Regional spotlight: Taiwan, the Philippines and Vietnam

Access Asia Group has been largely focused on Vietnam, Cambodia, Myanmar and Thailand over our years covering the region, but we are slowly branching out to expand our coverage of Taiwan and the Philippines – especially in light of geopolitical developments including China-US tensions and the heightened possibility of conflict erupting in the South China Sea.

Writing from Taipei – an increasingly modern city that values “convenience” in public transport and ease of carrying out daily chores to an extent that would put some EU cities to shame – it’s striking just how far the city has developed compared to Bangkok or Ho Chi Minh City.

Taiwan is now a high-income economy with a 2022 GDP of $828.66 billion and ranks 21st among all the 192 nations covered by the IMF, which makes it a regional leader – its GDP is expected to cross the $1 trillion mark by 2027 – and that’s hard for Vietnam and the Philippines compete with, especially given that Taiwan has focused on high-technology products that are in demand worldwide.

Indeed, the economy is driven by manufacturing exports – especially electronics, petrochemicals, and automobiles. But it would be a mistake to overlook its service sector, which accounts for 62.1% of GDP, according to Reuters.

Access Asia maintains that, while Taiwan is an increasingly powerful economy on multiple fronts, it would be a mistake to overlook the headwinds it faces, just as other regional economies do at the moment. Another Reuters Markets report suggests that Taiwan’s economic growth is “projected to ease to 6.3% in 2023 and 5.9% in 2024,” due to the moderation of domestic demand and exports, but this is likely an optimistic assessment.

The first quarter of this year, for example, was particularly concerning, with the economy contracting and slipping into recession as exports were hit by “slowing global tech demand and broader economic woes,” according to one report.

The first-quarter GDP was the worst since the financial crisis,” Wu Pei-hsuan of the Directorate General of Budget, Accounting and Statistics told reporters, referring to the 2008-2009 global crisis.

Experts are divided on just why the first quarter of 2023 was such a disappointing performance, but it’s safe to say all eyes are on China, which habitually fudges its numbers and is probably suffering far more than it is letting on. Basically, the anticipated post-Covid consumer-demand rebound hasn’t panned out the way Beijing hoped it would, while youth unemployment is at epically high rates. Add to that local government debt that piled up first during the massive countrywide infrastructure rollout post-2008 global financial crisis and again covering the expenses involved in countless daily tests for a locked down population during the Covid-19 crisis.

A good case is to be made that China, which was the glue that held everything together in the aftermath of the 2008 banking collapse, is now an agent of a global unravelling. How that will play out will likely depend on the extent to which economies are capable of weaning themselves off their reliance on the Chinese economy.

Taiwan has been striving to do this for decades – usually with ambitious Go South policies that seek to embrace Southeast Asian markets – but it’s been an uphill challenge, with China accounting for 42% of Taiwan’s exports in 2021, compared to 15% to the US. Meanwhile, some

22% of Taiwan’s imports came from mainland China and Hong Kong, compared to 10% from the US in 2021, according to official data.

Nevertheless, the US and Taiwan have been discussing reemphasizing the importance of mutual trade due to the strategic importance of Taiwan in the so-called first-island chain and its key role in the global semiconductor sector. The two parties agreed on the first stage of a bilateral trade initiative just a week ago.

The US-Taiwan Initiative of 21st Century Trade will be the first official trade agreement between Taiwan and the United States since US President Joe Biden assumed office in 2021, reports CNN.

Meanwhile, Taiwan’s southernmost neighbor has been undergoing a recently-initiated pivot away from China and towards the US, since Ferdinand “Bongbong” Marcos Jr won a landslide presidential election victory last year.

Contrary to some opinions, the Philippines is no longer the “poor man” of Asia. By the same IMF ranking applied to Taiwan above, the Philippines ranks 34th globally – a lower middle-income economy with a GDP of $396.5 billion in 2022. It is expected to reach the upper middle-income status by 2035, according to reports.

The Philippines – a country comprised of 7,641 islands – has complained to Beijing that it now has to import fish due to aggressive Chinese fishing incursions into Philippines’ waters. But in theory, the Philippines can rely on the US for security while its economy is driven by strong domestic consumption, remittances from overseas workers, and business process outsourcing (BPO) services, according to reports. It also has a large agriculture sector that contributes 14% of GDP and 38% of employment.

