1. Major Innovative Industries New Innovation-driven Growth Momentum of Industries in Taiwan Department of Industrial Development, National Development Council Jan Fang-Guan, Director July 19, 2016

2. Outline Foreword Three Principles of Economic Development Three Driving Forces in Revitalizing Investment Three Links of the Industrial Policies Objectives of Five Innovative Industries Conclusion 2

3. FOREWORD

4. 4 Taiwan GDP Growth Rates: 1960-2015 3.8 7.8 10.3 Source: DGBAS 60s~70s 80s~90s 00s~

5. 5 Economic Growth Rates: Taiwan vs. the World Source: IMF Taiwan Global

6. 6 Declining Domestic Momentum of Economic Growth Source: Meetings of the Board of Directors of the Central Bank of the Republic of China, December 2015 Period Economic Growth Rate = (1) - (2) Contribu tion of domestic demand (1) Contribution of foreign demand (2) Private consump tion Govern ment consump tion Fixed investme nt PrivateGovern ment PublicInventor y change Export(-) Import 1985~1999(1) 7.477.354.281.082.221.470.570.18-0.230.134.494.36 2000~2014(1) 4.041.761.420.200.190.39-0.16-0.04-0.052.294.091.81 Gap (2) - (1) -3.43-5.59-2.86-0.88-2.03-1.07-0.74-.0220.182.16-0.40-2.56

7. THREE PRINCIPLES OF INDUSTRIAL DEVELOPMENT

8. 8 Taiwan Has Advanced into Innovation- driven Stage since 2011 Source : World Economic Forum Factor-driven Efficiency-driven Innovation-driven Industrial transformation moved from “Efficiency-driven”to “Innovation-driven” Stages of development Average income

9. Innovation, Employment, Distribution From focusing on GDP growth to  Employment  Salary  Income Distribution  Regional Balance 9 Innovation Employment Distribution

10. “TROIKA”POLICY (A THREE-PRONGED APPROACH)

11. Industrial Innovation and Transformation Fund 11 NT$ 100 Billion Private Equity Fund Enterprises correspond with the future industrial development and policies Ensuring enterprise autonomy Non-intervention in private businesses Planning exit mechanism

12. National Investment Corporation 12 National Development Fund State-owned Enterprises Government Special Funds Private companies Large foreign traders NT$ 10 Billion Search, Found, Integrate, Facilitate Package Plant Export Systems Export Overseas Market Expansion

13. Five Innovative Industries 13 The “Asian Silicon Valley” initiative Biotech & pharmaceuti cal industry Smart machinery industry Defense industry Green energy SW/HW Integration Domestic Demands R&D Capabilities

14. THREE LINKS OF THE INDUSTRIES

15. Links to the Future, International & Local 15 Links to the Future Links to the International Links to the Local Seize the trend of next- generation industries Utilize advantage of industrial clusters Establish connections with each local industrial clusters Increasing interaction of talent, capital and market between countries

16. OBJECTIVES OF FIVE INNOVATIVE INDUSTRIES

17. The “Asian Silicon Valley” initiative Trends & Current Status 17 Global potential economic impact of IoT in 2025: US$3.9-11 trillion Source: Internet of Things: Mapping the Value Beyond the Hype-Executive summary (MCKINSEY)

18. 18 Industrial Upgrade & Transformation Relies on Startups “Taiwan’s industry could successfully be transformed and upgraded if tens of thousands of startup companies appear,” says Morris Chang, Chairman of TSMC. Industrial Upgrade & Transformation Relies on Startups “Taiwan’s industry could successfully be transformed and upgraded if tens of thousands of startup companies appear,” says Morris Chang, Chairman of TSMC. Many IoT Solutions Will Come from Startups According to Gartner Inc., a world famous IT research and advisory institute, the IoT installed base will grow from 0.9 billion units in 2009 to 26 billion in 2020 Gartner predicted some 50% of IoT solutions will emerge in startups less than three years old

19. The Planning and the Approaches 19 Taiwan as the ideal place to conduct IoT Testbed experiments Engineers w/excellent Quality Complete Industrial Supply Chain Sound Network Infrastructure Comprehensive IP Protection Launch more startup supportive policies on talent, capital, regulations and global networking Connect with prominent innovation hubs worldwide Build an international R&D cluster to attract world-class companies Conduct IoT testbed pilot projects in Taoyuan City Ecosystem Optimization Smart Applications International Links Infrastructure Construction

