External overview Taiwan

Taiwan has grown rapidly and progressed from being an autocratic country under the Nationalists, the Kuomintang (KMT) party in 1949, to a multi-party democracy. By 2000–2001, a process of change was discernible when the KMT lost control of the presidency and the legislature for the first time in Taiwan’s 50-year history. The former opposition, the liberal Democratic Progressive Party (DPP), won the presidency in 2000 and retained control through the 2003 election. However, the party lost to the KMT in the 2008 election (Datamonitor,2010).

The issue of reunification with China has been and continues to be the predominant issue in domestic politics and international relations. With both the People’s Republic of China (the mainland) and the Republic of China (Taiwan) claiming to be the legitimate authority over Taiwanese land. Frequent tensions between the two are a common event and spreads uncertainty (Datamonitor,2010). However, the election of Ma Ying-Jeou back in 2008 is expected to bring Taiwan and China closer together. Ma Ying-Jeou has been advocating improved relationship and ties with China, but has promised to the Taiwanese electorate that he will not enter into any negotiations over the country’s political sovereignty. Consequence, it is possible that US’ relations with Taiwan may weaken because of its improved ties with China.

The economic cooperation framework agreement (ECFA) between Taiwan and China, which was signed on June 24 2010, has upset the opposition DPP (Datamonitor,2010). Even though the trade deal will most likely generate opportunities for economic development, DPP believes that it will increase Taiwan’s dependence on China and decrease the country’s sovereignty.

However, the opposition does not hold enough seats to block the deal. The government of Taiwan has remained committed to liberalized economic and social policies. It has also continued with its investment friendly policies. “The asset management industry has been liberalized, with respect to investment in Chinese stocks, and the investment limit for Taiwanese firms in Chinese companies has been increased” (Datamonitor,2010). Moreover, the social reform policies have been reoriented to balance economic growth and welfare measures.

These reforms will further enhance the competitiveness of the Taiwanese economy. Taiwan’s

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long-term political prospects are inseparable from its relations with China and while cross-Strait relations have changed in recent years, it is fair to believe that the status quo will largely reign.

Therefore, while further economic integration is likely between the two countries, the chance meaningful political convergence is small. Nevertheless, Taiwan is unlikely to regain internationally recognized independence. Business Monitor Online believes that Taiwan will remain in a political no-man’s land – with this being the least bad path for political stability (BMI,2011).

4.1.2.2. Economic Economic Overview of Taiwan:

GDP growth 427 billion USD 2010 est.

GDP in percent 8,3 % 2010 est.

GDP per capita 35 100 USD, 2010 est.

GDP (Purchasing Power Parity) 807 billion USD 2010 est.

Unemployment rate 5,2% 2010 est.

Inflation rate 1,3% 2010 est.

Exports 278 billion USD 2010 est.

Imports 250 billion USD 2010 est.

Source: (CIA,2011)

Table 8 - Economic overview Taiwan

In the past, Taiwan had an economy based on agriculture and rural life. In other words: the country had an agrarian economy, which was based on sugar and rice. “Taiwan has a dynamic capitalist economy with gradually decreasing government guidance of investment and foreign trade” (CIA,2011).

Taiwan is one of the Asian Tigers together with Singapore, Hong Kong and South Korea. It is expected that a closer relationship with China will bring new opportunities, but that the domestic demand will continue to be the main driver of the economy and the GDP growth. In comparison to the other fellow Asian Tigers’ economies, which are expected a moderate

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expansion; Business Monitor International (BMI) is expecting Taiwan to grow above trend from 2011 to 2020. They predict an average GDP growth of 4.8% during this period, and this is the highest among the Asian Tigers countries. Concerning the GDP per capita, Taiwan is expected to enjoy an average annual growth of 7.7% during 2011 to 2020 and this means outpacing even South Korea. BMI find the key driver of this growth performance to be investments as the island’s improved business- and investment environment will facilitate more foreign investments (CIA,2011).

