Taiwan is an important market in regional and global trade and investment. It is one of the world’s top 25 economies in terms of gross domestic product (GDP) and was the United States’ 9th largest trading partner in 2020. An export-dependent economy of 23 million people with a highly skilled workforce, Taiwan is also a critical link in global supply chains, a central hub for shipments and transshipments in East Asia, and a major center for advanced research and development (R&D).
Taiwan welcomes and actively courts foreign direct investment (FDI) and partnerships with U.S. and other foreign firms. The administration of President Tsai Ing-wen aims to promote economic growth in part by increasing domestic investment and FDI. Taiwan authorities offer investment incentives and seek to leverage Taiwan’s strengths in advanced technology, manufacturing, and R&D. Expanded investment by the central authorities in physical and digital infrastructure across Taiwan complements this investment promotion strategy. The authorities convene a monthly interagency meeting to address common investment issues, such as land scarcity. Some Taiwan and foreign investors regard Taiwan as a strategic relocation alternative to insulate themselves against potential supply chain disruptions resulting from regional trade frictions. In January 2019, the Taiwan authorities launched a reshoring initiative to lure Taiwanese companies to shift production back to Taiwan from the People’s Republic of China (PRC) in response to rising tariffs on Taiwan’s critical electronics manufacturing industry and to diversify risks.
Taiwan’s finance, wholesale and retail, and electronics sectors remain top targets of inward FDI. Taiwan attracts a wide range of U.S. investors, including in advanced technology, digital, traditional manufacturing, and services sectors. The United States is Taiwan’s second-largest single source of FDI after the Netherlands, through which some U.S. firms choose to invest. In 2019, according to U.S. Department of Commerce data, the total stock of U.S. FDI in Taiwan reached USD 17.3 billion. U.S. services exports to Taiwan totaled USD 8.9 billion in 2020. Leading services exports from the United States to Taiwan were intellectual property, transport, and financial services.
Structural impediments in Taiwan’s investment environment include: excessive or inconsistent regulation; market influence exerted by domestic and state-owned enterprises (SOEs) in the utilities, energy, postal, transportation, financial, and real estate sectors; foreign ownership limits in sectors deemed sensitive; and regulatory scrutiny over the possible participation of PRC-sourced capital. Taiwan has among the lowest levels of private equity investment in Asia, although private equity firms are increasingly pursuing opportunities in the market. Foreign private equity firms have expressed concern about a lack of transparency and predictability in the investment approvals and exit processes, and regulators’ reliance on administrative discretion in rejecting some transactions. These challenges are especially apparent in sectors deemed sensitive for national security reasons, but that allow foreign ownership. Businesses have questioned the feasibility of Taiwan’s long-term energy policy in light of plans to phase out nuclear power by 2025 and increase the use of Liquified Natural Gas (LNG) and renewables.
Taiwan is at the center of regional high-technology supply chains due to its dominant role in the international technology supply chain with its advanced R&D capability in developing products for emerging technologies such as semiconductor, 5G telecommunication, AI, and the Internet of Things (IoT.) Taiwan authorities have been actively launching initiatives for partnerships with foreign investors in fostering a resilient production network in the region. Taiwan in late 2016 implemented new rules mandating a 60-day public comment period for draft laws and regulations emanating from regulatory agencies, but the new rules have not been consistently applied. Proposed amendments to foreign investment regulations, if passed, would help promote inward investment through streamlined reporting and approval procedures.
Table 1: Key Metrics and Rankings