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  2002 2001 2000 Ranking(2002)
Millions of US $ 406,000      
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 US $ 18,000
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Taiwan today is one of Asia's powerhouses and a centre for high-tech exports. The economic crisis that engulfed much of Asia in the late 1990's scarcely caused a ripple in the boardrooms of Taipei. The Taiwanese people enjoy one of Asia's highest living standards. Taiwan is a net exporter of capital to the region and Taiwanese companies are themselves seen with increasing frequency on the regional and global business stage. Taiwan's foreign exchange reserves are the third highest of any country in the world.
In the last ten years Taiwan has embraced both a democratic multiparty government system and an outward looking economy that meets WTO standards of transparency and competition. Taiwan has entered the new millennium with well-deserved confidence. Yet, Taiwan has not yet come of age entirely. Diplomatically Taipei remains isolated and is recognised by fewer than 30 countries. While judged by objective criteria Taiwan would not only qualify for membership of the United Nations but would be one of its major regional players, the world is not yet a rational place and, like it or not, the looming presence of mainland China is sufficient to guarantee that this will not happen, any time soon. 

Taiwan's History - The "Other China"
The original inhabitants of Taiwan (or "Formosa as it was known to Europeans), its aboriginal people, are of Malay descent although how and when they arrived in Taiwan is unknown. They have much in common with the people of the Northern Philippines. It was these aboriginals that the early Portuguese and Dutch traders seeking to establish a base on the China coast had to contend with and not the Chinese. However Chinese seafaring merchants had the advantage of proximity and they were the ones who first sought to establish permanent settlements along the Formosan coast. In the fifteenth and sixteenth centuries the Chinese came in increasing numbers forcing the natives from the narrow fertile plain that runs the length of the western seaboard and into the harsh mountainous areas of the interior.
In 1682, the Island of Formosa was formally incorporated into the Chinese Empire as part of Fujien province and it was not until 1885 that Taiwan became a separate province of China. The truth of the matter was that Chinese sovereignty in Taiwan was never absolute and extended only to those areas of population under Chinese control. Taiwan was, in the words of one contemporary writer, "a crude and lawless place". Control over the aboriginal tribes was non-existent and acts of savagery against Japanese traders (and others) provided the pretext for Japan to seek to incorporate Taiwan into the Japanese Empire.
At the dawn of the 20th century Taiwan was a colony of Japan having been ceded by China in 1895 during the final days of the Manchu regime. Yet, Taiwan prospered. The early trade in camphor which had been an economic mainstay of the island during the 19th century had already withered because of over-harvesting although trade in tea and sugar flourished and formed the basis of Taiwan's early industrial development. Railway lines were built or extended and new harbour facilities established. Importantly, whereas traditionally the centre of power and wealth under the Chinese had been in the south of Taiwan, during the Japanese colonial period the focus shifted irrevocably to the north of the island. Taipei developed as a city and capital of the island and Keelung became the major port for trade with Japan - the port of Tamshui which had traditionally carried the trade in the 19th century had already silted up and could not accommodate the larger draught vessels of the time.
In the closing days of the Second World War, the allied powers agreed at their Cairo meeting that Taiwan would be returned to China with the defeat of Japan. However, China at the time, while one of the allied powers, was locked in a bitter civil war. Unsure as to whom Taiwan should be ceded, it became for a while a UN Trust Territory.
General Chiang Kai-shek, the Nationalist leader eventually accepted Taiwan back from Japan to be administered on behalf of the allies pending a final settlement. From 1945-1949, Chiang paid little attention to the Island province as increasingly the nationalist armies fighting on the mainland were being overwhelmed by the Communist forces.
However, in 1949 the war on the mainland was coming to its conclusion with the Peoples Liberation Army triumphing over its Nationalist counterpart. Chiang, his army and his administration fled to Taiwan.
On the Chinese mainland, a new "Mandate of Heaven" prevailed. The old Republic of China was replaced by the Peoples Republic of China. On the island of Taiwan however it was a different story. Taipei at once, became the temporary capital of the "Republic of China" established by Sun Yat-sen in 1911 and Taiwan became the "unsinkable aircraft carrier" To the Nationalists that came with Chiang, Taiwan was no more than a temporary base from which to regroup, rearm and retake the mainland. Things did not work out that way.
To the local Taiwanese, the arrival of the Mandarin-speaking mainlanders and a large army amounted to a new invasion and new colonisation especially as Taiwan was immediately placed under a harsh martial law regime that existed well into the nineteen-eighties. Rebellion and dissent were brutally repressed in the early years in what came to be known locally as the period of "white terror".
Had it not been for the outbreak of the Korean War, Taiwan's story of the past fifty years may have been differently written. Korea bought valuable time for the Nationalists and shifted Beijing's focus to its northern border rather than to the far south. The Nationalist (Kuomintang or "KMT") administration may have been inept at fighting a war but they proved highly effective in restoring and then transforming Taiwan's economy. Taiwan was the first of the Asian tigers to develop on the basis of an export led path to economic prosperity.

