Separate Customs Territory of  Taiwan, WT/TPR /S/232/Rev.1 
Penghu, Kinmen and Matsu Page 1 
 
 
I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. For more than three decades, Chinese Taipei has pursued an outward-oriented development 
strategy, which coupled with the progressive libera lization of its trade and investment regimes has 
brought about rapid econom ic growth, transforming Chinese Taipei into a modern industrial economy 
and a leading exporter of IT products.  Underpi nned by WTO membership (2002), further trade and 
investment liberalization have been implemented in recent years, particularly in the services sector.  
The authorities are currently taking steps to dive rsify the economy and trade, stimulate domestic 
demand, and improve the investment climate, so as to attract inward direct investment. 
2. The Chinese Taipei economy has experienced positiv e growth averaging 4% per year in real 
terms between 2005 and 2008.  Growth  has been driven primarily by exports and, to a lesser extent, 
by private consumption, while gross fixed cap ital formation exhibited a weak performance 
(Table I.1).  However, due to the global economic  downturn, GDP growth plummeted in the second 
half of 2008 with sharp reductions  in exports, private consumption,  and investment.  Consequently, 
GDP growth declined to 0.7% in 2008 and the economy contracted by 1.9% in 2009. 
3. Chinese Taipei's GDP per capita rose steadily between 2005 and 2008 as a result of robust 
growth, reaching some US$17,507 in 2008, the sixth hi ghest in Asia, but it declined to US$16,428 in 
2009 under the impact of the economic slowdown.  Several decades of rapid economic growth have 
allowed Chinese Taipei to significantly reduce poverty levels.1  
4. The economy is characterized by a high saving ra te that persistently exceeds the rate of 
investment.  The savings-investment gap is reflected  in large current account surpluses in the balance 
of payments.  The economy is also heavily reliant  on exports (mostly of manufactured goods), which 
were equivalent to 72% of GDP in 2008.  The gl obal economic crisis and the ensuing decline in 
external demand have therefore had a severe impact  on Chinese Taipei's economy.  Nevertheless, the 
authorities have refrained from resorting to trade a nd investment protectionist measures in response to 
the crisis;  instead, in order to mitigate its advers e effects, they have implemented a mix of fiscal 
stimulus and monetary easing.  The economy started to recover in the latter part of 2009, and GDP 
growth is expected to resume in 2010. 
5. In the short- and medium-term, the gradual re bound of external demand led mainly by Asia's 
emerging countries (particularly China), and the effects of Chinese Taipei's economic stimulus package should contribute to its economic recovery.  However, sustained growth over the long term 
may require further structural reforms.  The globa l economic crisis has exposed the risks associated 
with Chinese Taipei's heavy reliance on manufactur ed exports, prompting the authorities to renew 
efforts to diversify the economy's structure and searc h for new engines of growth, in particular by 
developing and improving the internati onal competitiveness of the service industries.
2  F u r t h e r  
liberalizing the services sector, removing unnecessa ry regulations and enhancing the ease of doing 
business should help in this process.   
                                                      
1 By 2008, the share of the households living below the poverty line was 1.22% and the GINI 
coefficient stood at 0.341 (information pr ovided by the Chinese Taipei authorities). 
2 To this end, the Government has earmarked US$6.1 billion to be spent on the development of selected 
industries, including biotechnology, green energy, tourism, medicine, and cultural services between 2009 and 
2012.  Chinese Taipei's Govern ment Information Office "The Financial Crisis, One Year On", 
11 November 2009.   WT/TPR/S/232/Rev.1 Trade Policy Review 
Page 2 
 
 
Table I.1 
Selected macroeconom ic indicators, 2005-09  
  2005 2006 2007 2008 2009a 
Overall government accounts (% change)  
Real GDP (at 2006 prices) 4.7 5.4 6.0 0.7 -1.9 
Consumption 2.4 1.1 2.1 -0.4 1.8 
Private consumption 2.9 1.5 2.1 -0.6 1.5 
Government consumption 0.2 -0.7 2.1 0.7 3.6 
Gross fixed capital formation 2.7 0.1 0.6 -11.2 -11.8 
Exports of goods and non-factor services 7.8 11.4 9.6 0.6 -9.2 
Imports of goods and non-factor services 3.2 4.6 3.0 -3.1 -13.7 
XGS/GDP (%) (at current market price) 62.5 68.0 72.1 72.7 62.5 
MGS/GDP (%) (at current market price) 58.1 61.9 64.1 67.7 53.4 
Unemployment rate (%) 4.1  3.9  3.9  4.1  5.9  
Prices and interest rates (%)  
Inflation (CPI, % change) 2.3  0.6  1.8  3.5  -0.8  
Discount rate of the central bank (end-period) 2.250  2.750  3.375  2.000  1.250  
Commercial 1-year deposit rate (end-period) 1.990  2.200  2.620  1.420  0.890  
Commercial 1-year lending rate (end-period) 3.845  4.115  4.313  4.205  2.563  
Interest rate spread 1.855  1.915  1.693  2.785  1.673  
Exchange rate      
NT$/US$ (period average) 32.17  32.53  32.84  31.52  33.05  
Real effective exchange rate (% change) 0.2 -0.5 -1.5 -2.3 -7.7 
Nominal effective exchange rate (% change) 3.7 -1.8 -4.1 -0.5 -4.4 
 (% of GDP, unless otherwise indicated)  
Fiscal balanceb      
Total revenue 18.9  17.8  17.4  17.6  18.5  
Current revenue 18.0  17.1  17.0  17.2  .. 
Tax revenue 13.4  13.1  13.4  13.9  12.2  
Total expenditure 19.5  18.1  17.7  18.4  22.4  
Current expenditure 14.7  14.3  14.0  14.3  .. 
Overall fiscal balance -0.6  -0.3  -0.4  -0.9  -3.8  
Fiscal current balance 3.2  2.8  3.0  2.9  .. 
Revenue of Central Government 12.6  12.6  12.7  12.9  13.4  
Expenditure of Central Government 14.2  13.4  12.8  13.8  16.8  
Fiscal balance of Central Government -1.6  -0.8  -0.1  -0.9  -3.4  
General government debt 43.8 42.0 40.1 42.0 .. 
Central government debt 31.7 30.6 29.4 30.8 .. 
Saving and investment      
Total savings 28.4 30.3 31.7 29.4 29.1 
Gross domestic investment 22.7 22.7 22.1 22.7 17.2 
Savings-investment gap 5.7 7.6 9.6 6.7 11.8 
External sector      
Current account balance  4.8 7.0 8.4 6.2 11.2 
Net merchandise trade  5.3 6.4 7.7 4.6 8.1 
Merchandise exports 54.4 59.5 62.7 63.3 53.7 
Merchandise imports 49.0 53.0 55.0 58.7 45.5 
Services balance -1.8 -0.9 -1.0 -0.1 0.3 
Capital account 0.0 0.0 0.0 -0.1 0.0 
Table I.1 (cont'd) Separate Customs Territory of  Taiwan, WT/TPR /S/232/Rev.1 
Penghu, Kinmen and Matsu Page 3 
 
