Providing Source : Coumcil for Economic Planning and Development
File Last Revised " January 1995
Contact Phone : 886-2-5225822
1.Geographic Features and Natural Resources
2.Economic Performance in 1994
3.Growth with Stability
4.Expenditure on GDP
5.Private Consumption
6.Savings and Investment
7.Trade and Exchange Rates
8.Composition of Exports
9.Composition of Imports
10.Trading Partners
11.Production Structure
12.Money and Prices
13.Public Finance
14.Employment
15.Education
16.Science and Technology
17.Income Distribution
18.Social Security
19.Policies and Initiatives
20.Prospects
Taiwan, the strong island bastion of the Republic of China, occupies an area of 36,000 square kilometers, roughly equal to the size of the Netherlands. Its population at mid-1994 stood at 21 million, with a density of 584 persons per square kilometer, making Taiwan one of the most densely populated areas of the world. Population growth has slowed in recent years, however, and was down to 0.9% in 194. Only one-quarter of the land, mostly along the west coast, is arable. The rest is rugged terrain with a spine-like ridge of steep mountains running along the east coast. Fortunately, the subtropical climate permits year-round farming and multi-cropping of a wide variety of crops, including rice, sweet potatoes, peanuts, fruits, and vegetables. However, large quantities of soybeans, corn, and wheat are imported.
Although Taiwan does have deposits of coal, limestone, and dolomite, and some natural gas has been discovered on the west coast, it is not rich in minerals. Indeed, more than 90 percent of its energy demands are met by imports.
While about two-thirds of the land is forested, forest resourecs are minimally exploited because of limited accessibility and environmental concerns.
In 1994, amid worldwide economic recovery, the ROC economy turned in a slightly better performance than the year before. However, rises in the prices of agricultural and industrial raw materials on world markets, and damage inflicted by typhoons at home, pushed up the domestic prices of a broad range of commodities. The following statistics summarize the general state of the economy during the year:
¡Ð Economic growth (real GDP growth) was recorded at 6.5%, marginally up on the 6.3% achieved in 1993
¡Ð Gross national product (GNP) was 244 billion US dollars, the 19th-largest of the world's economies.
¡Ð GNP per capita reached 11,604 US dollars, the 25th-highest in the world.
¡Ð Consumer prices rose 4.1%.
¡Ð Only 1.6% of the work force was unemployed, one of the lowest rates of unemployment recorded anywhere in the world.
¡Ð Merchandise exports and imports amounted to 93.0 and 85.3 billion US dollars respectively. The surplus in merchandise trade fell to 7.7 billion US dollars, continuing a downtrend that reflects steady progress in rectifying the persistent trade imbalance. Taiwan was the world's 14th-largest exporter, 15th-largest importer, and 14th-largest trader.
The ROC's economic development has been characterized rapid growth with price stability, except for the periods immediately following the two world oil crises.
Gross domestic product (GDP) in real terms grew at an average rate of 9.5% in the 1960s,10.0% in the 1970s, and 8.2% in the 1980s. Consumer prices increased at the rate of 4.8%, 8.9%, and 4.4% per year during the same periods, or 4.8% in the 1970s and 1.4% in the 1980s if the oil-crisis years are excluded.
Economic growth in recent years has been less rapid than in earlier periods, while consumer prices have shown a moderate increase. From 1990 through 1994, real economic growth averaged 6.5% and consumer prices increased by an average of 3.8% per year.
Real annual per capita GNP grew at the rate of 6.5% in the 1960s, 8.0% in the 1970s, and 7.0% in the 1980s. From only 964 US dollars in 1975, per capita GNP rose more than tenfold to reach 11,604 dollars in 1994.
In the 1960s the government adopted an outward-oriented dcvelopment strategy that emphasized exports as the engine of growth. As a result, exports of goods and services came to account for a in 1986, it dropped dramatically as the government switched its focus to stimulating domestic demand, and had fallen to 44.3% by 19994. Imports amounted to as much as 53.7% of GDP in 1980. before declining to 38.3% in 1986 and then rising again to 42.4% in 1994.
National consumption has expanded significantly over the years, though not as rapidly as trtal pruduction. As a percentage of GDP. it showed a declining trend through 1987. Since then it has risen sharply as private consumption has been encouraged by economic liberalization and asset accumulation deriving from the trade surplus.
