What's the real reason that Taiwan has no foreign debts? isn't this actually a dangerous thing?

[FurTrader]

What's the real reason that Taiwan has no foreign debts? isn't this actually a dangerous thing?

[tommy525]

Taiwan makes more then it spends. This is an enviable position and only a few countries on the world have money in the bank.

[headhonchoII]

I don't think the OPs statement is correct.

[baberenglish]

It is. Their debt is in house. The only offshore funds they owe is through some Saudi consortium. Basically it's a line of credit due to Taiwan's 95% reliance on them for oil.

[fh2000]

Looking at foreign reserves, Taiwan is #5.

http://en.wikipedia.org/wiki/List_of_co ... e_reserves


1 People's Republic of China
3,305,000 Mar 2012[1]
2 Japan 1,289,542 Apr 2012[2]
Eurosystem
(EU member states which have adopted the euro, incl. ECB) 896,531 Mar 2012[2]
3 Saudi Arabia 541,091 Dec 2011[3]
4 Russia 524,370 Apr 2012[4]
5 Republic of China (Taiwan) 395,070 Apr 2012[5]

[headhonchoII]

So no foreigners own Taiwanese government bonds, that's hard to believe if true.

[headhonchoII]

Looking at foreign reserves, Taiwan is #5.

http://en.wikipedia.org/wiki/List_of_co ... e_reserves


1 People's Republic of China
3,305,000 Mar 2012[1]
2 Japan 1,289,542 Apr 2012[2]
Eurosystem
(EU member states which have adopted the euro, incl. ECB) 896,531 Mar 2012[2]
3 Saudi Arabia 541,091 Dec 2011[3]
4 Russia 524,370 Apr 2012[4]
5 Republic of China (Taiwan) 395,070 Apr 2012[5]

These numbers don't tell you a lot. What is counted as foreign reserves is important. Much of the foreign reserves held in Taiwan are owned by foreigners in the form of local shares and something like 1/3 to 1/2 of total stocks are owned by foreigners (can't remember the figure now). As we know the stock market here always jumps up and down according to the foreign investors current interest in the market.
So foreign reserves just means foreign currency parked in a given country but does not actually indicate who owns that money.


Now look at the case of Japan, it also holds huge amounts of foreign reserves, yet it's fiscal situation is very tenuos, with debt Vs GDP approaching 200% and the strong Yen destroying export businesses.


I would like to understand what they mean when they say 'Taiwan has no foreign debts'...we need to see the details!

[headhonchoII]

As usual the 'Taiwan has no foreign debt's' article is misleading and plain wrong. Thanks for reading Michael Turton's blog which has an interesting debate on this matter I found this link.
www.otc.org.tw/storage/bond_qa/QFII_FAQ ... 110322.doc

What they mean by 'no foreign debts' is that it has no outstanding debts to the World Bank and IMF. Taiwan is not a member of the UN and is not able to borrow from these organisations anyway.

But the Taiwan government routinely sells government bonds to foreign investors.

. What are the rules for FII investing in Taiwan’s bond market (Investment ranges and limitations)?According to Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals Article 4 and supplement letters announced by SFB on 10rd of November, 2009, No. 09800569731, foreign investors are allowed to invest in government bonds, time deposit, money market instruments and funds(time deposit and money market instruments limited within 90days from the due date), futures for hedging purpose, options, NT dollars interest rate derivatives.
NT dollars interest rate derivative products include: Forward Rate Agreement (FRAs), Interest Rate Swap (IRS), Interest Rate Option (IRO). The investment amount for securities mentioned above should not exceed 30% of remittance in amount. However, there is no restricted trading amount of outright purchase and sell of government bonds for foreign investors.

[StuartCa]

I'd guess that it's also partly because it hasn't been involved in military action. Fighting wars costs insane amounts of cash, best not to do it.

[headhonchoII]

Well Taiwan does spend a lot on it's military, or at least it used to!

The main reason is because Taiwan has a huge industrial base which has generated vast riches for some people which they can then invest in the local market and local bonds. At the same time Taiwan operates quite a 'lean-machine' so although it has low tax it also has relatively low expenditure.