A worker conducts final inspections at Pihsiang Machinery MFG. Co., which launched the world's first four-wheeled electric scooter for the mobility impaired in 1989. (Courtesy of the Ministry of Foreign Affairs)
Taiwan plays a dynamic role in the global economy. According to World Trade Organization statistics, it was the world’s 17th-largest exporter and 18th-largest importer of merchandise in 2015, while ranking 23rd and 28th in the export and import of commercial services, respectively. One of the most powerful players in the global information and communications technology (ICT) industry, it is also a major supplier of other goods across the industrial spectrum, from chlorella health food supplements to powered wheelchairs.
A key factor underpinning such performance is the Republic of China (ROC) government’s formulation of policies to foster development and sustain the nation’s economic competitiveness by promoting investment in human resources, research and development (R&D) and industrial upgrading as well as other initiatives aimed at creating advantages for its economy. For such reasons, and because of its enterprises’ strong entrepreneurial spirit, Taiwan’s business and investment environments have consistently been ranked as superior by well-regarded economic research organizations (see Appendix I “Global Survey Rankings”).
Taiwan’s economy in 2015 grew at its slowest pace in five years mainly because of a lackluster export performance. Overall, the economy grew 0.65 percent, significantly slower than the 3.92 percent posted in 2014. In nominal terms, gross domestic product (GDP) rose to US$523.01 billion, or US$22,294 per capita, in 2015.
In 2015, export value dropped 10.86 percent year-on-year amid a fragile global economy and falling international oil and commodity prices. Import value also fell by 15.83 percent. Trade surplus registered US$48.12 billion, an increase of 25.84 percent from the previous year. The three biggest export categories for the year were electronic components; information, communication and audio-video products; and base metals.
Private spending was strong in the first half of 2015 with improved salary levels and an active stock market. However, a grim export outlook for the second half dampened private consumption growth to a mere 2.34 percent for the year. Government spending, meanwhile, dwindled 0.33 percent because of decreased expenditure on national defense.
Private fixed investment rose 2.75 percent in 2015, down from the 3.17 percent growth rate posted in the previous year, mainly because a slowdown in the housing market resulted in less investment in construction projects. On public investments, government investment declined by 4.30 percent due to a reduction in the government investment budget. Meanwhile, investments made by public enterprises dropped 6.94 percent mainly because of a decrease in budget.
Central Government Revenues and Expenditures
According to the Directorate-General of Budget, Accounting and Statistics (DGBAS) 主計總處 of the Executive Yuan 行政院, in the 2015 fiscal year, central government revenues increased by 9.20 percent from the previous year to NT$1.89 trillion (US$59.10 billion), and government expenditures rose by 2.30 percent to NT$1.90 trillion (US$59.44 billion). (See pie chart “Final Accounts of FY 2015 Central Government Revenues and Expenditures.”)
At the end of 2015, there were a total of 410 banking institutions in operation (see table “Structure and NPL Ratios of Banking Sector in 2015”). As of that time, year-on-year, Taiwan’s 39 domestic banks saw their total assets increase by 5.02 percent to NT$43.89 trillion (US$1.38 trillion) and their net worth by 9.18 percent to NT$3.15 trillion (US$98.86 billion). Over 2015, their deposits expanded 6.08 percent to NT$30.06 trillion (US$942.40 billion), while their loans increased 3.01 percent to NT$22.03 trillion (US$690.63 billion).
Domestic banks also showed steady improvement in asset quality. At the end of 2015, all had non-performing loan (NPL) ratios of less than 0.98 percent, with a record-low average of 0.23 percent; their average capital adequacy ratio, meanwhile, was 12.89 percent, well above the regulatory requirement of 8 percent.
As of the end of 2015, domestic banks had established 451 branches and representative offices overseas, mainly in Hong Kong (70), the U.S. (65), mainland China (63), Vietnam (55), Japan (42), Cambodia (36), and the Philippines (31).
According to global reinsurer Swiss Re’s Sigma study released in 2015, Taiwan had the world’s highest insurance penetration rate of 18.90 percent in 2014, while its insurance density—or insured amount per capita—reached US$4,072, the ninth-highest worldwide and the second-highest in Asia. According to the study, the life insurance premium income of Taiwan’s industry was the ninth-largest in the world, whereas its total premium income (including non-life insurance) was the 11th-largest, accounting for 2.98 percent and 2.00 percent, respectively, of the global market in 2014.
