Annual Report 2013 Central Bank of the Republic of China (Taiwan) Taipei, Taiwan Republic of China Fai-nan Perng, Governor Against the backdrop of a gradual global recovery, stabilizing export growth and improved domestic demand, Taiwan delivered a better economic performance with an annual growth rate of 2.11 percent in 2013, faster than the 1.48 percent registered in the previous year. Inflation moderated from an annual growth rate of 1.93 percent in the previous year to 0.79 percent owing to lower international raw material prices and mild domestic prices rises. The recent improvements notwithstanding, international economic conditions remain highly uncertain. With this in mind, as well as moderate economic growth and subdued inflationary pressures, the CBC held the policy rates unchanged throughout 2013 and kept M2 growth in check by managing market liquidity via open market operations. For the year as a whole, M2 growth averaged at a pace of 4.78 percent, close to the median of the 2013 target range. This is judged to be sufficient to help maintain price and financial stability and foster economic growth. During 2013, the CBC continued to urge financial institutions to enhance risk management for real estate lending in “specific areas,” namely metropolitan Taipei, high-value housing loans, and land collateralized loans. The CBC also called for self-discipline and greater prudence on the part of the banks when making loans for residential properties in “non-specific areas” with considerable price surges and when making loans collateralized against lands for industrial use. We also alerted borrowers to potential risks associated with possible rate hikes at some point in the future. In terms of exchange rate movements, the NT dollar, under a managed float regime, continues to exhibit dynamic stability. At the end of 2013, foreign exchange reserves amounted to US$416.8 billion, increasing by US$13.6 billion during the year. More financial products were approved for launch and restrictions were further eased to facilitate foreign currency fund flows in 2013. Authorized banks began to offer renminbi business from February 2013, leading up to rapid growth in renminbi deposits and an increasing variety of renminbi-denominated financial products. In addition, the foreign currency clearing platform, newly established to reinforce financial infrastructure, became available for transactions involving renminbi as well as US dollar remittances. Providing more efficient and less costly cross-strait fund transfers, such progress will facilitate the development of the financial service industry. The CBC also inaugurated the Chinese version of the Virtual Money Museum in June 2013, followed by the English and the mobile versions. We expect the well- received virtual museum will increase the public's knowledge of banknotes and coinsinthiscountry. Looking ahead, the global recovery is notquiteyetsecuregiventhatthe Chinese economy may slow down amid structural reforms and that the tapering of the US Federal Reserve's asset purchases could impact financial and economic stability of emerging market economies. The CBC will continue to closely monitor the economic and financial developments in Taiwan and across the world and take appropriate actions in a timely manner. Finally, I would like to thank my colleagues for their dedication in putting together this publication and for their hard work over the past year. We remain committed to fulfilling our missions and strive to meet future challenges. Fai-nan Perng Governor April 2014 CONTENTS CBC Annual Report 2013 Organization and Management of the CBC 1 I. Developments in the Real Economy 5 1. Overview 6 2. National Output and Income 10 3. Balance of Payments 18 4. Prices 24 5. Public Finance of the Central Government 28 6. Labor Market 31 II. Financial Developments 37 1. Overview 38 2. Monetary Aggregates 41 3. Banking Sector 44 4. Money Market 55 5. Foreign Exchange Market 59 6. Stock Market 65 7. Bond Market 70 III. Central Bank Operations 77 1. Overview 78 2. Monetary Management 80 3. Foreign Exchange Management 84 4. Financial Inspection 90 5. Payment and Settlement Systems 92 6. Currency Issuance 95 7. Fiscal Agency Functions 97 8. Participation in International Activities 99 IV. Annex 101 Taiwan Offshore RMB Market – Developments and Prospects 102 Chronology of Events of the CBC in 2013 109 Financial Statements of the CBC 113 1. Balance Sheet 113 2. Income Statement 113 Key Economic and Financial Indicators of the Republic of China (Taiwan) 114 CBC Annual Report 2013 Organization and Management of the CBC Jiun-Hsiung Tsai Department of Banking Director General Board of Directors JamesT.H.Shih Department of Issuing Chairman Fai-nan Perng Director General Executive Directors Sheng-Ford Chang Chia-Juch Chang Sun-Yuan Lin Department of Foreign Exchange Chin-Long Yang Director General Ming-Yih Liang Chih-Chin Ho Jen-Hai Young Department of the Treasury Tzung-Ta Yen