On Taiwan's strengths and weaknesses in reviewing its economic data
"Taiwan’s competitiveness lies in its manufacturing. But it is highly dependent on the export of products and the import of energy, which is Taiwan’s greatest weakness."
Taiwan is a world-leading producer of semiconductors and electronic parts. Strikingly, manufacturing amounts to 32.88 percent of Taiwan's total GDP in 2021. The following article written by 宁南山 Ningnanshan, a popular Chinese blogger, provides you with insight into Taiwan's industrial accomplishments and the advantages behind those astonishing figures. But every coin has two sides. Confined to an island, Taiwan's heavy dependence on energy from the outside becomes its biggest drawback and risk.
In previous posts, GRR has walked you through Ningnanshan's article of the industrial upgrading of the Chinese mainland as well as a comparison between the Chinese mainland's market and that of Vietnam and India. Now we present you a piece on Taiwan. GRR believes that these posts complement each other and may give you a more complete picture of China's likely manufacturing development trends.
The original title of the article is 查询了台湾的一些经济数据，说下台湾的优势和弱点 On Taiwan's Strength and Weakness in Reviewing Its Economic Data. The translation, which was done by GRR, hasn’t been reviewed by the author.
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According to statistics published by DGBAS (Directorate General of Budget, Accounting and Statistics), the GDP per capita of Taiwan in 2021 has topped 33,000 U.S. dollars for the first time, up 6.45 percent compared with last year. The following chart shows the GDP per capita of Taiwan in previous years.
Specifically, Taiwan’s GDP per capita has risen from 18,000 U.S. dollars to 33,000 U.S. dollars from 2008 to 2021. Detailed data is below:
GDP per capita in 2008: 18,081 dollars
GDP per capita in 2009: 16,933 dollars
GDP per capita in 2010: 19,197 dollars
GDP per capita in 2011: 20,866 dollars
GDP per capita in 2012: 21,295 dollars
GDP per capita in 2013: 21,973 dollars
GDP per capita in 2014: 22,874 dollars
GDP per capita in 2015: 22,780 dollars
GDP per capita in 2016: 23,091 dollars
GDP per capita in 2017: 25,080 dollars
GDP per capita in 2018: 25,838 dollars
GDP per capita in 2019: 25,908 dollars
GDP per capita in 2020: 28,383 dollars
GDP per capita in 2021: 33,004 dollars
The statistics indicate that the GDP per capita in Taiwan remained stagnant at around 25,000 U.S. dollars three years in a row from 2017 to 2019, while the salary also stopped growing. The prolonged economic downturn fired up Taiwan people’s hankering for economic growth, and 韩国瑜 Han Kuo-yu even won the Kaohsiung mayoral election with the slogan "Kaohsiung gets rich", ending the Democratic Progressive Party’s 20-year rule in Kaohsiung.
The soaring global demand for semiconductor and electronic products brought about by the pandemic outbreak, coupled with the appreciation of the New Taiwan dollar against the U.S. dollar, pushed up Taiwan’s economic growth to 3.36 percent in 2020, surpassing that of the Chinese mainland (2.3 percent), and Taiwan's economic growth reached 6.45 percent in 2021. The economic boom lifted Taiwan’s GDP per capita from 25,908 U.S. dollars in 2019 to 33,004 U.S. dollars in 2021, allowing it not only to exceed 30,000 U.S. dollars threshold, but also to rise to a figure as high as 33,000 U.S. Dollars. So Taiwan's GDP per capita surged by 7,000 U.S. dollars in merely two years.
However, Taiwan is heading toward coexistence with COVID-19 this year, it remains to see how that would affect its economy. Taiwan’s GDP per capita may still grow this year as long as the epidemic doesn’t cause any large-scale production standstill. After all, it’s quite clear that the semiconductor industry, a core industry in Taiwan, will continue to grow this year. But it’s hard to say if its growth can be maintained next year.
This rapid growth of Taiwan’s GDP per capita in 2020 and 2021 is strongly correlated to COVID-19. In other words, the pandemic causes Taiwan’s GDP per capita to jump, but the tide will ebb eventually.
The US and European countries chose to give out money to their citizens to reduce the impact of the pandemic on citizens’ lives, leading to a surge in the demand for electronic products. Due to disruptions of supply chains worldwide and skyrocketing shipping prices, a vast number of orders thus flooded into the Chinese mainland and Taiwan. And the electronics industry (chips, display panels, electronic parts and OEM) happens to be Taiwan's strong suit. In addition, Taiwan also has an edge in the shipping industry. The figures which was collected from www.ship.sh (a website about shipping information) shows the net profits of shipping enterprises in China (mainland, Hong Kong and Taiwan) in 2021. We can see that the total net profits of the top three shipping enterprises in Taiwan, 长荣 Evergreen, 阳明 Yang Ming and 万海Wan Hai, have exceeded 110 billion yuan.