As of December 2015, there were 54 insurance companies operating in Taiwan, including three reinsurers, 29 life insurers (five foreign) and 22 non-life insurance firms (five foreign). In 2015, insurance industry assets stood at NT$20.59 trillion (US$645.48 billion), or 30.32 percent of the financial sector’s total assets.
Total insurance premium income increased by 5.49 percent in 2015 to NT$3.06 trillion (US$96.01 billion), with life insurance accounting for NT$2.93 trillion (US$91.75 billion) and non-life NT$136.12 billion (US$4.27 billion), up by 5.61 percent and 2.95 percent, respectively. The insurance premium income received by life insurance operations in 2015 was 21.50 times greater than that received by non-life insurance operations. In 2015, life insurers paid out NT$1.54 trillion (US$48.15 billion) in claims, and non-life insurers NT$68.18 billion (US$2.14 billion).
As of December 2015, 874 companies were listed on the Taiwan Stock Exchange (TWSE) 臺灣證券交易所, with total market capitalization of NT$24.50 trillion (US$768.14 billion). The total value of shares traded on the bourse in 2015 dropped 7.80 percent from 2014 to NT$20.19 trillion (US$632.96 billion), while trading volume fell 9.83 percent to 511.25 billion shares.
The TAIEX, the benchmark index of the TWSE, dropped 10.41 percent to 8,338.06 points at the end of 2015 from 9,307.26 points at the end of 2014. It then fluctuated during the first half of 2016 to reach 8,666.58 points at the end of June.
The Taipei Exchange (TPEx) 證券櫃檯買賣中心 index, meanwhile, fell 8.07 percent from 140.38 points at the end of 2014 to 129.05 points at 2015 year-end, and fell further to 128.30 at the end of June 2016. As of December 2015, the TPEx had 712 companies with market capitalization of NT$2.73 trillion (US$85.58 billion).
Foreign institutional and individual investors as well as mainland Chinese QDIIs (qualified domestic institutional investors) bought US$193.82 billion worth of shares in Taiwan’s stock market in 2015, accounting for 36.69 percent of total stock market value. As of December 2015, 22 TWSE-listed companies issued Taiwan Depositary Receipts 臺灣存託憑證 with market value worth NT$9.38 billion (US$294.04 million).
Foreign Trade and Investment
Total trade value decreased by 13.19 percent year-on-year to US$522.56 billion in 2015. Exports fell by 10.86 percent to US$285.34 billion, and imports declined by 15.83 percent to US$237.22 billion. With a trade surplus of US$48.12 billion, Taiwan ended the year with foreign exchange reserves of US$426.03 billion.
Mainland China (including Hong Kong) remained Taiwan’s largest export market in 2015, followed by the Association of Southeast Asian Nations (ASEAN), the United States, Europe and Japan. Taiwan’s major import sources were mainland China (including Hong Kong), Japan, the United States, ASEAN, Europe and the Middle East. Data on Taiwan’s principal trading partners and the export value of its merchandise by category in 2015 are listed in the pie chart and table so labeled.
As for the movement of direct investment capital (excluding that to and from mainland China) in 2015, US$4.80 billion in inbound investments to Taiwan and US$10.75 billion in outbound investments were officially registered. These figures represented a decrease of 16.87 percent and a rise of 47.32 percent, respectively, over the previous year. Of the inbound investments, 25.16 percent went to finance and insurance, 22.29 percent to wholesale and retail businesses and 10.08 percent to real estate. Of the outbound funds, 56.60 percent were invested in finance and insurance, 10.15 percent in electronic component manufacturing, and 9.88 percent in real estate.
Investments bound for mainland China totaled US$10.40 billion in 2015, with 25.41 percent going to finance and insurance, 11.23 percent to electronic component manufacturing, and 10.10 percent to manufacturing of computer, electronic and optical products. Investments from mainland China amounted to US$244.07 million in 2015, or an aggregate of US$1.44 billion since Taiwan opened its doors to mainland investors in 2009. Of the aggregate total, 30.64 percent was directed to wholesale and retail businesses, 13.96 percent to banking, and 10.50 percent to electronic component manufacturing.
