Taiwan is recognized worldwide as a competitive nation. It has ranked consistently near the top in surveys regarding economic performance and technological development around the globe. In 2005, Taiwan was the world's 16th-largest trading nation with a gross domestic product (GDP) that was the 21st highest in the world.

Under the Challenge 2008 National Development Plan 挑戰二○○八 : 國家發展重點計畫, the government and private sector are working together to transform Taiwan into a "green silicon island" 綠色矽島 in the first decade of the 21st century. As the service industry continues to expand, efforts are being made to revise related laws on issues such as land-use zoning and environmental protection. To revitalize traditional industries, a stimulus package has been put together that includes preferential rates for credit funding as well as measures to increase worker efficiency.

In its latest move to help Taiwan's economy prepare to face future challenges and opportunities, the government hosted the Conference on Sustaining Taiwan's Economic Development in July 2006. Participants on the conference's panels discussed issues concerning social security, business competitiveness, government efficiency, cross-strait economic and trade relations, and fiscal and financial reform. A consensus was reached that protecting the environment, developing human resources, and transforming the nation into a regional hub for business fund-raising and asset management are issues that must be addressed by the nation. It is hoped that by following through with these recommendations, GDP per capita could rise to US$30,000 by 2015. In response to these proposals, the Executive Yuan has asked related ministries and agencies to draw up concrete plans concerning the consensuses reached at the conference and to work with the Legislative Yuan for the speedy passage of new laws or amendments to existing laws.

Note：The average exchange rate was NT$33.42 per US$1 in 2004 and NT$32.17 per US$1 in 2005.

Macroeconomic Indicators

In 2004, Taiwan's gross national product (GNP) grew from US$309.3 billion in the previous year to reach US$333.4 billion. The GDP rose from US$299.8 billion in 2003 to US$322.2 billion. The service sector grew steadily, accounting for 72.7 percent of GDP; industry's share shrank to 25.6 percent as manufacturing bases continued to be relocated overseas and demand for services increased with social modernization; and agriculture fell slightly to 1.7 percent.

The private sector was the main source of economic growth. The improving job market and growing affluence created by the revival of the stock and real estate markets bolstered private consumption in the first half of 2004. Consumer sentiment was dampened by soaring oil prices, speculation on interest rate increases, and a weaker stock market in the third quarter, but rebounded in the fourth. The annual growth rate was 3.9 percent, the highest since 2001.

Private fixed investment expanded 31.0 percent, driven by plant expansions and spending on upgrades in the optoelectronics and semiconductor industries, purchases of new airplanes, and large-scale projects like the high-speed railway. Government consumption, however, slipped 0.5 percent. Fixed investment by public enterprises and government also fell, by 18.2 percent and 5.7 percent, respectively.

Thanks to the robust recovery of the global economy, Taiwan's two-way trade experienced strong growth in 2004. Exports and imports rose 21.1 percent and 31.8 percent, respectively, markedly higher than the increases of 11.3 percent and 13.0 percent seen in 2003. With imports growing faster than exports, the annual trade surplus for 2004 totaled US$13.6 billion, down from US$22.6 billion in 2003.

Price fluctuations in 2004 mainly reflected the rising prices of raw materials and oil globally. Consumer prices rose a moderate 1.6 percent, but wholesale prices jumped 7.0 percent, the second highest since the second oil crisis at the end of the 1970s.

Growing economic prosperity, aided by US$598.41 million earmarked for expanding employment in public service in 2003 and US$194.48 million allocated for follow-up measures in the second half of 2004, brought the unemployment rate down to 4.44 percent.

Thanks to an upswing in the global consumer electronics market, exports, and manufacturing in the second half of 2005, preliminary estimates show that Taiwan's economy grew 4.03 percent for the year. GNP hit the US$355 billion mark, while GDP reached US$346 billion. Services contributed 73.33 percent of GDP, trailed by industry with 24.97 percent and agriculture with 1.70 percent. Two-way trade increased 8.5 percent to US$381 billion, with exports and imports reaching US$198 billion and US$183 billion, respectively.

Meanwhile, private consumption picked up steadily as unemployment continued to fall. Government investment fell slightly by 0.1 percent to US$12.97 billion in 2005, while investment by public enterprises recorded 16.3 percent growth to reach US$6.37 billion. Private fixed investment expanded at a rate of 11.2 percent in the first half of 2005 but fell in the second half to register negative growth of 0.2 percent at US$51.60 billion for the year. Outward investment decreased by 27.6 percent over 2004 to US$2.45 billion while inward investment climbed 7.0 percent to US$4.23 billion.