Add to that the fact that the Philippines has a growing economy that is expected to rebound to 6.5% in 2024 after contracting by 8.1% in 2020 and growing by 4.7% in 2022.

Vietnam is a somewhat unique case and growing faster than any other country in the region. It’s a lower middle-income economy with a 2022 GDP of $341.6 billion, ranking at 39th according to the IMF, driven by manufacturing exports, especially in electronics, textiles, and footwear. It also has a dynamic private sector that accounts for about half of GDP and economic growth is projected to grow at 7.5% in 2022 and 6.7% in 2023, thanks to its effective management of the COVID-19 crisis and its integration into global value chains.

Green Power

All three countries in this brief report are undergoing profound shifts in how they conjure up energy, and there are opportunities for investors in each destination – with the caveat that conditions vary immensely from one country to another.

Taiwan may not exactly be leading the pack, but it has an advantage in developing green energy industries, such as solar PV, LED lighting, wind power, and hydrogen fuel cells, due to its solid foundation in the ICT industry, a comprehensive semiconductor industry supply chain, and strong industrial capacity in metallurgy, mechanical engineering, composite materials, and electronic controls, according to government sources.

The government has also set ambitious targets for renewable energy development, aiming to increase the share of renewables in electricity generation to 20% by 2025 and 40% by 2035 and achieve net-zero emissions by 2050, according to media reports.

In short, Taiwan’s renewable energy sector is booming, with installed capacity having reached 9.7 GW by the end of 2021, up from 6.4 GW in 2019. Solar PV accounted for 6.8 GW, followed by wind power with 1.7 GW and biomass with 0.8 GW. Taiwan is also a global leader in offshore wind development, with a target of 15.5 GW by 2035.

Vietnam is the other leading green energy market in the region, thanks to its abundant natural resources, growing energy demand, and supportive policies, as noted in several Access Asia Group reports.

Vietnam’s target is to increase the share of renewables in electricity generation to 15-20% by 2030 and 25-30% by 2045, which will inevitably offer up many opportunities of investors – particularly those who have experience in markets that prioritized renewables before they became affordable enough for countries like Vietnam to start adopting them.

The Philippines, meanwhile, is probably best described as an emerging market for green energy development, but it has rich natural resources, high electricity prices and increasing environmental awareness, which makes it a market with huge potential.

The Philippines’ government has set a target of increasing the share of renewables in electricity generation to at least 35% by 2030 and to at least 50% by 2040. It also aims to reduce greenhouse gas emissions by 75% by 2030.

Legal barriers

Taiwan has a relatively open and transparent legal framework for foreign investment, with few restrictions on foreign ownership and repatriation of profits. However, some sectors are subject to equity limitations, screening or approval mechanisms, or operational restrictions. These include telecommunications, broadcasting, banking, insurance, transportation, energy, and agriculture, according to government sources.

On the other hand, Taiwan also has a complex and sometimes inconsistent regulatory environment that can pose challenges for foreign investors. Some of the issues include lack of regulatory coherence and coordination, lack of public consultation and stakeholder engagement, lack of regulatory impact analysis, and lack of judicial review.

Meanwhile, Vietnam has made significant progress in improving its legal framework for foreign investment in recent years, with the adoption of new laws on investment, enterprises, public-private partnerships, and securities. These laws aim to simplify administrative procedures, enhance transparency, reduce barriers to entry, and create a more level playing field for foreign investors.

Vietnam also has a number of free trade agreements (FTAs) that provide preferential market access and investment protection for foreign investors, but it still faces challenges in implementing and enforcing them. Issues include inconsistent interpretation and application of laws and regulations, lack of transparency and predictability, cumbersome licensing and approval processes, inadequate protection of intellectual property rights, and limited dispute resolution mechanisms.

The Philippines is probably the most difficult of the three markets covered here for foreign investors, with a mixed legal framework for foreign investment and a need to improve its legal framework for foreign investment.

Issues include constitutional restrictions on foreign ownership of land and natural resources, public utilities, media, and education, complex and inconsistent regulations and procedures, weak enforcement of contracts and property rights, corruption and bureaucratic inefficiency, and inadequate infrastructure and security.

Yes, there are drawbacks, possible pitfalls, but with good guidance and proper due diligence the region is booming and it’s highly unlikely that China will really blow it all up, despite the almost daily bluster.

And, after all, the bluster is starting to backfire with China finding itself increasingly alone. It’s a good time for investors to be bold and take some potentially profitable chances.