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Key Economic Data 
  2003 2002 2001 Ranking(2002)
Millions of US $  406,000    
GNI per capita
 US $ 18,000
Ranking is given out of 208 nations - (data from the World Bank)

Books on Taiwan

Update No: 038 - (30/04/07)

Domestic politics
The political situation in Taiwan remains uncertain and dominated by the jockeying for positions ahead of the parliamentary (December 2007) and presidential (March 2008) elections. As the poll date draws ever closer, so will the political noise become more shrill. Expect little by way of bipartisan cooperation on new legislation this year. Political polarisation will be more intense than usual.

The ruling Democratic Progressive Party (DPP) has begun its presidential primary race with four of its leaders aspiring for a chance at the top post. Vice President Annette Lu Hsiu-lien, Premier Su Tseng-chang, former Premier Frank Hsieh and Party Chairman Yu Shyi -kyun are all in the running.

With little to choose between them the four hopefuls have been engaging in mudslinging at each other to the point where people are starting to wonder how they can all be from the same party. Things had gotten so bad by the middle of April that President Chen Shui-bian had to step in to cool the heat. In a statement issued by the Presidential Office, Chen said that while it was natural for each of the hopefuls to compete for the primary, it was not desirable "to turn the primary into a political battle." The DPP caucus has also echoed the president's call.

While the DPP contenders are still fighting it out, the opposition Kuomintang is bringing its own primary campaign to a close. Despite himself being under a political cloud for the misuse of public funds during his two terms as Taipei City mayor, former Party Chairman Ma Ying-jeou was the only nominee at the time the nominations closed on April 22. Legislative Yuan Speaker, Wang Jin-pyng who was earlier thought to be a possible candidate announced on April 2 that he would neither join the KMT primary race nor run as an independent.

Ma continues to be under a cloud and he has fallen some way from the height of his popularity one year ago when he won the KMT party chairmanship in a landslide victory garnering 72.4 percent of the vote in a two-horse race against Wang Jin-pying. At that stage he was considered to be a shoe-in for the presidency in 2008.

But his star is not shining quite so brightly at the moment, Ma was indicted by city prosecutors In February this year on charges that he diverted some NT$11 million of his special mayoral fund into his private account during his tenure as mayor of Taipei. As a result he resigned from the chairmanship of his party. No longer can he present himself as the morally superior alternative to the DPP leadership which has itself been mired in scandals over the past year and which reached as high as the First Family. 

Mr Ma has announced that he will continue with his presidential bid regardless of the outcome of the court case against him. As things stand this could be problematical: Article 43 of the KMT charter stipulates that party members convicted of a crime cannot be nominated for office. In fact this might prove to be no real impediment. The KMT Party is due to hold its Congress in June and already there are suggestions that the charter should be revised to rescind a nomination only in cases where a member loses all appeals. And guess what? If he is convicted, the appeal will drag on well beyond the election date. If Mr. Ma loses the election then the issue becomes moot. If he wins the election-same result. Such is the stuff of politics.

The economy
While challenges remain, the economy continues to perform better than many had predicted, at least in the short term. In late April the Chung-Hua Institute for Economic Research (CIER), the primary government-funded economic think-tank, raised its GDP growth forecast for the year to 4.17 per cent-up slightly from the 4.13 percent predicted last November. The more optimistic assessment was based on increased domestic consumption and investment according to an institute spokesperson. 

For 2008, CIER is now predicting a 4.23 percent growth. In 2006, the economy expanded by 4.6 percent. The rate of growth of exports which drives so much of Taiwan's economic activity is expected to slow to around 5.7 percent form from 10.14 percent in 2006. Some, but not all of the slack, will be taken up by the domestic sector which is expected to contribute 2.83 percent to GDP this year. Consumer price inflation is expected to remain benign at around 1.25 percent (up from 0.6 percent in 2006) while higher domestic demand will also help drive down Taiwan's unemployment rate to 3.88 percent (3.91 percent in 2006).

Despite the slowdown in export growth, in March export orders broke a fresh record reaching $28.03 billion. The previous month the figure had come in at $21.92 billion. 
For the first three months of the year, Taiwan received export orders valued at $75.88 billion. This represented an increase of 12.73 percent from the same period last year. Export orders from Hong Kong and China rose 20.99 percent, orders from Europe (aided by a stronger Euro) were up by 24.13 percent, from the USA by 3.61 percent and from Japan 2.94 percent.

Despite the pleasing short term prospects, Taiwan continues to face two medium-term economic challenges: reining in the fiscal deficit and restructuring the domestic banking sector. Banking reform has made a little headway but resistance from the opposition parties (particularly the KMT which continues to influence much of the financial sector through the banks that it owns) as well as from the trade unions, has meant that progress has been much slower than had earlier been hoped. 

The problem of the fiscal deficit is due largely to rising social security commitments especially as Taiwan's population ages, off-budget spending and rising infrastructure costs. To solve its deficit problem, we may expect to see a much greater effort to raise taxes and a more equitable tax structure that distributes the tax burden across society.

According to government sources, tax revenues increased by 21.8 percent in March as compared to a year ago with the biggest boost coming from income tax revenues which jumped by 47 percent. Land value tax revenue rose by 38.6 percent. Despite this pleasing result for March, cumulative tax revenues during the first quarter were down by 2.2 percent from the same period last year. The second quarter result bears watching.

The Central Bank of China (Taiwan's central bank) raised its benchmark interest rate by 0.125 percentage points at the beginning of April. This was the 11th straight quarterly increase. The bank renewed its inflationary warnings and went ahead with the rate hike despite expectations from some quarters that it might cut-or at least hold-rates as a means of further stimulating the economy. 

Since the benchmark rate started moving upward in September 2004, the bank has raised rates by a cumulative 1.5 percent and brought its rediscount rate charged to commercial lenders to a five-year high of 2.875 percent. Unfortunately the effect on money supply has been minimal and mid to long-term rates offered in the market have not followed the same tightening measures. Interest rates in Taiwan are among the lowest in Asia outside of Japan and the low rates are having the effect of dampening any appreciation of the local currency. As such the weak new Taiwan dollar will materially assist export growth in the short-term on which so much of the economy depends.

While the low interest rate regime may impact on the domestic investment climate with many companies seeking to borrow on the local market and invest overseas, the TAIEX, one of the most volatile markets in Asia, continues to do well. In early April the index passed the 8,000 point level for the first time in six-and-a-half years. By the end of the month it had slipped back slightly to slightly shy of the 8,000 mark but the fact that it has largely held this level in the face of some recent profit-taking, has led market analysts to be cautiously optimistic that the upwards momentum has not yet dissipated.

Despite politics, the Taiwanese are doing what they do best-making money.

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