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Taiwan: Economy
Country Study > Economy

ECONOMY


Overview: Taiwan is characterized as a “dynamic capitalist” economy. Under the liberalized economic policies in place since the early 1990s, the government has gradually decreased the guidance it provides over investment and foreign trade, as reflected in the privatization of large government-owned banks and industries. Since the 1950s, exports have provided the primary impetus for industrialization. Taiwan evolved from a minor agricultural exporter to the world’s largest exporter of computer monitors, a leading personal computer exporter, and a major producer of the world’s electronics. Because of its relatively conservative financial approach and its entrepreneurial strengths, Taiwan did not suffer as much as many of its neighbors did from the Asian financial crisis in 1997–98. However, as a result of the turn-of-the-century international economic downturn, along with problems in government policy coordination and bad debts in the banking system, Taiwan went into recession in 2001, the first year of negative growth ever recorded, but experienced moderate recovery in 2002. In January 2002, Taiwan entered the World Trade Organization as a special customs territory. Another major factor in this new growth has been improved economic ties with mainland China, which by 2003 had become Taiwan’s largest two-way trading partner.

Gross Domestic Product (GDP)/Gross National Product (GNP): GDP for 2004 was US$313.1 billion, and the GDP growth rate was estimated at 3.2 percent in 2004. GNP in 2004 was US$313.6 billion, with a growth rate of 5.9 percent. Per capita GNP in 2003 was US$13,995. Based on 2004 estimates, Taiwan’s purchasing parity power (PPP) was nearly US$528.6 billion total, or US$23,400 per capita.

Government Budget: It is estimated that for 2004, revenues were nearly US$56.7 billion and expenditures US$69.2 billion, including US$14.4 billion in capital expenditures. The central government budget for 2005 was US$48.1 billion.

Inflation: The inflation rate is estimated at –0.3 percent for 2004.

Agriculture, Forestry, and Fishing: Agriculture has played a decreasing role in the economy since the 1960s. Agriculture represented 28.5 percent of the gross domestic product (GDP) in 1960, 4.9 percent in 1987, but only 1.7 percent in 2004, when the sector experienced a –0.1 percent growth rate. The major agricultural products, according to their production volume, are vegetables, sugarcane, rice, fruit, sweet potatoes, corn, peanuts, and tea. Based on the number of head of livestock, most animal husbandry production is of poultry, pigs, sheep and goats, and cattle. Forestry products include industrial wood (about 64 percent of the total and including sawn timber, raw timber, and bamboo polls) and firewood. Overall, forestry is of diminishing importance, and resources are either of low quality or inaccessible. Despite Taiwan’s island location, fishing plays a minor role—about 25 percent of total agricultural production—in the economy. In 2003 some 1.1 million tons of fish, 304 tons of shellfish and other aquatic animals—mostly from offshore and deep-sea fishing—and 40,900 tons of aquatic plants were caught or harvested. Taiwan’s fishing fleet is composed of around 29,000 boats. Aquaculture provides about 20 percent of Taiwan’s seafood production.

Mining and Minerals: The mining sector has been in decline since the 1970s. Minor amounts of clay, copper, dolomite, feldspar, limestone, manganese, marble, salt, serpentine, and sulphur are still extracted. Domestic coal mining fell precipitously after the mid- to late 1960s and is made up for by more economical imports. The last coal mine closed in 2001.

Industry and Manufacturing: Manufacturing is the key to Taiwan’s economic success and continues to account for most of the island’s exports. However, the sector has been slowly declining as a share of the gross domestic product (GDP) since the late 1980s (when it accounted for 42.9 percent of GDP), as low-technology industries moved elsewhere and value-added services increased. The major industries are electronics—Taiwan is the world’s largest producer of computer monitors and one of the world’s leading personal computer exporters—as well as petrochemicals, textiles, iron and steel, machinery, cement, and food processing. In 2004 industry registered a 2.9 percent growth rate and produced 29.7 percent of GDP, including manufacturing, which produced 25.7 percent of GDP. Taiwan’s information-technology products increasingly—about 63 percent of the total—are manufactured by Taiwan-owned companies in mainland China. Taiwan retains the research and development and high-end product manufacturing (such as semiconductors and liquid crystal display (LCD) monitors) and leaves bulk production to mainland subsidiaries.

