The Economy

Taiwan's new hub of financial power, the Taipei Financial Center, is quickly advancing Taipei towards becoming a major financial center for the Asia Pacific.

Taiwan is the 17th largest economy in the world, the 14th largest exporter and 16th largest importer, and the third largest holder of foreign exchange reserves, with over US$180 billion.

Taiwan has had one of the fastest growing economies for the past five decades, and its development has been praised as an “economic miracle.” Taiwan has gradually high-teched its industries over the past two decades and currently has the fourth largest information hardware and semiconductor industries in the world. Innovative, high-quality “Made in Taiwan” products are sold worldwide. In January 2002, Taiwan joined the World Trade Organization (WTO), becoming an official partner in the world trading system. Today, the government is vigorously promoting a knowledge-based economy and industrial modernization to transform Taiwan into a “green silicon island” of high value-added production.

Macroeconomic Indicators

Taiwan’s gross national product (GNP) in 2002 was US$289.3 billion, with GNP per capita reaching US$12,916. That same year, gross domestic product (GDP) was US$281.9 billion. Agriculture’s contribution to the economy continued to shrink, accounting for only 1.86 percent of the GDP. The industrial sector’s share of the GDP also dropped, going from 31.09 percent in 2001 to 31.05 percent in 2002. Meanwhile, at 67.10 percent of the GDP, the service sector continued to constitute the bulk of Taiwan’s economy and employed the largest share of the workforce at 57.3 percent.

Trade

A lack of natural resources and a relatively small domestic market have made Taiwan dependent on foreign trade, which constitutes over 80 percent of the GNP. Consequently, this has allowed Taiwan to generate one of the world’s largest foreign exchange reserves. In 2002, Taiwan’s foreign trade totaled US$243.1 billion, with exports increasing by 6.29 percent to reach US$130.6 billion and imports rising by 4.94 percent to hit US$112.5 billion.

Exports

The United States, Hong Kong, and Japan are the top buyers of Taiwan products, accounting for 53.3 percent of total exports in 2002. Major export products include electrical machinery, mechanical appliances, plastics, textiles, and iron and steel.

In 2002, Taiwan’s exports to Hong Kong totaled US$30.9 billion, up 14 percent from the preceding year, primarily due to indirect trade with China. This resulted in a US$29.1 billion trade surplus with Hong Kong, which imported 23.6 percent of Taiwan’s exports that year.

Exports to the United States totaled US$26.8 billion in 2002, resulting in a trade surplus of US$8.63 billion. Reliance on the US has decreased in recent years due to Taiwan’s economic liberalization and internationalization. Fifteen years ago, over 40.0 percent of Taiwan’s total exports went to the US; in 2002, this figure had dropped to 20.5 percent.

Europe has long been a target of Taiwan’s market diversification policy. In 2002, exports to Europe totaled US$18.6 billion, accounting for 14.2 percent of Taiwan’s total exports. In the past, Taiwan usually registered a trade deficit with Europe; however, this situation has been reversed since 1999. In 2002, Taiwan’s trade surplus with Europe was US$3.9 billion.

With the establishment of the Association of Southeast Asian Nations (ASEAN), Southeast Asia has emerged as a new market for Taiwan and the second favorite place for Taiwan investors after China. In 2002, exports to ASEAN countries accounted for 12.2 percent of Taiwan’s total exports.

Imports

In 2002, the aggregate value of Taiwan’s imports was US$112.5 billion, up 4.94 percent from the preceding year. Major imports include electrical machinery, mechanical appliances, mineral fuels, and precision instruments. The leading source of imports is Japan, which in 2002 accounted for 24.2 percent, or US$27.3 billion, of total imports. Many Taiwan industries rely heavily on parts and manufacturing technology from Japan, particularly the information and automotive industries. Although there have been a few exceptions, imports from Japan have grown almost continuously, leading to a serious trade deficit. Today, imports from Japan are many times larger than they were 20 years ago, rising from around US$3.0 billion in the 1980s to US$27.3 billion in 2002.

Taiwan’s second largest supplier is the United States, which accounted for 16.1 percent, or US$18.1 billion, of total imports in 2002. Collectively, countries from ASEAN provided 14.7 percent of Taiwan’s imports in 2002, while imports from Europe accounted for 13.0 percent.

