Outlook for 2011-15

• The popularity of the president, Ma Ying-jeou of the ruling Kuomintang, will continue to fluctuate in line with broad economic indicators, rather than being determined by the issue of links with mainland China.
• The opposition Democratic Progressive Party (DPP) has chosen a China expert, Tsai Ing-wen, as its candidate for the 2012 presidential contest. The choice suggests that it realises the need for a credible policy regarding China.
• The Central Bank of China (CBC, Taiwan's central bank) raised its main policy interest rate, the discount rate, by 12.5 basis points to 1.75% on March 31st. The CBC is expected to tighten monetary policy gradually during 2011-15.
• Inflows of hot money will continue to complicate the CBC's interest rate policy as they could cause a rapid rise in the exchange rate, which in turn might undermine the competitiveness of Taiwan's export-led economy.
• Economic growth will average around 4% a year in 2011-15. The largest contributions to economic growth in the forecast period will come from private consumption and the external sector.
• The New Taiwan dollar will be lent support by Taiwan's substantial foreign-exchange reserves. The Economist Intelligence Unit expects the local currency to strengthen gradually against the US dollar in 2011-15.

Monthly review

• In late April the DPP selected Ms Tsai as its candidate for the 2012 presidential election. She is the first woman to be nominated as a presidential candidate in Taiwan's history
• The changing nature of relations across the Taiwan Strait threatens to undermine Taiwan's important defence relationship with the US-many observers are questioning the reluctance of the US to sell advanced weapons to Taiwan.
• Ms Tsai has revived the issue of whether Taiwan should continue with the construction of its fourth nuclear power plant in the wake of the nuclear crisis in Japan, where reactors were damaged by the powerful earthquake in March.
• The decision by the CBC to raise interest rates for the time fourth time in succession on March 31st came as no surprise, amid a steadily expanding domestic economy and rising inflationary pressures.
• Early estimates suggest that the rate of real GDP growth in the first quarter of 2011 reached an unexpectedly rapid 6.2% year on year. Several economic indicators suggest that the country's economy still has momentum.
• Taiwan's industrial production reached its highest ever level in March, breaking the previous record set in December 2010.

Taiwan's political scene will be increasingly dominated by preparations for presidential and parliamentary elections that are due to take place in 2012. But until the election takes place the political scene should remain relatively stable, as the Kuomintang (KMT) controls the presidency and also has a comfortable majority in the Legislative Yuan (parliament). The KMT's control of both the presidency and the legislature means that the main opposition party, the Democratic Progressive Party (DPP), will be excluded from a major role in politics until at least 2012. The DPP will continue to use the media and street demonstrations to protest against government policies, and in particular the rapprochement with mainland China that is being pursued by Taiwan's president, Ma Ying-jeou of the KMT. However, some senior DPP members are seeking to moderate the party's policy towards China.

Since taking office in early 2008 Mr Ma has moved quickly to finalise several bilateral deals aimed at promoting trade and investment links across the Taiwan Strait, and Taiwan signed a loose bilateral free-trade agreement (FTA) with China, the Economic Co­operation Framework Agreement (ECFA), in June 2010. Although the DPP has criticised the ECFA as constituting a threat to Taiwan's sovereignty, the island's residents have largely rejected this argument and favour the strengthening of economic and transport links with the mainland. However, there is little support for a political settlement with China that would diminish Taiwan's de facto political independence. If the president moves in this direction, he would quickly lose public support. It is therefore unlikely that he will do so before the 2012 presidential election, and his approval ratings will thus continue to fluctuate in line with broad economic indicators, rather than being determined by the issue of links with China.

