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Taiwan Brief - June 2008

Overview

Australian Government policy towards Taiwan is based on the Joint Communiqué with the People’s Republic of China (PRC) of 21 December 1972.  Under the terms of the Joint Communiqué, Australia recognises the Government of the PRC as the sole legal government of China and acknowledges the position of the Chinese Government that Taiwan is a province of the PRC.  Accordingly, Australia does not accept that the authorities in Taiwan have the status of a national government and the Australian Government can have no official dealings with Taiwan.  All Australian governments since 1972 have adhered to this policy.

Within the framework of our one-China policy, the Australian Government strongly supports the development, on an unofficial basis, of economic and cultural contacts between Australia and Taiwan.  Australia supports Taiwan’s participation in international organisations and conferences provided this can be achieved in a manner consistent with the Joint Communiqué.  The Government encourages Australian business to pursue trade and investment opportunities involving Taiwan and supports the development, on an unofficial basis, of people-to-people contacts.

Political Overview

System of Government

Liberalisation has transformed Taiwan’s political landscape since the end of martial law in 1987.  The first democratic elections for the Legislative Yuan (parliament) were held in 1992, with democratic elections for the Presidency following in 1996.

The central government consists of the Office of the President and five branches – the Executive Yuan, Legislative Yuan, Judicial Yuan, Examination Yuan and Control Yuan.  The President, as Head of State, has command of the armed forces and the authority to promulgate laws under the “Constitution of the Republic of China (Taiwan)”.

The Executive Yuan, the main policymaking arm of government, consists of the Premier, Vice Premier, Ministry and Commission Chairs, and Ministers without Portfolio.  Its members are presidential appointees in the American style rather than elected representatives.

The 2008 Legislative Yuan elections were held under a new system that saw the number of parliamentary seats halved from 225 to 113.  Members serve four-year terms.

Recent Political Developments

Ma Ying-jeou of the Kuomintang (KMT), the Nationalist Party, won 58 per cent of the vote in the presidential election held on 22 March 2008.  Ma was inaugurated on 20 May 2008, ending eight years of the Democratic Progressive Party (DPP) administration of Chen Shui-bian.  Chen’s victory in the presidential election in 2000 marked the first time that the KMT had lost power since retreating to Taiwan in 1949. 

In his inauguration speech on 20 May 2008, Ma said his administration would:

The most recent Legislative Yuan elections were held on 12 January 2008.  The KMT won 81 of the 113 seats, the DPP 27, with the balance going to pro-KMT minor parties and independents. 

The Cross-Strait issue

The Government of the PRC in Beijing claims sovereignty over Taiwan.  PRC policy statements advocate peaceful reunification while refusing to rule out the use of military force if this cannot be achieved.  The PRC codified its position on 14 March 2005 when it enacted its Anti-Secession Law.

On the Taiwan side, Ma Ying-jeou has undertaken to maintain the status quo in the Taiwan Strait, under the principle of “no unification, no independence and no use of force” (commonly referred to as the “three nos”) and within the framework of the Republic of China (Taiwan) Constitution.

On cross-Strait relations, Ma said in his 20 May inauguration speech that he was committed to cross-Strait peace and regional stability and hoped that the two sides of the Taiwan Strait could work towards the long-term peaceful development of cross-Strait relations and the achievement of peace and co-prosperity.  He reiterated that he was willing to resume negotiations with China at the earliest time possible based on the “1992 Consensus” of “one China, respective interpretations”.

At a meeting in Beijing on 28 May, PRC President Hu Jintao and Kuomintang Chairman Wu Poh-hsiung agreed a semi-official dialogue should resume between China’s Association for Relations Across the Taiwan Strait (ARATS) and Taiwan’s Straits Exchange Foundation (SEF).  Hu expressed the hope at his meeting with Wu that both sides could make joint efforts to build mutual trust, lay aside disputes, seek consensus and shelve differences, and jointly create a win-win situation.

