1. National Taiwan University of
Science & T h l
S i Technology
The Economic Development and Policy
Measures of Taiwan
Jiann Chyuan
Jiann-Chyuan Wang
2009. 3. 26

2. Outline
I. Taiwan’s Basic Facts and Global Trade
i ’ i G
II. The Influential Factors behind Taiwan’s Economic
Development
D l t
III. Two Key Development Strategies for Taiwan’s Economic
Development
IV. Policy Measures in Different Stages of Taiwan’s Economic
Development
V. Taiwan’s Innovation Policy Measures and Responsible
Agencies
g
VI. An Introduction of Taiwan’s Innovation Policy
VII. Taiwan’s Industrial Structure and New Focus of New
Taiwan s
Government
VIII. The Guidance Programs for SMEs
g
IX. Concluding Remarks
1

3. I. Taiwan’s Basic Facts, Global Trade and
Investment
1. Basic Facts
Table 1 An Outline of Taiwan’s Economic Growth (2006)
Unit: US dollars
Population 22.79 million
GDP $383.34 billion (20th)
Per
P capital GNP
it l $17,252
$17 252
Total trade value $426.7 billion
Exports $224.0
$224 0 billion
Imports $202.7 billion
Foreign exchange reserves $266.1
$266 1 billion
Manufacturing output/GDP 23.0%
Service output/GDP 71.7%
2
Sources: Taiwan Statistical Data Book, CEPD, 2007.

4. 2.Global Trade and Investment
$ 224.02 billion US dollars $ 202.69 billion US dollars
China,
China
Others, Others, Hong
14.50% 14.50% Kong and
China,
Macau,
Hong
13.10%
13 10%
Europe, Kong and
USA,
12.60% Macau,
11.20%
39.80% Europe,
Korea,
Australia,
ASEAN,
27.30% Japan,
11.40%
22.80%
Japan, USA,
USA ASEAN,
ASEAN
7.30% 14.40% 11.10%
Fig.1
Fig 1 Taiwan’s destination of exports (2006) Fig.2
Fig 2 Taiwan’s sources of imports (2006)
3

5. Consumer
products,
non-heavy &
7.60%
chemical
products, capital
21.10% equipment,
Agriculture
i l 17.00%
17 00%
(processed) Agriculture,
heavy & products, Industrial and
chemical 1.00% materials,
products,
products 75.40%
75 40%
77.90%
Fig.3 Taiwan’s exports structure Fig.4 Taiwan’s imports structure
4

6. II. The Influential Factors between Taiwan’s
Economic Development
1. Literature Review
Capitalist Economy (Protection of private
property, respects of market mechanism)
Infrastructural provision from Japanese
Governance age. (railway, electric power, seaport)
Land f
L d reform in 1950s promoted agricultural
i 1950 t d i lt l
productivity (farmer income ↑→ demand for
industrial products ↑→ release surplus labor to
assist industrial sector)
Industrial policy followed comparative advantage
5

7. US Aid in 1951 － 1965
High saving rate (saving/GDP = 38%) provided
sufficient capital for economic development
Fixed exchange rate (until 1979) facilitated
international trade
High level of educational investment
Fair i
F i income distribution
di t ib ti
Fast growth for global economy (1950-1970)
(1950 1970)
created a favorable environment for Taiwan’s
expert-oriented economic strategy.
6

8. 2. Special features of Taiwan’s Economic
Development
Moderate public finance policy (government
saving > government expenditure)
The promotion of state-owned enterprises and
natural division of labor with SMEs
Providing tax incentives for strategic industry
but did not become government financial
burden
7

9. III. Key development strategy for Taiwan’s
Economic Development
1.
1 Conventional wisdom: development strategy
in 1950s-1960s
1950s-
Impose high tariff and import restriction to
promote infant industry
Keep interest rate low to provide low cost of
investment for firms, even under inflationary
p
pressure.
8

10. 2. Taiwan’s non-mainstream development strategy
non-
Import substitution strategy export-oriented
strategy
1960
N.T depreciation (US $1 = 15 N.T → 40 N.T)
p ( )
depreciation inflation ( import restriction)
depreciation main exports from sugar, rice to
labor-intensive products
(umbrella, shoes, agricultural
processing products etc.)
High interest rate to encourage saving, which
become productive capital for firms and major
b d ti it l f fi d j
force for anti-inflation
9

