Country Risk: Taiwan

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Location and Size

Taiwan is an island located in Eastern Asia with an area of 35,980 sq. km. (13,891 sq. mi.). Approximately two-thirds of Eastern Taiwan is mountainous with 100 peaks over 3,000 meters high (over 9,000 feet). A number of smaller islands off the coast of China’s Fujian Province also are included within Taiwan.

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Government

For decades, Taiwan was an authoritarian, one-party state ruled by the Nationalist Party, which under President Chiang Kai-shek controlled much of China before the Communists’ rise to power in 1949.

In the early 1990s, however, Taiwan made the transition to democracy and the Nationalist Party’s monopoly on power ended completely in 2000, with the election of President Chen Shui-bian of the opposition Democratic Progressive Party. Today, Taiwan is a multiparty democracy.

Branches include:

• Executive: Chief of State President TSAI Ing-wen; Head of Government Premier SU Tseng-chang; cabinet of ministers appointed by the president on recommendation of the premier.
• Legislative: Unicameral body with 113 seats.
• Judicial: Justices appointed by the president with consent of the legislature.

Legal System

Taiwan’s legal system is based on a civil law system. Taiwan has not accepted compulsory International Court of Justice (ICJ) jurisdiction.

Taiwan’s court system is generally viewed as independent and free from overt interference by the other official branches.

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People

• Population: 23,603,049 (2021 est.)
• Population growth rate: 0.11% (2021 est.)
• Languages: Mandarin Chinese (official), Taiwanese (Min), Hakka dialects
• Literacy: 98.5% (2021)
• Ethnic Make-up: 95% Han Chinese (Including Hoklo and Hakka)
• Religions: Mixture of Buddhist and Taoist 93%, Christian 4.5%, other 2.5%

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Economy

Through decades of hard work and sound economic management, Taiwan transformed itself from an underdeveloped, agricultural island to an economic power that is a leading producer of high-technology goods. Foreign trade has been the engine of Taiwan’s rapid growth and its economy remains export-oriented, making it vulnerable to fluctuations in the world economy.

Taiwan faces many of the same economic issues as other developed economies. Labor-intensive industries have relocated to other countries with low-cost labor. Therefore, future development will rely on continued transformation to a high technology and service-oriented economy. Taiwan’s economy has become increasingly linked with China, and the current Ma administration is expected to further develop these links and liberalize economic relations between the two countries.

Currency: Taiwan Dollar (TWD)

Leading Markets (2021): China 28.8%, Hong Kong 12.4%, US 11.8%, Japan 6.9%, Singapore 5.2%, South Korea 4.8%

Leading Exports – Commodities: Semiconductors, petrochemicals, automobile/auto parts, ships, wireless communication equipment, flat display displays, steel, electronics, plastics, computers

Leading Suppliers (2021): China 19.9%, Japan 16.2%, ASEAN 12.0%, US 11.7%, South Korea 6.5%

Leading Imports – Commodities: Oil/petroleum, semiconductors, natural gas, coal, steel, computers, wireless communication equipment, automobiles, fine chemicals, textiles

Top Industries: Electronics, petroleum refining, armaments, chemicals, textiles, iron and steel, machinery, cement, food processing, vehicles, consumer products, pharmaceuticals

Top Agricultural Products: Rice, corn, vegetables, fruit, tea, pigs, poultry, beef, milk, fish

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Comparative Economic Indicators – 2022

* 2022 estimates
** PPP ” Purchasing Power Parity

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Credit and Collections

A foreign creditor collecting from customers in Taiwan can face some challenges. There is an interesting aspect of Taiwanese business law, however, that may allow creditors to protect their interests in goods sold until they are paid for. This is particularly important in the current environment where creditors increasingly find themselves unable to collect from customers whose firms are in various stages of reorganization. By taking appropriate steps prior to shipping to Taiwan, you can prevent possible headaches and losses.

Articles 282 to 314 of the Taiwan Company Act govern reorganization proceedings in Taiwan. Under these Articles, sellers can retain titles to goods as long as purchase agreements comply with Article 5 of the Chattel Secured Transactions Act. This Article states that in order for sellers to maintain security interest, they must state in a written purchase agreement that they will retain title to the goods in question until they receive payment as specified. They must also register with relevant authorities to protect the title clause from buyers. Of course, reassuring possession of your goods is not what you have in mind when you ship them, but it is certainly a better alternative to writing off the entire balance.

Dispute Resolution

Taiwan is not a member of the International Center for the Settlement of Investment Disputes or the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards. Normally, Taiwan resolves disputes according to domestic laws and regulations.

Taiwan has comprehensive commercial laws, as well as laws for specific industries. Taiwan’s Bankruptcy Law guarantees that all creditors have the right to share the assets of a bankrupt customer on a proportional basis. Secured interests in property, both chattel and real, are recognized and enforced through a registration system. The judgments of foreign courts with jurisdictional authority are enforced in Taiwan by local courts on a reciprocal basis.

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Risk Assessment

Coface Country Risk Rating: A3 — The political and economic situation is good. A basically stable and efficient business environment nonetheless leaves room for improvement. Corporate default probability is low on average. Exposure to trade demands and no recognition as a sovereign from mainland China and the United States, Taiwan is experiencing a growing isolation. Only 16 countries globally have full diplomatic relations with Taiwan, nine of which are in Latin America.