Small and Medium-sized Enterprises
Small and medium-sized enterprises (SMEs) continue to make up the backbone of the economy. According to the Ministry of Economic Affairs (MOEA), SMEs in Taiwan numbered about 1.38 million at the end of 2015, accounting for 97.69 percent of all enterprises.
Considering SMEs’ important role in the upstream value chains supporting larger-scale enterprises’ production and exports, the ROC government is encouraging the development of new technologies and products by SMEs under the Small Business Innovation Research Program 小型企業創新研發計畫, which offers subsidies covering up to 50 percent of their R&D costs. The Small and Medium Enterprise Credit Guarantee Fund of Taiwan 中小企業信用保證基金, which provides guarantees for bank loans to businesses, was NT$1.33 trillion (US$41.69 billion) in 2015.
As part of government efforts to help small innovative startups, the TPEx launched the Go Incubation Board for Startup and Acceleration Firms 創櫃板 in January 2014. Nonpublic microenterprises that pass review by the TPEx may list on the board, provided they have capitalization of no more than NT$50 million (US$1.65 million).
Enhancing the Image of Taiwan’s Industries
The Taiwan Industry Image Enhancement Project 臺灣產業形象廣宣計畫 (2014-2016) helps original brand manufacturers in Taiwan raise awareness of their brands in domestic and overseas markets. The project focuses on major markets such as mainland China, Germany, India, Indonesia, Japan, the Philippines, Turkey, the United States and Vietnam.
The project increases exposure of award-winning Taiwan Excellence 臺灣精品 brands in the ICT and home and living industries by promoting innovative, reliable and high-value products. Promotional activities include establishing Taiwan Excellence zones in shopping malls, promoting select brands through multiple distribution channels, setting up Taiwan Excellence pavilions in trade shows, and launching digital marketing campaigns.
Promoting Green Trade
In 2016, the MOEA launched the five-year Green Trade Action Plan 綠色貿易行動計畫 to build export momentum and marketing capacities for Taiwanese businesses that provide low-carbon products and services. The plan also aims to keep Taiwanese companies up with green business trends worldwide, specifically by helping them grasp green business opportunities and comply with international green standards, recycling regulations and green procurement standards.
After Taiwan’s poor export performance in 2015, the government devised a series of short-term measures to bring overseas sales back on track. The measures target 10 strategic markets (mainland China, Germany, India, Indonesia, Mexico, South Africa, Turkey, the United Arab Emirates, the U.S. and Vietnam) and include specific activities:
• Expanding government subsidies to attract buyers from emerging markets, especially Southeast Asia and Africa.
• Organizing group visits to overseas trade exhibitions to help Taiwanese businesses make inroads into emerging markets.
• Planning activities to capture business opportunities from the World Trade Organization’s expansion of the Information Technology Agreement and the lifting of sanctions against Iran.
• Strengthening financial support for businesses wishing to export products or services.
Innovation and Entrepreneurship
Increasingly sharp economic competition as well as new opportunities stemming from globalization and the rise of newly industrialized economies have underlined the imperative for Taiwan’s businesses to place greater importance on innovation and entrepreneurialism. Among the several regulations enacted to encourage such efforts is the Statute for Industrial Innovation 產業創新條例. Under the statute, qualified companies that engage in innovative R&D may credit either 15 percent of their R&D expenditures against income taxes due that year, or 10 percent of the expenditures against taxes for the next three years.
To support budding entrepreneurs, in 2013 the National Development Council (NDC) 國家發展委員會 launched the Business Angel Plan 創業天使計畫, under which the Executive Yuan’s National Development Fund 行政院國家發展基金 invests NT$1 billion (US$33.59 million) over five years to provide the capital that innovators and entrepreneurs need to get their businesses off the ground.
The HeadStart Taiwan Project 創業拔萃方案—launched by the NDC in September 2014—focuses on innovation and high value-added innovative businesses. The program has three strategies: remove legal barriers to innovative startups; bring in international capital and professional knowledge; and set up an international startup park. Under the third strategy, the Taiwan Startup Stadium 臺灣新創競技場 was established in March 2015 as a startup cluster to serve innovation-driven companies, particularly in areas such as Internet of Things and mobile applications.
