Taiwan, China: Economic and Political Overview

Economic Overview

In 2020-2021, Taiwan bucked global trends by maintaining stable macroeconomic performance amid the Covid-19 pandemic: economic growth surged from an average of 2.8% yearly in 2016-2018 to 4.5% in 2019-2021, propelled by increased manufacturing production and exports, along with supportive monetary and fiscal policies, alongside rising investment rates. In 2023, however, the export-driven island nation experienced a slowdown due to sluggish global demand, with growth reaching only 0.8% supported by private consumption. The economy is anticipated to gradually rebound in 2024 (3%), on the back of external demand rather than domestic factors. The IMF outlook hinges on improvements in the global economy and the avoidance of escalation in geopolitical tensions with China.

Taiwan maintains a robust external financial position, characterized by significant current account surpluses averaging between 10% and 15% of GDP over the past decade. With foreign exchange reserves exceeding USD 565 billion as of June 2023—equivalent to more than 15 months of imports—the nation enjoys a strong buffer. Additionally, its moderate public debt (estimated at 26.6% of GDP in 2023, with an expected reduction to 23.3% this year) and minimal external debt signify low reliance on non-resident financing. The budget returned into positive territory in 2023 (+0.3% of GDP, from -1.7% one year earlier). The projected annual revenue for the 2024 central government general budget stands at TWD 2.709 billion, with annual expenditure set at TWD 2.881 billion. This marks a 5% increase in revenue and a 7.2% increase in expenditure compared to 2023. The budget is primarily allocated to three key sectors: social welfare, accounting for 27.5% of the total budget, national defence receiving 15%, and education, science, and culture allocated 19.5%. To counter escalating inflationary pressures in recent years, the central bank elevated its main policy rate from 1.125% in early 2022 to 1.875% by March 2023, marking the highest level since 2015. This resulted in a deceleration in the inflation rate to 2.5% last year, with a further decrease expected for 2024 (1.5%).

Due to substantial job growth in the services sector, the unemployment rate hit its lowest level in August 2023, matching figures not seen since January 2001, standing at 3.4% seasonally adjusted. The resilience of the job market, coupled with the planned minimum wage increase slated for January 2024 (+4.05% monthly and +3.9% hourly), will further bolster household spending. Despite maintaining a relatively moderate Gini coefficient compared to international standards, Taiwan has witnessed a concerning trend of increasing income inequality over the last three decades. Official data indicates that its Gini coefficient climbed from 0.291 in 1985 to 0.312 in 1991, and further to 0.342 by 2022.

Main Sectors of Industry

The agriculture sector contributes only very modestly to the GDP (around 2% according to figures from the official statistical agency) and employs about 5% of the labour force in Taiwan. Taiwan's natural resources are limited, the main crops being rice, sugar cane, fruits and vegetables. Rice cultivation remains a fundamental component of Taiwan's agricultural landscape, alongside the production of fruits like bananas, pineapples, and citrus fruits, as well as vegetables such as leafy greens and root vegetables. Livestock farming, particularly pork and poultry, also contributes significantly to the sector.

The secondary sector accounts for over 36% of GDP and employs about 35% of the labour force. The Taiwanese industrial sector encompasses a broad array of main sectors, including electronics, machinery, petrochemicals, and textiles. Renowned globally for its electronics industry, Taiwan is a leading producer of semiconductors, flat-panel displays, and consumer electronics. The machinery sector also plays a vital role, with Taiwan producing a diverse range of machinery and equipment for various industries. Petrochemicals form another cornerstone, with Taiwan hosting several petrochemical refineries and producing a wide range of chemical products. Additionally, the textile industry remains significant, with Taiwan known for its high-quality fabrics and garment manufacturing. Emerging sectors in Taiwan's industrial landscape include green energy technologies, biotechnology, and precision machinery, driven by innovation and government initiatives to foster advanced manufacturing capabilities. According to data from the Ministry of Economic Affairs (MOEA), Taiwan's industrial production index fell by 13.22% year-on-year to 85.68 in the initial 11 months of 2023, with the manufacturing sector's sub-index dropping by 13.65% to 85.13.

Services accounted for over 62% of GDP and employed nearly 70% of the labour force in 2022. The Taiwanese services sector encompasses a diverse range of main sectors, including finance, tourism, healthcare, and information technology (IT). Taiwan's financial sector is robust, with a well-developed banking system and a growing emphasis on fintech innovation. Tourism is also a significant contributor to the economy. The healthcare sector is also notable, with Taiwan known for its high-quality medical services and growing medical tourism industry. Information technology services, including software development, digital content creation, and e-commerce, are rapidly expanding, driven by Taiwan's expertise in technology and innovation.

