Our comprehensive assessment of Taiwan's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Taiwan, as well as the latest industry developments that could impact Taiwan's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Taiwan before your competitors.

Country Risk

Taiwan Country Risk

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Core Views

  • Taiwan's economy slowed in Q114 likely on the back of a moderating expansion in private consumption and exports. While we remain fairly constructive on Taiwan's trade prospects in the near term, we do not believe that recovering demand in the US and Europe will be able to overcome the drag from China's slowing economy, which will inadvertently weigh on the island's economy given its heavy reliance on the mainland. We therefore are happy to maintain our below-consensus (3.2%) real GDP growth forecast of 3.0%.

  • From a political perspective, the recent student protests against the trade pact with mainland China may catalyse a widening divide within the ruling Kuomintang (KMT) party, which would inadvertently lead to some instability within the political environment. In the event that the trade pact is rescinded, Taiwan could suffer longer-term economic implications...

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Taiwan Operational Risk Coverage (9)

Taiwan Operational Risk

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Trade and investment risks are low in Taiwan owing to the country's open economy, relatively low fiscal and trade barriers and minimal red tape. As a result, despite a dip during the global financial crisis, foreign investment flows are recovering, a trend we expect to continue in the foreseeable future. That being said, despite gradual privatisation, the country's heavily state-owned banking system reduces international competitiveness by lowering profitability. For these reasons, the country receives an overall score of 72.4 out of 100 for Trade And Investment Risk, putting it in fifth position out of 30 countries in Asia.

Foreign trade has driven Taiwan's rapid economic growth over the past 40 years, and foreign direct investment (FDI) accounts for 12.5% of GDP. Following the beginning of the global financial crisis in 2008 FDI did fall in Taiwan, however, there are strong signs that it is recovering to pre-crisis...

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Taiwan Crime & Security

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Taiwan's overall position in the BMI Crime and Security Risk Index is hindered by the potential for escalation of tensions with the People's Republic of China. Crime rates in the country are relatively low and the police force is considered to be highly capable, which helps to redeem its score. There is also a very low threat of terrorism, by far Taiwan's most positive risk indicator. In total, Taiwan receives a mark of 61.4 for this category, placing it 11 th in the Asia region (behind Malaysia and just ahead of Mongolia).

Taiwan is generally considered a safe place for foreign business travellers, expatriate workers, and tourists, benefiting from low rates of crime which, when it does occur, tends to be of the petty theft variety, though we are seeing foreigners targeted by the fraudulent practices of scam artists. While it is safe to walk and catch public transport at night, markets and public transport...

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Taiwan Labour Market

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Taiwan has a large, skilled and urbanised labour force, with very good levels of secondary and tertiary education, particularly in science and technology. Investors can therefore expect a labour pool of highly skilled workers, and good worker availability. Moreover, in the long term we expect the government's education reforms - which will see compulsory education extend from nine to 12 years - to broaden the skill set of the country's labour force. Taiwan also benefits from a flexible workforce, with a long statutory working week and a low statutory requirement for annual leave, posing minimal disruption to businesses. The country therefore scores 65.0 for Labour Market risks, in the BMI Operational Risk Index placing it in seventh position out of 30 countries in Asia, between South Korea and Malaysia.

Taiwan has a very high quality education system in both regional and global terms, with a particular...

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Taiwan Logistics

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Overall, there are very few risks posed by Taiwan's transport network to potential investors, making the country an attractive investment destination. Well located on key east to west trading routes, Taiwan has an extensive road and rail system, ensuring access to all parts of the island, as well as extensive shipping and air freight capacity ensuring imports and exports are quick and cost effective. Driven by particularly high scores for costs, connectivity and quality of transport, Taiwan has a BMI Logistics Risk Index score of 77.6, placing it fifth in Asia, behind South Korea, Singapore, Malaysia and Hong Kong, ensuring its position as a competitive regional, and indeed global, transport hub.

Being natural resource-poor, Taiwan is heavily reliant on imports of a range of raw materials, including base metals, chemicals, coal and crude oil. The supply chain is set up to cope with the needs of vital industries...

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Taiwan Trade & Investment

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Trade and investment risks are low in Taiwan owing to the country's open economy, relatively low fiscal and trade barriers and minimal red tape plaguing its bureaucracy. As a result, despite a dip during the global financial crisis, foreign investment outflow is recovering, a trend we expect to continue in the foreseeable future. That said, the country's heavily state-owned banking system reduces international competitiveness, though it is gradually privatising. For these reasons, the country receives an overall score of 68.8 out of 100 for Trade And Investment Risk, putting it in 6th position out of 29 countries in Asia.

