Profiles of China Provinces, Cities and Industrial Parks

Major Economic Indicators

Notes: figures in ( ) = year-on-year growth;
         * = in real terms; p = preliminary figure; r = revised figure; ^ = forecast; e = estimate
Source: www.stat.gov.tw; www.moea.gov.tw; www.cbc.gov.tw; www.dgbas.gov.tw

Latest Developments

• Taiwan’s Executive Yuan forecasts that Taiwan’s economy will grow by 3.9% in 2012. Taiwan’s foreign trade will continue to benefit from the thriving demand for computers, mobile communication products and other electronics in various markets, whose momentum is expected to continue in the near future. Industrial production also expands moderately, notwithstanding that exports and business sentiment have continued to be affected by the ongoing debt problems in Europe. In the meantime, consumer spending has been facilitated by falling unemployment, although consumer confidence has become less strong in view of the slower global economy and the no-pay leaves encountered by some employees in certain export sectors.
  
  
• Taiwan and the Chinese mainland entered into the Economic Cooperation Framework Agreement (ECFA) on 29 June 2010. According to the Early Harvest List of ECFA, the mainland will reduce import tariffs on 539 products of Taiwan origin (according to 2009 tariff codes), whereas Taiwan will reduce import tariffs on 267 mainland-origin products (according to 2009 tariff codes), including petrochemicals, machinery and equipment. The related import tariffs have been lowered since 1 January 2011, and will be eliminated completely by 1 January 2013. Also, the mainland has opened 11 sectors to Taiwan service providers, and Taiwan has opened nine sectors to mainland service providers, covering both financial and non-financial service sectors.
  
  

Current Economic Situation

Taiwan’s foreign trade continued to expand in 2011, despite the negative impacts brought about by the Japan’s earthquake on the electronics supply chain and the slowdown in the global economy since the latter part of the year. Notably, machinery and electrical equipment, consisting mainly of electronic products, account for over 45% of Taiwan’s total exports. Taiwan’s exports have in particular benefited from the thriving demand for computers, mobile communication products and other electronics in various markets, whose momentum is expected to continue in the year of 2012. But the export growth will be constrained by weaker consumer demand in overseas markets amid the slower global economy.

Investment activities and industrial production have kept on growing, albeit at a slower pace. Taiwan’s central bank has kept the interest rates unchanged after the interest rate hikes in April and July last year. Economic prospects on the whole remain positive, although exports and business sentiment are affected by the ongoing debt problems in Europe. Also, some Taiwan manufacturers are bolstered by Japanese companies seeking production capacity support from Taiwan after the Japan’s earthquake, being a stimulus to industrial production in the longer term.

On the other hand, retail sales have expanded steadily, as consumer spending has been facilitated by falling unemployment. In December 2011, Taiwan’s unemployment rate fell to 4.2%. But consumer confidence has become less strong in view of the slower global economy and the no-pay leaves encountered by some employees in certain export sectors. The Directorate-General of Budget, Accounting and Statistics of the Executive Yuan of Taiwan forecasted in January that Taiwan’s economy will grow by 3.9% in 2012.

Since the 1990s, Taiwan has been relocating its production activities to low-cost regions, particularly to the mainland. Since then, contribution of the industrial sector to Taiwan’s GDP has been declining, accounting for only 31% or so in 2010, whereas the service sector accounted for 67%. Nevertheless, in absolute terms, Taiwan’s industrial sector has been more or less growing in the last decade.

Taiwan’s Economic Structure in 2010

Source: www.dgbas.gov.tw

Foreign Trade

Despite the slower global economy, Taiwan’s exports grew by 12.3% year-on-year to US$308.3 billion in 2011. Major export categories included electronics, machinery, steel products, plastics and plastic products, precision instruments and chemicals. The major export markets were the Chinese mainland, Hong Kong, the US and Japan, which together accounted for some 60% of total exports.

On the other hand, Taiwan’s imports increased by 12.1% year-on-year to US$281.6 billion in 2011. The major import items included electronic products, machinery, minerals, chemicals and steel products. The major sources of imports were Japan, the US, the Chinese mainland and South Korea.

Foreign Investment

In 2011, total inflows of foreign direct investment approved by the Investment Commission of the Ministry of Economic Affairs of Taiwan was US$5 billion (not including inflows from the Chinese mainland), surging by 30% from the same period last year. The largest source of foreign direct investment for Taiwan is the British dependent territories of the Caribbean, which accounted for 23% of total external investment. This is followed by Singapore (17%), the US (15%) the Netherlands (11%), Japan (9%) and Hong Kong (8%).

The finance and insurance sector receives the most foreign direct investment, accounting for 34% of all foreign direct investment inflows in 2011. Other major recipients of foreign direct investment include wholesaling and retailing (15%), manufacturing of electronic parts and components (12%),  real estate (5%), professional, scientific and technical services (5%) and financial holding (3%).

In the meantime, Taiwan’s outflows of direct investment surged by 31% to US$3.7 billion (not including outflows to the Chinese mainland) in 2011. The British dependent territories of the Caribbean was the leading destination of direct investment from Taiwan, accounting for 22% of the total, followed by the US (20%), Vietnam (12%), Singapore (12%), Hong Kong (7%) and Japan (7%). The major areas of investment were financial holding (30% of total external investment), electronic parts and components manufacturing (12%), finance and insurance (12%), information, telecommunications and broadcasting (11%) wholesaling and retailing (8%) and basic metal product manufacturing (8%).

