Taipei pledges to transform economy
As home to some of the world's biggest technology manufacturing companies, Taiwan plays a vital role in the global supply chain. Acer, the world's third-biggest PC maker, consumer electronics firm Asustek, leading smartphone manufacturer HTC, and Taiwan Semiconductor Manufacturing Company, the world's largest dedicated independent chip foundry, all have their headquarters on the island.
Highly advanced and efficient production capabilities, along with expertise in the IT sector, excellent communications facilities, a strong entrepreneurial spirit, an educated workforce and government support for industry, are all hallmarks of Taiwan's success story.
Nevertheless, a heavy reliance on exports also leaves the island vulnerable to external shocks in major developed markets. As such, the continuing slowdown stemming from the euro-zone crisis means that 2012 is shaping up to be another challenging year for Taiwan.
The local economy slipped into a mild recession at the end of last year and the government is forecasting a slowdown in GDP growth from 4.03 per cent to 3.91 per cent this year.
Following his re-election for another four-year term in January, President Ma Ying-jeou and the ruling Kuomintang are looking to devise new policies to kick-start growth and narrow the wealth gap, which was one of the main gripes of voters during the recent election campaign.
The government is pledging to pursue an economic transformation of the island. Development of the services sector, including export of services, is seen as having a lot of potential. The strong growth in the tourism sector, in particular, is creating significant opportunities to increase employment and reduce income inequality. Biotech and medical travel, the cultural and creative industries, and green energy are among several other priority areas.
For the manufacturing sector, the government is considering measures aimed at bolstering design, research and development capacity so that exporters can add value by producing products that are not only made in Taiwan but also designed there.
'While economic growth is a prime objective, it acts as a prerequisite to many other desired achievements: robust employment, price stability, even income distribution and environmental sustainability, among others,' says a spokesman for Taiwan's Council for Economic Planning and Development (CEPD). 'Needless to say, all these objectives are equally important and will require the twin engines of investment and exports to propel Taiwan's economic growth into the future.'
As part of an effort to place new emphasis on improving the quality of life for island residents during President Ma's second term, his government plans to issue an annual index to measure 'gross national happiness', which will take into account factors such as health, the environment, education, living standards, culture and jobs.
There may be further opportunities to strengthen cross-strait relations. In his first-term, Ma oversaw several landmark agreements, including deals in 2008 to allow direct flights between the mainland and Taiwan, and to grant entry to mainland visitors.
In 2010, the two sides forged the Economic Co-operation Framework Agreement, a free-trade treaty that removes import duties on both sides of the strait. Introducing a more level playing field for cross-strait investments is one area that holds potential benefits for Taiwan. While the island's enterprises have invested an estimated US$70 billion to US$80 billion on the mainland, the corresponding figure for direct investment by Chinese enterprises in Taiwan amounts to a mere US$140 million.
Sizeable new capital inflows, whether from the mainland or other sources, would deliver a significant economic boost to Taiwan and help to plug its budgetary shortfall. The island's new government has highlighted infrastructure development as an area in which it would welcome capital investment from the mainland.
'It is our hope that by stimulating private sector investment, domestic industries will upgrade, create new employment opportunities, and enhance the functioning of Taiwan's economy to spur a new wave of economic growth,' says the CEPD spokesman.
In 2009, the Ma administration lifted a ban on mainland investments in 205 sectors, including textiles, plastics and handsets, with a second wave being launched last March affecting 42 sectors, including panels and semiconductors, tools and machinery, and services.
A third wave is expected to be announced in the coming months and officials say it will likely include investments in subways, roads and stations. The Ministry of Economic Affairs (MOEA) has set a target of attracting more than US$200 million in Chinese investment this year.
That would still represent only a small portion of outside investment in Taiwan. Last year, for example, investment from the United States totalled US$2.15 billion, with Singapore coming in second at US$1.02 billion, followed by Japan at US$970 million, according to MOEA figures.
From a foreign investment standpoint, this year has already delivered some positive news. The uncertainty over the presidential election outcome has been removed, and result indicates the government will continue with a steady policy direction and maintain stable and open relations across the Taiwan Strait.
President Ma Ying-jeou
Premier Chen Chun
Population 23.22 million
GDP US$469.3 billion
Languages Putonghua (official), Taiwanese, Hakka dialects
Ethnic groups Chinese (Taiwan-born, including Hakka and mainland-born), indigenous
Religions Mixture of Buddhist and Taoist, Christian, and others
Climate Tropical; rainy season during southwest monsoon (June to August); cloudiness is persistent and extensive all year
Major industries Electronics, communications and information technology products, petroleum refining, armaments, chemicals, textiles, iron and steel, machinery, cement, food processing, vehicles, consumer products and pharmaceuticals
Natural resources Small deposits of coal, natural gas, limestone, marble, and asbestos
Key trading partners The mainland, Japan, Hong Kong, United States, South Korea, Saudi Arabia and Singapore