Major Economic Indicators
	Unit	2003	2004	2005
Gross national product (GNP)	US$ billion	309.3	333.4	355.4
Gross domestic product (GDP)	US$ billion	299.8	322.2	346.4
GNP per capita	US$	13,752	14,770	15,690
GDP per capita	US$	13,327	14,271	15,291
Change in consumer price index (CPI)	%	-0.28	1.62	2.30
Unemployment rate	%	4.99	4.44	4.13
Source: Directorate-General of Budget, Accounting and Statistics

Trade

World Trade Organization (WTO) figures for 2005 show Taiwan as being the 16th-largest trading nation in the world. With a trade-oriented economy, Taiwan is building on its comprehensive trade network to ensure its status as a frontrunner in global commerce.

To strengthen its position in the international supply chain and take advantage of its favorable location in East Asia, Taiwan has established four free trade zones in the harbors of Keelung, Taipei, Taichung, and Kaohsiung, as well as one at the Taiwan Taoyuan International Airport. To further expand trade opportunities, Taiwan has signed ATA Carnet agreements with several countries to eliminate customs paperwork for commercial travelers. Agreements on investment protection and the avoidance of double taxation have also been reached with trading partners to protect the interests of Taiwan's investors. Taiwan is working to improve economic ties with countries throughout the Asia-Pacific region, which together account for 35 percent of Taiwan's total trade.

Enjoying the fruits of a global economic recovery in 2004, Taiwan witnessed an upsurge in foreign trade. Like other nations in the Asia-Pacific region, Taiwan benefited from China's continued rapid growth. According to Global Insight, an economic forecasting company, Taiwan's export and import growth rates outpaced the respective global averages of 19.6 percent and 17.3 percent. Total trade marked a milestone, exceeding US$300 billion for the first time and amounting to US$351 billion.

Exports

The manufacturing sector has undergone dramatic changes over the past decade as electronics, information, and telecommunications products became a major component of exports. Among industrial products, which accounted for 98.6 percent of exports in 2004, capital- and technology-intensive goods continued to grow in importance, reaching 77.2 percent of all industrial exports. Favorable conditions stimulated overall exports, which increased 21.1 percent over 2003 to US$182 billion.

All but one of Taiwan's top ten export categories registered double-digit growth in 2004, with the two leading categories comprising half of foreign sales. The largest category, electronic equipment and components, led by integrated circuits, continued its steady growth to register a 27.2 percent increase over 2003. The second-largest category, mechanical appliances and parts, has been plagued by a string of slow years because of increased production overseas and eked out just 1.8 percent growth in foreign shipments. Optical instruments were the fastest-growing category, surging 57 percent to replace plastics and plastic products as Taiwan's third-largest export category. (For details, please see chart for Exports.)

Imports

As Taiwan's exports increased in 2004, so did its imports, due partly to rising domestic consumption and investment. Because Taiwan has few natural resources, more than 60 percent of its total imports consisted of agricultural and industrial raw materials. Growing demand for semi-finished products as well as components and instruments needed in the manufacturing of export products also contributed to import growth of 31.8 percent. This highest growth rate since 1989 boosted imports to almost equal the export total at US$169 billion.

All top ten import categories showed positive growth, with domestic demand for steel increasing by the largest margin of 75.2 percent over 2003. Imports of optical instruments and fossil fuels expanded by 46.4 percent and 41.4 percent, respectively. The top import category—electronic equipment and components—registered a growth rate of 21.3 percent, while the second-largest category—mechanical appliances and parts—experienced 32.5 percent growth.

Major Trading Partners

In 2004, almost 80 percent of Taiwan's external trade was conducted with the United States, Japan, China, Hong Kong, and members of the Association of Southeast Asian Nations (ASEAN) and the European Union (EU).

The continuing shift of the center of world economic activity from West to East and the growing trend toward regional economic integration have caused Taiwan's trade with Asia-Pacific countries to increase steadily. Exports to China and Hong Kong—Taiwan's largest market—grew by 28.3 percent and comprised 36.7 percent of its total exports in 2004. Exports to ASEAN members grew by a comparable 33.1 percent. Taiwan's exports to the 25 EU nations and Japan grew at the more moderate rates of 14.2 percent and 10.8 percent, respectively. Shipments to the United States posted relatively weak growth, only 8.4 percent, after having declined for three consecutive years.