Taiwan’s export competitiveness is a foundational strength of the economy and a growth in the export will help to speed up the recovery of the economy after the crisis. However, the heavy dependence on exports makes the economy vulnerable to downturns in the world demand (Datamonitor,2010) and (CIA,2011). Although Taiwan is a favorable place to set up a business, corruption is like in China, a dampener and a problem. Taiwan is considered one of the countries with best business environment in Asia. However, the presence of corruption in the government`s legal bodies is high. On the Wall Street Journal’s Index of Economic Freedom in 2010, Taiwan scored only 57 in freedom from corruption, signalizing the presents of corruption (Datamonitor,2010). Like China and any other country, Taiwan’s economy faces challenges.

Taiwan’s diplomatic isolation, the rapidly aging population and the low birth rate are some major future challenges for Taiwan.

4.1.2.3. Environmental

Taiwan has experienced rapid industrialization, which has resulted in substantial environmental damage. Air pollution, water pollution, raw sewage, contamination of drinking water supplies, trade in endangered species and radioactive waste disposal are challenges they now face. The country has a high population in addition to a high motor vehicle density. Almost 70% of the rivers in Taiwan have been contaminated by garbage and only 46% of the garbage produced can be correctly deposited or recycled. Taiwan’s forest has been destroyed by human activities, an area estimated to be more than 35%. The coral cover in the coast areas has decreased by three quarters of the total in a ten-year period.

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Taiwan has planned to build their fourth nuclear power plant, but they have not been able to control nuclear waste. This waste is dumped on peripheral islands, which has affected countries like North Korea. Taiwan is located close to China, which has led to some environmental problems, such as dust storms and air pollution emanating overseas. The country also suffers from the high water pollution. Taiwan has established the Environmental Protection Administration (EPA), which generate policies to reduce pollution and waste. The government has also adopted several strategies to achieve a sustainable environmental development, such as promoting the environmental awareness and environmental behavior to protect the atmosphere. The country has been able to improve the air quality to a normal level in many regions, due to environmental law enforcements. Water resources are protected by introduction of public information programs, education and law enforcement. The government has also implemented the National Biodiversity Action Plan to protect wildlife habitats and reserves.

The Legislative Yuan announced a long-term environmental protection, which states that environmental education will become mandatory for Taiwanese schools, businesses and organization from May 2010. The environmental impact assessment (EIA) has been set up to identify, predict and evaluate new projects. The energy research and development, and the new policies will help Taiwan reduce it’s greenhouse gas and CO2 emission and reach other environmental protection goals (Datamonitor,2010).

4.1.2.4. Legal

The Taiwanese legal system has origins from the European and Japanese legal systems, though most commercial law systems are based on the US legal system. Taiwan is not a member of the New York Convention of 1958 of recognition and enforcement of foreign arbitrage awards.

They are however, often involved in disputes regarding foreign parties, which are often enforced by Taiwanese courts on a reciprocal basis. The highest judicial organ is the Judicial Yuan, which is responsible for supervising the administration of the various levels of the courts.

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Beneath this are the Supreme Court, the high courts, district courts, the administrative court and the Commission on the Disciplinary Sanctions of Public Functionaries. There is also Council of Grand Justices, which consist of the grand justices of the Judicial Yuan, which interprets the constitution.

Taiwan has one of the best environments for setting up businesses in Asia. The government provides considerable investment incentives for this purpose. Moreover, the government tries to be active in promoting policies, programs and legislation to encourage foreign investment in new technologies and facilitate free and fair competition. Competition policies in Taiwan will be regulated by the government in the future with the intention of securing equality and transparency in governmental contracts and deals. Although some restrictions still remain, the long-term outlook reviles a positive trend for the overall legal system. There will be a focus on enhancing FDIs and becoming one of the countries with lowest risk for business investment (Datamonitor,2010) and (BMI,2011).

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 DDP opposed the trade deal with China

 High dependence on exports =

 Trade agreements with other regional partners are evolving in the near future

 Increasing FDI

 Environmental education

Threats:

 Local companies moving to mainland China government, little, if any, political freedom and several military coups. Data monitor states in the latest report that things have changed. “In 1986 the democratic process was streamlined and the president was vested with maximum power. Due to the centralization of authority, policy-making became straightforward. The president is the chairman of all the committees, who makes it easy to coordinate and run the whole system. The country also has strong political and economic support from the US” (Datamonitor,2010).