Economy

Taiwan has a dynamic capitalist economy with gradually decreasing guidance of investment and foreign trade by the government. In keeping with this trend, some large government-owned banks and industrial firms are being privatised. Real growth in GDP has averaged about 8% during the past three decades. Exports have grown even faster and have provided the primary impetus for industrialisation. Inflation and unemployment are low; the trade surplus is substantial; and foreign reserves are the world's third largest. Agriculture contributes 3% to GDP, down from 35% in 1952. Traditional labour-intensive industries are steadily being moved off-shore and replaced with more capital- and technology-intensive industries.

Taiwan has become a major investor in the People's Republic of China, Thailand, Indonesia, the Philippines, Malaysia and Vietnam. The tightening of labour markets has led to an influx of foreign workers, both legal and illegal. Due to its conservative financial approach and its entrepreneurial strengths, Taiwan suffered little from the Asian financial crisis in 1997-1999, compared with many of its neighbours.

Economic Development

Through nearly three decades of hard work and what 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. Taiwan is now a creditor economy, holding one of the world's largest foreign exchange reserves of more than $500 billion (100 G$) in 1999. Despite the Asian financial crisis, the economy continues to expand at about 5% per year, with virtually full employment and low inflation.

In the 1960s, foreign investment in Taiwan helped introduce modern, labour-intensive technology to the island, and Taiwan became a major exporter of labour-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 (TWD), rising labour costs, and increasing environmental consciousness in Taiwan caused many labour-intensive industries, such as shoe manufacturing, to move to mainland China.

Taiwan has transformed itself from a recipient of US aid in the 1950s and early 1960s to an aid donor and major foreign investor, especially in Asia. Private Taiwan investment in mainland China is estimated to total more than $100 billion, and Taiwan has invested a comparable amount in Southeast Asia.

Foreign Trade

Foreign trade has been the engine of Taiwan's rapid growth during the past 40 years. Taiwan's economy remains export-oriented, so it depends on an open world trade regime and remains vulnerable to downturns in the world economy. The total value of trade increased more than five-fold in the 1960s, nearly 10-fold in the 1970s, and doubled again in the 1980s. The 1990s saw a more modest, slightly less than two-fold, growth. Export composition changed from predominantly agricultural commodities to industrial goods (now 98%). The electronics sector is Taiwan's most important industrial export sector and is the largest recipient of US investment. Taiwan became a member of the World Trade Organization (WTO) as 'Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu' in January 2002.

Taiwan is the world's largest supplier of computer monitors and is a leading PC manufacturer. Textile production, though of declining importance as Taiwan loses its competitive advantage in labor-intensive markets, is another major industrial export sector. Imports are dominated by raw materials and capital goods, which account for more than 90% of the total. Taiwan imports most of its energy needs. The United States is Taiwan's second largest trading partner, taking 20% of Taiwan's exports and supplying 16% of its imports. Taiwan is the United States' eighth-largest trading partner; Taiwan's two-way trade with the United States amounted to about $45 billion in 2002. Imports from China consist mostly of agricultural and industrial raw materials. Exports to the United States are mainly electronics and consumer goods. The United States, Hong Kong (including indirect trade with mainland China), and Japan account for nearly 56% of Taiwan's exports, and the United States and Japan provide over 40% of Taiwan's imports. As Taiwan's per capita income level has risen, demand for imported, high-quality consumer goods has increased. Taiwan's 2002 trade surplus with the United States was $8.7 billion.

The lack of formal diplomatic relations with all but 25 of its trading partners appears not to have seriously hindered Taiwan's rapidly expanding commerce. Taiwan maintains trade offices in more than 60 countries with which it does not have official relations. In addition to the WTO, Taiwan is a member of the Asian Development Bank as 'Taipei, China' and the Asia-Pacific Economic Cooperation (APEC) forum as 'Chinese Taipei'. These developments reflect Taiwan's economic importance and its desire to become further integrated into the global economy.

Agriculture

Although only about 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. However, increases in agricultural production have been much slower than industrial growth. Agriculture only comprises about 2.69% of Taiwan's GDP. Taiwan's main crops are rice, sugar cane, fruit and vegetables.

Although self-sufficient in rice production, Taiwan imports large amounts of wheat, mostly from the United States. Meat production and consumption are rising sharply, reflecting a rising standard of living. Taiwan has exported large amounts of frozen pork, although this was affected by an outbreak of hoof and mouth disease in 1997. Other agricultural exports include fish, aquaculture and sea products, canned and frozen vegetables and grain products. Imports of agriculture products are expected to increase due to the WTO accession, which is opening previously protected agricultural markets.

Energy Resources

Taiwan has significant coal deposits and some insignificant oil and gas deposits. Electrical power generation is nearly 50% oil-based, less than 10% natural gas, less than 10% nuclear power, and about 35% hydroelectric power, with the remainder from renewable energy sources. Nearly all oil and gas for transportation and power needs must be imported, making Taiwan particularly sensitive to fluctuations in energy prices. Because of this, Taiwan's Executive Yuan is pushing for 10% of energy generation to come from renewable energy by 2010, double from the current figure of approximately 5%. Taiwan is rich in wind-energy resources, both on-shore and off-shore, though limited land area favours offshore wind resources. Solar energy is also a potential resource to some extent. By promoting renewable energy, Taiwan's government hopes to also aid the nascent renewable energy manufacturing industry, and develop it into an export market.

Natural Resources

Because of the intensive exploitation throughout Taiwan's pre-modern and modern history, the island's mineral resources (for example, coal, gold and marble), as well as wild animal reserves (e.g. deer), have been virtually exhausted. Moreover, much of its forestry resources was harvested during Japanese rule for the construction of shrines (using particularly firs) and has only recovered slightly since then. The remaining forests nowadays do not contribute to significant timber production mainly because of concerns about production costs and regulations of environmental protection.

Camphor oil extraction and cane sugar production played an important role in Taiwan's exportation from the late nineteenth century through the first half of the twentieth century. The importance of the above industries subsequently declined not because of the exhaustion of related natural resources but mainly of the decline of international market demands.

Nowadays, few natural resources with significant economic value are retained in Taiwan, which are essentially agriculture-associated. Domestic agriculture (rice being the dominant kind of crop) and fishery retain importance to a certain degree, but they have been greatly challenged by foreign imports since Taiwan's accession to the World Trade Organization in 2001. Consequently, upon the decline of subsistent importance, Taiwan's agriculture now relies heavily on the marketing and exportation of certain kinds of specialty, such as banana, guava, lychee, wax apple and high-mountain tea.

Economic Outlook

Taiwan now faces many of the same economic issues as other developed economies. With the prospect of continued relocation of labour-intensive industries to countries with cheaper work forces, Taiwan's future development will have to rely on further transformation to a high technology and service-oriented economy. In recent years, Taiwan has successfully diversified its trade markets, cutting its share of exports to the United States from 49% in 1984 to 20% in 2002. Taiwan's dependence on the US market should continue to decrease as its exports to Southeast Asia and mainland China grow and its efforts to develop European markets produce results. Taiwan's accession to the WTO and its desire to become an Asia-Pacific 'regional operations centre' are spurring further economic liberalisation.