Booming chip exports mask misery in Taiwan's services sectors

TAIPEI (BLOOMBERG) – The streets in Taipei’s high-end Xinyi area are usually filled with shoppers wandering the maze of interconnected department stores, diners waiting in long lines for popular restaurants, and families buying popcorn before watching a movie.

Known locally as the capital’s “golden zone”, it is now largely empty even on sunny weekends. It’s a striking contrast to other major cities around the world that are starting to reopen and a blow to Taiwan’s retail and restaurant industries, which employ about 20 per cent of the economy’s workers.

Kang Yuan, a traditional Cantonese restaurant often frequented by Taiwan’s lawmakers, closed its doors earlier this month after two decades of business.

“Chinese dine-in restaurants like us have lost 90 per cent of our revenue due to the pandemic,” said Tsai Tsung-long, general manager of Hong Chang Corp, which owns several restaurants including Kang Yuan. “Restaurants are shutting down because they are desperate. If the situation seems like it will turnaround, owners will hang in there for two to three months. But now, they just don’t see any hope.”

Restaurants, hotels, and the retail sector are taking the biggest hit from Taiwan’s Covid-19 outbreak. Dine-in restaurants have lost around 70 per cent of their revenue while department stores have seen sales drop around 60 per cent, Liu Cheng-yu, an economist at First Capital Management, said in a telephone interview. Most restaurants and stores will not see their sales recover to around half of their pre-outbreak levels until the government fully lifts its restrictions. The government’s so-called level-3 alert is currently scheduled to run until July 26 but may be extended further.

Two-Speed Economy

The slump isn’t reflected in Taiwan’s headline economic numbers though, with another stellar year expected as strong international demand for semiconductors and electronic components propelled exports to the highest two months on record in May and June. A government index of forward-looking data indicates the economy is booming like it hasn’t done since the 1980s.

Taiwan dodged the worst of the global Covid-19 pandemic through 2020 and the first few months of this year as it managed to keep the virus out, allowing life to continue pretty much as normal. But that all changed in late April, when the virus managed to escape quarantine controls at the border and spread rapidly. Since the beginning of May, the Centers for Disease Control has reported around 13,000 cases and over 700 deaths.

In response, Health Minister Chen Shih-chung implemented a soft lockdown, shutting schools, bars and recreation venues, such as gyms, cinemas and karaoke bars. Restaurants are only allowed to serve takeout customers and gatherings of more than five people indoors are banned.

As part of its Covid relief programme, the government provides one-off subsidies of NT$40,000 (S$1,935) per employee for companies that have lost more than half of their revenue. The central bank is also offering low-interest loans to medium and small-sized enterprises to help them curb their losses.

Jerry Chiu, chief executive officer of Casual Restaurants, which operates the TGI Fridays and Texas Roadhouse franchises in Taiwan and Hong Kong, says the government has underestimated the financial impact on companies and is offering too little in the way of support.

“Taiwan’s businesses are really suffering, and Chen Shih-chung seems like he doesn’t know any of this. I was very angry watching the CDC briefing the other day,” he said in a video call. “Restaurants don’t feel supported by the government and that is why they are desperate and deciding to close down.”

The difficulties experienced by businesses are having a knock-on effect on the people they employ. Around 50,000 people lost their jobs in May as unemployment rose to its highest since 2013, according to official data. One in every five Taiwanese workers is a front-line employee in the service and retail sector.

This has led to households cutting expenses and looking for part-time jobs to alleviate the unanticipated fall in income.

Wang Tai-ming, who owns and cooks at a Peking duck restaurant in New Taipei City, is one of the many restaurant workers to be out of work. “With all the customers gone, I can’t afford to pay the rent for my restaurant,” he said. Wang is now working as a driver for Uber Technologies Inc. to support his family.

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No Relief in Sight

“The service industry contributed around half of Taiwan’s GDP growth in the first half of 2021,” Tony Phoo, senior economist at Standard Chartered Bank, said in a telephone interview. “The damage the pandemic has brought to private consumption will cause GDP growth to drop from between 7 per cent and 8 per cent to 3 per cent in the second half of the year.”

And there seems little prospect of any respite soon. While the CDC lifted the ban on in-restaurant dining last week in an effort to ease the industry’s struggles, it was overruled by all-but-one local governments throughout Taiwan which decided to extend the ban. And even when officials eventually do lift the ban, lingering uncertainty over whether or not it is safe to return to restaurants will likely mean people won’t immediately go back to their old eating habits.

Doris Huang, who regularly dined in restaurants with her family until the outbreak occurred, now cooks every meal at home in the northern seaside town of Tamsui. “I won’t take my family to eat out even if restrictions are lifted,” she said. “I don’t feel safe yet. I want to wait until all my family gets at least one vaccine.”

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