Taiwan’s Economic Situation
and Outlook
Thomas M. F. Yeh
Vice Chairman
Council for Economic Planning and Development
Executive Yuan (Cabinet), Taiwan
Taiwanese Association of American
June 2005
CONTENTS
I. ECONOMIC SITUATION IN TAIWAN
 Economic Growth
 Private Investment
 Foreign Trade
 Employment
II. TAIWAN’S DEVELOPMENT STRATEGY
 Challenges
 Policy Initiatives
III. FUTURE PROSPECTS
2
I. ECONOMIC SITUATION IN TAIWAN
1. Economic Growth
％
Taiwan’s economy grew by 5.71% in 2004, the best performance
in the last seven years.
8
6
7.88
3.21
4
2
5.80
5.88
4.88
6.72
2.54
4.17
3.97
-0.12
1.14
0
-2
-4
5.27
3.25
The business monitoring indicators flashed “yellow-blue”
for the first time since July 2003, signaling the economy’s
shift to a slower pace of expansion
-6
-8
I
II
III
2002
Growth 3.94％
IV
I
II
III
2003
Growth 3.33 ％
IV
I
II
III
2004
IV
I
2005
Growth 5.71％
3
2. Private Investment
Domestic demand is the driving force of economic growth.
 Private investment grew by 28.2％ in 2004, the biggest increase
since 1993.
Contribution to Economic Growth
Economic
Growth Domestic
Demand
(yoy)
Private
Consumption
Private
Gross Fixed
Others
Capital
Formation
Net
Foreign
Demand
2001
-2.2
-4.8
0.6
-4.6
-0.8
2.6
2002
3.9
1.2
1.3
0.4
-0.5
2.8
2003
3.3
0.5
0.5
-0.2
0.2
2.8
2004
5.7
5.7
1.9
3.1
0.7
0.02
2005f
3.6
2.9
1.8
1.1
-0.02
0.8
4
3. Foreign Trade
Exports and imports both posted very large double-digit increases
in 2004, with two-way trade growing 26% to just under US$342
billion.
Units: US$ billion, ％
Trade
Exports
Imports
Balance
Value
Growth
Value
Growth
Value
Growth
2000
288.3
24.1
148.3
22.0
140.0
26.5
8.3
2001
230.1
-20.2
122.9
-17.2
107.2
-23.4
15.6
2002
243.1
5.7
130.6
6.3
112.5
4.9
18.1
2003
271.5
11.7
144.2
10.4
127.2
13.1
16.9
2004
341.9
26.0
174.0
20.7
167.9
31.9
6.1
2005
85.4
10.1
42.8
7.8
42.6
12.6
0.3
Jan-Mar
5
4. Employment
The unemployment rate dropped to 4.4% in 2004, continuing a
steady descent from its historic high of 5.2% in 2002.
％
6
5.2
Unemployment Rate
5
4
3
2.6
2.7
2.7
2.9
5.0
1.2
0
0.3
1995
4.2
2.2
1.9
2004
2005
Employment1.3
Growth Rate
1.8
-1
4.4
3.0
2
1
4.6
1996
1.2
1997
1.2
1.0
1.1
1998
1999
2000
0.8
2001
2002
2003
(Jan-Mar)
6
II. TAIWAN’S DEVELOPMENT STRATEGY
◎ Challenges from global trends
Knowledge
Economy
Emerging economic powers
 Rapid growth in Brazil, Russia,
India and China (BRICs)
 The coming of an Asian era
Taiwan
˙Challenges
˙Position
Global structural changes
Social Fairness
and Justice
Environmental
Sustainability
 Population aging
 Global operations (outsourcing)
Green, energy-saving drive
 Development of clean energy and
green production chain
 Sustainable national strength
7
◎ Challenges from internal needs
Industrial innovation
 Falling profits of hightech industries
 Emigration of traditional
industries
Internal
Needs
Investment environment
 Inadequate infrastructure
 Institutional and
regulatory modernization
Social security net
 Rapid aging of population
 Structural change of labor
market
Financial and fiscal reforms
 Fiscal imbalances
 Financial weakness
Sustainable development
 Environmental and
ecological preservation
 Greenhouse gas
emissions
8
◎ Policy Initiatives
Healthy Taiwan
Promoting innovationoriented industries
Developing a favorable
investment climate
Innovation
Establishing sound
financial and fiscal
systems
Extending global logistics
operations
9
 Promoting Innovation-oriented Industry
Knowledge-based economic development is the prevailing
global trend.
