Country Profile:
Taiwan
Taiwan
A collection of islands located off the south coast of mainland China, Taiwan, with India and China, is known as one of the Asian economic tigers with good reason. Officially known as the Republic of China, it has attracted considerable investment since the end of the Second World War and boasts a GDP per capita of $29,000. The majority of Taiwan's population of 23m are Han Chinese, many of whom fled from China after the end of the Second World War. The majority of the population live on the main island, which makes up 98% of the land mass of Taiwan's 85 islands.
ISBN: 1-90202339-78-9
TABLE OF CONTENTS
COUNTRY PROFILE
POLITICS
In July 2007 Taiwan celebrated the 20-year anniversary of the end of marshal law and the beginning of democracy. The island is ruled by four executive Yuans, or government branches, which are presided over by the president, Chen Shui-bian. Its rather gentle democratisation process has made Taiwan something of a model within Asia, however there are still many challenges to be faced, such as the complex relationship with China and recent allegations of corruption within the government. Despite these challenges the ruling party, the DPP, remains strong, breaking through a 40-year rule by the KMT, its opponent, in 2000. A recent change to the number of legislative seats, cut in half to 113, is likely to work in favour of the KMT, many of whose supporters believe the country will one day return to the mainland. However, the identity of the population is changing and a recent governmental poll suggests that 73% of the republic considers itself to be Taiwanese rather than Chinese. The island's identity remains a contentious issue, with both the WHO and the UN recognising it a sovereign nation under mainland China, thus rejecting its membership requests. Taiwan has stated that with recent scares of SARS and bird flu it should hold a vital place in these organisations. China, on the other hand, opposes Taiwan's entry, claiming that the Chinese government can look after the health concerns of the Taiwanese population and that full membership would only help to cement the republic's status as an independent country. Steps have been taken to reinforce Taiwan's identity, with the ruling party changing history and geography textbooks. However, commentators are hopeful that both candidates in the upcoming 2008 presidential elections will be able to relieve some of the gridlock with mainland China and create a better dialogue between the two sides. Recent changes to the constitution, which is essentially based on China's 1912 constitution, have eased much of the bureaucracy in the country and point towards a simpler and more transparent democratic process which, along with better relations to the mainland, suggest a bright future.
This chapter includes interviews from Tsai Ing-wen, former Vice-Premier; Huang Chih-fang, Minister of Foreign Affairs; and Lord Faulkner of Worcester, Co-Chair, British Taiwanese All-Party Parliamentary Group. Dafydd Fell, School of Oriental and African Studies, provides a viewpoint on why Taiwan, despite the unrest, is still on solid ground.
ECONOMY
Despite managing to more or less avoid the Asian financial crisis of 1997/98, Taiwan has suffered its own financial setbacks. The relocation of many labour-intensive operations to mainland China, the bursting of the domestic property bubble and a global technology slump resulted in a recession in 2001. Nevertheless, the country has done well to recover from these challenges. Although behind the other Asian Tigers, India and China, in terms of growth rates, the economy has been steadily growing since 2002. The electronics industry plays a major part, with the manufacturing of semiconductors and memory chips helping Taiwan to keep a modest growth rate of around 4%. A shortage of domestic-growth drivers has also stifled economic growth, but consumer confidence is returning thanks in part to the raising of the minimum wage. Although some issues relating to the country's complex relationship with China remain to be ironed out, accession to the WTO is signalling better international opportunities and many free-trade agreements have already been signed. Share prices have been low, but new policies by the central bank aim to encourage more domestic investment and strengthen the Taiwanese dollar. With the 2008 presidential elections looming, there is pressure on both candidates to focus on economic policy to catch up with neighbours such as South Korea.
This chapter includes interviews with Steve Ruey-Long Chen, Minister of Economic Affairs; Bill Gates, Chairman, Microsoft; Yuen-Chuan Chao, President and CEO, the Taiwan External Trade Development Council; and Morris Chang, Chairman, Taiwan Semiconductor Manufacturing Company. Guy Wittich, CEO, European Chamber of Commerce Taipei, provides a viewpoint on the commercial strengths and possible improvements of Taiwan's economy.
BANKING
Although Taiwan's economy placed fifth in the World Economic Forum's annual ranking, the banking sector did not do so well. During 2006, 42 domestic banks incurred a pre-tax loss of around $222m. In 2006 the net worth of local banks was $51bn, with total assets standing at $825bn. An output value of $24.6bn accounted for 6.8% of the total GDP. One of the reasons for the problems in 2006 was a consumer credit crisis, though state-controlled banks, which tend not to offer high-risk products, were able to come out more or less unscathed. Government-owned banks have traditionally dominated the banking sector in Taiwan, although they have started to lose their competitive edge following the liberalisation of the economy. The mortgage sector has shown encouraging growth since real estate rallied in 2003 for both state-owned banks and private institutions. Despite the fact that some feel the market is oversaturated with a plethora of private banks, with the recent consolidation of state-owned banks, an economic upturn and a less risky environment with respect to credit, the banking environment is becoming more comfortable and it is predicted that the future will bring a greater presence of multi-national firms.
