Environmental Technologies Industries

Environmental Technologies Industries

Market Plans

Taiwan Environmental Export Market Plan

Chapter 1 - Economic Overview of Taiwan

Introduction
Over the last 30 years, tremendous economic growth has catapulted Taiwan from a small, agricultural economy to a highly industrialized one, now the 13th largest in the world. The country's foreign currency reserves are regularly ranked among the five largest worldwide. Taiwan's economy is now in a transition stage as it attempts to move into the high value-added high-tech industries. However, as the government attempts to further raise Taiwan's economic stature, it must overcome problems in resources and infrastructure.

Physical Characteristics
Taiwan is an island located off the coast of southern China. It is home to more than 21 million people, 96,000 registered factories, and over 14 million motor vehicles (including about 9 million registered motorcycles and scooters). However, Taiwan's demographics can be deceptive. Roughly 70 percent of the 36,000-square-kilometer island is rough, mountainous terrain. The remaining 30 percent consists of two narrow strips of flat terrain and is home to the vast majority of the island's population and related infrastructure, making space and usable real estate a premium. Taiwan ranks first in the world in population and vehicle and factory densities per square kilometer.

To date, the bulk of Taiwan's industrial development has occurred on the northern end of the island and along the length of the west coast. Historically, development has been driven by the presence of Kaohsiung and Keelung ports, the two principal seaports, and a good road infrastructure on the west coast. The government now has plans to build a highway to span the length of the east coast to encourage more geographically balanced industrial development.

Politics
Taiwan's modern era began with the peace treaty that concluded World War II. From 1895 to 1945, Taiwan was a Japanese colony. At the end of World War II, Japan was required to cede Taiwan to the Government of the Republic of China as part of the peace treaty. Too absorbed in a civil war with the communists under Mao Tse-Dung to pay much heed to Taiwan, Chiang Kai-Shek sent a provincial governor to the island.

In 1949 the political tide turned against Chiang Kai-Shek, and he was forced to flee to Taiwan, where he immediately installed the authoritarian, one-party regime known as the Kuomingtang Party (KMT). The KMT took control of all major businesses, media outlets, central government posts, and other positions of power. For many years, Chiang Kai-Shek expected to return to the mainland and allowed the provincial government to continue to develop alongside his central government.

The KMT maintained tight control on Taiwanese society for over four decades. However, in the mid-1980s, Chiang Kai-Shek's successor, his son Jiang Ching Kuo, initiated political reforms that led to the formal birth of the Democratic Progressive Party (DPP) in 1988. The emergence of the DPP began a democratization movement that culminated with Taiwan's first direct presidential election in 1996. Taiwan is now a multiparty democracy for the first time in its history.

An important legacy of Taiwan's political evolution has been its refusal to establish direct ties with China. The two countries have still not signed a peace treaty and do not have any direct shipping or transportation links. Communications between the two countries are conducted through a group of foundations and nongovernmental institutions such as the Cross-Straits Exchange Foundation.

The One China Question

The issue of who represents China has been a political hot potato since the end of the Chinese Civil War in 1949. Taiwan and the People's Republic of China (PRC) have never signed a formal peace agreement. The PRC still considers Taiwan a renegade province, while under Chiang Kai-Shek, Taiwan considered itself the legitimate government of China.

Until President Richard Nixon's visit to China in 1974, the United States formally supported Chiang's position, and Taiwan represented China on the United Nations Security Council. With the establishment of formal ties with Beijing, however, Taiwan became an international nonentity. Not formally recognized as a country, Taiwan no longer has a presence in the United Nations and no longer has voting rights in any international forums.

Taipei has worked aggressively to expand Taiwan's international presence, but it consistently runs afoul of Beijing. The Chinese Government considers the “Taiwan question” an “internal” affair and is highly sensitive to any form of public recognition given Taiwan. Mainland China has threatened to use force if Taiwan's government ever seeks to declare independence.

Economic Development
Taiwan's dramatic economic growth over the last 25 years has been dubbed an “economic miracle” in the international press. Between 1972 and 1996, Taiwan's per capita gross national product (GNP) rose from $522 to $12,814. Total GNP for 1996 was $270 billion, making Taiwan the second largest of Asia's seven tiger economies: Taiwan, South Korea, Indonesia, Hong Kong, Thailand, Malaysia, and Singapore (see tables 1 and 2). Taiwan's growth has been driven by development of a strong exporting base of manufactured products. Taiwan saw a trade surplus of $6.5 billion in the first 10 months of 1997.

The origin of Taiwan's economic miracle can be traced back to land reform programs initiated in the 1950s by the KMT to break up the semifeudal farm system developed under the Japanese. The small farmers who benefited from the reform were encouraged by the KMT to develop small cottage industries to manufacture low-value-added, labor-intensive export products.

In the 1960s, Taiwan began to build up a large light manufacturing and assembly industry based on textiles, leather goods, and food-processing industries. Earnings from cottage industry exports provided the capital to fund development of a more sophisticated industry base in the 1970s.