Economic Relations with the Mainland

According to Taiwan’s Regulations Governing Permission of Trade between Taiwan Area and Mainland Area (《台灣地區與大陸地區貿易許可辦法》), trade with the Chinese mainland is allowed (with exceptions). Pursuant to the Cross-Strait Agreement on Air Transports (《海峽兩岸空運協議》) and the Cross-Strait Agreement on Ocean Transports (《海峽兩岸海運協議》) reached in November 2008, direct air/ocean transports between designated Taiwan and mainland seaports/airports are also allowed.

Concerning investment, pursuant to Taiwan’s Regulations Governing the Approval of Investment or Technical Cooperation in Mainland China (《在大陸地區從事投資或技術合作許可辦法》), business investment and technical cooperation undertaken in the mainland by Taiwan companies are subject to the approval of Taiwan’s Investment Commission. But Taiwan has been gradually relaxing its restrictions on mainland investment, including such hi-tech projects as production of semiconductors and wafer fabrication, as well as investment under US$200,000. Also, since the beginning of 2010, it has successively lifted technical restrictions on investing in the production of TFT-LCD panels in the mainland and allowed mergers and acquisitions or equity investment of TFT-LCD panel factories. In addition, Taiwan’s government has lifted the cap on mainland-bound investment from 40% to 60% of a company’s net worth since July 2008.

According to the latest figures from Taiwan’s Investment Commission, in 2011 approved investment in the Chinese mainland decreased by 1.7% to US$14.4 billion. As at the end of 2011, a total of 39,572 mainland investment projects amounting to a cumulative investment of US$111.7 billion have been approved. The major investment area is manufacturing, including the production of electronic parts and components, computers, electronic and optical products, electrical equipment and metal products. Jiangsu, Guangdong and Shanghai are the regions receiving the majority of Taiwan investment.

Taiwan’s Approved Indirect Investment in the Chinese Mainland by Major Industry

Source: www.moeaic.gov.tw

Taiwan’s Approved Indirect Investment in the Chinese Mainland by Major Region

Source: www.moeaic.gov.tw

Cross-Strait Economic Cooperation Framework Agreement (ECFA)

Taiwan and the mainland entered into the Economic Cooperation Framework Agreement (《海峽兩岸經濟合作架構協議》, ECFA) on 29 June 2010, which came into effect on 12 September 2010.

The ECFA includes an Early Harvest List for trade in goods across the Strait. The mainland promises to reduce/exempt import tariffs on 539 Taiwan products (according to 2009 tariff codes), including petrochemicals, machinery, textiles, transportation vehicles and parts, and agricultural produce. Reciprocally, Taiwan undertakes to reduce/exempt import tariffs on 267 mainland products (according to 2009 tariff codes), including petrochemicals, machinery, textiles, transportation vehicles and parts. The related import tariffs have been lowered since 1 January 2011, and will be eliminated completely by 1 January 2013.

As to the Early Harvest List for trade in services, the mainland promises to open 11 service sectors to Taiwan service providers. These 11 sectors are accounting, auditing and bookkeeping; computer services; R&D services in natural sciences and engineering; conference services; professional design services; films; hospitals; aircraft maintenance; insurance; banking services; and securities and futures. Taiwan also promises to open nine service sectors to mainland service providers, including R&D services, conference services, exhibition services, special product design services (except interior design), films, brokerage services, sport and leisure services, computer reservation system services for air transports and banking services. Both parties have already opened the above sectors to the other party in two stages in November 2010 and January 2011.

Both parties have also agreed to undertake further negotiations on the following areas:

1. Trade in goods—including further reduction or elimination of tariffs, rules of origin, customs procedures, technical barriers to trade (TBT), food safety inspections and sanitary and phytosanitary measures (SPS), and trade remedy measures;
2. Trade in services —including gradual reduction or elimination of restrictive measures on service trade, enhancement in the scope and depth of trade in services, and promotion of cooperation in service trade between the two parties;
3. Investment—including establishment of investment protection mechanisms, greater transparency in investment related rules, gradual reduction in restrictions on bilateral investment and promotion of investment facilitation; and
4. Economic cooperation—such as IPR protection and cooperation, financial cooperation, trade promotion and facilitation, customs cooperation, e-commerce cooperation, industry cooperation, SME cooperation across the Strait, and reciprocal establishment of offices for economic and trade bodies.

Economic and Trade Relations with Hong Kong

Hong Kong’s total exports to Taiwan in 2011 amounted to US$10.9 billion, surging by 24% from the preceding year. The major export items were semiconductors and integrated circuits (26% of the total), silver/platinum and other metals (14%), telecommunications equipment and parts (11%) and electrical apparatus (3%).

On the other hand, Hong Kong’s imports from Taiwan increased by 7% to US$27.1 billion in 2011. The major import items were semiconductors and integrated circuits (52% of total), telecommunications equipment and parts (7%), parts and accessories of office machines/computers (4%) and styrene polymers (4%).

Remark: Since offshore trade is not recorded in ordinary trade figures, these figures do not necessarily reflect the export business managed by Hong Kong companies.

According to Taiwan’s Investment Commission, Taiwan approved 232 investment projects of Hong Kong companies in 2011, amounting to US$399 million in total investment (+137%). In the meantime, Taiwan approved 63 investment projects in Hong Kong by Taiwan companies with a total value of US$254 million (+4%).

A considerable number of Taiwan companies have set up a presence in Hong Kong. According to the latest figures from the Census and Statistics Department of Hong Kong, as at June 2011, 22 Taiwan companies have set up their regional headquarters in Hong Kong, while 175 have a regional office here and another 249 have established local offices to manage their local business in the territory. In addition, as at end-January 2012, about 41 Taiwan companies were listed on the Hong Kong Exchanges, among them are well-known companies like Yue Yuen, Foxconn and TPV Technology.