 
  2005 2006 2007 2008 2009a 
Financial account 0.6 -5.2 -9.9 -0.4 3.7 
Direct investment -1.2 0.0 -0.8 -1.2 -0.8 
Balance of payments 5.5 1.6 -1.0 6.5 14.3 
Terms of trade (2005=100) 100.0 95.4 92.4 86.1 93.6 
Merchandise exports (% cha nge) 8.8 12.8 10.1 3.4 -20.2 
Merchandise imports (% change) 8.5 11.5 8.2 9.4 -27.0 
Service exports (% change) 0.1 13.3 7.0 11.1 -10.0 
Service imports (% change) 5.7 1.0 7.0 0.1 -14.6 
Foreign exchange reserves (US$  billion) 253.3 266. 1 270.3 291.7 348.2 
in months of imports of goods and servicesc 14.4 13.7 12.9 12.9 20.6 
Total external debt (US$ billion) 86.7 85. 8 94.5 90.4 .. 
Short term (US$ billi on) 73.7 74.2 83.3 78.8 .. 
Debt service ratiod 4.9 3.6 2.7 4.0 .. 
.. Not available. 
a Estimates.  
b Based on general government, incl uding central and local government. 
c Import figures taken from the balance of payments. d Debt service in % of exports of goods and services.  
Source : Central Bank of China, Statistics online information.   Viewed at:  http://www. cbc.gov.tw [09/03/10];  online 
statistical information.  Viewed a t:  http://eng.stat. gov.tw [08/03/10]. 
6. A gradual rebalancing of the composition of  growth, putting greater emphasis on domestic 
demand, may also be needed for achieving sust ained growth and reducing vulnerability to global 
demand cycles.  Conscious of the need to boos t domestic demand, the authorities have adopted 
measures to increase both consumption and investment , including, in particular, the implementation of 
major infrastructure and urban regeneration projects,  and tax reductions.  This should help reduce the 
savings-investment gap and the concomitant current account surplus.  In addition, Chinese Taipei's 
growth prospects would be enhanced by deepening tr ade and investment liberalization, improving the 
overall investment climate so as to increase FDI inflows, furthe r enhancing cross-strait economic 
relations, and by completing regulatory reform and privatization plans.  
(2) RECENT ECONOMIC DEVELOPMENTS  
7. Chinese Taipei's export-oriented economy has been hard hit by the global economic 
downturn.  It contracted by 7.9% in the first six months of 2009 compared with the same period in 
2008, the steepest contraction in east a nd south-east Asia during this period.3  Merchandise exports 
and imports plunged by 34.2% and 42.3%, respectively, in the first half of 2009, while gross fixed capital formation declined by 25.4% and private c onsumption by 1.3%.  The contraction in gross 
fixed capital formation was mainly due to a steep declin e in private investment (33.2% in the first half 
of 2009), as weak economic performance and slack ening external demand led companies to put 
investment plans on hold, particularly  in capital equipment and construction.
4   
8. In order to bolster the economy, since the l ast quarter of 2008 Chinese Taipei has adopted 
counter-cyclical policies, including monetary loosen ing and a variety of economic stimulus measures.  
The latter include the distribution of consumption vouchers, the expansion of investment in public 
                                                      
3 Information provided by the Chinese Taipei authorities. 
4 Council for Economic Planning and Development (2009). WT/TPR/S/232/Rev.1 Trade Policy Review 
Page 4 
 