Gross investment accounted for an impressive 20%-30% of GDP for almost two decades up to 1984. A downtred took its shard of GDP to a low of 17.5% in 1986, but it started to rise again the following year and stood at 24.1% of GDP in 1994.
The pattern of private consumption has changed dramatically over the years, reflecting rising living standards and an improving quality of life.
Spending on food, beverages, and tobacco was as high as 50.99% of total household spending in 1970. It hsa since shown a steeply declining trend and dropped to 27.1% in 1994. Spending on transportation and commnications rose from 3.4% of total houusehold expenditure in 1970 to 12.1% in 1994, and that on education and recreation from 7.9% to 17.1%.
The shard of total household expenditure going to medical and health care gained only 3.0 percentage points in more than 20 years, reaching 6.9% in 1994, medical costs having remained relatively stable over this time.
Vigorous investment and a high level of domestic savings have helped sustain economic growth over the years. Gross national savings and gross domestic investment increased by 23.9% and 23.4%, respectively, dring the 1970s. Savings and investment grew more slowly in the 1980s, at 11.8% and 8.4%, respectively. However, they began to show renewed vigor as the 1990s got underway.
As shares of GNP, savings and investment remained roughly the same before 1980. Savings then began to grow at a faster rate, with the gap between savings and investment (excess savings) reaching its peak in 1986. The government has made a determined effort to narrow this gap, launching major infrastructural projects and improving the investment climate to stimulate private investment, while lowering trade barriers to increase imports. By 1994 the level of excess savings had been steadily reduced, with gross savings amounting to 26.5% of GNP and gross investment to 23.8%.
Taiwan's perennial trade surplus did not become a problem until after 1980. The surplus expanded steadily throughout the 1980s, causing the NT dollar to appreciate considerably in the second half of the 1980s. As a result, imports began to grow much more rapidly than exports, which narrowed the trade surplus and stabilized the exchange rate.
Merchandise exports were recorded qt 93.0 billion US dollars in 1994, while merchandise imports amounted to 85.3 billion US dollars, resulting in a trade surplus of 7.7 billion US dollars for ghe year, down 11.0 billion US dollars from a pead of 18.7 billion US dollars in 1987. The exchange rate of the New Taiwan dollars against the US dollar has remained quite stable, in contrast to its rollercoaster performance during the 1980s. At year-end 1994 the NT dollar was trading at 26.24 per US dollar, about 0.4 NT dollar lower than a year earlier.
The success of Taiwan's outward-oriented economic strategy has relied heavily on a rapid expansion in exports of industrial products produced by high-quality manpower. Industrial products climbed as a share of total exports from less than one-half in the 1960s to 80% in the 1970s, and accounted for 95.9% of all goods exported in 1994.
Over the years, the structure of Taiwan's exports has undergone considerable change. Back in 1952, rice and sugar together accounted for three-fourths of total exports. Industrial products have comprised more than half of total exports since 1966 and 90% subce 1979. In 1983, electronics, textile products, basic metals and metal products, and footwear were the leading export categories. In 1994, electronics, basic metalsand metal products, and textiles remained on the list of major exports, but electronics, machinery, and information and communications products had replaced textile products and footwear as leading exports.
Imports of raw materials have compensated for Taiwan's limited supply of natural resources and made possible the rapid growth of manufacturing and the export of manufactured products. Agricultural and industrial raw materials and intermediate products have constituted the bulk of total imports for a long time, accounting for 70.6% of all imports in 1994.
The major import categories in 1994 were electronics, basic metals and metal products, machinery, and transportation equipment ¡Ð the same as ten years earlier, although the order of significance had changed.
One notable difference in the composition of imports is the rising share of consumer goods. In 1994 such goods accounted for almost 13.4% of all imports, more than double the proportion recorded in 1980. Successive rounds of import liberalization and a steadily improving quality of life are two key factors behind the rapid growth of consumer goods in total imports.
The Republic of China on Taiwan currently trades with almost all territories in the world. However, the bulk of its trade is concentrated with only a limited number of economiex.
Japan and the United States together used to account for about half of Taiwan's total trade. In 1984 Taiwan shipped 59.3% of its exports to these two countries, and obtained 52.3% of itss imports from them. In 1994, imports from Japan amounted to about 24.8 billion US dollars, or 299.0% of total imports. Imports from the U.S. tallied 18.0 billion US dollars, or 21.1% of the total. Germany, Korea, Australia, Hong Kong (a major entrepot for indirect imports from mainland China), Malaysia, and Singapore were other major sorces of Taiwan's imports in 1994.
