Taiwan

Politics:

• Analysis

  Taiwan politics: Quick View - Opposition builds ties with US

  Event

  On December 7th Joseph Wu, the head of the Policy Research and Co-ordinating Committee of the main opposition Democratic Progressive Party (DPP), announced that his party would open a representative office in the US for the first time since 2000.

  Analysis

  Mr Wu was the de facto ambassador to the US during the DPP administration of Chen Shui-bian from 2000 to 2008. In November this year he was selected by the DPP chairman, Su Tseng-chang, to head the new office, which the party hopes to open before the US Congress breaks for recess in August 2013.The opposition party's decision to re-establish a representative office in Washington DC, and the selection of Mr Wu to head the office, is the most public manifestation of its desire to establish warmer relations with the US government. The DPP's defeat in the January 2012 presidential election was widely seen as a vote of no confidence in the party's ability to handle Taiwan's external relations, and in particular ties with China and the US. Shortly after the election, the DPP indicated that it would adopt a more conciliatory approach towards China, playing down the party's independence aspirations and focusing on economic engagement.

  The parallel emphasis on improving the DPP's standing in the US is intended to demonstrate to Taiwan's voters that the party will avoid the pitfalls of the past. Taiwan-US relations reached a low point during Mr Chen's administration. In 2004 the US issued a rare public rebuke to the island's president for pursuing independence-oriented activities that the US feared could draw it into a conflict with China. The perception in Taiwan ever since, and particularly in the run-up to the presidential election, has been that the US favours the ruling KMT's more measured approach with regard to China.

  December 11, 2012

• Background

  Taiwan: Key figures

  Ma Ying-jeou

  The president, Mr Ma of the ruling Kuomintang (KMT), won a convincing mandate when he was re-elected in January 2012. However, he swiftly squandered much of that in the remainder of the year after his government gave the impression of being unable to communicate effectively both internally and with members of the public. Mr Ma's support base within the KMT remains relatively weak, contributing to a lack of internal party discipline. Both of these problems enhance the image of a leader who is reluctant to impose his will. Nevertheless, Mr Ma seems to have laid out a clear policy agenda, focused primarily on improving the island's global competitiveness. His good relations with China and with Taiwan's traditional ally, the US, will support the country abroad. Meanwhile, at home Mr Ma's strong anti-corruption credentials should help to shield the KMT against the charges of corruption that may accompany the party's long hold on power in recent years.

  Wu Den-yih

  Mr Wu has served as vice-president since his election on Mr Ma's ticket in January 2012. Prior to this, he was premier from 2009-12, a relatively long term of office compared with past premiers. Mr Wu previously also served as a member of parliament, secretary-general of the KMT and mayor of Taiwan's second-largest city, Kaohsiung. Given his résumé, Mr Wu is likely to be the heir-apparent to Mr Ma once the president's current term of office draws to a close, although he may face competition from younger, up-and-coming KMT politicians.

  Su Tseng-chang

  Mr Su was elected as head of the main opposition Democratic Progressive Party (DPP) following the resignation of its former leader, Tsai Ing-wen. He is a former premier, having held the post in 2006-07, but was beaten out in two previous races for the DPP presidential-candidacy nomination as well as being defeated by the KMT incumbent in a race for the mayoralty of the capital, Taipei, in 2010. Mr Su has continued Ms Tsai's efforts to soften the DPP's position with regard to the island's relationship with mainland China, although it remains unclear how far he is willing to take the party away from its historical support for independence. Mr Su will be considered a leading candidate for the DPP presidential nomination in 2016, especially if Ms Tsai decides to remain on the sidelines.