20. Smart Machinery Trends of development 1st Industrial Revolution (1760-1830) (1750-1850) 2nd Industrial Revolution (1870-1914) 3rd Industrial Revolution (1970s-2010) 4th Industrial Revolution (Industry 4.0) (2011-30 years later) Technological Revolution Steam Power Technological Revolution Electrical Technological Revolution IT Technological Revolution Computerization / digitization / intelligent integration -Cyber-Physical System (CPS) -Additive Manufacturing Technological Revolution Productivity (Mechanization) Steam power drove mechanized production (Electrification) Electrical power drove automated production (Informatization) Electronic equipment and information technology (IT) drive digitized production (Intelligentization) Manufacturing by conscientized intelligence

21. 21 The Planning and the Approaches (1/2) Structural Aspect: Upgrade from precision machinery to smart machinery Output Value: To become one of the top five producers in the world and the 3rd largest export country Economic Aspect: Industrial transformation and upgrade, job creation, export expansion, solutions for social problems Regional Aspect: Taichung city as the hub to drive the development of Central Taiwan The 60 km long Valley influences the world The 7th largest production country; the 4th exporting country Manufacturing center of military aviation industry Production accounted for 1/4 of global output; value of output accounted for 1/2 The 4th largest production and exporting country The 2nd largest production and exporting country The 2nd largest scale of industry in the world Changhua County Taichung City Dadu Mountain Dadu Estuary Taichung Harbor Machine tools & Machinery components Aerospace industry Bicycles and components Woodworking machinery Hand tools Optoelectronic panel industry The products of Apple, Google (solar energy), Simens (biotechnology), Porsche (key gears). Tesla (motors of electric cars), TSMS (robot arms for Fab15), all rely on this Golden Valley.

22. The Planning and the Approaches (2/2) 22 1. Set up Key Resource Platform 2. Coupled with the Demand of Advanced Manufacture 3. Expand into Global Market Build up Central Taiwan A Capital of Global Smart Machinery Found innovation and R&D clusters for producing smart machinery; acquire the land needed for the bases of production and R&D, breed talents of cross-disciplinary integration; international cooperation and mergers and acquisitions Application of civil-military Dual Use Technology on aerospace and ship building, intelligent service robots, processing of precision medical equipment, ICT industrial equipment Turnkey and project, stand-alone smart machines, aerospace components, Service system of global Cyber Physical System (CPS) Semiconductors & optoelectronic devices Precision medical equipment The capital of smart machinery Aerospace parts and components Green energy technology Vessel parts and components

23. Defense Industry Trends & Current Status 23 Procurement from foreign has considerable uncertainty Most components are outsourced and difficult to maintain Foreign manufacturers are reluctant to offer their core technologies Other countries restrict the export of sensitive technologies High level technological thresholds are difficult for SMEs to overcome Lack economies of scale, manufacturers are less interested Demand for Military Equipment Outsourcing Direct Procurement Industrial Cooperation Domestic Procurement

24. The Planning and the Approaches (1/2) 24 Improve the industry, develop better environment Stabilize market demand Concentrate R&D, encourageupgrade Establish international cooperation Improve procedure of procurement, strictly regulate manufacturers and products Government help firms overcome technological barriers and acquire Certification Increase local content requirement of fighters and warships Utilize information security advantage to penetrate the international market Strengthen the performance of civil-military technologies Encourage industrial upgrade Help the industry stride toward international market Strive to acquire the transfer of technology and key parts

25. The Planning and the Approaches (2/2) 25 Three Focuses of Defense industry Cybersecurity Industry: Taipei, Hsinchu Aerospace Industry: Taichung, Tainan, Taoyuan National Chung-Shan Institute of Science and Technology (CSIST) Shipbuilding Industry: Kaohsiung, Pingtung, Yilan Shipbuilding Industry Cybersecurity Industry Aerospace Industry The industrial structure of vertical specialization is the most compete. The clusters of shipbuilding are the most concentrated. The clusters concentrate in Taipei. Hsinchu and Taichung.

