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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)

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New Taiwan dollar (TWD)

Chen shui-bian

Update No: 022 - (31/10/05)

Waving a red rag at China
Tensions between the "pan blue" and the "pan green" alliances remain high in the run up to the December legislative elections although the change at the helm of the Kuomintang that took place in August with Taipei mayor, Ma Ying-jeou replacing Mr. Lien Chan offers the chance of a more conciliatory stance between the two rival camps once the election is out of the way.
While the ruling Democratic Progressive Party (DPP) will continue to seek to mend fences with China, the chances of a genuine rapprochement remain slim, especially as Taiwan's president, Chen Shui-bian seems intent on stoking the fires on constitutional questions. Tinkering with the constitution of Taiwan is like waving a red rag to a bull as far as China is concerned.
Yet, as more and more of Taiwan's manufacturing relocates to the mainland of China, Taiwan's fate is increasingly being nailed to the Chinese mast and Taipei's freedom to manoeuvre is slowly diminishing. Taipei has partly itself to blame for this state of affairs having steadfastly obstructed the opening of direct travel and communications links with China. The opportunity for Taipei to emerge as a regional operations hub for Greater China has been lost meanwhile.
As rising oil prices take their toll both on local producer prices as well as on global growth generally, Taiwan is finding demand for even its high-end technology-based products rapidly shrinking and with it a winding back of its own forecasts for future growth. In order to remain competitive, more and more companies are shifting their operations to China - and in doing so are ignoring opportunities elsewhere in Asia. When reduced to the bottom line, all China needs is patience, which history shows they have in abundance.

Presidential or parliamentary? What is best for Taiwan?
Legal and political experts from Taiwan and from overseas have been attending a constitutional reform conference in Taipei. While agreeing that the present Constitution is problematic, they differed widely on what government system would best suit Taiwan.
One foreign academic noted that the present presidential system was "dysfunctional" and recommended a switch to either a "classic semi-presidential system" or a "pure presidential system with modifications to suit local conditions." Many politicians attending the conference were left scratching their heads in bewilderment.
Cutting aside the academic debate, President Chen Shui-bian, in addressing the conference said that his remaining presidency would be devoted to carrying out constitutional reform and that he (and by inference, the DPP) would support whatever system was backed by the majority of Taiwan's people.
The first round of constitutional amendments, focusing on the unicameral legislature were approved back in June but many within the ruling party want the process to continue and to embrace the entire system of government. According to Mr. Chen, further changes are needed to address the issue of whether to change the political system to either a presidential or parliamentary system, the protection of basic human rights; enshrining the rights and obligations of the central and local governments; streamlining government agencies; lowering the voting age from 20 to 18 and adopting a voluntary system of military service. 
According to Mr Chen the current system tends towards a presidential system but is one in which at present, the president has no right to veto bills passed by the legislature and can only dissolve the legislature if it (the legislature) succeeds in toppling the cabinet. The end result of the current system, is that stalemate has become the norm.

Consumer electronics leads rebound in export orders
Boosted by strong demand for consumer electronics ahead of the Christmas peak buying season, September export orders rose by almost 22 per cent y-o-y to a record US$23.8 billion. In the same month export orders for electronics products, which accounted for 23 per cent of total orders, rose by 25 per cent to US$5.5 billion. Of course, a weakening Taiwan dollar has helped keep export demand buoyant. The New Taiwan Dollar has declined by around 6 per cent over the course of the year. However, export orders booked into Taiwan do not necessarily translate into customs collected export data since many such orders are now fulfilled from plant offshore. The Ministry of Economic Affairs claims that a record-high of 41.05 per cent of current orders will be produced overseas as compared to an average of 35 per cent over the past year.
While makers of digital cameras and flat panel screens are doing relatively well in the present climate, Taiwan's chipmakers are facing a bleak outlook. United Microelectronics Corporation, the world's second largest chipmaker has reported a slump of 80 per cent in its third quarter earnings. The company is hoping that demand will rebound in the final quarter and has predicted a 10 per cent increase in output until the end of the year and is banking on higher demand for its advanced technologies and especially - 90 nanometer processing technology - to boost future earnings. 
According to the latest available Custom's data, Taiwan's trade surplus slumped in the second quarter by more than 73 per cent as compared to last year. Despite the recent pick up in demand, Taiwan's export outlook for the longer term is decidedly lacklustre. Most economic agencies believe that high oil prices coupled to a slowdown in China and the United States will further shrink Taiwan's trade surplus. Industrial migration, whereby more and more of Taiwan's industrial factories are transferring their operations to China's mainland in order to cut costs is another factor weighing on Taiwan's ability to retain its competitive export clout.