International Recognition

Most governments recognise the PRC as the sole legal government of China, and accordingly do not recognise Taiwan.  Nevertheless, 23 states currently recognise Taiwan as the Republic of China (ROC):

1

Belize

13

Nicaragua

2

Burkina Faso

14

Palau

3

Dominican Republic

15

Panama

4

El Salvador

16

Paraguay

5

Gambia

17

Sao Tome and Principe

6

Guatemala

18

Solomon Islands

7

Haiti

19

St Lucia

8

Holy See

20

St Kitts and Nevis

9

Honduras

21

St Vincent and the Grenadines

10

Kiribati

22

Swaziland

11

Marshall Islands

23

Tuvalu

12

Nauru

 

 

Taiwan maintains extensive unofficial ties with countries that do not recognise it, focusing on trade and investment.  Taiwan has more than 90 unofficial offices in over 60 countries, including four offices in Australia (Canberra, Brisbane, Melbourne and Sydney).

Since 1971, when the PRC replaced the ROC in the United Nations as China, Taiwan has not been a member of any UN bodies, for which statehood is a requirement.

Through a policy of pragmatic diplomacy, Taiwan participates in a range of international and regional organisations, often under nomenclature such as “Chinese Taipei”.  It acceded to the World Trade Organization (WTO) as the “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu” with effect from 1 January 2002.  Since its admission to the Asia Pacific Economic Cooperation (APEC) in November 1991 as “Chinese Taipei”, Taiwan has played a positive and constructive role in APEC activities (China and Hong Kong were also admitted at the 1991 APEC meeting).

Economic Overview

Over the past six decades, Taiwan’s economy has evolved from reliance on agriculture (primarily rice and sugar) through manufacturing to services.  Agriculture now constitutes just 1.7 per cent of gross domestic product (GDP), down from 35 per cent in 1952, while services now account for over 70 per cent of national output and over half of all jobs.  One of Asia’s economic “tigers”, Taiwan, with a population of 23 million, is a dynamic, middle-income economy that is at the leading edge in a number of high-technology sectors.  Taiwan is the world’s 16th largest trading entity, with over 60 per cent of GDP derived directly or indirectly from exports.  Taiwan’s GDP in 2007 was forecast to reach US$383 billion, with per capita GDP of US$16,606.

Taiwan’s economy grew by 5.7 per cent in 2007, following GDP growth of 4.9 per cent in 2006.  Ongoing demand for Taiwan’s information and communications technology (ICT) products should see continued growth in exports, and as a result, the manufacturing sector.  However, moderate consumption growth and low real income growth pose challenges to the domestic economy.  The continuation of an agenda of fiscal and financial reform is also important to Taiwan’s longer term economic well-being.

At 3.9 per cent, unemployment is still high by Taiwan standards, but is down from its peak of 5.3 per cent in 2002.  The labour participation rate has increased since 2003, however, and the number of employed persons rose by 1.8 per cent in 2007 compared to 2006.  An ongoing challenge for Taiwan is to build on the economy’s international competitiveness and ensure that the labour force is equipped to adapt to major structural and industrial reforms and rapid technological change.

Consumer prices rose by 1.8 per cent in 2007, though sharp increases in energy and commodity prices exerted upward pressure on wholesale prices in the second half of 2007 and have also fed through to higher inflation in 2008.  The increase in the annual consumer price index for April 2008 compared to April 2007 was 3.86 per cent.  Competition from China will continue to curb significant wage inflation, particularly in the manufacturing sector.  Official interest rates were increased four times through 2007, although are still a relatively low 3.375 per cent.

Private forecasters expect Taiwan’s economy will grow by more than 4 per cent in 2008.  The strong export growth experienced in 2007 is expected to soften somewhat, although continued strong growth in China and other Asian economies is expected to partly offset easing US demand in the wake of the sub-prime crisis.  Lower export-driven growth is expected to be partly offset by a rise in private consumption and further growth in private investment.  Risks to Taiwan’s economic outlook include the impact of higher prices for oil and other imported materials and a greater than expected fallout from the collapse of the US sub-prime mortgage market.  Taiwan’s export-oriented economy remains vulnerable to any sustained fall in US demand.