Source: World Bank, Latest data available.

Indicator of Economic Freedom

Score:

78,6/100

World Rank:

6

Regional Rank:

4

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

Business environment ranking

Score:

7.95/10

World Rank:

16/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

Sources of General Economic Information

Ministries

Ministry of Finance
Ministry of Economic Affairs
Ministry of Agriculture

Statistical Office

National Statistics

Central Bank

Central Bank of the Republic of China

Stock Exchange

Taiwan stock exchange

Other Useful Resources

Government of Taiwan
The Economist - Taiwan
World Bank Data - Taiwan

Main Online Newspapers

Taipe Times
Taiwan News
Focus Taiwan

Political Outline

Current Political Leaders

President TSAI Ing-wen (since 20 May 2016)
Vice President LAI Ching-te (since 20 May 2020)
Premier: CHEN Chien-jen (since 31 January 2023)

Next Election Dates

Presidential: 2028
Legislative Yuan (parliamentary): 2028

Current Political Context

On January 13, 2024, Taiwan held legislative elections alongside the presidential election. The run-up to the election garnered global attention due to escalating tensions in the Taiwan Strait. It was the fifth time the mixed electoral system was used for legislative elections. Lai and his Democratic Progressive Party (DPP) clinched victory in the election, securing slightly over 40% of the vote. The Kuomintang (KMT) candidate Hou Yu-ih came in second with 33.5%, while Taiwan People’s Party (TPP) candidate Ko Wen-je garnered 26.5%.
Legislative elections also took place on the same day. The ruling Democratic Progressive Party (DPP) lost its majority in the Legislative Yuan, which it had held since 2016, dropping 11 seats to retain 51. The Kuomintang (KMT) emerged as the largest single party with 52 seats, while the Taiwan People's Party (TPP) secured eight seats. The New Power Party lost its three seats as it failed to win a constituency seat or meet the 5% threshold for at-large representation. This election marked the first time, under the current electoral system introduced in 2008, that no party held an absolute majority in the Legislative Yuan. Additionally, it was the first time the largest party in the legislature neither won the most constituency votes nor the most party votes.
A key focus of these elections revolved around the country's relationship with mainland China. The Kuomintang (KMT) criticized Tsai Ing-wen's Democratic Progressive Party, alleging that their advocacy for Taiwan's independence has exacerbated tensions. Taiwan's incoming president-elect, Lai Ching-te, is poised to confront his most challenging responsibility upon assuming office in May, contending with China's vehement opposition, branding him as a divisive separatist figure. Despite Lai's repeated assertions during the campaign about maintaining the status quo with China, which asserts Taiwan as its territory, in his prior statements to parliament Lai described himself as a "practical worker for Taiwan independence".

Main Political Parties

Most parties maintain alliances with the two largest ruling parties: the KMT and DPP. Only three political parties obtained seats in the Legislative Yuan following the 2023 election:

- Democratic Progressive Party (DPP): centre, backs an independent Taiwan, has gained the most seats in the 2023 election
- Kuomintang (KMT): centre-right, favours Chinese nationalism
- Taiwan People's Party (TPP): centre-left

Other parties include:
- New Power Party: centre-left
- Green Party Taiwan: centre-left
- Taiwan Statebuilding Party: big-tent, independentist
- People First Party (PFP): liberal.

Type of State

Taiwan has for all practical purposes been independent for half a century but China considers it as a part of its territory and wants it re-united with the mainland. Legally, most nations and even the United Nations acknowledge the position of the Chinese government that Taiwan is a province of China.

Executive Power

Taiwan is tirst country in Asia to have elected its president by universal direct suffrage. The President and Vice President are elected on the same ticket by popular vote for four-year terms (eligible for a second term). The Premier is appointed by the President; the Vice premiers are appointed by the President on the recommendation of the Premier.

Legislative Power

Unicameral Legislative Yuan of 113 seats including 73 district members elected by popular vote, 34 at-large members elected on the basis of proportion of island-wide votes received by participating political parties and 6 elected by popular vote among aboriginal populations; to serve four-year terms.
 Political parties must receive 5% of the vote to qualify for at-large seats.

Indicator of Freedom of the Press

World Rank:

43/180

Indicator of Political Freedom

Ranking:

Free

Political Freedom:

1/7

Civil Liberties:

1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

COVID-19 Country Response

Travel restrictions

Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.

Import & export restrictions

A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

For the general overview of the financial measures put in place in Taiwan in response to the pandemic, refer to the KPMG website Government and institution measures in response to COVID-19.

Support plan for businesses

For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.