TAIWAN’S ECONOMIC SITUATION AND OUTLOOK

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According to the Ifo World Economic Survey (WES) of the 1st quarter of 2014, the six-month economic outlook remains bright. Furthermore, most Purchasing Managers’ Indexes (PMIs) in expanding territory (above 50 points), the global economy is expected to continue its recovery, which is helpful for Taiwan’s exports.

On the domestic demand front, semiconductor manufacturers’ continuing to invest in advanced technologies, plus telecom companies’ gradual build-up of the 4G LTE system, should bolster private investment growth. Private consumption is expected to gain some momentum, as consumer confidence is improving.

The government will accelerate the development of Free Economic Pilot Zones (FEPZs) and the project to strengthen promotion of investment in Taiwan by overseas Taiwanese businesses. In addition, in order to create a sound business and investment environment, the government will move forward with the implementation of market liberalization and deregulation.

Free Economic Pilot Zones Currently major economies are aggressively speeding up signing FTA in order to lower trade barriers and attract investments. Taiwan has only completed signing of 7 FTAs so far, far less than its competitors did. Taiwan has to respond actively and efficiently in order to avoid marginalization under the wave of economic liberalization.

Time Line PHASE 1PHASE 2PLANNING FEPZ’s Framework approved on Apr. 29, 2013 Action Plan approved on Aug. 16, Amendment of 13 regulations to be completed by Dec Special Act submitted to Executive Yuan for approval in Oct Special Act reviewed by Legislative Yuan Special Act enacted 2014

Key Ideas  Liberalization: Deregulation market opening  Internationalization: Institutional reform international alignment  Forward looking: Industries with new business models

Ultimate Goal  FEPZs as “trial” and “pioneer” areas  To demonstrate the usefulness/benefits of economic liberalization and internationalization  From partial to general  From small-scale to large-scale  Ultimate goal: toward a free economic island

Strategies  Promoting the free movement of people, goods, and money  Opening market to align with other economies  Providing Tax incentives and convenient land acquisition  Promoting cross-border industrial cooperation  Building a high-quality business operating environment

Tax Incentives For business Tax exemption – overseas profits repatriated to Taiwan by overseas Taiwanese companies for real investment in FEPZs – agricultural and industrial raw materials – goods exported after storage and simple processing in FEPZs (but if sold to domestic market, only 10% exempted) For foreign professionals Tax exemption – income earned overseas – half of first-3-year’s income

Value-Added Agriculture Processing  Fully utilizing Taiwan’s sophisticated agricultural technologies and talents to Innovate agricultural products  Increasing agriculture value-added by extending whole value chain from individual products  Marketing Taiwan’s innovative agricultural products under MIT brands worldwide

Education Innovation  Encouraging cooperation between domestic and overseas universities to set up university branch schools or departments, independent academies, degree courses or professional programs  Relaxing rules and conditions for school establishment and operation, student enrollment, staff recruitment, etc.

Physical Locations Phase I 7 FTZs & 1 agri-biotech park Extending FTZs by “shop onsite, factory offsite” operation Taipei Port FTZ Pingtung Agricultural Biotechnology Park Anping Harbor Kaohsiung Port FTZ Keelung Port FTZ Taoyuan Airport FTZ Su’ao Port FTZ Taichung Port FTZ

 Private investment to increase by NT$21 billion in 2014  Gross output to increase by NT$30 billion in 2014  Creating 13,000 new jobs in 2014  FTZs to see trade value multiplying and surpassing NT$1 trillion in 2015  New business models Potential Benefits

Concluding Remarks FEPZs to prepare us for further economic liberalization and internationalization. FEPZs include but are not limited to 8 FEPZs; more FEPZs will be set up in the future. We welcome new ideas and proposals that can be applied to FEPZs.