A Look Back at Taiwan's Economy in 2007

For most people in Taiwan, 2007 didn't end well. Real wages have increased by just 0.5% over the past eight years, whereas the consumer price index came to 107 at year's end compared to 100 in 2001. Wage earners are feeling the pinch, as the economy is assaulted by the twin threats of stagnant domestic demand and inflation.

Yet according to data released on November 22 by the Directorate-General of Budget, Accounting and Statistics, 2007 was a year of plenty. The second and third quarters saw excellent economic growth (a 5.24% annualized growth rate for Q2, with the Q3 figure of 6.92% vastly outstripping the predicted 4.47%). Although things cooled down slightly in the fourth quarter, annualized growth in Q4 is estimated at 5.43%, and growth for the year as a whole at 5.46%, the highest in three years.

The economic surge can be ascribed to booming trade. Data published by the Bureau of Foreign Trade (BFT) in early January put Taiwan's total trade volume in 2007 at US$466.06 billion, up by 9.2% from the previous year. Of this figure, exports accounted for US$246.72 billion, a growth of 10.1%, while imports came to US$219.34 billion, up by 8.2%. The trade surplus was US$27.38 billion, a 28.4% growth. All these figures are historical highs.

The BFT notes that Taiwan was the 16th largest trading nation in 2006, and its average trade volume of US$18,000 per capita among its population of 23 million ranked eighth in the world, even surpassing the US and Japan. In 2007 average per-capita trade came to US$20,000; the ranking is expected to improve.

Taiwan has an export-oriented economy. Analyzing the categories of products exported in 2007, we see that the bulk is heavy-industry related, coming to US$204.26 billion and making up 82.8% of the total figure. This includes electrical equipment, electronics, steel and steel products, optical equipment, and machinery, exports of which increased by 11.3% over the previous year.

The huge proportion of Taiwan's exports accounted for by China continues to arouse concern. Total exports to China and Hong Kong surpassed the US$100 billion mark last year, or 40.7% of exports, an increase of 12.6%. In this region alone, our trade surplus comes to US$70.6 billion. Such export dependency is worrisome. From China's perspective, Taiwan is third only to Japan and Korea as a source of imports.

Taiwan's exports have grown in two other regions-namely Europe and the ASEAN-6-at 11.6% (up 9.7%) and 14.5% (up 16.7%) respectively. Taiwan's trade surplus with the ASEAN-6 is US$12.09 billion.

On the other hand, Taiwan's exports to the major markets of the US and Japan have fallen, with US$32.07 billion (13.0% of our total exports) going to the US, and US$15.94 billion (6.5%) to Japan. Taiwan has had a long-time trade deficit with Japan, and the 2007 deficit of US$30 billion indicates that there is still a technology gap between Taiwan and Japan that needs to be overcome.

A breakdown of the export structure shows that Taiwan has a trade surplus of US$82.69 billion total with China, Hong Kong and the ASEAN-6 countries, where there is a high concentration of Taiwanese-invested businesses. In fact, the lion's share of these exports result from internal transactions within Taiwanese-owned groups of companies, with revenues offsetting costs. Taiwan's true earnings from these exports are not as high as the figures suggest. As large numbers of manufacturers have relocated to China or Southeast Asia (47% of Taiwan's manufacturing now takes place overseas), those employees remaining in Taiwan are generally in charge of planning, management and order processing. Due to the triangular arrangement of such companies' trade, Taiwan's accounting records vastly overestimate their contribution to our GNP.

In other words, those Taiwanese companies that are adept at using the tools of globalization have reaped surprising profits, but the vast labor pool in Taiwan is unable to share in this bounty. This is a major reason why Taiwan's economy may look good on paper, but is not perceived as such by the general public.

Figure 3: Taiwan's exports by region

Figure 2: Foreign trade statistics, 2002-2007