This chapter includes interviews with James McCabe, Chief Executive, Standard Chartered Bank, and Fai-nan Perng, Governor, Central Bank of the Republic of China (Taiwan).
CAPITAL MARKETS
The recent boom on the Taiwan Stock Exchange (TAIEX) has put the island's market at its highest point since 2000. A more stable economy, upcoming elections pointing to a better relationship with mainland China and more foreign interest have all contributed to rising confidence, with the market closing at 9744.06 points on July 24, 2007. As of July 2007 there are 678 listed companied on the exchange and trading value for 2006 was $750.2bn, up 126% since 1997. The construction, food and paper and pulp sectors were all strong performers in 2006, growing 97.31%, 83.91% and 58.48% respectively. The TAIEX could be undergoing some changes to reinvigorate the market with an internal merger of the over-the-counter market, futures market and clearinghouse enabling international partnerships. Although there are some fears of a correction, there seems to be bright future for the bourse. There are plans for 250 more companies to enter the TAIEX over the nest three years and better relationships with mainland China should help to continue upward trends.
In this chapter China Development Industrial Bank provides share analysis of eight major companies. OBG interviews Gordon Chen, former Chairman, Taiwan Stock Exchange Corporation, while Phillip Tsao, President, China Development Industrial Bank provides a viewpoint.
INSURANCE
After some years of lukewarm performance, a variety of factors gave a much-welcomed boost to the island's economy in 2006 and a positive influence was recorded from gross premiums to GDP ratios. The first quarter of 2007 saw record profits for life insurers, again a reflection on the healthy economy and the strong performance of Taiwan's stock market. Motor insurance makes up the largest section of the non-life insurance sector with 50%, while fire insurance takes 19% and marine insurance accounts for 7.8%. The ease of accession into the market by foreign institutions has been increased with recent government measures that also allow for more product diversification and innovation. This has allowed for an increased choice of firms offering health insurance, which is good news for a population of which some 25% are estimated to be uninsured. Following world-wide trends, bancassurance made up for 38% of total new business in 2005, although rising interest rates might make insurance offered through banks a less attractive offer in the future. An aging population means that young professionals are buying policies to prepare for the financial burden that elderly dependants can cause. Increased tax credits are making policies more attractive for the younger generation, who are becoming increasingly cautious about the future.
In this chapter Huang Tien-Mu, Director-General, Insurance Bureau, Financial Supervisory Commission, provides a viewpoint on the links between the insurance sector and society.
ENERGY
Energy resources are a constant question for the island. Taiwan has minimal energy resources of its own and thus has to rely on imports. The growing economies of China and India could make energy sourcing more difficult in the future and the island is concentrating on diversifying it sources. The Taipei-based Chinese Petroleum Company has invested in oil fields in six countries and is even working with mainland China to prepare for the future. Individuals and companies are being encouraged to reduce energy consumption until a more environmentally friendly alternative to coal, which accounts for 73% of the island's energy, is found. In 2006, the government increased electricity prices for the first time and by 2010 the island hopes to have 10% of the total capacity supplied by renewable energy sources. The island is not a signatory to the Kyoto protocol; however, it is trying to adhere to its guidelines and has allocated $13.3m for research into solar power. In fact, solar power companies have become star players on the stock exchange since two leading institutions went public in 2005. Although the emphasis on solar power is certainly encouraging, some experts are saying that wind power might turn out to be an even more efficient source due to the island's location and the government hopes to have the first wind power system in operation by the end of 2008.
This section includes interviews with Wenent P Pan, Chairman, China Petroleum Company, Taiwan, and Wilfred Wang, Chairman, Formosa Petrochemical, as well as a viewpoint from Johnsee Lee, President, Industrial Technology Research Institute, about the island's solar power industry.
REAL ESTATE & CONSTRUCTION
The property market is at an all-time high, with sales in central Taiwan rocketing by 262% between 2003 and 2006. Property developments are sure to be encouraged with governmental policies aiming to bring more visitors from mainland China. Tens of thousands of businesspeople who have made money investing in China have returned home and are looking to spend their profits on luxury apartments, giving a boost to local developers. The design and engineering of recent developments have improved, partly because of consumer demands for more style and comfort. A new high-speed rail network will create connections between the main cities and out-of-town areas, encouraging more real-estate development. In addition to transport, the majority of government construction projects are set to improve infrastructure, such as the Hsuehshan tunnel. At 13 km long, it is the fifth-longest tunnel in the world, Asia's longest, and has taken 14 years to build at a cost of $1.86bn. Other projects include a $3.1bn thermal nuclear station and the Taipei Dome, which will host a hotel, a modern shopping centre and a stadium for events such as sports and concerts. The current annual growth of 3-4% is likely to continue until 2010, but with the economy peaking, more tourism and industry are needed in order to give the construction industry the boost it needs.
This chapter includes an interview with Diana Chen, Chairperson and CEO, Taipei 101.
