Economy - overview:
Taiwan has a dynamic capitalist economy with gradually decreasing government guidance of investment and foreign trade. In keeping with this trend, some large, state-owned banks and industrial firms have been privatized. Exports, led by electronics and machinery, generate 70% of Taiwan's GDP growth, and have provided the primary impetus for industrialization. This heavy dependence on exports makes the economy vulnerable to downturns in world demand: January-October 2009 exports were down 27% year-on-year, contributing to a 4% contraction of the island's GDP in 2009. Taiwan's diplomatic isolation and low birth rate are also major long-term challenges. Free trade agreements have proliferated in East Asia over the past several years, but so far Taiwan has been excluded from this greater economic integration, largely for reasons of diplomacy. Taiwan's birth rate of only 1.0 child per woman is among the lowest in the world, raising the prospect of future labor shortages and declining tax revenues. The island runs a large trade surplus, and its foreign reserves are the world's fourth largest, behind China, Japan, and Russia. Recently opened cross-strait travel, transportation, and tourism links are likely to increase Taiwan and China's economic interdependence. In 2008 China overtook the US to become Taiwan's second-largest source of imports after Japan. China is also the island's number one destination for foreign direct investment. Taipei has focused much of its economic recovery effort on improving cross-strait economic integration. Three financial memorandums of understanding, covering banking, securities, and insurance, will take effect in mid-January 2010, opening the island to greater investments from the mainland and new opportunities for Taiwan firms operating in China. Taipei and Beijing are also poised to begin negotiating an economic cooperation agreement in January 2010. In January 2009 Taipei enacted a shopping voucher program worth over $2 billion in an effort to stimulate consumption and prop up the retail sector. In November 2009, the MA administration's cabinet approved funding for nearly $125 billion in infrastructure development projects as part of its ongoing economic stimulus efforts.

GDP (purchasing power parity):
$693.3 billion (2009 est.)