 
construction programmes5 (and thus government procuremen t), short-term and medium-term 
employment promotion measures, subsidies for low-in come families, and tax cuts that took effect on 
1 January 2010 (see section (4) below).   
9. The economy reached its lowest point of the recession in the first quarter of 2009 and started 
a quick recovery in the latter half of the year in line with the gradual world recovery led by Asian 
emerging economies.  Exports regained momentum in the last quarter of 2009, boosted mainly by cross-strait trade, but with stagnant private cons umption and a sharp decline in private investment, 
GDP contracted by 1.9% in 2009 (Table I.1).  In 2010, the economy is expected to grow by 4.7%, 
helped by a rebound in external demand and the eco nomic stimulus measures.  However, the pace of 
recovery could be hampered by a gloomy employment outlook, which may subdue private 
consumption in the short-term, and a less robust than expected recovery in industrialized countries.   
10. The sectoral composition of the Chinese Taipei economy has not changed much since the last 
Review (Table I.2).  The share of services in GDP  grew to 66.3% in 2009 from 64.2% in 2005, while 
the share of manufacturing has decreased slightly to 24.9% in 2009 (26.6% in 2005), and that of agriculture has remained stable at  1.6% in 2009 (1.7% in 2005).   
Table I.2 
Basic economic indicators, 2005-09  
  2005 2006 2007 2008 2009a 
Real GDP (NT$ billion, 2006 prices) 11,612.1 12,243.5  12,976.0  13,070.9  12,826.7  
Real GDP (US$ billion, 2006 prices ) 361.0  376.4  395. 1  414.7  388.1  
Current GDP (NT$ billion) 11,740.3  12,243.5  12,910.5  12,698.5  12,527.4  
Current GDP (US$ billion) 364. 8  376.4  393.1  402.6  378.9  
GDP per capita at current market price (NT$) 516,515.9  536,442.5  563,348.6  552,164.1  542,917.0  
GDP per capita at current market price (US$) 16,057.3  16,490.2  17,153.3  17,507.0  16,427.6  
 (Annual % change) 
GDP by economic activity at constant 2006 
prices      
Agriculture, forestry, and fishing -4.2 13.8 -2.4 0.6 -3.1 
Mining -5.4 -22.3 20.4 -13.8 -12.0 
Manufacturing 7.9 9.0 9.8 0.4 -4.6 
Electricity, gas, and water 5.9 5.7 6.6 1.2 -0.3 
Construction 1.3 2.9 1.5 -5.5 -6.7 
Services 4.0 4.4 4.6 1.2 0.1 
Wholesale and retail trade 6.2 5.0 5.9 1.2 -0.4 
Transport, storage, and communication 2.3 3.1 4.1 2.8 0.4 
Restaurants and hotels 5.9 5.0 4.0 -1.3 -0.2 
Finance and insurance 4.3 2.5 6.1 -2.2 -7.0 
Real estate 4.3 8.3 5.3 1.0 2.1 
Professional, scientific, and techni cal services 3.2 11.5 8.6 0.1 3.5 
Support services 11.1 14.6 8.7 7.2 -2.1 
Public administration and defence 1.5 -0.1 -1.2 0.9 1.4 
Education 1.6 3.9 2.6 1.0 1.8 
Human health and social work services -1.7 -0.1 4.9 3.9 4.0 
Arts, entertainment, and recreation 3.8 5.7 4.0 2.3 4.4 
Other 6.0 5.5 4.1 4.1 2.6 
Table I.2 (cont'd) 
                                                      
5 NT$500 billion have been earmarked for the four-year Plan for Economic Revitalization through the 
Expansion of Investment in Public Construction, intended to expand domestic demand. Separate Customs Territory of  Taiwan, WT/TPR /S/232/Rev.1 
Penghu, Kinmen and Matsu Page 5 
 
 
  2005 2006 2007 2008 2009a 
 (%) 
Share of GDP, current prices      
Agriculture, forestry, and fishing 1.7 1.6 1.5 1.6 1.6 
Mining 0.4 0.3 0.5 0.4 0.5 
Manufacturing 26.6 26.5 26.4 24.9 24.9 
Electricity, gas, and water 1.9 1.8 1.6 1.0 2.1 
Construction 2.4 2.7 2.8 2.9 2.6 
Services 64.2 64.2 64.0 66.1 66.3 
Wholesale and retail trade, 17.7 17.9 18.1 18.7 18.6 
Transport, storage and communication 7.0 6.6 6.6 6.8 6.8 
Restaurants and hotels 2.0 1.9 1.9 2.0 2.0 
Finance and insurance 7.7 7.3 7.2 7.2 6.4 
Real estate 8.2 8.5 8.5 8.7 9.1 
Professional, scientific, and techni cal services 1.9 2.1 2.1 2.2 2.3 
Support services 1.2 1.3 1.3 1.5 1.5 
Public administration and defence 7.6 7.4 7.1 7.5 7.6 
Education 4.7 4.7 4.6 4.8 4.9 
Human health and social work services 2.8 2.8 2.8 3.0 3.2 
Arts, entertainment, and recreation 0.8 0.8 0.8 0.9 1.0 
Other 2.8 2.8 2.8 3.0 3.1 
Otherb 2.8 2.9 3.3 3.1 2.2 
Share of sector in total employment      
Agriculture, forestry, and fishery 5.9 5.5 5.3 5.1 5.3 
Mining and quarrying 0.1 0.1 0.1 0.1 0.0 
Manufacturing 27.5 27.5 27.6 27.7 27.2 
Electricity, gas, and water 0.9 0.9 0.9 1.0 1.0 
Construction 8.0 8.2 8.2 8.1 7.7 
Services 57.7 57.9 57.9 58.0 58.8 
Wholesale and retail trade 17.4 17.4 17.3 17.0 16.9 
Transport, storage, and communication 6.1 6.2 6.0 5.9 5.9 
Hotels and restaurants 6.4 6.6 6.6 6.6 6.7 
Finance and insurance 4.1 4.0 3.9 4.0 4.0 
Real estate 0.6 0.7 0.7 0.7 0.7 
Professional, scientific, and techni cal services 2.6 2.6 2.9 3.0 3.1 
Support services 2.0 2.0 2.1 2.2 2.3 
Public administrations and defence, 
compulsory social security 3.4 3.3 3.2 3.3 3.7 
Education 5.6 5.6 5.7 5.8 6.0 
Human health and social work 3.2 3.3 3.3 3.4 3.6 
Arts, entertainment, and recreation 1.2 1.1 1.0 0.9 0.9 
Other services 5.2 5.2 5.1 5.1 5.1 
a Estimates.  
b Including import duties, value-added tax and statistical discrepancies. 
Source : Online statistical informa tion.  Viewed at:  http:/ /eng.stat.gov.tw [08/03/2010]. 
11. The unemployment rate fell from 4.1% to 3.9% between 2005 and 2007, but rose again from 
2008 onwards under the impact of the economic sl owdown, reaching 5.9% in 2009 (Table I.1).  
Average productivity per worker ( GDP/employment) grew by 6.9% in real terms between 2005 and 
2009, although it showed decreases in 2008 and 2009.  During the review period, the shares of agriculture and manufacturing in total employment declined to 5.3% and 27.2%, respectively (2009), 
while that of the services sector incr eased slightly to 58.8% (Table I.2). WT/TPR/S/232/Rev.1 Trade Policy Review 
Page 6 
 