Credendo Political Risk Rating: 1 ” Lowest risk
Credendo Commercial Risk Rating: B ” Medium risk

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Business Climate

Taiwan has a dynamic capitalist economy with gradually decreasing government involvement in investment and foreign trade. In keeping with this trend, some large, state-owned banks and industrial firms have been privatized. On the negative side, the island has not kept up with infrastructure development in comparison with other developed Asian economies.

Economic Freedom: According to the 2022 Index of Economic Freedom, Taiwan’s economic freedom score is 80.1, making its economy the 6th freest in the 2022 Index.

Tariffs: Tariffs are very low, and the government continues to improve the trade regime.

Transparency of Regulatory System: Taiwan’s transparent and sound regulatory framework facilitates an efficient investment climate. Investment laws and bureaucracy are generally transparent and efficient.

Foreign Investment and Ownership: Taiwan officially welcomes foreign direct investment. Taiwan’s science-based industrial parks, export processing zones, and free trade zones offer streamlined procedures. Foreign and domestic investments are equal under the law, and private investment is welcome in most sectors. Foreign ownership is limited in certain sectors. Investment is screened, but approval time is usually short. Most foreign ownership limits have been removed.

Conversion and Transfer Policies: There are relatively few restrictions on converting or transferring direct investment funds. The remittance of capital invested in Taiwan must be reported to the government. Declared earnings, capital gains, dividends, royalties, management fees, and other returns on investments can be repatriated at any time. Large foreign exchange transactions may be required to be conducted over time to prevent market disruptions.

Corruption: Corruption is perceived as present, but is currently being combated by laws, regulations, and penalties. Attempting to bribe, or accepting a bribe from, Taiwan officials constitutes a criminal offense, punishable under the Corruption Punishment Statute and the Criminal Code.

Political Violence: There have been no reports of politically motivated damage to foreign investment. Both local and foreign companies have, however, been subject to protests and demonstrations relating to labor disputes and environmental issues.

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Business Protocol

Face and Guanxi: The concepts of face and guanxi are perhaps the two most important aspects of successful interpersonal relationships in Taiwan. Face is extremely important and essentially reflects a person’s reputation, dignity, and prestige. Face can be lost, saved or given to another person. Companies, as well as individuals, have face and this often provides the rationale behind business and personal interactions.

Face can be given to people by complimenting them, showing them respect, or doing anything that increases their self-esteem. You can cause someone to lose face by causing embarrassment, and/or tarnishing their image and reputation.

In the event that you cause someone to lose face, or someone is embarrassed by circumstances, the best recourse is to appropriate the blame yourself.

Most Taiwanese business is conducted among friends, friends of friends, and relations. Such connections, or guanxi (pronounced gwan-she) are developed with people at your own level or of a higher status in both business and social situations. Guanxi opens doors, smooths out problems, and leads to even more connections.

Greetings: Greetings are formal and the oldest person in a group is always greeted first. Handshakes are the most common form of greeting with foreigners, but are not as firm as in many other countries. When you are first meeting a person, address the person by their academic, professional, or honorific title and their surname. If those you are meeting want to move to a first name basis, they will advise you which name to use.

Business Cards: Business cards are exchanged after the initial introductions. Present your business card using both hands and so the typeface faces the recipient. It is a good idea to have one side of your business card translated into Chinese using the traditional script not the simplified script as used in China. It’s important to examine any business card you are given carefully and to treat the business card with respect as the way you handle someone’s card is indicative of the value you place on the relationship. Never write on someone’s card in their presence.

Names and Titles: The Chinese traditionally have 3 names. The surname, or family name is first and is followed by one or two personal names. Chinese women do not change their names when they marry other Chinese, and the children’s surname will generally be that of the father. Some Chinese adopt western names in business.

Gifts: Do not give scissors, knives or other cutting utensils as they traditionally indicate that you want to sever the relationship. Do not give clocks, handkerchiefs or straw sandals as they are associated with funerals and death. Do not give white flowers or chrysanthemums as they signify death.

Do not wrap gifts in white, blue or black paper. Red, pink and yellow are considered to be auspicious. Elaborate gift wrapping is imperative when preparing a gift.

Do not give an odd number of gifts, or four gifts, as these are considered unlucky numbers. Eight is the luckiest number. Giving eight of something brings luck to the recipient.

Avoid giving anything made in Taiwan.

Present gifts using both hands. Gifts are not opened when received. Gifts are generally reciprocated so do not give a lavish gift unless it is to reciprocate an expensive gift that you have received.

Meetings and Negotiations: Meeting schedules are not highly structured in Taiwan. There may be an agenda, but it serves as a guideline for the discussion and may act as a springboard to other related business ideas, or even to non-business discussions. Time is not considered more important than completing a meeting satisfactorily, therefore meetings will continue until the discussion is completed and may extend well past a scheduled end time.

Taiwanese tend to be indirect in their communication and are as concerned with the effect of their words on others as they are with the content of their communication. They take great care to avoid communicating anything directly that would hurt or offend a colleague as it would cause a loss of face.

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries. For further information, contact [email protected].

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