When it comes to global growth canaries, you could do worse than Asian exports and factory output. There’s a reason macro watchers are so obsessive about China’s economic releases, notwithstanding perennial questions about the veracity of the figures.
In 2023, Taiwan is my preferred canary. As I’m fond of putting it, the island is a barometer for two kinds of hard landings: Economic and geopolitical.
Industrial production figures and export data out of Taiwan are particularly instructive in the current environment given intense focus on semis and the extent to which the US-China cold war is manifesting as an effort to choke off the supply of tech and tech investment to Beijing.
This is a rather vexing situation for Xi. The island he covets is a critical source of key technology to a world dominated by states determined to stymie China’s tech ambitions. A natural response would be to blockade the Strait, and indeed, rehearsed blockades are the PLA’s favored response to so-called “provocations,” where that usually means high-level diplomatic exchanges between Taiwan and Washington. But a blockade would be an act of war, and it still isn’t clear whether the PLA, for all its on-paper capabilities, is ready to chance an old fashioned ship battle with the US navy.
In any event, Taiwan pulls double duty as a temperature gauge for the geopolitical environment and the global demand impulse, which is why it’s worth staying apprised of at least two monthly releases. On Monday, an update on industrial output showed another monthly decline. May’s 15.7% drop made a dozen in a row.
Manufacturing output fell 16.4% last month. Both figures were better than April’s numbers, but as the figure above makes clear, that’s not saying much.
Exports in May fell a ninth straight month. The 14% decline was the latest in a string of double-digit drops. Tellingly, though, chip exports to the US rose a 26th consecutive month. Semi shipments to China and Hong Kong, by contrast, fell. Again.
Beijing is still the island’s largest chip market, but the US is splurging on equipment as the Biden administration aims to accelerate America’s capacity to produce its own cutting edge technology and otherwise reclaim its semi sovereignty.
For all the optimistic soundbites that emanated from Antony Blinken’s visit to Beijing last week, Xi was clear on one thing: China won’t negotiate on Taiwan.
Gettin’ down and granular – There also is monthly data published on order flows to Apple’s main suppliers on the island. The most recent indicated a third monthly decline, at an accelerated pace.
I am also seeing information suggesting that major companies from the island are investing in plants in the US. I am sure they are seeing the writing on the wall. All those new investments here can be reincorporated in Delaware and Bob’s your uncle. If the PRC waits too long Taiwan might be a hollow shell. China needs those chips still.