The DPP is unlikely to attract enough public support to be able to hold mass demonstrations against the KMT's policy of closer ties with China, particularly as cross-Strait rapprochement has reduced the risk of military conflict. Opinion polls suggest that the majority of the population back Mr Ma's argument that an agreement with the mainland is the only means by which Taiwan can avoid becoming economically and politically marginalised on the world stage, and that cross-Strait economic integration had in any case already begun under the previous DPP government. The DPP and its supporters have said that they do not believe that the ECFA will be a panacea for the island's economic problems, as Mr Ma has suggested. Nevertheless, even members of the DPP increasingly accept that economic integration with China is irreversible. In a departure from past practice, the DPP decided not to organise demonstrations during a visit to Taiwan in February by Chen Yunlin, the chairman of the Association for Relations Across the Taiwan Strait, which implements mainland China's Taiwan policy.

The disappointing performance of the DPP in mayoral elections which took place in November 2010 (including its failure to win the Taipei mayoral race) has helped to boost the morale of the KMT as the country prepares for presidential and parliamentary elections in 2012. Nevertheless, the fact that the DPP obtained a healthy level of votes even in the mayoral contests that it lost will have given the party a degree of confidence that its support is strong enough to enable it to win the presidency if it formulates a more moderate national strategy. However, problems of disunity will continue to cost the party support as the country approaches the presidential poll. The fact that the DPP's leader, Tsai Ing-wen, a China expert, was chosen by the party in late April as its candidate for the 2012 presidential election is a sign that the party accepts the need to balance its pro-independence roots with the need to formulate an effective response to Mr Ma's cross-Strait policy.

The results of the next presidential and parliamentary elections will be largely determined by personalities and national issues. Recovery following the 2008-09 global financial and economic crisis has revived Mr Ma's popularity, and basic economic issues will be the main factors determining the KMT's fortunes. Much will also depend on the perceived benefits for Taiwan of the ECFA with China and on how Mr Ma handles cross-Strait relations. If voters decide that Taiwan's sovereignty has been placed under threat by Mr Ma's policies towards China, support for the president and his party will evaporate quickly. It appears more likely, however, that improved relations with China will result in greater political stability in Taiwan and that this will allow the KMT to focus more closely on economic issues, especially as the DPP seems to be moving slowly towards a rapprochement of its own with China. The Economist Intelligence Unit's central forecast is that the KMT will retain control of both the presidency and parliament in 2012, although its legislative majority is likely to be trimmed.

Although the warming of relations with China and the signing of the far-reaching ECFA represent significant achievements for Mr Ma, his diplomatic approach to China has always had two strands. One has been to improve relations with the Chinese government and to conclude beneficial trade and transport agreements with the mainland, while the other has been to win China's acquiescence to an increase in trade diplomacy by Taiwan with other countries. Mr Ma has argued that China is less likely to object to Taiwan's signing of bilateral FTAs in the wake of the ECFA, and that other countries will feel emboldened to work towards such deals with the island now that China has itself signed an agreement with it. Taiwan's government is thus currently pursuing a host of FTAs with Asian nations, as well as with the EU and the US. The US is supportive of warming ties between Taiwan and China, as it favours the preservation of the status quo in cross-Strait relations. It will continue to try to deter attempts by China to intimidate Taiwan through military means. It will also continue to sell advanced weaponry to Taiwan, despite objections from China. However, this issue will remain controversial.

Passing legislation between now and the 2012 election will remain relatively straightforward for the government, as the KMT currently controls both parliament and the presidency. (In 2000-08 the legislature and the executive were controlled by different parties.) Efforts to expand links with China will continue, with the primary aim of negotiating new agreements within the ECFA. The signing of the ECFA will encourage Taiwan to seek further FTAs. In the early years of the forecast period the authorities will withdraw cautiously the emergency stimulus measures that were introduced in late 2008 and 2009. However, they will remain alert to the risk of a renewed global slowdown and will be prepared to take further action to support the economy if necessary. A major challenge for the monetary authorities in Taiwan at present is dealing with the flood of hot money that is entering the country. The introduction of further capital controls of some sort is a possibility, amid fears that inflows of hot money risk causing both asset price bubbles, which have the potential to be destabilising for the economy when they burst, and a rapid rise in the exchange rate, which could undermine the competitiveness of Taiwan's export-led economy.

