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. After growing an estimated 1.3% in 2023, economic activity accelerated to 4.3% in 2024, the highest rate in three years, driven by stronger-than-expected private investment and a surge in high-tech exports (official governmental figures). According to the IMF, growth is anticipated to moderate to 2.7% this year and 2.6% in 2026, as robust exports of AI-related products and investment activities are expected to sustain growth, balancing weak demand in traditional manufacturing industries.

Taiwan maintains a solid external financial position, characterized by significant current account surpluses averaging between 10% and 15% of GDP over the past decade. After recording a budget deficit of 0.8% of GDP in 2024, the 2025 Budget is notably ambitious, with a nearly 20% increase from the preceding year. Social welfare will be the largest expenditure, followed by education, science, and culture. Funding for five priority industries—semiconductors, AI, military, security, and next-gen communications—will rise by 40%. The budget is expected to be nearly balanced in 2025. However, geopolitical tensions could strain finances in the second half, with slower export growth and new fiscal measures to support the economy. Military spending, currently at 2.5% of GDP, should remain high. Public debt – at 26.4% in 2024, from 29.1% one year earlier - is set to decline further (to 22.2% by 2026), remaining low by global standards (IMF). Inflation decelerated from 2.5% in 2023 to 2.1% last year. By 2025, inflation is expected to fall below the Central Bank of the Republic of China's (CBC) 2% target.

Official governmental figures show that Taiwan's unemployment rate fell to 3.38% in 2024, the lowest since 2000, down 0.1 percentage points from 2023. By education level, the jobless rate was highest among university graduates at 4.52%, followed by high/junior high school graduates at 3.21% and vocational college graduates at 2.68%. By age, unemployment was highest among those aged 20-24 at 11.62%, driven by first-time jobseekers, followed by 15-19-year-olds at 8.58%, 25-29-year-olds at 5.87%, and 30-34-year-olds at 3.36%. Overall, the number of individuals in employment hit about 11.60 million in 2024. Taiwan’s GDP per capita (PPP) was estimated at USD 82,615 in 2024 by the IMF, one of the highest ratios globally.

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 (with an average production of 1.14 million tons in 2019-23), 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 almost 37% 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), in 2024, Taiwan saw its first growth in industrial production after two years of decline, driven by strong demand for artificial intelligence applications and high-performance computing devices. The industrial production index for the full year increased by 11.4% compared to the previous year.

Services account for over 62% of GDP and employ nearly 70% of the labour force. 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: LAI Ching-te (since 19 May 2024)
Premier: CHO Jung-tai (President of the Executive Yuan) (since 20 May 2024)

Next Election Dates

Presidential: 2028
Legislative Yuan (parliamentary): January 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 had won neither the most constituency votes nor the most party votes. The DPP is currently the ruling party in Taiwan, leading a minority government that controls the presidency and the central government.
The key focus for Taiwan’s government revolves 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 president, Lai Ching-te, had 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 2024 election:

- Democratic Progressive Party (DPP): centre to centre-left, currently the ruling party in Taiwan, leading a minority government that controls the presidency and the central government
- Kuomintang (KMT): centre-right, advocates for Chinese nationalism and closer cross-strait relations
- Taiwan People's Party (TPP): centre-left, advocates for pragmatic governance and social reforms.

Other parties include:

- New Power Party (NPP): center-left, supports social progressivism and Taiwanese sovereignty
- Green Party Taiwan: center-left, focuses on environmental and social justice issues
- Taiwan Statebuilding Party: big-tent, strongly advocates for formal Taiwanese independence
- People First Party (PFP): liberal, previously allied with the KMT but has diminished political influence.

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 was the first country in East Asia to elect its president by universal direct suffrage, holding its first such election in 1996. The President and Vice President are elected on the same ticket by popular vote for four-year terms and are eligible for one re-election. The Premier is appointed by the President, while the Vice Premier is appointed by the Premier with the President's approval.

Legislative Power

Taiwan's Legislative Yuan is a unicameral body with 113 seats. These include 73 district members elected by popular vote, 34 at-large members allocated based on the proportion of island-wide votes received by participating political parties, and 6 members elected by popular vote from the indigenous population. All members serve four-year terms. Political parties must receive at least 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