However, back in 2019, the big three were still struggling to make a profit. Wan Hai had a net profit of 800 million yuan, Evergreen made a net profit of several tens of millions yuan, while Yang Ming suffered a loss of around one billion yuan. Combined together, they didn't make a profit. For these three shipping enterprises in Taiwan, the huge profits they have made in the past two years clearly didn't result from any technological or efficiency improvement. Instead, the credit goes to the change in the external environment. If the external factors go away, so will the profit that comes with them.
We need to recognize Taiwan’s strengths and weaknesses. Taiwan’s biggest strength is its strong manufacturing industry. As a small island, it is surprising to have a manufacturing value added (MVA) ranking in the top 10 in the world.
In 2021, Taiwan’s manufacturing contributed 32.88 percent of its total GDP, much higher than that of the Chinese mainland. If we look at the industry sector as a whole (including manufacturing, gas, electricity and water supply etc.), the proportion would go up to 37.95 percent while the proportion of industrial value added in the Chinese Mainland occupied 32.58 percent of the GDP in 2021. It is clear that industry, especially manufacturing, is the primary source of Taiwan's competitiveness, fiscal revenue and people’s income.
For Taiwan's manufacturing industry, there has been a lot of analysis before. Its basis is the electronic information manufacturing sector, with semiconductor manufacturing being the core. The sector has been the cradle for many world-class enterprises such as 台积电 TSMC, 联电 UMC, 联发科 MediaTek, 瑞昱 Realtek, 联咏 Novatek, 日月光 ASE, 鸿海 Hong Hai, 和硕 Pegatron, 广达 Quanta and 华硕 ASUS. Although we’ve talked about the necessity of taking measures to restrict the competitiveness of Taiwan's manufacturing, the process will be a prolonged one for the following reasons:
1. Taiwan's manufacturing is so strong in the past decade that its proportion in GDP rose from 28.27 percent in 2011 to 32.88 percent in 2021. There is a lot to do for 中芯 SMIC and 华虹 Hua Hong in the Chinese mainland to catch up with the semiconductor manufacturing led by TSMC and UMC. In 2021, TSMC’s revenue was 10 times larger than that of SMIC. Other than electronics, Taiwanese brands 康师傅 Master Kong in the food industry and 捷安特 Giant Bicycles in the bicycle industry are also considerably ahead of their mainland counterparts. Will some Chinese mainland brand replace Giant Bicycles in recent years? It won't be easy.
2. The U.S. supports and takes advantage of Taiwan's industrial chain heavily so that they could keep Chinese mainland's top companies down. Amercian brands have in-depth cooperation with Taiwan's semiconductor manufacturing, electronic parts industry and the electronics OEM industry. I have mentioned in one of my articles earlier that the global share of American electronic brands is still at the dominating position in the world. This means their vast size is more than enough to fatten up Taiwan’s industrial chain (not just keep it alive). Meanwhile, the US sanctions and suppresses Chinese mainland tech companies. The US has included SMIC and Huawei into its entity list, preventing SMIC from buying EUV lithography machines and engaging in more advanced processes, while its suppression on Huawei has affected Huawei’s upstream industrial chains. Although I agree that the sanctions and suppression of the US could stimulate China into developing a whole industrial chain, which is a good thing in the long run. But nobody could deny the trouble it has caused in the short run.
3. The intertwined interests of cross-straits cooperation. Despite that on Chinese mainland social media, netizens chant about 穷台政策 cracking down on Taiwan economically, the Chinese mainland hasn’t taken any further actions besides banning the import of certain fruits and shutting down Taiwan-bound tourism. The biggest reason for it is that Taiwan’s manufacturing industry has brought huge benefits to the Chinese mainland. The biggest exporters in many Chinese mainland's provinces are Taiwan enterprises, such as Shanxi, Henan, Jiangsu, Shanghai, Sichuan and Chongqing. The biggest exporter in Guangdong province is Huawei, but Foxconn (Hong Hai uses the name Foxconn when it entered the Chinese mainland) comes right after it. Shandong’s biggest exporter is 海信 Hisense while Foxconn (Yantai) is ranked the second. Haier is ranked 3rd because it has many overseas plants. The biggest chip OEMs in Jiangsu and Anhui also come from Taiwan (TSMC Nanjing company and Hefei Nextchip, a joint venture of 合肥建投 Hefei Construction and Investment and Taiwan’s 力晶科技 Powerchip. The technologies come from Taiwan).
Taiwan enterprises have also created a vast number of jobs. Taking Foxconn in Shenzhen as an example, it has over 200,000 employees.
On May 8, 2020, China Securities Journal learned from Foxconn Technology Group that “over 200,000 employees are working normally in our industrial park in Shenzhen, and the number has slightly increased from last year.” This is an objective reality that local governments across the Chinese mainland must consider. No local government wants Taiwan enterprises to transfer their manufacturing plants from the Chinese mainland to Vietnam and India because of policies clamping down on Taiwan. (Read more about this in GRR's previous post: Vietnam or India: which one will be the new "world's factory"?)
I believe that before reunification, we should figure out ways to restrict Taiwan, especially the manufacturing industry. However, this is going to be a long journey due to the reasons above. We wouldn’t see any obvious results in several years. In fact, banning the import of Taiwan’s agricultural products and shutting down Taiwan-bound tourism are far from enough. The rapid economic development and the surge in its GDP per capita have proven this.