A success story
As the economy prospered, the military-backed dictatorship became more benign. Land reform brought with it economic emancipation and the beginnings of industrialization based on family-owned companies. Martial law was lifted in the mid-nineteen eighties and dissident political groups that had been around for some time were transformed into genuine political parties. Restrictions on press freedom were lifted and censorship largely abolished. Democracy has flourished on Taiwan.
The last decade has been one of dynamic and at times frenetic change both economically and politically. A government program of industrial restructuring and incentives has been largely successful in shifting Taiwan from being a low-cost manufacturing centre to that of a regional centre for high-tech manufactured goods.
Divisions between "mainlanders" and "Taiwanese" have largely been healed - certainly for the younger generation and the Government has done much to atone and set to rest some of the worst excesses of the martial law period. Nowadays it is more fashionable to be called one of the "New Taiwanese" rather than a "mainlander". 

Taiwan and the PRC
Taiwan, or to give it its full title "The Republic of China" is a fully independent country. Its population enjoys universal suffrage; it maintains a free press and a democratic electoral system. The President of the country is elected directly by the people. Yet as noted already Taiwan is a country that is isolated diplomatically.
The anomalous position in which Taiwan finds itself is yet one more consequence of the Chinese Civil War. Taiwan, long ago gave away any claim to the mainland of China and has recognised the PRC as the legitimate government of the Chinese mainland. The gesture has not been reciprocated. Instead China maintains steadfast to a policy that Taiwan must be reunited with the Chinese mainland. Ominously, China claims the right, if necessary, to use force to "liberate Taiwan". In Beijing's eyes, Taiwan's only option is to negotiate the terms of its surrender.
The Chinese claim rests on tenuous grounds. Throughout its history Taiwan was only a province of China for a mere ten years during the nineteenth century and even then Chinese administrative control did not extend throughout the Island. While China has advocated the "one country - two systems" formula applied to Hong Kong and Macao as the basis for reunification; commentators are quick to point out that the situation in Taiwan is entirely different. There is no colonial administration present in Taiwan that could hand sovereignty back to China, nor can the government here negotiate a surrender of sovereignty not sanctioned by the people of Taiwan. These are points that many Taiwanese - "new" and "old" alike feel are not understood in Beijing. Certainly popular sentiment in favour of reunification of Taiwan with the Chinese mainland at the present time is close to zero. Nevertheless, it did not stop the emergence of one candidate in the Year 2000 Presidential election running on the platform of reunification under the Deng Xiaoping formula. He scored less than 1% of the vote.
Talks between Taipei and Beijing have been going on for almost a decade now without any real sign of progress on the substantive political question. Two fundamental issues divide the two sides. While China seeks to negotiate the return of Taiwan to China on the basis of treating Taipei as the seat of a renegade provincial government, Taiwan insists that the two sides negotiate as equals. Taiwan also sees any reunification question as being a matter for the distant future and after China has itself democratised. For the time being, Taiwan wants confidence building measures at the top of the agenda.
Despite conciliatory statements by the incoming government of Taiwan, China has refused to adopt a more conciliatory position and has remained hostile to Chen and the DPP. This has led in turn to a more robust assertion of Taiwan's intention to take its own course and not to toe a PRC dictated line.
All of this means little for foreign business. Despite the grandstanding that takes place on the political stage, international companies are free to do business on either side of the Taiwan Strait without hindrance. Taiwan is collectively itself one of the largest investors in the mainland. 

