Taiwan Set to Reclaim Economic Lead Over China, But Only Briefly

In 1990, Taiwan was a $166 billion economy dominated by exports of consumer electronics and plastic goods, while China had just opened its first McDonald’s restaurant, an early milestone in its reform and opening up that led to a generational shift in global economic power.

That was also the last year that Taiwan’s economic growth outpaced that of its giant neighbor. Until 2020.

For the first time in 30 years Taiwan’s gross domestic product probably grew at a faster pace than China’s, due to its early control of the virus and stellar export performance. Official data Friday will likely show GDP expanded 2.55% last year, according to the median estimate in a Bloomberg survey of economists, compared with China’s 2.3% rise.

Taiwan was able to avoid the strict lockdowns that brought most other economies to a halt last year. With a few exceptions, Taiwanese businesses, offices and schools stayed open throughout the year and there was something of a boom in domestic travel as people opted to vacation at home rather than head overseas.

The island’s largest technology companies, such as Taiwan Semiconductor Manufacturing Co. and Hon Hai Precision Industry Co., have also soared alongside a global demand boom for semiconductors, 5G smartphones, electric vehicles and high-performance server equipment. Taiwan’s eight largest tech companies are on track to announce record or near-record earnings for last year.

Exports contributed about 60% of GDP growth in 2020, according to Natixis SA Economist Gary Ng in Hong Kong. And judging from TSMC’s ambitious capital expenditure plans, there’s little sign of a slowdown any time soon.

“There will always be demand for semiconductors and no-one can replace TSMC,” he said in a recent interview.

For more on Taiwan’s economy:
  • Taiwan Bucks Global Slump With Record Surge in Export Orders
  • Taiwan Dec. Economic Indicator Rises to Highest Since 2011
  • The World Is Dangerously Dependent on Taiwan for Semiconductors
  • All in the Same Gunboat: Central Bank Cartoon Urges FX Restraint

The expansion in overseas shipments came despite the currency strengthening more than 5% against the U.S. dollar last year, its biggest gain since 2017.

Still, Taiwan’s out-performance of China is likely to be short-lived. Growth in the world’s second-largest economy roared back to pre-pandemic levels in the fourth quarter after Beijing managed to get Covid-19 under control and deployed fiscal and monetary stimulus to boost investment.

China’s GDP will likely rebound to 8.4% this year, according to a survey of economists, its fastest rate of growth since 2011. Taiwan’s is forecast to grow 3.7%.

— With assistance by Raymond Wu

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