Japan and the United States have long been Taiwan's leading import partners. Imports from Japan grew 33.7 percent in 2004 to create a trade deficit for Taiwan of US$30.43 billion. Imports from the United States increased 28.6 percent in the same year, but Taiwan's trade surplus with the United States fell as the gap narrowed between exports to and imports from the North American nation to stand at US$6.49 billion. Imports from ASEAN members, China, and EU nations increased 16.1 percent, 48.0 percent, and 25.1 percent, respectively.

Investment

Taiwan has a solid economic foundation and an excellent business climate that appeal to both local and foreign investors. In 2005, Business Environment Risk Intelligence ranked Taiwan as having the fifth-best investment climate among 50 major economies. Its highest 1A rating suggests that Taiwan is a low-risk investment area. Meanwhile, the Economist Intelligence Unit upgraded its rating of Taiwan's business environment prospects from "good" to "very good" for 2005-2009, which put Taiwan 19th worldwide and third in Asia after Singapore and Hong Kong.

Inward Investment

An interior view of the shopping mall adjacent to the world's tallest building, Taipei 101, so named for its 101 floors that tower 508 meters above the ground.

In 2004, Taiwan approved 1,149 cases of inward foreign direct investment, totaling US$3.95 billion, an increase of 10.53 percent over the previous year. The largest investors were British territories in the Caribbean, mainly the British Virgin Islands and the Cayman Islands, which accounted for nearly a quarter of all inward investment. Japan followed closely behind, trailed by the United States, the Netherlands, and Singapore.

Preferential tax measures, research and development (R&D) assistance, and low-interest loans are being offered to encourage foreign investment, with the goal of further developing Taiwan as a hub for R&D and high-tech manufacturing. These measures, along with the establishment of modern science parks, have led to an increase in the amount of foreign investment dedicated to electronics and electrical appliances, a sector that now accounts for 33.45 percent of foreign investment. The next-highest draw for inward investment, accounting for 20.47 percent, was banking and insurance, a sector that has benefited from a growing demand for services as well as continued liberalization. Next were wholesale and retail marketing, accounting for 15.24 percent; chemicals, for 3.7 percent; and construction, for 3.37 percent.

Outward Investment

Investment overseas (excluding that in China, discussed in the next section) by Taiwan's businesses in 2004 totaled 658 cases valued at US$3.38 billion, representing a decrease of 14.78 percent compared with 2003. Local investors channeled over one-third of their investment to British territories in the Caribbean. Another quarter was destined for Singapore and one-sixth for the United States.

Banking and insurance was the top sector in 2004, accounting for 39.02 percent of outward investment. Electronics and electrical appliances was second, absorbing 33.91 percent of investment as the US high-tech sector continued to attract capital. These were followed by wholesale and retail marketing, which took a share of 5.48 percent; transportation, with 3.51 percent; and IT services, with 3.14 percent.

Economic Ties with China

Cross-strait economic activity has expanded rapidly in recent years, due especially to the lower tariffs and fewer non-tariff barriers seen in the period since both sides were admitted to the WTO. Cumulative investment in China by Taiwan's businesses has ballooned since restrictions were eased on cross-strait ties in 1991. By 2005, approved investment had reached US$47.32 billion and accounted for 53.28 percent of Taiwan's total outward investment over the period. In 2005 alone, there were 1,297 cases of approved investment in China, valued at US$6 billion and representing 71.05 percent of Taiwan's approved outward investment for the year. About 40 percent of that investment was in the electronics and electrical appliances sector, 11 percent in basic metals and metal, and 6 percent in chemicals.

Cross-strait trade also boomed, increasing from US$8 billion in 1991 to US$76.37 billion in 2005, the latter a 16.2-percent increase over 2004. Exports to China were valued at US$56.28 billion in 2005, 15.0 percent higher than in 2004 and representing 28.4 percent of Taiwan's overseas shipments. Imports from China totaled US$20.09 billion, an increase of 19.7 percent over 2004 and accounting for 11.0 percent of total imports. Taiwan enjoyed a trade surplus of US$36.18 billion with China, 12.6 percent higher than that for 2004. China is currently Taiwan's largest trade partner and top export destination. Trade with China also accounts for the largest share of Taiwan's trade surplus.

Taiwan's chief exports to China in 2005 included electrical equipment, optical equipment and accessories, machinery and accessories, plastics and plastic products, steel, organic chemical products, manmade filaments, copper and copper byproducts, industrial fiber, and synthetic staple fibers.

