The Economist recently published an article titled “Formosan Flu,” highlighting that while Taiwan has demonstrated impressive growth figures, it still faces several structural challenges that could hinder future development. Among these concerns are excessive industrial concentration, weak domestic demand, and imbalanced capital allocation. The term “Formosan flu” may oversimplify the situation, and it is essential to note that economic structural issues cannot be solely attributed to exchange rate policy. However, this observation highlights a significant challenge that Taiwan faces: while external demand is strong, internal economic fundamentals need to be adjusted more rapidly.
Da-Nien Liu, Director of the Regional Development Study Center at the Chung-Hua Institution for Economic Research (CIER), notes that Taiwan has long relied on exports and semiconductors as its primary drivers of growth. While these sectors have propelled the overall economy, they have also concentrated risks. Once the global technology cycle reverses, geopolitical tensions escalate, or US tariff and supply chain policies shift, growth becomes vulnerable to disruption. The low interest rate and stable exchange rate policies adopted to maintain competitiveness have also channeled capital into real estate, exacerbating high housing prices and income inequality. They have created a scenario of external strength paired with internal weakness.
Industrial Diversification Is Imperative for the Transition From “Protecting Exports” to “Strengthening Resilience”
Director Liu emphasizes that amid accelerating global supply chain restructuring, Taiwan can no longer rely solely on its traditional export model and must transition from “protecting exports” to “strengtheningresilience.” Enhancing supply chain resilience, promoting industrial diversification, and reinforcing domestic innovation capacity will all be key policy priorities in the next phase. While semiconductors possess world-class competitiveness, a single peak cannot sustain the entire economy. Taiwan urgently needs to develop AI, biotechnology, cybersecurity, precision manufacturing, green energy, and defense industries simultaneously to create diversified growth momentum.
The financial system also requires role adjustment. While Taiwan has sufficient capital, it suffers from uneven distribution, with too many funds concentrated in real estate and short-term investments, which hampers support for emerging industries. In the future, measures such as improving credit extension and diversifying capital markets should guide capital toward strategically significant growth sectors.
Director Liu believes that the “Formosan flu” does not represent decline but rather structural tension within the growth process. Only by advancing reforms within a stable external environment can Taiwan move from contradictory prosperity toward a more resilient economy.
Author: CIER Editorial Team
Date: November 18, 2025