  September 24, 2012

• Structure

  Taiwan: Political structure

  Official name

  Republic of China

  Form of state

  Representative democracy

  The executive

  The president nominates a premier to preside over the Executive Yuan (the cabinet), which has three arms: ministries and commissions, subordinate administrative organs of state, and the Executive Yuan Council (the supreme policymaking body)

  Head of state

  The president, who is directly elected for a four-year term

  National legislature

  The Legislative Yuan (parliament) has 113 seats, and each parliament serves a four-year term. Formerly, parliament merely rubber-stamped laws, but in the past decade it has become more powerful and has evolved into a genuine forum for debate and policy development. It has also assumed responsibility for initiating constitutional amendments, following the abolition of the National Assembly in 2005

  Local government

  A series of local councils operates, but their function is mainly administrative; the provincial government has been downgraded and the provincial assembly abolished

  National elections

  January 2012 (parliament and president). Next elections: January 2016 (parliament and president)

  National government

  The Kuomintang (KMT), which governed Taiwan for 55 years until 2000, secured another majority-albeit slightly reduced-in the legislative election in January 2012. At the same time the KMT's candidate, Ma Ying-jeou, was re-elected president

  Main political organisations

  The KMT and the Democratic Progressive Party (DPP) are the main political parties. There are also a number of smaller parties

  Main members of Executive Yuan

  President: Ma Ying-jeou

  Vice-president: Wu Den-yih

  President, Executive Yuan (premier): Sean Chen

  Vice-premier: Jiang Yi-huah

  Presidents of other branches of government

  Control Yuan: Wang Chien-shien

  Examination Yuan: Kuan Chung

  Judicial Yuan: Rai Hau-min

  Legislative Yuan: Wang Jin-pyng

  Key ministers

  Economic affairs: Shih Yen-shiang

  Finance: Chang Sheng-ford

  Foreign affairs: Lin Shih-chun

  Justice: Tseng Yung-fu

  National defence: Kao Hua-chu

  Transport & communications: Mao Chi-kuo

  Chair of Mainland Affairs Council

  Wang Yu-chi

  Central bank governor

  Perng Fai-nan

  November 01, 2012

• Outlook

  Taiwan: Key developments

  Outlook for 2013-17

  • The president, Ma Ying-jeou, secured re-election in January, and his party, the Kuomintang (KMT), won a fresh majority in the Legislative Yuan (parliament). The next elections for both institutions are due in 2016.
  • Weak demand in major OECD markets will hurt Taiwan's export-oriented economy in 2013, but export growth will regain vigour in the latter part of the forecast period, and real GDP growth will average 3.6% a year in 2013-17.
  • The KMT administration has struggled since Mr Ma was re-elected. The president will need to focus more strongly on the ailing domestic economy, rather than regional diplomacy, if he is to regain popular support.
  • The arrival of a new generation of leaders in mainland China between November 2012 and March 2013 is not expected to change the current, relatively benign status quo in China-Taiwan relations.
  • The authorities have identified managing rising domestic inflation as a priority. They are likely to have recourse mainly to open-market operations, rather than policy interest rate rises, to manage liquidity levels.
  • Taiwan's current-account surplus is expected to remain large in 2013-17, at the equivalent of 8.1% of GDP on average. The trade surplus will be broadly stable, and rising tourist arrivals from China will raise services exports.

  Review

  • In September the ministerial-level head of the Council of Labour Affairs, Jennifer Wang, resigned after the cabinet postponed a planned rise in the minimum monthly wage until the economy showed signs of improvement.
  • In a speech in October, Mr Ma laid out an agenda focused on four areas: investing in high-technology manufacturing, expanding the services sector, concluding free-trade agreements and lowering barriers to foreign investment.
  • Taiwan's unemployment rate fell to 4.3% in September, from 4.4% in the previous month, according to the Directorate-General of Budget, Accounting, and Statistics (DGBAS).
  • Data released by the DGBAS showed that consumer prices rose by 3% year on year in September, but fell by 0.3% month on month. Food price pressures appear to be easing and a planned rise in power tariffs has been postponed.
  • Both exports and export orders (for future months) increased in September. The former rose by 10.4% year on year in the month, while the latter was up by 1.9%. This was the first annual increase in orders since February.

  November 01, 2012

Economy:

• Background

  Taiwan: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	23.1	Population growth	0.3
  GDP (US$ bn; market exchange rate)	466.8b	Real GDP growth	3.8
  GDP (US$ bn; purchasing power parity)	954.8	Real domestic demand growth	1.0
  GDP per head (US$; market exchange rate)	20,233	Inflation	1.4
  GDP per head (US$; purchasing power parity)	41,385	Current-account balance (% of GDP)	9.1
  Exchange rate (av) NT$:US$	29.5b	FDI inflows (% of GDP)	0.8
  a Economist Intelligence Unit estimates. b Actual.

