2015年3月23日 星期一

II. Economic Structure of Taiwan

II. Economic Structure of Taiwan

Taiwan's Economic Structure
In 2014, Taiwan’s GDP component is mainly distributed into manufacturing industry by 30.0%, wholesale and retail trade industry by 17.0%, finance and insurance industry by 6.9%, real estate and residential service industry by 8.5%, and other services by 30.5%. Other services generally refer to tourism, food and beverage, education, technical support service, logistic, etc.  
          
Taiwan’s economy is highly contributed by tertiary production. Tertiary production accounts approximately 64% of Taiwan’s GDP. The interesting point is that the largest sector within the tertiary production is wholesale and Retail Trade service followed by real estate and residential service. These services are relatively low value-added, comparing to industries like finance and professional services. High value-added industry like finance and insurance industry only accounts approximately 6.9% of Taiwan’s last year GDP. Meanwhile, manufacturing industry contributes 30% to Taiwan’s GDP. In another word, Taiwan does not perform high degree of specialization within its economy, comparing to nearby places like Hong Kong whose tertiary production contributes over 90% of its economy. 

Generally speaking, Taiwan’s economic structure remains similar since the 21st century. Tertiary production remains the largest production sector, contributing over 60% of the country’s GDP. It is followed by secondary production contributing 30% of the GDP. Primary production like agricultural and mining industry in Taiwan is insignificant that contribute not more than 2% of GDP.

From the graph, it can be seen that the manufacturing industry has been gradually developing with a positive growth rate. Even though facing global economic recession in 2009, the manufacturing industry was able to recover immediately and recorded 22% growth rate in 2010. Despite the significant growth rate in 2010, manufacturing industry contribute similar proportion output to Taiwan’s GDP at around 28-30% and remains the largest industry sector in Taiwan.

GDP Component
From the graph, private consumption expenditure is the largest contributor to Taiwan’s GDP, contributing 52% of the output in 2014. On the other hand, government expenditure contributes 13.55% of Taiwan’s GDP. It can be said that consumption is an important GDP component to Taiwan.

It can be observed that Taiwan’s trade has significantly expanded for the last decade. Since the 21st century, Taiwan’s export value has increased for more than a double since 2000, contributing 12,000 billion to Taiwan. Import trade of Taiwan has also gradually increase since 2000 from 49.92% to 58.19% in 2014. Net export trade in Taiwan has been boosted greatly from 2% to 12% in the last decade. It can be predicted that net export will gain more importance and attention in Taiwan’s coming development. However, the release of settlement of the Free Trade Agreement (FTA) between China and Korea will undoubtedly impact the export of Taiwan as China being one of the largest trading partner. Despite the disadvantage, the introduction of Individual Visit Scheme to Chinese tourists is favorable to the export of service. Taiwan is planning to expand the scheme to more cities in China in the near future. In the near future, it is analyzed that the effect of FTA to Taiwan is not obvious as the implementation of FTA is still at its early stage and not formally introduced.

Taiwan’s production pattern leads to a relatively low/medium economic growth trend due to low marginal return. From the graph, Taiwan attains a moderate economic growth rate of 3 to 4% approximately. Economic growth can be said mainly supported by export, consumption and foreign investment. In 2009, as affected by global economic recession and European debt crisis, Taiwan recorded a negative growth rate of 1.57%. However, it was able to recover significantly and achieve a 10.63% growth rate in the year after. It is a result of both external and internal factors. From the graph, externally Taiwan benefited from the recovery of global economy which resulted in increase in foreign export, especially to newly developing countries. Internally, the domestic investment stimulated the private consumption expenditure of Taiwan which offset the negative impact brought by the global recession.
         
As the relationship between Taiwan and China has been improving in these few years, it is predicted that there would be more cooperation between them, not to mention the Individual Visit Scheme. Meanwhile, benefiting from the improvement in European economy, Taiwan’s export is expected to grow in near future as well. Under several uncertainty faced by Taiwan, it is believed that Taiwan can still achieve growth. Externally, fluctuating energy price and interest rate adjustment by US federal are two major aspects that we should keep an eye on. Internally, FTA is one big issue to be studied to see its effect to long run Taiwan’s export.

Reference:
Chung-Hua Institution for economic research
Stock-AI
Taiwan Institution of Economic Research


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