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Invest In The Asian Dragon Taiwan: The Other China

220px-Ximending_at_nightAn investor in East Asia may wish to consider Taiwan one of the four original economic Asian Dragons. This economic entrepreneur known as the Republic of China or simply the other China has been a good investment opportunity for two generations. The economy for the second business quarter is surging ahead by 3.8%. As a mostly developed economy, that rate is quite substantive. Growth is being powered by an increase in the export of electronics, increased consumer demand and most significantly an increase in investments. It has the second largest IT hardware manufacturing country in the world. Taiwan’s semiconductor, optoelectronic, information and communication products account for more than 70% of the global market share.

The island of Taiwan’s exports rose 2.9% in the second quarter after a less than 1% gain in the first quarter. Capital formation rose 6.9% in the second quarter from a year ago. This would include both private sector and government investment. Continued economic growth in the United States, mainland China and Hong Kong as the top three exports markets for Taiwan, ensure that 2014 will be a headline year. With an emphasis on specialized manufacturing, services and technology, travelers will find Taiwan is one of the richest countries in Asia.

Modern High Speed Train

Modern High Speed Train

The Gross Domestic Product (GDP) of Taiwan grew by 3.3% in 2013. The GDP per capita was $21,770 USD (United States Dollar). This is the 39th largest in the world. In Purchasing Power Parity (PPP) that is the equivalent of $42,000 USD. This is the 17th highest in the world. Inflation is tame at a rate of 2.2%. The budget balance as a percentage of GDP was -2.4%. Taiwan has the 4th largest foreign reserves in the world. The country has the equivalent of $4 trillion USD. The island also has large annual account surpluses, which makes the country more stable in the face of any major capital outflows or future financial crises.

The estimate in nominal GDP for 2014 is $517 billion USD, the 25th largest economy in the world. In PPP the approximation is $977 billion USD ranking it the 20th biggest. This results in Taiwan having a strong domestic market, much larger then some of it’s neighbors.

Taiwan On The Map

Taiwan On The Map

The island of Taiwan is rather small at 36,193 km2 which is the equivalent of 13,974 square miles. It ranks globally 136th in geographic size. The population estimate is 23.4 million (ranked 52nd) with a density of 644/km2 the equivalent of 1,664 square miles (rank 17th).

The natural resources of the country include asbestos, small deposits of coal, limestone, marble and natural gas.

Agricultural products include beef, corn, fish, fruit, milk, pigs, poultry, rice, tea and vegetables.

The main industries of Taiwan include armaments,cement, chemicals, communications and information technology products, consumer products, electronics, food processing, iron and steel, machinery, petroleum refining, pharmaceuticals, textiles and vehicles.

Tea Plantation

Tea Plantation

The labor force in excess of 11 million. The population below the poverty line is around 1%. By sector 5.2% of the population is engaged in agriculture, 35.9% in industry and 58.8% in the service industry. The unemployment rate in 2014 has dropped below 4% the first time in 6 years.

Taiwanese universities are among the best in the world. This has led to a highly skilled workforce. An investor in the country will find potential employees to be well trained for a wide variety of jobs in business and industry.

Total value of exports are in excess of $300 billion USD. The main export partners of Taiwan are China with 27.1% of the total followed by Hong Kong at 13.2% and the United States at 10.3%. Japan and Singapore are next at 6.4% and 4.4% respectively. Major exports include chemicals, electronics, flat panels, machinery, measuring and medical instruments, metals, optical devices, photographic tools, plastics and textiles.

National Taiwan University Hospital In The Capital Taipei

National Taiwan University Hospital In The Capital Taipei

Imports on total value are below $300 billion USD. The trade surplus for Taiwan is about $30 billion USD. Imports include crude petroleum, electronics, machinery, metals, organic chemicals and precision instruments. The main import partners are Japan, China and the United States at 17.6%, 16.1% and 9.5% respectively.

Taiwan does not have any Gross External Debt. A rare state of affairs in the global economy.

Foreign Direct Investment in Taiwan is in excess of $65 billion USD. Abroad the Taiwanese have invested over $213 billion USD. Foreign investment is largely welcome with transparency and efficiency improving. The still developing financial sector offers a wide scope of financial instruments and services. It does however, suffer from some government interference.

