TAIPEI, Aug. 11 (Xinhua) -- Taiwan's economy is booming on the back of AI and semiconductors, but the uneven distribution of growth is widening a K-shaped divide and fueling calls on the Taiwan authorities to discard its economic decoupling from the Chinese mainland.
Taiwan's statistics agency reported in late July that the island's gross domestic product expanded 12.92 percent year on year in the second quarter. With AI-related exports and investment continuing to surge, Taiwan is on course for potentially double-digit economic growth this year.
But the upbeat headline figures tell only part of the story.
"Numbers are rising, while people's lives are sinking," a university professor wrote in a media article, pointing to the growing disconnect between macroeconomic performance and everyday economic realities. "It is as if the same Taiwan is living in two different worlds."
That disconnect is characteristic of what economists describe as a K-shaped economy, in which different industries, businesses and social groups move along sharply divergent trajectories, with some climbing rapidly while others stagnate or decline.
Taiwan's upward economic trajectory is being driven overwhelmingly by semiconductors and other AI-related industries.
According to Taiwan's financial authorities, the information and electronics industry contributed 85 percent of the island's economic growth. Yet the sector accounts for only about 7 percent of total employment, while its workers outearn more than 70 percent of the island's workforce.
The figures underscore the uneven transmission of economic gains.
"In Taiwan, semiconductors and other AI-related industries are on the upper arm of the K, with bright prospects, while traditional manufacturing, consumer services, catering and hospitality are on the lower arm," said Tseng Chung-wei, a manager at recruitment agency 1111 Job Bank.
The pressure on traditional sectors is particularly visible in tourism and hospitality.
At Alishan, a popular tourism site in central Taiwan, once-busy commercial complexes have become increasingly deserted, with more than half of the stores closed or vacated. Visitor numbers in July stood at just over 70,000, less than half the level of a decade ago.
"Now we mainly have individual travelers. Many businesses simply can't survive," said a local restaurant operator surnamed Chung.
The service sector accounts for the bulk of employment on the island. Of Taiwan's roughly 11 million employed people, about 7 million work in the service sector, including large numbers in hospitality, catering and retail. For many of these workers, wage growth has remained sluggish while employment has become increasingly precarious.
"Prices have soared, but incomes have been frozen," said a restaurant operator surnamed Yang in Nantou. "The AI boom has not translated into stronger mass consumption. A banquet that once drew 40 or 50 tables now typically attracts only 10 or 20, with 30-table events becoming uncommon."
The contrast points to a central paradox in Taiwan's current economic performance: an export and investment boom can lift GDP sharply without necessarily delivering comparable gains in household purchasing power.
"The root of Taiwan's economic problem is that development is relying heavily on AI as if it is a 'one-legged' engine," Teng Tai-hsien, secretary general of Straits Economic & Cultural Interchange Association. "Balanced development across industries is what a healthy economy should look like."
Yang Chin-long, chief of Taiwan's financial regulatory agency, has similarly warned of an economy characterized by "overheating AI and weakening non-AI," with growth momentum increasingly concentrated in a few high-tech industries.
Data from Taiwan's economic authorities showed the divergence. Over the past five years, combined revenue in three major electronics sectors -- electronic components, computers, electronics and optical products, and electrical equipment -- increased 20.8 percent. Revenue in non-electronics manufacturing, by contrast, fell 9.1 percent.
The semiconductor industry's strong demand for capital, talent and other resources is creating a "siphoning effect" across the wider economy.
Taiwan's overheated AI sector has, to some extent, squeezed the development space available to traditional industries, said Darson Chiu, an adjunct professor at the Department of Economics of Taiwan-based Tunghai University.
Taiwan's limited market scale makes it difficult for traditional businesses to achieve economies of scale and lower costs through expanded production. As competitiveness weakens, companies also find it harder to attract the high-level talent needed for technological upgrading, Teng said.
Against this backdrop, the debate over Taiwan's economic future is increasingly intertwined with the question of the Democratic Progressive Party's (DPP) economic decoupling with the mainland.
For traditional manufacturers, agricultural and fishery producers, and small and medium-sized businesses facing a constrained local market, access to the mainland represents a potentially important source of demand, investment and industrial cooperation.
The Economic Cooperation Framework Agreement (ECFA), signed between Taiwan and the mainland and taking effect in 2010, is frequently cited as an example of the benefits of closer economic ties across the Taiwan Strait.
Since the implementation of its early harvest program in 2011, goods exported from Taiwan to the mainland had received cumulative tariff reductions of about 10 billion U.S. dollars by the end of 2024.
The ECFA had brought tangible benefits to traditional industries, as well as farmers and fishermen, Teng said. Making better use of existing cross-Strait cooperation mechanisms, he argued, could help Taiwan businesses expand into the mainland market and ultimately compete more effectively in global markets.
The Chinese mainland was a major export market for Taiwan products, particularly farm produce and products from traditional industries, until the DPP took office in 2016 and began pursuing a policy of economic decoupling.
The proportion of Taiwan's exports to the mainland and Hong Kong dropped from the peak 43.9 percent of the total exports in 2020 to 26.6 percent in 2025.
"The complementarity of the economies on the two sides of the Strait is an objective fact," said Lin Chien-fu, an honorary professor of economics at Taiwan University.
Faced with serious economic imbalances, Lin urged the DPP authorities to set aside ideological rigidity and adopt a pragmatic approach. Improving cross-Strait relations and restoring institutionalized channels of communication, he said, should be an immediate priority.
Ho Yi-cheng, chief of Taiwan Youth Federation, pointed to the mainland's 15th Five-Year Plan (2026-2030) and its emphasis on creating large-scale, multi-level application scenarios for AI technologies.
Greater economic cooperation between the two sides, he said, could allow Taiwan businesses and young people to participate in the mainland's innovation initiatives and share the opportunities generated by technological transformation. ■
