Let's start from an overview of Taiwan's economic development. In this part, we will introduce you the Taiwan's economic development paths so as to give you a picture of how Taiwan's economy works and what the characteristics of Taiwan's economy is, and how that correlates with the corporate governance of Taiwan. Lets take a look at this picture. In this slide we show you Taiwan's economic development in terms of GDP after the World War II. You can see that since 1951-2016, in this nearly 55 years, Taiwan's GDP has risen for about 500 times and you can see from the sharp line upward, you can obviously observe that Taiwan's GDP has performed pretty well in the past decades, especially between 1980s-2000s. In this period of time, Taiwan's economic development has been considered as one of the East Asian miracle compared with South Korea, Singapore, and Hong Kong. Basically speaking, Taiwan's economy performs relatively well, and this is not very usual compared with other jurisdictions around the world. Generally speaking, Taiwan has a very solid economy, especially after 1980s until now. If you'll take a look at the figure now, so Taiwan's GDP is around $610 billion in 2019, ranking 21st in the world. Basically after Swiss and before Poland, if you want to have a general picture of how large the size of Taiwan's economy is. Let us take a further look of Taiwan's GDP composition based on its source. In this picture, we show you the composition of Taiwan's GDP, meaning that which specific sector contributes to Taiwan's economic development. Here you can see that basically speaking, the major part is the green part, which means that domestic consumption in Taiwan. Another major characteristic of Taiwan's GDP composition is from the blue part. Take a look at the net exports, which means that Taiwan's exportation is one of the major source of Taiwan's economic performance. If we take a further look of how Taiwan's export and import operates, you can see that Taiwan's exportation, basically occupies Taiwan's GDP for 65 percent and Taiwan's imports basically accounts for Taiwan's GDP for 52 percent. This means Taiwan is a very trade centered and trade based economy. Well, this is not surprising because Taiwan is an island jurisdiction. In which Taiwan's domestic population is not large enough to contribute to the sustained growth of Taiwan's economy. Taiwan has to rely on the trade in order to perform better and better, and to grow and grow. Taiwan needs to promote it's exportation and Taiwan also needs a significant amount of importation in order to sustain the whole economy. That's why you can find this figure from this slide. If we take a further look at how Taiwan's industrial sector perform in terms of Taiwan's GDP composition, we can see that by far Taiwan's GDP is mainly contributed by the services sector. Generally speaking, when we talk about industrial composition we will look at agricultural sector, industrial sector, and the service sector. In the past, Taiwan used to rely heavily on its industrial sector, but now Taiwan has gradually transformed into a different economy which is based on services. You can see that from this slide, Taiwan's services has accounted for 61.9 percent of Taiwan's GDP, which makes services sector very crucial in Taiwan. But at the same time, let me show you another major figure which you have to basically take into account. That is Taiwan's information and communication technology industry. To be sure this is part of the industry sector, but at the same time it contributes hugely to Taiwan's economic development. You can see that based on this very specific sector, it has accounted for 17.54 percent of Taiwan's GDP, and this is one of the major characteristics of Taiwan's industry. It is very heavily relied upon other so-called ICT industry, information and communication technology like semiconductors, DRAMs, et cetera. Generally speaking, Taiwan's economy performed relatively well and it is basically based on ICT industry as one of its major competitive industry. But how about its financial development? You know that to boost an economic performance of an economy, to develop an economy, you need money, you need finance. Taiwan also needs a significant amount of finance in order to support its economy. How does Taiwan's financial environment look like, especially after the World War II? Well, let us take a look at this slide. In this slide we basically describe how Taiwan's finance developed over time. At a very beginning in 1949 when the World War II, especially the war between China, and Japan ended, Taiwan was returned back to mainland China, especially under the rulership of the Kuomintang. Kuomintang took over Taiwan. It did a very crucial movement during that period of time. That is, they nationalized the banking system in the island of Taiwan. In the past, the financial environment, especially the banking environment in Taiwan under the colonization of Japan was basically privately run. The Kuomintang rulership basically take over all of the private banking system in Taiwan. Thus, the whole financial environment in Taiwan is basically operated by the state, the government. Since that period of time, Taiwan proceeded into a very different financial environment, which is run by the state. But at the same time, the state, especially the government of Kuomintang, had to cooperate with the private businessmen, especially when the Kuomintang had to launch a series of land reform in Taiwan during 1950s. In order to conduct the land reform in Taiwan, the Kuomintang took over a lot of land from the landlord. In return, the Kuomintang gave a lot of stock. Especially the stock of the state-owned enterprises to lease landlord in order to strike a balance between the interests of the landlord, and the government. This has made a very crucial development in Taiwan, that is the stock market in Taiwan. Because of these landlords started to own stock. You need to make these stock meaningful, in some sense to at least bear some value. Some secondary markets which allows people to trade stock is needed. The Kuomintang has started to build the so-called stock markets, in Taiwan. Starting