Taiwan export orders fell due to China Covid curbs

Taiwan’s export orders fell in April for the first time since 2020 as Covid lockdowns in China weighed on production capacity for major Taiwanese companies. 

Orders dropped 5.5% from a year earlier, a far worse outcome than the 11.5% gain expected by economists surveyed by Bloomberg. It was the first drop in orders since February 2020, when the pandemic began, and the worst drop since January 2020, when orders fell 12.8% on year. 

The Taiwanese government warned a few weeks ago that export order growth would likely slow to between 1% and 3.8% in April, but Friday’s figures are even worse than the most bearish economist forecast.

“Although the demand for emerging technology applications and digital transformation continues to grow, the lockdown in mainland China has resulted in reduced production capacity,” the Ministry of Economic Affairs said in a statement Friday, citing problems such as logistics disruptions and shortages of raw materials. 

Orders for communications components and optical equipment dropped 21.5% and 27.7%, respectively, year-on-year because of the China lockdowns and slower demand for consumer products, officials said. 

The government expects May orders to continue to be a drag, ranging between a contraction of 1.1% and a gain of 1.7% from a year prior.

The lockdowns in China have posed challenges to Taiwan’s growth, given the extent to which Taiwanese firms operate there. Big names—including Foxconn Technology Group and Taiwan Semiconductor Manufacturing Company Ltd.—have plants in parts of China that were impacted by lockdowns, though they said they were able to keep operating by using so-called closed loop systems. That strategy allows firms to operate by having workers live on site and testing them regularly.

The economics ministry said Thursday that it expected export orders to be flat or growing in the second half of the year if China lockdowns end in the first half, and output resumes as expected.

Taiwan’s Economic Affairs Minister Wang Mei-hua said China’s Covid policy has triggered many firms to think about focusing on other regions. The ministry would “do its best to help Taiwanese businesses expand to other regions,” she said at an event for electronic manufacturers in Taipei Friday.

Economists have warned that the second quarter will be challenging for Taiwan because of the lockdowns in China and the extent to which they could hit operations of Taiwanese technology firms.

Taiwan’s economy cooled in the first quarter, expanding 3.06% from a year earlier compared to 4.9% growth in the prior three months. The government will release updated gross domestic product figures for the January-to-March period next Friday, and is also expected to revisit growth forecasts for the second quarter and the full year. 

Central bank Governor Yang Chin-long warned earlier this month that a cut to the forecast for full-year growth was “possible.” Its 2022 growth estimate was 4.05% in March.