Director General Directors K. Casey Chuang Teng-Cheng Liu Tsong-Min Wu Ya-Sheng Hu Department of Financial Inspection Director General Jyh-Lin Wu Jin-Lung Lin Mei-Lie Chu Tzong-Yau Lin Department of Economic Research Chao-Hsi Huang Director General Bao-Ji Chen Mu-Liang Hsu Secretariat Director General Sunney K. S. Wu Department of Accounting Director General Governor Fai-nan Perng Department of Information Chun-Hung Chang Management Director General Deputy Governors Jhih-Cheng Hong Personnel Office Director Chin-Long Yang Tzung-Ta Yen Fan-Hui Chen Ethics Office Director Kun-Shan Wu Legal Affairs Office Director Board of Supervisors Ke-Wei Chiu New York Representative Office Representative Chairperson Su-Mei Shih Supervisors Chi-Yuan Liang Wen-Chin Cheng Tsung-Jung Liu London Representative Office Representative Ping-Yung Chiu Yuh-Lin Lee Central Engraving & Yung-Hui Chen Printing Plant President Shiuh-Dyi Chen Central Mint Director direct reporting supervision As of April 2014 1 CBC Annual Report 2013 Chairman Board of Directors Governor Fai-nan Perng Executive Director Executive Director Executive Director Deputy Governor Sheng-Ford Chang Chia-Juch Chang Chin-Long Yang Executive Director Executive Director Executive Director Deputy Governor Ming-Yih Liang Chih-Chin Ho Tzung-Ta Yen 2 CBC Annual Report 2013 Director Director Director K. Casey Chuang Teng-Cheng Liu Tsong-Min Wu Director Director Director Jyh-Lin Wu Jin-Lung Lin Mei-Lie Chu Director Director Chao-Hsi Huang Bao-Ji Chen 3 CBC Annual Report 2013 Chairperson Board of Supervisors Su-Mei Shih Supervisor Supervisor Chi-Yuan Liang Tsung-Jung Liu Supervisor Supervisor Ping-Yung Chiu Yuh-Lin Lee 4 CBC Annual Report 2013 Developments in the Real Economy 5 I. Developments in the Real Economy I. Developments in the Real Economy 1. Overview In 2013, Taiwan's GDP growth rate expanded from the 1.48 percent of the previous year to 2.11 percent, supported by a gradual advance in external and domestic demand amid improving economic conditions in the US and Europe. The balance of payments registered a surplus of US$11,318 million and the current account surplus and the net outflow in the financial account reached concurrent historical highs. In terms of prices, the CPI annual growth rate dropped to 0.79 percent, compared to 1.93 percent the previous year, as reductions in communications fees and consumer electronics prices partially offset fuel and food price rises. Central government revenue gained by NT$62.1 billion over the previous year, underpinned mainly by receipts from 4G mobile spectrum license fees. Combined with a NT$26.1 billion decrease in expenditure, the 2013 government deficit narrowed considerably by NT$88.2 billion to NT$125.9 billion. Labor market conditions continued to improve, and the unemployment rate edged down during the year to reach a five-year low at an annual average of 4.18 percent. Moderate Economic Growth In the first half of 2013, against a backdrop of a slow global recovery, Taiwan registered steady trade growth owing to a lower base the previous year. Entering the second half of the year, though Europe and the US showed more signs of strength, Taiwan's export growth slackened in the third quarter on weaker demand from Mainland China. However, in the fourth quarter, exports rebounded thanks to greater demand for electronics products, and private investment and consumer confidence both picked up, leading the economy to grow at afasterpaceof2.95percent.Fortheyearasa whole, Taiwan's economy expanded by 2.11 percent, higher than the 1.48 percent of the previous year. In terms of GDP components by expenditure, 2013 witnessed faster private investment growth, steady private consumption, and slower net export growth. Domestic demand contributed 1.48 percentage points to the annual economic growth rate, greater than the 0.63 percentage points by net external demand. As for the sectoral components of GDP, the industrial sector grew by 1.78 percent with a contribution of 0.63 percentage points, while the service sector expanded 1.68 percent with a contribution of 1.06 percentage points, both higher than the previous year. The agricultural sector turned from contraction to positive growth of 0.23 percent, albeit with a rather limited contribution to the overall economic growth. 6 CBC Annual Report 2013 Steady BOP Surplus In 2013, both the current account surplus and the net outflow in the financial account reached historical highs, with the former greater than the latter. As a result, the overall balance of payments in 2013 showed a continued surplus of US$11,318 million, narrowing from US$15,484 million the previous year. In the current account, the goods trade surplus widened from US$31,608 million in 2012 to US$37,014 million, reflecting an increase in exports and a decline in imports. The services account also recorded a wider surplus of US$9,269 million owing to increased travel receipts and reduced expenditure on trade commissions.