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The 14th Conference on Pacific Basin Finance, Economics and Accounting
TAIWAN’S FINANCIAL REFORMS AND
ECONOMIC DEVELOPMENT
Sheng-Cheng Hu, Chairman
Council for Economic Planning and Development
Executive Yuan, R.O.C.( Taiwan )
July 15, 2006
CONTENTS
I.
Introduction
II. Strategies for Developing Taiwan’s Economy
III. Taiwan’s Financial Reforms
IV. Concluding Remarks
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I. Introduction
“The global economy
couldn’t function
without it.”
Source: Business Week, May 16, 2005.
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Taiwan’s Tech Clout
Where the island’s industries rank globally
Taiwanese companies, from chip foundry TSMC to
laptop maker Quanta, manufacture thousands of items
essential to the global digital economy. Most appear
under someone else’s name—and most are made in
mainland China
Number 1 Provider of
chip foundry services, with 70% of the market worth $8.9 billion.
notebook PCs, with 72% of the market worth $22 billion
LCD monitors, with 68% of the market worth $14 billion
PDAs, with 79% of the market worth $1.8 billion
Number 2 Provider of
servers, with 33% of the market worth $1.8 billion
digital still cameras, with 34% of the market worth $2 billion
Source: Business Week, May 16, 2005.
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Taiwan Economy vs Korean Economy
Taiwan
Korea
2003
2004
2005
2003
2004
2005
Economic Growth
Rate（%）
3.4
6.1
4.1
3.1
4.6
4.0
Per capita GDP in
US$
13,327
14,271
15,271
12,652
14,098
16,306
Per capita GDP in
US$ on PPP basis)
24,279
26,241
27,572
18,180
19,430
20,590
Unemployment
Rate+Inflation
Rate（%）
4.7
6.0
6.4
5.2
6.4
6.8
Income Gap
6.1
6.0
-
7.2
7.4
5
4
5
18
29
WEF Growth
Competitiveness
17
5
SWOT Analysis of Taiwan’s Economy
Strength
‧Abundant High Quality Human
Resources.
‧Excellent entrepreneurial spirit and
R&D Capabilities
‧Solid manufacturing industry base
‧SMEs highly flexible in responding to
market changes.
Opportunity
‧Rising market opportunities in the
BRICs
‧Rising demand for consumer
electronics
Weakness
‧Inadequate investment in R&D and
infrastructure.
‧Fragile financial system and chronic
budget deficits.
‧Weak legal environment and inefficient
government operations
‧Rigid labor markets
Threat
‧Rise of the BRICs and formation of
regional trading blocs: Hollowing-out (?)
and widening Income gap
‧Rising energy prices .
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Conference on Sustainable Economic Development
• Objective:
– Solve long-term structural economic problems to ensure
sustainable development of economy
– Per capita income in 2015: US$32000
• Issues Addressed
– Population Aging Issues: Social security and National
Health Insurance
– Industrial Competitiveness and labor-market issues
– Financial markets and management of government assets
and enterprises
– Global-strategy and Cross-strait issues
– Efficiency of the government sector
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II. Strategies for Developing Taiwan’s Economy
Policy focus
Create innovalue
Forge
Competitiveness
in Industrial
sector
Take advantage
of new business
opportunities
Build up a sound
environment for
Investment
Measures
Stepping up science
Stepping up technology R&D
Encouraging R&D clustering
 Strengthening industrial clustering effect
Stepping up global positioning
 Promoting the development of free ports
Ensuring adequate supply of industrial land
Providing assistance in fund raising and technology
development
Strengthening the nurturing of science and
technology manpower
Fiscal and financial reform
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III. Taiwan’s Financial Reforms
Objective
Improve the competitiveness of the financial services
sector, and develop Taiwan as a regional financial
service center
• Regional fund raising center
• Regional asset management center
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SWOT Analysis of Taiwan’s Financial Markets
Strength
Weakness
 Transnational enterprises will
need more financial services
 Higher foreign exchange
reserves, and less external
debt
 Abundant capital of overseas
Taiwanese
 Relatively small scale of individual
financial institutions
 Limited liberalization of financial market
 Too many state-owned banks
 Lack of experience of cross-selling and
internationalization
 Synergy needs to be improved
 Insufficient financial professionals
Opportunity
Threat
 New pension fund system
helps develop asset
management business
 Vigorous capital market
paves the way for developing
Taiwan as a Regional
Financial Services Center
 Facing competition from
international conglomerates
 Need for strengthening and
integration of regulatory
environment in step with financial
sector development.
