Regions and Countries

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Taipei,China

Economic performance

Economic growth: Taipei,China’s economic recovery in 1999 strengthened further in 2000. Real GDP growth accelerated to 6.0 percent in 2000, compared with 5.4 percent in 1999. The major contributing factor was the sharp increase in exports and export-driven private investment, which has benefited from strong global demand for semiconductors and telecommunications-related products. Private investment increased by 13.9 percent, compared with a contraction of 0.7 percent in 1999. Public sector investment shrank by 8.3 percent as implementation of government projects was sluggish. Total fixed investment grew by 7.8 percent, while private consumption increased by 5.6 percent, from the 5.4 percent achieved in 1999. Government consumption contracted by 1.2 percent largely because of the reining-in of the fiscal deficit that ballooned following the earthquake of 1999. Led by the robust performance of the high-technology sector, the industrial production index rose by 7.7 percent, compared with 7.5 percent in 1999. However, the output of traditional industries remained low. Agriculture sector output fell by 1.3 percent because of unfavorable weather. In the services sector, telecommunications was the main engine of growth, while the contribution of the financial sector and government services to growth remained weak.

Employment: The unemployment rate has risen gradually in recent years from a low 1.4 percent in 1993, passing 2.6 percent in 1996, to a record 2.9 percent in 1999. Since then, unemployment has remained high, recording 3.0 percent at the end of 2000. The slowdown in the financial sector, the downturn of construction and traditional industries, and the influx of foreign workers were the main reasons for the rising unemployment rate.

Inflation: Prices rose in 2000 as a result of higher prices for oil and other commodities, and depreciation of the New Taiwan dollar. Consumer price inflation was 1.3 percent, up from 0.2 percent in 1999, while wholesale inflation reached 1.8 percent, from the 4.5 percent price deflation in 1999. Import prices rose by 4.6 percent.

Fiscal balance: The budget deficit, which went from 3.4 percent of GDP in 1998 to 6.0 percent in 1999, fell to 4.7 percent in 2000 primarily because of cuts in government expenditure. In particular, government capital expenditure shrank by 19.2 percent in 2000.

External sector: Export growth jumped from 10 percent in 1999 to 22 percent in 2000. Recovering Asian economies and surging global demand for ICT-related products were the major driving forces. Import growth was also high at 26.5 percent in 2000, compared with 6.2 percent in 1999. Rapid growth in private investment contributed to increased capital goods imports. Reflecting this, the trade surplus is estimated at $13.6 billion in 2000.

Domestic policies: In 2000, the Government restrained its expenditure to reduce the budget deficit. Despite a more liberal monetary stance earlier in the year, broad money (M2) growth slowed later in the year partly because of an outflow of foreign capital, which was triggered by the rise of the interest rates in the US and the Euroarea countries. As a consequence, M2 growth was 6.5 percent in 2000, lower than the 8.3 percent achieved in 1999. Facing the economic slowdown, the central bank lowered the rediscount rate at the end of December to stimulate the economy.

The banking subsector has suffered from overcrowding and growing nonperforming loans (NPLs) in recent years, with excessive competition and limited market share dragging down bank profitability. Moreover, the downturn in traditional industries, and the flagging real estate and stock markets pushed up the aggregate NPL ratio of financial institutions to 5.5 percent by the end of 2000. The NPL ratio of cooperative associations and credit departments of farmers’ and fishermen’s associations was particularly high, reaching 15.6 percent. The Government has attempted to resolve the overcrowding problem and improve the quality of bank assets by amending the Banking Law to relax restrictions on bank investment activities and raise the foreign ownership ceiling from 15 percent to 25 percent, and passing the Merger Act of Financial Institutions to encourage mergers, even by foreign financial institutions.

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