Taiwan - Economy
Taiwan's economy slipped into recession in September 2015 and export orders, the island’s lifeblood, have fallen for nine months. Workers complain they cannot afford to buy apartments in Taipei on wages as low as $600 a month or pay to care for children and aging parents. Taiwan industrialized in the 1960s, but living standards lag those in Japan, South Korea and other places that took the same course. Still, land and labor cost enough to send investors offshore, taking capital out of Taiwan and reducing the number of local jobs.
President Ma Ying-jeou disappointed voters by missing targets to raise salaries, lower unemployment and increase the half-trillion-dollar GDP. Since 2008, his Nationalist government looked for economic support from China.
Although it is a small island (about 63% the size of Lake Michigan) with a population of only 23 million people, Taiwan has developed into one of the world's largest economic and trading entities. Taiwan has transformed itself from a light industry-manufacturing base to a global center for the production of high technology products. Taiwan used to source parts from home, make exports cheaply in China and send those products offshore for sale. But by 2015 China had a reliable supply chain and quality had risen as the Chinese learn from years of factory inspections.
With a nominal Gross Domestic Product (GDP) of $489.2 billion in 2013, Taiwan was the world's 20th largest economy, as well as the 5th largest economy in Asia. In 2014, Taiwan’s half-trillion-dollar economy was the world’s 19th largest economy.
According to the definition of many economists, the Asian Pacific island fell into economic recession in the third quarter this year. The economy contracted by 0.3 percent from July through September compared to the previous quarter, which had shrunk 1.14 percent. Taiwan’s major export markets are not buying as much as they once did from Taiwan.
Taiwan’s economy had grown every year since a 2009 recession that tracked much of the world into decline after the global financial crisis. Taiwan had the sixth-largest foreign exchange reserves in the world, with US$419 billion as of March 2014. In 2013, Taiwan had an estimated per capita GDP of $20,958. Overall, Taiwan is the United States’ 11th largest trading partner and 15th largest export market. To put these numbers into perspective, U.S. trade with Taiwan is greater than with India.
Through 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. 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 (NTD), rising labor costs, and increasing environmental consciousness in Taiwan caused many labor-intensive industries, such as shoe manufacturing, to move to China 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.
Taiwan is now a creditor economy, holding the world's fourth-largest stock of foreign exchange reserves ($399.5 billion as of April 2011). Although Taiwan enjoyed sustained economic growth, full employment, and low inflation for many years, in 2001, Taiwan joined other regional economies in its first recession since 1949. From 2002-2007, Taiwan's economic growth ranged from 3.5% to 6.2% per year. With the global economic downturn, Taiwan's economy slumped into recession in the second half of 2008. Its real GDP, following growth of 5.7% in 2007, rose 0.73% in 2008 and contracted 1.93% in 2009. The economy saw a robust recovery in 2010, growing by 10.88%, the highest rate in 28 years.
Foreign trade has been the engine of Taiwan's rapid growth during the past 50 years. Taiwan's economy remains export-oriented, so it depends on an open world trade regime and remains vulnerable to fluctuations in the world economy. The total value of trade increased more than five-fold in the 1960s, nearly ten-fold in the 1970s, doubled in the 1980s, nearly doubled again in the 1990s, and grew more than 85% in the past decade. Export composition changed from predominantly agricultural commodities to industrial goods (now 98%). The electronics sector is Taiwan's most important industrial export sector. Taiwan became a member of the World Trade Organization (WTO) as a special customs territory in January 2002.
Taiwan firms are the world's largest suppliers of computer monitors and leaders in PC manufacturing, although now much of the final assembly of these products occurs overseas, typically in China. Imports are dominated by raw materials and capital goods, which account for more than 90% of the total. Taiwan imports coal, crude oil, and gas to meet most of its energy needs. Reflecting the large Taiwan investment in China, the P.R.C. supplanted the United States as Taiwan's largest trade partner in 2003. In 2010, China (including Hong Kong) accounted for over 29.0% of Taiwan's total trade and 41.8% of Taiwan's exports. Japan was Taiwan's second-largest trading partner with 13.3% of total trade, including 20.7% of Taiwan's imports.
The United States is now Taiwan's third-largest trade partner, taking 11.5% of Taiwan's exports and supplying 10.1% of its imports. In 2010, Taiwan was the United States' 9th-largest trading partner; Taiwan's two-way trade with the United States amounted to $61.9 billion in 2010. Imports from the United States consist mostly of machinery and equipment as well as agricultural and industrial raw materials. Exports to the United States are mainly electronics and consumer goods. The United States, Hong Kong, China, and Japan account for 60% of Taiwan's exports, and the United States, Japan, and China provide almost 46% of Taiwan's imports.
