China Trade Collapse Weakens Taiwan Dollar, Ringgit

By Belinda Cao and Judy Chen

Feb. 9 (Bloomberg) -- The Taiwan dollar is starting to feel the pain of China’s economic slowdown as exports from the island to the mainland decline.

Changshu Shengtian Knitting & Clothing Co. in China stopped ordering cloth from Taiwan this year and began buying less-expensive local fabric because “there’s no sign of even a slight increase in overseas orders this year,” said Tang Zhenya, a salesman at the company in the eastern city of Changshu. “So we turned back to cheaper mainland suppliers.”

China’s customs bureau reported that imports from the rest of Asia plunged to $43 billion in December, from a record of $70 billion in July. Asian countries that depend on exports to their neighbors will suffer the most from the 39 percent collapse in the trade, according to CLSA Asia-Pacific Markets, which predicted last week that Taiwan and Singapore’s economies will shrink at least 10 percent this year.

Barclays Plc and Morgan Stanley say the currencies of the two Asian hubs for electronics, petrochemicals and shipping will fall more than previously forecast. The Taiwan dollar, which lost 1.3 percent against the U.S. dollar in 2008, will weaken to NT$35.3 by yearend for a loss of 4.6 percent, Morgan Stanley said on Jan. 29. The average estimate in a Bloomberg News survey of 23 economists is for it to drop to NT$34 per dollar.

Singapore’s dollar will depreciate to S$1.60 by June 30, or 6.7 percent from current levels, after falling 0.5 percent last year, Barclays said on Feb. 6. That’s more bearish than the median forecast for S$1.56 in a survey of 25 economists.

Trade Collapses

“Intra-Asian trade has collapsed,” said Wai Ho Leong, a regional economist in Singapore at Barclays, the third-biggest foreign-exchange trader. “Taiwan, Singapore and Malaysia, export-oriented economies, can be expected to see their currencies drift lower.”

The Malaysian ringgit will drop to 3.65 per dollar by June 30, from 3.59, according to the median estimate of 22 economists. Barclays predicts a 3 percent decline to 3.70.

Intra-regional shipments account for about 40 percent of the total in developing Asian nations, up from 36 percent a decade ago, according to Australia & New Zealand Banking Group, Australia’s fourth-biggest lender. China accounts for 13 percent of the region’s exports from 9 percent in 1998.

Manufacturers in China are switching to local suppliers to cut costs and selling more to the domestic market as recessions in the U.S., Japan and Europe reduce export orders. China’s exports to the U.S. fell to $19.2 billion in December from $24.7 billion in September, Customs General Administration data shows.

Leather for Nike

Jian Zhihua, a leather dealer in Guangzhou supplying factories making Nike Inc. shoes, says she now sources material in China instead of Southeast Asia as her business faces losses.

CLSA, the Asian brokerage unit of Credit Agricole SA, said in its Feb. 4 report that “intraregional trade” has slowed more than trade between Asia and the rest of the world.

Taiwan’s exports in January probably tumbled 48 percent from a year earlier, according to a Bloomberg News survey of economists before a government report today. Changshu Shengtian’s Tang estimates as much as 30 percent of the more than 10,000 textile operators in Changshu closed last year.

UBS AG, the second-biggest currency trader, recommends selling the Singapore dollar and favors the Chinese yuan, while Morgan Stanley said that investors should sell the Taiwan dollar and buy the yuan.

Selective Buying

Oversea-Chinese Banking Corp., Singapore’s third-biggest bank, told clients on Feb. 5 to sell the Taiwan dollar and Malaysian ringgit and buy India’s rupee. More than 25 percent of Taiwan’s exports, including re-exports, go to China, compared with just 6 percent for India, according to OCBC. Exports account for 75 percent of Taiwan’s economy, it estimates.

“I would expect further depreciation in the Taiwan dollar and ringgit as global growth falters and Chinese imports decline,” said Daniel Moreno, a portfolio manager in Kolding, Denmark at Global Evolution, which manages $400 million in assets.

Banks aren’t predicting an across-the-board slump in Asian currencies. The median forecast in Bloomberg surveys is for the Chinese yuan to rise to 6.80 per dollar from 6.83 and for the Indian rupee to gain to 47.95, from 48.63. China can rely on an economy that will expand 5.5 percent this year, while India will grow 5 percent, CLSA predicted.

Export Competitiveness

“I don’t think China will depreciate the yuan,” said Hans Bachmann, a money manager who helps oversee the $2.8 billion emerging-market fixed income fund in Aabenraa at Sydbank A/S, Denmark’s third-largest bank. “Taiwan, South Korea and Singapore will be the countries hit most by China’s shrinking demand.”

Bachmann also said the “worst is over” for the South Korean won. The currency slumped 30 percent in the past year, compared with a decline of just 3 percent for the Taiwan dollar.

Taiwan’s central bank may seek to weaken its own currency “to keep the competitiveness of our exports compared to Korea,” said Andy Yang, a finance director at Hsinchu, Taiwan- based AU Optronics Corp., the world’s third-biggest producer of liquid-crystal displays.

Singapore’s trade ministry forecasts a record 5 percent economic contraction this year on a deepening slump in shipping and commodities. Companies from China, the world’s biggest tire maker, have defaulted on rubber orders since October, said Paul Lee, vice chairman of Sri Trang International Pte., a Singapore subsidiary of the biggest publicly traded Thai rubber exporter.

Equities in the export-driven economies also will suffer, said Daphne Roth, Singapore-based head of Asia equity research at ABN Amro Private Bank, who recommends clients cut holdings in Taiwan, Singapore and Malaysia. The three benchmark stock indexes have slumped about 40 percent in the past year.

“Taiwan, Singapore and Malaysia are small and open economies and hence very vulnerable to a fall in global trade,” said Roth, whose firm manages about $20 billion in Asia.

To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net