The structure of Taiwan's exports changed markedly between 1984 and 1994. The U.S. remained the most important market for Taiwan's exports, with export shipments to the U.S. in 1994 amounting to 24.3 billion US dollars. However, the U.S. share of Taiwan's total exports had shrunk to 26.2%, down from a peak of 48.8% in 1984. Exports to Japan in 1994 amounted to 10.2 billion US dollars, only 11.0% of total exports and less than one-half of the value of the goods imported from that country. The most remarkable change was in exports to Hong Kong, which amounted to 21.3 billion US dollars, or 22.9% of all exports compared with only 6.9% ten years earlier. This rapid increase was due mostly to sharp surge in indirect exports to minland China in recent years.
Betwween 1961 and 1994, the narrowly defined money supply (M1B) increased at an annual rate of 20.0%, while consumer prices (measured by the CPI) rose 5.3% (or 3.5% if oil-crisis years are excluded) and the economy grew 8.8% annually. In other words, the money supply expanded at more than twice the rate of real output while price increases remained quite moderate. Several factors were responsible for this. Most importantly,the combination of a high-quality labor force with vigorous investment activity resulted in the steady expansion of production capacity and increases in productivity. Another key factor was the growth of imports, alongside gradual economic liberalization, at a faster rate than the growth of domestic output. The prices of imports also played an important role. They fluctuated only slightly after the second oil crisis. In addition, a notably high savings rate steadily reduced the income velocity of money, effectively easing potential inflationary pressures.
Over the past three decades, the annual increase in the money supply has exceeded 30% in five periods: 1963-64, 1966-67, 1971-73, 1977-78, and 1986-87. The major source of money creation during the first two periods was a rise in the capital inflow. Rapid money growth during the later three periods was due to a surge in trade surplus that resulted in a rapid growth in foreign exchange reserves, followed by a large-scale conversion of foreign exchange to domestic currency. That the significant monetary expansion of 1986-887 did not rekindle high inflation has been attributed to vigorous trade liberalization and a more than 40% appreciation of the NT dollar against the US dollar. In each of the earlier four periods, a large increase in the money supply was followed, with a short time lag, by a surge in prices.
More recently the money supply has been expanding moderately, owing to a continuing capital outflow and a declining trade surplus. In 1994, the end-of-year monetary growth declerated to 12.2% from 15.3% a year before. The daily average growth rate advanced from 8.3% to 16.9% though. In the meantime, the rate of increase of the CPI climbed to 4.1% from 2.9%.
The government used to enjoy a huge and rising surplus in its current account, large enough to finance the capital account deficit before 1991. Consequently, in fiscal year 1990 the size of the central government's outstanding debt (bonds and loans) was relatively modest, amounting to about 3.7% of GNP. But since FY 1991, owing partly to various tax-cutting measures, current government revenue has grown less rapidly than nominal GNP, while current expenditure has expanded vigorously. At the same time, capital expenditures, boosted by spending on national development projects, have also risen sharply. With the current account surplus growing only sluggishly or, in some years, even contracting, the government had to turn to other sources of financing to plug the widening fiscal gap. These inclded loans from financial instittions and public bonds, which were issued in large quantities.
Specifically, considerable changes in the structure of public revenue have occurred over the past four years. Taxes, monopoly revenues, the surpluses of public enterprises, proceeds from the sale of sasets have declined in importance, with their share in total government revenue plummetion from 87.1% in the 1980s to 75.0% in FY1991-1994. In the meantime, other sources of financing, such as bonds, loans, and budget surpluses from previous years, have grined in significance, increasing their share of total revenue from 12.99% to 25.0%.
In the meantime, the structure of government expenditures has changed considerably. Spending on social security and pensions increased from 14.5% of total expenditure in the 1980s to 17.1% in FY1991-1994, owing to increasing emphasis on social welfare and relief. Debt service expenditures as a percentage of total spending surged from 3.2% to 9.9%, due to the growing magnitude of outstanding government debt. The share of national defense spending shrank from 23.6% to 15.2% during the same period, while that of economic development declined from 29.0% to 26.0%.
