Taiwan

Content

• Taiwan in 2010• Import Substitution in 1950s• Export Promotion in 1960s• Toward High-techs• SMEs-Driven Taiwan• Credit Rationing• Foreign and Cross-Strait Trade

Taiwan in 2010

• GDP (2011): $467 billion, with per capita GDP $20,083.Unemployment (April 2011): 4.29%.

• Natural resources: Small deposits of coal, natural gas, limestone, marble, and asbestos.

Industry Structure in 2010

• Agriculture (1.6% of GDP): Major prod-ucts--pork, rice, fruit and vegetables, flowers, sugarcane, poultry, shrimp, eel.

• Services: (67.1% of GDP).• Industry (31.3% of GDP): Types--elec-

tronics and flat panel products, chemi-cals and petrochemicals, basic metals, machinery, textiles, transport equip-ment, plastics, machinery.

Export in 2010

• Exports--$274.6 billion: electronics, optical and precision instruments, in-formation and communications prod-ucts, textile products, basic metals, plastic and rubber products.

• Major markets--P.R.C. and Hong Kong $114.8 billion, U.S. $31.5 billion, Japan $14.5 billion.

Import in 2010

• Imports--$251.4 billion: electronics, opti-cal and precision instruments, information and communications products, machinery and electrical products, chemicals, basic metals, transport equipment, crude oil.

• Major suppliers--Japan $36.2 billion, P.R.C. and Hong Kong $37.6 billion, U.S. $25.4 billion.

Education in 2010

• Compulsory : 6 years of elementary school and 3 years of middle school.

• About 98% of middle graduates go to either a high or vocational school.

• Extensive higher education system with 165 in-stitutions of higher learning.

• 147,561 applied for admission to colleges; 100% of the applicants were offered placement and 76% of the candidates actually enrolled.

• Over 15,890 U.S. student visas were issued to Taiwan passport holders.

Beginning of Industrialization in 1950s

• Rice and sugar cane had been major products during Japanese rule for 1895-1945.

• KMT confiscated all industries formerly held by Japanese.

• Land reform program redistributed land among small farmers and compensated large landowners with commodities cer-tificates and stock in state-owned indus-tries.

Private-Led Industrialization

• Who would lead industrialization? Public enterprises? Or private entrepreneurs?

• KMT decided private-led industrialization.• Some large landowners turned their com-

pensation into capital to become first generation of industrial entrepreneurs.

• Refugee businessmen from the mainland joined them to transform Taiwan from an agrarian to an industrial economy.

But Strong State Initiatives

• Fiscal policy : awarded tax-tariff ben-efit on industrial activities complying national plans.

• Foreign exchange control to address foreign exchange gap.

• State-owned bank system imposed low interest rate with credit rationing (investment savings gap).

US Aid

• The United States resumed aid as much as $4 billion, accounting for 5 percent of GNP, to Taiwan during the Korean War, enabling Taiwan to in-vest in infrastructure.

• Agricultural production increased by 14 percent and provided much of the investment capital and labor needed for later industrialization.

Import Substitution

• The first four-year economic devel-opment plan (1953–56) : reconstruc-tion, hydro-electric power, increased production of rice, fertilizers.

• In The second four-year plan (1957–60) encouraged import substitution industries.

Export Promotion Begins

• The third four-year plan (1961–64) : labor-intensive export industries, en-ergy development, agricultural growth, and exploration and development of the island's limited natural resources.

• US loans and grants, totaling $2.2 bil-lion, and foreign direct investment fi-nanced these early stages of devel-opment.

FDIs

• FDIs in Taiwan helped not only to fi-nance industrialization but also to in-troduce modern, labor-intensive technology, and Taiwan became a major exporter of labor-intensive products.

• Most FDIs were made by overseas Chinese and some Japanese.

Frustration on Heavy and Chemical Industries in 1970s

• By 1971, exports of manufactured goods recorded a spectacular increases, and Taiwan's trade accounts changed from chronic deficit to stable surplus.

• Attempt to redirect from labor-intensive industries to capital-intensive ones such as shipbuilding, and petrochemicals.

• The worldwide recession hit adversely.

Toward High-Tech in 1980s

• Focus shifted toward sophisticated, capital- and technology-intensive products such as computers, robotics, and bioengineering for export and to develop the service sector.

• The appreciation of the Taiwan dollar, rising labor costs, and increasing environmental consciousness in Taiwan kicked out many labor-intensive industries, such as shoe manufacturing, to China and Southeast Asia.

1990s

• "Statute for Upgrading Industries“ was legislated in early 1991 to pro-vide incentives for private invest-ment in R&D and high-technology sectors.

• Focus in the late 1990s concentrated on expanded privatization of state enterprises, and opening of the Tai-wan market to foreigners.

SME Driven Economy

• In 1985, small and medium enter-prises (those with fewer than 300 employees) contributed about 50% of value added,

• and employed 62% of the workforce,• and produced 65% of total export

value.

Productivity of Taiwanese SMEs

• Levels and growth of productivity are positively correlated with firm size. Why?

- Self selection of more efficient producers that survive over time

- Larger firms enjoy better access to more re-sources, better techniques.

• In Taiwan, superior micro and small firms have grown up to medium sized firms with higher productivity.

• It was the process of survival and growth rather than the absolute size.

Credit Rationing and Informal Credit Market

• Banking system had been mostly government owned until 1989.

• Credits had been rationed mainly to public enterprises and large-scale private enterprises in export-oriented industries.

• Bank credits came as additional and concessionary to most SMEs.

Informal Credit Markets

• Productivity, profitability, and growth potential of industries had little effect on credit rationing decisions.

• Productive SMEs attained credit from informal markets.

• Credit from informal market was es-timated about 30-60% of total loans.

Foreign Trade

• Foreign trade has been the engine of Taiwan's rapid growth during the past 50 years.

• The total value of trade increased more than 200-fold in past 50 years.

• Export composition changed from agri-cultural commodities to industrial goods (now 98%). Taiwan is the world's largest supplier of computer monitors and PCs.

Continued

• Imports of raw materials and capital goods account for more than 90% of the total.

• The mainland China supplanted the US as Taiwan's largest trade partner in 2003.

• In 2010, China (including Hong Kong) ac-counted for over 29.0% of Taiwan's total trade and 41.8% of Taiwan's exports. Japan was Taiwan's second-largest trading partner with 13.3% of total trade, includ-ing 20.7% of Taiwan's imports.

Cross-Strait Trade

• In February 2002, Taiwan formally permitted direct cross-Strait trade.

• Cross-Strait trade has grown rapidly over the past 10 years. China is Taiwan's largest trad-ing partner, and Taiwan is China's seventh-largest.

• Estimates of Taiwan investment on the main-land, range from $150 billion to over $300 billion, making Taiwan and Hong Kong by some measures the two largest investors in the P.R.C.

continued

• On June 29, 2010, following 6 months of negotiations, Taiwan and the P.R.C. signed the Economic Cooperation Framework Agreement (ECFA), aimed at bringing about liberalization of cross-Strait trade in products and services, and eventually creating an essentially free-trade regime.