Government subsidies helping growth

Taiwan's GDP grew 2.91% in 3Q19, from 2.40% YoY in the previous quarter. It was mainly driven by a 3.68% YoY increase in government spending. We believe this spending includes subsidies to preferential investments, which has prompted some Taiwanese manufacturers to move their production lines from Mainland China to Taiwan. The Taiwanese administration estimated that the amount of investment could total TWD800 billion in 2019, which is around 4% of nominal GDP.

But the abnormality in the data shows that capital formation contracted by 1.01% YoY. We believe that these investments might only be registered and some of these factories have yet to be built. It's been reported that investors can find it difficult to have adequate electricity and water supplies and these investment gains may take time to be realised.