11. Table 2 Taiwan’s trade structure
Exports
Agriculture products Industrial products
Year
1952 91.9%
91 9% 8.1%
8 1%
1960 67.7% 32.3%
1970 21.4% 78.6%
1980 9.2% 90.8%
1990 4.5% 95.5%
2000 1.4%
1 4% 98.6%
98 6%
2004 1.4% 98.6%
2007 1.4%
1 4% 99.0%
99 0%
Sources: same as Table 1. 10

12. Table 3 Structure of Production (% of GDP by Sector)
Period Agriculture Industry Manufacturing Services
1952 32.2 19.7 12.9 48.1
1960 28.5 26.9 19.1 44.6
1970 15.5 36.8 29.2 47.7
1980 7.7
77 45.7
45 7 36.0
36 0 46.6
46 6
1990 4.2 41.2 33.3 54.6
2000 2.1
21 32.4
32 4 26.4
26 4 65.5
65 5
2004 1.7 32.9 28.0 65.4
2007 1.4 27.5 23.8 71.0
Sources: same as Table 1. 11

13. 3. The reasons why Taiwan’s could pursue economic
y p
development and fair income distribution:
Exchange rate depreciation and trade
liberalization pushed labors from land-
land
intensive agriculture industry to labor-
intensive export industry
(MPL↑→ Wage↑)
Discard low interest rate policy to prevent
capital-intensive production method →
p p
employment ↑ → income ↑
Abundant SMEs provide more job opportunity
12

14. IV. Policy Measures in Different Stages of Taiwan’s
Economic Development
E i D l t Establish Science Park
Establish ITRI
Set up export- Setup Tax reform High interest rate
High interest rate policy processing zone committee to curb inflation
1950 53 54 56 60 1962 65 66 67 68 69 70 71 72 73 1980
Exports tax refund US Aid stop Implement 9 year Loosen import restriction
obligatory education
Unify exchange rate
Promote family plan
for d i
f reducing birth rate
bi th t
Statute for Investment
Encouragement
Implementation of National
Science Development Plan
Labor-intensive Light
Export-oriented Stage Import substitution stage
Industry: Import
substitution Stage
Industrial and Labor Science and Financial Exchange rate policy
Policy Technology policy
policy
polic
Fig. 5 Taiwan’s economic development stages and related policy measures 13

15. Implement Fair
Trade Law
Promote interest Setup 15 new
Enact Labor Implement health Promote the promising
rate liberalization private banks
standard law insurance industry
1980 82 84 86 87 89 91 94 95 96 97 98 2002
Implement the N.T appreciation Develop ten promising Setup NII promotion committee Admitted to WTO
incentives for industry and eight
strategic Promote privatization of key technology;
industry state-owned enterprises Implement statute for Expand Science Park
Industrial upgrading
pg g
6-year National
Development Plan
Technology-oriented Stage
Industrial and Labor Science and Financial Exchange rate policy
Policy Technology policy
policy
polic
Fig. 5 Taiwan’s economic development stages and related policy measures
14

16. Two Trillion
Twin Star
Conservative Mainland
China policy Promote cultural WiMax
creative industry technology
Bio-tech New
Cheap land price Drugs Act
provision 006688 Guideline for
G id li f Sino-Panama
Service Industry FTA
2002 03 04 05 06 2007 2008
Military
Service Financial Low interer rate, SMEs, low
exemption reform devalue currency U-Taiwan incomes
infrastructural protection
Regional operation
center promotion Antitrust policy
A tit t li
Free Trade
to avoid
Port Area
dumping
Enlarge Science
Park
President Ma
takes offices
Layout vision for
y
Extend SIUP
2015
Globalization Stage
Industrial and Labor Science and Financial Exchange rate policy
Policy Technology policy
policy
polic
Fig. 5 Taiwan’s economic development stages and related policy measures 15

17. V. Taiwan’s Innovation Policy Measures and
Responsible Agencies
1. Innovation becomes more and more
i b d
important to enhance industrial technology
and links to national competitiveness
2. Small and medium enterprises (SMEs)
2 Small and medium enterprises (SMEs)
dominant industrial structure
→ government innovation policy steps in
→ government innovation policy steps in
16