  Download the numbers in Excel

  Background: At the end of the Chinese civil war in 1949 the nationalist Kuomintang (KMT) fled to Taiwan, which it ruled until 1987 under martial law. Generalissimo Chiang Kai-shek of the KMT handed power to his son, Chiang Ching-kuo, who initiated democratic reforms in the last years of his life. His protégé, Lee Teng-hui, became the first native-born president of Taiwan in 1990 and was reconfirmed as president in a direct election in 1996. In 2000 Mr Lee was succeeded by Chen Shui-bian of the Democratic Progressive Party (DPP), and Mr Chen also narrowly won the 2004 election. The 2008 presidential poll was won by Ma Ying-jeou of the KMT, who was re-elected for a second term in early 2012.

  Political structure: The political structure consists of a president and vice-president elected by popular vote, along with five branches of government-the executive, legislative, judicial, control and examination yuans. The president manages Taiwan's international relations and is head of the armed forces. The Legislative Yuan (parliament) has the power to pass or reject a range of bills, including the central government budget and declarations of war. Laws, statutes and special acts must be passed by parliament and then promulgated by the president before they come into force. The number of seats in the legislature was reduced from 225 to 113 from the time of the January 2008 parliamentary election.

  Policy issues: Taiwan's export-oriented economy has struggled since late 2011 in an environment of weak external demand. Inflation has emerged as a concern, after the government ended its effective subsidy on petrol and electricity purchases in April 2012. The authorities will adjust exchange-rate policy and use open-market operations to ensure that inflation does not exceed the low levels to which Taiwan has become accustomed. The government is pursuing a number of bilateral free-trade agreements. Social justice issues are high on the political agenda, but finding extra funding for welfare will be tough.

  Taxation: The corporate tax rate was cut from 20% to 17% in May 2010. A 20% withholding tax is levied on dividends, interest, royalties and fees. Progressive personal income tax rates are in the 6-40% range. The value-added tax (VAT) rate is 5% at present but is likely to rise.

  Foreign trade: According to the Central Bank of the Republic of China (Taiwan's central bank), the trade surplus (balance-of-payments basis) stood at US$27.8bn in 2011. Merchandise exports totalled US$307bn, while imports reached US$279.2bn.

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & electrical equipment	46.8	Machinery & electrical equipment	31.6
  Base metals	9.8	Minerals	24.2
  Plastic & rubber articles	8.2	Chemicals	12.1
  Precision instruments	7.8	Basic metals	9.6
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  China	28.8	Japan	18.6
  Hong Kong	13.7	China	15.5
  US	12.5	US	9.2
  Japan	6.2	South Korea	6.4

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  December 03, 2012

• Structure

  Taiwan: Economic structure

  Data and charts: Annual trends charts

  
  

  

  November 01, 2012

• Outlook

  Taiwan: Country outlook

  Taiwan: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Ma Ying-jeou was comfortably re-elected in the January 2012 presidential election, and his party, the Kuomintang (KMT), retained its majority in the Legislative Yuan (parliament) in the simultaneous legislative poll, albeit with a reduced tally of 64 seats out of 113. Neither election result was seriously disputed, and fewer seats were won by the sort of thuggish individuals who have brought past parliaments into disrepute. Both trends highlight the growing maturity of political discourse in Taiwan and suggest that the political outlook for 2013-17 is one of relative stability.

  ELECTION WATCH: Although the main opposition Democratic Progressive Party (DPP) and its allies have never been able to wield a majority in the Legislative Yuan, the DPP ran the KMT close in many of the parliamentary seats that it failed to win at the last election, suggesting that Taiwan's electoral system is not unduly biased against it. In the next poll the opposition party will need to balance its candidates more effectively between party-list seats (which are elected on a proportional-representation basis) and seats representing geographical constituencies. The DPP's current strategy of softening its stance towards China while criticising the government for its economic and social-welfare policies is likely to broaden its electoral appeal; the KMT's victories in the January polls were widely attributed to voters' greater trust in its ability to maintain stable cross-Strait relations.