“SMILE”-oriented industrial positioning
Added
Value
Develop knowledge-intensive
services
Manufacturing center for high
value-added products
Help makeover of traditional
industries
Innovation Design Manufacture Assembly
R&D Market Research
Logistics Brands Industrial
Value
Marketing
Chain
10
◎ Raising Added Value of High-tech & Traditional Industries
2004
2008: Trillion-dollar Industries
Iron &
steel
0.61
1.05
1.00
Design, culture &
creativity,
R&D, distribution
0.57
0.51
0.30
Information
services
Textiles
Automobiles
Petrochemicals
2-Star
0.81
1.13
Digital
hardware
 2-Trillion Industrie
Image display
(880) (715)
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1.43
Machinery
& equipment
Image display
Iron & steel
Machinery &
equipment
Petrochemicals
NT$ billion: (900) (571)

1.79
Semiconductor
Semiconductor
(1.14 trillion)
2.0
1.8
1.6
Telecom
NT$ trillion

s
Digital
content
(226.8 bil)
Hi-tech
Biotech
(138.5 bil)
$
＝
Traditional
$
11
◎ The Development of Taiwan’s Service Industry
Goals
Real Compound Annual Growth Rate (CAGR) of Services 6.1%
CAGR of Knowledge-intensive Services 8％
(2004-2008)
High knowledge-intensity
Large output value
High value-added
Substantial employment effects
12 categories of services
1. Financial services
2. Logistics & transportation services
3. Communications & media services
4. Medical, healthcare & caregiving services
5. Manpower training & dispatch, and property management services
6. Tourism, sporting & recreational services
7. Cultural and creative services
8. Design services
9. Information services
10. Research and development services
11. Environmental protection services
12. Engineering consulting services
12
 Developing a Favorable Investment Climate
◎ Investment in Taiwan－The New Ten Projects
Efficiency
GOAL
Strengthen International
Competitiveness
STRATEGY
High quality manpower, innovation
Knowledge-based, cultural creativity
Global logistics, international competition
Convenient living, ecological sustainability
CRITERIA
Forward looking
- meeting trends, creating values
Pivotal
- critical to restructuring and high linkage
effect
Landmark
- significant breakthrough and inducing
regional development
Urgent
- immediate improvement is indispensable
Balanced
- regional development; central-local
partnership
Finesse
Excellence
High-tech
Vision
1 Top-rated universities and research centers
2 International arts and popular music centers
3 "M" (Mobile) Taiwan
4 Taiwan exposition
5 Converting railway to rapid transit
6 Third-phase freeways
7 Kaohsiung Harbor intercontinental container
center
8 North, middle, south mass rapid transit
systems
9 Wastewater treatment
10 Lowland reservoirs and desalination plants
13
◎ Expected Economic Benefits
Intangible
Benefits
Increase the capital value
of human resources
Raise the commodity
value of the environment
Create cultural values
Enrich quality of life
Measurable
Benefits
 Promote economic growth
GDP growth up by 1.0~1.4 percentage
points a year
 Generate private demand
Private demand up by 0.6~0.8 percentage
point a year
 Increase job opportunities
Create 64,000 jobs a year
 Expand tax collection
Increase tax revenue by NT$70~150
billion in the coming 5 years
14
Establishing sound financial and fiscal systems
Target
To raise the tax burden to 15% within
three years by broadening the tax base
and simplifying the tax system
Fiscal reform
Taiwan’s Tax Burden and Outstanding Debt
Outstanding Debt of
General Government
/GDP
％
40
35
Tax Revenues / GDP
32.2
30
25
39.0
36.6
33.5
33.7
26.3
29.7
23.2
20
17.3
Outstanding Debt of
Central Government
/GDP
18.6
12.6
15
12.7
Unit: ％
Outstanding Debt as a
Percentage of GDP
Tax
Central
General
Burden Government Government
Japan
15.9 (02) 140.3 (03)
－
UK
29.7 (02)
48.9 (00)
50.3 (02)
USA
19.6 (02)
33.2 (02)
44.8 (01)
Germany 21.5 (02)
－
62.8 (02)
Singapore 13.0 (03) 111.5 (02)
－
Taiwan
13.6 (04)
33.7 (04)
39.0 (04)
13.6
14.2
10
1993
1995
1997
1999
2001
2003 2004 Year
15
◎Initiatives of Fiscal Reform
Abolishing the exemption from personal income tax of
military personnel and elementary and high school
teachers.