Foreign trade has driven Taiwan's rapid economic growth over the past 40 years, and Foreign Direct Investment (FDI) accounts for 12.5% of GDP. However, following the beginning of the global financial crisis in 2008 FDI did fall in Taiwan, though there are strong signs that it is recovering to pre-crisis levels: exports rose...

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Taiwan Industry Coverage (20)

Autos

Taiwan Autos

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We have downgraded our domestic auto sales forecast for Taiwan, and now expect total sales growth to come in at 10.2%, from our previous forecast of 13.4%. This is largely underpinned by a weaker economic outlook that will extend into 2015. According to the Taiwan Transportation Vehicle Manufacturers Association (TTVMA) auto sales grew by 6.5% year-on-year (y-o-y) in October, bringing sales growth for the first 10 months of 2014 to 9.0% y-o-y, with accumulated sales coming in at 81,412 units. Passenger car sales have outperformed the sector, with sales expanding by 11.7% y-o-y for the period January-October, while commercial vehicle (CV) sales contracted by 2.4% y-o-y.

While we expect the passenger car segment to continue outperforming, we believe that a slowing economy will pose headwinds to sales growth over the coming quarters. A weaker than expected recovery in Europe and a continued slowdown in China will weigh on export growth for the...

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Commercial Banking

Taiwan Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Taiwan Consumer Electronics

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BMI View: Consumers are keen to get their hands on the latest devices in Taiwan, making it one of the more mature consumer electronics market in the region. There are high penetration rates for all core consumer electronics devices, means growth rates will underperform emerging markets elsewhere in the region. Nevertheless, we have a positive outlook for the consumer electronics market, with consumer spending high and the launch of 4G services driving demand for new handsets. There is,...

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Defence & Security

Taiwan Defence & Security

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BMI View: Taiwan's defence capabilities continue to fall behind those of Beijing, despite a steadily increasing budget. This has pushed the Ma administration towards a domestically controversial approach of diplomacy and engagement towards China. Moves to disband conscription and establish an all-volunteer force have been delayed and will ultimately be difficult to implement. 

On the one hand, Taiwan's decision to scale back its armed forces in combination with a significant decline in defence imports may point to closer integration with China. Indeed, in Q114 China and Taiwan held the first government-to-government talks in 65 years, a highly symbolic development that builds on the earlier successes of Ma's government, despite the generally negative reaction domestically. On the other hand, these cutbacks may signify an increased reliance on a US counterbalance to China...

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Food & Drink

Taiwan Food & Drink

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BMI View: We expect the slowdown in Taiwan's main export markets to continue to present headwinds to growth during 2015, as the country's over-reliance on tech-related exports leaves Taiwan vulnerable to both changes in the global electronic business cycle and demand changes in developed markets. With credit growth decelerating and private consumption remaining relatively subdued, we are forecasting a below consensus 3.1% real GDP growth for 2014 and have downgraded our real GDP forecast for 2015 to 3.5% from 4.1%. Therefore, as last year, we remain fairly pessimistic about the performance of Taiwan's food and drink market in the short to medium term, albeit that select individual (premium) sectors may still outperform the overall market.

Headline Industry Data

  • 2014 per capita food consumption (local currency): +1.8%; forecast compound...

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Freight Transport

Taiwan Freight Transport

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Modest Freight Growth Expected In 2015

We expect low single-digit growth in percentage terms for all freight modes in Taiwan in 2015. Leading the way in terms of year-on-year (y-o-y) growth will be air freight (+2.5%), while the poorest performing mode will be bulk tonnage at the port of Keelung (+1.1%).

BMI's growth predictions for Taiwan are slightly below consensus in 2015. We have cut back our GDP projection to growth of 3.5% (down from 4.1% previously) reflecting the impact of weak global demand and falling domestic house prices. The latter will hold back the growth of domestic consumption. Recent food scandals - including the discovery that lard-based oil made from recycled kitchen and slaughterhouse waste was being incorporated into food products - will also have had a negative effect on consumer confidence and food exports. Exports, while remaining key to Taiwan's...

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Infrastructure

Taiwan Infrastructure

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BMI View: Over our long-term forecast period to 2023, Taiwan's construction industry will accelerate at a modest pace, despite a very slight slow in growth in 2015, on the back of investment uncertainty due to national elections, weakening external demand and falling house prices. Our overall outlook for the economy and construction remains positive, however, due to a relatively conducive monetary environment for construction, changes in the country's energy policy and the government's desire to improve transport links.

