Separate Customs Territory of Taiwan, WT/TPR/S/232
Penghu, Kinmen and Matsu Page 15

I.  Economic environment

(1)  Introduction

  1. For more than three decades, Chinese Taipei has pursued an outward-oriented development strategy, which coupled with the progressive liberalization of its trade and investment regimes has brought about rapid economic growth, transforming Chinese Taipei into a modern industrial economy and a leading exporter of IT products. Underpinned by WTO membership (2002), further trade and investment liberalization have been implemented in recent years, particularly in the services sector. The authorities are currently taking steps to diversify the economy and trade, stimulate domestic demand, and improve the investment climate, so as to attract inward direct investment.
  2. The Chinese Taipei economy has experienced positive growth averaging 4% per year in real terms between 2005 and 2008. Growth has been driven primarily by exports and, to a lesser extent, by private consumption, while gross fixed capital formation exhibited a weak performance (TableI.1). However, due to the global economic downturn, GDP growth plummeted in the second half of 2008 with sharp reductions in exports, private consumption, and investment. Consequently, GDP growth declined to 0.7% in 2008 and the economy contracted by 1.9% in 2009.
  3. Chinese Taipei's per capita income rose steadily between 2005 and 2008 as a result of robust growth, reaching some US$17,507 in 2008, the sixth highest in Asia, but it declined to US$16,428 in 2009 under the impact of the economic slowdown. Several decades of rapid economic growth have allowed Chinese Taipei to significantly reduce poverty levels.[1]
  4. The economy is characterized by a high saving rate that persistently exceeds the rate of investment. The savings-investment gap is reflected in large current account surpluses in the balance of payments. The economy is also heavily reliant on exports (mostly of manufactured goods), which were equivalent to 72% of GDP in 2008. The global economic crisis and the ensuing decline in external demand have therefore had a severe impact on Chinese Taipei's economy. Nevertheless, the authorities have refrained from resorting to trade and investment protectionist measures in response to the crisis; instead, in order to mitigate its adverse effects, they have implemented a mix of fiscal stimulus and monetary easing. The economy started to recover in the latter part of 2009, and GDP growth is expected to resume in 2010.
  5. In the short- and medium-term, the gradual rebound of external demand led mainly by Asia's emerging countries (particularly China), and the effects of Chinese Taipei's economic stimulus package should contribute to its economic recovery. However, sustained growth over the long term may require further structural reforms. The global economic crisis has exposed the risks associated with Chinese Taipei's heavy reliance on manufactured exports, prompting the authorities to renew efforts to diversify the economy's structure and search for new engines of growth, in particular by developing and improving the international competitiveness of the service industries.[2] Further liberalizing the services sector, removing unnecessary regulations and enhancing the ease of doing business should help in this process.

