Modern Taiwan begins with Japanese colonial rule and has gone through three periods: the Japanese occupation (1895-1945), the Kuomintang authoritarian regime (1946-mid 1980s), and the Democratic period (late 1980s-present). This article explores modern Taiwan’s economic development in each of the three periods, analyses the main contributing factors, and finally comes to the conclusion that with the beginning of Taiwan’s Democratic period, Taiwan’s business firms found great profits in the mainland, and since then its economic growth has become increasingly dependent on mainland China as a result of the mainland attractiveness and chances after the open-up policy and the needs of Taiwan’s ...view middle of the document...
Before Chiang Kai-shek’s forces retreated to Taiwan, the National Assembly had in 1948 passed the “Temporary Provisions Effective During the Period of Communist Rebellion,” which suspended the ROC constitution and transferred sweeping powers to the president. Later the KMT declared martial law on Taiwan, and began the authoritarian era for four decades until mid-1980s. In this period, Taiwan’s economy went through four stages:
1) Between 1945 and 1949, the KMT made Taiwan’s production subordinate to its need of Civil War in the mainland. Taiwan’s economy suffered enormous setbacks because of the ROC leaders’ pillaging its economic assets;
2) From 1949 to 1950s, with the KMT retreating to Taiwan, the island became KMT’s place of survival, and the administrators started a period of import substitution. With economic policy makers’ balanced, pragmatic approach, the entrepreneurs hardworking and brilliance, and the advantage of international forces, Taiwan’s economy achieved such a great success that by the mid-1950s, Taiwan’s market for domestically produced goods was saturated;
3) In the 1960s, as Taiwan’s economy grew, Taiwan’s economic bureaucrats signaled the shift toward export-oriented manufacturing. In this export expansion period, the island became more dependent on the foreign market: Washington’s willingness to keep US markets open to Taiwanese manufactures –as long as Taiwan continued to move toward a market-oriented economy –was an indispensible boon as it shifted its economy toward exports, and Japan was also important because of its investment. While some foreign companies established subsidiaries in Taiwan, a typical form of small-scale family-owned Taiwanese firms also built their manufacturing capacity and absorbed new technologies through contract manufacturing. These firms became the bedrock of Taiwan’s economy as well as the most vibrant, competitive, and predominant form of corporate organization in later times;
4) From the late 1960s to mid-1980s, Taipei unveiled another stage in its industrial upgrading plans and here came its struggling for economic independence. Rather than depending on foreign suppliers, the ROC undertook a new phase of import substitution, setting up its own facilities in petrochemicals, steel, shipbuilding, automobiles, and electronics. Though some of these industries failed, Taiwan’s shift toward high-technology, low-energy industries that began in the 1970s kept Taiwan’s economy moving forward to the information age.
From the above, it is clear that from the very beginning of modern Taiwan until the mid-1980s, economic interaction between Taiwan and Mainland China was very limited; especially under KMT’s predemocratic era, the two sides were even locked in a confrontation beginning with the Chinese Civil War and continued through the Cold War. There were, of course, several factors that reduced the economic incentives of Taiwanese firms to trade with or invest in Mainland China, including...