Taiwan s economic momentum and prospects
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Taiwan’s Economic Momentum and Prospects. Yaw-Chung Liaw, Ph.D. Director General Overall Planning Department, Council for Economic Planning and Development Executive Yuan (Cabinet), Taiwan. The 14 th Annual Conference on Pacific Basin Finance, Economics, and Accounting

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Taiwan s economic momentum and prospects

Taiwan’s Economic Momentum and Prospects

Yaw-Chung Liaw, Ph.D.

Director General

Overall Planning Department,

Council for Economic Planning and Development

Executive Yuan (Cabinet), Taiwan

The 14th Annual Conference on Pacific Basin Finance, Economics, and Accounting

Panel Session IX (Room 105) 15:45 p.m.- 17:00 p.m.

July 14, 2006


Contents

CONTENTS

I. TAIWAN ECONOMIC ACHIEVEMENTS AND CHALLENGES

II. TAIWAN CURRENT ECONOMIC DEVELOPMENT

III. GLOBAL ECONOMIC DEVELOPMENT TRENDS AND CHALLENGES

IV. TAIWAN’S FUTURE ECONOMIC DEVELOPMENT AND OUTLOOK

V. CONCLUSION


Taiwan s economic momentum and prospects

I. Taiwan Economic Achievements and Challenges

1. Taiwan’s Industrial Development History (Course of Change in the Factor Intensity of Production)

y=f(L, K, T, knowledge)

Knowledge

y=f(T/L)

Knowledge Economy Stage

First-phase Import Substitution

Export Expansion Stage

Second-phase Import Substitution and Export Expansion Stage

Economic Liberaliz-ation Stage

High-tech Industrial Develop-ment Stage

Light

industry

Light

industry

Basic and

heavy

industries

Development

of

strategic

industries

Promotion

of ten

emerging

industries

Knowledge-

based

industries

1953

1961

1973

1991

2000

1984


Taiwan s economic momentum and prospects

2. Taiwan’s Economic Development Experience and Achievements

Over the past fifty-some years, Taiwan has achieved rapid economic growth accompanied by price stability. From 1953 to 2005, the economy grew at an average annual rate of 7.9%, with consumer prices (the CPI) rising by an average of only 4.5% per year (2.4% if the energy crisis years in the 1970s are excluded).

Source: Directorate General of Budget, Accounting, and Statistics.

Note: *US$82 million in 1959.


Taiwan s economic momentum and prospects

 Taiwan Has Become a Global Stronghold of High-Tech Products

Taiwan’s “World Top Producer” Items in 1983 and 2005

Sources: CEPD, MOEA ITIS Plan.


Taiwan s economic momentum and prospects

3.Trend of Industrial Structure

◎Industry’s Structural Trends

(1) The industrial structure has undergone enormous change: In 1986, industry share of GDP rose to a historic high of 44.8%; services’ share increased year by year, to reach 73.6% in 2005.

(2) Within the manufacturing sector, high-tech industries accounted for 43.1% of output in 2005.

(3) Changes in the industrial structure have generated structural unemployment. In recent years, the government has adopted a raft of short-, mid- and long-term employment promotion measures, and in the future must consider industrial development directions in the light of such structural changes.

Source: Directorate General of Budget, Accounting, and Statistics.


Taiwan s economic momentum and prospects

⊙Main competitive industries have large output value. As trillion-dollar industries have gradually take shape, they have also gradually developed comprehensive supply chains.

2005

2-Trillion

2-Star

Petrochemicals

(NT$1.14 trillion)

Semiconductor

(NT$1.11 trillion)

industries

Communication

Digital

content

(NT$290

billion)

Iron & steel

Image display

Textile mill products

Machinery & equipment

Biotech

(NT$15

billion)

(909)

(476)

(640)

(955)

(579)


Taiwan s economic momentum and prospects

⊙Certain industries have fallen into severe decline, and need assistance to transform and upgrade.

Under the impact of the international competition brought by globalization, some export industries have experienced relatively serious decline. These include the apparel, leather & fur, and wood & bamboo products industries.

Taiwan’s entry to the WTO has also delivered a serious blow to certain traditional-industry manufactures. Besides the large-volume import of low-cost towels from China, ceramics, furniture, non-woven cloth, fiber-optic cable, paper, and building materials all face competition from Asian countries.


Taiwan s economic momentum and prospects

⊙Internationally competitive products have already generated industrial and regional clusters, with industries developing backward from downstream to upstream and toward capital and technology intensity, while science parks have also promoted related industrial clustering.