Table I.1

Selected macroeconomic indicators, 2005-09

/ 2005 / 2006 / 2007 / 2008 / 2009a /
Overall government accounts / (% change)
Real GDP (at 2006 prices) / 4.7 / 5.4 / 6.0 / 0.7 / -1.9
Consumption / 2.4 / 1.1 / 2.1 / -0.4 / 1.8
Private consumption / 2.9 / 1.5 / 2.1 / -0.6 / 1.5
Government consumption / 0.2 / -0.7 / 2.1 / 0.7 / 3.6
Gross fixed capital formation / 2.7 / 0.1 / 0.6 / -11.2 / -11.8
Exports of goods and non-factor services / 7.8 / 11.4 / 9.6 / 0.6 / -9.2
Imports of goods and non-factor services / 3.2 / 4.6 / 3.0 / -3.1 / -13.7
XGS/GDP (%) (at current market price) / 62.5 / 68.0 / 72.1 / 72.7 / 62.5
MGS/GDP (%) (at current market price) / 58.1 / 61.9 / 64.1 / 67.7 / 53.4
Unemployment rate (%) / 4.1 / 3.9 / 3.9 / 4.1 / 5.9
Prices and interest rates / (%)
Inflation (CPI, % change) / 2.3 / 0.6 / 1.8 / 3.5 / -0.8
Discount rate of the central bank (end-period) / 2.250 / 2.750 / 3.375 / 2.000 / 1.250
Commercial 1-year deposit rate (end-period) / 1.990 / 2.200 / 2.620 / 1.420 / 0.890
Commercial 1-year lending rate (end-period) / 3.845 / 4.115 / 4.313 / 4.205 / 2.563
Interest rate spread / 1.855 / 1.915 / 1.693 / 2.785 / 1.673
Exchange rate
NT$/US$ (period average) / 32.17 / 32.53 / 32.84 / 31.52 / 33.05
Real effective exchange rate (% change) / 0.2 / -0.5 / -1.5 / -2.3 / -7.7
Nominal effective exchange rate (% change) / 3.7 / -1.8 / -4.1 / -0.5 / -4.4
(% of GDP, unless otherwise indicated)
Fiscal balanceb
Total revenue / 18.9 / 17.8 / 17.4 / 17.6 / 18.5
Current revenue / 18.0 / 17.1 / 17.0 / 17.2 / ..
Tax revenue / 13.4 / 13.1 / 13.4 / 13.9 / 12.2
Total expenditure / 19.5 / 18.1 / 17.7 / 18.4 / 22.4
Current expenditure / 14.7 / 14.3 / 14.0 / 14.3 / ..
Overall fiscal balance / -0.6 / -0.3 / -0.4 / -0.9 / -3.8
Fiscal current balance / 3.2 / 2.8 / 3.0 / 2.9 / ..
Revenue of Central Government / 12.6 / 12.6 / 12.7 / 12.9 / 13.4
Expenditure of Central Government / 14.2 / 13.4 / 12.8 / 13.8 / 16.8
Fiscal balance of Central Government / -1.6 / -0.8 / -0.1 / -0.9 / -3.4
General government debt / 43.8 / 42.0 / 40.1 / 42.0 / ..
Central government debt / 31.7 / 30.6 / 29.4 / 30.8 / ..
Saving and investment
Total savings / 28.4 / 30.3 / 31.7 / 29.4 / 29.1
Gross domestic investment / 22.7 / 22.7 / 22.1 / 22.7 / 17.2
Savings-investment gap / 5.7 / 7.6 / 9.6 / 6.7 / 11.8
External sector
Current account balance / 4.8 / 7.0 / 8.4 / 6.2 / 11.2
Net merchandise trade / 5.3 / 6.4 / 7.7 / 4.6 / 8.1
Merchandise exports / 54.4 / 59.5 / 62.7 / 63.3 / 53.7
Merchandise imports / 49.0 / 53.0 / 55.0 / 58.7 / 45.5
Services balance / -1.8 / -0.9 / -1.0 / -0.1 / 0.3
Capital account / 0.0 / 0.0 / 0.0 / -0.1 / 0.0
Table I.1 (cont'd)
Financial account / 0.6 / -5.2 / -9.9 / -0.4 / 3.7
Direct investment / -1.2 / 0.0 / -0.8 / -1.2 / -0.8
Balance of payments / 5.5 / 1.6 / -1.0 / 6.5 / 14.3
Terms of trade (2005=100) / 100.0 / 95.4 / 92.4 / 86.1 / 93.6
Merchandise exports (% change) / 8.8 / 12.8 / 10.1 / 3.4 / -20.2
Merchandise imports (% change) / 8.5 / 11.5 / 8.2 / 9.4 / -27.0
Service exports (% change) / 0.1 / 13.3 / 7.0 / 11.1 / -10.0
Service imports (% change) / 5.7 / 1.0 / 7.0 / 0.1 / -14.6
Foreign exchange reserves (US$ billion) / 253.3 / 266.1 / 270.3 / 291.7 / 348.2
in months of imports of goods and servicesc / 14.4 / 13.7 / 12.9 / 12.9 / 20.6
Total external debt (US$ billion) / 86.7 / 85.8 / 94.5 / 90.4 / ..
Short term (US$ billion) / 73.7 / 74.2 / 83.3 / 78.8 / ..
Debt service ratiod / 4.9 / 3.6 / 2.7 / 4.0 / ..

.. Not available.

a Estimates.

b Based on general government, including central and local government.

c Import figures taken from the balance of payments.

d Debt service in % of exports of goods and services.

Source: Central Bank of China, Statistics online information. Viewed at: http://www.cbc.gov.tw [09/03/10]; online statistical information. Viewed at: http://eng.stat.gov.tw [08/03/10].

