Taiwan’s forecasts for growth this year have been raised in light of an improving economic outlook. But the market’s exchange traded fund (ETF) could struggle along as the country balances a sensitive relationship with China.

Chen Miao, director at Economic Forecasting Center of TIER, indicated that the economy has recently recovered on increased capital investments and an up tick in private investments that could equal 7.19% of the economy this year. Judy Ki for Cens.com reports that Taiwan’s business climate monitoring index for the manufacturing industry edged up 0.05 % from a month earlier to 117.15, and that for the service industry up rose 2.7% to 125.21 in part because of the good retail sales. [Taiwan’s keys to success.]

Crystal Hsu for The Wall Street Journal reports that Taiwan’s manufacturing activity grew for the 11th straight month in January, however, the increase also indicates looming inflation. Taiwan’s economic health borders upon the PMI’s sub-indexes, because the island is a major exporter of electronics products, including semiconductors, flat panels and personal computers. [How to play Asia’s fast growth with ETFs.]

Meanwhile, China and Taiwan continue their uneasy relationship. China has claimed sovereignty over Taiwan since 1949:

  • Taiwan and China are working to forge closer economic ties, but full independence from China may not be in the island’s near future. A proposal is waiting in the wings to put both countries under the same economic umbrella and has been run be Taiwan’s leaders. Under the plan, both nations would have autonomy, Bill Tarrant for Reuters reports.
  • China is also threatening sanctions on U.S. aerospace companies that sell weapons to Taiwan, reports Kelsey Swanekamp for Forbes. These companies are actively operating in China, so they may not be keen to lose that business.
  • The two nations are working toward a broad free trade type of agreement. Taiwan hopes to sign the cooperative agreement to cut tariffs early this year, but China says it may take longer, reports Reuters.

For more stories about Taiwan, visit our Taiwan category.

  • iShares MSCI Taiwan Index (NYSEArca: EWT)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.