Present Political Environment
The presidential election of March 2000 saw a shift of power from the Nationalist Kuomintang (KMT) Party that had ruled Taiwan for almost fifty years to that of the Opposition Democratic Progressive Party (DPP). A human rights lawyer who had been imprisoned in the nineteen-eighties for his political activism, Chen Shui-bian, became President although within Taiwan's unicameral legislature, the KMT has still maintained a majority of seats. 
Chen's own administration has been helped by the fact that following its defeat at the presidential polls, the KMT fractured. One faction (the Taiwan Solidarity Union) led by former (KMT) president Lee Teng-hui aligned itself with the DPP while another faction led by former Taiwan Governor, James Sung, formed a breakaway right-wing splinter group known as the "People First Party" (PFP). 
Despite the political realignments of the past few years, Taiwan maintains to all intents and purposes a bi-party political system. Both the KMT and the PFP have formed the "Pan Blue Alliance" and will run with a common slate at the 2004 presidential polls. By contrast the combination of the DPP and the TSU is commonly referred to as the "Pan Green Faction."
On economic policy both major parties are centrist and there is little to chose between them. Rather it is on the issue of the relationship with China where opinions divide. On other issues, the most defining issue for the present government is its commitment to human rights (with women's issues and those related to other minorities being prioritised) and to democratic reform. Of course, there is a political edge to this too in that it seeks to differentiate its own track record with the historic record of the KMT which for many years was solely a party of authoritarianism.
The Opposition KMT and PFP are dominated - at least in leadership positions - by people who can trace their recent inheritance back to the mainland of China and those families who came over to Taiwan with Chiang Kai-shek at the closure of the Chinese Civil War. These people are still inclined to see the relationship with Beijing as a familial squabble and that, in the fullness of time will allow Taiwan and the Chinese mainland to reunite (although not under a Communist government). 
By contrast the Democratic Progress Party and the Taiwan Solidarity Union are dominated by ethnic Taiwanese (85% of the population) who while acknowledging their Chinese ancestry have no kinfolk on the mainland of China and have no desire to reunite Taiwan with it.
With presidential elections approaching again in March 2004, President Chen Shui-bian is again standing for re-election with his outspoken Vice-President Annette Lu again as his running mate. The opposition alliance has KMT Chair Lien Chan as its standard bearer with the PFP's James Soong eying the vice presidential slot. 

Political Outlook
Between now and the elections of March 2004 both major political groups will be seeking to play the "China card" in their attempts to garner support of the voters. The DPP often presents the Pan Blue alliance as the group that would sell-out Taiwan's interests to Beijing, while the Pan Blue camp seeks to portray Chen as a dangerous pro-independence advocate and one who is heading a party whose stance might provoke Chinese military action against the Island.
In fact the two groupings are not so far apart and it is unlikely that either side would take extreme measures to destabilize the situation across the Taiwan Straits. Nevertheless the DPP is keen to show the world that the present impasse is caused by a belligerent and recalcitrant China that not only refuses to renounce force to reunite Taiwan with the "Motherland" but also has more than 400 armed missiles pointed at the Island.
In fact whichever party assumes office following the election, the situation is unlikely to change dramatically. Both major groupings are committed to the democratic process (and indeed it was the KMT that introduced and fostered democratic reforms) and both see the unofficial alliance with the United States (as stated in the US-Taiwan Relations Act) as the cornerstone of Taiwan's foreign policy.
While the people of Taiwan overwhelmingly reject reunification with China this presumption has never been tested directly at the polls, which is why the DPP wants a referendum on the issue (and why Beijing for its part remains adamantly opposed). No matter the outcome, neither group really intends to change the status quo. What they are seeking to do is to demonstrate the absurdity of the Chinese hegemonistic position.
For the most part, Taiwan will continue to evolve much as it has done in recent years but with a DPP government there will be less of an international perspective both to its decision-making and in the manner in which it internationalizes its own economy. Under the DPP the hire of foreign labor is being discouraged, there is much less emphasis on English as a second language in government and in business (although the teaching of English in schools is widely fostered) and a much greater fostering of "Taiwanese nationalism." The KMT by contrast is generally credited with a better weltanschauung. 
Both groups accept that there is a need for constitutional reform although the manner in which this is to be introduced differs between them. The DPP want to scrap the present constitution (which really has served Taiwan remarkably well) and replace it with a new one that de-emphasizes the "Republic of China" as Taiwan is officially called. By contrast the Pan Blue alliance see a need to amend the constitution without seeking to throw it away entirely. This issue is likely one that will be given greater prominence in the months to come.