Growth in public expenditure will slow in 2011 as the economic stimulus measures that were introduced in 2009 are gradually withdrawn. As the fiscal deficit is set to narrow from 1.5% of GDP in 2011 to 0.5% of GDP in 2015, the government will come under little pressure to cut spending. Such reductions would in any case prove difficult to implement: the scope for additional savings is narrow, given the rising demand for social welfare payments that will result from the ageing of the population and the need to upgrade infrastructure on an ongoing basis. Instead, it is revenue trends that will be the primary determinant of future changes in Taiwan's fiscal balance. Revenue growth will be supported by a healthy rate of expansion in nominal GDP in 2011-15.

The Central Bank of China (CBC, Taiwan's central bank) is in the process of raising interest rates amid growing concerns about rising inflation caused by higher global oil and food prices. The most recent interest rate increase took place on March 31st, when the CBC raised its main policy interest rate, the discount rate, by 12.5 basis points to 1.75%. The central bank will raise rates only cautiously during the year, in part because inflationary pressures in Taiwan will remain benign, but also owing to concerns about the sustainability of the global economic recovery, amid ongoing problems in sovereign debt markets in the euro zone. The CBC will keep a careful eye on developments and policy changes in the US and the euro zone. Assuming that domestic and global economic recoveries remain on track, we expect the CBC to continue to tighten policy in the forecast period.

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Economic growth will slow to a more sustainable rate from the supercharged pace that was recorded in 2010, when real GDP grew by an annual average of 10.8%. Despite ongoing uncertainties in the world economy, most notably in the euro zone, the global economy should perform respectably in 2011, with global GDP forecast to expand by 3.2% (at market exchange rates). Growth in Asia is set to be especially strong, and this will support demand for Taiwan's exports. However, the twin natural disasters of an earthquake and a tsunami that struck Japan on March 11th are likely to disrupt local manufacturers' supply chains until at least May 2011, as well as undermining demand in one of their major export markets, particularly in the second quarter of 2011. On balance, economic growth will average around 4% a year in 2011-15. Although this will mean that growth in Taiwan will be much faster than in the main OECD economies, it will be well below the island's 5.6% average annual GDP growth rate in 2004-07. The largest contributions to economic growth in the forecast period will come from private consumption and the external sector.

Private consumption growth will average a healthy 3.5% a year in 2011-15, supported by a number of factors, including improving consumer confidence, falling unemployment and rising nominal wages. Low retail interest rates, especially in the early part of the forecast period, will also underpin growth in private consumption. Growth in investment spending reached 23.7% in 2010. The high year-on-year base in 2010 means that investment growth will slow sharply in 2011, but it will still grow by a steady 3.4% a year on average over the forecast period. In the medium term, investment spending in Taiwan will be supported by new foreign and domestic private-sector investments in high-technology and research-based fields. Moreover, improving relations with China will bring a loosening of cross-Strait trade and investment restrictions, and this should encourage greater foreign investment in Taiwan.

Exports of goods and services grew by an impressive 25.6% in 2010, owing in part to a strong recovery in economic growth in the country's main export markets in Asia. Growth in exports will slow to a more sustainable average rate of 6.2% a year in 2011-15. A major factor supporting exports in the forecast period will be improving cross-Strait relations. Services exports will be supported by an expansion in freight traffic, and also by growth in the number of visitors to Taiwan from mainland China as visa restrictions are gradually relaxed.

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Food prices make up a relatively large proportion of the consumer price index basket in Taiwan, and trends in international and domestic food prices consequently have a considerable impact on the overall rate of inflation. However, in 2010, despite a rebound in commodity prices and a strong recovery in economic growth, as well as concerns about higher wheat prices, the average rate of inflation in Taiwan was just 1%. Rising global non-oil and commodity prices in 2011 will add to import inflation and will cause domestic inflation to accelerate to a still low 1.9% this year. The rate of inflation will remain around 2% throughout the forecast period. There are a number of reasons why inflation will remain low. One important factor will be the government's steady liberalisation of the economy, which will continue to increase competition, thereby helping to hold down prices. Another will be the expected appreciation of the New Taiwan dollar against the US dollar, which will help to curb imported inflation. However, there will also be inflationary influences at work. Healthy economic growth in the forecast period will reduce excess capacity in product markets, enhancing the ability of companies supplying the domestic market to raise prices. Meanwhile, healthier employment prospects will allow workers to negotiate higher wages.