 
12. Inflation rates remained low throughout the firs t years covered by the Review, with average 
CPI levels ranging from 2.3% to 1.8% between 2005 and 2007 (Table I.1).  However, largely because 
of the increase in prices of imported oil, raw materi als and food, inflation rose to 3.5% in 2008.  The 
CPI fell by 0.8% in 2009, mainly on account of weak demand. 
(3) MACROECONOMIC POLICIES  
(i) Monetary and exchange rate policies 
13. The Central Bank (CBC) is responsible for the formulation and implem entation of monetary 
policy.  The authorities maintain that although the CB C is an agency under the executive authority, its 
independence in conducting monetary  policy has been respected.  The CBC does not use an inflation 
target, but tracks broad monetary aggregates and in tervenes in the market to influence money supply 
through a mix of monetary instruments.6 
14. Over the review period, the Central Bank sh ifted from a gradual tightening of monetary 
policy (2005-07) to a swift monetary loosening from the second half of 2008 onwards.  From September 2008 to March 2009, the CBC cut its discount ra te seven times, to a record low of 1.25%.  
Lower interest rates have helped reduce the fundi ng costs of individuals and enterprises and boost 
private consumption and investment.
7  Additionally, the Government has implemented a 
"three-pillars-of-support" policy, under which it has:  provided a full guarantee for all bank savings 
deposits until end 2010;  en couraged banks to offer loans to busin esses, in particular SMEs;  offered 
incentives to banks to lower interest rates for firms that pledged not to reduce their workforce;  and 
extended the repayment period of housing loans.8   
15. Chinese Taipei maintains a "manag ed float" exchange rate sy stem, under which the exchange 
rate is determined, in principle, by market for ces.  Nevertheless, the legislation allows the CBC to 
intervene when the market is distorted by "seasona l or irregular" factors, such as large and sudden 
short-term capital movements or significant exchange rate fluctuations.  The authorities maintain that 
the CBC intervenes only when necessary to keep order in the market;  that is, in the event of major 
volatility in foreign exchange markets.   
16. Although Chinese Taipei's current account su rplus increased between 2005 and 2007, the 
nominal exchange rate of the local currency, the NT dollar, against the U.S. dollar experienced a 
slight depreciation during this period, in part attri butable to massive portfolio investment abroad by 
Chinese Taipei's residents (Table I.1).  After having appreciated in the first six months of 2008, the NT dollar depreciated in the second half as a result of several consecutive months of negative export 
growth.  Nevertheless, and despite the global financ ial turmoil, the NT dollar has remained relatively 
stable with an annual average exchange ra te of NT$33.05 to the U.S. dollar in 2009.
9  The real 
effective exchange rate and the nominal effective exchange rate depreciated moderately during the 
review period, but this does not seem to have had a significant effect on Chinese Taipei's international 
competitiveness.  
17. Capital flows are for the most part liberalized .  Residents in Chinese Taipei may use foreign 
exchange proceeds from exports and pay for imports  without restriction.  Remittances not involving 
                                                      
6 Central Bank online information.  Viewed a t:  http://www.cbc.gov.tw/np.asp?ctNode=443&mp=2 
[5 January 2010]. 
7 CBC Press Release (2009). 
8 Council for Economic Planning and Development (2009) . 
9 For the NT$/US$ exchange rate, see CBC online info rmation (Foreign Exchange Regime Statistics).  
Viewed at:  http://www.cbc.gov.tw/content.asp?CuItem=1879. Separate Customs Territory of  Taiwan, WT/TPR /S/232/Rev.1 
Penghu, Kinmen and Matsu Page 7 
 
 
the conversion of NT dollars and those involving th e conversion of NT dollars but related to goods 
and services trade, and to approved direct and portfo lio investment are also liberalized.  However, 
certain limits remain in place on other forms of s hort-term capital flows involving the conversion of 
NT dollars.10 
18. In November 2009, the financial authorities enfo rced a long-standing rule preventing overseas 
portfolio investors from parking funds in time deposits in NT dollar accounts, and from renewing existing deposits after their maturity.
11  The measure was meant to avoid the use of securities 
investment as a guise for speculating in the local cu rrency as well as to maintain order in the foreign 
exchange market.  Although it was not its intent, it  also helped prevent the appreciation of the 
NT dollar and, hence, a loss in export competitiveness.   
19. Improving cross-strait relations with China have led to the removal of some of the exchange 
restrictions between the NT dollar and the Chinese renminbi (Rmb).  Since June 2008, residents from 
Chinese Taipei and China, as well as foreign natio nals, have been permitted to exchange up to 
Rmb 20,000 for NT dollars per transaction, and vice versa;  this measure has been deemed necessary 
given the increasing number of Chinese visitors to Chinese Taipei.   
(ii) Fiscal policy 
20. Within the framework of the Fiscal Reform Plan12, which aims at achieving fiscal balance by 
the year 2011, the objectives of fiscal policy duri ng the review period incl uded strengthening public 
finances, improving government de bt management, achieving a fair and streamlined tax system, and 
enhancing the administration of government-owned assets.13  There was some improvement in the 
Government's fiscal position in the first years cove red by the review, mainly due to increased tax 
revenues, but the expansionary fiscal policy,  implemented since 2008, and weak economic 
performance have undermined the Government's effo rts to attain a positive fiscal balance.  The 
general Government's fiscal balance was negative throughout the period under review14, at -3.8% of 
GDP in 2009.15   
21. Between 2005 and 2009, the total revenue of the ge neral Government rose in absolute terms, 
inter alia,  due to income tax reform and improved ta x collection, but decreased slightly as a 
percentage of GDP to 18.5% (Table I.1).  Tota l expenditure showed a downward trend in 2005-07, 
but picked up again reaching 22.4% of GDP in 2009, as spending on transport and communications, 
education and social welfare increased. 
                                                      
