Many people over the past two decades have called for the government to establish a sovereign wealth fund, with discussions mainly focused on whether it should be funded through Taiwan’s foreign exchange reserves; whether it would be managed by investment professionals, free of political interference; or what kind of oversight would be needed to prevent misuse, promote public trust and maximize the benefits of such a fund. No consensus has ever been reached.
After US President Donald Trump in April announced “reciprocal” tariffs against Taiwan and many other trading partners, causing turmoil in global financial markets, the call to establish a sovereign wealth fund has resurfaced. The Ministry of Economic Affairs, the central bank and other government agencies are once again talking about such a fund, as well as practical issues such as financial resources, operations and investments.
On May 20, President William Lai (賴清德) announced in his one-year anniversary speech the establishment of a sovereign wealth fund to invest in artificial intelligence (AI). After the announcement, the Executive Yuan decided the plan would be temporarily led by the National Development Council, while the central bank, the Ministry of Finance and other agencies would be convened to discuss the source of funds and its scale.
The plan to set up a sovereign wealth fund underlies the government’s attempt to boost Taiwan’s economic momentum, expand the nation’s global investments and increase its international presence, particularly in AI. Several other countries have already invested in technology upgrades in strategic areas — such as AI, quantum technology and energy transformation — through sovereign wealth funds. Taiwan also needs such a state-owned platform to drive technological independence and fortify industrial prowess.
Some experts have also highlighted a sovereign wealth fund’s potential to transform Taiwan’s financial and diplomatic strategy, while bolstering national security in the face of a changing geopolitical landscape. Just as Lai said in his speech that the fund would help Taiwan raise its global profile and connect with major target markets, strategic and prudent investing would create opportunities for Taiwan to increase its global influence, especially as it faces China’s rising military aggression.
Although Taiwan does not have a sovereign wealth fund, the government has other state-run funds — the National Development Fund, the Labor Insurance Fund, the Labor Pension Fund, the Public Service Pension Fund and the Postal Savings Fund, which are tasked with handling various investments and seek to obtain long-term stable returns. However, the main problems with those funds are poor oversight, unimpressive management, ill-advised planning and mediocre performance. If the government wants a large sovereign wealth fund to succeed, it needs to determine how it would be organized and managed.
There is also growing discussion about using a portion of the nation’s substantial foreign exchange reserves to establish the fund. That debate is likely to continue in the coming months among the central bank and other government agencies. Regardless, the main concern in establishing the fund is not to achieve significantly higher annual returns on Taiwan’s forex investments than the central bank or whether it should invest in high-risk markets or industries, but rather to focus on what the fund can do to benefit the nation as a whole economically, financially and diplomatically.
Admittedly, there are technical difficulties and political challenges ahead in the discussions about a sovereign wealth fund. Now that the president has outlined the direction of the fund, the government should focus on how to design a sovereign fund structure that is professional, robust, transparent and public-oriented, rather than whether Taiwan should do so or not.
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