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In 2004, manufacturing and industry accounted for 29.5 percent of the GDP. Labor-intensive industries have gradually been replaced by capital- and technology-intensive industries, such as the production of chemicals, petrochemicals, information technology, electrical equipment, and electronics. The percentage of the labor force employed in the sector hit a peak of 42.8 in 1987, but had declined to 35.2 in 2004. For decades, small and medium-sized enterprises (SMEs) have served as the backbone of Taiwan’s economic development. In recent years, the largest share of the manufacturing sector has consisted of electronics and information technology enterprises. Unlike many advanced nations, where conglomerates dominate the economy, Taiwan’s manufacturing and foreign trade are built up and fortified by legions of SMEs. Services In 2004, the service sector accounted for 68.7 percent of Taiwan’s GDP, on par with many advanced nations. Finance, insurance, and real estate comprised the bulk of the service sector, accounting for over 31.25 percent of it. Trade and eating/drinking establishments accounted for 27.8 percent of the service sector. In 1988, this sector surpassed the manufacturing sector in terms of employment. By the end of 2004, over 58.2 percent of the island’s 10.24 million workers were employed in it. Investment Taiwan’s dynamic and flexible industries, solid industrial development base, internationally competitive high-tech products, high-quality human resources, large capital market, and global trade networks all contribute to the excellent foundation for the development of a knowledge-based economy. In its August 2005 business risk report, the Switzerland-based Business Environment Risk Intelligence considered Taiwan to have the fifth best investment environment among the 50 major economies assessed. The London-based Economic Intelligence Unit in its March 2005 report ranked Taiwan’s business environment prospects the third best in Asia for 2005-2009. As for prospective economic growth, the Geneva-based World Economic Forum in its Global Competitiveness Report 2005-2006 released in October 2005 placed Taiwan fifth out of 117 economies assessed worldwide.
In 2004, the agricultural sector accounted for 1.74 percent of Taiwan’s GDP. Agricultural production totaled US$1.78 billion, almost unchanged from the previous year. Major crops include rice, sugar cane, vegetables, corn, fruits, flowers, and tea, with livestock mainly consisting of hogs, poultry, and dairy cattle. The number of workers in the agricultural sector made up 6.6 percent of Taiwan’s workforce in 2004. Communications In the telecommunications sector, Taiwan has pursued a path of liberalization, establishing a mechanism for fair competition and accelerating the development of broadband network infrastructure. Mobile phone, radio paging, trunking radio, and mobile data services were opened to the private sector in 1997; followed by satellite communications in 1998; cable leasing and 1900MHz digital low-power cordless phone services in 1999; fixed networking and international submarine cable leased-circuit services in 2000; and international simple resale (ISR) and third-generation mobile telecommunications services in 2001. Since the market was opened in 1997, mobile phone services have become more diverse, and the number of subscribers has increased. By the end of 2004, the number of mobile phone subscribers in Taiwan stood at 21.53 million, accounting for a penetration rate of 94.88 percent. Internet usage has also exploded, especially broadband. In July 2004, 56.49 percent of the people were Internet users, while the number of broadband users reached 9.36 million, or 48.99 percent of the total population. A full 68.85 percent of households had broadband access to the Internet, among which some 3.49 million, 49.97 percent, had broadband. Labor affairs Taiwan has a diversified and skilled workforce of around 10 million people. To maintain a productive and qualified workforce, the government has focused legislative priorities on workers?rights and welfare, gender equality, and labor-management relations. For example, it passed the Labor Retirement Pension Act in June 2004, allowing workers to receive a pension upon retirement regardless of the number of times they change jobs or the total number of years they work. The new pension act, which went into effect in July 2005, features a portable individual retirement account (IRA) system obliging all companies to make regular payments into IRAs. Infrastructure Modern infrastructure and an environment conducive to growth are essential to Taiwan’s export-oriented economy. The six-year Challenge 2008 program was introduced in May 2002 to secure Taiwan’s competitive edge with a package of reform and