10 For example, the ceiling for total annual remittances is US$50 million per year by a company, and 
US$5 million for individuals;  for non-residents the limit is US$100,000 per transac tion.  Remittances exceeding 
the respective ceilings require prior appr oval by the CBC (Central Bank, 2008). 
11 Under the Regulations Governing Investment in  Securities by Overseas Chinese and Foreign 
Nationals, the Financial Supervisory Commission, in consultation with the CBC, may limit the use of funds 
remitted by portfolio investors to Chinese Taipei for purchasing securities that have not been invested yet.  At 
the end of November 2009, cumulative net inward-remitta nces from overseas portfolio investors reached about 
US$148.4 billion. 
12 The Fiscal Reform Plan was approved by the Government on 22 April 2003. 
13 For more details, see MOF online information.  Viewed at:  http://www.mof.gov.tw/engWeb/ 
fp.asp?xItem=51467&ctNode=680 [21 October 2009]. 
14 The general Government includes both the central and local governments. 
15 The central Government's fiscal balance was also negative during the review period.  However, if the 
"special budget" is excluded from the calculation, th e central Government's fiscal balance shows a surplus 
between 2006-08.  The special budget is mainly assigned  to infrastructure construction (Central Bank, 2008). WT/TPR/S/232/Rev.1 Trade Policy Review 
Page 8 
 
 
22. In order to respond to the global financial cris is, the Government has implemented a fiscal 
stimulus package, whose cost for the period 200 9-12 is estimated at NT$718 billion (5.8% of GDP).16  
Accordingly, the 2009 central government budget provi ded for an increase of 19.8% in expenditure 
and of 2% in revenue over 2008, with an estimated deficit of 3.4% of GDP17, which was to be covered 
mainly through government bonds and long-term bo rrowing.  The general Government's debt to GDP 
ratio, which had decreased between 2005 and 2007, rose again in 2008 to 42%.   
(4) STRUCTURAL POLICIES  
23. During the review period, the Government has co ntinued to pursue structural reform as a 
means of increasing the efficiency and competitiven ess of the domestic econom y.  Tax and financial 
reforms remain key areas within the Government's  development agenda;  privatization is another 
important area, but it seems to have lost momentum in recent years. 
(i) Tax reform 
24. In June 2008, a Tax Reform Co mmittee was set up in order to f acilitate the reform of the tax 
system (as part of the broader Fiscal Reform Plan),  aimed at promoting economic development, social 
justice, and an internationally competitive tax environment.18  More specifically, the objectives are to 
improve tax collection, widen the tax base by re ducing incentives, and simplify tax administration.19  
Through an amendment to the Income Tax Law, ef fective 1 January 2010, the tax-exempt amount for 
a profit-seeking business was raised from NT$50,000 to NT$120,000, and the tax rate was reduced 
from 25% to 20%.  Individual income tax rates we re also reduced from 6%, 13%, and 21% to 5%, 
12%, and 20%, respectively.20  On the other hand, the industry-specific tax incentives under the 
Statute for Upgrading Industries were seemingly phased-out on 31 December 2009 (Chapters II, III 
and IV);  the resulting revenue savings are expected  to make up for the loss caused by income tax 
cuts.  The widening of the income tax base, through  the elimination of incentives, combined with the 
reduction in tax rates should render the tax system more neutral with respect to private decisions 
concerning investment and thus contribute to  a more efficient allocation of resources. 
(ii) Financial reform 
25. During the review period, the Government  embarked on a second round of financial 
reforms21, focused on promoting the consolidation of  the financial industry and building Chinese 
Taipei as a regional financial service centre.22  Accordingly, the Financial Supervisory Commission 
promotes market driven M&As that are transpar ent and in line with established business practices, 
while at the same time safeguarding the inter ests of shareholders, employees, and customers.23  I n  
addition, measures were adopted to further deve lop the bond market, promote innovation in insurance 
products, and liberalize capital markets for overseas i nvestors, while restrictions on capital flows to 
                                                      
16 Council for Economic Planning and Development (2009) . 
17 The deficit results from annual revenues estimated at NT$1.67 trillion and annual expenditures at 
NT$2.1 trillion.  Online statistical information.  Viewed at:  http://eng.stat.gov.tw [10 March 2010]. 
18 The Committee focuses on 20 issues, primarily on reform of the tax system (income, property and 
consumption taxes) and tax administration (streamlining of processes and enhancement of taxpayers' rights). 
19 Ministry of Finance (2008). 
20 MOF online information.  Viewed at:  http ://www.mof.gov.tw/engweb/fp.asp?xItem=10822&ct 
Node=687 [21 October 2009]. 
21 A first round of financial reforms was implemented in 2002-04;  one of its major achievements was 
the reduction of the NPL ratio of domestic banks from a peak of 11.7% in April 2002 to 2.1% at end 2006. 
22 Financial Supervisory Commission online informat ion.  Viewed at:  http://oldwww.fsc.gov.tw/ 
ct.asp?xItem=2464527&ctNode=454&mp=5 [4 December 2009]. 
23 FSC (2008). Separate Customs Territory of  Taiwan, WT/TPR /S/232/Rev.1 
Penghu, Kinmen and Matsu Page 9 
 