The trade facilitation policy in place since Taiwan's WTO accession has allowed more industries to invest in China and opened Taiwan's market to China's products. As of 2005, over 8,600 items, or 79 percent of all products, could be imported from China. About 84 percent were manufactured goods and the remainder agricultural products.

Taiwan's economic experience is a model from which China can learn as it moves toward having a market economy. Cross-strait trade has created a considerable trade surplus for Taiwan and has effectively expanded Taiwan's export market and outward investments. China's financial instability, unreliable energy supplies, and exchange rate uncertainty, however, have added variables into Taiwan's economic development. Faced with China's economic rise and the globalization of trade, the government is promoting the economic strategy of "deeply cultivating Taiwan while reaching out to the world." This strategy aims at using Taiwan's R&D resources, global logistics experience, geographically advantageous position, and industrial superiority in conjunction with China's resources and market to strengthen industrial processes.

In his 2006 New Year's Day address, President Chen Shui-bian 陳水扁 announced a cross-strait economic policy of "proactive management and effective liberalization" designed to protect Taiwan's industries. It calls for proactive management strategies to be in place before related sectors are liberalized. Proactive management will be applied to all business matters, including a cross-strait currency clearance mechanism and Taiwan's investments in China. (See Chapter 6: Taiwan-China Relations.)

Services

Taiwan's service sector may be divided into the following categories: trade; finance and insurance; real estate, rental, and leasing; transportation, storage, and communications; health care and social welfare services; hospitality services; professional, scientific, and technical services; educational services; cultural, sporting, and recreational services; providers of government services; and other services.

The 1960s and 1970s saw manufacturing almost catch up to Taiwan's service sector in terms of GDP share. Roughly two decades ago, however, Taiwan's service sector was revitalized, and in 1988, it began to employ more people than the manufacturing sector. By 2005, about 58.27 percent of Taiwan's 9.94 million workers were employed in the service sector.

In that same year, the sector accounted for 73.33 percent of Taiwan's GDP, a percentage very similar to that of many advanced nations. The total GDP value for the service sector reached US$254.45 billion, an 8.59 percent increase over the previous year. Wholesale and retail trade was the largest component of this sector, accounting for 24.73 percent, followed by finance and insurance at 14.77 percent.

Industry

The makeup of Taiwan's economy has undergone a radical transformation over the past five decades, with industry's share of GDP rising from 18 percent in 1952 to peak at 47.1 percent in 1986 before declining steadily to stand at 24.97 percent in 2005. Public-sector investment in manufacturing has also decreased over the years as the government has focused more on policymaking, and private-sector output more than doubled from 43.4 percent in 1952 to 93.69 percent in 2004.

Capital- and technology-intensive industries have grown in importance as Taiwan's economy has matured. Electronics and information technology have become the mainstays of industry, replacing consumer goods and textiles and accounting for over 35 percent of industrial output. In 2005, 35.8 percent of the workforce was employed in industry, this figure having fallen steadily from a peak of 42.8 percent seen in 1987. Industrial production increased 9.9 percent in 2004 and 4.1 percent in 2005. Of exports in 2004, 99.29 percent were manufactured goods. Manufacturing alone accounted for 93.57 percent of industry's output.

Information Technology

Over the last 20 years, Taiwan's information technology industry has played a central role in the global market. Taiwan is home base to companies that, collectively, are the world's largest supplier of notebook PCs, motherboards, and liquid crystal display (LCD) monitors. This trend is likely to remain unchanged in the near future. In 2005, Taiwan's IT manufacturers shipped a total of US$77.01 billion worth of hardware globally. Eight major products—notebook PCs, desktop PCs, motherboards, servers, digital still cameras (DSCs), optical disk drives, color display tube (CDT) monitors, and LCD monitors—together accounted for 90 percent of the IT hardware industry's export value. Except for CDT monitors and optical disk drives, nearly all products showed positive growth in export value and volume. In 2005, DSCs attained the highest growth in terms of value at 40.8 percent, and LCD monitors in terms of volume at 60.5 percent, followed respectively by notebook PCs and DSCs.

Little change was seen in the IT hardware industry's shipment destinations. The United States and Western Europe remained the major ultimate markets, accounting for over 60 percent of total shipments in 2005. Exports to Japan have grown, with more Japanese notebook PC and DSC vendors outsourcing production to Taiwanese companies. Taiwan's manufacturers continued to move production offshore, with the result that a mere 6.8 percent of IT hardware products were produced in Taiwan in 2005.