investment centered on economic growth and environmental protection. Major reforms are focused on government, banking, and finance. Investment is being directed toward four broad goals of nurturing human resources; encouraging research, development and innovation; improving international logistics; and creating a high-quality living environment. The latest major infrastructure initiative is the US$14.7-billion construction projects announced at the end of 2003. This five-year plan calls for the development of knowledge-based industries and research centers; cultural and artistic centers; a hi-tech mobilization project; rail, road, sea and mass transportation systems, and water treatment and desalination facilities. Taiwan is building a 345-kilometer high-speed railway (HSR) system that will run through the western corridor of the island, covering ten stations between northern and southern Taiwan. On January 27, 2005, the HSR was given its first test run. Once operational, travel time from Taipei to Kaohsiung will be cut from 4.5 hours by existing train or highway vehicles to just 90 minutes. Development of rapid transit is also well underway. Taipei City is served by the Taipei Rapid Transit Systems (TRTS). The initial network is already in operation and spans 67.2 kilometers. The remaining 67.7 kilometers is under planning or construction. In the southern port city of Kaohsiung, a US$6 billion, 42.7-kilometer network with two lines and 37 stations will open in October 2007. A rapid transit line connecting the CKS International Airport and Taipei’s metro system is also being planned. Globalization Foreign trade has been the major impetus behind Taiwan’s economic development. While actively expanding foreign trade opportunities for Taiwan’s businesses, the government strives to achieve its goal of “cultivating localization while promoting globalization?and to create an environment conducive to sustainable business operation. In response to globalization, increasing regional economic integration, and the formation of free trade areas, Taiwan has been actively joining various trade talks through international trade organizations like the World Trade Organization, Asia-Pacific Economic Cooperation, and Organization for Economic Cooperation and Development, and negotiating with other countries on the signing of free trade agreements (FTAs) in order to create new trade opportunities and achieve a higher level of economic development. Taiwan signed with the Republic of Panama in August 2003 its first FTA, which went into effect on January 1, 2004. As of July 2005, Taiwan had completed three rounds of FTA negotiations with Guatemala and Nicaragua. Taiwan is also carrying out FTA negotiations with Paraguay and seeks to sign FTAs with the US, Japan, Singapore, and New Zealand. Free trade port zones To enhance its competitiveness and avoid being marginalized in international supply chains, Taiwan has formulated plans and promoted the establishment of free trade port zones (FTPZs) to allow both value-added processing of goods and foreign businesspeople to take advantage of the island’s manufacturing prowess. To date, the Taiwan’s first FTPZ in Keelung Port started operation on October 1, 2004, and the second in Kaohsiung Port was launched in January 2005. The next one, in Taichung Port, is scheduled to begin operation in October 2005.
Financial reform is a key to Taiwan’s economic success. A flurry of legislation and policy initiatives over the past several years has been aimed at resolving the growing threat of non-performing loans (NPL) and modernizing the financial sector overall. Taiwan’s NPL ratio climbed from 3 percent at the end of 1995 to a record high of 8.78 percent in March 2002, an increase of US$10.2 billion to $40.7 billion in bad debt. In response, a US-style Resolution Trust Corporation (RTC) mechanism has been established to facilitate the restructuring or liquidation of poor-quality assets in the banking industry, and, if necessary, require insolvent institutions to cease operations and exit the market. With all these efforts, Taiwan’s NPL ratio declined to 2.78 percent at the end of December 2004. To speed up financial liberalization and globalization and to attract more foreign investment, the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals were amended in September 2003 to loosen restrictions and help foreign investors overcome difficulties they would encounter in their investment process. Financial reforms took another step forward with the establishment of the Financial Supervisory Committee (FSC) on July 1, 2004. The FSC is charged with monitoring the financial markets and enforcing financial regulations in order to build a system of laws and institutions that can ensure the long-term stability and healthy operation of the financial markets.