18. a) Subsidies…………………...Industrial Development Bureau (IDB)
b) Loans………………………..Bank of Communication, Medium
(1) Financial
and Small Enterprise Bank
Assistance
c) Venture Capital* …………...Bank of Communication, Ministry of Finance
Supply-side Policy a) Education…………………..Universities
(2) Manpower
Measures
Assistance b) Training…………………… Council of Labor Affairs
a) Technical Assistance……….IDB
(3) Technical
Assistance b) Government-Owned ………..Industrial Technology Research Institute (ITRI)
Research Institutes*
R hI i *
Innovation
Policy
Measures c) National Science and ………..Department of Industrial Technology
Technology Project (NSTPs)*
a) Contract Research…………………………………....National Science Council (NSC)
Demand-side
Policy Measures b) Government Procurement……………………………Government Agencies
a) Tax Incentives* ……………………………………….IDB, Ministry of Finance
b) Patent & Intellectual Property Rights……………….Ministry of Economic Affairs
Environmental-side c) Science Park* …………………………………………National Science Council (NSC)
Policy Measures
d) Incubator Center* ……………………Medium and Small Enterprises Bureau
e) Open Laboratory …………………………………ITRI
f) Industrial Automation* …………………National Information and Communication Initiative (NICI)
Note: *represent the contents is discussed in this paper
Source: Summarized form Rothwell and Zegveld (1981) Chen (1986) and Sun (1989)
(1981), (1986),
Fig. 6 Taiwan’s Innovation Policy Measures and Responsible Agencies 17

19. VI. An Introduction of Taiwan’s Innovation
policy
1.The establishment of Hsin‐Chu science industrial park
1 Th t bli h t f H i Ch i i d ti l k
(HSIP)
• One stop administration office
One stop administration office
• Supporting infrastructure
• Tax incentive (tax holiday, tax credit, accelerated
( y, ,
depreciation etc.)
Impact :
• encourage overseas Chinese to return home
• form industrial cluster (technology diffusion)
• become main center for Taiwan’s high‐tech development.
18

20. Table 4 The development of the Hsinchu Science-based Industrial Park
Indicators 1986 2000
No. of companies established within the Park 59 289
No. of persons employed within the Park 8,275 102,775
Total paid-in capital of all companies located within the Park US$151 million US$226 billion
Expenditure on R&D as percentage of business volume 5.4 per cent 1 5.94 per cent 2
Total b i
T t l business volume of all companies located within the Park
l f ll i l t d ithi th P k US$450 million
illi US$29.80 billi
US$29 80 billion
Total export value of all companies located within the Park US$4.51 billion 3 US$15.98 billion 4
Notes:
1 The data provided here are from 1990, when the Park began reporting this data.
2 The data provided here are 1999 data.
3 The data provided here are from 1993; when the Park began reporting this data.
4 Accounting for approximately 9.14 per cent of Taiwan’s total export value.
Source: Science-based Industrial Park Quarterly Statistical Report (consecutive issues) 19

21. 2.Innovation alliances  notebook PC j i t
2I ti lli t b k joint
development alliance
• State‐owned research institute (ITRI) and Electrical
Equipment Manufactures Association organized 46
firms to form the alliance
• Set up technology standard and specification, and
produce a prototype
• Create an announcement effect and secure first
mover advantage
• Taiwan become a leading notebook PC producing
country
20

22. 3.Technical support  ITRI and the NSTPs
Industrial Technology Research Institute (ITRI)
▬ Comprises of 7 labs, 3 research centers, and over 6,000 research and
administrative staff.
National Science and Technology Projects (NSTPs)
▬ provides financial support in order to ensure that ITRI has a stable
budget to undertake long‐term R&D work.
▬ annual budget is about $300 million
Impacts
• serve as a channel for the transmission of technology
• the movement of personnel from ITRI into the private sector has
helped to boost the R&D capabilities of the private sector and has
speeded up the process of technology diffusion.
• ITRI collaborates with the private sector to build up industrial
competitiveness.
( oteboo C jo t de e op e t a a ce)
(Notebook PC joint development alliance)
21

