Asian Tiger 2: Taiwan

Taipai, capital of Taiwan

A thousand miles south of South Korea, an equally extraordinary story unfolded on the island on Taiwan. Like the South Korea tiger, the trigger to development in Taiwan was a military threat, and the Taiwan advance started under an American umbrella of defense guarantees – in this case, the Formosa Resolution of 1955. However shielded, odds were long for success. Taiwan remained farmland and primitive after a fifty-year Japanese occupation. It had limited resources to manage the burden of some two million newly-arrived refugees who evacuated the mainland with Nationalist forces in 1949, and who lived in the shadow of a hostile communist China determined to regain what it considered its “lost province.” With these refugees coming to the island, also came brainpower however – along with China’s gold stores, foreign currency reserves, and a determination to create a new, modern, independent non-communist Chinese nation.

President Eisenhower visits Taiwan, June 1960

Taiwan’s drive to prosperity began in earnest in 1959 with its 19-point “Plan for Economic and Financial Reform” including liberalized market controls, land reform that freed workers from farms to work in urban economic sectors, and a strategy of import substitution. In this regard, Taiwan developed what it called “Export Processing Zones” or “EPZs” – economic experiments that were combination industrial parks, duty-free zones and free trade areas – all to serve investors in manufacturing facilities through a single channel. The EPZs were mini-countries within the country, and the first one grew up in the southern city of Kaohsiung whose dredged harbor provided massive quantities of silt for the landfill that supported the first industrial EPZ built out into the ocean in 1966. The harbor developed into a major deep-water port for container ships in the 1970s and to this day.

The EPZ concept offered tax incentives to attract businesses, whose factories would, in turn, create jobs for local Taiwanese who worked for modest wages. The EPZ at Taichung south of Taipei hatched Taiwan’s bicycle manufacturing expertise and general sporting goods production in 1969 which today, houses NIKE’s main Asian design center. Germany’s Bosch, GmbH set up Taiwan’s first optics lens factory in 1970 along with Japan’s Canon, Inc., which opened its first overseas manufacturing facility in Taichung that same year.

The Taiwanese government encouraged foreign direct investment but also provided financing to small and medium local businesses through its China Development Corporation, as well as founding the Taiwan Stock Exchange in 1961 and its own currency, the New Taiwan dollar. A turning point came in 1971 when the United Nations expelled Taiwan in favor of the Chinese mainland, and American diplomacy began the delicate balancing of its “two-China policy” with Beijing. Still, the government of Taiwan remained confident enough in progress to lift martial law in 1987 in place since 1949. Today, Acer Inc., Foxconn, and Taiwan Semiconductor are just three of many other success stories of state-funded financial assistance as well as direct products of the “Taiwan Miracle” that started in the decade of the 1960s. Since that miracle began, real annual GDP on the island formerly known as Formosa (“Beautiful Island) has grown at a greater than 8% clip, and purchasing power parity converted GDP per capita income per capita had increased from $347 in 1960 by a factor of 92 to nearly $33,000 in 2010 (St. Louis FED). Now one of the world’s wealthiest countries, Taiwan appears to be benefiting from recent turbulence in China and Hong Kong as an investment venue; GDP growth in 2019 is tracking near 3%, fastest of the tigers.