Impact of CNY devaluation on Taiwan’s trade likely to mute

Regarding trade, mainland China accounts for 40% of Taiwan's merchandise exports. However, more than half of the exports are electronic and electrical products, which are a part of the global value chain. This share of exports is not sensitive to changes in the value of CNY but rather to global demand. 

Raw materials (mostly chemicals, plastics and metals) account for another 35% of Taiwan's exports to mainland China. This share of exports saw double-digit declines this year, the mainland China's industrial sector decelerated at a rather sharp pace that was downplayed due to the unchanged headline GDP. Additional shocks from exchange rates are unlikely to have much impact along with weak demand, says Societe Generale.

On service exports, given that the CNY has appreciated roughly 10% against the TWD in the past five years, a mild reversal of this appreciation is not seen discouraging Chinese tourists from visiting Taiwan. Moreover, the government just raised the daily quota for mainland Chinese independent travellers to 5,000 from 4,000. This move will help mitigate any reduction in tourists due to a stronger TWD. 

However, mainland China has been nurturing local suppliers, especially for the semiconductor sector in which Taiwanese exporters specialise. A weaker CNY makes intermediate goods more expensive for mainland importers and could accelerate localisation of the supply chain in the long run. Nevertheless, in the short run, the impact of CNY devaluation on Taiwan's trade is likely to be muted, added SocGen.