In December 2014, the Executive Yuan set up the Innovation and Startups Taskforce 創新創業政策會報 to help young people build their own businesses. The task force’s four main objectives are innovation of social enterprises, global networking, deregulation and establishment of an entrepreneurial ecosystem.
In March 2015, the government inaugurated the Taiwan Rapid Innovation Prototyping League for Entrepreneurs 臺灣創新快製媒合中心, which enables inventors to quickly turn their abstract concepts into visible, tangible high-tech products. The league identifies rising business stars, provides them with marketing and R&D support, and matches them to investors and technology experts.
Also in 2015, the Executive Yuan established the Taiwan Innovation and Entrepreneurship Center 臺灣創新創業中心 in Silicon Valley to serve as an outpost for developing businesses and talent. The government sends Taiwanese teams, entrepreneurs and venture capital talent to Silicon Valley to start companies and receive field training. The center monitors the innovation environment there to channel technologies, professionals and business orders back to Taiwan as well.
Under the Taiwan Silicon Valley Technology Fund Investment Program 臺灣矽谷科技基金投資計畫 launched in May 2015, the government and the private sector are joining forces to invest in startups that promote the flow of talent, know-how and capital between Taiwan and Silicon Valley. A total of US$120 million from the Executive Yuan’s National Development Fund and National Science and Technology Development Fund 國家科學技術發展基金 will be allocated over the next three years to implement the program.
Promoting Youth Employment
In 2014, the Ministry of Labor and several other agencies launched a three-year, NT$14 billion (US$460.98 million) Youth Employment Program 促進青年就業方案 to develop a young labor force that will raise the nation’s competitiveness. Incorporating 64 programs from 11 government agencies, the plan aims to find suitable jobs for 150,000 young people by helping them set career goals, build positive work attitudes, and develop their interests and talents. As of December 2015, the program had helped around 191,700 youths to enter the work force.
Supporting Young Entrepreneurs
The government also helps young people start businesses of their own. The Youth Entrepreneurship Program 青年創業專案 initiated by the MOEA in 2014 pools the resources of more than 40 government programs at 13 agencies to prepare and guide young people through the stages of building a business.
Between 2014 and 2016, the program will inject NT$2.72 billion (US$89.56 million) to encourage youths to engage in new agricultural businesses, cultural and creative industries, and social enterprises. A young entrepreneurs information platform has also been set up to enable quick access to useful information and resources.
To help young people raise the funds needed to build their careers, Taiwan launched equity crowdfunding platforms for the private sector in April 2015, making it among the first countries in Asia to institute such a mechanism.
Global Talent Recruitment
To help Taiwan compete internationally for top talent, the Executive Yuan in September 2015 unveiled the Contact Taiwan program 全球競才方案. Its four main strategies for attracting global talent are: establishing the “Contact Taiwan” website and service center for talent recruitment, creating an integrated overseas talent recruitment network, raising Taiwan’s talent competitiveness conditions and building a friendly environment for retaining talent. Specific measures under the program include the following:
• Recruiting for 10 key industries.
• Targeting representative offices to build overseas talent networks.
• Adjusting the flexible salary system.
• Providing recruitment subsidies to universities, research institutions and private enterprises.
• Relaxing hiring and immigration regulations, and helping with spousal work permits and children’s education.
The government launched the Taiwan Productivity 4.0 Initiative 行政院生產力4.0發展方案 in late 2015 to foment a new industrial revolution that will shift businesses from automatic to intelligent production and transform Taiwan from an efficiency-driven to an innovation-driven economy. Productivity 4.0 integrates the concepts of intelligent machinery, Internet-of-Things technology as well as big data application.
The initiative, running from 2015 through 2024, will inject NT$36 billion (US$1.13 billion) into the manufacturing, commercial service and agricultural sectors with a focus on seven leading industries: electronics and information, metals and transportation, machinery, food, textiles, logistics and retail services, and agriculture. It encompasses six major strategies:
• Improving the smart supply ecosystem for leading industries.
• Incubating innovative startups.
• Developing domestic products and services.
• Strengthening self-reliant capabilities in core technologies.
• Cultivating and training talent.