We forecast that the New Taiwan dollar will be supported by Taiwan's large current-account surplus and its substantial foreign-exchange reserves. As a result, we expect a gradual appreciation in the value of the New Taiwan dollar against the US dollar in 2011-15, with the exchange rate strengthening from an average of NT$31.7:US$1 in 2010 to NT$27.4:US$1 in 2015. As the appreciation of the Taiwan currency should be gradual, it is unlikely to cause serious problems for the island's exporters. The CBC regularly intervenes in the foreign-exchange market, and the level of intervention could increase in certain circumstances. If Taiwan's economic recovery is not sustained in the forecast period (as we assume that it will be), or if neighbouring countries engage in a policy of competitive devaluation, the CBC is likely to intervene in foreign-exchange markets in an effort to weaken the New Taiwan dollar against the US dollar to support the export sector. With US interest rates set to remain low, especially in the early years of the forecast period, an unexpectedly rapid increase in interest rates in Taiwan could exert upward pressure on the local currency. Inflows of hot money will continue to play a major part in determining the path of the currency's exchange rate against the US dollar.

Taiwan's current-account surplus is expected to remain large in the forecast period. However, as a proportion of GDP the surplus will fall to 4.3% in 2015, from 9.4% in 2010. Both exports and imports will continue to expand in 2011-15, although at a more subdued pace than in 2010. One reason for the expected steady fall in the current-account surplus during the forecast period will be the continued relocation of Taiwan's manufacturing base to China. Exporters will rely increasingly on production facilities on the Chinese mainland to fulfil their orders. Another factor that will contribute to the reduction in the surplus on merchandise trade is Taiwan's increasing openness to imports since it joined the World Trade Organisation in 2002. The income surplus will remain large, reflecting the fact that repatriated profits and dividends from Taiwan's large stock of overseas investments will far exceed income debits.

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In late April Taiwan's main opposition Democratic Progressive Party (DPP) selected Tsai Ing-wen, the party's leader, as its candidate for the 2012 presidential election. Ms Tsai is the first woman to be nominated as a presidential candidate in Taiwan's history and will stand against the current president, Ma Ying-jeou of the ruling Kuomintang (KMT). The DPP primary was contested by three candidates, Ms Tsai, Su Tseng-chang, and Hsu Hsin-liang, but the competition was primarily one between Ms Tsai and Mr Su, a former premier and the DPP's vice-presidential candidate in 2008. Although polling was extremely tight between the two leading candidates, the DPP selected Ms Tsai, a former professor and an expert on policy towards mainland China, over the more populist Mr Su. Although he is considered an energetic and optimistic campaigner, Mr Su is less experienced in the area of relations with China and foreign policy generally. The selection indicates the importance for the DPP of constructing an alternative platform to Mr Ma's foreign policy initiatives and his deepening of economic exchanges with China.

Ms Tsai showed early signs of posing a credible challenge to Mr Ma, according to public opinion polls conducted just after the DPP's nomination process. The Prediction Market Centre, a public-opinion survey unit at Taiwan's National Chengchi University, released a poll just after the DPP primary indicating that Ms Tsai was the favourite in a match-up against Mr Ma, although she was ahead by less than 1 percentage point. The strong showing is nonetheless striking. Mr Ma has been highly successful in enacting the main initiatives that he promised in his presidential election campaign, namely easing tensions with the mainland and launching a number of initiatives across the Taiwan Strait to boost the island's export-driven economy. Moreover, Mr Ma trounced the DPP's candidate in the 2008 presidential contest, securing 58% of the popular vote and winning back the presidency for the KMT after eight years.