What is Taiwan’s weakness then?
In my view, Taiwan’s biggest weakness is that it’s an island, incapable of being self-sufficient in market, food and energy, which are essential to its survival and development.
Let's talk about its market first. Taiwan’s economy is highly dependent on exports. In 2021, Taiwan’s total export surpassed 446.45 billion U.S. dollars while its total import reached 381.17 billion U.S. dollars, both figures hitting an all-time high and exceeding thresholds of 400 billion U.S. dollars and 300 billion U.S dollars, respectively.
Based on the official data of DGBAS, Taiwan’s nominal GDP in 2021 was 774.793 billion U.S. dollars.
If we only look at the export/GDP ratio, it is a stunning 57.6 percent. This proportion is extremely high though it doesn’t mean that the economic value added by export accounted for 57.6 percent of Taiwan’s GDP because imports also played a role.
We can compare the data with the Chinese mainland. In 2021, the GDP of the Chinese mainland was 114.37 trillion yuan while its total export was 21.73 trillion yuan, accounting for 19.0 percent of the GDP, only one-third of that of Taiwan.
Incomes generated by exports also boosted Taiwan's consumption. Hence, Taiwan’s economy would be paralyzed once the unification process starts and its foreign trade is disrupted.
Besides, Taiwan's food self-sufficiency rate in terms of calories only stood at 31.75 percent in 2020.
In 2020, Taiwan imported 6.5 million tons of grains, 1.37 million tons of potatoes and 2.77 million tons of oilseeds such as beans and peanuts. The first two categories only amounted to nearly 8 million tons, and the total import of the three categories combined exceeded 10 million tons.
Nonetheless, Taiwan’s imported food mainly comes from the US. If the food price in Taiwan goes up for various reasons, the best way to appease people's discontent would be increasing imports, which is not very hard to realize because the US, as a major food producer and exporter in the world, produces over 500 million tons of food annually.
For energy products, Taiwan relies on the outside entirely because it doesn’t produce any petroleum, coal or natural gas and its last coal mine was shut down in 2000.
In 2021, Taiwan imported 67.4 million tons of coal, 55 percent of which came from Australia, 24 percent from India and 15 percent from Russia.
Taiwan also imported 19.43 million tons of LNG (Liquefied natural gas) in 2021, with 32.2 percent from Australia, 24.5 percent from Qatar and 9.7 percent from Russia.
In 2021, Taiwan imported 278.9 billion barrels of crude oil (1 ton = 7.33 barrels, 278.9 billion barrels equal to approximately 38.05 million tons), with 31.1 percent from Saudi Arabia, 21.8 percent from Kuwait and 19.1 percent from the US.
Taiwan's power relies heavily on coal and natural gas. As is shown below, 83 percent of Taiwan's power comes from thermal power plants. And in thermal power, 53 percent of which use coal, 45 percent use natural gas and 2 percent use fuel oil.
Without power, Taiwan’s manufacturing industry and its economy will collapse completely. Imagine what it would be like if all office buildings, houses, factories and shopping malls had no electricity, and the batteries of your mobile phones and computers would quickly run out of power as well.
Therefore, I believe that Taiwan’s competitiveness lies in its manufacturing. But as an island, its manufacturing industry is highly dependent on the export of products and the import of energy, which is Taiwan’s greatest weakness.
Although Taiwan also relies heavily on imports for food, I predict that Beijing wouldn’t block Taiwan’s food imports even if reunification by force were the only option left because human lives would be at stake and the Chinese mainland would guarantee the food supply in Taiwan to avoid starvation. Therefore, although Taiwan’s dependence on food is a weakness, it wouldn’t be much of use because hurting our own land and our own people is unreasonable.
However, the data presented in this article also shows that whatever Taiwan's manufacturing needs, from markets, grains, to energy, it will be satisfied by the US and U.S. allies (such as Australia, a major exporter of coal and natural gas for Taiwan), because the US also has a huge market and is a major producer of petroleum, natural gas and grains, not to mention that it also has several followers such as Australia.
If the unification by force were to happen, Taiwan’s only option would be to turn to the US and U.S. allies for the supply of energy and weapons. Whatever the U.S. gives, it will inevitably challenge China's blockade.
This is why Taiwan’s independence separatist force is so pro-America. We often see the absurd picture where arrogant U.S. officials cross their legs during their visits to Taiwan while meeting 蔡英文 Tsai Ing-wen. Taiwan's independence separatist force gives up their dignity willingly in exchange for U.S. support because the U.S. is their only hope to resist reunification.
It’s generally accepted that the key to solving the Taiwan issue is the shift in the power balance between China and the US, which is proved by the data in this article. We should pay extra attention to our military force building, as well as the development of semiconductors, NEVs (new energy vehicles) and aerospace technologies. In a way, their development will determine the time of the reunification. (Read more about this in GRR's previous post: Population, Industrial Upgrade and Taiwan: Some predictions for China in 2030 - Part 2)