Academic journal article China Perspectives

The Taiwanese Economy after the Miracle

Academic journal article China Perspectives

The Taiwanese Economy after the Miracle

Article excerpt

Since the end of the 1980s, relations with China have played a major part in the economic development of Taiwan. As a new land of opportunity for the island's investors, it helped many small and medium enterprises (SMEs) to maintain their competitiveness in overseas markets by allowing them to produce at lower cost. In so doing, it boosted the restructuring of the Taiwanese economy, which was then able, with the support of the authorities, to turn to more technological industries with higher added value. To major companies that were a bit constricted in Taiwan, China offered opportunities for expansion thanks to the enormous market located ri^it on their doorstep. It supported the island's overseas trade by compensating for the fall in Taiwanese exports to the American and Japanese markets, whether in finished consumer products or in intermediate products, in the framework of a process of division of labour between the two shores of the Taiwan Strait. All this meant growing Taiwanese dependence on the Chinese economy. This situation would probably be nothing unusual if Taiwan and China were two friendly countries simply seeking to benefit mutually from economic opportunities. However, relations between Taipei and Beijing are marked by a dispute that has remained unresolved since 1949, and which tends to link economic interests to political interests. This is why the project for a China-Taiwan economic zone in the framework of the ECFA (Economic Cooperation Framework Agreement/ Liang an jingji hezuo jiagou xieyi) proposed by Taiwanese President Ma Ying-jeou, who has held office since May 2008, is so sensitive and has aroused so much controversy. The policy towards the mainland followed by successive governments up to 2008, whether Kuomintang (KMT) or Democratic Progressive Party (DPP), has indeed led to a liberalisation of trade across the Strait, but this has happened gradually and in a limited fashion. Ma Ying-jeou, for his part, wants the ECFA to be the means to speedy and comprehensive liberalisation. Is this an appropriate answer to the difficulties of the Taiwanese economy? Is Taiwan not more likely to suffer more than it benefits from the economic power of its big neighbour? Couldn't economic integration with China compromise the island's political independence? These are some of the questions raised by the project.

After recalling how adjustment of the island's economy translated into massive foreign investment between 1988 and 1990, which laid the foundation for the conversion of Taiwanese industry to information technology (IT) on the one hand, and for closer economic relations with China on the other (two drivers in Taiwan's sustained economic growth during the 1990s), we will seek to explain to what extent the structural weaknesses of the Taiwanese economy hampered its growth during the 2000s, particularly during the dotcom bubble of 2001 and the financial crash in 2008-2009. Finally, we will consider the relevance of the ECFA as an answer to the economic problems, as well as its implications on a political level.

Industrial restructuring and I increasing dependence on China

After the Second World War, taking advantage of the legacy of 50 years of Japanese colonisation, as well as an active state policy of import substitution and then export promo- tion,(l) Taiwan experienced exceptional growth for 35 years (averaging 8.8 percent per year between 1951 and 1987),<2) which was sometimes termed an economic miracle.(3) However, at the end of the 1980s, this development model based on the export of labour-intensive goods, labour being a factor of production that was plentiful and cheap on the island until then, began to show signs of slowing down, with annual growth averaging 7.6 percent between 1988 and 1990.(4)

The island's companies at that time were confronted on the one hand with rising labour costs in Taiwan, mainly due to a shortage of manpower,(5) and on the other with a strong rise in the Taiwanese currency (the New Taiwan Dollar or NTD) whose value, under pressure both internal (with an exchange rate that less and less reflected the technological progress boasted by local industry) and external (the US threatened protectionist measures unless Taipei adopted a monetary policy aimed at reducing the American trade deficit),(6) rose by almost 40 percent over two years. …

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