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 In the event that the trade pact is rescinded, Taiwan could suffer longer-term economic implications...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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Taiwan is a low risk country in absolute, regional and global terms, with no single, significant deterrent to foreign investors. The country's overall Operational Risk score is boosted by a number of factors, namely its large, skilled labour force, developed logistics network, open economy with relatively low fiscal and trade barriers and minimal red tape, as well as its low crime rate. That said, significant risks do exist, notably the country's heavily state-owned banking system, reducing international competitiveness, as well as the potential for conflict with China. For these reasons, Taiwan receives a low score of 68.2 out of 100 in our overall Operational Risk index, putting it in 7 th position out of 29 countries in Asia.

Taiwan's large, skilled and urban labour force means that there are minimal labour risks, and investors can expect a highly skilled labour force and good labour availability. In addition, basic skills...

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Taiwan Crime & Security

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Taiwan's overall position on the BMI Crime and Security Risk Index is hindered by the potential for escalation of tensions with the People's Republic of China, which significantly detracts from the country's overall risk scores. Crime rates in Taiwan 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 has a score of 61.4, placing it 11 th in the Asia region (behind Malaysia and just ahead of Vietnam) and 52 nd globally.

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...

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Taiwan Labour Market

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Taiwan has a large, skilled and urban labour force, with very good levels of secondary and tertiary education, particularly in science and technology. Investors can therefore expect a highly skilled labour force and good labour 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 pool. The country 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. Taiwan therefore scores 67.6 for overall labour market risks, placing it in seventh position out of 29 countries in Asia, between Australia and Brunei Darussalam on 69.9 and 63.1 points respectively.

Availability of labour risks are low in Taiwan, owing to the country's large labour force and good level of basic skills. About 65% of...

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Taiwan Logistics

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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 transports, Taiwan has a BMI Logistics Risk Index score of 75, placing it fifth in Asia, shortly behind South Korea, Singapore, Malaysia and region leading Hong Kong, an ensuring its position as a competitive regional, and indeed global, transport hub.

Being natural resource poor, Taiwan is heavily reliant on imports of a range of raw materials, including base metals, chemicals, coal and crude oil. The supply chain is set up to cope with the needs of...

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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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The Taiwan Transportation Vehicle Manufacturers Association (TTVMA) has reported that July domestic auto sales rose 9.5% year-on-year (y-o-y) extending their strong performance over the past five months, representing 10.3% y-o-y growth on a year-to-date (YTD) basis to 178,111 units. Continued strength in the sector was mainly due to the passenger car segment, which recorded y-o-y sales growth of 12.2% for 7M14 while commercial vehicle (CV) sales on the contrary, have declined 0.4% y-o-y over the same period.

The passenger car segment has seen consistent growth over 7M14, with the segment growing 15.2% y-o-y in July, taking the YTD growth to 12.2% y-o-y. The outlook for the segment remains positive, buoyed by more buyers looking to replace their old cars as the segment gradually moves toward its 10-year replacement peak. As such, we have raised our sales growth forecast up from 8.5% to 16.0% in 2014.

While the passenger...

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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:   T he maturity of   Taiwan's consumer electronics market , with   high penetration rates for all core consumer electronics devices, means growth rates will underperform emerging markets in the APAC. However, in the context of other developed markets we have a positive outlook for Taiwan's consumer electronics market. We forecast grow th of 3. 3 % in 2014, with market value expected to reach USD 6.9...

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Defence & Security

Taiwan Defence & Security

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BMI View: The power asymmetry between Taiwan and mainland China is widening as Beijing continues to boost defence spending. Coupled with increasing nationalism and assertion on the part of Beijing, this has helped force the Ma administration to follow a more diplomatic approach to cross-Strait relations.

Relative to GDP, Taiwan's defence spending is in decline, and it is gradually moving towards disbanding the existing policy of conscription to establish an all-volunteer force. On the one hand, Taiwan's decision to scale back its armed forces in combination with a significant decline in defence imports may point to closer integration with China. Indeed, in Q114 China and Taiwan held the first government-to-government talks in 65 years, a highly symbolic development that builds on the earlier successes of Ma's government . On the other hand, these cutbacks may signify an increased reliance on a...

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Food & Drink

Taiwan Food & Drink

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BMI View : In terms of the growth prospects for the Taiwanese economy looking into 2014, we expect supportive pressure from the tech sector and Chinese demand to wane as the year progresses. Additionally, we highlight two factors - the structural rebalancing of China's economy and increasing incidence of political deadlock in Taiwan - which we believe will hurt its economy in the long term. We have consequently downgraded our 2013 and 2014 real GDP projections from 3.0% and 4.0% to 2.1% and 3.0% respectively. Therefore, we remain relatively pessimistic about the performance of Taiwan's food and drink market in the short- to medium term, although we caution that select individual (premium) sectors are likely to outperform the overall market.

