Republic of China (Taiwan) Business Guide
Introduction
The Republic of China is a country in East Asia. It was one of the victorious powers of World War II and a founding member of the United Nations. Historically, it encompassed all of mainland China before the Kuomintang (KMT) lost control of the mainland to the Communist Party of China at the ceasefire of major hostilities of the Chinese Civil War in 1950. Since then, its authority has been limited to the island groups of Taiwan (Formosa), the Pescadores, Kinmen, and the Matsu Islands. Over subsequent decades, the Republic of China has been commonly referred to as "Taiwan", and since the late 1970s the name "China" is commonly used to refer to the People's Republic of China (PRC). Because of diplomatic pressure from the People's Republic of China, the Republic of China (Taiwan) is commonly referred to as "Chinese Taipei" in international organizations. Its capital city is Taipei.
The Republic of China was established in 1912, replacing the Qing Dynasty and ending over two thousand years of imperial rule in China. It is the oldest surviving republic in East Asia. The Republic of China on mainland China went through periods of warlordism, Japanese invasion, and civil war between the Kuomintang and the Communists.
Taiwan's quick industrialization and rapid growth during the latter half of the twentieth century, has been called the "Taiwan Miracle" or "Taiwan Economic Miracle". As it has developed alongside Singapore, South Korea and Hong Kong, the ROC is one of the industrialized developed countries known as the "Four Asian Tigers".
Economy
Today the Republic of China has a dynamic capitalist, export-driven economy with gradually decreasing state involvement in investment and foreign trade. In keeping with this trend, some large government-owned banks and industrial firms are being privatized. Real growth in GDP has averaged about eight percent during the past three decades. Exports have provided the primary impetus for industrialization. The trade surplus is substantial, and foreign reserves are the world's third largest. The Republic of China's current GDP per capita (PPP) is equal to the average of EU Countries.
Agriculture constitutes only two percent of the GDP, down from 35 percent in 1952. Traditional labor-intensive industries are steadily being moved offshore and with more capital and technology-intensive industries replacing them. The ROC has become a major foreign investor in the PRC, Thailand, Indonesia, the Philippines, Malaysia, and Vietnam. It is estimated that some 50,000 Taiwanese businesses and 1,000,000 businesspeople and their dependents are established in the PRC.
Because of its conservative financial approach and its entrepreneurial strengths, the ROC suffered little compared with many of its neighbors from the Asian financial crisis in 1998–1999. Unlike its neighbors South Korea and Japan, the Taiwanese economy is dominated by small and medium sized businesses, rather than the large business groups. The global economic downturn, however, combined with poor policy coordination by the new administration and increasing bad debts in the banking system, pushed Taiwan into recession in 2001, the first whole year of negative growth since 1947. Due to the relocation of many manufacturing and labor intensive industries to the PRC, unemployment also reached a level not seen since the 1970s oil crisis. This became a major issue in the 2004 presidential election. Growth averaged more than 4% in the 2002-2006 period and the unemployment rate fell below 4%.
The ROC often joins international organizations under a politically neutral name. The ROC is a member of governmental trade organizations such as the World Trade Organization under the name Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu.
Market Overview
Taiwan, a small mountainous island with a population of 23 million and few natural resources, has become a high-tech powerhouse that boasts the world’s nineteenthlargest economy. It is a major trading partner of the United States, and ranks among our top 10 export markets for both agricultural and non-agricultural products. Per capita GDP and household disposable income rank among the highest in Asia, making Taiwan an attractive consumer goods market despite its relatively small population.
Only 50 years ago, Taiwan’s economy was dominated by agricultural production, but today it is one of the world’s leading manufacturing centers for advanced information technology. Taiwan is at the heart of the global semiconductor foundry industry and sets the world standard for both contract design services and production processes. The Ministry of Economic Affairs calculates that Taiwan firms make over 70% of the world’s wireless communication products. The island is a leading producer of thin film transistor liquid crystal display (TFT-LCD) flat panel displays. The high-tech sector relies heavily on technology licenses and imports of specialty components from the United States. As Taiwan loses competitiveness in older-generation technologies (which typically migrate to mainland China, Vietnam, and other lower-cost manufacturing environments), industrialists and the authorities have set their sites on biotechnology, optoelectronics and nanotechnology as the next priority industries. The service sector has also been identified as an area where Taiwan must attain world-class quality and competitiveness.
Market Challenges
Taiwan is a sophisticated market. Plugged into consumer trends in Japan and Korea, awash in products from mainland China and other lower-cost producers in Asia, and well aware of market developments in America and around the globe, Taiwan is generally a target market for high-quality, differentiated products rather than commodity items. At the same time, it is generally a very price-sensitive market, and imported products must conform to certain standards and labeling regulations required of all products in this market. Generally, a local agent will assist with this. Details of Taiwan’s standards regime are provided in Chapters 3 and 6 of this report. A special concern of American firms over the past few decades has been the protection of intellectual property rights (IPR). In the past, Taiwan gained an unenviable reputation for violation of patents, copyrights, trademarks, and trade dress. With accession to the World Trade Organization, the passage of new IPR legislation (most recently, a new copyright law), and improved enforcement on the streets and sentencing in the courts, there is general agreement that IPR protection has improved noticeably in the past few years. Nevertheless, AIT and the U.S. Government remain watchful to ensure that American firms enjoy all due protection for their intellectual property in Taiwan.
Market Opportunities
The leading sectors of opportunity (both agricultural and nonagricultural) for U.S. exporters. The fact that Taiwan ranks among America’s top 10 export markets despite its small size indicates a general openness to U.S. products and services. The island’s accession to the World Trade Organization in 2002 led to further dismantling of non-tariff barriers and a general lowering of the remaining tariffs. These actions further enhance U.S. opportunities in this market, which break down generally into high-value-added components and other inputs for the high-tech manufacturing sector (e.g., electronic production and testing equipment, petrochemical products); food and other agricultural products; and “American lifestyle” goods and services sought by Taiwan’s affluent population, running the gamut from luxury consumer goods to healthcare products.
