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Taiwan Of Today: Going Strong

DQI Bureau

30 Nov 1998 00:00 IST

New Update

Strategically located in the middle of a

chain of islands, stretching from Japan in the north to the Philippines in the south, and

160 km off the southeastern coast of the Chinese mainland, the island of Taiwan is a

natural gateway to east Asia. With a population of 21.4 million, Taiwan is one of the most

densely populated places in the world. Spread in an area of 36,000 sq km, its agricultural

production accounts for only 2.8% of the GDP. Taiwan does not possess natural resources

and hence relies heavily on imports of raw materials to fuel its rapid industrialization

needs. More than 90% of its energy needs are met by imports.

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Economic indices

According to 1996 Economic Indices, Taiwan's GNP rose to $275.1 billion, making

it the 19th largest economy in the world. Per capita GNP climbed to $12,872, getting it

the 25th rank among countries with a population of over 1 million. The foreign exchange

reserves at the end of 1996 amounted to $88 billion, third largest worldwide after Japan

and mainland China. Merchandise exports totaled $115.9 billion and merchandise imports

$102.4 billion, making Taiwan the world's 14th largest exporter and 15th largest importer,

with its two-way volume of trade pegged at 14th place in the world.

Growth with stability

From 1960 to 1980, Taiwan sustained an annual economic growth rate of 9.2% on an

average. Breaking the $1,000 level in 1976, per capita GNP climbed to $12,396 in 1995.

During this period of rapid economic expansion, the ratio between income received by the

most affluent one-fifth of Taiwan's households and that received by the least affluent

one-fifth, rose from 4.18 to 5.34, although on a per capita basis the ratio was virtually

unchanged. Though Taiwan's economy has entered a more mature stage in recent years, the

rate of economic growth has been static. From 1990 to 1996, the economy expanded 6.5% per

year, while the annual increase in consumer prices averaged 3.7%.

Trade

In 1971, Taiwan recorded its first trade surplus and in 1987 its annual trade

surplus peaked at $18.7 billion. To correct this external imbalance, the government in

1987 began to expand public spending and bolster domestic demand. As a result, Taiwan's

trade surplus narrowed significantly and in 1995 amounted to only $8.1 billion. In 1996,

Taiwan's trade sector gave its poorest performance since 1991. Amidst sluggish economic

conditions worldwide, exports grew by only 3.8%, while imports declined by 1.1%. Thus,

Taiwan's trade surplus rose again, reaching $13.6 billion for the year, its highest since

1990.

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Trading partners

In 1996, Taiwan shipped 23.7% of its exports to Hong Kong-its main export market.

Although the US remains Taiwan's major two-way trading partner, the proportion of its

exports shipped to US has diminished sharply, from 47.7% in 1986 to 23.2% in 1996. In

1996, Taiwan's merchandise to exports to ASEAN accounted for 14.4% ($16.7 billion) of its

total merchandise exports worldwide, up from 5.4% in 1986. Before 1996, Japan and the US

accounted for more than half of Taiwan's total imports, by 1996, the figure fell to 46.9%.

Strategy For

Economic Development

During

the past five decades, Taiwan has seen rapid economic growth. Price stability, equitable

income distribution and a drop in rate of unemployment are some of the indicators of this

growth. In addition, Taiwan's industries have successfully completed a shift from

labor-intensive to technology-intensive production. The most important factor behind

Taiwan's economic success has been the pragmatic and flexible government policies,

especially the promotion of social and political stability and the adoption of an outward

looking development strategy. And timely market-friendly policy initiatives have been

undertaken to cope with new problems and challenges. Taiwan's economic development can be

divided into five stages.

- face="Arial" size="2" color="#000000"> A pursuit for stability and self-sufficiency: In

the 1950s, the priority was given to economic stabilization and food production. The major

tasks were to effectively utilize US aid to develop the economy and to adopt high tariffs

and import controls to nurture the development of the domestic industry. A land reform

program was introduced to encourage food production and stabilize food prices. At the same

time, labor-intensive, inward-looking and import-substituting industries were encouraged

to help save foreign exchange with mixed results.

- face="Arial" size="2" color="#000000"> Expanding exports of light industry: In the 1960s,

the emphasis was placed on promoting labor-intensive and export-oriented industries to

take advantage of low-cost labor. The government enacted foreign exchange and trade

reforms and the statute for the encouragement of investment. These two measures and the

establishment of the first export processing zone in 1966 labeled Taiwan an

outward-oriented development pattern. Amid buoyant recovery of the world economy, Taiwan's

export increased rapidly, becoming the locomotive of its economic growth.