The production value of Taiwan's software industry totaled US$4.9 billion in 2005, up 5.9 percent from 2004. The software market can be divided into three main segments: software products, project services, and network services. In 2005, sales of software products climbed 1.9 percent to US$1.99 billion. Project services grew 4.7 percent to US$1.37 billion, driven by ongoing government development plans and sales of financial information applications. Network services expanded 12.6 percent to US$1.55 billion as the broadband penetration rate rose and online shopping, games, and entertainment grew more popular.

Taiwan's information security market was valued at US$300.2 million in 2005. However, the growth rate was slower than in previous years because of financial reforms, the relocation of manufacturing facilities overseas, and lower-than-predicted incidences of information security breaches. Large enterprises, the main source of demand, were also more conservative in their spending on information security services.

Semiconductors

The semiconductor industry has been a boon for Taiwan, having distinguished itself with its complete supply chain, significant clustering effect, and proven abilities in contract wafer manufacturing during three decades of development. Its estimated production value reached US$33.23 billion in 2005, when the global market recorded moderate growth due mainly to new applications in the 3G mobile phone and consumer electronics areas.

Taiwan is home to the world's two largest contract chip makers—Taiwan Semiconductor Manufacturing Company Ltd. 台灣積體電路製造股份有限公司 and United Microelectronics Corporation 聯華電子股份有限公司. In 2005, Taiwan's IC packaging industry ranked number one in the world, with products and services valued at US$4.9 billion. Taiwan was second only to the United States in IC design, valued at US$8.2 billion. IC manufacturing and testing yielded production values of US$6.6 billion and US$1.9 billion, respectively. LCD driver IC exports continued to grow, with large LCD panels enjoying the strongest demand. Wafer foundries, however, suffered a setback due to increased competition, while an oversupply of dynamic random access memory (DRAM) chips pushed prices down.

As the only country that possesses a professional division-of-labor system in the semiconductor industry, Taiwan boasts the highest efficiency in wafer fabrication and the highest density of 12-inch wafer-producing fabs. In 2005, it had seven 12-inch, twenty 8-inch, eight 6-inch, and three 5-inch wafer plants.

Optoelectronics

Taiwan's optoelectronics industry spans four major areas: optical information, optical displays, optical communications, and optoelectronics components. In 2005, it recorded an estimated output of US$33.32 billion, representing a 17-percent growth over the previous year.

Optical information products, including digital still cameras, drives, and discs, represented 31.9 percent of total production in 2005 but experienced negative growth of 3 percent compared with 2004. Optical displays registered 24 percent growth over 2004 and enjoyed a 62.5 percent share of total optoelectronics output. This category covers thin-film transistor (TFT) LCD and twisted nematic/super twisted nematic displays as well as organic light-emitting diodes (OLEDs) and microdisplays.

Although the optical communications sector grew by 20 percent, it made up less than 1 percent of the industry's output. Communications products include optical fiber/cable, components, and system equipment. Optoelectronics components, mainly LEDs, had a 4.6 percent share of the production value and registered 30 percent growth due to increased use in cell phones and traffic lights.

Flat-panel Displays

Local investments in flat-panel displays (FPD) in 2005 have increased the nation's competitiveness, securing for Taiwan the number two spot in the global FPD industry. Large demand from local notebook PC manufacturers and a technological advantage due to the presence of the semiconductor industry have allowed Taiwan's TFT LCD industry to rise rapidly to its current strong position. In 2005, it was estimated that there were around 95 companies competing in Taiwan's FPD industry, which together created a value of US$27.81 billion. Exports accounted for 46.5 percent of production.

Taiwan's FPD industry is expected to grow at an annual compound rate of 21 percent for the period 2004-2008. In large TFT LCD production, Taiwan is on a par with South Korea, but is shifting its focus from information to consumer products. Earnings are expected to increase with the growing markets for monitors, notebook computers, and LCD TVs. However, Taiwan is less competitive in the market for medium-sized and small TFT LCDs, which are used in cell phones, digital cameras, and handheld devices.

Communications

Since the liberalization of the telecommunications sector, communications services have expanded steadily, reaching an estimated output value of US$12 billion in 2005. Mobile and network services have become much more important than landline services. In network services, ADSL has dominated the broadband Internet access services market in terms of revenue and number of subscribers.

Communications equipment registered an estimated production value of US$15.4 billion, with the wireless segment contributing two-thirds and wired broadband networks the remainder of this total. Major export destinations for Taiwan's communications equipment were Europe, North America, and China, which respectively accounted for 31.7 percent, 28.3 percent, and 13.3 percent of foreign shipments.