 
China have been progressively removed and Chinese Taipei companies based in China have been 
allowed to raise funds in the domestic stock market  (Chapters II and IV).  These reforms are expected 
to help create a more profitable business environmen t and increase efficiency.  Nevertheless, further 
efforts may be needed to reduce th e Government's substantial particip ation in the banking sector (over 
50% of total bank assets).24  The authorities consider, however, that strengthening the management 
and operational performance of government-owned banks and shareholdings is a prerequisite for their 
privatization.  No specific timetable has been de termined for privatization or release of shares. 
(iii) Privatization 
26. Apart from recent sell-offs of government shar es in a few companies, the process of 
privatization in Chinese Taipei seems to have stalle d in recent years (Chapter III).  During the review 
period, the Government's privatization efforts ha ve targeted public utilities, but legislative and 
political constraints have delayed actions in this di rection.  As a result, government-owned enterprises 
remain dominant in several key sectors, including el ectricity, petroleum, water supply, and railroads.  
Completing privatization plans, in tandem with th e implementation of compe tition-enhancing policies 
and regulatory reform, could help to increase e fficiency and therefore competitiveness in these 
sectors, and thus in the economy as a whole, while attracting higher investment flows. 
(5) BALANCE OF PAYMENTS  
27. During the period under review, the balance-of-pay ments' current account showed a persistent 
surplus, owing to a high saving rate that consiste ntly exceeded the investment rate (Table I.1).25  In 
2009, the current account surplus reach ed a record high of US$42.5 b illion or 11.2% of GDP (4.8% in 
2005).  With the exception of 2008, the merchandise trade surplus continued to increase during the 
period;  it represented 8.1% of GDP in 2009, reflecti ng a steeper decline in the value of imports than 
in exports.  The services balance, which had recorded a deficit in pr evious years, became positive in 
2009 due to substantial receipts from business services.  Likewise, for the first time in three years, the 
financial account turned positive in 2009, involving  net inward remittances of foreign funds for 
securities investment and transfers of local peopl e's overseas deposits into Chinese Taipei.   
28. Foreign exchange reserves have increased substantially (Table I.1) reaching US$348.2 billion 
in 2009 (equivalent to 20.6 months of merchandise and services imports).26  At end 2008, 
Chinese Taipei's total external debt was US$90.4 bill ion, equivalent to 22.4% of GDP.  About 87% of 
this debt was held on a short-term basis, largely in the form of trade-related credits, and most of it 
corresponded to the private sector. 
(6) TRADE AND INVESTMENT FLOWS  
29. The ratio of Chinese Taipei's total trade (exports and imports) of goods and non-factor 
services with respect to GDP was 140.4% in 2008 (120.7% in 2005), reflecting the economy's high 
                                                      
24 By January 2010, wholly government-owned banks held 18% of total bank assets, while private 
banks, in which the Government holds minority equity stakes, accounted for 34.2% of total bank assets.  
Information provided by the Financial Supervisory Commission. 
25 Between 2005 and 2009, the savings-investment gap increased from 5.7% to 11.8% of GDP.  It 
should be noted that the current acco unt surplus is also th e result of the income surplus generated from 
investments abroad by Chinese Taipei residents. 
26 Chinese Taipei considers that maintaining a high leve l of international reserves is essential, given its 
ineligibility to seek funds from the International Monetary Fund. WT/TPR/S/232/Rev.1 Trade Policy Review 
Page 10 
 
 
reliance on foreign trade.27  In 2008, Chinese Taipei was the world's 12th largest exporter and importer 
of goods, and the 16th largest exporter and 18th largest importer of services, although it was only the 
world's 26th largest economy.28 
(i) Composition of trade 
30. Chinese Taipei's exports consist mostly of ma nufactured products, representing 87.5% of total 
merchandise exports in 2008 (91.0% in 2005) (Chart I.1 and Table AI.1).  Machinery and transport 
equipment accounted for the largest share, with 46. 6% of total merchandise exports in 2008.  Within 
this category, electronic integrated circuits and micro-assemblies continue to be the single most important export item, contributing 15.7% of total e xports in 2008 (15.6% in 2005).  The export share 
of liquid crystal devices increased during the re view period, while the shares of textiles and 
automotive products declined.  Primary products acc ounted for 11.7% of total merchandise exports in 
2008 (8.4% in 2005), with the share of agricultu ral exports decreasing to 2.0% (2.3% in 2005). 
31. The composition of Chinese Taipei's imports shifted during the period under review, mainly 
because of the increased share of fuel in the total import bill, which climbed from 15.4% in 2005 to 
25.8% in 2008 (Chart I.1 and Table AI.2).  Acco rdingly, the share of primary products in total 
merchandise imports increased from 26.1% to 38.8% be tween 2005 and 2008.  On  the other hand, the 
share of manufactures in total merchandise imports  decreased from 72.4% to 59.8% over the period.  
The main category continued to be machinery and tran sport equipment, with 30.8% of total imports in 
2008 (41.2% in 2005). 
(ii) Direction of trade 
32. Chinese Taipei's main export markets continue to  be east Asia (China;  Hong Kong, China;  
and Japan), the United States, and the European Union (Chart I.2 and Table AI.3).  China is 
Chinese Taipei's major export market, receiving 26. 2% of total merchandise exports in 2008 (up from 
22% in 2005).  The shares of other Asian countries (e .g. Singapore, Republic of Korea, Viet Nam, and 
India) and other emerging countries, such as Brazil, in Chinese Taipei's exports also increased during 
the review period, while the shares of the Unite d States, the European Union (EU27), Japan, and 
Hong Kong, China declined. 
33. Chinese Taipei's largest suppliers in 2008 we re Japan, China, the United States, and the 
European Union, which together accounted for 51. 5% of total merchandise imports (Chart I.2 and 
Table AI.4).  Imports from Middle East countries, consisting largely of oil,  made up 16.2% of the 
import bill in 2008.  China's share in total im ports increased from 11.0% to 13.1% between 2005 and 
2008, making it the second most important source of imports.  In contrast, Japan's share diminished 
considerably, from 25.2% to 19.3% during the same period.  The shares of the United States and the European Union also declined.  Chinese Taipei h as a traditional large deficit with Japan, from which 
it imports machinery and equipment mainly for its lo cal IT industry, while it maintains a substantial 
trade surplus with China to which it exports comp onents for assembly into final products that are 
subsequently exported to industrialized countries. 
                                                     
 
27 In 2009, however, the ra tio of total trade to GD P dropped to 116%, on acco unt of the global trade 
contraction. 
28 WTO (2009).  Based on data excluding intra-EU (27) trade. Separate Customs Territory of  Taiwan, WT/TPR /S/232/Rev.1 
Penghu, Kinmen and Matsu Page 11 
 
