Economy of Taiwan

Taiwan has a dynamic capitalist economy with gradually decreasing guidance of investment and foreign trade by the Republic of China (ROC) government which governs Taiwan. In keeping with this trend, most large government-owned banks and industrial firms have been privatized. Real growth in GDP has averaged about 8% during the past three decades. Exports have grown even faster and since World War II, have provided the primary impetus for industrialization. Inflation and unemployment are low; the trade surplus is substantial; and foreign reserves are the world's fourth largest. Agriculture contributes 3% to GDP, down from 35% in 1952, and the service sector makes up 73% of the economy. Traditional labor-intensive industries are steadily being moved off-shore and replaced with more capital- and technology-intensive industries, as well as creative industries.

Taiwanese investors and businesses have become major investors in mainland China, Vietnam, Thailand, Indonesia, the Philippines, and Malaysia. The tightening of labor markets has led to an influx of foreign workers, both legal and illegal. Because of its conservative financial approach and its entrepreneurial strengths, Taiwan suffered little from the Asian financial crisis of 1997-1999 as compared to many of its neighbors. And unlike neighboring Japan and South Korea, small and medium-sized businesses make up a large proportion of businesses in Taiwan, with one in seven people the owner of a business.

Taiwan is a member of the Asian Development Bank (ADB), the World Trade Organization (WTO), and the Asia-Pacific Economic Cooperation (APEC) forum. Taiwan is also an observer at the Organisation for Economic Co-operation and Development (OECD). Taiwan's top five trade partners are China, USA, Hong Kong, Japan and Singapore.

History

Taiwan has transformed itself from a recipient of U.S. aid in the 1950s and early 1960s to an aid donor and major foreign investor, with investments primarily centered in Asia. Private Taiwanese investment in mainland China is estimated to total in excess of US$150 billion^[3], and official tallies cite Taiwan as having invested a comparable amount in Southeast Asia.

Taiwan has historically benefited from the flight of many well-educated, wealthy Chinese to settle on the island: during early Qing Dynasty, the preceding Ming dynasty supporters survived for a brief period of time in exile in Taiwan, and in 1949, as the Chinese Communist Party gained control of mainland China, two million Kuomintang (KMT) supporters fled to the island.

Taiwan, and for that matter all four of the Tigers, benefited economically from previous foreign rule or influence, whether it was British commerce in Hong Kong and Singapore, or Japanese industrialization and American land reform in Taiwan.

The first step towards industrialization was land reforms, a crucial step in modernizing the economy, as it created a class of landowners with capital they can invest in future economic endeavors. US aid was also important to stabilize post-war Taiwan, and it constituted more than 30 percent of domestic investment from 1951 to 1962. These factors, together with government planning and universal education, brought huge advancement in industry and agriculture, and living standards.

Once again, the transformation of Taiwan's economy cannot be understood without reference to the larger geopolitical framework. Although aid was cut back in the 1970s, it was crucial in the formative years, spurring industrialization and security and economic links were maintained. Uncertainty about the US commitment accelerated the country’s shift from subsidized import-substitution in the 1950s to export-led growth. Like Korea, Taiwan moved from cheap, labor-intensive manufactures, such as textiles and toys, into an expansion of heavy industry and infrastructure in the 1970s, and then to advanced electronics in the subsequent decade.

Economic outlook

Taiwan now faces many of the same economic issues as other developed economies. With the prospect of continued relocation of labor-intensive industries to economies with cheaper work forces, such as in China and Vietnam, Taiwan's future development will have to rely on further transformation to a high technology and service-oriented economy. In recent years, Taiwan has successfully diversified its trade markets, cutting its share of exports to the United States from 49% in 1984 to 20% in 2002. Taiwan's dependence on the U.S. market should continue to decrease as its exports to Southeast Asia and China grow and its efforts to develop European markets produce results. Taiwan's accession to the WTO and its desire to become an Asia-Pacific "regional operations center" are spurring further economic liberalization.

Foreign trade

Foreign trade has been the engine of Taiwan's rapid growth during the past 40 years. Taiwan's economy remains export-oriented, so it depends on an open world trade regime and remains vulnerable to downturns in the world economy. The total value of trade increased more than fivefold in the 1960s, nearly 10-fold in the 1970s, and doubled again in the 1980s. The 1990s saw a more modest, slightly less than twofold, growth. Export composition changed from predominantly agricultural commodities to industrial goods (now 98%). The electronics sector is Taiwan's most important industrial export sector and is the largest recipient of U.S. investment. Taiwan, as an independent economy, became a member of the World Trade Organization (WTO) as Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (often shortened to "Chinese Taipei"-both names resulting from PRC interference on the WTO) in January 2002.

