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.
Taiwan Country Risk
Taiwan's 2015 real GDP growth came in at 0.9%, slightly below our forecast of 1.0%. Ongoing weakness in the Chinese economy coupled with continued uncertainty in the domestic political situation will continue to weigh on Taiwan's economic growth. However, we expect business sentiment to improve gradually in H216 as the political situation stabilises, leading to a slight improvement in growth figures. As such, we forecast 2016 real GDP forecast to come in at 1.5%.
Taiwan's opposition Democratic Progressive Party (DPP) won a landslide victory in both the presidential and parliamentary elections held on January 16. With the pro-independence DPP having yet to fully articulate its cross-Strait policy, we expect political risks to remain high, undermining investor confidence. President-elect and DPP leader Tsai Ing-wen also faces an uphill task...
Taiwan Operational Risk Coverage (9)
Taiwan Operational Risk
Taiwan Operational Risk
BMI View: Taiwan's attractive operating environment presents few risks to incoming businesses. Among the limited concerns to investors is the significant underlying threat from the country's unstable relationship with China, which increases the risk of an armed conflict and has led to recent street protests. This dynamic also contributes to the most pertinent security risk to businesses, which is the threat of cyber attacks. In addition, high labour costs and a heavily state-owned banking system reduce Taiwan's international competitiveness and drive up operational costs. Nevertheless, the country performs well in a number of other areas, most notably its highly developed logistics network and open economy, with relatively low tax rates and minimal red tape. These factors largely outweigh the risks posed to business activity and consequently Taiwan receives a score of 73.7...
Taiwan Crime & Security
Taiwan Crime & Security
BMI View: Taiwan offers foreign workers and businesses a secure operating environment, where crime rates are low and stability is high. The country's lack of marginalised minority groups and strong democratic participation discourages public unrest and presents limited appeal or opportunity to international terrorist groups, meaning that risks of violence are low. While improving bilateral relations with China do not prohibit military invasion, such a threat can be considered to be mitigated by economic integration and American deterrence. Nevertheless, businesses and investors should take note of Taiwan's susceptibility to cyberattacks and financial crimes, as well as the pervasive presence of organised gangs, which may require costly solutions to mitigate the resulting risks. Despite this, Taiwan is a regional outperformer in terms of security, scoring 74.9...
Taiwan Labour Market
Taiwan Labour Market
BMI View: 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...
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...
Taiwan Trade & Investment
Taiwan Trade & Investment
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...
Taiwan Industry Coverage (20)
BMI View: The slowdown in China along with an aging population will drag on total vehicle sales. However, there are fundamentals within the domestic economy which will support a subdued total vehicles sales growth of 2.7% in 2016.
|Commercial Vehicles Remain Resilient|
|Comercial Vehicle Sales By Segment|
|e/f = BMI estimate/forecast. Source: TTVMA, BMI|
Taiwan Commercial Banking
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Taiwan Consumer Electronics
BMI View: Taiwan boasts a high tech-savvy population that is eager to get its hands on the latest gadgets and devices, making it a more mature market in the region. Taiwan is characterised by high penetration rates for all core consumer electronic device categories, meaning growth rates will underperform emerging markets elsewhere in the region. However, we have a positive outlook for the consumer electronics market, with consumer spending high and the launch of 4G services driving higher demands for new devices. There is, however, the possibility that the Taiwanese dollar is exposed to economic slowdown originating in China and could constrain domestic discretionary spending.
We forecast growth of 3.7% in 2016, with market value expected to reach USD7.2bn. We identify several growth areas vendors can tap in to in an otherwise mature market. These include large-screen, ultra-HD and OLED TV sets...
Defence & Security
Taiwan Defence & Security
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...
Food & Drink
Taiwan Food & Drink
BMI View: We forecast positive growth for Taiwan's food and drink industry in 2016, primarily led by the MGR and drink industry. The strong competiveness in the country's MGR sector will boost sales as hypermarkets as well as convenience stores benefit from increased consumer spending. Taiwan's whiskey industry will boast from increased growth in 2016 as demand increases due to rising western culture. The food industry will grow modestly in the same period as food regulator FDA looks to tighten food standards on imported products.
