Since the 1990's, Taiwan has been relocating its manufacturing activities to low-cost region, in particular to the Chinese mainland. The share of GDP contribution by the manufacturing industry in Taiwan shrank to 24% in 2007 as a result. But in absolute terms, Taiwan's manufacturing sector has continued to grow steadily. Meanwhile, the services sector now accounts for some 71% of Taiwan's GDP.

Taiwan's Economic Structure 2007

In order to achieve a sustainable economic development, Taiwan's Executive Yuan has laid down a long-term plan for economic development up to 2015. In its blueprint, the government aims to maintain an average annual growth of 5% for the economy during 2006-2015, with per capita GDP reaching US$30,000 by the year of 2015. It also targets to increase the share of services sector in GDP from 73.3% in 2005 to 76.2% by 2015, while the share of industrial sector is expected to decrease from 25% to 22.7% in the period.

To achieve these targets, the government has determined to improve Taiwan's investment environment by enhancing the land and labour supplies as well as upgrading the infrastructure, and to provide assistance to small and medium-sized enterprises and traditional industries. In addition, the government has also determined to promote new initiatives such as wireless broadband and related items, digital living, health care and environmental protection.

Foreign Trade

Exports, which are a major contributor to Taiwan's economic growth, grew by 16.5% to US$157 billion during January-July 2008. Taiwan's major export product categories include electronics, steel products, machinery, precision instruments, information and communication products, chemicals and electrical appliances. Major export markets include the Chinese mainland, Hong Kong, the US, Japan, ASEAN and the EU, which together account for some 80% of Taiwan's total exports.

Imports increased by 20.7% year-on-year to reach US$149 billion during January-July 2008. Major imports of Taiwan include capital equipment and raw materials, with sources mainly from Japan, the US, the Chinese mainland and the EU.

Foreign Investment

Taiwan's Ministry of Economic Affairs approved inward foreign investment of US$3.7 billion during January-June 2008, down by 11% over the same period in previous year. Finance and insurance were the largest recipients of foreign investment, which together accounted for 35% of the total foreign investment. Other major sectors receiving foreign investment included manufacturing of electronic parts (9%), other manufacturing (13%), wholesaling and retailing (9%) and manufacturing of computers, electronic items and optical manufactures (8%).

The largest foreign direct investor in Taiwan was the Netherlands, which accounted for 29% of the total inward foreign investment during January-June 2008. This was followed by the US (26%), the Caribbean (17%), Hong Kong (6%), and Singapore (6%).

In January-June 2008, Taiwan's outflow of foreign direct investment surged by 60% to US$2.3 billion (Chinese mainland not included). The Caribbean was the leading destination for outward investment (31% of the total), followed by Singapore (28%), South Korea (10%), the US (9%) and Vietnam (7%). Finance/insurance, manufacturing of computers, electronic parts and components, as well as wholesaling/retailing, were the major investment areas.

Economic Relations with Chinese Mainland

Trade with the Chinese mainland is allowed, but according to the Taiwan's Regulations Governing Permission of Trade Between Taiwan Area and Mainland Area, all  goods have to be shipped via a third place.

For investment, pursuant to Taiwan's Regulations Governing the Approval of Investment or Technical Cooperation in Mainland China, business investment and technical cooperation undertaken in the mainland by Taiwanese companies are subject to the approval by the Investment Commission of Taiwan's Ministry of Economic Affairs. But Taiwan has been gradually relaxing its restrictions on mainland investment, including such high-tech projects as production of semiconductor items and wafer fabrication, as well as investment under US$200,000. In addition, the government approved lifting the cap on mainland-bound investment to 60% of a company's net worth from the previous 40% in July 2008.

Since 2001, "Little 3 Links" i.e. direct passenger and cargo shipments between the mainland and Taiwan's outlying islands of Kinmen, Matsu and Penghu have been allowed.  And since July 2008, direct chartered flights across the strait are allowed on every weekend (Friday to Monday).

As at the end of June 2008, Taiwan had approved a total of 36,911 projects of investment in the Chinese Mainland, with cumulative investment amounting to US$70 billion. Manufacturing industries, including those of electronic items like electronic parts, computers, electronic and optical products, electrical equipment, metal products and plastic products, are the major targeted sectors of such Taiwan investment. Jiangsu, Guangdong and Shanghai are the major regions that receive the majority of Taiwanese investment in the mainland.

Taiwan's Approved Indirect Investment in the Chinese Mainland by Major Industry  

Taiwan's Approved Indirect Investment in the Chinese Mainland by Major Region

Economic Relations with Hong Kong

Hong Kong serves as an important transshipment base for trade across the strait. About a fifth of the mainland/Taiwan bilateral trade, mainly electronics and electrical products, are re-exported via Hong Kong.

On the whole, Hong Kong's total exports to Taiwan increased by 5% year-on-year to US$3.4 billion during the first half of 2008. Major export items in the period included semiconductors and electronic valves/tubes (31% of the total), telecommunications equipment and parts (10%), chilled/frozen meat (5%) and parts and accessories of office machines/computers (5%).

On the other hand, Hong Kong's imports from Taiwan rose by 5% year-on-year to US$12.5 billion during the first half of 2008. Major import items in the period included semiconductors and electronic valves/tubes (47% of the total), telecommunications equipment and parts (8%), polymers of styrene in primary forms (5%) and parts and accessories of office machines/computers (5%).

Remark: Since offshore trade has not been recorded by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

According to Taiwan's Investment Commission, during the first half of 2008, Taiwan approved 102 projects of investment by Hong Kong companies, amounting to US$236 million. Major investment sectors included trading services, finance and insurance, electronics and electrical manufacturing, wholesaling and retailing.

On the other hand, Hong Kong's inflows of direct investment from Taiwan amounted to some US$1.1 billion in 2006, according to the latest figures from the Census and Statistics Department of Hong Kong.

Reflecting Taiwan’s interests here, as of mid-2007, 28 Taiwanese companies had their regional headquarters in Hong Kong, and another 155 had regional offices here. A further 164 Taiwanese companies had local offices in the territory to look after the domestic market here. In addition, there are over 50 Taiwanese companies listed on the Hong Kong Exchanges. Prominent examples include Yue Yuen, Foxconn, Proview and TPV Technology.