The credit ranking for the country is AA- both domestic and foreign. The T&C Assessment is AA plus and the outlook is stable. Monetary stability has mostly been the rule for Taiwan. The credit rating has declined somewhat because the country’s national budget has fallen into deficit. Government spending is equivalent to 22.4% of the economy and public debt is about 40% of GDP. The government has responsibly proposed additional tax reforms to close the growing budget deficit.

Tallest Building In The World 2004-2010

Tallest Building In The World 2004-2010 In Taipei

The country ranks 16th in the Ease Of Doing Business Rank.

In the Index of Economic Freedom published by the Heritage Foundation Taiwan ranks 20th. It is just behind Germany but ahead of Georgia a former republic of the Soviet Union located in the Caucasus region. In regional ranking it holds the 5th position out of 41 economies in the Asia-Pacific region. Taiwan is only behind Hong Kong, Singapore, Australia and New Zealand. With a total score of 72.7 and an increase of 0.8% from last year Taiwan is ahead of Japan, Macau, South Korea, Malaysia and Thailand. The increase reflects gains in labor freedom, business freedom and freedom from corruption.

Computex Second Largest Technology Trade Show In The World

Computex Second Largest Technology Trade Show In The World

Taiwan has a strong legal framework which upholds the rule of law and provides a strong protection of property rights. Government spending is getting under control but the level of state involvement in the economy remains considerable. The two major problems for the economy remain a rather rigid labor market and unfortunately corruption. It is important to note that improvements are continuing in these two areas.

As a result of government efforts since 2009, Taiwan is registering continuous improvements in economic freedom. The free market allows goods and capital to be utilized efficiently in the private sector. The economy of the island is driven by small and medium sized companies. A well formulated commercial code has permitted this development. The result has led to an average rate of growth of 4% over the last 5 years. This occurred despite the ongoing global economic uncertainty.

Flag Of Taiwan The Republic Of China

Flag Of Taiwan The Republic Of China

The average tariff rate is relatively low at 2.5%. However, there are some non-tariff barriers concerning agricultural imports and service industries. As a result the cost of trade is impacted negatively in these two sectors of the economy.

Hsinchu Science And Industrial Park Largest In Taiwan

Hsinchu Science And Industrial Park Largest In Taiwan

The general freedom to conduct business is generally safeguarded under a rather efficient regulatory environment. Registration of business procedures like licensing and permitting have continued to simplified in recent years. It takes only 3 procedures to actually start a company and there is no minimum capital amount required.

As aforementioned there is a legal infrastructure in place to protect all property rights including intellectual ones. An area of concern for investors regrettably, still remains in respect to the infringement of copyrighted material and counterfeit pharmaceuticals. One positive aspect in regards to these issues is that the court system is independent of political interference, so there is an opportunity for redress of illegality.

The top income tax rate in Taiwan is 40%. More importantly for investors, the corporate tax rate has been reduced to 17% from 20% as of 2010. Additional taxes include a value added tax known as the VAT and an interest tax. The overall tax burden is equal to 7.9% of the total domestic income which is quite reasonable. The country has become one of the lowest tax rate countries in Asia, much like Hong Kong. The country has signed numerous treaties to prevent double taxation for foreign investors and residents.

Taipei Capital City Of Taiwan

Taipei Capital City Of Taiwan

Making an investment in Taiwan can be an excellent way to enter the Chinese market with the increasing economic and trade ties with the mainland. The Taiwanese Stock Market (over 800 companies listed) is highly sophisticated and worth for an investor to take a look. With its democratic and open society of mostly Chinese ancestry the citizenry are thrifty and industrious. Taiwan exhibits a culture of innovation and the government has taken steps in promoting this. This is evidenced by the setting up business and other collaborative programs to assist with corporate development, so Taiwan can become a center for research and development. The infrastructure of Taiwan in the cities is modern and efficient. Communication and transportation networks are top notch.  The close proximity to almost all the other East Asian economic powers is an added bonus.

Confucius Temple

Confucius Temple

Finally, Taiwan has relatively low utility and living costs. Salaries are considered to be competitive in world markets for skilled workers. The society is stable and the working environment is sound. There are a large number of foreigners already working and living in Taiwan. Overall, the Taiwanese are most welcome of visitors, tourists, and foreign entrepreneurs. The only issue investing there would be if Mainland China would attempt to force a reunion with the island through a military invasion. However, this political objective has not really been a immediate professed goal since 1992.

 

 

 

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