Ma Ying-jeou has set ambitious economic targets for his administration as part of the process of opening up and deregulating Taiwan’s economy.  These targets are an annual GDP growth of 6 per cent, an unemployment rate of less than 3 per cent, and per capita income of US$30,000 by 2016.  It is envisaged that these targets will be achieved through a “Comprehensive Plan to Revitalise Taiwan’s Economy”, which is based on three key themes: growth to create jobs, justice to alleviate poverty, and sustainability of the environment to ensure better quality of life.  Ma has said these objectives will be achieved by focusing on four key areas: expanding domestic demand, improving the investment environment, strengthening the economy, and increasing the quality of life.  The “i-Taiwan 12 Priority Projects” form a key plank of Ma’s economic policy, with the “i” indicating an emphasis on investment and infrastructure.  Investment totaling approximately $140 billion, sourced from the public and private sectors, is planned over the next eight years under the program.  Other areas of focus for the Ma administration include the expansion of Taiwan’s services sectors in areas such as finance, tourism and health care, including medical tourism.

On 22 May, the Ma administration announced a separate $4 billion package in public construction investment between June to December 2008 to stimulate the domestic economy and offset the effects on the economy of rising energy and commodity prices.

Cross-Strait Trade and Investment Links

China is Taiwan’s largest trade partner and outward investment destination.  Taiwan government figures show that from 2000 to 2007, Taiwan’s trade with China more than tripled from US$31.2 billion to US$102.3 billion.  In 2007, China accounted for 21.9 per cent of Taiwan’s total trade and 30.1 per cent of Taiwan’s total exports.  Approximately 60 per cent of Taiwan’s approved outward investment for 2007 went to China.  Official Taiwan government statistics show that cumulative investment in China tripled from US$17.1 billion in 2000 to US$54.9 billion in 2006, although the actual level of investment is believed to be far higher at between US$100 billion and US$280 billion.  The electronics sector accounts for 40 per cent of Taiwanese investment in China.  Taiwanese factories in China make a major contribution to Chinese exports elsewhere. 

China’s industrialisation has given Taiwan access to a low-cost manufacturing base and new markets within China itself.  Geographic proximity as well as business and cultural ties make China an attractive destination for investment from Taiwan, although Taiwan maintains some restrictions on investment.  Ma has pledged to reduce these restrictions and also to ease those on the exchange of the Taiwan and Chinese currencies by the end of 2008 - the two currencies have been directly convertible, with limits, on the islands of Kinmen and Matsu since October 2005.  The Ma administration plans to allow Taiwan banks to establish branches in China. 

In 2001, Taiwan opened direct shipping, postal and telecommunication links between two offshore islands (Kinmen and Matsu) and China – described as the “three mini-links”.  In June 2006, Taiwan and China agreed to launch regular non-stop flights across the Taiwan Strait during four holidays a year, and to allow for the first time cargo charters on a case-by-case basis.  Senior officials of the Ma administration have expressed optimism that the commencement of direct charter flights on weekends between China and Taiwan, and the arrival of Chinese tourists in Taiwan, can occur by July 2008.

Bilateral Economic and Trade Relationship

Overview

Taiwan was Australia’s 12th largest merchandise trading partner in 2007, accounting for 2.9 per cent of Australia’s total merchandise trade ($10.26 billion).  Taiwan was Australia’s eighth largest merchandise export market and 15th largest source of merchandise imports.  Australia’s exports to Taiwan declined by 5 per cent to $5.9 billion in 2007, with major exports including coal ($1.6 billion), copper ($870 million), iron ore ($633 million) and aluminium ($582 million).  Imports from Taiwan were worth $4.3 billion in 2007, a 5 per cent increase on the previous year.  High-technology products accounted for the biggest share of imports, led by computers, telecommunications and integrated circuits ($682 million).  Australia accounted for 2.8 per cent of Taiwan’s imports in 2007.  Australia’s prominence in the supply of resources and primary products to Taiwan, and the significant value of Taiwan’s high-technology exports to Australia, underpin the complementary nature of the trading relationship between the two economies.

