| IMPORTANT FIGURES |
|---|
| Location: North Asia |
| Neighbors: China, Philippines |
| It’s a big city: Taipei |
| Population (2025): 23.2 million |
| Official Language: Mandarin Chinese |
| GDP per capita (2025): $39,000 |
| GDP growth rate (2025): 7.71% |
| Inflation (2025): 1.66% |
| Money: New Taiwan dollar |
| Investment Promotion Agencies: Ministry of Economic Affairs (MOEA), Department of Investment Promotion (DOIP), Bureau of Industrial Parks (BIP) |
| Investment benefits: Simple permissions; project managers dedicated to projects over NT$500 million ($15 million); R&D tax credits; investment tax credits of up to 25% on investments in key supply chains or improved processes; location-based incentives in science parks, industries parks, free trade areas; free visas to attract talent, including the Employment Gold Card program with talented talent |
| Corruption Perceptions Index (2024): 25/180, where 180 is very bad |
| Political risks: President Lai Ching-te’s administration faces an opposition-controlled legislature that often blocks budget proposals, risking policy paralysis or impasse in the face of Chinese interference. |
| Safety hazards: Chances of a naval blockade, military attack, or full-scale Chinese invasion |
No other developed market has demonstrated the impact of AI and high-performance computing booms more dramatically than Taiwan. And the data suggests these booms won’t turn around anytime soon, despite fears of overheating and declining foreign demand for Taiwan’s exports.
Forced integration with China may make it a no-go for many investors. But regardless of that wildcard status, there is no escaping the fact that Taiwan is now the backbone of the global supply chain and, by extension, the world economy, as well as an important place for investment and trade: a place where the island’s economy and its 23.2 million people live.
Taiwan is at the center of the global hi-tech supply chain due to its prominence in semiconductor manufacturing, AI, and 5G communications. Due to the investment benefits and the area fully open to growth and cooperation opportunities, the island is a magnet for foreign direct investment (FDI), led by the Netherlands and followed by the US, which holds 19.3 billion in FDI as of 2023.
FDI is important, given Taiwan’s level of self-imposed debt and limited public spending. The Department of Investment Promotion provides convenient services to foreign investors in an effort to promote FDI, making dedicated project managers available for more than $15 million in investment and R&D funding.
Still, some international investors are concerned about the governance of Taiwan’s state-owned enterprises, saying they distort fair market practice and lack regulatory transparency.
That said, Taiwan surprised with full-year 2025 GDP growth of 7.71%, an upward revision from the first estimate of 7.63% in January by the Statistics Ministry and a figure that was negative for all but a handful of economic forecasters.
That result marks Taiwan’s fastest pace of economic growth in 15 years and defies forecasts from the likes of the International Monetary Fund and the Asian Development Bank, which range from 2.9% to 5.1% in 2025 at the start of the year.
Last year’s economic performance was excellent overall, fueled by a rising tide of global demand for AI-related exports that bolstered Taiwan’s economy, particularly the semiconductor manufacturing prowess that propelled the island to advanced status in less than a generation.
Exports increased by 35%, quarterly growth in the last three months of the year was an impressive 12.68% year-on-year—the highest in 38 years—and stocks advanced significantly, pushing TAIEX into the world’s top 10 by market value earlier this year as the index reached a total of 100 billion New Taiwan dollars ($32).
Too Much Focus?
| RESULTS |
|---|
| Excellence in the global semiconductor supply chain |
| Favorable policies for foreign investors, including many incentives |
| Low domestic interest rates and inflation |
| Strong correlation of growth and investment with the global AI boom |
| Political stability |
| Strong legal institutions |
“We have upgraded our GDP growth forecast for this year to 6%, which is absolutely insane for an advanced economy,” said Alicia Garcia-Herrera, Asia Pacific economist at French financial giant Natixis in Hong Kong and senior fellow at Brussels-based think tank Bruegel Group.
“Remember that Japan grew last year by only 1.1%,” he added. “A landmark indicator of the country’s economic success has been its passing of both Japan and South Korea in terms of GDP per capita, which reached $39,477 last year.”