In 2005, Taiwanese companies' top ten communications products in terms of output value were mobile phones, WLAN components, GPS equipment, DSL CPE, SOHO routers, cable CPE, Ethernet switches, Bluetooth devices, IP phones, and analog modems.

Textiles

For five decades, the textile industry occupied the preeminent place in exports, earning large amounts of foreign exchange for Taiwan. Growing competition in recent years, however, has forced several textile plants to relocate to Southeast Asia, China, and Central America, where production costs are lower. The industry has experienced a subsequent decline, as reflected in its 2004 output value of US$15.77 billion, which represented 5.1 percent of total manufacturing output. It continued to play an important role in foreign exchange earnings, racking up US$9.85 billion.

With Taiwan's 2002 accession to the WTO and the 2005 expiration of the Multi-Fiber Arrangement, which had set global textile quotas, local textile manufacturers can now sell to a global market but face keener competition from developing countries like China. Since Taiwan does not produce cotton, wool, silk, linen, or other natural raw materials, the domestic textile industry has developed synthetic fibers, which have proven to be an excellent alternative to natural products. Today, Taiwan's synthetic fibers have earned a prominent place in the world textile industry. Taiwan was the second-largest producer of synthetic fibers worldwide in 2004, manufacturing over 3.08 million tons. Taiwan was also the second-largest producer of polyester, which accounted for 10 percent of total output. Synthetic fibers eked out 1 percent growth in 2005 and made up 35 percent of domestic textile production. Overall textile production fell an estimated 11 percent that year, with clothing and accessories recording drops of 16 and 19 percent, respectively.

During the first ten months of the year, fabrics dominated textile exports with a 58 percent share. With a continued decrease in clothing and accessory shipments, Taiwan's textile industry has shifted its export focus to midstream and upstream fiber and yarn products. There is an urgent need to develop foreign markets, particularly at a time when domestic demand is shrinking as more and more production lines are being transferred overseas. In 2005, the primary destinations for Taiwan's textile exports were China, Hong Kong, ASEAN members, and the United States.

Small and Medium-sized Enterprises

For decades, small and medium-sized enterprises (SMEs) have played a central role in Taiwan's economic development. SMEs have continued to increase in number in recent years, mostly in the service sector. According to the Small and Medium Enterprise Administration (SMEA) of the Ministry of Economic Affairs 經濟部中小企業處, Taiwan had 1.16 million SMEs in 2004. These accounted for 97.8 percent of all enterprises and employed 77.2 percent of all workers. About 42 percent of SME's had been in operation for over ten years, while 9.3 percent were established less than a year before. The local market accounted for 84.8 percent of the SME's total sales. Of the SME's exports, manufacturing had a 65.7 percent share, and wholesale and retail 29.3 percent. To help build Taiwan into an ideal environment for entrepreneurship and make its SMEs more competitive, the SMEA has focused its efforts on building platforms for enterprise startup and incubations, integrating SME financing mechanism, enhancing SME information technology capabilities, strengthening SME management guidance programs, and building an environment conducive to SME development.

Petrochemicals

Taiwan's sixth naphtha cracker project includes a total of 61 plants, which house oil refineries and facilities for naphtha cracking, power generation, and wafer fabrication, all in a single complex. About US$2.91 billion or 16.7 percent of the total investment has been spent on pollution control equipment.

Taiwan's petrochemical industry consists primarily of 50 upstream and midstream manufacturers located in Kaohsiung. In 2004, the industry had a production value of US$34.3 billion (excluding textile and plastics product businesses), of which 62.7 percent was sold in the domestic market. Taiwan's petrochemical production capacity, as measured by ethylene output, was able to satisfy about 92 percent of domestic demand in 2004.

The Formosa Plastics Group (FPG) 台塑關係企業, the largest plastics conglomerate in Taiwan, has an annual processing capacity of 21 million metric tons of crude oil (or about 450,000 barrels per day) and 1.7 million metric tons of ethylene. FPG was the world's ninth-largest ethylene producer in 2004, according to a report by SRI Consulting Business Intelligence. The MOEA's Industry and Technology Intelligence Services (ITIS) 產業技術資訊服務推廣計畫 predicts that FPG will become the world's fourth-largest ethylene producer and the biggest in the Asia-Pacific region after the fourth phase of its sixth naphtha cracking plant 第六輕油裂解廠 in Yunlin County is completed. The plant is expected to produce 3.1 million tons of ethylene annually, allowing the group to be self-sufficient with respect to its demand for ethylene.