23. 4.Tax incentives
4.Tax incentives  The Statute for Industrial Upgrading
and Promotion (R&D tax credit)
• Induced 16.6% R&D expenditure
• Increase average labor output & export value of
technology – intensive products.
5.Financial support – venture capital (V.C.)
• the impressive performance of hi‐tech industry and
electronics stocks in the stock market in the past
electronics stocks in the stock market in the past
several years has encouraged the establishment
of new venture capital companies.
• The booming of V.C. also helped promoting high‐
tech industry.
y
22

24. Table 5 Venture capital companies in Taiwan, 1995-2001
Taiwan
Year 1995 1996 1997 1998 1999 2000 2001
Total venture capital companies 34 47 72 117 160 192 199
38.2
Growth rate ( per cent) 21.43
21 43 53.19
53 19 62.50
62 50 36.75
36 75 20.26
20 26 4.12
4 12
4
25.4
Paid-in capital (NT$ billion) 18.70 42.63 72.93 103.42 128.07 134.10
6
36.1
Growth rate ( per cent) 27.25 67.44 71.08 33.33 23.84 4.71
5
Total no. of companies invested in (cumulative) 868 1158 1839 2994 4493 6343 6957
28.6
Total investment (cumulative) 12.35 43.52 65.11 94.70 125.51 133.65
3
Total no. of companies invested in (current year) 364 471 951 1155 1499 1850 614
Total investment (NT$ billion) (current year) 5.89 8.81 17.6 21.59 29.59 30.80 8.14
Source: Taiwan Venture Capital Association (2002).
23

25. Table 6 Countries’ comparison of the ratio of Stock market value over GDP
unit : %
the ratio of stock market value / GDP the ratio of IT stocks market value / GDP
Country
1994.12 1997.12 2000.3 2001.3 1994.12 1997.12 2000.3 2001.3
Taiwan 100.6 116.4 147.2 105.4 8.4 29.8 84.6 62.2
USA 48.0 98.0 140.0 117.0 10.0 22.0 62.0 33.0
Japan 69.0 53.0 92.0 67.0 8.0 9.0 33.0 16.0
Germany 18.0 35.0 65.0 48.0 1.0 5.0 20.0 8.0
UK 86.0
86 0 140.0
140 0 189.0
189 0 162.0
162 0 11.0
11 0 16.0
16 0 68.0
68 0 35.0
35 0
Source : Chang, Ya – Chi (2002), “A study on the Business Cycle between Taiwan
g ( ) y y
Economy and IT Industry” Industry of Free China, 92(7), 49-73.
24

26. Remarks
1. Generally speaking, these market‐friendly innovation
policies have had significant impacts on Taiwan s
policies have had significant impacts on Taiwan’s
technological development over the past twenty years.
2. The empirical study confirms the pay‐off from Taiwan’s
2 Th ii l d fi h ff f T i ’
innovation efforts.
3. Government assistance may, cause government failure;
therefore, as time goes by, the government must attempt
to adjust its innovation policies, switching from an
t dj t it i ti li i it hi f
aggressive involvement approach to a principle of more
market oriented and technological infrastructure
market‐oriented and technological infrastructure
provision.
25

27. VII、Taiwan’s Industrial Structure and New Focus of
New Government
New Government
1. Industrial Structure
• Manufacturing(23.8%), Service(71.0%),
Agriculture(1.4%)
• GDP growth rate : M f t i (10 29%)
th t Manufacturing(10.29%),
ICT(19.17%), Service(4.30%), Agriculture(-2.91%)
• Weak industrial structure :
i) Service industry accounts for 71% of GDP, but
low degree of contribution to economic growth.
g g
ii) Service industry lacks international
competitiveness because of limited domestic
market.
market
iii) Manufacturing industry focus too much on ICT
industry, and basically adopts OEM, ODM
y, y p ,
method (except for acer, Asus, Benq), value-
added is too low. 26

28. iv) High export concentration ratio: 40% of export
share is in China( Hong Kong)
v) Some of traditional industry moved oversea to
regain competitiveness.
• Petrochemical (Formosa plastics)
• Textile
• Machinery
• Bike(Giant)
• Tire(Maxxis)
27