Although early opinion polls are unreliable predictors, Ms Tsai has a real opportunity to capitalise on the perceived weaknesses of Mr Ma-most notably the perception that he is slow to react to public concerns and heads a government that tends to vacillate when the public calls for clear action. In late April, for example, his administration caved in to pressure from environmentalists and opposition politicians when it withdrew support for a naphtha-cracking petrochemicals plant in Changhua county, after environmental assessments revealed that it could have a damaging impact on wetlands in the area. Although Mr Ma has been keen to highlight his environmental credentials in recent years (something that would have provided him with a credible reason for opposing the plant), the decision followed official statements stating that the construction of the plant was vital for Taiwan's economy. The government's change of direction on the issue therefore looks like a policy change driven by populist motives. Mr Ma's administration suggested that the plant could instead be located overseas.

These minor political and environmental victories are significant for the opposition. The DPP has long portrayed itself as the greener of Taiwan's two major political parties. It has long advocated dismantling Taiwan's nuclear energy plants, and under Chen Shui-bian of the DPP, Taiwan's president from 2000 to 2008, the party attempted to halt the construction of Taiwan's fourth nuclear power station, which is located fairly near to the capital, Taipei. Mr Chen was ultimately forced to allow work on the plant to resume, under pressure from the KMT, but Ms Tsai has revived the issue in the wake of the nuclear crisis in Japan, which has had problems containing radiation leaks that have occurred since an earthquake and tsunami damaged several reactors in March. She has vowed to halt construction on the fourth nuclear facility and to phase out the use of the other plants by 2025. The KMT government has tried to reassure the public over safety concerns, but anti-nuclear protesters have taken to the streets in recent weeks. Many observers have long questioned the wisdom of situating nuclear facilities in Taiwan, which, like Japan, is subject to frequent earthquakes.

Environmental and safety issues resonate in Taiwan, especially when they are contrasted with the perceived narrow interests of industry and the wealthy. Ms Tsai will be able to capitalise on these issues to galvanise the DPP's support base over environmental and labour issues, as well as to harness public discontent over the growing disparity on the island between rich and poor. Yet she faces a significant obstacle with regard to her position on cross-Strait relations. It is a central tenet of the DPP's ideology that Taiwan is an independent country and that it should seek recognition from the international community of its de facto sovereignty. As a result of its aspirations for Taiwan to remain permanently independent of China, the DPP has generally resisted a deepening of economic exchanges with the mainland, fearing that this could eventually undermine Taiwan's self-governance. If she is elected, Ms Tsai has promised to review the Economic Co-operation Framework Agreement (ECFA, a loose bilateral free-trade deal) that Mr Ma has negotiated with China. Although she is unlikely to undo the agreement, reopening the issue could increase cross-Strait tensions and adversely affect the economy. As if on cue, China released a statement just after Ms Tsai's nomination victory, warning that any move toward a permanent separation from China would damage the relationship between Taiwan and the mainland and "affect stability in the Taiwan Strait."

Ms Tsai's considerable intellectual gifts, her talent for voicing public concerns over environmental and labour issues and her ability to articulate widely held suspicions of China make her a formidable presidential candidate. Yet in order to defeat Mr Ma she will need to reassure voters that her cross-Strait platform will not result in an increase in bilateral tensions or the undoing of the generally popular liberalisation of Taiwan's trade relationship with China. If she fails to do this, the early opinion polls will come to look rather optimistic in hindsight.

The decision by the Central Bank of China (CBC, Taiwan's central bank) to raise interest rates for the fourth time in succession on March 31st came as no surprise, against the backdrop of a steadily expanding domestic economy and rising inflationary pressure. The CBC raised its main policy interest rate, the discount rate, by 12.5 basis points to 1.75%. The rates on accommodations with and without collateral were also raised by 12.5 basis points each, to 2.125% and 4% respectively.