1996 export value

(percentage)

Flat panel display

industry

290 (0.9%)

4,759 (7.8%)

Plastics and

composite

fiber industry

1,200 (3.8%)

4,513 (7.4%)

Semiconductor

industry

2,623 (8.3%)

9,690 (15.9%)

Upstream

industries

(13.0%)

(31.1%)

2005 export value

(percentage)

Passive components

industry

1,188 (3.7%)

1,821 (3.0%)

Machinery and parts

1,730 (5.4%)

2,873 (4.7%)

Metal products

1,537 (4.8%)

2,551 (4.2%)

Supportive

industries

(13.9%)

(11.9%)

Communications

industry

828 (2.6%)

3,764 (6.2%)

Computers and

peripherals

4,558 (14.3%)

2,662 ( 4.4%)

Vehicles and parts

1,258 (4.0%)

1,944 (3.2%)

Final

consumption

(20.9%)

(13.8%)

Unit: NT$100 millions

Source: Compiled by CEPD from MOEA and MOF statistical data.


Taiwan s economic momentum and prospects

II. Taiwan Current Economic Development

1. Monitoring Indicators

  • The monitoring indicators flashed “green” in May 2006 for the tenth successive month. The positive movements of most indicators suggest continued steady expansion..

Source: Council for Economic Planning and Development.


Taiwan s economic momentum and prospects

2. Economic Growth

  • Despite the deceleration in the first half of 2005 due to a worldwide slowdown, the economy gained momentum in the second half, thanks to the boost brought to exports by the upswing in the global consumer electronics market, and steady pickup in private consumption, leading to a 4.1% growth for the whole year.

  • The economy grew 4.9% in the first quarter of 2006, with exports and manufacturing production remaining strong.

Contribution to Economic Growth (in percentage points)

Source: Directorate General of Budget, Accounting, and Statistics.


Taiwan s economic momentum and prospects

3. Domestic Investment

  • Total investment increased at a modest rate of 0.5% in 2005, with private investment declining 1.3% while investment by government and by public enterprises expanding 0.3% and 17.2%, respectively.

  • In 2006, private investment is expected to grow more quickly while government investment will grow only marginally. Investment by public enterprises is expected to fall as a result of privatization.

Gross Fixed Capital Formation: Growth rate

unit:%

Source: Directorate General of Budget, Accounting, and Statistics.


Taiwan s economic momentum and prospects

4. Industrial Production

  • Industrial production softened in the first half of 2005, but has displayed much more strength since August, increasing 3.4% for the whole year. It went up higher in the first five months of 2006, with manufacturing and construction industries increasing 8.0% and 19.3% respectively.

Growth of Industrial Production

unit:%

Source: Ministry of Economic Affairs.


Taiwan s economic momentum and prospects

5.Foreign Trade

  • Exports and imports softened in 2005, with two-way trade increasing to 8.5%. Exports and imports expanded by 12.9% and 9.5%, respectively, in the first six months of 2006.

  • Trade surplus grew to US$15.8 billion in 2005, from US$13.6 billion in 2004. It posted US$7.8 billion in first half of 2006, up US$3.6 billion from the same months last year.

Source: Ministry of Finance.

6


Taiwan s economic momentum and prospects

6. Employment

  • Total employment growth decelerated in 2005 and further in the first five months of 2006.

  • The unemployment rate continued to display a declining trend, dropping to 3.8% in January-May 2006, the lowest since 2001.

Unemployment Rate

Employment Growth Rate

(Jan.-May)

Source: Directorate General of Budget, Accounting, and Statistics.


Taiwan s economic momentum and prospects

7. Price

  • Prices increased moderately in 2005, with consumer prices up by 2.3%. .

  • Due to higher prices of energy, mineral and basic metal products, wholesale prices in the first half of 2006 increased 4.0% from a year ago. Consumer prices rose 1.4%, with increases in fruits, oil, tobacco, and medical care offsetting a fall in garments. Core prices (excluding fresh food and energy prices) rose 0.6%.

Core Prices

Source: Directorate General of Budget, Accounting, and Statistics.


Taiwan s economic momentum and prospects

8. Money and Banking

  • For the first five months in 2006, M1B and M2 expanded 6.2% and 6.7%, respectively.

  • Market interest rates have seen a slightly upward trend since the second half of 2004. In May 2006, commercial paper rate and interbank rate recorded 1.50% and 1.52%, respectively. The Central Bank raised the rediscount rate four times in 2005, and further to 2. 500% in June 2006.

  • Since the broadly defined non-performing loan (NPL) ratio of domestic banks peaked at 11.27% at the end of 2001, a continuing program of financial reforms has slashed it dramatically to just 2.24% in December 2005 .

Source: The Central Bank of China, R.O.C.