Headline Industry Data
Food consumption (local currency) growth (y-o-y) in 2015: 2.2% compound annual growth rate (CAGR) 2014 to 2019 (local currency): +2.8%.
Per capita food consumption (local currency) growth (y-o-y) in 2015: 2.0...
Taiwan Freight Transport
BMI View: Taiwan's freight transport sector will continue to be affected by the slowdown in the Chinese economy in 2016. Taiwanese exports will feel the headwinds from China as well as the relative strength of the TWD compared to the KRW. Air freight will continue its growth on a more moderate level over the short term, before picking up slightly in 2017/2018, while road and rail will both grow at a faster rate over the medium term.
Taiwan's economy contracted by 1.0% in Q315 compared to the 0.5% expansion registered in the previous quarter. Ongoing weakness in the Chinese economy amid increasing uncertainty in the domestic political situation will continue to weight on Taiwan's economic growth. As such, we have downgraded our 2015 and 2016 real GDP forecasts to 1.0% and 1.9% respectively. GDP growth for 2016 was previously...
BMI View: We expect growth in Taiwan's construction sector to pick up beyond 2015, supported by expansionary spending policies, a focus on developing the country's transport network and a rebalancing of the power sector. The presidential elections in 2016 pose the most significant downside risk to our outlook.
Forecast And Latest Updates
We expect growth of 0.3% in Taiwan's construction sector in 2015, followed by 2.8% in 2016. Significant headwinds from Taiwan's export-oriented manufacturing sector due to the ongoing slowdown in China coupled with reduced global demand for tech products will weigh on the non-residential buildings segment.
Construction activity will be supported by expansionary expenditure and monetary policies, a focus on developing the country's transport...
BMI View : The Taiwanese life insurance market is well developed, with penetration and density rates that among the world's highest, reflecting the established role the sector plays in citizens' late-life planning and retirement needs. Life insurance premiums are expected to continue to grow throughout the forecast period, supported by domestic economic growth and rising rates of private financial consumption, though we note that over the longer term a shrinking working age population and higher proportion of retirees will place pressure on the profitability of life insurance providers. Although some recent financial market troubles...
Taiwan Medical Devices
BMI 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.
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BMI View: Like others globally, Taiwan's metals sector faces mounting challenges over the next few years as weak as an increasingly competitive export market for steel forces local steelmakers to look inwards for growth opportunities. The bright spot for Taiwanese producers is that the domestic economy should be supportive of the long-term expansion plans of local producers such as China Steel Corporation, though we expect output growth to be moderate through to 2019.
Heavily focused on steel, Taiwan boasts one of the best developed metals sectors in the Asia Pacific region. The island is home to leading steel producer China Steel Corporation, which has been a major beneficiary of China's rapid economic expansion over the past two decades. Improved political relations between Taiwan and mainland China and, in particular, the signing...
Oil & Gas
Taiwan Oil & Gas
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 shares in the regional refined fuels exports market will come under growing competition from refining capacity expansions in the region's emerging economies, which will moderate their need for imports in the medium to long term.
There is a worrying trend for Taiwanese petrochemicals producers to move investment in basic chemicals to mainland China and South East Asia. Unless Taiwan can diversify and specialise to add value to the olefins production it currently possesses, the industry is likely to fall behind and lose its competitive edge.
The Taiwanese petrochemicals industry's recovery in 2015 began to tail off as the industry was affected by the slowdown in China. In the first 10 months of 2015, the chemicals products index grew 0.4% y-o-y and rubber grew 0.6%, but plastic declined 3.7% with the sector reversing the gains it made in the previous year. The trend reflected a 0.6% decline in manufacturing, caused by falling orders from mainland China as well as the effects of water restrictions for producers in response to the drought situation.
Taiwan's reliance on naphtha streams, derived from refining imported crude, puts it...