The fly in the ointment, Garcia-Herrera notes, is that growth is concentrated in the semiconductor sector “and its related industries such as packaging, all of which depend on demand in that one sector.”
Taiwan’s focus on exports, particularly semiconductors, has led to complaints that the central bank’s stance is to keep the Taiwan dollar artificially low, choking out other domestic industries and exposing the economy to the risk of becoming too dependent on technology-related imports.
| CONS |
|---|
| Political differences with China |
| Overexposure to the global AI boom |
| The risk of overspending on AI-related capex |
The currency strengthened surprisingly against the dollar in May, falling as much as 28.85% due to income inflows and weakening the dollar against other Asian currencies.
The new Taiwan dollar has weakened since then due to the central bank’s reported intervention, standing in late January at 31.7 to the dollar and reviving the perception that the currency is unfairly undervalued. The lowest rates on the entire yield curve for government bonds, ranging from 1.21% for two years to 1.43% for 10-year issues, are based on a policy rate of 2%.
In this context, a notable feature of last year’s growth was the absence of overheating in the economy, where the CPI reached just 1.66%, allowing the central bank to keep the policy rate tight: a situation it is expected to maintain this year.
“A strong focus on exports leaves the economy at risk of losing key trading partners and reducing demand for AI globally,” warned Sagarika Chandra, APAC executive director at Fitch Ratings in Hong Kong. “Taiwan’s electricity exports as a share of total exports are relatively large, at about 43%, and weak demand for these exports could have a significant negative impact on growth with lower exports.”
The level of FDI
Inward and outward FDI has played a major role in Taiwan’s economic trajectory. The former increased 44% last year, to $11.39 billion, driven by technology and services, including semiconductor manufacturing, AI, renewable energy, and financial services. Investment incentives available for inbound FDI include special tax treatment and strategic support from Invest Taiwan, a government agency.
Mainland China has dominated inward FDI in recent years, but as Taipei seeks to strengthen economic ties beyond its Southeast Asian neighbors and the US, inward FDI from the mainland fell 65.4% last year.
As Taiwan trembles at the prospect of the Trump administration imposing tariffs on semiconductors, the island has committed to its largest ever FDI deal, the construction of a $250 billion semiconductor manufacturing plant in the US by Taiwan Semiconductor Manufacturing Corporation (TSMC). In return, Taiwan will receive tax exemptions on microchips and reductions in all tariffs on other products.
Observers doubt that the shift in production will prove a huge liability.
Garcia-Herrera says: “The loss of semiconductors, in my opinion, is not a big problem for the country, because if Taiwan continues to supply all the world’s needs from Taiwan, all the resources will go to the semiconductor industry only, whether it is green energy, water, the best talent, you name it.
In 2026, Fitch expects that the economy will continue to benefit from increased production and investment by some advanced AI chip manufacturers, even if there is a moderation in demand, according to China. We expect that the US-Taiwan trade agreement, which has reduced tariffs by up to 15% from 20% previously, could provide near-term relief to Taiwan’s semiconductor export-driven economy, creating a level playing field for key export sectors.”
More so, Taiwan is highly dependent on energy imports: about 98%, according to data from the US Energy Information Administration. This is an alarming figure given the needs of the island’s energy-intensive technology sector and its vulnerability to naval blockades. Renewable energy is therefore expected to be the most important variable in Taiwan’s economic trajectory.
There is still a long way to go. Just 12% of the island’s 288 terawatt hours produced by 2024 comes from renewables, with the majority coming from natural gas (42%) and others from coal (39%) and nuclear power (4%). But this could present an opportunity for more FDI.
“Renewable energy will be critical to Taiwan’s economic development in terms of decarbonization and compliance requirements from the international value chain, especially the semiconductor industry,” commented Ching-Wen Huang, director of renewables and sustainability advisory at sustainability consultancy NIRAS. “Taiwan has an open renewable energy market for foreign companies,” he said, “and the government really welcomes foreign investment and companies in development and supply.
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