Taiwan's second-largest plastics conglomerate is the state-run Chinese Petroleum Corp. (CPC) 中國石油股份有限公司, which has an annual ethylene production capacity of 1.1 million metric tons and an aggregate daily crude oil processing capacity of 770,000 barrels. As Taiwan's largest domestic supplier of gasoline and diesel fuel, CPC enjoys a market share of about 70 percent. Plans for a Yunlin Petrochemical Technology Park 雲林石化科技園區 are underway, with the aim of maintaining a dominant share of the domestic market. Investment in the project is estimated to total US$12.5 billion, with the first stage including a refinery with a daily capacity of 300,000 barrels of oil, a naphtha cracker having an annual capacity of 1.2 million metric tons of ethylene, an 800,000-ton xylene aromatics center, 23 downstream petrochemical derivatives plants, 11 co-generation power plants, and an industrial harbor with 13 docks.

Vehicles

Taiwan's vehicle industry expanded an estimated 7.2 percent over 2004 to record a production value of US$17.23 billion in 2005. Automobiles accounted for 74.5 percent of this figure, motorcycles 15.7 percent, and bicycles 9.9 percent. Of the roughly 450,000 automobiles sold in Taiwan from January to October 2005, four-fifths were passenger cars and 86.7 percent were domestically made.

In 2005, an estimated 700,000 motorcycles were sold in the local market, accounting for 56 percent of total output. Intense competition and a saturated local market have encouraged manufacturers to turn to production of all-terrain vehicles and electric carts. Taiwan also exports automotive and motorcycle parts, the top three destinations being the United States, China, and Japan.

The local bicycle industry has countered loss of competitiveness from low-priced bikes made in developing countries by producing high value-added models. In the first eight months of 2005, it exported 3.4 million bicycles at an average unit price of US$180. Taiwan is the largest supplier of high-end bicycles to the United States.

Biotechnology and Pharmaceuticals

Taiwan holds several key advantages helping it to develop its biotechnology and pharmaceutical industries, including its human resources, R&D capabilities, venture capital, and flexible manufacturing. Taiwan has gained considerable experience in biotechnology and pharmaceutical research due to its efforts in improving agricultural production and its studies of Chinese herbal medicines. (See Chapter 11: Science and Technology.)

Academic research and development capabilities, which form the backbones of the upstream and midstream segments, have met high standards. The downstream segment was composed of 414 pharmaceutical companies, 480 medical device companies, and 240 biotech firms in 2004. The latter were mostly involved in genomics, medicines, diagnostics, agricultural and environmental biotechnologies, biochips, and bioinformatics. In 2004, Taiwan's biotechnology and pharmaceutical industries had a total revenue of US$4.6 billion. Of this figure, 24 percent came from the biotechnology sector, 35 percent from the medical devices sector, and 41 percent from the pharmaceutical sector. Biotech-related industries attracted investment of US$732 million in 2004.

Intellectual Property Rights

Rapid industrial development in recent years has brought unprecedented growth in patent and trademark applications. In 2005, the Taiwan Intellectual Property Office (TIPO) under the Ministry of Economic Affairs 經濟部智慧財產局 approved and issued certificates for 57,600 of the 79,000 patent applications received. The surge in patent applications is also observed overseas. Taiwan ranked third in the number of patent rights obtained in the United States in 2004 by non-US countries, just behind Japan and Germany. To help protect intellectual property rights (IPR), TIPO has a patent commercialization website to provide information on patent licensing, technology transfers, investment, and litigation, as well as to act as a platform for cooperation. By the end of 2005, the website had contributed to 5,754 instances of cooperation. In recognition of the vital role IP management professionals play in assisting businesses to create, protect, and apply their intellectual property, the Taiwan Intellectual Property Training Academy (TIPA) 智慧財產培訓學院 was officially opened in June 2005. Training for the first group of IP professionals commenced in November. TIPA expects to cultivate 1,000 IP professionals each year between 2006 and 2008. Inter-ministerial coordination meetings are held regularly to ensure effective implementation of IPR policies. A special task force has been created to inspect optical disk plants, and IPR police have stepped up efforts to crack down on piracy. In May 2005, a plan to strengthen preventive measures against Internet infringements on IPR was launched. Many border control measures and relevant regulations also took effect in 2005. The government has invested considerable time and money into informing the public of the significant role IPR protection plays in the nation's overall cultural and economic development.