  1. A gradual rebalancing of the composition of growth, putting greater emphasis on domestic demand, may also be needed for achieving sustained growth and reducing vulnerability to global demand cycles. Conscious of the need to boost domestic demand, the authorities have adopted measures to increase both consumption and investment, including, in particular, the implementation of major infrastructure and urban regeneration projects, and tax reductions. This should help reduce the savings-investment gap and the concomitant current account surplus. In addition, Chinese Taipei's growth prospects would be enhanced by deepening trade and investment liberalization, improving the overall investment climate so as to increase FDI inflows, further enhancing cross-strait economic relations, and by completing regulatory reform and privatization plans.

(2)  Recent Economic Developments

  1. Chinese Taipei's export-oriented economy has been hard hit by the global economic downturn. It contracted by 7.9% in the first six months of 2009 compared with the same period in 2008, the steepest contraction in east and south-east Asia during this period.[3] Merchandise exports and imports plunged by 34.2% and 42.3%, respectively, in the first half of 2009, while gross fixed capital formation declined by 25.4% and private consumption by 1.3%. The contraction in gross fixed capital formation was mainly due to a steep decline in private investment (33.2% in the first half of 2009), as weak economic performance and slackening external demand led companies to put investment plans on hold, particularly in capital equipment and construction.[4]
  2. In order to bolster the economy, since the last quarter of 2008 Chinese Taipei has adopted counter-cyclical policies, including monetary loosening and a variety of economic stimulus measures. The latter include the distribution of consumption vouchers, the expansion of investment in public construction programmes[5] (and thus government procurement), short-term and medium-term employment promotion measures, subsidies for low-income families, and tax cuts that took effect on 1 January 2010 (see section (4) below).
  3. The economy reached its lowest point of the recession in the firstquarter of 2009 and started a quick recovery in the latter half of the year in line with the gradual world recovery led by Asian emerging economies. Exports regained momentum in the last quarter of 2009, boosted mainly by cross-strait trade, but with stagnant private consumption and a sharp decline in private investment, GDP contracted by 1.9% in 2009 (Table I.1). In 2010, the economy is expected to grow by 4.7%, helped by a rebound in external demand and the economic stimulus measures. However, the pace of recovery could be hampered by a gloomy employment outlook, which may subdue private consumption in the short-term, and a less robust than expected recovery in industrialized countries.
  4. The sectoral composition of the Chinese Taipei economy has not changed much since the last Review (Table I.2). The share of services in GDP grew to 66.3% in 2009 from 64.2% in 2005, while the share of manufacturing has decreased slightly to 24.9% in 2009 (26.6% in 2005), and that of agriculture has remained stable at 1.6% in 2009 (1.7% in 2005).

