The year 2007 was Chen Shui-bian's second and last term as the president of the Republic of China (Taiwan). Although Chen has made independence from mainlaind China a major theme for his Taiwanese Democratic Party (DPP) since his election in 2000, the end of his tenure signals a different direction for the island. The DPP's seven-year stint as the ruling party is likely to see a challenge this year from the Kuomintang (KMT) party, which favours closer ties to its neighbour. The candidates for 2008 are pursuing a new course, placing the emphasis on economic development and the strengthening of strategic trading alliances with China.
On the home front, credit card defaults eased in 2007 due to legislation that allowed borrowers to apply for 'rehabilitation' if they were unable to pay back debt. The bill, initially passed in April, allowed borrowers to pay back interest on mortgages during a 10-year period without fear of losing their property. This was a boon to consumers wrestling with repayment, although many banks, still struggling from the consumer credit defaults in 2006, worried the bill would increase mortgage credit abuse and hinder their profitability.
The past year was full of changes for banks on the island. The crowded banking sector - in April there were some 43 banks catering to a population of 23m - is roughly 50% state-owned, down from around 60% in previous years. Taiwan's government has been encouraging consolidation in the banking market and has taken swift action over failing banks.
Several international institutions entered the island in 2007, winning bids from the government for debt-ridden banks. The Chinese Bank of Taiwan was taken over by the government's bad debt agency in early January after affiliated subsidiaries of its parent company filed for bankruptcy protection, triggering a run on the bank as customers withdrew a reported $500m in one day. The bank was later sold to HSBC for NT47.5m ($1.5bn). US-based Citibank acquired the Bank of Overseas Chinese for NT14.1bn ($426m) in April and the Amsterdam-based ABN AMRO Holding obtained Taitung Business Bank for NT6.9bn ($209m) in June.
Exports continued play a major role in the country's economy, accounting for half of the country's GDP. In the third quarter of 2007 GDP rose 6.9% and the ministry of economic affairs reported that exports increased by 18% to a record $32.2bn. China was Taiwan's largest export destination in 2007, followed by Hong Kong and the US, although exports to the US slipped slightly following an economic slowdown in that country. Exports were also up to oil-producing countries and emerging economies.
Products for shipment overseas came mostly from IT and computer and liquid crystal display (LCD) manufacturing. In 2007, Taiwan exported 80% of the world's notebooks, 90% of the world's computer motherboards and 40% of the world's flat panel displays.
The island's position as a leader for IT-related manufacturing was cemented when Taiwan's Acer acquired Gateway, the US-based computer manufacturer, for $710m in October, making it the world's third-largest PC vendor. The company said it expected its sales to double in the next four years.
Keeping things running smoothly on the domestic scene, early in 2007 Taiwan introduced a new $15bn transportation project linking the north and south regions of the island. In January, Taiwan's long-awaited high-speed bullet train, launched into service. With speeds up to 315 km per hour, travelling from Taipei Panchiao to Tsoying in Kaohsiung in 90 minutes, the new system has transformed transportation on the island. The Taiwan High Speed Rail Corporation will manage the service for 35 years and then turn it over to state control.
Taiwan has also taken steps to invest heavily in renewable energy, including wind and most notably, solar power. Following on from its expertise in LCD manufacturing, the island is home to companies using these technologies to create solar panels. Taiwan intends to position itself as a major solar cell source by 2020, integrating 'green' energy into residential and business spaces.
As the presidential candidates are aware, improving relations with China, as well as boosting the business climate at home, will be predominant themes for 2008. The European Chamber of Commerce in Taipei, in its position papers for 2007-08, outlined the major steps necessary for the island to continue its economic development, including removing barriers to investment in and imports from China, deregulating the financial services sector and improving the tax system.