29. Table Taiwan’s industrial structure and its Contribution to Economic Growth
Overall Agriculture Industry Manufacturing ICT Industry Service
Real GDP growth rate
2003 3.50 -0.06 4.00 5.34 9.58 3.39
2004 6.15 -4.09
4.09 8.94 9.74 14.51 5.28
2005 4.16 -8.07 6.34 6.96 17.95 3.53
2006 4.89 6.09 7.04 7.51 18.10 3.93
2007 5.72 -2.91 9.3 10.29 19.17 4.30
Degree of Contribution to economic growth rate
D f C t ib ti t i th t
2003 3.50 0.00 1.13 1.26 0.73 2.37
2004 6.15 -0.07 2.54 2.34 1.18 3.68
2005 4.16 -0.13 1.85 1.73 1.57 2.44
2006 4.89 0.09 2.10 1.92 1.79 2.70
2007 5.72 -0.04 2.83 2.70 2.14 2.93
Degree of contribution to economic growth rate = industry’s contribution degree / Overall economic contribution degree
2003 100 0.00
0 00 32.29
32 29 36.00
36 00 20.86
20 86 67.71
67 71
2004 100 -1.14 41.30 38.05 19.19 59.84
2005 100 -3.13 44.47 41.59 32.74 58.65
2006 100 1.84 42.94 39.26 36.61 55.21
2007 100 -0.70
0 70 49.48
49 48 47.20
47 20 37.41
37 41 51.22
51 22
28

30. 2. New Focus
(1) Two trillion two promising industry: Semiconductor,
TFT-LCD, biotech, digital content.
(2) Th
Three trillion industry
illi i d
• Energy industry( LED lighting)
• Telecommunication( WiMax, mobile
communication)
• Biotech industry( medical device, agriculture
device
biotech, medicine)
( )
(3) Love Taiwan -12 major construction projects( 120
j p j (
billion US dollars in 8 years)
(4) Industrial restructuring
29

31. •Service industry as employment driving engine
Industrial innovation •Upgrading of manufacturing
•Commercialization & informatization of agriculture industry
•Cultural creative industry
Cultural
•Energy saving and substitute energy
New Promising industry •Biotech
•Digital life
•Liberalization: service industry deregulation
Policy deregulation •Functional: functional assistant to replace industry targeting
p y g g
•Systemization: multi-area interaction
Fig. Industrial restructuring
30

32. VIII、The Guidance Programs for SMEs in Taiwan
g
1. Ten Guidance system for assisting SMEs
1) Finance and credit guidance system:
Primary tasks include p
y providing credit
g
instruction and assisting small and medium
enterprises in improving their financial
structures.
2) Management guidance system:
Primary tasks include instructing and
assisting small and medium enterprises in
g p
setting up management systems and boosting
management efficiency and the development of
human resources.
31

33. 3) Production technology guidance system:
3) Production technology guidance system:
Primary tasks include guiding and
assisting small and medium enterprises in
i i ll d di i i
boosting technology levels and adopting
new technologies.
h l i
4) Research and development guidance system:
Primary tasks include assisting in the
Primary tasks include assisting in the
development of new products and
technologies and supporting the individual or
technologies and supporting the individual or
joint R&D efforts of small and medium
enterprises.
enterprises
32

34. 5) Information management guidance system:
) g g y
Primary tasks include guiding and assisting
small and medium enterprises in the collection of
information and the establishment of information
management systems to enhance efficiency through
the utilization of information.
6) Industrial safety guidance system:
Primary tasks include providing guidance to
small and medium enterprises in establishing or
improving industrial safety systems and assisting in
the resolution of industrial safety problems.
33

35. 7) Pollution control g
) guidance system:
y
Primary tasks include providing guidance
to small and medium enterprises in improving
pollution control facilities and assisting in the
resolution of pollution control difficulties.
difficulties
8) Marketing guidance system:
Primary tasks include assisting small and
medium enterprises in market expansion by
collecting and providing necessary market
intelligence.
34

36. 9) Mutual support and cooperation g
) pp p guidance
system:
Primary tasks include guiding and assisting
small and medium enterprises in conducting
exchanges and cooperation activities in order to
bolster their competitive ability.
10) Quality enhancement guidance system:
Primary tasks include assisting small and
medium enterprises in creating a management
environment of outstanding quality, raising
levels of product and service quality in the
enterprises, and promoting joint quality
improvement efforts among enterprises.
35

