When I was growing up, the “Made in Taiwan” stamp was a reason for derision, as it denoted inferior quality goods. But those initial exports — which began stepping up in the 1960s — set the stage for the Taiwan of today: a growing economy, fueled by advancements in technology.
While China garners most of the attention of investors trying to cash in on Asia’s tremendous growth of the past few decades, investors would be amiss not to recognize the growing importance of Taiwan on the world stage.
As I’ve pointed out in a recent article, in 2010, Taiwan was the fourth-fastest-growing economy in the world, with a GDP improvement of 10.8%. The slow global recovery took a bite out of that expansion this year, but Taiwan’s GDP growth still is estimated to come in at about 4.5%, followed by a 4.2% increase next year.
From a largely agrarian economy, Taiwan’s electronics and tech products now lead the country’s exports and are forecast to rise by 3% to 5% next year. Taiwan supplies the majority of contract computer chip manufacturing (foundry services) to the world and also is one of the leading manufacturers of LCD panels. Taiwan also is one of the top manufacturers of DRAM computer memory, networking equipment and consumer electronics.
China is the biggest buyer and supplier to Taiwan, accounting for 28% and 13.2% of its exports and imports, respectively. But the U.S. accounts for 11.4% of Taiwan’s exports and is its third-largest trading partner, scooping up as many electronics and consumer goods that our money can buy.
An additional boon to Taiwan’s economy is from the growing significance of its foreign direct investment (FDI).
In 2010, Taiwan was tied for No. 29 in global accumulated FDI, with about $111 billion currently in-country. In just 10 years — since its accession to the World Trade Organization — the country has more than doubled the $44.8 billion it received during the almost 50-year period from 1952 to 2000!
The entry to the WTO has been the biggest boost to FDI, but the Taiwanese government also treats foreign firms very well, including offering mostly unrestricted trade-related capital flows, abolishing the 50% foreign ownership limit in 2001 (for most industries), and lifting the amount of portfolio investment in the majority of companies listed on the Taiwan Stock Exchange. The government also offers investment incentives for monies put to work in several areas, including energy conservation and emerging or strategic industries.
Another huge impact on Taiwan’s growth was the 2010 Economic Cooperation Framework Agreement the country inked with China to cut tariffs to expand trade between the two nations. It’s working well, with China bringing in about $130 million to Taiwan last year. And Taiwan now is going to allow Chinese investors to buy up to 10% in Taiwanese tech companies and up to 50% in new tech-sector joint ventures — sure to spur even more expansion.
Consequently, foreign investment in Taiwan is booming. Through August of this year, FDI rose 13.04%, or $2.95 billion, over 2010. Most of that FDI is in the electronics and electrical industries, but funds also are being directed toward the banking and insurance services, chemicals, trade and basic metals.
About 400 foreign companies operate in Taiwan, and about 100 have set up a regional headquarters in the country — a number that is expected to rise to 300 by 2015, according to a recent government report. Those companies include Applied Materials (NASDAQ:AMAT), the world’s largest producer of chipmaking equipment in the U.S., and ASML Holding N.V. (NASDAQ:ASML), Europe’s biggest semiconductor-equipment maker.