Key Trends And Developments

  • After the KMT lost key local elections in November 2014, President Ma Ying-jeou stepped down as party chairman and doubts will now be raised as to whether the KMT will be able to stay in power in 2016. This will in turn...

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Insurance

Taiwan Insurance

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BMI View: Taiwan's insurance market is large and very well developed, with several major domestic and multinational firms active in both the life and non-life sectors. Premiums are set to increase across all major lines, with particularly healthy growth expected in terms of life and health insurance - which dominate the insurance market in Taiwan. Although mature, there are still substantial opportunities for expansion, especially through product innovation.

In both the life and non-life sectors, the same three insurers, Cathay, Fubon and Nan Shan, control around 50% of gross premiums, and other insurers struggle to achieve substantial market shares. Moving forward we expect to see some market consolidation amongst the smaller firms, while the larger companies will likely look abroad, particularly...

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Medical Devices

Taiwan Medical Devices

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BMI Industry View: The ongoing conflict of interest between the multinational industry and the government is understandable; despite constraints and barriers to market entry, Taiwan remains a lucrative market, among the top 25 in the world in value terms, and over 75% of the market is still supplied by imports. The USA holds a significant share of imports with just over a third of the total in 2013, followed by Japan and other suppliers from the EU.

Headline Industry Forecasts

  • In USD dollar terms, the market is expected to rise by a CAGR of 8.6% during the 2013-2018 period, with performance ranging from 5.4% for diagnostic imaging to 11.1% for orthopaedics & prosthetics. Overall, this will see the market rise from...

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Metals

Taiwan Metals

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BMI View: Taiwan's steel producers are facing into increasing headwinds in 2015 as global supply levels tick upwards as a result of a cooling Chinese economy. Chinese exporters are increasingly targeting the Taiwan market, forcing local producers to reduce prices. Meanwhile, Taiwan's own steel export sector finds itself battling against the increasingly protectionist stances of governments in Europe and North America.

While production levels have trended upwards over the past few years, having contracted in 2012, the rate of growth appears to be slowing as local producers come under increasing supply pressure as Chinese steelmakers ramp up exports in an effort to counteract slowing domestic demand. Chinese steel exports to Taiwan were estimated to have increased by more than 400% y-o-y in September 2014, according to analysis from Bloomberg....

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Oil & Gas

Taiwan Oil & Gas

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  • Like many of its larger Asian neighbours, the Taiwanese economy is heavily reliant upon oil and natural gas exports, particularly from the Middle East. Having largely held its own in the wake of the financial crisis of 2008-2009, Taiwan's export-based economy will invariably need a variety of sources of energy in the coming years. The oil price slump in late 2014 has allowed Taiwan to both capitalise on more imports, but also diversify is import origins. In the coming years, the future of LNG, the capacity of Russian gas exports to penetrate East, and the and the opening up of Iran for more trade will have significant impact to Taiwan's natural gas consumption.

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Headline Forecasts (Taiwan 2012-2018)

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Petrochemicals

Taiwan Petrochemicals

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Taiwan's petrochemicals industry depends on its ability to compete on the Asian market, but BMI's latest Taiwan Petrochemicals report states that the island could find itself crowded out as a result of rising Chinese self-sufficiency and growth in low-cost shale-based ethane-fed production in the US.

In 2014, Taiwan saw the beginning of a recovery in petrochemicals in line with overall manufacturing growth. Among the strongest end-use markets was the automotive industry, which helped offset lacklustre performance in other segments. Nevertheless, Taiwan has a small domestic market, relatively high labour costs compared with its neighbours, a strong environmentalist lobby and a large volume of FDI.

  • The island's producers will need to improve external competitiveness to boost output. This will depend on securing a reduction in tariffs on petrochemical exports to China to boost their...

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Pharmaceuticals & Healthcare

Taiwan Pharmaceuticals & Healthcare

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BMI View:  Taiwan is one of the most attractive and stable prospects in the region for pharmaceutical and healthcare investment, but is not without flaws. Weaknesses in the country's regulatory regime and drug pricing concerns will continue to deter multinational interest over our forecast period. While our forecasts going into 2015 are unchanged from the previous quarter, BMI believes that Taiwan's export market is poised to benefit greatly from its advantageous position in API manufacturing, and the high regard for Taiwanese private healthcare services in the region.

