Taiwan is among a select group of Asian countries that has managed to transition from middle-income to high-income over the last 50 years. It scores well on creditworthiness, growth and ease of doing business. But has a lower per capita income relative to most other advanced economies.
Soft demand from key trading partners has dragged on Taiwan’s export-dependent and manufacturing intensive economy. While domestic demand has picked up some of the slack; growth has struggled to reach the 4.5% p.a. average recorded in the ten years to 2007.
Growth is expected to accelerate in 2015. Taiwan is a leading player in mobile computing and an important cog in global supply chains, making it well placed to ride the upturn in the global tech cycle and firming US demand.
But soft Chinese demand and subpar regional growth will weigh on exports. Taiwan’s prospects will continue to depend heavily on its largest trading partner China.
Over the longer term, the aging population will reduce the size of the work force, while productivity growth will continue to trend lower. Another challenge is re-balancing the economy away from exports, towards stronger domestic consumption. This will be difficult as weak wage growth limits household spending power.
Taiwan is a high-income economy, although income per capita lags behind most other developed nations. Per capita income is expected to rise to reach a level in 2020 at which economies like Spain and South Korea now sit.
Taiwan enjoys an investment grade credit rating and a strong OECD country credit grade of 1. This suggests a relatively low likelihood that it will be unable or unwilling to meet its external debt obligations in a systemic sense (though, needless to say, individual debtors can and do default).
Taiwan’s business climate comes in at 19 out of 189 economies on the World Bank’s ease of doing business gauge — which measures regulation and red tape relevant to a domestic small to mid-sized firm. Taiwan scores in the top quintile across most categories, however enforcing contracts and getting credit are relatively difficult.
Taiwan scores in the top half in all areas of governance, but still lags behind most other advanced economies.
Taiwan is Australia’s eleventh largest trading partner. Import payments to Taiwan totalled A$4.1b in 2013, made up primarily of refined petroleum and telecommunications equipment.
Australia merchandise exports to Taiwan were worth A$7.4b in 2013 consisting mainly of coal, iron ore and aluminium. Agricultural exports have risen steadily as Taiwanese demand for Australian beef, wheat and dairy is on the rise. Taiwan sources most of its beef imports from Australia.
Service exports to Taiwan were worth A$750m in 2013 with tourism forming the lion’s share.
Taiwanese student enrolments in Australian institutions are much lower than South Korea or Japan. Most students eligible for scholarships often chose to study in the UK and US.
Australian investment in Taiwan has grown steadily in recent years, but is only 0.3% of Australia’s total foreign investment portfolio.
Macquarie has invested in Taiwan Broadband Communications (a leading cable and digital TV operator), and also has investments in wind farms and container terminals.
Taiwanese investment in Australia reached A$5.1b in 2013 as companies invested in LNG projects on the Browse basin and resource projects in the Pilbara.
Department of Foreign Affairs