An Overview of Taiwan’s Economy

Taiwan’s vibrant market economy occupies an important position in the global economy. Its transition from ‘poor to prosperous’ is often dubbed as the ‘Taiwan Miracle.’ The status of Taiwan is complex and so is its relationship with Mainland China. Beijing considers Taipei as its inalienable part under One-China principle and rejects Taiwan’s participation as a member in UN agencies and other international organizations. Due to the political complications, Taiwan may not have grown diplomatically but has received great recognition for its economic progress.

Here’s an overview of Taiwan’s economy.

Taiwan faced severe poverty after World War II. The land was devastated owing to the conflict between Japan and China and a civil war that caused further destruction. The first major reform in Taiwan was introduced in the farm sector, which was largely a tenant-based system under the Japanese Rule that created unequal distribution of land and wealth. The three major steps—farm rent reduction in 1949, sale of public farmlands in 1951 and land to the tiller in 1953—are considered the foundation of the industrialization of Taiwan, and a substantial stimulus to its subsequent economic growth.

During the period 1951-1965, the economic assistance by the U.S. amounting to $1.4 billion played an instrumental role in helping Taiwan achieve self-sustaining economic growth. The aid was 10% of the island's GNP in 1951 but was little more than 2% of a vastly enlarged GNP in 1965.

“GNP rose greatly in the face of a fairly constant annual aid level—implying a growth in its multiplier effects through time,” according to a study that analyzes the results of a major economic aid program in a developing country.

Manufacturing has been the backbone of Taiwan’s economy with small- and medium-sized enterprises (SMEs) playing a pivotal role. The 1950s were focused on import-substitution, then moving to export promotion in the 1960s and 1970s. To push economic development, Taipei enacted the 19-Point Programme for Economic and Financial Reform and the important Statute for Encouraging Investment in 1960. The incentives for investment, exports and savings resulted in foreign trade becoming the engine of economic growth for many decades.

Taiwan entered the high-technology sector in the 1980s. Today, its information and communication technology industry is among the best known in the world. Taiwan is home to some of the best-known companies worldwide like Taiwan Semiconductor Manufacturing Company Ltd. (TSM), ASE Technology Holding Co., Ltd. (ASX), United Microelectronics Corporation (UMC), Chunghwa Telecom Co., Ltd. (CHT), Himax Technologies, Inc. (HIMX), Foxconn/Hon Hai Precision Industry Co., Ltd. (HNHAF), MediaTek Inc., Formosa Petrochemical Corporation and Delta Electronics, Inc.

Taipei became the 144th WTO Member on January 1, 2002. China is Taiwan’s largest trading partner, accounting for 25.2% of total trade, followed by the U.S. at 12.6%. Other major Taiwan trading partners include Japan (10.3%), Hong Kong (7.8%), and the Republic of Korea (6.1%).

Over the years, continuous efforts have been made by the establishment to ensure that Taiwan’s economic progress remains robust. In May 2016, Taiwan adopted the New Model for Economic Development. In 2020, the National Development Plan (2021-2024) was approved. The National Development Council (NDC) identified the six core strategic industries as information and digital technology, cybersecurity, medical technology and precision health, green and renewable energy, national defense and strategic industries and strategic stockpile industries.

Taiwan ranks 15^th in Ease of Doing Business, a sharp rise from its 61^st  position in 2008. The island ranked as the fourth best destination for investment in the 2021 Business Environment Risk Intelligence report. Taiwan ranks 6th among the 184 economies, according to the 2021 Index of Economic Freedom published by the U.S. Heritage Foundation.

Taiwan is a high-income economy as classified by the World Bank. According to the IMF data, Taiwan’s 2022 GDP is estimated at $828.66 billion, ranking 21st among all the 192 nations covered. Back in 1980, Taiwan was a $42.28 billion economy. The island is expected to cross the $1 trillion mark by 2027. Its GDP per capita, which is projected at $35,513 for 2022, is expected to be $45,820 in the next five years.

Taiwan was the world’s fourth largest holder of foreign exchange reserves and was ranked twelfth in gold reserves, with holdings of $548 billion and 423.63 tons, respectively.

Taiwan Weighted Index is down by 27.96% year-to-date. A few ETFs that provide access to Taiwanese stock market are iShares MSCI Taiwan ETF (EWT) and Franklin FTSE Taiwan ETF (FLTW). 

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional. Details based on linked reports, World Bank, and IMF data. Data on gold and FX holdings at the end of Q2 2022. YTD* as on October 17, 2022.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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