Headline Expenditure Projections

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Power

Taiwan Power

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BMI View: Heavily dependent on imports, Taiwan's power market is dominated by thermal sources, with coal, gas, and to a lesser extent, oil-fired power stations generating the majority of energy used. While Taiwan's fourth nuclear plant is almost operationally ready, growing public distrust threatens to stall the start up of this facility even as the first two nuclear plants age and need to undergo maintenance. Moreover, political and economic pressures have restricted Taipowe r, the state utility from raising tariffs, leaving the company stuck in the red. Despite the Taiwan government's ambitious renewable energy goals to 2025, slow progress suggests that renewables are unlikely to reach the target of a 16% ...

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Real Estate

Taiwan Real Estate

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BMI View: A slowdown in China's economic is currently slowing growth in Taiwan's commercial real estate sector. However, a recent thawing of relations with China as well as an increasingly liberal investment climate and a more diversified export market point towards a favourable medium-term outlook.

The commercial real estate sector in Taiwan is well developed and is supported by the island's position as a regional trading and financial hub. Taiwan's healthy demographic position and increasing international visitor numbers provide opportunities for retail developers as big multinationals continue to come to take advantage of the country's (relatively) open economy.

The slowing Chinese economy has meant more modest growth for Taiwan's economy over recent quarters as falling...

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Renewables

Taiwan Renewables

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BMI View: We are currently maintaining our forecasts for limited average annual growth of around 4% in Taiwan's renewable energy sector, as a lack of progress on major projects and limited legislative development is hindering the realisation of ambitious government green energy targets. While nuclear and thermal energy are expected to continue to dominate Taiwan's energy mix, solar power capacity is forecast to grow as much as 12.2% in 2015. Biomass and wind power will lead the way in terms of overall renewables capacity.

Although biomass and waste generation continues to constitute the bulk of non-hydropower renewables generation, other sources are expected to catch up in the coming years. This means that the biomass and waste share of the total is set to decrease in our forecast period. Solar energy is forecast to experience...

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Shipping

Taiwan Shipping

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BMI View: In 2015 we expect cargo volumes handled across Taiwan's main ports to grow at a slightly faster pace than in 2014. Tonnage growth will remain low in percentage terms, however. Box traffic at Taiwan's key ports will remain the most dynamic, but will not exceed 4% growth.

Broadly speaking, Kaohsiung. Taiwan's largest port, remains the most resilient, not least because it is attracting new investment. The policy of cross-strait integration is expected to continue.

BMI's growth predictions for Taiwan are slightly below consensus in 2015. We have cut our GDP projection to growth of 3.5% (down from 4.1% previously) reflecting the impact of weak global demand and falling domestic house prices. The latter will hold back the growth of domestic consumption. Recent food scandals, including the...

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Telecommunications

Taiwan Telecommunications

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BMI View : Accelerating 4G take up reflects the high spending tech savvy population of Taiwan that makes it one of the most developed in the Asia Pacific region. The three leading operators have announced rapid take-up of their 4G services, driven by strong competition and high demand. With six operators having obtained 4G licences and launching quickly, it is clear that operators have high expectations of the impact 4G will bring. However, operators face a short-term ARPU squeeze from the regulators, who have imposed compulsory cuts to mobile termination rates and requirements to provide free peering between 2013 and 2016....

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Tourism

Taiwan Tourism

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BMI View: The Taiwan tourism report examines a range of key indicators in this substantial Asia Pacific market. Benefiting from proximity to key regional markets including mainland China, Hong Kong and Japan, Taiwan is expected to see healthy increases in inbound tourism throughout our forecast period. At the same time, domestic economic growth will provide a boost to the outbound travel market. As inbound and outbound travel increases, we expect industry value and tourism-related expenditure to see substantial increases.

Taiwan is a popular and well-established shopping tourism destination in the Asia Pacific region and receives a substantial volume of visitors from mainland China, which is the country's biggest source of tourism arrivals. Over the...

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Water

Taiwan Water

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BMI View: This quarter we have upgraded and expanded our water forecasts. We now cover extraction by source (including rivers and rain water), Mains and non mains consumption, losses and non revenue waters. As the reservoir capacity expands, we anticipate non mains water consumption to increase substantially, though mains and household demand shall taper off. Without more rigorous regulations, bill collections, and sustained investment into the networks, we expect losses to remain high, which could put additional pressures on Taiwan's strained water resources.

Increasing anti-China sentiment among Taiwanese voters has raised the DPP's chances of forming the next government in 2016. China will hence be unwilling to allow the DPP to reap the economic fruits of the KMT's labour, especially given cool historical ties between Beijing and the DPP. This will entail strong...

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