GDP trends Taiwan has a dynamic capitalist economy with gradually decreasing guidance of investment and foreign trade. In keeping with this trend, some large, state-owned banks and industrial firms have been privatized. Exports have provided the primary impetus for industrialization. The island runs a large trade surplus, and its foreign reserves are among the world's largest. Recently opened cross-strait travel, transportation, and tourism links are likely to increase Taiwan's economic interdependence on China, which has overtaken the US to become Taiwan's largest export market and its second-largest source of imports after Japan. China is also the island's number one destination for foreign direct investment. Growth fell below 2% in 2008 because of the global slowdown. In 2008, GDP (purchasing power parity) was $738.8 billion and GDP (official exchange rate) was $401.6 billion. Fiscal policy Fiscal objectives are set by the DGBAS and the Council on Economic Planning and Development (CEPD), and are stated clearly in the budget documentation. This information is available on the DGBAS website. The introduction of new policies is announced in the budget. More extensive ministry-level information is provided by the individual line ministries and made available on the web, although not always in English. Monetary policy Taiwan will temporarily relax its tight monetary policy to help local companies pay out billions of local dollars in salaries and bonuses before the Lunar New Year on Jan. 27. Bankers said the measure would also keep interest rates and the United States-Taiwan dollar exchange rate stable. They said the easing will start in mid-January, lasting about a month. Taiwanese companies traditionally give a New Year's bonus worth three to six months' salary.   Trade trends with U.S. Taipei is America’s eighth biggest trading partner (and America is third on Taiwan’s list), with two-way trade running about $60 billion annually, and is a high-income consumer and high-technology producer. The U.S. exports more to Taiwan than to Australia, Chile and Singapore, and all of which now enjoy FTAs. The estimates of the likely increase in U.S. exports through an FTA run from about 15 percent to 30 percent. An FTA would position U.S. enterprises to take advantage of Taiwan’s ongoing transition toward a service-oriented economy. The island, with widespread economic penetration throughout Asia, would provide a base for U.S. enterprises to expand their reach. More important, Taiwan’s proximity to China and increasing economic integration with the mainland would indirectly boost American ties with the PRC. Since Beijing views Taiwan as part of one China, U.S. firms operating in Taiwan and investing in Taiwanese concerns might find improved access to the larger China market. In 2008, the U.S. trade with the Taiwan and all figures are in millions of U.S. dollars.