Pharmaceuticals & Healthcare
Taiwan Pharmaceuticals & Healthcare
BMI View: The potential the Taiwanese pharmaceutical sector holds for overall economic growth will see continued investment by the government to support local drugmakers. This will gain in importance as commercial opportunities in China's healthcare sector remain less affected by the overall slowdown in the economy. In addition, Taiwan's biomedical institutes and partnerships with multinational pharmaceutical firms will support domestic drugmakers in moving outward and up the value chain.
Headline Expenditure Projections
Pharmaceuticals: TWD167.7bn (USD5.5bn) in 2014 to TWD175.1bn (USD5.5bn) in 2015; +4.4% in local currency terms and -0.1% in US dollar terms.
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 Taipower, 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 renewables are unlikely to reach the target ...
Taiwan Real Estate
BMI View: Taiwan's economy is becoming less export focused, with domestic demand an increasingly important driver of the commercial real estate market. The premium end of the office and retail market will continue to show strength, driven by Taipei's status as a regional financial hub and its booming retail industry, while the industrial real estate segment will continue to rebalance away from traditional manufacturing and export space to more modern facilities designed for the country's growing high-tech manufacturing and export sectors.
We forecast slow but steady economic growth in Taiwan over our forecast period to 2019, with real GDP increasing by 3.5% in 2015, rising to 4.1% in 2016 and falling to 3.8% in 2018 and 2019. Stronger growth will be held back by the weakness in the Chinese economy, as Taiwan is a key trade and investment partner. But in an environment of...
BMI View: Taiwan is not short of ambition for developing renewable energy, but limited progress has been made in the expansion, primarily due to the unstable policy environment and low liberalisation levels in the power sector. Considering Taiwanese government's focus on offshore wind power and the significant solar panel manufacturing base in Taiwan, we do expect growth to pick up marginally across these segments over out 10-year forecast period. However, we retain our view that Taiwan will fall short of its ambitious renewables targets.
BMI View: We anticipate Taiwan's main ports to register steady year-on-year (y-o-y) growth in 2016 with the port of Keelung leading the way in annual growth terms (3.1% and 3.5% for tonnage and container gains). We have downgraded our 2015 and 2016 real GDP forecasts to 1.0% and 1.9% (respectively) from 1.7% and 2.5% previously, to reflect the impact of the decline in export growth, as well as increased political uncertainty in the country.
Taiwan's economy contracted by 1.0% y-o-y in Q3 2015 compared to the 0.5% expansion registered in the previous quarter. In seasonally adjusted annualised quarter-on-quarter (q-o-q) terms, the...
BMI View : As aggressive bidding for spare 4G spectrum gathered momentum in late 2015, it became clear that there is a surfeit of competition in Taiwan's saturated mobile market. Pressure for operators to consolidate will intensify in 2016, but regulatory resistance is expected; this would be damaging to an industry that needs to address mounting debt ahead of the adoption of 5G early in the next decade and growing demand for 'everything everywhere' services and solutions.
|4G Supplanting 2G And 3G Networks|
|Taiwan Mobile Forecasts|
BMI View: Taiwan's tourism market is growing rapidly, bolstered by growing arrivals from major market China and increasing regional and global air travel connections. The domestic tourism market is well-established and along with growing numbers of international visitors this supports healthy occupancy rates and significant levels of tourism related spending. As the investment environment continues to improve, we expect to see further development in the hotel sector, particularly in terms of the quality mid-range and luxury hotel sectors.
BMI View: Given that the government will be a key driver of infrastructure project implementation as well as financing over the coming years, the uncertain political outlook for Taiwan in light of the presidential elections coming up in 2016 is a key risk to our outlook for the current infrastructure improvements in the pipeline for the water sector. Moreover, neither the ruling Kuomintang party nor the opposition Democratic Progressive Party has a concrete China policy which poses particularly significant risks with regards to potential China water imports. Although agreements have now been signed, any change to pro-China political sentiment could result in the delay or even cancellation of the proposed pipeline, and this is a significant downside risk to our water consumption outlook.