Headline Industry Data (local currency)

? 2013 per capita...

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Freight Transport

Taiwan Freight Transport

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Despite Taiwan's better than expected Q2 2014 GDP growth figures on the back of strong export orders and increased domestic investment, we maintain our 2014 GDP forecast at 3.1%. We expect growth to pick up to 4.1% in 2015, but note that structural headwinds will continue to hold the economy back.  

Taiwanese real GDP growth came in at 3.8% in Q2 2014, with growth being fuelled by both rising exports and domestic demand. Despite the recent surge, we maintain our forecast for Taiwan's GDP to grow 3.1% in 2014, as we believe that renewed weakness in Chinese economic activity in H2 2014 will weigh on Taiwanese growth. Meanwhile, domestically, waning credit growth may be signalling an impending slowdown in domestic demand.

Recent indicators show that the growth momentum has picked up in the last six months. Industrial production grew 8.6% year-on-year (y-o-y) in June 2014, led by electronics and...

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Infrastructure

Taiwan Infrastructure

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BMI View: Taiwan's construction and infrastructure recovery is accelerating at the modest pace we've predicted for 2014 and 2015, despite a slow start to the first half of 2014. Our positive outlook is due to a relatively conducive monetary environment for construction, changes in the country's energy policy and the government's desire to improve transport links.

Key Trends And Developments

  • The Ministry of Transportation and Communications reported an H214 increase in airport arrivals of 12.9% to 26.3mn, the highest in 15 years. This should put pressure on the runway renovation project of Taiwan Taoyuan International Airport. The renovation, scheduled for completion by end-2015, has been delayed by issues concerning construction methods.

  • Meanwhile, Taipei enacted further policies to cool property...

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Insurance

Taiwan Insurance

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BMI View: Taiwan's life insurance sector is among the largest in the world by any measurement, with 2014 premiums totalling USD81.4bn, and will continue to grow, passing USD100bn by 2017. Non-life business is far smaller at USD16bn in 2014, the majority of which is written by life insurers through health and personal accident insurance. In both sectors, the same three insurers, Cathay, Fubon and Nan Shan, control around 50% of gross premiums.  

The life insurance sector, as one of the largest and most mature in the world, dominates the Taiwanese insurance industry. Density reached USD3,500 in 2014, a figure that we forecast to rise to around USD4,800 by 2018 as the industry continues to innovate and benefit from a population that is ageing and exhibiting a growing propensity to save. Nan Shan Life has emerged in 2012 and...

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Medical Devices

Taiwan Medical Devices

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Espicom 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 201 3 , followed by Japan and other suppliers from the EU.

Headline Industry Forecasts

  • In US$ 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...

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Metals

Taiwan Metals

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BMI View: In Q314 we continue to monitor the effects of overcapacity on the Taiwan steel sector as domestic producers find themselves increasingly challenged from an influx of cheap products from China and other local producers. Despite growing competition, Taiwan's steelmakers are adopting new strategies to compete in an increasingly challenging environment.

The Taiwanese steel industry remains constrained by the ongoing impact of Chinese oversupply on the global steel sector. We expect global prices for the commodity to remain weak over the foreseeable future, which will continue to limit Taiwan's steel production levels.

Continued uncertainty surrounding China's economic outlook coupled with global overcapacity will continue to have a detrimental impact on Taiwan's steel production over the next few years. Our Country...

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Oil & Gas

Taiwan Oil & Gas

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BMI View:   Taiwan is almost entirely dependent on imports to meet energy demand and is likely to stay in this state for the foreseeable future. A growing appetite for imported gas has created a need for fresh liquef ied natural gas (LNG) supplies, though a dramatic increase in LNG demand will be capped by limited LNG import capacity.

Headline Forecasts (Taiwan 2012-2018)
  2012e 2013e 2014f 2015f ...

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Petrochemicals

Taiwan Petrochemicals

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BMI's latest Taiwan Petrochemicals Report foresees 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 domestic petrochemicals market was depressed in 2013 and was set for another year of poor market dynamics, with broader economic trends remaining unsupportive. In the first 11 months of 2013, the chemicals products index grew 2.4% y-o-y, but rubber declined 2.5% and plastic fell 1.1%. The trend reflected the poor state of manufacturing, particularly in motor vehicles and parts (down 3.6%), which represent a significant part of the petrochemicals market.

There was nevertheless some expansion in 2013, with CPC bringing...