Economic Outlook
Taiwan has made great strides over the past ten years to open its domestic economy to international competition. For both commercial and strategic reasons, Taiwan has sought a role for itself as a regional hub and an alternative centre to Hong Kong and Shanghai from which to develop the China market. Lack of direct transportation links with the Chinese mainland continue to hamper efforts so far in this direction but progress has been rapid in other areas that are not dependent on direct links with the PRC.
Although not yet succeeding as a regional centre - Singapore and Hong Kong remain the favourites of international business - Taiwan is an important market in its own right although not one for the faint hearted. Taiwan's industry is becoming increasingly dependent on the export of higher value-added products and they are major purchasers of industrial plant and equipment. Major infrastructure projects underway in the telecommunications, energy and transportation sectors provide major opportunities for foreign engineering and technology-based companies. An affluent population of 22 million, fashion conscious and with a high propensity to spend provides a consumer market ready to try new trends and fashions. Increasingly the younger generation takes its cue from Japan rather than the United States. In recent times the DPP led government has placed less emphasis on the broad regional centre approach to one that is more focused on building Taiwan as a high-tech manufacturing hub.

GDP Growth and Forecasts
Taiwan's economy is driven by trade and especially exports to the markets of the United States, Japan and Europe. These are major markets for Taiwan's rapidly growing high-tech sector. For the past decade, the drivers of growth have been the semiconductor and related electronics industries although there is now a new emphasis on the emerging "sunrise opportunities" in the biosciences and in such areas as nanotechnology. Much of the required technology comes from overseas in various ways. Like Japan before it, the Taiwanese are good "adaptors" but less good at "innovation" and "research."
In 2003 the domestic economy was hard hit by the outbreak of severe acute respiratory syndrome (SARS) and the U.S.-led war in Iraq. However in the second half of 2003 it caught the wave of the worldwide economic recovery and this is expected to reap even better results for Taiwan in the next year. It is now obvious that Taiwan's growth rate needs to be compared to those achieved by other OECD economies and not the norms of the developing world. 

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Update No: 003 - (24/03/04)

