Stock releases must be seen as stop-gap measures, not more
By Alan Fong,The China PostTAIPEI, Taiwan -- Local media reported yesterday that the government is planning to sell tens of billions worth of blue-chip and state-invested firm stocks (The Economic Daily News put the estimate at NT$50 billion and The Commercial Times at NT$80 billion) to mitigate the central government budget deficit in 2014.
August 13, 2013, 12:05 am TWN
The major players in the stock release are believed to be the National Development Fund, the Finance Ministry, the Economic Ministry and the Transportation and Communication Ministry, according to the local media. The National Development Fund is going to sell NT$30 billion worth of stocks of four tech-companies, including the bellwether Taiwan Semiconductor Manufacture Company (TSMC). The Finance Ministry will cash in around NT$13 billion of its financial shares including that of Taiwan Cooperate Bank (合庫金) and Mega Holdings (兆豐金). The Economic Ministry will come up with NT$8 billion by releasing its holdings in China Steel and Aerospace Industrial Development Corporation (漢翔航空工業). The Transportation and Communication Ministry will contribute at least NT$10 billion with its release of Chunghwa Telecom shares.
The sales are technically not asset dumping as the Cabinet has drawn plans to avoid direct stock release to the market. In one plan, the Cabinet will sell the stocks by means of private placement to the nation's four major government- run funds (the Postal Savings Fund, the Labor Pension Fund, the Public Service Pension Fund and the National Pension Fund) as the designated persons. The aim of bypassing private investors is to reduce the sales' impact on the market and to avoid the dilution of public holdings on these companies. In some ways, the sales are more like moving assets from the left pocket to the right. The stocks involved in the sales are expected to be limited in amount and will have little impact on the government holding ratio even if it is sold to private investors.
Yet even if asset dumping is not a major worry, the government's plans, at least the ones reported by local media outlets, are still a cause for concern. First of all, by using the National Development Fund as a major filler of the budget gap, the government is drawing back its investment firepower to pay for its bills. If the government is habitually regarding the fund as a piggy bank or it does not have a clear long-term plan to reimburse the fund, Taiwan will see its ability to incubate new industries decline.
The right pocket, on the other hand, is also not just a pocket. The four major funds, the expected buyers of the stocks, are vital contributors to Taiwan's National Stabilization Fund designated to shore up Taiwan's stock market in terms of turbulence. Parking blue-chip and state-run firm stocks at these funds could reduce their wiggle room as a market stabilizer in times of need.
Similar stock releases should be seen as an extraordinary stop-gap measure. Fundamental reforms to Taiwan's economic structure and pension system, further privatization of state-run firms and welcoming of immigrants to compensate a graying population, to name a few, are the true long-term solutions to Taiwan's problems.