Books on Taiwan
New Taiwan dollar (TWD)
Update No: 008 - (01/09/04)
Taiwan: Lawmakers revise the constitution
With the mayhem of the election process now finally out of the way, the
government is settling down to business.
Despite the machinations of the opposition leaders who are still hoping for a
miracle that the election may be overturned, everyone else appears to be focused
on work and on sustaining the growth momentum that is bringing a high level of
business confidence back to this island economy.
Among the first actions of government and ahead of the year-end legislative
election, Taiwan's current legislature has voted to amend the constitution - but
in a non-controversial manner.
The current changes include both a reduction in the size of the unicameral
legislature from 225 members to 113 as well as a change in the manner in which
legislators are elected.
Previously, each district elected several lawmakers resulting in some being
elected with only a small percentage of the vote.
Under the new system each district will return only two legislators, a move that
will work in favour of the major political parties.
The changes are an attempt to streamline the legislature, and to reduce
corruption among its members. Since these changes do not involve issues of
sovereignty, it is hoped that they will not provoke any reaction from Beijing.
In the last day of its extra session, the Legislature also passed this year's
US$1 billion special budget for the ten key infrastructure projects, as well as
amendments to the
Toughening the anti-piracy legislation
The amendment to the Copyright Law was passed in order to help crack down on
piracy and to beef up punishment measures.
Although the Legislative Yuan amended the law last June, piracy has still been
rampant in the country, drawing complaints from US businesspeople and others.
The Legislative Yuan has amended the law one again in a further attempt to
better tackle the problem and to appease the United States.
The new amendment stipulates that the controls adopted for copyrighted work can
only be circumvented in special circumstances, with specific legal
authorization. 15.Those who break the law can be punished with a one-year
sentence and a fine of at least NT$20,000 and up to NT$250,000. Lawbreakers are
also liable for civil compensation.
When customs officials find imported or exported goods that seem to violate
copyrights, they can now seize the goods and demand that owners provide the
proper authorization documents.
The amendment also changes the law's previous leniency for those who violate
copyright but do not profit from it.
Now both non-profit and profitable violation of copyright will be punishable by
China unhappy at Taiwan's United Nations bid
Meanwhile, the war of words that has been going on for years continues with
China writing to U.N. Secretary General Kofi Annan, condemning Taiwan's latest
bid to join the world body and accusing Taiwan of "seriously
threatening" peace and stability across the Taiwan Strait.
China is also attempting to block arms sales to Taiwan by the United States and
has criticised Washington for allowing Taiwan President Chen Shui-bian to make a
transit stop on U.S. territory during his end of the month visits to Panama and
Economic growth remains robust
Taiwan's rate of economic growth continues to pick up with a robust 7.7 percent
increase in GDP recorded in the second quarter of the year (based on
This was the highest quarterly growth figure recorded since year 2000 and came
on the back of stronger than expected domestic demand.
That it occurred despite the cooling of Taiwan's major export destinations of
China and the USA is testimony to the strength and resilience of the local
The Cabinet-level Directorate General of Budget, Accounting and Statistics has
upwards revised the nation's economic growth rate to 5.87 percent for the year,
up from its 5.41 percent forecast in May.
For the first six months as a whole, GDP grew by 7.17 percent versus a
3.31percent rise in the first half of 2003.
However, the effects of soaring oil prices and higher interest rates may be felt
later in this year with the pace is expected to slow in the next two quarters.
According to the DGBAS, GDP will likely expand by at 5.3 percent in the third
quarter and 4.09 percent in the fourth.
The economy is expected to enjoy moderate growth of 4.49 percent next year, with
the consumer price index (CPI) rising by 1.58 percent.
The CPI, rose 1.19 percent in the second quarter, reaching 1.49 percent at an
annual rate for the year because of high oil prices, according to the DGBAS.
Yet the government remains in deficit
Much of the country's growth in recent years has been financed by public debt.
The government has been running deficits every year since 2000.
The amount of cumulative government debt soared to US$76 billion in 2000 from
$17.6 billion in 1990, and the figures are expected to reach $115 billion by the
end of this year.
This year alone the budget deficit is estimated to reach some $8.8 billion with
a similar level being maintained for next year.
While Taiwan has ample international reserves to cover its public sector debt,
government may raise business taxes in an effort to claw back its revenue
Tax revenue has been growing by around 6.1 percent a year but this is still
insufficient to make up for the increase in government expenditure.
As a result, the business tax - currently at 5 percent - is expected to be
increased by at least two percentage points so as to restore the balance of
revenue obtained from taxation.