Table 1 - Growth in Per Capita GNP 1972-1996

Year	Per Capita GNP ($)	Exports ($ millions)
1972	522	2,988
1977	1,301	9,361
1982	2,653	22,204
1987	5,298	53,678
1992	10,470	81,470
1993	10,852	85,091
1994	11,597	93,049
1995	12,396	111,659
1996	12,814	115,982

Source: Bureau of Statistics, Executive Yuan

Table 2 - Profile of the Seven Tigers

	GDP ($ billions)	Population (millions)
South Korea	429	45
Taiwan	270	21
Indonesia	212	193
Hong Kong	154	6
Thailand	130	60
Malaysia	95	20
Singapore	90	3

Source: American Chamber of Commerce in Taipei

During the 1970s, Taiwan's industrial makeup began to shift from light, labor-intensive industries toward technology/capital-intensive industries. Taiwan began to aggressively develop and expand a range of heavy industries such as steel, petrochemicals, basic consumer electronics, and pharmaceuticals. At the same time, Taiwan's education system began producing increasing numbers of skilled workers and professionals.

Rising labor costs in the 1980s forced the government to shift its economic focus toward high-value-added industries such as computers/electronics and specialty chemicals. Labor costs and, to a lesser extent, environmental controls have led a number of Taiwanese companies in labor-intensive or highly polluting industries to begin relocating their operations to other parts of Southeast Asia. The late 1980s and early 1990s saw the trend of large numbers of textile and paper operations moving overseas. The most recent trend has been the relocation of low-grade electronics assembly to southern China.

Industry Characteristics
Taiwanese industry has long been characterized by small operations. According to figures from the Taiwanese Industrial Development Bureau, over 90 percent of Taiwan's companies employ 100 people or less. Many companies are family-run operations--a legacy of land reform in the 1950s and the subsequent evolution of Taiwanese industry. The small size of businesses and highly entrepreneurial nature of Taiwanese businessmen make Taiwanese manufacturers extremely flexible. Factories are highly sensitive to changes in the market and will often modify production processes to follow market demand.

Despite the growth of a number of large industrial groups, the vast majority of Taiwanese companies will likely remain small to medium in size for many years to come. The limited amount of usable physical space in Taiwan makes facility expansion difficult. Many factories, built on privately owned farmland in the 1960s and early 1970s, have now found themselves surrounded by residential developments. Furthermore, the family-oriented nature of Taiwanese business also makes it difficult to expand beyond a certain scale. To simplify siting processes and reduce the impact of industries on surrounding communities, the government has been expanding the number of industrial parks around the island.

Future Growth Directions
The government has committed itself to developing high-technology, high-value-added industries. The rising cost of labor and a well-educated, highly skilled work force have made it impossible for Taiwan to compete in traditional labor-intensive industries, particularly now that China is opening up to foreign investment.

Taiwan has targeted several key industries to cultivate for the future, including biotechnology, computers/electronics, environmental, petrochemicals, and telecommunications. According to the Directorate General of Customs, the fastest growing export categories include iron and steel, textiles, information and telecommunications products, precision instruments, and electrical machinery products. Declining categories include clocks and watches, toys, games and sports products, and footwear.

Taiwan's service sector has also been growing, particularly in areas such as software development and retail. If current plans to build over 40 shopping malls around the island succeed, retail markets will be given a further boost.

In 1995, the government unveiled a blueprint for Taiwan's economic policy in the form of a 10-year plan to turn Taiwan into an Asian-Pacific regional operating center (APROC). The plan consisted of a package of regulatory reforms geared toward encouraging foreign investment in Taiwan. With Hong Kong now returned to China, the government is making a bid to become the new regional hub for international companies operating in Asia. The plan is seen as vital for Taiwan's political survival. The government hopes that by integrating itself tightly into the world economy and becoming the crux of international business operations, it can counterbalance China's growing political strength.

Despite political tensions between Beijing and Taipei, Taiwanese investment continues to flow into mainland China (see table 3), further tightening economic ties and bringing calls from the business community to establish direct air and shipping links. As the APROC plan moves forward, this pressure to establish direct transportation links will increase. Taiwanese businessmen also continue to invest heavily into other Southeast Asian countries.

Overall, Taiwan's economy continues to grow at a rate of between 5 and 7 percent per year. Unemployment is increasing slowly, but remained below 3 percent for 1997. The NT$ has gradually been depreciating over the last four years. The sudden crash of currency values in late 1997 may boost exports in the short term; however, the crisis has forced China Petroleum to raise the price of oil and may fuel other inflationary pressures. It is still difficult to guess exactly how the currency devaluation will ultimately affect imports. Table 4 presents economic forecasts for Taiwan by the DGBAS and the Taiwan Council for Economic Planning and Development (CEPD).

Table 3 - Approved Indirect Taiwan Investment to Mainland China

Year	Investment ($ thousands)
1994	962,209
1995	1,092,713
1996	1,229,241
1991–1997 Total	7,369,513

Source: American Chamber of Commerce in Taipei

Table 4 - Economic Forecasts by Government Agencies

	DGBAS	CEPD
Economic Growth
1996	5.7%	5.7%
1997	6.5%	6.7%
Consumer Price Inflation
1996	3.1%	3.1%
1997	2.8%	N/A
Private Consumption Growth
1996	6%	5.9%
1997	6.6%	N/A
Private Investment Growth
1996	5.6%	4.5%
1997	11%	N/A
Government Investment Growth
1996	-0.1%	2.6%
1997	5.3%	10%
Export Growth
1996	3.8%	6.8%
1997	8.9%	N/A
Import Growth
1996	-1.1%	4.1%
1997	9.2%	N/A

Source: American Chamber of Commerce in Taipei.

Contact Us About ITA ITA Site Map Privacy Statement
U.S.Department of Commerce International Trade Administration