- face="Arial" size="2" color="#000000"> Development of basic and heavy industries: By the

end of the 1960s, rapid export expansion stimulated strong demand for machinery and

equipment and intermediate materials on the one hand and led to a substantial accumulation

of capital on the other. This led to the management becoming more sophisticated and

industrial technology more advanced. The time had come to encourage a gradual shift to

basic and heavy industries. This was accomplished by promoting the domestic production

substituting for imported intermediates and the development of technology-intensive

industries. Accordingly, Taiwan effectively reduced its reliance on foreign supply of

these two commodities and helped improve its industrial structure.

- face="Arial" size="2" color="#000000"> Economic liberalization and technology-oriented

development: In the early 1980s, the economy began to reap the benefits of trade promotion

policies and a surplus was consistently recorded in foreign trade. Against this

background, the government adopted economic liberalization and internationalization as the

new guiding principle for Taiwan's further development and gave greater emphasis to the

functioning of market forces and the price mechanism. At the same time, it began to tap

its abundant capital resources to develop technology-intensive industries, such as

electronics, information and machinery.

• face="Arial" size="2" color="#000000"> Coping with change and setting new priorities: As

the 1990s set in, Taiwan turned its attention to strengthening and upgrading its basic

infrastructure. A Six Year National Development Plan was introduced in 1991. The

government subsequently identified and assigned top priority to the implementation of 12

major construction projects, covering transportation, culture and education, improvement

of living conditions, water resources development and environmental protection. A

comprehensive physical development plan was initiated with a view to rationalize land use,

improving the investment climate and upgrading the quality of life. In January 1997, a

plan for national development for the next century (1997-2000) was introduced. The plan,

which has primarily three goals: strengthening national competitiveness, improving the

quality of life and promoting sustainable development, aims at making Taiwan a modern and

fully-industrialized economy. And as an overture to the emergence of a mature economy,

efforts are been made to develop Taiwan into an Asia-Pacific Regional Operations Center.

Foreign direct investment

Foreign Direct Investment has played an important role in Taiwan's economic

development. In 1989, the total FDI amounted to $7 billion and net capital outflow to $5.3

billion. More recently, owing to a rebound in domestic investment and a commensurate

decline in excess saving, the FDI outflow from Taiwan moderated. Taiwan's total FDI in

1996 is estimated at $3.4 billion. Of this amount, 42.4% was invested in the US. The

Chinese mainland received 33.6%, down from 44.6% in 1995. This was mainly due to the

rising cross-strait tensions in early 1996.

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Labor force and employment

The labor participation rate has declined steadily over the past nine years,

falling from 60.9% in 1987 to 58.4% in 1996, its lowest-ever since 1983. Over the past 10

years, Taiwan's employment has increased 1.6% per year on an average. The unemployment

rate during most of this period has remained between 1.5% to 2% of the workforce. In 1996,

the jobless rate reached 2.6% of the workforce, its highest since 1987.

Science and technology

The development of science and technology in Taiwan can be divided into two

stages: labor intensive, which spanned from 1952 to 1985, and technology intensive, which

is the period after 1985. During the former stage, major emphasis was given to introducing

production, managerial and marketing technology from abroad, achieving an efficient use of

labor and capital and quickly adopting advanced production methods to make Taiwan's light

industries internationally competitive. The later stage has been highlighted by the

government's strong support to applied technological development and the promotion of

technology-intensive industries.

Total R&D spending rose from 0.96% of

GNP in 1984 to 1.81% in 1995 and is expected to reach 2.15% of GDP in 1997. The private

sector overtook the public sector in R&D spending for the first time in 1993 and,

since then the private sector R&D expenditures have grown much more rapidly than those

of the public sector. From 1982 to 1996, high-tech intensive products increased their

share in the total exports from 18% to 40%.

Social security

The government has enacted a new social security legislation and is also working

for the improvement in the quality of the existing services. These efforts are reflected

in the steady rise in public spending on social security, from 9.6% of total government

outlays in financial year 1970 to 20.7% in the financial year 1996, and an increase in the

proportion of the population eligible to receive social security benefits, from 10.9% in

1965 to 57.5% in 1994. The government has been taking steps to strengthen and expand its

social safety net. Currently in the planning stage are an annuity system for the elderly,

job counseling and other services for the native minorities and social security programs

for farmers and fishermen. In March 1995, the government introduced a universal health

insurance program. n

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