Tax revenues used to contribute around 60 percent of the nation's annual budget,
but the ratio has decreased to 50 percent in recent years because of the
In part the rapid growth of public debt has been fuelled by defence spending.
Currently Taiwan is planning to purchase more than $18 billion in United States
weaponry in spite of protests from Beijing over the proposed sale.
Even with the increased expenditure, government debt in Taiwan remains low by
international standards and was equivalent to a little more than 30 percent of
GDP at end 2003.
Taiwan's foreign exchange reserves as of end July 2004 stood at US$230.4
Trade continues to do well
Exports, which account for almost half of Taiwan's economy, grew 25 percent
year-on-year in the second quarter, while private investment grew 35 percent
faster than a year ago, DGBAS statistics showed.
Indeed the pace appears to be quickening.
In spite of slowing global growth and higher than expected oil prices, Taiwan's
export orders surged by almost 29 percent in July year-on-year on the strength
of demand for mobile phones, computers and semiconductors.
This was the ninth consecutive month of gains. China's tightening polices appear
to have had little effect on export growth so far this year though the effect
may yet be felt later in the year.
In the first seven months of this year, the nation's trade surplus reached
US$4.79 billion, down 46.9 percent from a year earlier.
Exports in the seven-month period rose 25.7 percent to US$98.61 billion, while
imports increased 35.2 percent to US$93.82 billion.
Despite the continuation of political tensions across the Taiwan Straits, Hong
Kong and China remained the two largest export markets for Taiwan in July, with
shipments jumping 42 percent to US$5.58 billion after climbing 36 percent in
Hong Kong and China were followed by the US with US$2.41 billion in shipments
and Europe with US$1.72 billion, and Japan, US$1.2 billion.
The unemployment rate also appears to be trending downwards and dropped to 4.9
percent in July.
Again this was the lowest recorded in more than three years.
The government hopes that the jobless rate will fall further in the second half
as new graduates are absorbed into the workforce and on the strength of demand
for new employment in both the high-tech industrial and service sectors.
On this basis the government is maintaining its forecast of a 4.5 percent
unemployment rate for 2004 as a whole.
Officials predict that the growth in the service industry between now and 2008
will be 6.1 percent annually, accounting for 67 percent of the GDP by 2008 from
63.5 percent in 2003.
The service sector workforce will also increase to 6.139 million in 2008, or 60
percent of the total employed population, from the 5.543 million last year, or
57.9 percent of the employed population.
The exchange rate to the US dollar as of 31 August 2004 stood at 34.053.
Taipei eyes forced delisting rule
Taiwan's financial regulator plans to impose minimum performance criteria for
companies on the Taipei stock market, raising the prospect of delisting for
illiquid or low-priced shares, the Financial Times reported on August 17th.
The policy, which could be gradually implemented next year, is part of an
overhaul of the island's stock market aimed at improving the quality of listed
However, the plan is likely to shake investor confidence further after the
default of Procomp, a niche chipmaker, in June exposed poor corporate governance
practices among the island's second and third tier companies.
Almost 25 per cent of the 1,000 plus stocks listed on the Taiwan Stock Exchange
trade at less than T$5, a category called "dumpling stocks" - the
price equal to that of one dumpling.
"We are considering to force those stocks to delist which underperform in
price or trading volume for a certain period of time," Huang Hsien-Hua, a
delegate to the nine-member Financial Supervisory Commission, said recently.
So far, the market regulator can only order a delisting of a company id it si
found to be in grave breach of financial law. For lighter offences, trading can
be restricted or halted. Current regulations do not go as far as mandatory
delisting for underperformance in price or trading volume.
In Hong Kong, plans to introduce forced delistings for underperforming stocks
triggered a mass sell-off of penny stocks two years ago. Taiwan's regulator said
it would protect retail investors - accounting for 80 per cent of trading - from
a similar reaction. "We will introduce the changes sep by step," he
said. "Dumpling stocks can possibly be transferred to another board."
But some of Taiwan's second-and third-tier stocks are expected to take another
blow later in the year as listed companies are due to submit audited first-half
In the aftermath of the Procomp default, which FSC investigators blamed on
falsified financial statements, the regulator has demanded accountants no longer
sign off on financial statements they consider doubtful.
Because auditing firms will have to accept more responsibility for their work on
corporate financial statements under draft legislation, some of them are likely
to withhold unqualified auditing statements. Trading in these stocks would be
restricted, Mr Huang said.
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