In FY1994, the government's current account surplus amounted to 278.6 billion NT dollars, down from 327.6 billion NT dollars in FY1993. Capital expenditures rose rapidly with the acceleration of infrastructural investment as the Six-Year National Development Plan went into top gear. Consequently, the governmentdeficit reached 411.0 bilion NT dollars in FY1994, most of which was financed by loans and the issuance of public bonds. Outstanding debt of the central government stood at 12.3% of GNP, of 66.9% of its total annual expenditure equivalently.
Between 1960 and 1994 total employment increased steadily at 2.8% per year on average, while the economy grew at a rate of 8.8%. Growth in total employment. That figure had increased to 38.3% by 1994, indicating the important role that women have played in economic deelopment. The rise in the proportion of female employment is attributable mainly to more job opportunities and a higher participation rate of women in the work force. In 1994, only 1.51% of all males and 1.65% of all females seeking employment were jobless.
Rapid change in the structure of the economy over the past three decades has been reflected by a dramatic shift in the sectoral structure of total employment. While agriculture's share of total employment decreased from 46.3% during the 1960s to 17.0% during the 1980s, the share of the industrial sector soared from 22.6% to 42.0%. Over the same period the rapidly growing service sector also expanded its share of total employment, and it is expected to absorb even more labor in years to come. In 1994 the sectoral distribuution of total employment was very similar to that of developed countries, with agriculture experienciing a rapid decline in its proportion of all job opportunities and the service sector enjoying the greatest expansion.
The education system has expanded rapidly over the past three decades, providung the growing economy with the high-quality manpower needed for sustained development. First of all, the extension of compulsory education from six years to nine years in 1968 led to a rapid expansion of educational opportunities and rapidly increasing enrollment at educational institutions. Secondly, to meet growing demand for managers and technicians required by a modern economy, investment in higher education, including universities and professional training institutions, has also been emphasized.
Along with the sound development of the educational system, there has been significant improvement in the educational structure of the population. The proportion of the population with a secondary education has almost tripled since the 1960s and that with a higher education has quadrupled, while the proportion of the self-educated and illiterate has continued to decline. This trend has paralleled that of the educational structure of employment. As educational opportunities continue to grow, the proportion of total government spending allocated for education, culture, and science has increased, from around 14.1% of total government outlays in the 1960s to 20.0% in 1994. Higher spending on these activities reflects the strong commitment of the government to focus on investment in human capital and the development of knowledge and skills.
Science and tecnology have been one of the leading forces in Taiwan's rapid industrialization and economic growth. As the economy moves forward to a higher stage of development, science and technology are becoming even more important. Given the need for increasingly complex and sophisticated forms of production, limited R&D carried out by Taiwan's private sector, the government has been active in promoting the development of science and technology. The Industrial Technology and Research Institute was founded in 1973 to spearheaad R&D work to share the fruitd of research and development with Taiwan's numerous small business firms. And in 1979 the first Science and Technology Development Program was introduced. This program, which integrates scientific and technical research carried on by government, private industry, and academia was incorporated into the Eighth Four-Year Economic Development Plan (1982-85).
Total R&D expenditure as a proportion of GNP has grown steadily over the past decade, except in 1986 when the effects of the year-earlier recession depressed spending slightly. If spending on R&D continues to grow at the current pace, it will reach a projected target of 2.2% of GNP in 1996. For many years the public sector was the primary source of funding for research and develpment. This trend was broken for the first time in 1989, when private enterprise provided 52.3% of total R&D spending. But by 1991 the private sector's share of R&D had fallen to 47.9%, and by 1992 to 47.8%. The government is continuing to encourage private firms to step up R&D spending, hoping that their share of total R&D expenditure will rise to 60% or higher in 1996.
The numbers of patents applied for and granted are key indicators of scientific and technological progress. With spending on R&D growing faster than the economy, patent applications and awards have increased rapidly, reflecting the important role played by science and technology in economic restructureing and industrial upgrading.
Rapid economic growth in the Republic of China on Taiwan and a rising level of income have been accompanied by a dramatic improvement in income distribution. In 1952, the income of the wealthiest 20% of Taiwan's households was some 15 times that of the poorest 20%. By 1980 the ratio had fallen to an all-time low of 4.17 to 1. The narrowing of income gap may be attributed latgely to the land reform program, early emphasis on the rapid developemnt of labor-intensive industries, easy access to education, and a high degree of social mobility. The ratio has edged upward in more recent years. However, household income distribution on a per capita basis has been fairly stable as families in the least-affluent quintile of households have tended to become smaller in size.