from 1956 as part of the land reform in Taiwan, the stock market also emerged, and in 1962, according to this slide, you can see that the stock exchange of Taiwan was opened, also in 1962, we not only had a very robust banking environment, but also have a public stock market, capital market in order to raise the funds from the stock market. As time goes by, Taiwan's economy underwent a series of changes, and one of the major big changes in 1989 took place, that is the so-called Big Bang Reform. As I mentioned before, in the past, Taiwan's banking environment was basically dominated by the state. All the banks in Taiwan where basically under the control, and operation of the state. But in 1989, we witnessed a big major reform. In that very single year, more than 10 private banks were allowed to be open. A lot of private businessman, industrial people started to incorporate banks in Taiwan. Taiwan's banking environment started to change. Not only the state run bank but also private businessman run the bank. By far you can see that private banks became larger, and larger, while the influence of the state banks is on the decreasing trend. If you'll take a look at the current banking system in Taiwan, this is a statistic as of June 2020. You can see that some very important characteristic of Taiwan's banking system. First of all, you can see from this slide that the major part of Taiwan's banking system is comprised of the so-called domestic banks. In contrast, foreign banks play very limited role here. According to the statistics, it basically accounted for only 8 percent of the banking asset in Taiwan. In contrast, domestic banks in Taiwan accounted for 77 percent of the bank asset in Taiwan. What does that mean? Well, it means that the Taiwan's banking environment is generally local instead of internationalized.. Unlike many developing countries where the banking system layer is dominated by international or transnational big banks or big name from the West, from the United States or from the United Kingdom while Taiwan is different. International banks in Taiwan only accounted for a very small share of Taiwan's bank asset. Instead, Taiwan's domestic banks perform relatively well, and they were the major player in Taiwan's banking environment. This is a very special characteristic of Taiwan's financial environment. Another thing that I wish to highlight is that you can take a look at here. There is another crucial player, the dark wing one, that represents the post-office. Yes, post-office in Taiwan also operated some banking services. Post-office in Taiwan not only deliver mails for you, they also take deposit from you. They can offer some loans to the government's infrastructure, etc. That single entity, the post office itself accounted for 10 percent of Taiwan's bank asset. The post-office basically under the control of the state, which shows that the state still maintain some influence over Taiwan Banking environment. If we want to make a brief summary here, you can see that Taiwan's banking system is crucial, but at the same time, Taiwan's banking system is a relatively local one run by the state and private businessmen in a very balanced manner. General speaking, by far, the total asset of Taiwan's banking institutions has achieved USD 2.3 trillion. This is a very big figure and this is one of the major finance for Taiwanese businessmen. Another crucial thing is that state-controlled banks still dominate half of Taiwan's bank asset. So you can understand that the Taiwan's government still plays a huge role in the banking finance, and banking finance plays a huge role in Taiwan's businesses. In this way, you can see that the Taiwanese state, the Taiwanese government, is crucial in supporting the overall Taiwanese economic development. In contrast, what about a capital market? Another major market for people to raise funds in order to support their businesses. Taiwan's capital market looks like this. This is a statistic from the World Bank. It basically describes the development level of the world capital market. Based on this figure, you can see that Hong Kong is the jurisdiction that performs the best in terms of stock market development. We talk about stock market development based on their stock market capitalization divided by GDP in order to see how large in a relative term that jurisdiction stock market is. You can see that Hong Kong basically leads everybody in a very significant manner. Based on this figure, you can see that the second place is South Africa, the third place is Switzerland, and the fourth place is Singapore. These are the jurisdiction that are traditionally perceived as leading in the stock market development, and United States is the fifth one. Guess where Taiwan is, well, Taiwan is basically here. In terms of market capitalization divided by GDP, Taiwan's stock market is even huger than the United States in the relative term of course. Then absolute term of obviously the United States has a very strong and very large stock market. But in terms of the relative size between market capitalization and the GDP, Taiwan, in fact, has a very strong stock market, so it's stock market capitalization is relatively competitive. The total market capitalization of Taiwan's stock market is basically USD 1.2 trillion compared to the total bank lending in Taiwan, which is USD 1.0 trillion. You can see that stock market is at least as important as bank lending in terms of the finance for Taiwan's businesses. We have strong banking market, we also have a strong stock market. But Taiwan's stock market is a little different with Hong Kong, with Singapore, with the United States, according to this following slide. This slide shows you the source of capital of Taiwan's listed companies. Essentially speaking, it means that who owns the stock of Taiwan's companies, especially listed companies, big companies. According to this chart, you can see that, well, two categories dominate this figure. The first one is natural persons. Natural persons like you and me, individuals basically accounted for 35-36 percent of the stock of Taiwan's listed companies and corporate entities, those non-financial