Energy: Taiwan depends on foreign supplies for 98 percent of its energy needs. Of the remaining 2 percent produced domestically, more than 50 percent is supplied by 41 hydroelectric plants. Of the energy imports, about 50 percent are of crude oil and petroleum products, 30 percent are coal, and 10 percent are liquefied natural gas, all of which are used to provide fuel to 31 thermal power plants. Taiwan also has three nuclear power plants, which depend on foreign fuel imports. Energy was long the monopoly of the government-owned Taiwan Power (Taipower), but even with deregulation and the beginning of the privatization of Taipower in 2001, as of 2004 only 4 of 11 planned independent power plants had come online. Taipower itself was slated for full privativization in 2005. In 2001 Taiwan produced 151.1 billion kilowatt hours of electric energy and used 140.5 billion kilowatt hours. Its refined oil production totaled an estimated 1,100 barrels per day in 2004 against a consumption (for which 2001 is the latest year reported) of 988,999 barrels per day. Taiwan has proven oil reserves of 2 million barrels. Natural gas production reached 750 million cubic meters in 2001 against a consumption of 6.6 billion cubic meters. Taiwan has 38.2 billion cubic meters of proven natural gas reserves. Although Taiwan’s exports of natural gas amounted to 410 million cubic meters in 2001, imports for the same year totaled 6.3 billion cubic meters.

Services: The services sector is Taiwan’s largest, producing 68.5 percent of the gross domestic product (GDP), with a 3.1 percent growth rate in 2004. The sector includes finance, insurance and real estate; commerce (trade and eating-drinking places); social, personal, and related community services; transportation, storage, and communications; business services; producers of government services; and other producers. The largest subsector, at 21.2 percent of GDP, was commerce.

Banking and Finance: Taiwan’s central bank, the semiautonomous Central Bank of China, was established in 1924, relocated to Taiwan in December 1949, and resumed full operations in 1961. Since 1979, the Central Bank of China has been subordinate to the Executive Yuan but has independent authority in setting monetary policies. As with other sectors of the economy, Taiwan’s banking and finance sector has undergone reforms. Since 1989, interest rates have been removed from government control, and restrictions on establishing bank branches were lifted. Investment and trust companies were allowed to become full-fledged banks, new private banks were permitted to open, and state banks were privatized. Structural weaknesses that had negative effects on the financial sector in the late 1990s were the object of further government reform in the early 2000s. These weaknesses included the establishment of too many small and under-capitalized banks and resulting fierce competition among them, lending to too many companies suffering from short-term financial difficulties, and the division of responsibility for governmental regulatory duties. As reform measures, taxes were cut, consolidation and diversification were encouraged, and the government-funded Financial Reconstruction Fund was established. By 2003 Taiwan had 52 private and government-owned banks, and the government planned to divest itself of commercial bank ownership. Taiwan’s stock market also is in flux. The oldest and largest stock market is the Taiwan Stock Exchange (Taisdaq), the majority traders (80 percent) in which are retail investors, whose holdings are subject to cross-Taiwan Strait activities, regional economic trends, and increased margin trading. The domestic futures market began in 1998 with the opening of the Taiwan International Mercantile Exchange (Taimex).

Tourism: Tourism is a minor industry in Taiwan but has gradually improved since the late 1980s, when Taiwan was receiving about 1.2 million foreign visitors a year. By 2002 that number had risen to more than 2.9 million but dropped in 2003 to 2.2 million with the outbreak of severe acute respiratory syndrome (SARS). Most visitors in 2003 came from Japan (29 percent) and the United States (12 percent). However, some 19 percent were overseas Chinese from a variety of countries throughout the world who traveled to Taiwan on Taiwan passports. Tourist spending also dropped in 2003, from US$4.5 billion in 2002 to US$2.9 billion in 2003.

Labor: Taiwan’s labor force was estimated to number nearly 10.1 million in 2004. Of this total, based on 2001 estimates, 7.5 percent were involved in agriculture, 35 percent in industry, and 57 percent in services. The Chinese Federation of Labor represents 43 national and regional labor union federations, which, in turn, represent some 1 million workers. Other federations include the Taiwan Confederation of Trade Unions and the National Trade Union Confederation. As of 2003, about 29 percent of the labor force belonged to 4,111 registered labor unions. During the recession of 2001, Taiwan experienced the highest unemployment rates in its history (4.5 percent). The unemployment rate was estimated at 4.1 percent as of late 2004.