In Taiwan, as in most industrializing societies, the government has been assuming a larger share of responsibility for promoting general socail well-being and insuring households against risks associated with financial and economic insecurity. The expanded social role of government is most evident in a dramatic increase in public spending on social welfare snd social security, which stands at 18.3% of total public outlays in 1994. Taiwan's social security system now provides insurance for laborers, government employees and their dependents, farmers, snd military personnel. These social insurance programs covered 57.5% of the total population in 1994, in contrast to only 10.9% in 1965. Moreover, in March 1995 the government launched a universal health insurance program covering the entire population.
The Six-Year National Development Plan was launched in 1991 with the aim of strengthening the country's infrastructure to ensure economic prosperity well into the next century. Planned projects are concerned mostly with the development of transportation and communications, urban development and housing, public utilities, new industries, science and technology, culture and education, environmental protection, medical care, and social welfare.
In mid-1993, a mid-term review was conducted to solve problems encountered halfway through the six-year plan's implementation period. Revisions were made to narrow the gap between the plan's targets and the limited resources available, so that better resource utilization could be achieved.
As a result of the review, macroeconomic targets for the remainder of the paln period (1994-1996) were set in accordance with the potential output of the economy to ensure growth with stability while implementing the plan.
While the six-year plan seeks to enhance infrastructure primarily through increasing public investment, the Economic Revitalization Program, introduced in July 1993, is designed to tackle the problem of insufficient private investment that has been witnessed in the past. Two main policy goals of the program are the upgrading of industries at an accelerated pace and the development of Taiwan into an Asia-Pacific regional operations center. Supporting measures include:making more public land available for industrial use, building more industrial parks, easing credit for private business, promoting technology transfers from aborad, and providing attractive tax incentives to encourage investment in high-tech enterprises.
With regard to cross-Straits relations, the program calls for an easing of relevant regulations, the promotion of scientific and technological exchanges, and more liberal guidance and effective support for businesses investing in mainland China. This is based on two primary considerations: firstly, the rapid expansion of trade, investment, and other activities across the Taiwan Straits that has been taking place over recent years; and secondly, the likelihood that mainland China will emerge as a key player in the regional economy in years to come.
Also high on the program's agenda is the public sector reform. This includes vigorously implementing the privatization program of public enterprises in the interest of economic efficiency.
The plan to develop Taiwan into a regional operations center for both national and multinational corporations represents an across-the-board effort to carry Taiwan into the 21st century. Six specialized centers are being designed for high-value-added manufacturing, air and sea relay transportation, and financial, telecommunications, and media services. Basically, the plan seeks to make the economy freer and more open by further liberalizing trade and investment activities and lifting restrictions on the entry and exit of people, and on the flow of capital and information.
By the year 2000, all specialized facilities are expected to be operational.
The plan also endorses a formula that would, among other things, allow for direct shipping with mainland China through offshore shipping zones. Further efforts in this direction will be made in accordance with national interests and policy priorities.
In early 1994, the government identified twelve priorities for the implementation of public projects, most of which are under the Six-Year National Development Plan. These projects center largely on transportation, educational and cultural facilities, water resources, environmental protection, and housing. To ease the government's budgetary burden, private participation is being encouraged in such projects as industrial-commercial zones, new townships, public housing, and a high-speed railway.
As our consultations with the GATT contracting members continue, we are preparing to enter the newly established World Trade Organization. We will make all agjustments necessary to meet the requirements for membership, and will provide import relief and trade adjustment assistance for a limited time to industries that suffer from greater competiton from imports.
Taiwan's economic achievements have in no small part been due to our continuous pursuit of economic liberalization and internationalization. As we await admission to membership of the World Trade Organization, we have commited ourselves to promote further liberalization and internationalization of the economy.
We will expand our trade and investment in the Asia-Pacific, reaching out to form closer trade and economic ties with our neighbors in the region. This development and the emergence of Taiwan as a center for the regional operations of both our own businesses and multinationals will engage us even more extensively in the regional economy.
As we seek to promote greater harmony and balance between the different sectors of our owneconomy, we will continue to pursue the healthy development of cross-Straits ties, helping to create a "win-win" situation for both sides on the basis of equality and mutual benefit.
As we enter the ranks of the developed nations at the dawn of the 21st century, we will do oyr utmost to fulfill our duties in the best interest of world peace and prosperity. That is our commitment and our goal.