In March Taiwan's consumer price index (CPI) climbed by 1.4% year on year, with prices for textiles, cooking oil, fruit, seafood and meat all rising, partly reflecting high international prices for such goods amid healthy demand from emerging markets. At the same time, political unrest in the Middle East has boosted international oil prices, which have fed into petrol and other energy costs in Taiwan. In April the CPI was up by 1.3% year on year, with core consumer prices increasing by 0.7% compared with March. The Directorate-General of Budget, Accounting and Statistics expects the CPI to rise by 2.2% in 2011, a larger increase than that of 2% predicted by the Council for Economic Development and Planning. Most Asian countries are battling much higher rates of inflation than Taiwan; South Korea's CPI, for example, has been rising by more than 4% year on year since the start of 2011, and the monetary authorities in India, the Philippines and Vietnam all raised interest rates in April owing to concerns over excessive price pressures.

One reason for Taiwan's relatively low inflation rate is the government's proclivity for fuel subsidies, which are costly in both fiscal and environmental terms. In April the government announced a three-month fossil-fuel subsidy for taxi drivers and operators of buses, coaches, ferries and trucks, which may be extended by a further three months and will result in NT$137.5m (US$4.8m) of foregone tax revenue over the initial three-month period. Since December 2010 the government has adopted a price mechanism whereby the state-owned energy company, CPC, must absorb one-half of the cost of the increase in international fuel prices, with consumers shouldering the other half. CPC also announced that it would keep prices for bottled gas and liquefied petroleum gas (LPG) unchanged in May, in line with the government's price-stability policy.

The central bank's recent efforts to manage monetary growth have been broadly successful. In the first three months of this year broad money supply (M2) increased by an average of 6% year on year, a rate that lies within the CBC's 2011 target range of 2.5%-6.5%. Less successful have been various measures to curb rampant price rises in the housing market, and particularly in Taipei, where average house prices rose by 12.2% last year to reach record levels. The government's "luxury tax" of 15% on some residential homes sold within a year of purchase, which was ratified by the Legislative Yuan (parliament) in mid-April, should help to curb property speculation, but its impact will not be felt until later this year.

Early estimates suggest that Taiwan's real GDP growth in the first quarter of 2011 reached a robust 6.2% year on year, a higher than expected figure. Several economic indicators suggest that the country's economy still has momentum. Consumer confidence rose in April, according to an index produced by the National Central University, with improvements to five of the categories in the index and a decline in one. Confidence in equities over the next six months rose furthest, followed by confidence in the job market, reflecting the drop in the unemployment rate to 4.4% in March, from 4.7% in February. The local job market has been improving steadily since unemployment hit 6.1% in August 2009. The only category to experience a decline in the consumer confidence survey was the likelihood of consumers purchasing durable goods, which appears to be linked to the forthcoming luxury tax.

Having unexpectedly slowed to 5.3% year on year in February, export orders returned to growth in March, surging by 13.4%. There was a slight decline in orders from Japan, although this was in line with falls in late 2010 because of the weakening economy there, rather than as a result of the earthquake and tsunami that struck Japan in March, the impact of which may not be felt in Taiwan's merchandise trade figures until next month. The overall value of Taiwan's exports (on a customs basis) amounted to US$27.3bn in April, while imports totalled US$24.4bn, a year-on-year increase of around 25% for both, bringing about a trade surplus of US$3bn. Exports of chemicals and basic metals rose most rapidly as manufacturers responded to increasing demand for Chinese-manufactured high-technology goods, although electronic products continued to account for the lion's share (27%) of Taiwan's exports. Shipments to the US increased by the largest amount (at almost 40% year on year), as the economy there has picked up, followed by a rise of 38% in the six main economies of the Association of South-East Asian Nations (ASEAN), while exports to China (by far the largest export market, accounting for more than 40% of the total) grew by a relatively modest 15%.

A World Trade Organisation report released in April placed Taiwan 16th globally in terms of the overall value of its exports in 2010 (which stood at US$274.6bn), and second in terms of export growth, at 35%-a rate of growth second only to Australia's. The island's imports grew by 44%, second only to those of Indonesia.