• Implementing industry-boosting policies and measures.
With e-commerce fast becoming the mainstream of the future, the Executive Yuan has set up a task force to expand the e-commerce infrastructure and bring more businesses online. Resources from different agencies will be integrated and injected into the eight fields of agricultural e-commerce, online retail, digital publication, e-finance, online games, digital learning, online audiovisual and new media, and online travel services. The government’s aim is to increase the nation’s e-commerce transactions from the current NT$588 billion (US$17.63 billion) to over NT$1 trillion (US$29.99 billion) and cross-border online retail transactions from the present NT$18 billion (US$539.73 million) to NT$45 billion (US$1.35 billion) by 2020.
Free Economic Pilot Zones
To expedite Taiwan’s economic liberalization and globalization, the Executive Yuan launched a plan in 2013 to establish free economic pilot zones (FEPZs) 自由經濟示範區 throughout the nation. As of August 2016, Taiwan’s seven free trade ports—Port of Keelung 基隆港, Port of Kaohsiung 高雄港, Su-ao Port 蘇澳港, Port of Taipei 臺北港, Port of Taichung 臺中港, Anping Port 安平港 and the Taiwan Taoyuan International Airport 臺灣桃園國際機場—along with the Pingtung Agricultural Biotechnology Park 屏東農業生物科技園區 and the Changhua Coastal Industrial Park 彰化濱海工業區 had been approved as FEPZs.
These facilities are promoting five types of business activities: intelligent logistics, international medical care, value-added agriculture, financial services and innovative education. Trade regulations will be relaxed to ease the flow of capital, people and goods through the FEPZs. In the second phase, which will begin after the Legislative Yuan (Legislature) 立法院 passes a special act governing the zones, central and local governments may establish more FEPZs, and the zones may be set up on private land through co-development with the government.
Regional Economic Integration
Looking ahead, economic policies will focus on the liberalization of Taiwan’s trade regime. Aside from normalizing trade relations with mainland China, Taiwan is seeking to participate in regional economic integration and enhance ties with other trading partners.
Cross-Straits Economic Cooperation Framework Agreement
The Cross-Straits Economic Cooperation Framework Agreement (ECFA) 海峽兩岸經濟合作架構協議 took effect in 2010, constituting a milestone in the normalization of economic ties between Taiwan and mainland China.
Under the ECFA’s early harvest program, tariffs on 539 Taiwan-made products and 267 mainland goods were reduced in three stages until they were completely eliminated in January 2013.
The ECFA has also put Taiwanese businesses on a more level playing field with foreign competitors for the mainland Chinese market while helping companies in Taiwan diversify investments and expand their global presence.
In follow-up negotiations to the ECFA, one agreement on cross-strait investment protection and another on customs cooperation came into force in February 2013. Respectively, their objectives are to protect the interests of cross-strait investors and to reduce business costs by fast-tracking clearance procedures. The Cross-Strait Agreement on Trade in Services 海峽兩岸服務貿易協議, signed in June 2013, is pending legislative approval. Moreover, the two sides have conducted several rounds of negotiations on goods trade and dispute settlement agreements.
The ECFA has also facilitated Taiwan’s pursuit of free trade agreements with other nations. As examples, Taiwan signed an investment agreement with Japan in 2011, as well as an economic cooperation pact with New Zealand and an economic partnership accord with Singapore in 2013.
All of these efforts are creating favorable conditions for Taiwan’s participation in regional economic integration and bringing the nation closer to its long-term goals of joining the Trans-Pacific Partnership trade agreement and the Regional Comprehensive Economic Partnership bloc.
• Ministry of Economic Affairs: http://www.moea.gov.tw
• Directorate-General of Budget, Accounting and Statistics, Executive Yuan:
• Financial Supervisory Commission: http://www.fsc.gov.tw
• Taiwan Stock Exchange Corp.: http://www.twse.com.tw
• Taipei Exchange: http://www.tpex.org.tw
• Ministry of Finance: http://www.mof.gov.tw
• National Development Council: http://www.ndc.gov.tw
• Bureau of Foreign Trade: http://www.trade.gov.tw
• Investment Commission: http://www.moeaic.gov.tw
• Small and Medium Enterprise Administration: http://www.moeasmea.gov.tw