Taiwan's GDP Has Surpassed Korea's—So Why Don't Ordinary Citizens Feel It?

A few days ago, I paused after seeing a table on a major news portal’s economic page. It reported that Taiwan’s per capita GDP had surpassed South Korea’s, and the comment sections were sharply divided. Some asked, “Is Taiwan really that wealthy?” while others noted, “If you visit Taiwan, it feels like a different world.” Since both seemed to hold some truth, I spent a few days digging into the data.

To start with the conclusion: both reactions are correct for a reason. While national statistics show Taiwan ahead, that growth is essentially driven by a single company: TSMC. Moreover, the path for that company’s earnings to flow into the pockets of the average Taiwanese citizen is narrower than one might think.

Has Taiwan’s Per Capita GDP Really Surpassed Korea’s?

It all started in 2001. As China joined the WTO, Taiwanese manufacturers, including Foxconn, moved to the mainland in pursuit of cheaper labor. Taiwan experienced a hollowing out of its manufacturing sector, and for over 20 years, from 2003 to 2024, Korea consistently led Taiwan in both economic scale and per capita income. Because this structure was so firmly established, the recent news of a reversal feels quite unfamiliar.

The turning point was generative AI. As TSMC, which effectively monopolizes advanced foundry production, saw its performance skyrocket, Taiwan’s per capita GDP reached $42,103 according to the latest IMF projections, outpacing Korea ($37,412) by about $4,700. Some forecasts even suggest the gap could widen to over $10,000 within the next five years.

On paper, it’s a story of a complete comeback. However, how closely these statistics align with the actual lives of the Taiwanese people is an entirely different matter.

Why is Taiwan’s Median Income Lower Than Korea’s Despite Lower Prices?

Anyone who has traveled to Taiwan knows that the cost of living is low. Take the dim sum franchise Tim Ho Wan: a dish that costs around 7,000 won in Korea is only about 6,000 won in Taiwan. Domestic service costs—such as beef noodle soup, taxis, and accommodation—are generally about 1.5 times cheaper than in Korea. This is the paradox: if the nation’s total wealth has increased, why haven’t meal prices risen?

The answer lies in the fact that prices for face-to-face services like restaurants and taxis converge with the wages and disposable income of the local working class, not with the wealth of foreign investors. Per capita GDP is simply total output divided by population; when a massive company like TSMC generates astronomical profits, the national average soars even if the average citizen’s wallet remains empty. This is the classic “trap of averages.”

To verify this, we must look at the median income—the income of the person standing exactly in the middle when the population is ranked by earnings. Taiwan’s monthly median income is 45,000 New Taiwan Dollars, or approximately 2 million KRW (as of 2026). In contrast, Korea had already reached 2.88 million KRW two years prior, in 2024. Even accounting for the time difference, Korea’s median income is nearly 1 million KRW higher per month. This suggests the two indicators are telling completely different stories.

Where Does TSMC’s 75 Trillion Won Profit Go?

So, where did TSMC’s earnings go? In 2025, TSMC’s annual net profit was 1.7178 trillion New Taiwan Dollars, roughly 75.96 trillion KRW. The Economist described this performance as “frighteningly good.” While this company accounts for 40% of Taiwan’s stock market capitalization, its profits fail to reach the average household due to three structural reasons.

First, the outflow of dividends. Last year, TSMC paid out 18 TWD per share in cash dividends, returning 27% of its net profit to shareholders. Finding this data across various securities reports shows a dividend payout ratio between 25% and the low 30s, so this isn’t an exaggeration. The problem is who receives it: 20% of its equity is held in U.S. ADRs, and when combined with other foreign investor holdings, it exceeds 70%. This means the vast majority of dividends flow directly into the pockets of foreign institutional investors rather than Taiwanese households.

Second, the dispersion of capital expenditure (CAPEX). The remaining 73% of net profit is reinvested; this year’s investment alone stands at 1.8 trillion TWD, exceeding the annual net profit. However, this money is being funneled into projects in Arizona, Kumamoto, and Dresden. It does not translate 1:1 into jobs or domestic facility investment within Taiwan. In fact, looking at the Q4 2025 earnings report, CAPEX increased by 33% year-on-year, but since a significant portion of this expansion is for overseas fabs, the “trickle-down” effect within Taiwan is diluted.

Third, the extreme concentration of employee benefits. TSMC’s total labor cost last year was 340.5 billion TWD, which averages to about 190 million KRW per employee. Hsinchu, where the headquarters is located, is experiencing a solitary boom with skyrocketing real estate prices and a total fertility rate of 1.0. However, these employees account for only 0.3% of Taiwan’s total workforce. It is essentially an isolated ecosystem that does not reach the other 99.7% of the population.

