ETF Trends
ETF Trends

China and Taiwan have put pen to paper on an historic trade pact, which will solidify the relationship between one of the world’s fastest-growing economies and Taiwan’s biggest trading partner. Taiwan’s exchange traded funds (ETFs) may reap the rewards of the deal.

The treaty could restore Taiwan’s competitiveness in the world’s third-largest economy and help bring in more agreements with other other trading partners, comments Frederik Balfour for BusinessWeek. China will reduce tariffs from Taiwan valued at $13.8 billion, or 16% of the island’s 2009 exports to the mainland, while Taiwan will reduce tariffs on $2.86 billion in goods, or 10.5% of the country’s shipments to Taiwan in 2009. [An Asian Economy You Can’t Ignore.]

Taiwan vied for a trade deal so that it would secure the same preferential treatment for its companies that other Southeast Asian countries receive – China and the Association of Southeast Asian Nations have reached a separate trade accord that lowers tariffs on two-way trade.

Exports from Taiwan to China surged 68% in the first four months of 2010 year-over-year, and Taiwan investment jumped 44.7%. China and Hong Kong make up 43% of Taiwan’s exports. [Taiwan ETFs: Greater Export Numbers Prompt An Upgrade.]

Chu Yun-peng, an economist with National Central University, believes that Taiwan’s government should update the island’s traditional industries so that Taiwan maintains its competitiveness after the economic cooperation framework agreement (ECFA) with China takes affect, report Hsieh Chun-wei and Frances Huang for Focus Taiwan. Additionally, Chu suggests Taiwan should introduce foreign funds since foreign firms may be eager to use Taiwan as a stepping stone into the mainland market after the trade treaty is signed. [Yuan ETF: Time to Expect Big Returns?]

The government has already stated that it will spend $3 billion over the next 10 years to restructure its old economy sector.

For more information on Taiwan, visit our Taiwan category.

  • IQ Taiwan Small Cap ETF (NYSEArca: TWON)
  • iShares MSCI Taiwan Index (NYSEArca: EWT)

Max Chen contributed to this article.

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.