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Economy

Taiwan's economy bounces back as Hong Kong stays in recession

Q3 growth of 3.3% in Taiwan compares with 3.4% contraction for Hong Kong

Taiwan, left, and Hong Kong are having contrasting economic fortunes. (Source photos by Reuters and Ken Kobayashi)

TAIPEI/HONG KONG -- Data released Friday highlighted the contrasting economic fortunes of Taiwan and Hong Kong.

Taiwan, which has mostly tamed the coronavirus on its shores, bounced back from a contraction in the second quarter. But Hong Kong, reeling from the COVID-19 pandemic and the repercussions of the national security law, notched its fifth straight year-on-year decline in gross domestic product.

The economy of the self-governing island grew 3.33% in the July-September period from a year earlier on an increase in exports driven by Huawei boosting orders ahead of the U.S. ban on shipments of products to the Chinese tech giant in mid-September. Domestic demand also recovered as the island contained the spread of the coronavirus.

The figure was better than the 1.5% forecast by economists in a Reuters poll.

Taiwan has also been a beneficiary of supply chain diversification from China. The government said it has lured nearly 700 companies to invest there since late 2018. Investments of more than 374 billion New Taiwan dollars ($13.08 billion) are expected this year, contributing around 1.7 percentage points to economic growth.

GDP declined 0.58% in the April-to-June quarter, but registered overall growth of 0.78% in the first half of this year -- outperforming neighbors such as South Korea, Japan, Singapore, and Hong Kong.

However, market watchers are still evaluating whether the outcome of the upcoming U.S. presidential election could alter the fractious landscape surrounding Washington-Beijing tensions and affect the trade-reliant Taiwanese economy.

Chen Tain-jy, consultant at the Chunghua Institute for Economic Research and former minister of the National Development Council, said that even if Joe Biden emerges victorious in the Nov. 3 U.S. presidential vote, "the tech battle for the world's two biggest economic powers would not change much."

"If Biden wins the election, we expect some tactics to deal with China would change -- like the U.S. would seek more international collaborations and would follow international rules, such as bringing in European allies and the World Trade Organization to deal with China issues" rather than only taking an American-centered approach as now, Chen said.

"But the direction for the U.S. to curb Chinese tech advancements would not change because the U.S. is very concerned about the growing Chinese expansion in vital technologies from chips to artificial intelligence, as all those sectors are closely linked" to enhancing military power, Chen said.

Despite U.S.-China trade uncertainties, the Taiwanese economy is heading for a steady bounce back.

"The Taiwanese economy is on the road to recovery in the third and fourth quarter in 2020... Taiwan's electronics industry is a strong supportive pillar of the economy," Cheng Cheng-mount, a renowned economist and chairman and CEO of Yang Ming Marine Transport, told Nikkei Asia. "This recovery is likely to continue into the first quarter of 2021."

Hong Kong, meanwhile, has logged its longest recession on record. The financial hub's economy shrank 3.4% in the third quarter, according to an advance government reading released on Friday.

The shrinkage has narrowed significantly from the near 9% contraction in the first two quarters, thanks to increased local consumption and strong economic recovery in China, which constitutes about half of Hong Kong's trade.

In a blog post published on Sunday, Financial Secretary Paul Chan attributed the economic improvement to Hong Kong's containment of coronavirus infections, relaxed social distancing measures, and China's economic rebound.

"That said, COVID-19 will remain a major downside risk to the global and local economy until effective vaccines are widely available," a Hong Kong government said in a statement, adding that U.S.-China geopolitical tensions and Brexit will also add to uncertainties.

Hong Kong's unemployment rate reached 6.4% in the July-to-September period -- a 16-year-high -- as the pandemic dealt a heavy blow to the tourism and service industry. The city's government has so far rolled out several rounds of relief measures totaling HK$300 billion ($38.7 billion) to shore up the economy and save jobs.

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