37. 2. Some Specific Programs for SMEs
2 Some Specific Programs for SMEs
• SMEs credit guarantee fund (SMBCGF)
SMEs credit guarantee fund (SMBCGF)
The objective of the system is to provide
credit guarantees to small and medium
g
enterprises which are promising but short of
collateral necessary to obtain finance
y
from contracted financial institutions(CFI).
36

38. Outline of Credit Guarantee System
Relations among SMBCGF and related institutions
37

39. 3. SMEs incubator center
•Definition: Incubator Centers are a place where individuals or enterprises are
allowed to incubate new products, mew businesses and new
technology, to start up a new business and to conduct enterprises
gy, p p
transformation and upgrade.
•Functions: 1. Reduce risk and expenditure involved in incubating a
new business, improve success rates.
2. Assist in the process of industrial incubation
p j
projects and the development of new technology/
p gy
products.
3. Provide guidance in commercializing R&D results.
4.
4 Provide a location where academics and industry
can work together.
5. Provide testing services, speed up product
development
6. Provide training for personnel, related information
and consulting services for operation management.
g p g
• Effectiveness: 60 incubators, 1,300 firms (since 1997)
38

40. 4. Encouragement programs
In order to encourage firms to pursue for quality,
technology excellence, government implements
t h l ll ti l t
several programs as follows.
• National Award of Small and Medium Enterprises
－ Management upgrading technology
Management,
• National Award for Innovation － R&D, technology
upgrading, product quality improvement etc.
• Little Giant Award － excellent export and
management performance
39

41. IX.
IX. Concluding Remarks
1.
1 The maintenance of political and social stability,
stability
timely implementation of effective policies, and
vigorous private entrepreneurship stand out as key
factors in Taiwan experience.
2. Consider adopting export-oriented development
export-
strategy and selecting a group of strategic industries
on which the government would concentrate its
resources to promote their development
40

42. In Taiwan’s experience, to avoid lack of focus, the
government
go ernment selected a gro p of strategic ind stries with
group industries ith
significant potential and should concentrate its resources on
these industries, in order to achieve economies of scale and
international competitiveness. It was not until the
government began to concentrate resources on textiles and a
handful of other industries that it was able to increase
output and achieve economies of scale and competitiveness.
If a country adopted this strategy and succeeded in
achieving a breakthrough, this would have a “demonstration
effect ,
effect”, and would encourage multinational enterprises to
invest in that country.
41

43. 3. t
3 to provide “
id “one-stop” service to attract foreign
“one- t ” i t tt t f i
investment.
Some developing countries are relatively late starter in
seeking to attract foreign investment, so it needs to provide
incentive measures and administrative assistance that are
better than what other countries have to offer. Besides tax
breaks, one-stop service, transparency,
breaks “one stop” service transparency making it easy to
obtain land for factories, establishing industrial parks and
other ancillary measures are all very important. Currently,
y y p y,
provide tailor-made incentive measures for big companies, to
reduce the level of uncertainty accompanying investment. In
this way they would be able to attract up, mid and
downstream industries, creating a cluster effect.
42

44. 4. Government should collaborate with civic
organizations to establish organizations for the
promotion of foreign trade and which could conduct
market research b th d
k t h both domestic and overseas, th b
ti d thereby
helping companies to gain a better understanding of
international markets and to move into those markets
successfully.
Markets
M k t are th most i
the t important element in exporting. The
t t l ti ti Th
small size companies makes it impossible for them to collect
market information on their own, and consequently they often
lose business opportunities. Private companies still need help
from the government in the collection of information about
international markets if they are to overcome the obstacles in
their way. At the same time, government purchasing can help
companies to achieve steady development within a stable
market. 43

45. 5. Keep exchange rate stable to promote saving, and
turn saving into productive capital.
6.
6 Provide start-up capital but coupled with own
start-
capital and management assistance to raise
successful rate.
rate
7. C t favorable environment for SMEs without
7 Create a f bl i t f SME ith t
being crowded out resources by large enterprises.
(government procurement, alliance etc.)
44

46. Thank
You !
Y
45