Taiwan is the world's largest supplier of contract computer chip manufacturing (foundry services) and is a leading LCD panel manufacturer, DRAM computer memory, networking equipment, and consumer electronics designer and manufacturer. Textile production, though of declining importance as Taiwan loses its competitive advantage in labor-intensive (cheap-labor) markets, is another major industrial export sector. Imports are dominated by raw materials and capital goods, which account for more than 90% of the total. Taiwan imports most of its energy needs. The United States is Taiwan's third largest trading partner, taking 15% of Taiwanese exports and supplying 10.9% of its imports. China has recently become Taiwan's largest import and export partner. In 2006, the PRC accounted for 22.5% and 11.9% of Taiwan's exports and imports respectively (excluding Hong Kong) (According to the CIA World Factbook). This figure is growing rapidly as both economies become ever more interdependent. Imports from China consist mostly of agricultural and industrial raw materials. Exports to the United States are mainly electronics and consumer goods. As Taiwanese per capita income level has risen, demand for imported, high-quality consumer goods has increased. Taiwan's 2002 trade surplus with the United States was $8.7 billion.

The lack of formal diplomatic relations between the Republic of China (Taiwan) with Taiwan's trading partners appears not to have seriously hindered Taiwan's rapidly expanding commerce. The Republic of China maintains cultural and trade offices in more than 60 countries with which it does not have official relations to represent Taiwanese interest. In addition to the WTO, Taiwan is a member of the Asian Development Bank as "Taipei, China" (a name resulting from PRC influence on the bank) and the Asia-Pacific Economic Cooperation (APEC) forum as "Chinese Taipei" (for the same reason as above). These developments reflect Taiwan's economic importance and its desire to become further integrated into the global economy. Taiwan has been negotiating with the U.S. for a Free Trade Agreement (FTA), but this has become difficult due to PRC's diplomatic interference and the expiration of presidential fast track authority.

The prospect of an economic cooperation agreement known as ECFA with the PRC could potentially widen the market for Taiwan's exports. However, the true benefits and impacts brought by ECFA to Taiwan's overall economy are still in dispute. ^[4]

Agriculture

Although only about one-quarter of Taiwan's land area is suitable for farming, virtually all farmland is intensely cultivated, with some areas suitable for two and even three crops a year. However, increases in agricultural production have been much slower than industrial growth. Today, agriculture only comprises about 2.69% of Taiwan's GDP. Taiwan's main crops are rice, sugar cane, fruits (many of them tropical), and vegetables.

Although self-sufficient in rice production, Taiwan imports large amounts of wheat, mostly from the United States. Meat production and consumption has risen sharply, reflecting a high standard of living. Taiwan has exported large amounts of frozen pork, although this was affected by an outbreak of hoof and mouth disease in 1997. Other agricultural exports include fish, aquaculture and sea products, canned and frozen vegetables, and grain products. Imports of agriculture products are expected to increase due to the WTO accession, which is opening previously protected agricultural markets.

Energy

Science and industrial parks

• Tainan Science Park
• Hsinchu Science and Industrial Park
• Changbin Industrial Park
• Kaohsiung Science Park
• Linhai Industrial Park

Economic research institutes

• Taiwan Institute of Economic Research
• Chung-Hua Institution for Economic Research
• Institute of Economics, Academia Sinica
• Industrial Technology Research Institute
• Taiwan Livestock Research Institute

See also

• List of banks in Taiwan
• List of companies in Taiwan
• List of metropolitan areas in Taiwan
• Transportation in Taiwan
• Taiwan Stock Exchange (TSE)
• List of tourist attractions in Taiwan

References

External links

• Ministry of Economic Affairs, R.O.C. Official website (Chinese (Taiwan))
• Statistical Information Network of the Republic of China This website serves as a national statistical portal of the Republic of China.
• Taiwan Economic Journal
• Taiwan Economic Data Center
• Taiwan Economic Association
• Research Center for Taiwan Economic Development
• Council for Economic Planning and Development

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