Taiwan's industrial production reached its highest ever level in March, breaking the previous record set in December 2010. Many of the island's large manufacturers have reported impressive sales and profits in recent months, notably those producing components for smartphones and tablet computers, global demand for which has surged in the past year. TPK, a major supplier of touch screens for the fast-selling iPhone and iPad tablet computer sold by a US electronics firm, Apple, reported revenue of US$886m in the first three months of this year. Apple sold nearly 1m units of its iPad 2 during its debut weekend in mid-March. The original version of the iPad took 28 days to reach the 1m mark, and dominated the tablet market last year, selling 15m units. The picture was less rosy in the first quarter of 2011 for Hon Hai Precision Industry, the world's largest contract electronics manufacturer. The company saw its net profit for the period fall by almost 20% year on year, owing to higher operating costs. Furthermore, several foreign institutional investors have been cautious in recent weeks about prospects for Taiwan's semiconductor industry, citing expected weakening global demand for products such as set-top boxes, digital televisions and laptop computers.

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Land area

36,188 sq km

Population

23.1m (end-2009)

Main towns

Population in '000 (end-2009; not including surrounding counties)

Taipei (capital): 2,607

Kaohsiung: 1,528

Taichung: 1,074

Tainan: 771

Climate

Subtropical

Weather in Taipei (altitude 9 metres)

Hottest month, July, 24-33°C (average daily minimum and maximum); coldest month, February, 12-18°C; driest month, November, 66 mm average rainfall; wettest month, August, 305 mm average rainfall

Languages

Mandarin, Taiwanese and Hakka

Measures

Metric system; some Chinese, Japanese and British measures are also in use

Currency

New Taiwan dollar (NT$); NT$1 = 100 cents. Average exchange rate in 2010: NT$31.7:US$1

Time

8 hours ahead of GMT

Public holidays

Founding Day of the Republic of China, January 1st-3rd; Chinese New Year, February 3rd-5th; Peace Memorial Day, February 28th; Ching Ming (Tomb-sweeping Day), April 5th; Labour Day (a holiday for workers only), May 1st; Dragon Boat Festival, June 6th; Mid-autumn Festival, September 12th; National Day, October 10th

Official name

Republic of China

Form of state

Representative democracy

The executive

The president nominates a premier to preside over the Executive Yuan (the cabinet), which has three arms: ministries and commissions, subordinate administrative organs of state, and the Executive Yuan Council (the supreme policymaking body)

Head of state

The president, who is directly elected for a four-year term

National legislature

The Legislative Yuan (parliament) has 113 seats, and each parliament serves a four-year term. Formerly, parliament merely rubber-stamped laws, but in the past decade it has become more powerful and has evolved into a genuine forum for debate and policy development. It has also assumed responsibility for initiating constitutional amendments, following the abolition of the National Assembly in 2005

Local government

A series of local councils operates, but their function is mainly administrative; the provincial government has been downgraded and the provincial assembly abolished

National elections

January 2008 (parliament), March 2008 (president). Next elections: January 2012 (parliament), March 2012 (president)

National government

The Kuomintang (KMT), which governed Taiwan for 55 years until 2000, won a landslide victory in the January 2008 legislative election. Its candidate, Ma Ying-jeou, who won the presidential election in March 2008, was sworn into office in May of that year

Main political organisations

The KMT and the Democratic Progressive Party (DPP) are the main political parties. There are also a number of smaller parties

Main members of Executive Yuan

President: Ma Ying-jeou

Vice-president: Vincent Siew

President, Executive Yuan (premier): Wu Den-yih

Vice-premier: Sean Chen

Presidents of other branches of government

Control Yuan: Wang Chien-shien

Examination Yuan: Kuan Chung

Judicial Yuan: Hsieh Tsay-chuan (acting)

Legislative Yuan: Wang Jin-pyng

Key ministers

Economic affairs: Shih Yen-shiang

Finance: Lee Shush-der

Foreign affairs: Yang Chin-tien

Justice: Tseng Yung-fu

National defence: Kao Hua-chu

Transport & communications: Mao Chi-kuo

Chair of Mainland Affairs Council

Lai Shin-yuan

Central bank governor

Perng Fai-nan