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Strategies for Financial Reforms
• Clean up non-performing loans
• Develop sound investment climate through
deregulation and financial liberalization
• Strengthen financial supervision
• Improve corporate governance by requiring greater
transparency and corporate board independence.
• Privatization and private management of stateowned banks
• Promote financial consolidation and speed up M&A
• Building a competitive financial taxation
environment in line with international practices.
• Strengthening risk management and promoting
financial discipline and information transparency.
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Main Achievements
1. Decreasing Domestic Banks’ New NPL
Ratio
％
13
11.27 11.74 10.79
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banks’ Lending and
Investment Growth
10.17
8.85 8.60
9
7.97 7.87
7.88 7.96 8.25
7.29
7.92
7.9
4.52
5
1
7.33
6.08 5.72
5.44
7
3
8.61
％
1.26
3.8
3.66
2.46
2.78
New NPLs Ratio
-0.96
-2.09
-1
3.24
2.03 2.72 4.94 4.9
2.53
2.24
-1.37
-2.79 -2.83 -2.70
-3
-5
12
3
2001 2002
6
9
12
3
2003
6
9
12
3
2004
6
9
12
3
2005
6
9
12
3
5
2006
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2. De-regulation
Facilitating Financial Market Consolidation
14 financial holding companies (FHCs) have been
established since the end of 2001. Since September 2004
there have been 18 mergers and acquisitions among our
financial institutions, with particularly good results in the
consolidation of state-owned banks. This has reduced the
number of financial institutions in which the government
holds a stake from twelve to six .
 Broadening market access and attracting
foreign investment
The abolishment of the 12-year-old QFII system in
September 2003 meant that Taiwan’s stock market was
fully opened to foreign investment.
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3. Enhancing the Confidence of Foreigners
Total Accumulated Net Inward Remittance
Abolished the screening system for qualified
foreign institutional investors (QFII)
Unit: US$ billion
108.9
120.0
80.0
22.9 31.4
40.0
0.0
4.3
6.3
1994
9.0
1996
9.3
41.4
66.3
43.0
80.1
2002
2004
121.5
11.1
1998
2000
May-06
Source: FSC
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4. Enhancing The Participation of Institutional Investors
(%)
The Proportion of Institutional Investors’ Trading Value on TSEC Market
40
30
20
10
6.5 8.1
10.7 9.3 10.2
15.6 16.8
13.9
11.8
20.9 22.5
28.8 26.8
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
May06
Source: FSC
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5. Improving Asset Quality
A substantial improvement in the profitability of Taiwan’s
banks is likely to be further strengthened by the industry’s
improving asset quality.
Basic Financial Data on Taiwan’s Banking System
End
of
Year
1998
1999
2000
2001
2002
2003
2004
2005
(%)
2006
(1~4)
ROA
0.60
0.50
0.48
0.27
-0.48
0.22
0.63
0.30
0.12
ROE
8.00
5.90
6.19
3.60
-6.93
3.52
10.30
4.81
1.95
CAR
10.58
11.17
10.75
10.40
10.63
10.07
10.67
10.34
─*
ROA = Return on total Assets.
ROE = Return on stockholders’ Equity.
CAR = Capital Adequate Ratio.
* : released per half-year
Source: The Financial Supervisory Commission
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Stocks held by foreign entities
% of total market
capitalization
33
30.25%
Dec 2005
31.67%
Apr 2006
31
30.58%
May 2006
29
27
25
22.18%
Dec 2004
23
21
19
9
2004
11
1
2005
3
5
7
9
Source: Financial Supervisory Commission, Executive Yuan.
11
1
2006
3
5
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Ⅳ. Concluding Remarks
The government’s main targets for Taiwan’s economy in
2006 include a GDP growth rate of 4.5%, the CPI to rise
no more than 2%, and the unemployment rate to stay
below 4%.
Through the innovative development of manufacturing
and services sectors, Taiwan’s nominal per capita GDP
expected to double from US$16,000 in 2006 to US$32,000
in 2015.
The goal of Taiwan’s financial reforms is to develop
Taiwan as a regional financial center through the efforts
of liberalization, privatization and consolidation.
Successful privatization and consolidation requires an
open and transparent process and is based on sound
financial supervision and corporate governance.
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Made in Taiwan
＆
Served by Taiwan
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THANK YOU!