Economic Ties with China

Despite the absence of direct transportation links, economic ties between the two sides of the Taiwan Strait have grown considerably over the past decade. According to the Mainland Affairs Council 大陸委員會, the value of two-way trade for 2002 was US$37.4 billion. Taiwan’s exports to China, which consist mainly of industrial raw materials and components, increased by 34.3 percent over 2001 to account for 78.8 percent of indirect trade, or US$29.45 billion. Imports from China accounted for the remaining 21.2 percent of indirect trade, growing by 34.7 percent to reach US$7.95 billion.

Between 1991 and 2002, government-approved investments in China totaled US$27.3 billion, making the area the top choice for investment by Taiwanese companies. Many Taiwanese manufacturers in the labor-intensive, electronics, and IT industries have set up factories in China to take advantage of its cheap labor and low overhead costs. Many of these manufacturers receive their orders in Taiwan, produce their goods in China, and then ship the finished products directly from their factories in China to overseas buyers.

As the market in China continues to open, more and more large Taiwanese enterprises in the information, plastics, and food and beverage industries are setting up large-scale projects in China. As Taiwanese businessmen invest in activities other than export manufacturing, investments have begun to spread beyond the eastern coasts of Fujian and Guangdong Provinces. Today, Taiwanese enterprises are moving inland and establishing offices in China for handling real estate, insurance, banking, and tourism.

Over the past few years, trade dependence on China has become a major concern. In 2002, China accounted for approximately 15.4 percent of Taiwan’s total trade volume (22.6 percent and 7.1 percent of Taiwan’s exports and imports, respectively). The mass exodus of Taiwanese businesses to China prompted the government to adopt the “No haste, be patient” policy on China-bound investments in 1996. Despite the concern, however, this policy was replaced in August 2001 with the more liberalized policy of “Proactive liberalization with effective management.”

Industry

In 2002, industrial production accounted for 31.05 percent of Taiwan’s GDP. Goods that once dominated Taiwan exports, such as products from the food processing, textile, and garment industries, as well as agricultural products such as wood, bamboo, and leather, have all declined over the years. These labor-intensive industries have gradually been replaced by capital- and technology-intensive industries, such as chemicals, petrochemicals, information technology, electrical equipment, and electronics. In addition, the ROC government has been promoting many emerging industries in recent years, such as its computer hardware and software, telecommunications, precision machinery, aerospace, energy, environmental, advanced materials and chemicals, life sciences, and biomedical industries.

Manufacturing has dominated Taiwan’s industrial sector since the mid-1960s. In 2002, manufacturing output constituted over 80 percent of total industrial production, employed over one-fourth of the nation’s workforce, and accounted for 25.85 percent of the GDP. The information technology and electronics sectors continued to outperform all other manufacturing sectors.

Taiwan’s accession to the WTO in early 2002 may affect certain local industries, especially those that rely heavily on the domestic market, such as the automobile, heavy electrical machinery, home electrical appliances, and a few other less competitive traditional industries. However, overall, WTO membership is expected to bring a wealth of new business opportunities, facilitate industrial modernization, boost Taiwan’s international profile, and help resolve unfair trade practices through an institutionalized mechanism.

Challenge 2008

The Challenge 2008 National Development Plan was formulated by the ROC government to foster the creativity and talent needed to transform Taiwan into a “green silicon island,” a vision proposed by President Chen Shui-bian in his May 2000 inaugural address. Therefore, although the development projects proposed in Challenge 2008 cover a wide-range of topics, its focus is primarily on economic growth and environmental protection. In the face of technological challenges and a loss of investment and skilled managers to China, the Executive Yuan formulated three major reforms (government, banking, and finance) and four major investments (personnel training; R&D and innovation; international logistics; and a high-quality living environment) in the national development plan.

The Challenge 2008 National Development Plan will cost an estimated NT$2.6 trillion (approximately US$75 billion) and is expected to produce the following results: (1) expanding the number of products and technologies that meet the world’s highest standard to 15; (2) doubling the number of foreign visitors to Taiwan; (3) increasing R&D expenditures to 3 percent of the GDP; (4) reducing the average unemployment rate of the next six years to less than 4 percent; (5) raising the average economic growth rate of the next six years to over 5 percent; (6) boosting the number of broadband Internet users to over six million; and (7) creating approximately 700,000 jobs.