Impact of the WTO

Taiwan agreed to cut its average nominal duty rate on 4,491 items from 7.97 percent before its accession to the WTO to 5.46 percent by 2011. For the industrial sector, the simple average nominal duty rate was 5.94 percent before accession, but will be reduced to 4.06 percent for most items when the scheduled tariff concessions (covering 3,470 industrial items) are completely phased in. As for the agricultural sector, which comprises 1,021 agricultural items, the average rate before accession was 20.02 percent and will be lowered to 12.9 percent in the future.

Area restrictions on certain passenger cars and small commercial vehicles, automobile chassis, and motorcycles were eliminated upon Taiwan's WTO accession. In agriculture, area restrictions were removed completely with the exception of young coconuts, which are subject to the Tariff Rate Quota (TRQ). In fishery products, import controls for mackerel, carangid, and sardines were replaced by TRQs. For a small number of products formerly subject to import restrictions and for which Taiwan was permitted a period of adjustment, the initial commitments have also been met. For example, six months after accession, Taiwan eliminated the import ban on motorcycles with engine displacements of greater than 150cc, and two years after accession, eliminated the import ban on passenger cars equipped with diesel engines. Currently, the nation's import restrictions are compliant with the provisions of WTO agreements, as are relevant customs procedures. Despite increased imports, WTO accession has had a positive impact on Taiwan's economic and trade development.

Energy

Energy demand has risen steadily as the economy has prospered. A lack of natural energy resources and a decline in domestic energy production have, however, forced Taiwan to rely heavily on imports. Local supply dwindled to a mere 1.8 percent in 2004 even as Taiwan's energy supply had grown by an average of 6.5 percent annually since 1984 to total 134.06 million kiloliters of oil equivalent. Total consumption in 2004 was 104.8 million kiloliters of oil equivalent, with per capita consumption at 4,643 liters.

Oil remains the most important energy source. Taiwan had reduced its dependence on oil by following an energy diversification policy in the wake of the oil crises of the 1970s, but the accompanying effort to diversify foreign sources has, despite its earlier success, proved less effective as market liberalization in 2001 saw a shift back to the Middle East for supply. The result was a sharp increase in that region's share of Taiwan's crude oil purchases from 60 percent in 1999 to 77 percent in 2004. Oil is refined by three refineries belonging to the state-run CPC and the privately operated Formosa Petroleum Corporation, a subsidiary of FPG. Industry and transportation account for about 80 percent of oil consumption, their growing demand making Taiwan the tenth- largest oil importer in 2004, according to the Energy Information Administration of the US Department of Energy.

For coal, Taiwan is completely dependent on imports, having closed its last mine in 2001. In 2004, it imported 61 million metric tons of coal, mainly from Australia, China, and Indonesia. Power generation accounted for 75 percent of the coal used in Taiwan, as well as three-quarters of the natural gas. Taiwan imported 92 percent of the 9.78 billion cubic meters of natural gas it used in 2004, with Indonesia and Malaysia its major suppliers of liquefied natural gas (LNG).

As power demand continued to rise with industrial and commercial growth, electricity generation climbed 4.4 percent from 2003 to total 218.4 TWh (terawatt-hours) in 2004. The state-run Taiwan Power Company (Taipower) 台灣電力公司 is supplemented by private corporations that have developed cogeneration systems and sell surplus electricity to Taipower. To maintain a stable power supply, the MOEA has opened the market to independent power producers and allows 100 percent foreign investment in such operations. As of 2004, Taipower had 69 power plants, including three nuclear power stations housing six units that produced 18.08 percent of Taiwan's total electrical power in 2004.

Related Websites
Directorate-General of Budget, Accounting and   Statistics：	http://www.dgbas.gov.tw
Ministry of Economic Affairs：	http://www.moea.gov.tw
Council for Economic Planning and Development：	http://www.cepd.gov.tw
Bureau of Energy：	http://www.moeaboe.gov.tw
Bureau of Foreign Trade：	http://www.trade.gov.tw
Industrial Development Bureau：	http://www.moeaidb.gov.tw
Industry and Technology Intelligence Services：	http://www.itis.org.tw
Intellectual Property Office：	http://www.tipo.gov.tw
Investment Commission：	http://www.moeaic.gov.tw
Mainland Affairs Council：	http://www.mac.gov.tw
Small and Medium Enterprise Administration：	http://www.moeasmea.gov.tw

Home | Contents | Search | Print Best viewed with IE 5.x, Netscape Communicator 7.x or Firefox 2.0 or higher at 800x600 resolution. Copyright © 2006 by the Government Information Office