Taiwan

Since its establishment in 1949 the RoC has been facing a serious threat for its security from the PRC, but the defence budget of the country has not till 2019 been remarkable increased as a percentage of the real GDP of the country. In 2008 the defence budget represented 2.6% of the real GDP of the country and within ten years, in 2018 it was reduced to 1.8% of the real GDP. During the two terms of President Ma the defence budget never exceeded the US$10.8 Billion threshold. When President Ma was elected in 2008 the defence budget of the RoC was US$10.8 Billion. 

In 2009 and in 2010, the defence budget was reduced to US$9.6 Billion and US$9.4 Billion respectively. The following five years of Ma’s presidency, the RoC defence budget was marginally increased and stabilised just above US$10 Billion, except for the year 2012 when it reached US$10.7 Billion. In 2016 when the new President was elected the defence budget was US$9.9 Billion. The following three years the defence budget was marginally increased. In 2017 it was US$10.6 Billion, in 2018 it was US$10.7 Billion and in 2019 it reached US$10.84 Billion. In 2019 the Government of President Tsai decided to increase the defence budget of 2020 by US$558 Million over the 2019 budget.

Defence Industry

The establishment and development of the defence industry of the ROC started in 1979 following the recognition of the PRC by the United States and the uncertainty this created into the US-RoC relationship. Till then, the Armed Forces of the RoC had only one supplier of arms, the U.S.A. Since then, the local defence industry has been trying to cover the local armament needs following four different policies: (i) indigenous development of weapons and electronic systems, (ii) co-creation with the assistance of foreign defence companies of new and original technologies within Taiwan, (iii) co-production with the assistance of foreign defence companies of commercially available systems in Taiwan and (iv) purchase of complete COTS weapons systems for transfer to Taiwan.

The RoC defence procurement and industry planning is highly centralized around the Ministry of Defence of the country and three primary state-affiliated defence entities, the Armaments Bureau of the Ministry of Defence (part of the Defence Agencies of the Ministry) established in March 2002, the Defence Procurement Office of the Ministry of Defence (part of the Departments of the Ministry) and the Legislature Foreign and Defence Committee.

The Armament Bureau has the following organization structure:

  • Program Evaluation Division
  • Technology and Industry Division
  • Acquisition Management Division
  • Procurement Management Division
  • Construction and Real Estate Division
  • Management Information Office
  • General Administration Office
  • Comptroller Office

Furthermore, six private and state owned organisations and institutions have a significant role on the development of the indigenous defence industry:

  • The Taiwan Aerospace Industry Association (TAIA)
  • The Taiwan Space Industry Development Association (TSIDA),
  • The Taiwan Drone Association (TDA),
  • The state-owned naval architecture Ship and Ocean Industries R&D Center (SOIC),
  • The Naval Shipbuilding Development Center (Belongs to the Navy) and finally
  • The state-run Committee for Aviation and Space Industry Development (CASID) under the Ministry of Economic Affairs.  

Recently, in 2017 the Taiwan National Defense Industry Development Association (TW-DIDA) a non-profit social organization was established, and its mission is to promote the development of Taiwan’s defense industry. TW-DIDA is dedicated to facilitating interactions between the industry with government officials and academia, such as organizing international meetings, conferences, and seminars. TW-DIDA also conducts strategic researches for providing policy advices relating to the defense industry.

The Industrial infrastructure of the defence industry of the RoC

The main research and military industrial complexes of the RoC are: the Chung Shan Institute of Science and Technology (NCSIST), the Aerospace Industrial Development Corp. (AIDC) and the China Shipbuilding Corporation (CSBC Corp.). These three entities had in 2016 combined total revenues about US$2.3 Billion, which was over 23% of the annual defence budget of the RoC.

The NCSIST represents the core of the Taiwanese land, electro-optic, electronics and missile weapons industry and it has six Divisions:

  • Aeronautical Systems Research Division
  • Missile and Rocket Systems Research Division
  • Information and Communication Research Division
  • Chemical Systems Research Division
  • Materials and Electro-Optic Research Division
  • Electronic Systems Research Division 

The Aerospace Industrial Development Corp. (AIDC) has developed and manufactured with foreign assistance the 131 F-CK-1A/B Ching-Kuo fighter jet, upgraded 129 F-CK-1A/B to the C/D Hsiang Sheng level, developed and manufactured 62 AT-3 Tzu Chung trainer jet, and has under development the T-5 Brave Eagle supersonic advanced jet trainer of which 66 aircraft will be built.

