Economic Relationships and Outlook of China, U.S., and Taiwan

By Lee, Cheng F. | International Journal of Business, Summer 2002 | Go to article overview

Economic Relationships and Outlook of China, U.S., and Taiwan


Lee, Cheng F., International Journal of Business


ABSTRACT

In this paper, we first reviewed the economic development of China and Taiwan, then the economic interrelationship among China, U.S. and Taiwan were discussed in some detail. Then economic outlook of U.S., China, and Taiwan has been explored.

JEL: A1, F4

Keywords: Economic development; Reconstruction; Export expansion; Economic outlook; Foreign investment; Political risk; Economic risk

I. INTRODUCTION

I am one of the Chinese-American professors participating in Economic Reform in the People's Republic of China since 1982. For the last nineteen years I have represented the U.S. Department of Commerce, the World Bank, United Nations, the University of Illinois at Urbana-Champaign, and Rutgers University to teach managers, government officers, professors, and students in China. In addition, I research the financial markets and economic development of the U.S., Taiwan, China and other Asian countries. I have actively participated in financial market and policy reform in Taiwan, and in 1994, proposed a strategy to develop Taipei as a regional financial center with Governor Fai-Nan Perng and other government officers. I am also actively consulting with companies and universities in Taiwan and other Asian countries. In Section II, Economic Development of China and Taiwan is discussed in some detail. In Section III, the economic relationships among China, U.S., and Taiwan will be explored. Section IV discusses the economic outlook of the U.S., China, and Taiwan. In Section V, Foreign Investment Analysis for Taiwan will be analyzed and Section VI will predict Taiwan's economic prospective. Section VII summarizes the paper.

II. ECONOMIC DEVELOPMENT OF CHINA AND TAIWAN

In this section, we will first briefly review the economic development of China in the last twenty years. Then, the economic development of Taiwan in the last 50 years will be discussed.

1. Economic Development of China

After the 1949 Communist Revolution, China's economic performance was very poor because the Socialist economic planning system did not give individual and company incentive to perform economic activities. In China, almost everything is nationalized until the early 1980s. The Chinese leader XiaoPing Deng proposed reforming the Chinese economy in 1979, since then, it is worthwhile to note that the economic growth of China has improved substantially. Chinese economic development has gotten the help of World Bank, IMF, Hong Kong, United States, Japan, Taiwan, and other foreign countries during the last 20 years. The Chinese economic development can be classified into three periods for the last 20 years as follows (1):

a. Period 1 (1979-1985) is the learning by doing period. During this period, reform group and conservative group had struggled to determine whether the new socialist market type of economy or old planning type of economy should be undertaken in China. Finally, the new socialist type of market system economy has been accepted as the principle of the Chinese Economic Reform. By 1985, the growth of GDP had reached 13.5%; however, the inflation rate increased to 8.8%.

b. Period 2 (1986-1992) is a fluctuation period. During these 7 years, government had relaxed the price control and the private enterprise of rural area had played an important role in economic growth. In 1988, the inflation rate had reached 18.5% and the daily life of poor people became miserable. In addition, the corruption of government and business sectors had reached a very severe situation; therefore, the Tianamin Square revolt occurred on June 4, 1989. Since then, the government started to control economic activity again. In 1990, the GDP growth rate had decreased from 11.3% in 1988 to 3.8% in 1990. Simultaneously, the inflation rate also decreased from 18.5% in 1988 to 2.1% in 1990. Then, the economic reform was kicked off again in 1991 and the growth rate of GDP was recovered up to 14. …

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