Economy and Trade
Taiwan’s economy has evolved from reliance on agriculture through manufacturing to services. Agriculture now constitutes just 1.7% of gross domestic product (GDP), down from 35% in 1952, while services now account for more than 70% of national output, and over half of all employment. The country, with a population of 23 million, is a dynamic, middle-income economy that is at the cutting edge in a number of high-technology sectors. Decreasing guidance of investment and foreign trade by the authorities has also led to some large, state-owned banks and industrial firms being privatized.
Exports have provided the primary impetus for industrialization. The island runs a large trade surplus, and its foreign reserves are among the world’s largest. Recently opened cross-strait travel, transportation, and tourism links are likely to increase Taiwan’s economic interdependence on China, which has overtaken the United States to become Taiwan’s largest export market, and its second-largest source of imports, after Japan. With exports accounting for more than 70% of GDP, the country has been hit heavily by the global economic downturn, and officially fell into recession in the final quarter of 2008.
Economic Policy over 12 Months
On taking office in 2008, President Ma Ying-jeou set ambitious economic targets for his administration, as part of the process of opening up and deregulating Taiwan’s economy. These targets are an annual GDP growth of 6%, an unemployment rate of less than 3%, and per capita income of US$30,000 by 2016. The focus will be on four key areas: expanding domestic demand; improving the investment environment; strengthening the economy; and increasing the quality of life. Ma plans investments totaling approximately US$140 billion, sourced from the public and private sectors, over the next eight years under the program.
Furthermore, in response to the country’s export-led slowdown, the Taiwan government has announced a series of stimulus packages beginning in late 2008. The stimulus package is 3% of GDP (US$5.6bn), and comprises coupon vouchers, infrastructure spending, and tax cuts. In January 2009, the government handed out around US$100 in shopping vouchers to each of the island’s residents in a US$2.3 billion program, which is estimated to contribute 0.64 percentage points to GDP in 2009.
Concerted efforts have also been made in providing financial incentives for business, increasing exports and introducing tax breaks. The economic stimulus package in Taiwan entails expenditure of NT$58.3 billion in infrastructure development, NT$20.5 billion in financial incentives for small and medium-scale businesses, NT$37.5 billion towards tax holidays for new investments, and NT$13.5 billion in subsidies for low-income households.
After stabilization of its economy, the Taiwanese economic stimulus package has targeted streamlining exports, an important component of national revenue. To boost shipments to new overseas markets such as Russia, Brazil, and the Middle East, this Taiwan economic stimulus package has also allotted NT$1.5 billion for exports.
The economic stimulus package has also set aside NT$1.81 billion, to be provided in the form of interest subsidies to home buyers. This package is part of a preferential mortgage program, which is worth NT$200 billion. As part of this economic stimulus plan, NT$37.5 billion will also be provided as five-year tax breaks on investments made by technical service and manufacturing companies, until the end of 2009.
The Central Bank has responded to the global economic malaise by adopting a loose monetary policy, with successive interest-rate cuts since September 2008. As of February 2009, bank base rates had been cut to an all-time low of 1.25%. The continuation of an agenda of fiscal and financial reform is important to Taiwan’s longer-term economic well-being, although commentators acknowledge the economy is dependent on the recovery of consumption in Taiwan export markets.
Economic Performance over 12 Months
As an export-led economy (exports account for more than 70% of the country’s GDP), Taiwan has suffered disproportionately from the current global slowdown. It has experienced a significant decline in exports in its major export industries, such as semiconductors, memory chips, and electronic machinery, and to its major export markets, namely China and the United States. As of January 2009, exports had fallen 44% year on year, although the fall eased to 28.6% the following month. For the first two months of 2009, exports fell by 37.2%, led by a 50% fall in exports to China, the biggest buyer of Taiwanese goods.
Industrial production has correspondingly suffered, and consumer confidence is at its lowest level for some years. The unemployment rate (5.3% in January 2009) is at its highest level since 2003, and is expected to rise as students graduate from university in summer 2009. The economy shrank at an unprecedented 8.36% pace in the fourth quarter of 2008, pushing Taiwan into its first recession since the technology bubble burst in 2001. The economy expanded only a modest 0.12% over the whole of 2008, according to the statistics agency. Taiwan’s benchmark TAIEX index of leading shares fell by 46% over 2008, to 4591.22.
The government has launched a US$5.6 billion economic stimulus drive, in a bid to create 150,000 new jobs, and reduce unemployment to below 4.5% in 2009. This package is not expected to return the country to positive growth. In fact, as global demand is showing no signs of improvement, analysts said Taiwan’s economic contraction could tighten even further in the first quarter of 2009. The statistics agency said it expects a contraction in 2009 of almost 3%, which would be the worst since 1962, when the agency’s records began. It also expects exports to slump 20% in 2009, a sharp deterioration from 2008 growth of 3.64%.
Taiwan’s challenge in future economic development lies in countering the threat posed by labor-intensive economies, such as China and Vietnam. With the prospect of continued relocation of labor-intensive industries to economies with cheaper work forces, Taiwan’s future development will have to rely on further transformation to a high technology and service-oriented economy, and in continued diversification of its trade markets beyond the United States and China.
Support for Inward Investment and Imports
The Department of Investment Services (DOIS) promotes Taiwan as an investment destination among foreign and Taiwanese businesses, and seeks to consolidate the strength of public and private-sector businesses in Taiwan. The DOIS carries out industrial assistance programs to help Taiwanese companies operating overseas and in mainland China to develop their businesses, on both a local and international level. In addition, the DOIS plans and formulates programs to recruit science and technology personnel from abroad, while maintaining a talent search database to assist Taiwanese companies in their recruitment efforts.
Tax Exemptions
The Ministry of Economic Affairs (MOEA) offers a variety of tax incentives for industrial development aimed at encouraging corporate investment and increasing R&D, personnel training, and new equipment and technology among Taiwan companies. Information can be found on its website.
Statistics
GDP growth: 0.12% (2008, est., Statistics Agency)
GDP per capita: US$31,900 (2008, est.)
CPI: 3.7% (2008, est.)
Key interest rate: 1.25% (February 2009)
Exchange rate versus dollar: New Taiwan dollars per US dollar—31.53 (2008, est.)
Unemployment: 4.1% (2008, est.)
FDI: US$102.3 billion (2008)
Current account deficit/surplus: US$25 billion (2008, est.)
Population: 22,974,347 (July 2009, est.)
Source: CIA World Factbook except where stated
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