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  2003 2002 2001 Ranking(2002)
Millions of US $  406,000    
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 US $ 18,000
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Chen shui-bian

Update No: 031 - (11/09/06)

Amid signs that the global economic slowdown could finally make a dent in Taiwan's strong export performance and with signs too that consumer confidence (as reflecting in spending patterns) is also slowing, the government has downsized its view of Taiwan's expected economic growth this year. At the same time Premier Su Tseng-chang has moved to strengthen his hold on Cabinet replacing several key members of his team. The move is designed not only to restore confidence in a Democratic Progressive Party (DPP) that has been badly damaged by a series of scandals earlier this year, but also to boost his personal standing ahead of an expected bid for the presidency when Mr. Chen Shui-bian steps down in 2008.

Cabinet shakeup in an effort to boost popularity
Taiwan's new premier Su Tseng-chang has announced a shake-up of several key positions as part as an effort to restore the credibility of government, to boost the economy which is showing signs of flagging and in an effort to improve ties with China. The decisive move which comes amid several months of scandals surrounding Taiwan's president Chen Shui-bian is expected to boost Mr. Su's own popularity and is seen as a signal that he will make a bid for the presidency in 2008 when Mr. Chen steps down from his second and final term.
Taiwan analysts consider the appointment of Mr. Steve Chen to the portfolio of Economics Minister to be the most significant change. Mr. Chen (no relation to the president) will be the sixth person to hold this portfolio since the DPP came to power in 2000. Mr. Chen is an experienced trade negotiator who is expected to bring fresh pragmatism to Taiwan's difficult relationship with the mainland. While China is Taiwan's most significant (and only real) adversary, it is also-together with Hong Kong-Taiwan's largest trading partner.
Among other appointments,. Former Vice Finance Minister Gordon Chen will move to the Chair of the Taiwan Stock Exchange and Shi Jun-ji, a commissioner at the Financial Supervisory Commission will become the acting chair of the regulatory agency.
Former FSC head Kong Jaw-sheng has been under investigation for jobbery in his previous position as Chair of the state-run Taiwan Sugar Corporation. The Taipei District Prosecutor's Office has now charged him with improperly benefiting others with NT$100 million (US$30 million)and breach of trust in three cases of corruption during his term as Taisugar chairman from December 2003 to June 2004.
Relaxation of visits by Mainland staff of major corporations
In an effort to meet the concerns of multinational companies that have long been critical of Taiwan's policy with regard to entry by mainland Chinese staff members, Taiwan has acceded to demands to allow the corporate sector to bring more employees to Taiwan for regional meetings. Up until recently, the government has taken a hard line on the issue and has limited multinational corporations to a maximum quota of 30 Chinese staff per meeting. With the growing expansion of commercial links and, particularly, aviation links across the Taiwan Strait, the government is at last prepared to show some flexibility on the issue. According to Mr. Joseph Wu, chair of the Mainland Affairs Commission, applications from "hundreds of visitors" could now be approved.
Indeed, some 379 employees of Microsoft Corporation, China were the first to benefit from the relaxed rules and attended a three day regional meeting in Taipei from 22-24 August. Around 850 employees from the Asia Pacific region attended the meeting.
The relaxation of business visitors comes on the back of a similar easing of restrictions on Chinese tourists to Taiwan. A new organization was established in August to deal with issues relating to cross-strait tourism.
The new body was announced by Mr Wu, at a press conference Aug. 25. The quasi-governmental Taiwan Strait Tourism Association will begin negotiations with a counterpart mainland body in mid-September on the terms under which Chinese tourists can visit Taiwan. Taiwan is hoping to be designated as an "approved tourist destination" by Beijng.

Exports boom but a slowdown coming
While Taiwan continues to enjoy a boom in export growth, there are signs of a slowdown ahead.
Solid demand for Taiwanese electronic goods, computers, computer chips and panels as well as steel products has led to a better than expected export performance so far this year. Taiwan's exports rose by 21.2 per cent in July from the same month last year to US$19.58 billion. Imports in the same month rose by 17.5 per cent to US$17.78 billion creating a monthly surplus of US$1.8 billion. 
However, an expected slowdown in global growth during the second half is expected to impact on Taiwan's trade performance and there are signs that the effects of the slowdown are already being felt. Export orders-especially in key areas of electronic items and laptop computers-are starting to slow. According to the numbers for July, export orders (an indication of forward shipments) rose by 19.44 per cent from a year earlier down from 20.61 per cent recorded in the previous month. Despite the slowing US economy, Taiwan's exports have continued their robust growth largely on the back of strong demand from China. China is now a major destination for Taiwan's manufactured products. An expected increase in Chinese interest rates brought about to slow China's economy, would have a significant impact on Taiwan.
Orders from the United States rose by 17 per cent in July from the same month last year for a total of US$6.47 billion. This was slightly lower than the US$6.79 billion recorded in June. China and Hong Kong jointly accounted for US$6.31 billion-a slight claw-back from the US$6.4 billion recorded in June.
Nevertheless overall trade performance this year will still come in much higher than earlier forecast. The government was earlier expecting export growth to be between 8 and 9 per cent for the year as a whole. On the basis of the year to date, and even factoring in an expected slowdown, that rate is now expected to be between 13 and 14 per cent for 2006 overall.

And growth targets suffer a setback
Despite the booming trade position, consumption growth-at least that portion of it measured in the official figures-appears to be declining as a result of a tightening of bank lending and this is expected to impact on the overall growth target for 2006. According to the Directorate General of Budget, Accounting and Statistics (DGBAS), GDP in the second quarter rose by 4.57 per cent year-on-year as compared to a revised 4.92 per cent in Q1. The second quarter performance was buoyed by strong exports but as export growth weakens this will impact on the overall GDP figure. While producer prices have been rising, weak demand has left little room for suppliers to pass on these increases to consumers in the face of a decline in personal spending. Full year growth expectations have therefore been lowered slightly to 4.28 per cent from 4.31 per cent.

Declining asset quality
Confirming the worst fears of analysts, the Financial Supervisory Commission has affirmed the declining asset quality of local banks with rising bad debts and falling coverage amid fallout from the industry-wide credit abuse storm.
The average non-performing loan (NPL) ratio of 44 local lenders edged up to 2.41 per cent last month, up from 2.39 per cent in June, while the coverage ratio used to gauge the sufficiency of reserves to cover potential defaulted loans dropped to 46.45 per cent, down from 47.52 per cent over the same period. Debt-ridden Taitung Business Bank posted the highest NPL ratio of 22.83 per cent, followed by Enterprise Bank of Hualien's 22.62 per cent and Chinfon Bank's 18.82 per cent. Enterprise Bank of Hualien's negative net worth deteriorated to minus NT$1.8 billion (US$54.74 million) last month from minus NT$1.67 billion in June.
Meanwhile, the credit card NPL ratio fell by 0.11 percentage points month-on-month to 2.92 per cent last month, as the number of cards in circulation dropped 1.9 per cent to 4.03 million. The revolving credit balance declined by 2.11 per cent to NT$403.2 billion, the data showed.

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