As Taiwan's per capita income level has risen, demand for imported, high-quality consumer goods has increased. The U.S. trade deficit with Taiwan in 2010 was $9.88 billion, up $3 million from 2009. Even though Taiwan maintains formal diplomatic relations with about a score of its trading partners, Taiwan maintains trade offices in nearly 100 countries. Taiwan is a member of the Asian Development Bank, the WTO, and the Asia-Pacific Economic Cooperation (APEC) forum. Taiwan is also an observer at the Organization for Economic Cooperation and Development (OECD). In 2009, Taiwan acceded to the WTO Government Procurement Agreement. These developments reflect Taiwan's economic importance and its desire to become further integrated into the global economy.
Although less than 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. Agriculture comprises only about 1.7% of Taiwan's GDP. Taiwan's main crops are rice, fruit, and vegetables. While largely self-sufficient in rice production, Taiwan imports large amounts of wheat, corn, and soybeans, mostly from the United States. Poultry and pork production are mainstays of the livestock sector and the major demand drivers for imported corn and soybeans. Rising standards of living have led to increased demand for a wide variety of high-quality food products, much of it imported.
Overall, U.S. agricultural and food products account for over 30% of Taiwan's agricultural import demand. U.S. food and agricultural exports total about $3.0 billion annually, making Taiwan the United States' sixth-largest agricultural export destination. Taiwan's agricultural exports include frozen fish, aquaculture and sea products, canned and frozen vegetables, and nursery products such as orchids. Taiwan's imports of agricultural products and the range of countries supplying the market have increased since its WTO accession in 2002, and it is slowly liberalizing previously protected agricultural markets.
Taiwan faces many of the same economic issues as other developed economies. As labor-intensive industries have relocated to countries with low-cost labor, Taiwan's future development will rely on further transformation to a high technology and service-oriented economy and carving out its niche in the global supply chain.
On June 29, 2010, Taiwan and China concluded the Economic Cooperation Framework Agreement (ECFA), a pact designed in part to help Taiwan exporters stay competitive with the Association of Southeast Asian Nations (ASEAN) trade agreement. ECFA is a preferential trade agreement designed to reduce barriers to trade and investments gradually. However, the Cross-Strait Service Trade Agreement, which is one of the first parts of the ECFA, has not yet been signed due to the highly-publicized March 2014 student protest against Taiwan’s involvement with China.
By 2014 Taiwan was the fourth largest foreign investor in mainland China, where Taiwan companies have invested heavily in electronic parts and components, computers and optoelectronics, electrical equipment, metal products, plastics, food processing and other sectors.
Taiwan's economy has become increasingly linked with China, and the Ma administration further developed these links and liberalize cross-Strait economic relations, particularly through negotiations under the Economic Cooperation Framework Agreement (ECFA). Taiwan official statistics indicate that Taiwan firms had invested about U.S. $102.1 billion in China as of the end of April 2011, which is more than 60% of Taiwan's stock of direct foreign investment. Many unofficial estimates put the actual number at between U.S. $150 and over $300 billion.
Exact figures are difficult to obtain, as much Taiwan investment in the PRC was via Hong Kong and other third-party jurisdictions. More than one million Taiwan people are estimated to be residing in China, and more than 70,000 Taiwan companies have operations there. Taiwan firms were increasingly acting as management centers that take in orders, produce them in Taiwan, the mainland, or Southeast Asia and then ship the final products to the U.S. and other markets.
“Manufacturers are under heavy pressure," said David Lee, chairman of Fujian-based Kingcan Holdings in 2015. "Many [Taiwanese] companies in Dongguan [in Guangdong province] have been forced to shut down after having seen a contraction of up to 50 percent. Businesses which remain have also been forced to downsize.”
“It’ll be an inevitable trend that businesses that are smaller in size, belong to the export-reprocessing and labor-intensive industries, or sell low-end products will be stricken out of the Chinese market,” said Lu Hong-te, a professor from Chung Yuan Christian University, who has long tracked the development of Taiwanese electronics makers in China. The professor estimated in 2015 that in Dongguan alone, 2,000 Taiwanese businesses are left out of a total of 8,000 at the peak.
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