (Table 8)

Asked to pinpoint the biggest challenges for Taiwan’s current business climate, 39.2 percent of CEOs again cite “cross-strait instability,” followed by "industrial transformation and upgrading” at 33.1 percent. In contrast, the recently introduced, controversial five-day workweek policy came in at only sixth place, indicating that enterprises do not consider it a major detrimental factor for the business situation in Taiwan. (Table 7)

The survey results clearly indicate that entrepreneurs are highly concerned about the future of cross-strait relations. 

Image: Ming-tang Huang

Addressing the ‘Five Shortages’

Joseph Cheng, vice chairman of the Taiwan Electrical and Electronic Manufacturers’ Association (TEEMA), points out that China-based companies would still like to return to Taiwan if the conditions were right. The key is whether Taiwan’s investment environment can be improved, observes Cheng.

The survey shows that the share of CEOs who are positive about Taiwan’s business environment has risen. As the Tsai administration passes into its second year, 27.3 percent of CEOs are positive about Taiwan’s business environment, up five percentage points from the previous survey and the highest ratio in three years. (Table 9)

In November, Premier William Lai announced solutions to the so-called “five shortages” (water, electricity, land, talent and manpower) that plague domestic industry. With regard to potential power shortages due to the government’s policy of phasing out nuclear power by 2025, Lai said a return to nuclear power would be “a measure of last resort."

When responding to the press the other day, CNFI’s Hsu told the media that an unstable power supply or power shortages are what enterprises fear most, and Lai’s remark that the government would rely on nuclear energy as a last resort would help alleviate industry concerns.

This is reflected in companies’ willingness to invest in Taiwan, which is higher than in the 2017 survey. (Table 10)

Only 29.2 percent of CEOs, the lowest figure since 2013, said they have “no investment plans in Taiwan at all.” Almost 80 percent of CEOs say they will adjust average salaries upward in 2018. (Table 11)

Hsu believes all it takes to improve Taiwan's investment environment is the power of execution. Likewise, only if the domestic investment environment improves can salaried income rise, the wage gap be narrowed and “Taiwan’s economic vitality and consumers’ ability to buy improve,” predicts Hsu.

Translated from the Chinese article by Susanne Ganz

Additional Reading

Chronicling a 20-Year Decline
Can Xi’s ‘National Treatment’ Strategy Work?
Taiwan’s Energy Transition: Facing Up to a Hot, Dirty 10 Years