Two-way services trade was $741 million in 2007 ($515 million in Australian exports to Taiwan and $226 million in imports from Taiwan).  Taiwan is a major tourism and education market for Australia.  Over 93,000 Taiwanese visited Australia in 2007 and there were 9,646 Taiwan student enrolments in Australian educational institutions.  Taiwan and Australia have a mutual working holiday maker arrangement, with 2,311 working holiday maker visas granted to Taiwanese visitors in 2006-07.

Given the strong trade ties between Australia and Taiwan, two-way foreign investment is relatively low despite recent strong growth.  Taiwan ranks 18th among foreign investors in Australia, while Taiwan ranks 20th as a destination for Australian investors.  Taiwanese investment in Australia was $3.5 billion in 2006, up by 39 per cent on the previous year, while Australian investment in Taiwan amounted to $3.1 billion in 2006, a 39 per cent increase on the previous year.

Australian Trade and Investment Strategies

Bilateral economic consultations are held annually.  The consultations cover a wide range of issues, including market access, investment, agriculture, science and technology, and telecommunications.  Annual Energy and Minerals Trade and Investment Consultations support trade and investment in the two sectors that account for the bulk of Australia’s exports.  Bilateral electronics talks were initiated in 2005.  The Australian Government supports the work of the Australia-Taiwan Business Council (ATBC) and actively liaises with business to facilitate trade and investment in Taiwan.

A number of arrangements are in place to facilitate trade between Australia and Taiwan, covering issues such as quarantine, competition policy, double taxation and scientific cooperation.  To this end, the Australian Government is enhancing cooperation between agencies, such as the Australian Customs Service, the Australian Quarantine Inspection Service and their Taiwan counterparts. 

Export Opportunities

The expected acceleration of privatisation and deregulation of Taiwan’s economy, in conjunction with programs such as the “i-Taiwan 12 Priority Projects”, may offer new commercial opportunities for Australian business, in sectors such as infrastructure, services, finance, aerospace and telecoms.

Taiwan is continuing its privatisation program for state-owned enterprises (SOEs), with a total of 34 SOEs already privatised.  Another 15 SOEs, including in the areas of petroleum, shipbuilding, water supply, tobacco and liquor, banking and chemical manufacturing, are listed for privatisation.  The cumulative value of stocks and assets sold is estimated by the Taiwan authorities at US$21 billion.  In a significant step toward consolidation of the banking sector, the Bank of Taiwan, Taiwan’s largest bank in terms of assets, merged with the state-owned Central Trust of China on 1 July 2007. 

In 2007, the average tariff on products imported into Taiwan was 5.62 per cent, down from 9.5 per cent in 2002.  On agricultural products, the average tariff was 17.5 per cent.  Import quotas and bans were abolished following Taiwan’s accession to the WTO in 2002, but a small range of products – including rice, certain other agricultural products and passenger cars – are subject to tariff rate quotas, with high tariffs applying to “out of quota” imports.

Taiwan is also reforming its regulatory environment.  In 2001 it strengthened accountancy supervision and amended the Company Law.  The following year it amended the Securities Exchange Law and enacted a Merger and Acquisitions Act.  In 2003 it revised intellectual property legislation, and an intellectual property court has been established.  To further improve corporate governance, regulators have proposed introducing independent directors and enforcing transparency for private companies.

For more information on export opportunities and export assistance in Taiwan, visit Austrade's country page.

Trade Successes

Biotechnology and medical research

Health

Education

Energy and Utilities

ICT and Electronics

Science and Technology

Telecommunications

Construction