Economic forecasts for 2006 vary widely
The Chung-hua Institute for Economic Research, one of Taiwan's leading economic think-tanks has already cut its growth forecast for 2005 for the second time. For this year it now predicts a GDP growth of 3.53 per cent - down from 3.8 per cent forecast in July. Chung-hua is predicting a rebound to 4.51 per cent for 2006 on the strength of a boost to the economy from major infrastructure development projects and an expected recovery in domestic consumption. There is also an underlying assumption of ongoing government reforms and an increase in domestic investment. However if reforms and investments do not materialise or if Taiwan fails in its bid to secure regional free-trade pacts, then the outcome next year could be as low as 3.65 per cent - a figure barely above the 2005 expected result. 
Another government funded think-tank the Taiwan Institute of Economic Research is forecasting growth next year of 3.9 per cent.
The upbeat forecasts given by Chung-hua and TIER areas not shared by others. Fubon Financial Forecasts - another well-known Taiwan group -- is expecting GDP growth for 2006 to come in somewhere between 2.5 and 3 per cent with export growth at around 3.4 per cent. Compared to the heady 20+% growth achieved in 2004, these new figures come as quite a shock to the system.
UBS Investment Bank meanwhile is punting on Taiwan achieving 3.1 per cent growth this year and 2.9 per cent for next year.

Unemployment levels continue to fall
Taiwan's labour market remains tight. According to the Directorate General of Budget, Accounting and Statistics, Taiwan's unemployment level in September fell to a low of 4.14 per cent in September down from 4.36 per cent recorded in August. This was the lowest level recorded in more than 5 years and was down from 4.50 per cent recorded a year ago. On a seasonally adjusted basis, unemployment in September stood at 4.01 per cent. Analysts are hopeful that falling unemployment levels will boost consumer confidence and lead to an improvement in domestic consumption.
The eligible workforce now stands at 10.38 million, an increase of 1.28 per cent over the last twelve months.
Average wage levels appear to be rising quite rapidly. According to reports, the average monthly salary for local office workers with five years experience or more grew by more than 9 per cent over the past year to around NT$32,850 (US$976) per month. Jobs in the information technology and sciences sectors command the highest salaries.

Falling currency pleases exporters
Taiwan's dollar continues its slow deprecation against the US dollar and dropped further last month under pressure from the potential consequences of bird-flu hitting the island. On October 21, the New Taiwan dollar closed at a recent low of 33.681 to the US dollar. This was its weakest close since October 26 last year. Central Bank Governor, Perng Fai-nan has said that the bank will not "buck the trend" in the foreign-exchange market and while the bank may "ease its decline" it may intervene just sufficiently to ease its fall. 
The New Taiwan dollar has actually gained against other major trading currencies. Against the Japanese yen the NT dollar has appreciated by 6.7 per cent over the past year. Against the Euro it has climbed by 5.87 per cent.

Taiex also under pressure
Taiwan's stock index has also been under pressure in recent months, largely as a result of oil price increases and, more recently, as a result of concerns over a possible outbreak of bird flu in Taiwan. By October 28 the main index had slipped to 5632.97, its lowest point this year. The index has been on a reasonably steady slide since reaching a year's high above 6,300 in late July. The bourse lost 8.3 per cent of its value in October alone.
In spite of the bourse's recent poor performance, investment banker, Morgan Stanley, remains bullish on market prospects and reported on October 28 that it had overweighted Taiwan's market because of "the unexpected stimulus of positive earnings, bolstered by accelerating worldwide growth and a weakening national currency." Morgan Stanley believes that a sustained 5 per cent slide in Taiwan's currency vis--vis the US dollar would lift local margins and earnings, especially in stocks with a strong technology bias. Once Taiwan's legislative elections are over in December, a sustained rally may result according to Morgan Stanley analysts.

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