Taiwan Update: Domestic Reform and Soft Power Diplomacy: Stephen Hoadley Comments on the State of Economic and Political Affairs in the Small but Prosperous Republic of China

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In a neighbourhood dominated by major powers, measured demographically and economically as well as geo-politically, Taiwan is barely visible. Nevertheless its government has achieved much in enhancement of prosperity, democracy and human rights, and these achievements have contributed to the success of Taiwan's soft power diplomacy.

Relatively small in population (23 million), Taiwan ranks ahead of Singapore, Brunei, Laos, Cambodia and Mongolia, but behind the rest of its Asian neighbours. Its islands are not rich in minerals, timber, fish, or hydrocarbon energy resources. Nevertheless, the people of Taiwan enjoy a standard of living comparable to that of New Zealanders, particularly when measured by the purchasing power parity (PPP) index, and six times higher than that of their mainland Chinese counterparts. (1)

Economic transformation

Taiwan is one of the four 'Asian tigers', exemplars of rapid economic development following the Second World War, following the model of Japan and foreshadowing in some respects that of China. The 'Asian tiger model' identifies government-led investment and innovation in manufacturing for export as the key strategy. (2) The Republic of China (ROC) government on Taiwan fits the model inasmuch as it was semi-authoritarian until the 1980s. The mainland military and civil elites of the Kuomintang (Nationalist) Party that retreated to Taiwan upon the victory of the People's Republic of China in 1949 were strongly motivated to modernise economically and militarily to defend their island haven.

Military and development aid from the United States, building on infrastructure bequeathed by the Japanese colonial administration 1895-1945, gave the Taiwan economy a boost and allowed the ROC government to channel domestic savings to favoured entrepreneurs for further development. Furthermore, the openness of the US market provided a lucrative outlet for Taiwan's exports, initially processed foods and light manufactured goods, and later its high-tech electronics and information technology products. With the advent of Deng Xiaoping's 'open policy' in 1978, Taiwan's manufacturers moved much labour-intensive work to the China mainland, with consequent cost savings.


Investment in education at all levels, and dispatch of students to higher study in the United States, sustained the drive to innovate and export and, as well, broadened social opportunity. Policies to provide health care and public amenities, clean up the environment and encourage energy-saving practices followed. Despite exclusion from participation in the UN Framework Convention on Climate Change and the Intergovernmental Panel on Climate Change, Taiwan in 2007-08 reduced its carbon emissions by 4 per cent at a time when most industrial countries' emissions were rising inexorably, as were New Zealand's. (3) Consequently, enjoying a secure, comfortable, and sustainable lifestyle at home, few Taiwanese feel the need to emigrate, minimising the brain drain.

Despite diplomatic isolation, Taiwan as an economic entity has joined the international trend to trade liberalisation. It entered the WTO in 2001, has completed free trade agreements with four of its Central American partners, and is currently negotiating free trade agreements with New Zealand and Singapore. It aspires to join the Trans-Pacific Partnership Agreement in due course.

Democratic transformation

The ROC government presided over economic growth 1949-87 as a one-party state exercising martial law. However, starting in 1987 the administration led by President Chiang Ching-kuo initiated a series of domestic civil liberties reforms that brought liberal multi-party democracy to the country in little over a decade. (4)

These reforms included the lifting of martial law, the ending of media censorship and public assembly constraints, the abolition of distinctions between mainlanders and Taiwanese, and the institution of direct elections for the legislature and the presidency. …