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Taiwan's Economy


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

After 1949 Taiwan's productivity in agriculture increased.  This was a result of land reforms that were initiated by Chiang Kai-shek after his KMT government moved from Nanjing to Tai'pei.  Foreign investment was important to Taiwan during the 1960s, so they developed export processing zones with some enticements designed to bring in more foreign investors.  The emphasis slowly moved to technology or capital-intensive commodities from that of labor-intensive goods during the 1980s.  Deregulation of various financial areas (banking, stock market, trade, finance, etc.) during the 1990s was an attempt to liberalize the economy and was a sign of Taiwan's desire to join the World Trade Organization.

It is apparent these policies have been successful as Taiwan has one of the world's highest standards of living.  Also one of Asia's "Four Tigers", along with South Korea, Singapore and Hong Kong, Taiwan's per capita gross national product (GNP) rose from $1100 in the 1950s to approximately $11,600 in the 1990s.  The gross domestic product during the 1990s was $216.5 billion, with manufacturing accounting for about 37 percent, and services make up the largest portion with about 60 percent.


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 per capita GNP 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 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 King 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 has 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 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 fro 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 exception, 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, 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 received 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 of 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 to "Proactive liberalization with effective management."

 

Updated 2006
Information provided by the Information Division, Taipei Economic and Cultural Office
 

 


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