Table I.2

Basic economic indicators, 2005-09

/ 2005 / 2006 / 2007 / 2008 / 2009a /
Real GDP (NT$ billion, 2006 prices) / 11,612.1 / 12,243.5 / 12,976.0 / 13,070.9 / 12,826.7
Real GDP (US$ billion, 2006 prices) / 361.0 / 376.4 / 395.1 / 414.7 / 388.1
Current GDP (NT$ billion) / 11,740.3 / 12,243.5 / 12,910.5 / 12,698.5 / 12,527.4
Current GDP (US$ billion) / 364.8 / 376.4 / 393.1 / 402.6 / 378.9
GDP per capita at current market price (NT$) / 516,515.9 / 536,442.5 / 563,348.6 / 552,164.1 / 542,917.0
GDP per capita at current market price (US$) / 16,057.3 / 16,490.2 / 17,153.3 / 17,507.0 / 16,427.6
(Annual % change)
GDP by economic activity at constant 2006 prices
Agriculture, forestry, and fishing / -4.2 / 13.8 / -2.4 / 0.6 / -3.1
Mining / -5.4 / -22.3 / 20.4 / -13.8 / -12.0
Manufacturing / 7.9 / 9.0 / 9.8 / 0.4 / -4.6
Electricity, gas, and water / 5.9 / 5.7 / 6.6 / 1.2 / -0.3
Construction / 1.3 / 2.9 / 1.5 / -5.5 / -6.7
Services / 4.0 / 4.4 / 4.6 / 1.2 / 0.1
Wholesale and retail trade / 6.2 / 5.0 / 5.9 / 1.2 / -0.4
Transport, storage, and communication / 2.3 / 3.1 / 4.1 / 2.8 / 0.4
Restaurants and hotels / 5.9 / 5.0 / 4.0 / -1.3 / -0.2
Finance and insurance / 4.3 / 2.5 / 6.1 / -2.2 / -7.0
Real estate / 4.3 / 8.3 / 5.3 / 1.0 / 2.1
Professional, scientific, and technical services / 3.2 / 11.5 / 8.6 / 0.1 / 3.5
Support services / 11.1 / 14.6 / 8.7 / 7.2 / -2.1
Public administration and defence / 1.5 / -0.1 / -1.2 / 0.9 / 1.4
Education / 1.6 / 3.9 / 2.6 / 1.0 / 1.8
Human health and social work services / -1.7 / -0.1 / 4.9 / 3.9 / 4.0
Arts, entertainment, and recreation / 3.8 / 5.7 / 4.0 / 2.3 / 4.4
Other / 6.0 / 5.5 / 4.1 / 4.1 / 2.6
Table I.2 (cont'd)
(%)
Share of GDP, current prices
Agriculture, forestry, and fishing / 1.7 / 1.6 / 1.5 / 1.6 / 1.6
Mining / 0.4 / 0.3 / 0.5 / 0.4 / 0.5
Manufacturing / 26.6 / 26.5 / 26.4 / 24.9 / 24.9
Electricity, gas, and water / 1.9 / 1.8 / 1.6 / 1.0 / 2.1
Construction / 2.4 / 2.7 / 2.8 / 2.9 / 2.6
Services / 64.2 / 64.2 / 64.0 / 66.1 / 66.3
Wholesale and retail trade, / 17.7 / 17.9 / 18.1 / 18.7 / 18.6
Transport, storage and communication / 7.0 / 6.6 / 6.6 / 6.8 / 6.8
Restaurants and hotels / 2.0 / 1.9 / 1.9 / 2.0 / 2.0
Finance and insurance / 7.7 / 7.3 / 7.2 / 7.2 / 6.4
Real estate / 8.2 / 8.5 / 8.5 / 8.7 / 9.1
Professional, scientific, and technical services / 1.9 / 2.1 / 2.1 / 2.2 / 2.3
Support services / 1.2 / 1.3 / 1.3 / 1.5 / 1.5
Public administration and defence / 7.6 / 7.4 / 7.1 / 7.5 / 7.6
Education / 4.7 / 4.7 / 4.6 / 4.8 / 4.9
Human health and social work services / 2.8 / 2.8 / 2.8 / 3.0 / 3.2
Arts, entertainment, and recreation / 0.8 / 0.8 / 0.8 / 0.9 / 1.0
Other / 2.8 / 2.8 / 2.8 / 3.0 / 3.1
Otherb / 2.8 / 2.9 / 3.3 / 3.1 / 2.2
Share of sector in total employment
Agriculture, forestry, and fishery / 5.9 / 5.5 / 5.3 / 5.1 / 5.3
Mining and quarrying / 0.1 / 0.1 / 0.1 / 0.1 / 0.0
Manufacturing / 27.5 / 27.5 / 27.6 / 27.7 / 27.2
Electricity, gas, and water / 0.9 / 0.9 / 0.9 / 1.0 / 1.0
Construction / 8.0 / 8.2 / 8.2 / 8.1 / 7.7
Services / 57.7 / 57.9 / 57.9 / 58.0 / 58.8
Wholesale and retail trade / 17.4 / 17.4 / 17.3 / 17.0 / 16.9
Transport, storage, and communication / 6.1 / 6.2 / 6.0 / 5.9 / 5.9
Hotels and restaurants / 6.4 / 6.6 / 6.6 / 6.6 / 6.7
Finance and insurance / 4.1 / 4.0 / 3.9 / 4.0 / 4.0
Real estate / 0.6 / 0.7 / 0.7 / 0.7 / 0.7
Professional, scientific, and technical services / 2.6 / 2.6 / 2.9 / 3.0 / 3.1
Support services / 2.0 / 2.0 / 2.1 / 2.2 / 2.3
Public administrations and defence, compulsory social security / 3.4 / 3.3 / 3.2 / 3.3 / 3.7
Education / 5.6 / 5.6 / 5.7 / 5.8 / 6.0
Human health and social work / 3.2 / 3.3 / 3.3 / 3.4 / 3.6
Arts, entertainment, and recreation / 1.2 / 1.1 / 1.0 / 0.9 / 0.9
Other services / 5.2 / 5.2 / 5.1 / 5.1 / 5.1

a Estimates.