Economy of Taiwan

Economy - overview: Taiwan has a dynamic capitalist economy with gradually decreasing guidance of investment and foreign trade by government authorities. In keeping with this trend, some large government-owned banks and industrial firms are being privatized. Real growth in GDP has averaged about 8% during the past three decades. Exports have grown even faster and have provided the primary impetus for industrialization. Inflation and unemployment are low; the trade surplus is substantial; and foreign reserves are the world's third largest. Agriculture contributes 3% to GDP, down from 35% in 1952. Traditional labor-intensive industries are steadily being moved off-shore and replaced with more capital- and technology-intensive industries. Taiwan has become a major investor in mainland China, Thailand, Indonesia, the Philippines, Malaysia, and Vietnam. 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 compared with many of its neighbors from the Asian financial crisis in 1998-1999. Growth in 2000 should pick up a bit from 1999, backed by expansion in domestic consumption, exports, and private investment.

Economic Development:

Through nearly five decades of hard work and sound economic management, Taiwan has transformed itself from an underdeveloped, agricultural island to an economic power that is a leading producer of high-technology goods. Taiwan is now a creditor economy, holding one of the world's largest foreign exchange reserves of more than $100 billion in 1999. Despite the Asian financial crisis, the economy continues to expand at about 5% per year, with virtually full employment and low inflation. The population also enjoys an annual average income equal to U.S. $13,152 (1999).

First, two million Kuomintang supporters fled to the island in 1949, establishing the small island of less than 20 million as the sea of the Republic of China. Interestingly enough, the Ming dynasty survived for a brief period of time in exile in Taiwan. Taiwan thus benefited from the flight of many well-educated, bourgeois Chinese.

Second, Taiwan, and for that matter all four of the Tigers befitted 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. In a sense, Taiwan benefited from Marx’s export of the dialectic through imperialism. Furthermore, each of the tigers was an artificial polity severed from larger neighbors—Communist China in the case of Taiwan and Hong Kong, Malaysia for Singapore. Likewise, South Korea was a produce to postwar division and bloody civil war. Each therefore felt acute insecurity, which was translated into political structures that restricted civil liberties and subordinated short-term social well-being for economic growth

Third and moreover, nor could its economy, wrenched in quick succession from Japan’s orbit and then China’s, have developed without direct American aid, which constituted more than 30 percent of domestic investment from 1951 to 1962. Land reform, government planning, US aid and investment, and free universal education brought huge advancement in industry and agriculture, and living standards. The Americans deserve credit for reforming landownership in Taiwan, a crucial step in modernizing the economy. It extremely unlikely that Chiang Kai-shek would have revolutionized Mainland Chinese society to that extent if he had defeated the Communist Revolution.

In the 1960s, foreign investment in Taiwan helped introduce modern, labor-intensive technology to the island, and Taiwan became a major exporter of labor-intensive products. In the 1980s, focus shifted toward increasingly sophisticated, capital-intensive and technology-intensive products for export and toward developing the service sector. At the same time, the appreciation of the New Taiwan dollar (NT$), rising labor costs, and increasing environmental consciousness in Taiwan caused many labor-intensive industries, such as shoe manufacturing, to move to the Chinese mainland and Southeast Asia.

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, especially in Asia. Private Taiwan investment in the P.R.C. is estimated to total more than $30 billion, and Taiwan has invested a comparable amount in Southeast Asia.

One again, the transformation of Taiwan 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.

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 five-fold in the 1960s, nearly 10-fold in the 1970s, and doubled again in the 1980s. The 1990s has seen a more modest, slightly less than two-fold, growth. Export composition has 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 is the world's largest supplier of computer monitors and is a leading PC manufacturer. Textile production, though of declining importance as Taiwan loses its competitive advantage in labor-intensive 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 largest trading partner, taking 25% of Taiwan's exports and supplying 17% of its imports. Taiwan is the U.S.'s seventh-largest trading partner and eighth-largest export market. In 1999, Taiwan's two-way trade with the U.S. amounted to about U.S. $54.3 billion. Imports from the U.S. consist mostly of agricultural and industrial raw materials. Exports to the U.S. are mainly electronics and consumer goods.