Month

Export

Import

January 2008

2,266.2

3,216.3

February 2008

2,137.4

2,788.6

March 2008

2,646.2

2,990.8

April 2008

2,147.7

3,021.6

May 2008

2,493.6

3,062.4

June 2008

2,361.5

2,986.7

July 2008

2,738.0

3,226.6

August 2008

2,224.2

3,300.2

September 2008

1,758.4

3,155.0

October 2008

1,763.5

3,229.4

November 2008

1,454.9

2,806.5

December 2008

1,287.9

2,542.9

Total

25,279.4

36,327.1

Trade trends with E.U. In line with its “One China” policy, the EU does not recognize Taiwan as a sovereign state and therefore has no diplomatic or formal political relations with Taiwan. The EU does, however, support Taiwan’s practical participation in international organizations where this does not require statehood. The EU has solid economic and trade relations with Taiwan. Taiwan and the EU have a healthy trade relationship - Taiwan is the EU’s 4th largest partner in Asia and the EU is Taiwan’s fourth largest market. Regular contacts take place in sectors such as research and technology, information society, education and culture, fisheries, environment, intellectual property rights and standards and norms. Regular EU/Taiwan “consultations” are held in order to ensure coordination and coherence of activities in these fields, the most recent in October 2007 in Taipei. Europe is one of the ROC's most important trading partners, trade with the continent is not as large as with Asia or North America because of distance, language barriers, and the ROC's withdrawal from the United Nations in 1971. In 1999, for example, Taiwan's exports to the United States totaled US$30.9 billion, while exports to the European Union (EU) reached only US$19.06 billion. Taiwan's trade with Europe did not take off until the mid-1980s. In 1999, ROC-EU two-way trade was US$33.5 billion, accounting for 14.4 percent of Taiwan's total trade. The EU was Taiwan's third-largest trading partner after the US and Japan, while Taiwan was the EU's tenth-largest trading partner and seventh-largest supplier. Taiwan's exports to Europe have increased considerably over the past five years, especially during the recent Asian financial crisis. While most Asian countries were in recession at that time, Taiwan was able to maintain healthy economic growth by increasing exports to the European market. Taiwan's exports to Europe consisted primarily of textile products, garments, and shoes. Today, technology-intensive products have replaced these items. For example, office machinery and computer exports to the EU increased from 1.4 percent in 1980 to 34.4 percent of Taiwan's exports to Europe in 1997, making Taiwan the EU's third-largest supplier of such products. Electronics exports during that period also registered a notable increase, rising from 7.1 percent to 16 percent of Taiwan's exports to Europe. Taiwan's imports from the EU consist primarily of military goods and raw materials used in the manufacture of automobiles, IC chips, factory machinery, and steel. In 1999, total European investment in Taiwan was US$4.1 billion, or 12.4 percent of all direct foreign investment in Taiwan. This figure is significantly less than the 26.3 percent for US investment and the 25 percent for Japanese investment. The majority of the European enterprises have invested in Taiwan's chemical manufacturing industry, electronic and electrical manufacturing industries, and finance and insurance sectors. Financial Markets Taiwan, the Republic of China, has been striving to reform its financial system, and in the process, become a financial power, both regionally within the Pacific Rim of Asia, and, globally, given the rapidly increasing economic and financial significance of this area. In a unique book written from an interdisciplinary and well-balanced legal, financial and economics perspective that is both theoretical and practical, Semkow comprehensively analyzes and discusses the scope and direction financial and capital market reform has taken in Taiwan, and its implications for existing and newly emerging financial institutions in Taiwan and elsewhere. Having introduced the problems underlying and the significance of Taiwanese financial reform, the author provides a thorough overview of the entire spectrum of existing and newly-emerging domestic and international financial institutions within Taiwan, and the various financial regulators, including the Ministry of Finance and the Central Bank of China, and the regulatory framework through which both financial institutions and regulators operate. The author examines in detail the various financial markets, including the financial, money, offshore banking, foreign exchange and securities (equity, debt and derivative) markets, and the major recent and imminent legislative and regulatory initiatives undertaken to reform these markets and elevate Taiwan's status as a regional, and by implication, a global financial center. This book will provide both foreign and Taiwanese financial, legal, business, and public policy and academic communities interested in Asian and Taiwanese business and finance an invaluable legal and financial guide to the rapidly emerging and increasing significance of Taiwanese banking and finance in this decade and into the next century.

Banking system There are 3 types of banking systems in Taiwan: 1. Domestic banking institutions Financial institutions in Taiwan involved in indirect financing and money market activities include commercial banks, trust and investment companies, credit cooperatives, credit departments of farmers, and fishermen’s associations, the Postal Remittances and Savings Bank, bills finance companies, financial holding companies, and local branches of foreign banks. The total number of bank branches in Taiwan reached 5,771 in 2001, an increase of 1.7% from 5,672 in 2000. At the end of 2001, Taiwan was home to 53 commercial banks with 3,005 branch offices. They accounted for 71.33% of total deposits accepted and 89.38% of total loans extended in Taiwan. Commercial banks are relatively large in terms of their net worth and assets, and most of them expand by opening more branch offices rather than by establishing subsidiaries or joint ventures. Indeed, 26 Taiwan banks rank among the top 500 banks in the world in terms of tier one capital, according to The Banker, July 2001 issue. 2. Foreign banks Before the restoration of Taiwan from Japanese colonial occupation in 1945, the Taiwan branches of foreign banks such as Sanwa Bank and Dai-Ichi Kangyo Bank (formerly Japan Kangyo Bank) had been instrumental to Taiwan’s economic and trading activities. The government began to allow other foreign banks to operate in Taiwan as early as 1959. The purpose was to strengthen Taiwan trade relations with other countries, facilitate economic development through the introduction of foreign capital to raise the quality of financial services. Even though the U.S. and many other countries broke diplomatic ties with the ROC as far back as of the late 1970s, foreign banks have never ceased to play an active role in Taiwan. At the end of 2001, 38 world-class banks from 15 different countries operate 69 branches island-wide. Citibank is the largest foreign bank with 10 branches. 3. Offshore banking activities The government promulgated the Offshore Banking Act in 1983 with the Ministry of Finance and the Central Bank of China as the joint competent authorities. The policy goal of the Act is to encourage the development of international financial activities. On October 8, 1997, the Legislature passed amendments to the Offshore Banking Act for Offshore Banking Units (OBUs) to accept foreign exchange deposits from Taiwan residents and to engage in investment banking operations. As OBUs are now allowed to offer various new financial products, relevant rules were promulgated on March 19, 1999 requiring improved risk management of OBUs. Over the years, OBUs have developed into one of the major financing channels for overseas subsidiaries of Taiwan enterprises. Both domestic and foreign banks may apply to establish an OBU within Taiwan. Foreign banks are permitted to set up an OBU without undertaking domestic businesses in Taiwan. The authorization process usually focuses on the applicant’s experience in foreign exchange operations and the adequacy of its systems to prevent any breach of foreign exchange regulations. Given the increasing economic and investment activities between the two sides of the Taiwan strait in recent years, the OBUs are now authorized to engage in business with financial institutions in Mainland China. This is expected to facilitate the financial needs for Taiwanese enterprises operating in Mainland China.