 
Chart I.1
Product composition of merchandise trade, 2005 and 2008
2005 2008
(a)    Exports (f.o.b.)
Other consumer goods
13.1
Manufactures
91.0
Total:   US$198.4 billion Total:  US$255.6 billion
(b)    Imports (c.i.f.)
Chemicals
12.6Iron & steel
4.7Transport equipment
4.2
Manufactures
72.4
Office machines &
telecommunication 
equipment
21.3Other electrical
machines  
5.4
Non-electrical 
machinery
10.2Other mining
 5.6Fuels
15.4
Non-electrical
machinery
8.1Other
1.4
Other electrical machines
4.1Office machines & 
telecommunication equipment
27.4
Other semi-
manufactures
3.5Transport equipment  2.1
Chemicals
12.7Manufactures
59.8Office machines &
telecom. equip.
16.4
Total:   US$182.6 billion Total:   US$240.4 billionPer cent
Manufactures
87.5Transport equipment  
3.9
Other electrical
 machines
8.5Iron & steel 
5.0
Other electrical 
machines
8.5
Other consumer
goods
7.9Other
1.5Mining
9.7
Office machines & 
telecommunication equipment
31.4Other semi-
manufactures
 6.1
Non-electrical 
machinery
6.7Agriculture
2.0
Iron & steel 
4.4
Source :  Data provided by the authorities.Other  consumer goods
10.1
Mining
33.7Other consumer goods
13.5
Textiles & clothing   
4.0
Transport equip.   
4.1
Other semi-
manufactures
6.5
Non-electrical
machinery
7.3
Other semi-
manufactures
  3.8Mining
6.2Agriculture
2.3
Agriculture
5.1Agriculture
5.1
Mining
21.0
Iron & steel
4.9Textiles & clothing
5.6 Chemicals
10.2
Chemicals
12.3Other 
0.6
Other mining
7.9Fuels
25.8Other 
0.8
 WT/TPR/S/232/Rev.1 Trade Policy Review 
Page 12 
 
 
Chart I.2
Direction of merchandise trade, 2005 and 2008
2005 2008
(a)    Exports (f.o.b.)
Other Asia  
12.6
Asia
66.3
Total:   US$198.4 billion Total:  US$255.6 billion
(b)    Imports (c.i.f.)
Other
2.9
Other Asia  
14.6
EU27
9.7United States
11.6
EU27
8.2United States
10.9
Total:   US$182.6 billion Total:   US$240.4 billionPer cent
Asia
67.7Other Asia  
13.9
Other Middle East
4.1Japan
7.6
Other Middle East
6.5Korea, Rep. of
5.5Korea, Rep. of
7.2United States
14.7Other
5.0
Other Asia  
13.9United States
12.0Other 
5.8
Source :  Data provided by the authorities.Japan
19.3Kuwait
3.4EU27
11.0
Asia
55.2 Asia
60.7
Japan
25.2Other
2.7
Africa  3.3Hong Kong, China
12.8EU27
11.3
Kuwait  2.4Japan
6.9Other America
3.5
Australia
2.6Other America
2.9
Korea, Rep. of
3.4Korea, Rep. of
3.0
Other America
2.7Other America
3.4Hong Kong, China
17.2
Australia  
3.4
Saudi Arabia
6.3Saudi Arabia  4.1
China
11.0 China
13.1China
26.2China
22.0Singapore
4.6Singapore
4.1
Africa  2.0
 Separate Customs Territory of  Taiwan, WT/TPR /S/232/Rev.1 
Penghu, Kinmen and Matsu Page 13 
 
 
(iii) Trade in services 
34. Until recently, Chinese Taipei has been a net im porter of services, running a deficit in the 
services account (Table I.3).  While both cross-bor der receipts and payments for services decreased in 
2009, the services balance became positive (0.3% of  GDP), as high receipts in "other business 
services"29 more than offset payments for transport, tr avel, and other services.  In 2009, total credit in 
services trade was US$31.2 billion (US$25.8 billion in 2005), while total debit was US$29.9 billion 
(US$32.5 billion in 2005).   
Table I.3 
Composition of trade in services, 2005-09 
(US$ million and %)  
 2005 2006 2007 2008 2009 
Total credit (US$ million)  25,827 29,272 31, 307 34,770 31,286  
 (% of total credit) 
Transport 22.9 21.4 21.8 20.5 17.5 
Travel 19.3 17.5 16.7 17.1 22.5  
Other services 57.8 61.1 61.5 62.4 60.3  
Communications 1.2 0.9 0.9 1.0 1.1  
Insurance 1.4 1.8 1.3 1.0 1.5  
Financial 5.9 4.2 4.2 3.3 2.5  
Royalties and licence fees  0.9 0.8 0. 7 0.5 0.8  
Other business servicesa 46.7 51.1 52.6 54.8 52.0  
Total debit (US$ million)  32,480 32,815 35, 102 35,125 29,994 
 (% of total debit) 
Transport 26.0 27.5 29.2 32.5 26.7  
Travel 26.7 26.7 25.8 26.0 26.2  
Other services 47.3 45.8 44.9 41.5 47.1  
Communications 1.6 1.2 1.3 1.2 1.4  
Insurance 3.0 3.1 2.8 2.7 2.6  
Financial services  4.2 4.2 2.2 0.9 1.2  
Royalties and licence fees  5.5 7.1 7.3 8.6 11.4  
Other business servicesa 27.7 25.6 27.3 24.6 27.2  
a Including computer and information, and other business services (footnote 31  of this Chapter).  
Source: Online statistical informatio n.  Viewed at:  http:/ /eng.stat.gov.tw [08/03/10].  
(iv) Inbound and outbound direct investment 
35. Chinese Taipei has usually been a net investor abroad.  Acco rding to balance-of-payments 
statistics, Chinese Taipei's total outbound direct i nvestment (on a realized (net) basis) reached 
US$10.2 billion in 2008, almost twice as much as  inbound direct investment (US$5.4 billion). 
36. According to data provided by the authorities on direct investment on an approval basis, 
cumulative inflows of direct investment be tween 2005 and 2008 amounted to US$41.8 billion 
(Table I.4).  In 2008, due to the global financia l crisis, total inbound direct investment dropped to 
US$8.2 billion (from US$15.4 billion in 2007);  the main source countries were the United States 
(34.7%), the Netherlands (19.7%), the United Kingdom (5.6%), and Japan (5.3%).  Inbound direct 
                                                      