26. Green Energy Technology Trends & Current Status 26 ＜3%＜3% of energy self- sufficient rate for Taiwan ＞ 100 trillion, amount of investment in green energy by US, EU, and other countries The 1st. Taiwan Strait is the best wind farms of the world

27. 27 Expand Into International Market Become the next star industries Utilize Domestic Demand to Promote Green Energy Industries Exploit offshore wind farms, establish solar photovoltaic power... Link to Local industries Precision machinery, Internet of things (IOT), composite materials, ICT Forge Taiwan as an Ecosystem of Innovative Industries of Green Energy Technology Establish Shalun, Tainan, as the R&D center, and connect with production and manufacture bases located in various areas Geothermal energy Offshore wind energy Biomass energy Solar photovoltaics Distribution for advantages of development renewable energy in Taiwan Marine energy Geothermal energy Offshore wind energy

28. The Planning and the Approaches 28 Innovative Green Technology Park: Shalun, Tainan (R&D Center) Innovative Green Technology Park: Shalun, Tainan (R&D Center) Industrial Clusters (Entire Taiwan) Technology R&D Energy-saving Energy Creation Energy Storage System Integration Develop Green Energy Technology R&D and Industrial Bases International Links Smart grids and meters Energy-saving equipment, energy ICT Cogeneration, power-heat integration Solar photovoltaics Offshore wind energy Biomass energy, geothermal, marine energy Lithium batteries, hydrogen and fuel cells Power quality improvement and dispatching technology IOT, ESCO, consulting industry System Integrators

29. Biotech & pharmaceutical Global aging population increased will boost the demand on medicines and medical devices; furthermore, improved treatment methods, the development on personalized and precision medicine, emerging infectious diseases and so on, those trends will drive the growth in global pharmaceutical and medical devices market. From 2006 to 2015, the compound annual growth rate of output value of the pharmaceutical, applied biotechnology, and medical materials devices industries was 5.8%, enjoying a steady growth, the growth impetus came mainly from the growth of domestic demand and export marketing success. 29 2006~2015 CAGR: 5.8% Unit: NT$ 0.1 billion Pharmace utical manufact uring Applied biotech Medical devices 1,791 2,986

30. Vision:  Establish Taiwan as the Asia-Pacific R&D hub of Biotechnology Pharmaceutical Industry  Perfect health and welfare service, improve high value-added employment Vision:  Establish Taiwan as the Asia-Pacific R&D hub of Biotechnology Pharmaceutical Industry  Perfect health and welfare service, improve high value-added employment The Planning and the Approaches (1/2) 30 Talent Funds Intellectual Property Action Plans Regulatory environment Subject Scrutiny Resources Integration Create a friendly capital market and reduce the barrier of fund-raising Strengthen intellectual property protection, enhance the effectiveness of technology transfer Harmonize regulations with international standards, implement synergistic cross- strait medical and health cooperation agreement Foster talent for innovation and leaders of industrial operations Carefully choose R&D subjects of pharmaceutical products, focus on the special health care of Eastern Asia diseases Integrate core biomedical facilities and resources to support R&D in biotechnology industry

31. Taiwan Biotech & Pharmaceutical Center in the World United States ( Boston, the Bay Area, San Diego ) SwitzerlandBelgiumSweden Netherlands Talent Tech Funds Legislation Strategy 1 (Links to the International): Strengthen links between Taiwan and international Taipei Hsinchu Taichung Tainan New Agriculture Biomass/green energy Taipei & New Taipei: Medical & Pharmaceutical Center of Northeast Asia Taoyuan: Intelligent medical treatments Hsinchu: ICT/Specialty care Taichung: Medical devices in minimally invasive surgery and intelligent assistive devices Tainan: Dental and orthopedic implant materials Kaohsiung: Tropical medicine Projected benefit: Facilitate biotech industry output to reach NT$ 500 billion in 2020 and 5 Biotech & Pharmaceutical flagship companies will reach the milestones of tens of billion Strategy 2 (Links to the Local): integrating local innovation clusters The Planning and the Approaches (2/2) 31

32. NewAgriculture New Agriculture Three Policy Principles of New Agriculture ◦ Promote agricultural paradigms ◦ Establish agricultural security systems ◦ Improve agricultural marketing capabilities 32

33. CONCLUSION

34. Digitized State, Intelligent Island 34 Environments for innovation Enhancement of technology Reinvigorate industries Increasing employment Regional balance Links to the local Links to the international Links to the future

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