  INTERNATIONAL RELATIONS: The need for new trade and investment deals has been highlighted by the recent success achieved by South Korea (a major rival to Taiwan in most areas of exports) in securing substantial free-trade agreements (FTAs) with major trading partners. The government is exploring FTAs with a number of countries, but protectionist sentiment is still fairly strong on the island and regulatory barriers remain in place in sectors such as financial services, pharmaceuticals and retail. The passage of legislation in July lifting Taiwan's ban on imports of US beef will allow trade talks with that country to resume, but negotiations will be slow to yield notable benefits. Mr Ma is also hoping to secure Taiwan's inclusion in an embryonic US-backed trade bloc, the Trans-Pacific Partnership.

  POLICY TRENDS: Beyond signing new FTAs and expanding the bilateral Economic Co-operation Framework Agreement (ECFA) with China, negotiated during Mr Ma's first term, the president has signalled that his other priorities will include boosting investment in high-technology manufacturing, expanding the services sector and lowering barriers to foreign investment. Policy incentives will be offered to lure back Taiwan companies that have relocated capacity to mainland China. The issue of social inequality will remain high on the political agenda owing to the pressure applied by the DPP, but the weak state of the public finances will limit the government's ability to increase welfare spending. Moves to strengthen the finances of the national pension fund, which is forecast by the government to be bankrupt by 2027, will prove highly controversial. Efforts to establish Taiwan as an offshore hub for renminbi-denominated trading and financial transactions are set to gather pace following the signing of a cross-Strait currency-settlement agreement in August. Modest capital controls could be introduced if speculative capital flows lead to rapid fluctuations in the exchange rate.

  ECONOMIC GROWTH: Taiwan's export-oriented economy will continue to struggle next year, owing to soft demand in advanced OECD markets. Following an estimated contraction of 0.7% in exports of goods and services in real terms this year, export expansion in 2013 will be moderate, at 3.7%. Gross fixed capital investment should return to growth in 2013 after shrinking in 2011-12, but the poor business climate and a high degree of uncertainty over global demand for information technology products will continue to unnerve private-sector investors. The uncertain economic outlook will also act as a drag on private consumption, and real GDP growth will struggle again in 2013, coming in at 2.7%, following estimated growth of only 1.1% in 2012. The Economist Intelligence Unit believes that the euro zone will survive its current travails and that there will consequently be no global economic meltdown similar to that in 2008-09.

  INFLATION: Inflationary pressures have increased, owing to the government's decision in early 2012 to reduce gradually its subsidies of petrol and electricity purchases. An acceleration in food price rises caused by severe weather conditions, as well as the likely inflationary impact on global commodity prices of the US's fresh round of quantitative easing, are likely to cause consumer price inflation to exceed marginally the government's target ceiling of 2% this year. The decision to postpone a second planned increase in electricity prices from December 2012 until October 2013 will help to keep inflation down next year, when consumer price inflation is forecast to average 2%. We expect annual inflation in 2014-17 to remain weak relative to that in neighbouring states, at an average of 2.1%. One important factor behind Taiwan's slow rate of price increases will be the government's gradual liberalisation of the economy, which will continue to increase competition and will thus help to hold down prices. In addition, the forecast slow rate of domestic economic growth in 2013 will lead to excess capacity that will take time to work out. A return to stronger growth from 2014 will provide good employment prospects, allowing workers to negotiate higher wages that will push up firms' costs. Partly as a result, annual producer price inflation in 2014-17 is expected to be significantly higher than the rate of consumer price rises, at an average of 3.3%.

  EXCHANGE RATES: The Central Bank of China (Taiwan's central bank) tends to favour allowing the New Taiwan dollar to strengthen in order to combat inflation. However, in 2012 it has put this policy on hold as the country's exporters have struggled, and we estimate that the local currency will weaken by 0.5% against the US dollar on average this year. In 2013-17 current-account surpluses should ensure that the currency strengthens against the US dollar. The US currency will be relatively strong in 2013-17, and the New Taiwan dollar will therefore appreciate slightly faster against the euro and significantly faster against the yen. Inward and outward flows of speculative capital will meanwhile continue to play an important role in determining short-term changes in the New Taiwan dollar's value. As US interest rates are set to remain low until 2015, an unexpectedly rapid rise in interest rates in Taiwan (not our central forecast) could put additional upward pressure on the local currency. The risk that a wide interest rate differential could attract short-term foreign investment and so push up the value of the New Taiwan dollar is likely to be especially high in 2013-14.