The China Shipbuilding Corporation (CSBC Corp.) is a public company and operates two shipyards in Kaohsiung and Keelung. The shipyard has constructed under license 8 Cheng Kung-class guided-missile frigates (PFG), one Pan Shi-class fast combat support ship, 12 Ching Chiang-class patrol ships, 31 Kuang Hua VI class missile boats, 48 under license from Israel Dvora-class fast patrol boats. China Shipbuilding Corporation CSBC Corp. will build also the new 8 submarines for the Navy.

For that purpose, CSBC Corp. established in 2016 a submarine development center in order to support the construction of the new submarines. The new submarine development center will produce a design for the Indigenous Defence Submarine program under a budget of US$95 Million. Besides CSBC Corp. the Lungteh Shipbuilding has received an important contract from the Ministry of Defence of the RoC. The second most important shipyard of the country will build 12 Tuo Chiang II-class corvettes.

There are about five Arsenal, Materiel Production Center, and two Factories Materiel Production Center that belong to the Armament Bureau of the Ministry of Defence:

•          209th Arsenal, Responsible for development of CM-32 AFV, located in the Nantou County town of Jiji

•          205th Arsenal, Developers and producers of the T75 pistol, T93 sniper rifle, T91 assault rifle and XT-97 Assault Rifle, also involved in quadcopter development and production, located in Kaohsiung

•          203rd Arsenal, developed advanced camouflage materials for special forces use

•          204th Arsenal

•          202nd Arsenal, designs and produces large and small artillery

•          401st Factory responsible for making mapping material and digital maps, located in Taichung and

•          402nd Factory responsible for making optical equipment both located in Taichung

Besides the state owned defence industries, there are at least 200 small and medium size companies in Taiwan that their activities are related to defence. These companies form the foundation of the defence industry of the country because the supply the defence factories, shipyards and entities mentioned above with raw material and basic components that are integrated to the indigenous defence systems.

These companies produce optical components, communication devices, wires, high quality steel, and other items and although their contribution to the local defence industry is important their annual share of the local market is only US$33Million or less than half a percent. Although the defence industry of the RoC seems to be quite dynamic the local industry still has weak areas. These include the Indigenous Defence Submarine programme, stealth aircraft and maritime vessel technology, electronic surveillance and countermeasure systems, information communication and electronic warfare capabilities in both defensive and offensive categories. 

The new National Defence Industry Development Act

In order to improve the capabilities of the local defence industry, the Parliament of the RoC voted in May 2019 the “National Defense Industry Development Act”. The new Act calls for the production of domestically manufactured weapon systems through the promotion of public-private sector partnership. The new Act aims to reduce the dependency of the RoC on military equipment imports and oversee the development the domestic defence industrial base. According to the new Act, companies that are interested in becoming a supplier of military equipment may apply with the Ministry of Defence of the country.

These companies will be evaluated and ranked in three tiers, based on their technological capability, the size of their operations, and their experience in researching, developing, manufacturing and maintaining military equipment. Furthermore, the companies will be evaluated according to their track record working with academia, businesses or foreign companies.

The four tiers of equipment requirements will encompass research, development, production, and maintenance, repair, and overhaul (MRO) activity. The Ministry of Defence will assign one of three gradings to local defence companies according to their size, capability, experience in defence research, development and production, and their track record of collaboration with local agencies and foreign contractors.

Defence equipment development programs will also be assigned three similar gradings based on their scope and sophistication. Projects and companies will then be matched, with companies in each grading expected to offer competitive bids to win programs.

According to the act, the Ministry of Defence and the Ministry of Economics will encourage local companies to produce items for the defence sector that are competitive to replace imported products. Local defence industries will also be encouraged to produce weapon systems through partnerships with foreign companies. The legislation also outlines the requirement for the establishment of a new coordinating agency under the Ministry of Defence that will support joint defence research, development, and production projects through inter-government arrangements. 

Finally, the new legislation includes the introduction of supplier information security controls, several measures to assist local defence industry to comply with foreign equipment certification requirements and greater government assistance to the local defence industry to participate to collaborative projects with foreign companies.