PHOTO CREDIT TKincentives, grants for construction, and funding for research and
development, to support US chip manufacturing.
Onshoring trends could reduce demand from Taiwan, but
also presents opportunities. In May, Taiwan Semiconductor
Manufacturing Company announced plans to invest $12 billion
in a plant to build 5-nanometer chips in Arizona. Following the
news, multiple Taiwanese equipment and chemical producers
made their own announcements. Exporting production limits
the strain on Taiwan’s finite supplies of land, energy and water.
“Producing hardware is our specialty,” says
Chien-Fu Lin, Chief Economist of CTBC
Financial Holding Co. “Our education in
Taiwan produces a lot of engineers, and they are
quite good at manufacturing.” In semiconductor
R&D alone, Taiwan has approximately 40,000
engineers.
Taiwanese manufacturers are scouring
Southeast Asia and Eastern Europe for opportuni-
ties. “These countries all need some sort of man-
ufacturing,” says Shen. “They all need research
and development, and Taiwan can play this role.”
In July, Foxconn announced a $1 billion plan to
expand an existing smartphone factory in India,
the world’s second-largest smartphone market.
Meanwhile, Taiwanese companies are trying
to get better at understanding customer needs.
“Taiwanese IT companies are very good at selling
products, but they are not good at selling solutions,” Shen says.
“Few people have this background.” The government is providing
support. Taiwanese officials now survey their Vietnamese and Thai
counterparts to gauge demand for smart transportation, parking
and energy management systems. If there’s a need, they introduce
the appropriate Taiwanese producers.
ECONOMIC OBSTACLES
While closed borders are hurting airlines, hotels, travel agen-
cies, and food and beverage vendors, tourism accounted for
about 5% of Taiwan’s GDP in 2018; and the government has
instituted a consumer stimulus plan to boost private consump-
tion. Automobile and e-commerce demand remain strong. If
necessary, Taiwan’s relatively low government debt-to-GDP
ratio of about 31% gives public officials additional flexibility
to apply stimulus going forward.
The unemployment rate is below 4%, and GDP per capita
was $25,893 at the end of 2019, but wages are low for many
nontech jobs. “For general employees, they will see a huge
problem if they want to buy a house, especially in or near Taipei
City,” Yang says. “That could create social instability.” Taipei’s
house price-to-income ratio is a sky-high 15.5, exceeding even
notoriously high-priced New York City (5.7) and London (8.5).
Aging is another concern. By 2026, more than one-fifth of
Taiwanese will be over 65 years old; and national health insurance
expenditures are burdensome, Yang notes. The Labor Insurance
Fund, a $340 billion liability, is on the verge of bankruptcy. “The
government is trying very hard to deal with that problem; but
sooner or later, they have to face this choice,” he says.
While high tech has been a bulwark, Taiwan is also attempt-
ing to diversify its economy, pushing into such areas as smart
machinery, clean energy, defense and aerospace, biomedicine and
agricultural technology. Following the Covid-19 lockdowns,
Merida Industry and Giant Manufacturing have
seen a spike in demand internationally for their
bicycles. Like chip producers, bike suppliers
are increasing capacity to meet demand. And
in July, electric scooter manufacturer Gogoro
launched its first electric bicycle, which carries
a $4,000 price tag and will be sold in Europe
and the US.
Even with opportunities such as these, Taiwan’s
high savings rate makes it difficult for banks to
find suitable outlets. “There are not many inter-
esting investments now,” says Yang, “so banks
have the excess-deposit problem.” Regulatory
crackdowns in the Caribbean have further
stimulated onshore flows. “We see more and
more Taiwanese entrepreneurs bringing their
funds back to Taiwan,” Yang says. On the retail
side, equities, low-cost exchange-traded funds
and investment-linked insurance products are popular invest-
ment solutions.
Taiwan’s eight state-operated banks still account for 45% to
50% of market share, says Yang, who argues that privatization and
consolidation would strengthen the sector and increase efficiency.
“There is a huge overcompetition problem in Taiwan’s finan-
cial sector,” he says. “Taiwan’s banking sector is racing to the
bottom. They cut prices too much, so it hurts profit margins.
They can’t go big, can’t go international, which is very difficult
but very important for sustainable development.”
Traditional institutions need to speed up fintech development.
This year, three web-only banks are expected to launch; and
CTBC Financial Holding Co.’s Lin envisages further fintech
innovation, given Taiwan’s high-tech capacity. “This can cre-
ate a new wave for young people,” he says. “Taiwanese people
are very diligent and ambitious to do business. For economic
progress, that should be no problem.” Regulators, however, are
conservative; and he adds that loosening regulations would boost
development.
While Taiwan’s economy tends to progress in a methodical way,
government officials forecast 1.67% year-on-year expansion for
2020; and in July, the TAIEX, Taiwan’s capitalization-weighted
stock index, hit a 30-year high—going even higher in August.
Prudent governance could presage further economic growth. ■Yang, National Taiwan
University: There are not many
interesting investments now,
so banks have the excess-
deposit problem.60 | Global Finance | September 2020
ASIA REGIONAL REPORT | TAIWAN