The United States, Hong Kong (including indirect trade with the P.R.C.), and Japan account for two-thirds of Taiwan's exports, and the U.S. and Japan provide 45% of Taiwan's imports. As Taiwan's per capita income level has risen, demand for imported, high-quality consumer goods has increased. This trend has driven imports to rise faster than exports and has cut into Taiwan's global trade surplus. Another important factor in the substantial increase in Taiwan's imports has been industrial upgrading, which has pushed up imports of capital goods, raw materials, parts, and components. Taiwan's l999 trade surplus with the United States was $16.1 billion, a significant amount, but a decline from a high of $17 billion in 1987.

The lack of formal diplomatic relations with all but 29 of its trading partners appears not to have seriously hindered Taiwan's rapidly expanding commerce, and Taiwan is currently the world's 14th-largest trading economy. Taiwan maintains trade offices in more than 60 countries with which it does not have official relations. Taiwan is a member of the Asian Development Bank, and it is engaged in negotiations to join the World Trade Organization (WTO) as a special customs territory. In 1991 Taiwan, under the name "Chinese Taipei," became a member of the Asia-Pacific Economic Cooperation (APEC) forum. These developments reflect Taiwan's economic importance and its desire to become further integrated into the global economy.

Agriculture

Although only about one-quarter of Taiwan's land area is arable, 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. Agriculture only comprises about 269% of Taiwan's GDP. Taiwan's main crops are rice, sugar cane, fruit, and vegatables.

Although self-sufficient in rice production, Taiwan imports large amounts of wheat, mostly from the United States. Meat production and consumption are rising sharply, reflecting a rising 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 approaching WTO accession, which will open previously protected agricultural markets.

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 countries with cheaper work forces, 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 U.S. from 49% in 1984 to 25% in l999. Taiwan's dependence on the U.S. market should continue to decrease as its exports to Southeast Asia and the P.R.C. grow and its efforts to develop European markets produce results. Taiwan's bid to join the WTO and its desire to become an Asia-Pacific "regional operations center" are spurring further economic liberalization.

GDP: purchasing power parity - $357 billion (1999 est.)

GDP - real growth rate: 5.5% (1999 est.)

GDP - per capita: purchasing power parity - $16,100 (1999 est.)

GDP - composition by sector:
agriculture: 3%
industry: 33%
services: 64% (1999 est.)

Population below poverty line: 1% (1999 est.)

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 0.4% (1999 est.)

Labor force: 9.7 million (1999 est.)

Labor force - by occupation: services 55%, industry 37%, agriculture 8% (1999 est.)

Unemployment rate: 2.9% (1999 est.)

Budget:
revenues: $36.82 billion
expenditures: $40.53 billion, including capital expenditures of $NA (1999 est.)

Industries: electronics, petroleum refining, chemicals, textiles, iron and steel, machinery, cement, food processing

Industrial production growth rate: 7.5% (1999 est.)

Electricity - production: 133.586 billion kWh (1998)

Electricity - production by source:
fossil fuel: 65.91%
hydro: 7.84%
nuclear: 26.25%
other: 0% (1998)

Electricity - consumption: 124.235 billion kWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: rice, corn, vegetables, fruit, tea; pigs, poultry, beef, milk; fish

Exports: $121.6 billion (f.o.b., 1999)

Exports - commodities: electronics, electric and machinery equipment 52%, metals, textiles, plastics, chemicals

Exports - partners: US 26%, Hong Kong 21%, Europe 18%, Japan 10%, Singapore 3% (1999)

Imports: $101.7 billion (c.i.f., 1999)

Imports - commodities: electronics, electric and machinery equipment 45%, minerals, precision instruments

Imports - partners: Japan 27%, US 18%, Europe 16%, South Korea 6%, Malaysia 4% (1999)

Debt - external: $35 billion (September 1999)

Economic aid - recipient: $NA

Currency: 1 New Taiwan dollar (NT$) = 100 cents

Exchange rates: New Taiwan dollars per US$1 - 31.395 (yearend 1999), 32.216 (1998), 32.052 (1997), 27.5 (1996), 27.5 (1995)

Fiscal year: 1 July - 30 June (up to FY98/99); 1 July 1999 - 31 December 2000 for FY00; calendar year (after FY00)

See also : Taiwan, Republic of China -- Economy of China -- Economy of Hong Kong