Comparing TSMC’s Foreign Ownership and ADRs with SK Hynix

There is one more thing I wanted to check: the price gap between TSMC’s primary shares and its ADRs. This became a hot topic recently when SK Hynix listed its own ADRs. Reports show that TSMC ADRs often trade at a premium of over 20% compared to the primary shares in Taiwan, and this gap rarely narrows. The reason is interesting: Taiwanese financial authorities require approval to convert primary shares into new ADRs, whereas canceling ADRs to return to primary shares is free. This one-way structure causes the price gap to remain fixed. SK Hynix is reportedly designing its structure to allow two-way conversion within three days to minimize this discrepancy, showing a different approach.

I mention this because it demonstrates that TSMC’s foreign ownership structure isn’t just about dividends “leaking” overseas—the entire stock distribution structure is inherently favorable to foreign investors. It seems unlikely that the Taiwanese government could easily intervene, as TSMC’s market cap is so massive that doing so could risk capital flight or a stock market shock.

Corporate Taxes Collected, but Prioritized for Defense

TSMC isn’t doing nothing; it pays about 16% of its pre-tax profit in corporate taxes—approximately 267.6 billion TWD. Theoretically, if this revenue were funneled into public transport, healthcare, or childcare, it could create an indirect trickle-down effect that lowers the cost of living for ordinary citizens.

However, budget trends over the last five years tell a different story. While social welfare spending has stagnated at around 27.4%, the defense budget has jumped from 14.6% in 2022 to 18.1% in 2026 due to heightened cross-strait tensions. This means a significant portion of the tax revenue generated by TSMC is being absorbed by the acquisition of advanced weaponry and military maintenance. While it’s hard to blame them given the very real geopolitical risks, the result is that it does not translate into the expansion of welfare that ordinary citizens feel in their daily lives.

Why is the New Taiwan Dollar the Most Undervalued Currency in the World?

This is the part I personally found most interesting. Checking the January 2026 Economist Big Mac Index, the New Taiwan Dollar is undervalued by approximately 59–61% against the U.S. Dollar. Taiwan essentially holds the title for the most undervalued currency in the world. A Big Mac that costs $6.12 in the U.S. costs about $2.40 in Taiwan, which makes the disparity quite tangible.

What’s more striking is that this isn’t a new phenomenon. Data shows that between 2016 and 2023, the undervaluation rate hovered between 47–52%, and has climbed to 58–60% over the last three years. This means the undervaluation isn’t new; it has simply deepened.

This is also where the winners and losers of exchange rates are clearly divided. Because TSMC receives payments in dollars and converts them into TWD, the company officially states that for every 1% weakening of the TWD, its operating profit margin increases by 0.3 percentage points. Conversely, for the 99.7% of ordinary citizens who are paid in TWD, their real purchasing power is eroded by the rising costs of overseas purchases, travel, and imported raw materials and energy.

Why has this undervaluation become so entrenched? It’s not that the government is artificially manipulating the currency; Taiwan is on the U.S. Treasury’s currency monitoring list, making that difficult. The cause lies in the private financial structure. The assets managed by Taiwanese life insurance companies reportedly total 1.4 times Taiwan’s GDP. For comparison, in Korea, the combined assets of life and non-life insurers are about 49% of GDP. Because there aren’t enough large-scale investment opportunities within Taiwan, these insurers sell TWD and continuously buy foreign dollar assets. This persistent demand for dollars is the decisive force supporting the low-exchange-rate structure.

However, I am cautious about taking these indicators as absolute. The Central Bank of Taiwan has previously argued that exchange rates are determined by supply and demand in the foreign exchange market, not by the price of a single commodity like a Big Mac. They cited a 2016 Nomura report on the “iPhone Index,” which suggested the U.S. Dollar was the most undervalued at the time. Since the Big Mac Index itself has inherent limitations—as even The Economist admits, it is a “lighthearted indicator”—it might be unreasonable to judge the entire Taiwanese economy based on a single undervaluation figure.

A Lesson for the Semiconductor Clusters in Yongin and Gwangju

After organizing these thoughts, it’s hard to shake the impression that the Taiwanese economy is completely split between the “Country of TSMC” and the “Country of Ordinary Citizens.” Wealth is concentrated among a small number of engineers and foreign shareholders, while high exchange rates and increased defense spending keep the median income of 99.7% of the population around 2 million KRW. This is a picture that cannot be seen through the single average indicator of per capita GDP.

Korea is also building massive semiconductor clusters in Yongin and Gwangju. Looking at the Taiwanese example, the takeaway is that it is just as important to design a distribution structure that ensures the fruits of growth reach subcontractors, local ecosystems, service industries, and ordinary workers as it is to secure “super-gap” competitiveness in advanced technology. We need to proactively heed the warning of falling into a “Taiwanese-style Dutch Disease,” intoxicated by the performance of a few large corporations. Whether this is a unique trap for Taiwan or a problem inherent to any economy driven by a single massive entity is something we will need to watch closely.