Abolishing the stamp duty, raising the business tax by
1-2%, and pushing for the adjustment of commodity
tax toward a green-oriented system.
Decreasing the highest rate of the estate & gift tax
from its current 50% to 40%.
 Pushing for the implementation of an Alternative
Minimum Tax aimed at achieving equality of
taxation as well as industrial development.
16
◎ Launching the Second Phase of Financial Reform
Rate of NPLs in Domestic Banking Institutions
(March 2002)
8.04％
(March 2005)
2.74％
Targets
 By the end of 2005, the market shares of the top three banks
to be over 10%.
 By the end of 2005, the number of state-owned banks to be
reduced to 6 or less.
 By the end of 2006, at least one financial institution to be run
by a foreign company or listed on an overseas market.
 By the end of 2006, the current 14 financial holding companies
to be reduced by half.
17
 Extending Global Logistics Operations
◎ Free Port Locations
Keelung Harbor
Taipei Harbor
Taoyuan Air Cargo Park
Taichung Harbor
Legend:
Type 1： Within the control
zone of an international airport
or seaport
Type 2：Area adjoining the
control zone of an
international airport or seaport
Kaoshiung Harbor
The Possible Types of Free Ports
18
◎ Current Progress on FTAs
Economic Integration in Asia
China-ASEAN Free
Trade Agreement
(2010)
ASEANJapan
Framework for
Comprehensive Economic
Partnership concluded
between Japan and ASEAN
in 2003
ASEAN＋N
ASEAN-India
(2011)
ASEAN＋3 (ASEAN +
China, Japan, and South
Korea)
ASEAN Free
Trade Area
(AFTA)
ASEAN-New Zealand and
Australia Closer Economic
Relations (CER)
19
◎ Taiwan’s Progress on FTAs
FTA Concluded
Panama
FTAs under Study
Honduras, El Salvador,
Costa Rica,
Dominican Republic
FTAs under Negotiation
Nicaragua, Guatemala,
Paraguay
Potential FTA Partners
US, Japan, New Zealand,
Singapore
Difficulty Faced by Taiwan in Signing FTAs: China
Taiwan’s Response:
 Choose our battles: A Taiwan-US FTA
 Support promotion of liberalization in multilateral
organizations
20
III. FUTURE PROSPECTS
◎ IMD Global Competitiveness Rankings
Economic Performance
Government Efficiency
Business Efficiency
Infrastructure
2003
33
20
11
23
2004
24
18
7
20
2005
18
19
6
18
3
4
Population
less than
20 million
5
6
7
16
17
11
6
12
17
20
Total
2000
2001
2002
2003
2004
2005
Source: IMD, World Competitiveness Yearbook.
21
◎ Macroeconomic Targets
Targets
Growth of potential
GDP
Economic
growth
Per capita GDP
Employment
increase
Unemployment rate
CPI increase
2005~2008
2005~2015
4.9％
4.6％
US$18,000
（2008）
US$27,000
（2015）
1.4％
1.2％
4.0％（2008）
4.0％（2015）
New Century Manpower Plan
22
Thank you
23