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Pharmaceuticals & Healthcare

Taiwan Pharmaceuticals & Healthcare

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BMI View:   While Taiwan's intellectual property regime has some deficiencies, drug pricing remains the key issue of concern for the Pharmaceutical Research and Manufacturers of America (PhRMA). Given the increasing demand for health services from the ageing population, Taiwan will continue to limit the escalation of drug prices, which will negatively impact the pharmaceutical market's growth potential. In particular   demand for long-term care and welfare expenditure is expected to rise, adding further weight to the government's fiscal burden. BMI has downgraded its pharmaceutical sales forecast for Taiwan. While the ageing population will support pharmaceutical sales, we maintain that...

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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% ...

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Real Estate

Taiwan Real Estate

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BMI View:  Growth in Taiwan ' s commercial real estate sector is being undermined by the economic slowdown in China and its subsequent impact on trade volumes and domestic growth. That said, the sector offers significant long-term opportunities in terms of a liberali s ing investment climate, improving Sino-Taiwan relations and a diversifying export market.

Taiwan boasts a well developed commercial real estate sector with the island's status as a regional trade and financial hub supporting continued demand from international business and investors. A wealthy local demographic and growing visitor numbers are also providing increased opportunities for retail developers across the country as foreign brands flock...

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Renewables

Taiwan Renewables

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BMI View : The Taiwan renewables report looks at a range of forecasts, including the expected growth in solar, wind and biomass energy generation throughout our current forecast period through to 2023, as well as examining the key infrastructure investment projects and government targets for the sector. While nuclear and thermal energy will continue to dominate Taiwan's electricity market, we expect non-hydropower renewables to make slow but steady gains by 2023.

Biomass and waste generation is the most well-established of non-hydropower renewable energy in Taiwan, and total biomass and waste generation is expected to increase by 4.18% in 2014. This growth means generation is forecast to reach 4.05TWh - an improvement on previous forecasts based on revised growth expectations and more ambitious government targets. Following healthy growth of just under 4% per year...

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Shipping

Taiwan Shipping

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Subdued Recovery Still On Track

Our outlook for Taiwan's economy has not changed substantially since our last quarterly report. Then, on the back of slightly stronger fourth-quarter 2013 data, we edged up our growth forecast for 2014 from 3.0% to 3.1%. Now, on the back of slightly weaker first-quarter 2014 data, we are dropping back again to a 3.0% forecast for the year as a whole. Essentially, we believe private consumption and exports are easing back a little while investors remain frustrated by difficulties in securing land and labour, which have led to the stalling of a number of projects. The recovery in the US and Europe remains a clear positive for the outward-looking island economy, but this is somewhat offset by the slowdown in its main trade partner, mainland China. We expect GDP growth to accelerate to 4.1% in 2015. Trend growth over the medium term to 2018 will be 3.9% per annum.

...

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Telecommunications

Taiwan Telecommunications

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BMI View : The Taiwanese telecom market is among the most mature in the region, with a mobile penetration of 126.8% in 2013 and with postpaid making up 84.7% of the market. The Taiwanese mobile market looks exciting in 2014 as six operators have obtained their 4G licences and 4G services have been introduced . 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 2016. That said, the...

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Tourism

Taiwan Tourism

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Taiwan is seeing some of the strongest arrivals and tourism receipts growth rates globally, and we believe that it offers sizeable opportunities to tourism players, particularly those in the relatively underdeveloped accommodation sector. Although this is largely due to the extremely low base from which it starts, we also view this as evidence of the significant future growth potential offered by the country. In particular, we would highlight the following as offering particularly attractive growth opportunities: high-end accommodation, medical tourism and European source markets. However, this will be countered by a decline in Chinese tourists over the longer term due to economic slowdown and a ban on cheap package tours.

The Taiwanese economy remains heavily dependent on external demand, with exports as a share of GDP coming in at 73.0% in 2013. Even though export activity with the US and Europe has picked up, we maintain our view that...

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Water

Taiwan Water

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BMI View:   While consumption is set to remain close to stagnant over the medium term, per capita consumption of water in Taiwan remains higher than most regional and global peers. Taiwanese citizens consume about 265 litres of water per person per day, higher than the United States and most European countries. There are also continuing concerns about water purity. This high per capita consumption places an inordinate amount of pressure on Taiwan's household supply infrastructure.

Taiwan is beginning to develop its own water sector expertise, and is expanding both its domestic water infrastructure sector, and water management and utilities industry. However, in spite of the strong growth in domestic companies, we believe that there is still a great deal of opportunity for outside companies and investors in both the infrastructure and management areas. Evidence...

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