  EXTERNAL SECTOR: Taiwan's current-account surplus is expected to remain large in the forecast period, at the equivalent of 8.7% of GDP on average. Merchandise exports and imports alike are expected to fall in value terms in 2012, reflecting weak external demand conditions, but both will resume respectable growth rates in 2013-17. The trade surplus should remain around US$30bn a year in the forecast period, supported by growth in exports of high-value information technology products. The surplus on the services account will rise, with tourism earnings receiving a boost from strong growth in visitor arrivals from mainland China. The income surplus will remain sizeable in the next five years as repatriated profits and dividends from Taiwan's large stock of overseas investments far exceed income debits.

  December 01, 2012

• Forecast

  Taiwan: Country forecast summary

  Country forecast overview: Highlights

  • Ma Ying­jeou was re-elected president in January, while the Kuomintang (KMT) retained control of the Legislative Yuan (parliament) in the simultaneous parliamentary election, albeit with a significantly reduced majority. The next presidential and parliamentary polls are due in 2016.
  • The government will struggle to make progress on its legislative agenda in  2013-17, owing to Mr Ma's low approval ratings (largely related to his administration's handling of the economy) and the increasingly obstructive behaviour of the main opposition Democratic Progressive Party (DPP).
  • Cross-Strait relations will remain relatively good in the forecast period, helped by the DPP's softening of its traditional anti-China stance. The new mainland leadership unveiled in November is not expected to alter China's policy towards Taiwan. The bilateral relationship will continue to focus on economic ties while avoiding thornier political issues.
  • Taiwan will look to diversify its trading partners by negotiating free-trade agreements with a number of countries. However, with a few exceptions such accords are likely to be relatively weak in terms of their impact on economic opening. The liberalisation of trade and investment is opposed by domestic lobbies that want to protect their sectors from external competition.
  • The poor state of the public finances means that Mr Ma's administration has only limited tools with which to tackle widening social inequality. The fiscal deficit will fall only gradually, to stand at the equivalent of 1.4% of GDP by 2017.
  • Inflation has emerged as a concern for the Central Bank of the Republic of China (Taiwan's central bank), after the government announced this year that it intended to end what are in effect subsidies on petrol and electricity prices. The authorities will manage inflation through open-market operations rather than via policy interest rates in 2013 as the economic outlook remains uncertain.
  • Taiwan's export-oriented economy will remain vulnerable to fluctuations in external demand, and the global slowdown will drag down the island's rate of real GDP growth to an estimated 1.1% in 2012 and 2.7% in 2013. Growth will rebound to 3.8% a year on average in 2014-17 as the world economy recovers.
  • The current account will post large surpluses in 2013-17, equivalent to 8.7% of GDP on average. The trade surplus will be supplemented by a rising services surplus, itself driven by growing tourism earnings owing to a surge in arrivals from the Chinese mainland.

  

  December 03, 2012

View detailed map

Country Briefing

Land area

36,188 sq km

Population

23.2m (end-2011)

Main towns

Population in '000 (end-2011)

Kaohsiung: 2,774

Taichung: 2,664

Taipei (capital): 2,651

Tainan: 1,877

Climate

Subtropical

Weather in Taipei (altitude 9 metres)

Hottest month, July, 24-33°C (average daily minimum and maximum); coldest month, February, 12-18°C; driest month, November, 66 mm average rainfall; wettest month, August, 305 mm average rainfall

Languages

Mandarin, Taiwanese and Hakka

Measures

Metric system; some Chinese, Japanese and British measures are also in use

Currency

New Taiwan dollar (NT$); NT$1 = 100 cents. Average exchange rate in 2011: NT$29.5:US$1

Time

8 hours ahead of GMT

Public holidays

Founding Day of the Republic of China, January 1st-2nd; Chinese New Year, January 23rd-27th; Peace Memorial Day, February 27-28th; Ching Ming (Tomb-Sweeping Day), April 4th; Labour Day (a holiday for workers only), May 1st; Dragon Boat Festival, June 23rd; Mid-Autumn Festival, September 30th; National Day, October 10th; Public holiday, December 31st

March 09, 2012