corporate entities accounted for another 35-36 percent. This shows you a very crucial feature of Taiwan's stock market that is, ordinary people invest in stock a lot. Together they basically accounted for 70 percent of Taiwan's stock market. In contrast, for those professional investors like financial institutions, like mutual funds, like private equity funds, etc, well, they do not play a very huge role in Taiwan's stock market. You can see that Investment Trust funds, which means mutual funds in Taiwan, only accounted for 16 percent of Taiwan's listed companies shares. Financial institutions only accounted for 6-7 percent, compared with ordinary people like you and me, this is definitely not comparable. The government held only 4-5 percent of the stock of Taiwan's listed companies. This is very different with for example, the United States, under which professional investors like institutional investors, like financial institutions, investment banks dominate the stock market. This is another very crucial characteristic of Taiwan's stock market. So put it in another way, you can imagine that if there is a listed company 35 percent of its stock is basically owned by natural person, not the professional, not the well informed, not the experienced and do not have enough time to supervise this company, and another 35 percent is owned by corporate entities which are not financial in nature so they are not that expert as well. You can imagine that Taiwanese listed companies face a very different shareholder structure compared to other jurisdictions, and this poses very different corporate governance problem, which we'll go into detail a little bit later. This is a retail-investor-base instead of institutional investor-based environment. This is another major observation that I would like to share with you. Generally speaking, Taiwan's economic development and corporate governance environment feature the so-called developmental state structure. What does developmental state mean? Well, it was a term that used to describe the Asian, especially East Asian developmental model. This means that, well, instead of driven by the market, the state, the government plays an influential role or at least some leading role in guiding the economic development of any jurisdiction, and Taiwan is definitely one of those peers. Taiwan's government dominated the banks. Taiwan's government also dominated state-owned enterprises before the 1980s. Based on these two vehicles, the Taiwanese government manages to control the finance of the businesses and the major inputs ingredients of businesses. Based on that, Taiwan's government manages to lead the economic development, to guide the direction of Taiwan's economy, to indirectly control or at least influence business people's decisions. By holding banks and SOEs, or State-Owned Enterprises, the government indirectly affect that decision of businesses and entrepreneurs. But on the other hand, in order to strike a balance between different interests group in Taiwan, Taiwanese government is also willing to share the capital market to the public, so you can see a retail investor base stock market, which means that the economic growth of Taiwan's businesses is not only exclusive to those major entrepreneur or those big banks, instead, it is shared with retail investors, with ordinary people. This somehow strikes a balance between all at different interests: between the interests of the government, between the interests of the businesses, and between the interests of ordinary people, so everybody gets a share in the economic growth of Taiwan. But on the other hand, while the government plays a dominant role here, where not the market purely drives the economic development. The government guides the economic development as well, and the government continues to do that through its banks, through its SOEs, and the banks and SOEs still indirectly guides the performance, guides the operation of businesses and entrepreneurs. This presents a very different picture of Taiwan's economic development path and strikes a balance between different interest groups. To sum it up, we can summarize several characteristics of Taiwan's corporate governance environment based on our understanding of Taiwan's economic path. Economically speaking, Taiwan is an economy that is based heavily on technology, especially the so-called ICT industry, and Taiwan is also an economy that is hugely based on exportation, trade performance. On the other hand, Taiwan is also an economy that is compressed heavily by small and medium enterprises. To be honest, Taiwan does not have very huge conglomerates like Japan or like South Korea. We do have business groups, but their size is definitely not that comparable to those well-known brands like Samsung or Mitsubishi. Taiwan's economy, as it stands, is based on a huge amount of small and medium enterprises. This is also another crucial characteristic of Taiwan's economy. In terms of finance, Taiwan's finance is basically based on banks. Banks provide loans to businesses in order to support their further development. But on the other hand, we also have a very robust capital market for businesses to raise funds from ordinary people, and this capital market is a retail investor based. All in all, that leads to a very interesting characteristic of Taiwan's companies. In terms of the ownership structure of the company, basically speaking, each company of Taiwan's major listed companies, basically, has a big shareholder. We call a concentrated ownership structure, which means that there is a big shareholder, a controlling shareholder in the company, and this controlling shareholder is typically a family or the government, so that is another crucial characteristic of Taiwan's companies. Unlike the United States or the United Kingdom in which major companies basically have a dispersed ownership structure under which no controlling shareholder is present in a company, Taiwan is different. Taiwan has many family-owned and some government-owned companies, and this is also another crucial characteristic of Taiwan's corporate governance that we will go into detail a little bit later.
