HONG KONG: The mainland, Taiwan's largest export market, plays an essential role in the island's economic recovery. And the island will become an immediate beneficiary when the trickle down effects of Beijing's 4 trillion yuan stimulus package begin appearing in the second half of this year, economists at Standard Chartered Bank said.

"The key to a recovery hinges on the mainland. Taiwan's economy is likely to record (a) 5 percent contraction in the first half; but an increase will be seen in the third quarter," Tony Phoo, a Taipei-based economist at the bank told China Daily in a telephone interview.

"The fourth quarter will also see an increase given the very low base last year," he added. The island's gross domestic product (GDP) plunged 8.36 percent in the fourth quarter of 2008 as a slump in exports pushed the region into its first recession since the technology bubble burst in 2001.

Two-way trade across the Taiwan Straits amounted to $105.4 billion in 2008, up 3.1 percent year-on-year, according to the Taiwan government statistics. During the year, Taiwan shipped $73.98 billion worth of goods to the mainland, down 0.4 percent from a year earlier, reversing six consecutive years of double-digit export growth that started back in 2002.

Taiwan businesses launched about 69,000 investment projects on the mainland during the past 20 years, with a total contract value of $150 billion. Most of the projects are in eastern and coastal areas and in the Pearl River Delta region. Investment fields are expanding from information technology manufacturing to service sectors, including finance and shipping.

Phoo said the recovery of the technology industry, which contributes over 50 percent of Taiwan's GDP, will depend on the demand from the mainland and from Taiwan's second largest export market, the US.

"Taiwan's weakness is that it relies too much on exports while domestic demand is weak and the investment environment is not appealing to investors," Phoo said.

(HK Edition 03/13/2009 page16)