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 In the event that the trade pact is rescinded, Taiwan could suffer longer-term economic implications...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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BMI View : Taiwan presents limited operational risks to incoming businesses. The most significant risk comes from the country's unstable interstate relations with China, with recent protests causing disruption to business activity. In addition, high labour costs and a heavily state-owned banking system reduce Taiwan's international competitiveness and drive up operational costs. That said, the country scores favourably in a number of other areas, most notably its developed logistics network and open economy, with relatively tax rates and minimal red tape. For these reasons, Taiwan receives a score of 69.6 out of 100 in our overall Operational Risk index, putting it in sixth position out of 38 countries in Asia, between Australia and Malaysia.

Taiwan's greatest risk stems from its interstate relations, as...

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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 59.4 for this category, placing it 16 th in the Asia region (behind Vanuatu and just ahead of Malaysia).

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 65.5 for Labour Market risks, in the BMI Operational Risk Index placing it in eighth position out of 38 countries in Asia, between Macau and Brunei.

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

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Taiwan Logistics

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BMI View: 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 80.2, placing it second...

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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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According to the Taiwan Transportation Vehicle Manufacturers Association, domestic auto sales for May came in at 23,942 units, which brought combined sales for the first two months of 2015 to 125,299 units, an increase of 1.2% y-o-y. The strong start to the year has prompted us to upgrade our full-year sales growth forecast to 6.8%, from 2.8% previously.

The passenger car segment has been the main driver of auto sales, which is further illustrated by the acceleration in private consumption growth in 2014 to 3.0% from 2.4% in 2013. While our Country Risk team expects private consumption growth to remain on an uptrend and rise to 3.8% in 2015, we believe passenger car sales growth for the full year will moderate slightly from 2014 due to high base effects.

As such, we forecast domestic car sales to grow 8.0% in 2015 after rising by 11.2% in 2014. Another factor supporting our outlook for slower passenger car sales growth...

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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 markets in the region. There are high penetration rates for all core consumer electronics devices, meaning 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: We expect Taiwan's defence budget to remain stable at 2.2% of the GDP in the next five years as a result of financial constraints brought on by an economic downturn following the world's economic crisis. However, we note that the defence budget will continue to increase, albeit very slowly, in absolute terms, especially as cross-Strait tensions continue to increase following the pro-independence party's win during last November's local elections. Our view is that this is likely to open some development opportunities, although they will remain restricted due to China's pressure on its trading partners.

The surprisingly low...

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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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BMI View: Over 2015, the outperforming freight mode in terms of year-on-year (y-o-y) tonnage growth is set to be the air freight sector with annual gains of 4.08% pencilled in for the year. The other modes are set to struggle to top 1% y-o-y growth this year, but this will still represent an improvement year-on-year for both road and rail. Growth in Q1 2015 was fuelled by both export and private consumption growth, which largely outweighed the collapse in both government consumption and gross fixed capital formation, proving positive for the country's freight modes.

Taiwan's Q1 2015 real GDP grew by 3.5% year-on-year (y-o-y), picking up slightly from 3.3% in Q4 2014. We maintain our real GDP growth forecast of 3.5% for 2015 amid a fairly...

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Infrastructure

Taiwan Infrastructure

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BMI View: Taiwan's construction industry will accelerate at a modest pace through to the end of our forecast period in 2024, despite a very slight slow in growth in 2015. Weak gross fixed capital formation and government consumption will hold the industry back a little, but overall positive economic growth, a business-oriented monetary environment, a desire to improve transport and changes in the energy policy will provide tailwind. Downside risk will come from weak external demand and falling house prices.

Key Trends And Developments

  • The 2015 budget has allocated TWD5bn (USD160mn) to improving transportation networks and...

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Insurance

Taiwan Insurance

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BMI View : Taiwan's insurance market, particularly the life insurance sector, is well developed and home to a number of well-capitalised domestic insurance firms as well as local subsidiaries of large multinational firms which bring further expertise and innovation to the market. We expect to see growth across all lines over the forecast period, with health insurance in particular expected to show robust growth along with healthy increases in life insurance premiums.

Despite having one of the highest insurance penetration rates globally, we expect the Taiwanese insurance market to continue growing faster than its economy over the coming years. This growth will be led by the life segment, due to its...

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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 an...

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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. While...

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Oil & Gas

Taiwan Oil & Gas

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BMI View: Despite a lower oil price environment, rising energy efficiency and import constraints will prevent weaker prices from increasing oil and gas consumption. We also note Taiwan's refined oil export market in Asia will come under growing competition from the region's expansion in refining capacity.

Headline Forecasts (Taiwan 2013-2019)
2013 2014e 2015f 2016f ...

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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: The Taiwanese pharmaceutical market will continue to be highly attractive for multinational drugmakers. As the seventh largest market in the Asia Pacific, the country's commercial opportunities are further reinforced by its high pharmaceutical spending per capita and robust medical infrastructure. In addition, Taiwan has a favourable disease profile as the growing burden imposed by chronic diseases will drive up demand for pharmaceutical products.

Headline Expenditure Projections

  • Pharmaceuticals: TWD167.7bn (USD5.5bn) in 2014 to TWD175.1bn (USD5.6bn) in 2015; +4.4% in local currency terms and +0.5% in US dollar terms. Unchanged from previous quarter.

  • Healthcare: TWD1,005.4bn (USD33.2bn) in 2014 to TWD1047.0bn (USD33.2bn) in 2015; +4.1% in...

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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% share...

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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 export...

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Renewables

Taiwan Renewables

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BMI View: Despite ambitious government targets aiming to substantially increase Taiwan's renewable energy capacity by 2030, little progress has been made on the ground and at present we are maintaining our forecasts for limited overall growth in the renewable energy sector throughout our forecast period to 2024. Biomass and waste generation will continue to dominate the non-hydropower renewables sector, although solar and wind power will gradually gain greater market shares.

Taiwan has set extensive targets for renewable energy, aiming to have 16% of energy from renewable sources by 2030 with ambitious programmes such as 'Million Solar Rooftop PVs' and 'Thousand Wind Turbines' setting up a framework for development. Feed-in-tariffs and regulatory improvements will facilitate new developments, along with...

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Shipping

Taiwan Shipping

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Slightly Slower Growth In 2015

With economic growth and exports easing back marginally BMI believes activity levels at Taiwan's main ports will grow at a slightly slower 1.0%-4.0% this year. 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. Although political risk factors are beginning to rise, the policy of cross-Strait integration is expected to continue.

Taiwan's GDP growth picked up slightly in Q115 TO 3.5% year-on-year (y-o-y), up from 3.3% in Q414. We believe the main growth driver is domestic consumption, helped by lower oil import costs, but that the economy is being held in check by an otherwise more difficult external environment. In the first quarter...

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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 markets 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...

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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 burgeoning tourism destination well located amidst major Asia Pacific markets. Taiwan is raising its global profile and increasing the range of international travel connections which supports our forecasts for healthy growth in tourism arrivals throughout the forecast period to 2019. At the same time, steady domestic economic growth is boosting outbound and internal travel, leading to healthy overall increases in tourism-related expenditure and industry value.

Amongst the Asia Pacific region countries, Taiwan is already well established as a popular tourism destination, particularly for travellers from mainland China and Japan. The country offers a broad range of attractions, from picturesque beaches on Penghu Island through...

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Water

Taiwan Water

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