Taiwan Machinery Makers' Imports and Exports Both Contract in 2015

Trade group president urges further depreciation of NT-dollar vs. greenback

Throughout 2015, Taiwan shipped US$19.43 billion of machines and imported US$21.88 billion of machines, which represented 6.9 percent and 0.8 percent declines from the previous year, respectively, according to the Taiwan Association of Machinery Industry (TAMI), a trade group made up of over 3,000 local machinery makers.

Clearly last year was an uphill battle for Taiwanese machinery exporters when the export slump contrasted the 5.8 percent year-to-year growth in the island's machinery exports in 2014, when the revenue totaled US$21.6 billion.

The association's president, J.C. Wang, ascribes the declines mostly to the relatively stronger NT-dollar-to-greenback ratio to the weaker Japanese yen, South Korean won and euro that rendered Taiwan-made machinery less competitive; the Free Trade Agreements (FTA) the South Korean government has signed with major economies like the U.S., mainland China and the European Union that offer duty-free export of Korean machinery to the said trade partners; and the intensifying encroachment on Taiwanese market shares by mainland Chinese manufacturers of low-end, mid-range machinery.

Wang points out that the average NT-dollar-to-U.S.-dollar exchange rate was 31.66-to-1 throughout 2015, down around 4.42 percent from the previous year.

Although the NT-dollar has as of February this year weakened to hover around 33 per US-dollar, it has actually strengthened 4.3 percent overall against the greenback since 2007, versus the depreciation of the South Korean won at 15.2 percent against US-dollar in the meantime, being the Achilles heel of global competitiveness of Taiwanese machinery. 

Wang points out that although Taiwan and mainland China in 2013 had begun pushing negotiations related to the trade-in-goods agreement under the Economic Cooperation Framework Agreement (ECFA) that the two sides signed in 2008, the two sides have so far failed to finalize such talks on the agreement that aims to slash tariffs on traded goods including machinery by the end of 2015 as scheduled.

S. Korea Ahead 

Compared with Taiwan that has been mired in derailed negotiations, South Korea, obviously benefiting from governmental policy focusing on national trade interest instead of internal politicking, has shipped tariff-free machinery to the European Union and the U.S. since July 1, 2011 and March 15, 2012, respectively, thanks to the FTA it had signed with the EU and the U.S. South Korea's machinery, machine tools in particular, will also soon roll into mainland China as the two economies have signed such agreement in June 2015.

South Korean manufacturers, Wang adds, are leveraging the relatively cheaper won and the FTA to outdo Taiwanese manufacturers. In the meantime, Japanese machine makers are tapping advantages incidental to the steeply devalued yen, having weakened 26 percent since 2007, to sell machines with relatively higher cost competitiveness on the global market, with over 100 billion yen (US$815.06 million) of orders booked in each of the past 21 consecutive months through 2015. Further exasperating the scenario are the mainland Chinese manufacturers without advanced technologies, who continue to encroach on Taiwanese manufacturers' market shares of low-end, mid-range machine-tools. 

While a few high-profile Taiwanese makers are typically publicized in media to brandish high-end technologies to be able to stay ahead of mainland Chinese rivals, many smaller suppliers serving the traditional segment with single-function, lower-priced machine tools are likely treading water to compete against mainland Chinese makers who have labor cost advantage. 

Wang suggests the NT-dollar should be allowed to depreciate to NT$34-35 per US dollar to shore up Taiwan's export competitiveness.

Denominated in NT dollars, Taiwan's machinery exports as a whole totaled NT$615.3 billion (US$18.64 billion) by the end of 2015, decreasing 2.6 percent from a year ago. Contrasting such reduction, the imports amounted to NT$574.1 billion (US$17.39 billion), up 3.7 percent year on year.

Throughout 2015, Taiwan's machinery exports were NT$56.7 billion (US$1.71 billion) in January, NT$42.2 billion (US$1.27 billion) in February, NT$54.9 billion (US$1.66 billion) in March, NT$51.1 billion (US$1.54 billion) in April, NT$58.8 billion (US$1.78 billion) in May, NT$51.9 billion (US$1.57 billion) in June, NT$49.8 billion (US$1.50 billion) in July, NT$52.0 billion (US$1.57 billion) in August, NT$47.5 billion (US$1.43 billion) in September, NT$48.7 billion (US$1.47 billion) in October, NT$51.0 billion (US$1.54 billion) in November, and NT$50.3 billion (US$1.52 billion) in December.

Exports Mostly Down

The exports declined in all but the first two months and May, with March exports falling 1.3 percent, April exports down 4.6 percent, June exports slipping 9.8 percent, July exports contracting 7.4 percent, August exports sinking 7.9 percent, September exports declining 3.7 percent, October exports shedding 8.1 percent, November exports slumping 5.6 percent and December exports decaying 13.7 percent year on year. The growths came to 25.7 percent in January, 3.1 percent in February, and 9.0 percent in May.