29 These include mainly the receipt s from "merchanting", i.e. the ne t income generated by finance 
departments of Chinese Taipei-based companies for handling receipts and payments of export orders on behalf of their manufacturing site s located in China and south-east Asian countries. WT/TPR/S/232/Rev.1 Trade Policy Review 
Page 14 
 
 
investment in the service sector increased over the review period amounting to almost 70% of total 
inflows in 2008 (61.8% in 2005), with finance and insurance together accounting for 53.1%.  This suggests that investors have responded to progressive  market liberalization in these sectors in recent 
years (Table I.5).  On the other hand, the shar e of the manufacturing sector in inbound direct 
investment declined from over 50% in 2006 and 2007 to 29% in 2008.   
Table I.4 
Inbound and outbound flows of direct investment (a pproval basis), by source and destination, 2005-08  
(US$ million and %) 
 2005 2006 2007 2008 
Inbound direct investment     
Total (US$ million)  4,228. 1  13,969.2  15, 361.2  8,237.1 
By source (%)      
United States  19.0  6.3  20.5  34.7  
Japan  17.1  11.4  6.5  5.3  
Hong Kong, China 2.5 0.9 1.4 4.6 
Singapore 3.5 6.8 1.1 3.3 
Netherlands 9.6 38.8 41.1 19.7 
United Kingdom 3.3 10.8 4.2 5.6 
British Overseas Territory in the Caribbean 25.5 12.8 15.6 14.8 
Others  19.5  12.2  9.6  12.0  
Outbound direct investment     
Total (US$ million)  8, 454.4 11,957.8 16, 440.5 15,157.9 
By destination (%)      
United States  3.7 4.1 8.2 2.6 
China 71.1 63.9 60.6 70.5 
Hong Kong, China 1.3 2.3 1.2 2.2 
Singapore 1.2 6.7 7.3 4.6 
Viet Nam 1.1 1.0 0.7 4.2 
British Overseas Territo ry in the Caribbean  14.9 15.2 9.6 11.1 
Others 7.8 13.4 18.8 9.3 
Source:  Information provided by the authorities of Chinese Taipei. 
37. Chinese Taipei's inbound FDI to GDP ratio (2.1%) is low by regional standards, which 
suggests that there is room for improving the investment climate (Chapter II).  For example, restrictions on cross-strait trade and investment may have been a deterrent for potential investors 
wishing to use Chinese Taipei as an export hub to China and other countries;  therefore, further 
improving cross-strait economic relations could help increase FDI flows to Chinese Taipei.  In addition, removing informal barriers to investme nt and adopting international best practices, 
particularly in the services sector, could contribute  to higher inbound FDI le vels.  While recognizing 
that the FDI to GDP ratio has rema ined low over the past decade, th e authorities have highlighted the 
benefits that FDI has brought about in term s of R&D capability, industrial innovation, improved 
competitiveness, and resource allocation.  They have al so indicated that attracting greater FDI flows is 
now a priority.  Accordingly, efforts are being made to foster the participation of overseas investors in 
large investment projects (e.g. infrastructure) a nd to remove unnecessary regulations and informal 
barriers so as to enhance the investment climate.  
38. The annual outflow of direct investment fro m Chinese Taipei totalled US$15.2 billion in 2008 
(Table I.4).  China has remained by far the main  destination, receiving 70.5% of total investment 
capital outflows in 2008, followed by Singapore (4.6%), and Viet Nam (4.2%).  About 70% of outbound direct investment in 2008 was in the manufacturing sector, with the electronics industry as a Separate Customs Territory of  Taiwan, WT/TPR /S/232/Rev.1 
Penghu, Kinmen and Matsu Page 15 
 
 
whole accounting for roughly 32% of total outflows (T able I.5).  This trend reflects Chinese Taipei 
manufacturers' strategy to relocate their production offshore in the region in order to benefit from 
lower labour costs.  
Table I.5 
Inbound and outbound flows of direct investme nt (approval basis), by activity, 2005-08 
(US$ million and %) 
  2005 2006 2007 2008 
Inbound direct investment     
Total (US$ million)  4,228. 1  13,969.2  15, 361.2  8,237.1 
By activity (%)      
Agriculture, hunting, forestry, & fishing  0.1  0.0  0.1  0.0  
Mining and quarrying  0.1 0.0  0.0  0.0  
Manufacturing  33.0  51.7  52.2  28.9 
Electronic parts and components 12.4 37.8 20.3 8.3  
Electricity, gas, and water 1.0 0.8 0.3 0.2  
Construction 3.9 0.9 0.7 1.1 
Services  61.8  46.6  46.7  69.7 
Wholesale and retail trade 14.4 6.1  6.1  7.4 
Finance and insurance  36.3  34.3  32.8  53.1 
Outbound direct investment     
Total (US$ million)  8, 454.4 11,957.8 16, 440.5 15,157.9 
By activity (%)      
Agriculture, hunting, forestry, & fishing  0.1 0.1 0.1 0.2  
Mining and quarrying  1.0 0.0  0.0  0.1 
Manufacturing  70.3 68.2 62.5 70.2 
Basic metal 1.1 1.5 3.3 7.8 
Electronic parts and components 12.5 21.3 17.3 19.5 
Computers and electronics 16.0 12.7 13.1 12.2 
Electrical equipment 7.5 6.0 6.8 7.2 
Electricity, gas, and water 0.0 0.3 0.4 0.1 
Construction 0.4 0.2 0.2 0.4 
Services  28.2 31.1 36.8 29.1 
Wholesale and retail trade 5.4 6.6 3.5 5.5 
Finance and insurance 17.3 18.7 29.0 13.6 
Source:  Information provided by the authorities of Chinese Taipei.