TRANSPORT
Recent improvements to infrastructure and travel services on the island have drastically reduced travel times by train and car. Years of challenges plaguing the construction of a new high-speed railway connecting major cities and out-of-town areas are finally over and the Taiwan High-Speed Rail opened in January 2007. The 345m bullet train that runs between Taipei and Kaohsiung connects the two destinations in 90 minutes and a new railway along the western corridor will create a large urban area. The train has provided an attractive alternative to air travel and airlines have been forced to cut routes and prices in order to compete. Internationally, despite its location and proximity to mainland China, the aviation sector is losing its status as one of the main regional hubs, however better connections with China would return it to its previously strong position. A new port facility in Keelung is expected to accomodate as many 452,000 twenty-foot equivalent units (TEUs) and it is hoped that this will help bring the island's international links in line with its competitors.
This chapter includes an interview with Ou Chin-der, CEO, Taiwan High-Speed Rail Corporation.
INDUSTRY
Due to decades of vitality in the industrial sector, Taiwan is the world's 18th-largest economy. Some companies have moved abroad however, contributing in a drop from 82,937 factories operating at the end of 1999 to 77,851 in mid-2007. Many of these have moved to China in search of lower construction costs but the government is attempting to woo investors with discounted land prices and attractive tax breaks. There are currently 80 industrial parks covering 80 hectares of the island and another 11,000 hectares are under construction, offering cheap land and less red tape. Such parks, which have been around since 1959, are making significant contributions to industrial growth. The textile industry, once one of the largest sectors on the island, has made way for an emphasis on IT and semiconductors and the island is looking to create a third trillion dollar industry (the other two being semiconductors and flat-panel displays) with the manufacturing of high-precision machine tools. Despite fears that China's semiconductor industry is creating steep competition, production value rose by 24.6% to $42bn in 2006 and the sector should continue to grow. The government is helping small- and medium-sized enterprises, traditionally the backbone of the country's economy, with improved branding, capital funding and research and development.
The chapter includes an interview with Douglas Hsu, Chairman, The Far Eastern Group.
TELECOMS & IT
Not only a major player in the region, Taiwan is a global giant when it comes to telecoms. With one of the most liberalised telecoms sectors in the world, there are 55 companies with four fixed-line operators and six mobile phone operators. Taiwanese were quick on the uptake of mobile phones, with a massive surge between 1997 and 2003 and by the end of 2006 there were 23.2m mobile phone users on the island – the mobile phone sector makes up for 59% of telecom's market revenue. Chungwa is the largest player in the sector and the government reduced its stake in the company to 35%, allowing the previously state-controlled company to run as a private entity. The introduction of WiMax is high on the government's agenda, and despite concerns about the issuing of licences it is hoped that Taiwan will become a centre of development for the technology. The IT industry is important for the island, with 99% of the world's motherboards, 86.2% of notebooks and 75.6% of LCD displays produced on the island. The island's own PC brand, Acer Computers, managed to pull back from the brink of bankruptcy after a failure to penetrate the US market and now dominates the Asian-European market, ranking third globally. The industry needs to remain vigilant about possible challenges and future trends in order to stay on top.
This chapter includes interviews with Lu Shyue-Ching, President, Chunghwa Telecoms, and JT Wang, Chairman and CEO, Acer.
TOURISM
With more Taiwanese spending their leisure time on the island's coast by its beautiful mountains and rivers, domestic travel is forming the basis for the growth of the tourism industry. Apart from 2003, when SARS was hitting headlines around the world, tourist arrivals have been surpassing business arrivals since 2001, which has positively affected the sector by creating 60,000 jobs. Better access to historic and idyllic destinations away from the main city centres has been achieved by infrastructure and transport improvements. English-language websites promoting Taiwan's natural beauties have been targeted towards the youth market. A growing number of tourist developments, such as walkways in coastal areas, should also intensify the Taiwan experience. One particular market that is sure to experience some growth is that of Chinese tourism. Taiwan tops the list of destinations that travellers from the mainland would like to visit, and in 2002 the island started letting Chinese tourists in. However there are still many challenges facing the growing middle class that want to visit Taiwan, and Taipei and Beijing are trying to come to an agreement that will allow more tourism over the strait. Along with an increasing amount of medical tourism, arrivals numbers seem set to increase greatly over the next few years.
In this chapter OBG interviews Janice Seh-Jen Lai, Director-General, Tourism Bureau.
THE BUSINESS GUIDE
KPMG Taiwan explain taxation laws in Taiwan, while Formosa Transnational Attorneys at Law guide readers through the new intellectual property laws and the ins and outs of starting up a business on the island.
Ulyos KJ Maa, CEO, and Charles FW Chen, Risk Management Partner, KPMG, provide a viewpoint on the role of the financial advisory commission; while Jackson Huang, Partner, and Juno Huang, Consultant, Formosa, provide a viewpoint on investment in Taiwan.THE GUIDE
This chapter includes comprehensive hotel, government, banking, emergency, travel and health listings alongside indispensable tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.