Foreign Economic Relations: Despite the dearth of diplomatic relations with foreign nations, Taiwan enjoys vigorous international trade relations. Taiwan’s phenomenal economic growth has been fueled largely by the export trade, and, thus, Taiwan depends on an open-world trade regime. Since the 1950s, Taiwan has moved from exporting primarily agricultural products to exporting primarily industrial goods, which in 2005 represented 98 percent of all of Taiwan’s exports. In January 2002, Taiwan became a member of the World Trade Organization as a special customs territory. Throughout its modernization period, Taiwan’s largest trading partner was the United States. However, since 2003 Japan and China both have overtaken the United States in this role. In 2004 Taiwan’s total foreign trade amounted to US$341.8 billion. The largest two-way trade partners were Japan (16.6 percent), China (14.8 percent), the United States (14.5 percent), Hong Kong (9.3 percent), and South Korea (4.9 percent).

Imports: In 2004 Taiwan imported a total of US$167.8 billion, principally machinery, electrical equipment, minerals, and precision instruments. The major import partners were Japan (25.9 percent), the United States (12.8 percent), China (9.9 percent), South Korea (6.9 percent), and Germany (3.4 percent).

Exports: In 2004 Taiwan exported a total of US$174 billion, principally computer products, electronic equipment, metals, textiles, plastics and rubber products, and chemicals. The major export partners were China (19.5 percent), Hong Kong (17.1 percent), the United States (16.1 percent), Japan (7.5 percent), and Singapore (6.3 percent).

Trade Balance: Taiwan’s exports in 2003 were US$143.4 billion against US$118.5 billion in imports, leaving a positive trade balance of US$24.9 billion. Its largest surplus is with China (more than US$22 billion in 2003), an amount that is likely to decrease when and if the government lifts restrictions on imports of merchandise from the mainland.

Balance of Payments: The current account balance has fluctuated in recent decades. It increased in the years up to 1991 (US$12.5 billion), then went into almost annual declines for the next several years, and bottomed out at US$3.4 billion in 1998. Since then it has improved as exports increased during the same period. Taiwan’s current account balance in 2003 was US$29.2 billion and the overall balance was US$37.1 billion.

External Debt: Taiwan’s external debt was estimated at US$53.4 billion in 2004, almost entirely private-sector debt. The public debt stood at 30.5 percent of gross domestic product (GDP) in 2004. Taiwan’s foreign exchange reserves totaled US$206 billion at the start of 2004, the third largest in the world behind China and Japan.

Foreign Investment: The growth of Taiwan’s export trade in the 1990s led to an average growth of 10 percent a year in private-sector investment. But private-sector investment is susceptible to fluctuations in export growth, and when the latter stalled during the 2001 recession, so did capital investment. Taiwan is a net investor overseas. In the 1996–2002 period, Taiwan’s overseas investments totaled US$34.4 billion, while foreign direct investment in Taiwan—mostly from Japan and the United States—totaled US$17.8 billion. Most of Taiwan’s overseas investments are in the United States (US$4.9 billion, or 18.4 percent of total investments in 1992–2002), followed by those in Southeast Asian nations (US$4.8 billion, or 16.1 percent of total investments during the same period). The Ministry of Economic Affairs is responsible for overseeing government-approved investment in mainland China. Between 1991, when restrictions were lifted, and 2003, the ministry approved more than US$33.6 billion in investments in China, making investment from Taiwan the fifth largest in China. However, others have estimated the actual figure as closer to US$100 billion. Up to 2000, the Kuomintang (KMT) government encouraged a slow and cautious pace in mainland investment, a move that was unpopular with the business community. The Democratic Progressive Party (DPP), which officially did not seek to open direct links with the People’s Republic of China, initiated a more open policy, but many investors saw no difference from the KMT policy.

Currency and Exchange Rate: Taiwan’s currency is the New Taiwan Dollar (NT$), which was instituted in 1949. The exchange rate in March 2005 was US$1 = NT$30.82. The New Taiwan Dollar is made up of 100 cents. Coins are issued in denominations of NT$0.50, NT$1, NT$10, and NT$50, and banknotes are issued in denominations of NT$100, NT$500, NT$1,000, and NT$2,000.

Fiscal Year: Calendar year, starting in 2001.




Last Updated: March 2005


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Taiwan was first published in 2005. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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