Taiwan s economic momentum and prospects

III. Global Economic Development Trends and Challenges

  • The Formation of Economic and Trade Networks

  • around the World

Already signed and set up

Under consideration or negotiation

EU-Mexico

FTA

2004 Eastward Expansion to 25 Countries

Japan-South Korea FTA

European Union

15 Countries

(EU)

China-ASEAN FTA

(2010)

North American Free Trade Area

(NAFTA)

China-HK/Macau Closer Economic Partnership Arrangements

(CEPA)

ASEAN-India

EU-ASEAN

Japan-ASEAN Comprehensive Economic Partnership Framework Agreement

(2003)

US and Central America Free Trade Agreement

(CAFTA)

ASEAN Free Trade Area

(AFTA)

EU-ACP (African, Caribbean & Pacific Countries) FTAs

(more than 70 countries)

Expanding to Latin American countries

Southern Cone Common Market(MERCOSUR)

2005 Establishment of Free Trade Area of the Americas

(FTAA)

Japan-Singapore

New Century Economic Partnership Agreement

(2002)

ASEAN-Australia-New Zealand Closer Economic Relations

(CER)

Taiwan-Panama FTA (concluded)

Taiwan-Nicaragua FTA (under negotiation)

Taiwan-Guatemala FTA (concluded)


Taiwan s economic momentum and prospects

2. The Rising Power of Emerging Economies

BRICs GDP rising as ratio of G6 GDP

2003:13.3%  2015:19.1%

˙World economy entering golden decade of stability and prosperity.

˙Asia’s rise serving as a new driving force for the global economy.

2005-2015 annual average growth rates

Unit: %

Economic growth rate

East Asia

USA

World

Japan

EU

Note: BRICs refers to Brazil, Russia, India and China; the G6 are the US, Japan, Germany, UK, France and Italy; East Asia refers to the 4 Asian Dragons, the ASEAN 4, and China.

Source: Global Insight Inc.


Taiwan s economic momentum and prospects

Services

Services

Manufacturing

Manufacturing

Primary industry

Primary industry

Source: UNCTAD

3. Pivotal Profit Niche of Innovational Services

In the wake of the tremendous advances in information and communications technology, and the sharp fall in communication costs, service industries will break through their traditional limitations of “inseparability”, “unstorability” and “undeliverability” to spark a new “service sector revolution.”

  • With IT industry hardware and consumer electronics having already reached a plateau, the focus will shift from hardware to software in the next stage of the information revolution, and innovational services will become the key competitive factor.

  • In recent years, the sharp expansion of investment by transnational corporations has fully reflected the opportunities of service industry development.

  • A look at FDI flows shows that in 2001~2002, 71% of global FDI went into the service sector, with telecommunications, storage and transportation showing the fastest growth, followed by business services.

Heavy Investment in the Service Sector by Transnational Corporations -Global FDI Flows by Industrial Sector

1989~1991 2001~2002


Taiwan s economic momentum and prospects

4. Accelerating Trends of Population Aging and Fertility Decline

◎ Projected Future Birth Rate (Median Projection)

◎ Future Population Structure

Unit: %

1000 persons

0-14

15-64

65 &+

Year-end


Taiwan s economic momentum and prospects

Kyoto Protocol

 38 countries (excluding non-signatory US) to reduce greenhouse gas emissions by average of 5.2% below 1990 levels from 2008 to 2012.

400

Coal

Natural gas

350

Oil

300

Industrialized countries’

greenhouse gas emission

reduction pledges

(2008~2012)

Emission limits (1990=100)

EU 92

Japan 94

Canada 94

250

200

150

100

50

0

1970

1980

1990

2001

2010

2020

5. Green Energy-Saving Driving Tide

Speeding up the development of renewable energy

Implementing green production and consumption

Global CO2 Emissions from Fossil Energy

100 million tons


Taiwan s economic momentum and prospects

IV. Taiwan’s Future Economic Development and Outlook

◎The Driving Forces of Taiwan’s Economic Development

Average Income

Innovation driven

(knowledge)

Investment driven

(capital)

Taiwan’s current stage

Resource driven

Development Stage


Taiwan s economic momentum and prospects

◎Forecasts for Taiwan’s economic growth

Note: 1. DGBAS = Directorate-General of Budget, Accounting and Statistics, Taiwan, ROC.

2. CIER = Chung-Hua Institution for Economic Research, Taipei.

3. TIER = Taiwan Institute of Economic Research, Taipei.

4. IMF = International Monetary Fund.

5. EIU = Economist Intelligence Unit.

Source: Websites of each forecasting institution.


Taiwan s economic momentum and prospects

◎ Macroeconomic Targets

Targets

2006

2006~2008

2006~2015

4.5%

4.9%

4.6%

Growth of potential GDP

Economic

growth

US$15,207

US$18,000

(2008)

US$27,000~30,000(2015)

Per capita GDP

1.4%

1.4%

1.2%

Employment growth

Less than 4.0%

4.0%(2008)

4.0%(2015)

Unemployment rate

Less than 2.0%

CPI increase

New Century Manpower Plan


Taiwan s economic momentum and prospects

⊙Sources of Potential GDP growth


Taiwan s economic momentum and prospects

V. Conclusion

Conference on Sustaining Taiwan’s Economic Development (COSTED)

◎ Macroeconomic Targets

  • During 2006 to 2015,Taiwan’s average growth rate of GDP is estimated at 5%.

  • Per capita GDP is projected to increase to US$32,000 in 2015.


Taiwan s economic momentum and prospects

Thank you


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