The Two Trillion and Twin Star Program, a four-year project, was launched to drive the production value of the semiconductor and flat-panel display (TFT-LCD in particular) industries to NT$1 trillion (US$29.6 billion) each, and build the digital content and biotechnology sectors into star industries. Electronic manufacturing services The tech sector enjoys such advantages as flexible production, quick delivery, low costs and excellent quality, giving local factories a competitive edge in providing world-class electronic manufacturing services. Much of this activity is centered in science parks that dot the island. There is already a fine division of labor among Taiwan’s producers, allowing enterprises to focus their know-how on production management and system integration. Drawing on a wealth of experience, they have developed excellent R&D and design capabilities, and now make ideal partners for enterprises seeking overseas production bases. National Si-soft Project Launched in 2003, the National Si-Soft Project is designed to upgrade the IC industry from mainly contract manufacturing to R&D and innovation-oriented projects, turning Taiwan into a world leader in the profitable IC design industry. The plan aims to transform Taiwan into a one-stop shop for IC design, mix-and-match intellectual property (IP), manufacturing, and testing. Through the establishment of IP malls, the circulation and licensing of IP can be expedited, reducing the cost to IC design companies for repeated development. IP malls will quickly enhance IC design techniques and competitiveness, making the foundry business more attractive to customers worldwide, and help IP designers gather market information to expand global marketing channels. By August 2005, there were two IP malls offering 900 types of IP. It is estimated that the Si-Soft Project will increase the total production value of silicon-related industries to NT$10 trillion (US$286 billion) in 10 years. Science parks The first of a series of high-tech industrial parks, the Hsinchu Science Park, was established in northwestern Taiwan to create an environment conducive to high-tech R&D, production, work, life, and entertainment to attract high-tech professionals and technologies. This 770-hectare science park is often referred to as Asia’s Silicon Valley as it is home to 356 high-tech companies, most of which are major suppliers of IC wafers and computer products in the global market. The 156 IC manufacturers in the park concentrate on producing DRAM and SRAM chips, as well as the development of Application Specific Electronic Module (ASEM) and Multi-chip Module (MCM) foundry services. (http://www.sipa.gov.tw) The second such park, the Southern Taiwan Science Park, consists of two parts, one in Tainan and the other in Kaohsiung. Covering 1,600 hectares of land, this research-oriented, innovative science park represents part of the government’s effort to develop Taiwan into a “green silicon island.?Tainan Science Park has attracted investment from leading high-tech companies, such as Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and United Microelectronics Corp. (UMC). The establishment of a telecommunications technology center in the Kaohsiung Science Park will attract the formation of semiconductor and optoelectronics industrial clusters. (http://www.stsipa.gov.tw) The newly established science park, the Central Taiwan Science Park, focuses on the development of optoelectronics, integrated circuits, precision machinery, and biotechnology at its Taichung base, while emphasizing agricultural biotechnology and optoelectronics at its Yunlin base. (http://www.ctsp.gov.tw) New horizons Taiwan’s nascent nanotechnology and biotechnology industries are well-positioned for future growth. Current leaders in nanotechnology are traditional manufacturing firms that apply nanotechnology to established production processes. New investments are primarily in the high-tech sector, and include displays (LED, optical, and flat panel), data storage and communications, and integrated circuits. With continued future growth, Taiwan will have around 1,500 nanotech manufacturers, with total production reaching US$28.57 billion by 2012. Biotechnology is another growing field. It is estimated that more than US$5 billion in both public- and private-sector funds will be invested locally in biotech over the next five years, and more than 500 biotech companies will be established within the next ten years. There are currently over 200 biotech companies in Taiwan. The fledging industry benefits from nine clinical trial centers that strictly follow FDA guidelines and regulations, roughly 6,000 top professionals working in the R&D field, and educational institutions that produce around 8,000 graduates in biotech-related disciplines every year. Taiwan has successfully capitalized on its high-tech prowess to develop an advanced aerospace industry. In January 1999, Taiwan became the 15th economy to own an artificial satellite with the launch from Cape Canaveral, Florida, of FORMOSAT-1. This was joint project with engineers from the US.
 Future development plansFramework for a new vision Taiwan has devoted itself to building a richly humanistic “green silicon island?in hopes that during the 21st century it will enjoy an inventive workforce, maritime ambition, brimming vitality, and sustainable lifestyle to forge the following:
Promotion of a healthy Taiwan In early 2005, a vision of building a healthy Taiwan for the people was proposed, under the aim of attaining a “progressive equilateral triangle,?that is, a balance among economic development, social justice, and humanistic environment. Through cooperation between the public and private sectors, a Six-star Plan for a Healthy Community is being promoted from the grassroots upwards, focusing on six major areas:
Improved environment for broadcasting media Creating a vibrant, diversified, and fully competitive market environment for the mass media has long been a major goal of the government. In recent years, the market has tended to focus investments on popular media content rather than a wider range of services, which would meet the needs of all audiences. The government, therefore, has adopted several restructuring plans to improve the media environment:
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