Mainland China remained Taiwan's top buyer of machinery in 2015, importing US$5.05 billion, or 26.0 percent, of Taiwan-built machines for a 12.7 percent decrease year-on-year. The U.S. came in second to absorb US$3.47 billion, or 17.9 percent, of Taiwan-built machinery to register a 0.6 percent contraction year-on- year. Japan was the No.3 buyer, importing US$1.16 billion, or 6.0 percent, of Taiwan-made machinery to register a 3.2 percent reduction. 

Taiwan shipped US$544 million of machinery to mainland China in January, US$278 million in February, US$523 million in March, US$438 million in April, US$537 million in May, US$448 million in June, US$410 million in July, US$400 million in August, US$313 million in September, US$367 million in October, US$387 million in November, and US$389 million in December, spiking 78.6 percent, plunging 25.0 percent, rising 3.7 percent, decreasing 5.4 percent, increasing 2.4 percent, slumping 20.3 percent, sinking 21.1 percent, plunging 27.2 percent, falling 18.7 percent, dwindling 29.4 percent, shedding 25.3 percent, and sliding 29.9 percent year on year, respectively. 

Machine Tool Exports Also Down

Machine tools accounted for US$3.18 billion of 2015 Taiwan exports of machinery, registering a 15.1 percent year-on-year slump. The island exported US$287 million of machine tools in January, US$208 million in February, US$302 million in March, US$269 million in April, US$293 million in May, US$283 million in June, US$269 million in July, US$281 million in August, US$220 million in September, US$242 million in October, US$257 million in November, and US$267 million in December.

The exports only grew in the first month, at annual rate of 16.1 percent. The exports declined 10.0 percent in February, 9.8 percent in March, 15.7 percent in April, 9.8 percent in May, 19.4 percent in June, 17.2 percent in July, 16.6 percent in August, 30.4 percent in September, 23.6 percent in October, 19.9 percent in November, and 16.8 percent in December.

Mainland China was also the biggest export destination for Taiwan's machine tools in 2015, absorbing US$939.19 million, or 29.5 percent, of such Taiwan-made machines to register a 22.8 percent decrease year on year. The U.S. came in next, buying US$380.27 million, or 11.9 percent, of the machines to post an 8.3 percent contraction year on year. Turkey was the No.3 buyer, importing US$172.19 million, or 5.4 percent, of the machines for a 17.4 percent slump year on year. 

The Taiwan exports to Thailand sank 31.5 percent, 11.5 percent to Germany, 8.7 percent to Holland, 4.1 percent to India, 11.4 percent to Russia, 2.5 percent to South Korea, 28.2 percent to Malaysia, 31.3 percent to Indonesia, and 21.4 percent to England. However, the shipments increased to Vietnam, Japan, Italy and Mexico, at annual rate of 18.4 percent, 11.1 percent, 16.0 percent and 12.0 percent, respectively.

The top-16 export destinations of Taiwan's machine tools together accounted for around 82 percent of such Taiwanese exports throughout 2015.

Imports Generally Up

In 2015, Taiwan's imports of various machines totaled NT$56.5 billion (US$1.71 billion) in January, NT$40.7 billion (US$1.23 billion) in February, NT$55.2 billion (US$1.67 billion) in March, NT$52.8 billion (US$1.60 billion) in April, NT$51.5 billion (US$1.56 billion) in May, NT$65.8 billion (US$1.99 billion) in June, NT$71.8 billion (US$2.17 billion) in July, NT$62.3 billion (US$1.88 billion) in August, NT$57.0 billion (US$1.72 billion) in September, NT$60.3 billion (US$1.82 billion) in October, NT$63.8 billion (US$1.93 billion) in November, and NT$55.3 billion (US$1.67 billion) in December.

The imports only dropped in February, March, April, and December, contracting 18.0 percent, 26.4 percent, 14.0 percent, and 8.3 percent year on year, respectively. The island imported 13.0 percent more machinery in January, 4.8 percent more in May, 6.1 percent more in June, 30.3 percent more in July, 33.2 percent more in August, 2.2 percent more in September, 23.6 percent more in October, and 19.4 percent more in November relative to the same months of 2014.

Japan, the U.S. and mainland China remained the top machinery suppliers to Taiwan in 2015. Japan supplied US$7 billion, or 32.2 percent, of Taiwan's imports, declining 0.5 percent year on year. The U.S. shipped US$4.7 billion, or 21.7 percent, surging 11.1 percent year on year. Mainland China supplied US$2.6 billion, or 12.3 percent, falling 4.6 percent year on year. 

Wang points out that Taiwan's machinery builders including machine-tool makers must closely watch economic developments in these export destinations.

Mainland China's economic growth slowed to an estimated 6.8 percent year on year in 2015 from 2014's 7.4 percent whereas the American economy rose to an estimated 3.1 percent from 2.4 percent. Japan's economy swung to a growth estimated at 1.0 percent year on year in 2015 from a decline of 0.1 percent in 2014.

Wang suggests that to cope with the volatile global economy and daunting competition, Taiwan's machinery makers should integrate more smart, automatic and customized features into machines, as well as strengthen ability to fill urgent orders and short-term orders. The Taiwanese government, he adds, should accelerate Taiwan's integration into the global economy so that the island's machines can viably compete against those from Japan and South Korea.