President Chen Shui-bian Scrapes Home
Taiwan's president, Chen Shui-bian has won re-election in the March 20 election but by an extremely narrow margin. The poll went ahead as planned one day after Mr. Chen and his Vice-President Annette Lu, survived an apparent assassination attempt during a motorcade through Mr. Chen's hometown of Tainan in southern Taiwan.
Mr. Chen had been trailing his conservative rival, KMT chair Mr. Lien Chan for most of the campaign although the informal polls held just ahead of election day appeared to show that he was closing the gap and in the final days of the campaign it appeared that both candidates were in a race that was neck and neck. In the event Mr. Chen defeated his rival by a margin of less than one percent or some 30,000 votes. Many observers believe that Mr. Chen was helped past the post by a sympathy vote following his wounding. As one commentator noted, "it bought out the borderline Chen supporters who might otherwise have stayed home on election day."
So far the opposition camp has refused to concede defeat and instead has chosen to claim that the election was "stolen" from them. Mr. Lien filed an appeal against the election after the results were announced, demanding both a recount as well as an investigation into alleged (but unspecified) irregularities. The Lien camp also questioned the assassination attempt against President Chen one day before the polls and some went as far as to claim that Mr. Chen had staged the incident himself-a claim that has provoked a storm of indignation from a number of quarters and the rejoinder that Mr. Lien and his camp are "sore losers."
More likely the Opposition simply did not get its arithmetic correct. There had been an assumption that the reason they lost in 2000 was because it was a three-way contest and that in a two way contest the opposition had the numbers. In fact, and has been pointed out by a number of analysts, the more hard-liners among the opposition were not aligned with the KMT but rather with the PFP of James Soong. With an overall support base of around 40 percent of the population, the DPP tactic in this election had been to erode the middle ground-the 20 percent of voters that had supported Lien Chan. The result suggests to many that in fact the DPP did succeed in picking up its extra 10 percent not from DPP stalwarts but from the moderates in the KMT alliance. If this analysis is correct then it has far-reaching implications for the future of the party that had prior to 2000 governed Taiwan for more than 50 years.

Opposition Does Not Concede Defeat
The Opposition camp was clearly not happy with the result and has refused to concede defeat calling the election a "fraud" and claiming that the result was "stolen" from them. On the Saturday evening following the closure of the poll and the declaration of the result (which was made by 9:30 pm the same evening), the Opposition alliance was rallying its supporters across Taiwan and at one stage it appeared that widespread rioting from supporters of the conservative coalition was a possibility. While isolated incidents were reported, there was no general insurrection as some had feared.
Subsequently, Mr. Lien together with his running mate James Soong, Chair of the People First Party (PFP) filed an application to the Taiwan High Court asking the court to seize all the ballots from Saturday's presidential election and stage a recount. This has been done and the DPP itself has said that it has no objection to the recount.
The opposition has in fact filed two suits under the Public Officials Election and Recall Law: the first seeks a recount of the ballot while the second seeks an annulment on the grounds of fraud. Taiwan High Court's Court No. 9, has now been convened as an "election court," to take charge of the case. An "election court" presides over all election-related disputes. There are three election courts with nine judges at the High Court. The law also stipulates that both verdicts must be handed down within six months from the day the Taiwan High Court finishes all necessary legal processes prior to the judges beginning to hear the case.
Independent observers believe that the poll was generally fair and honest and have discounted any suggestion that there was widespread fraud or a conspiracy to frustrate the will of the people. Rather the press has suggested that the KMT and the PFP (which to all intents and purposes is the same animal but under different leaderships) are sore losers and cannot adjust to the idea that they could lose an election a second time around. 

A Good Result for the DPP
Despite the narrowness of his margin of victory (assuming it is sustained), President Chen and his Democratic Progressive Party (DPP) have every reason to be pleased with the result. In the 2000 election, Mr. Chen won 39.30 percent of the vote and emerged the victor in a three-way contest. In that year Mr. Soong came second with 36.84 percent of the vote while Mr. Lien trailed with only 23.10 percent. In fact, and as a number of commentators have pointed out, the DPP has traditionally only been able to secure around 35 percent of the vote. This time its share of the vote rose to above 50 percent.
According to the Central Electoral Commission Of the 16,504,179 people eligible to vote, 13,251,719 did so representing a turnout of 80.288 percent. The total number of valid ballots cast yesterday was 12,914,422 of which. 6,472,51 were cast for the Chen-Lu ticket winning (50.11 percent of total eligible votes), while the Lien-Soong ticket won 6,441,912 votes, or 49.89 percent of the total. The number of invalid ballots, perhaps the crux of the matter, was 337,297, or 2.5 percent of the total ballots cast. 
Mr. Chen's margin of victory was 30,598 votes, or less than one quarter of one percent of the total valid votes. This is one reason why the Opposition suspects foul play in the election. The other reason is the referendum result.
In this year's election, the northern region-comprising Taipei City, Taipei County, Keelung City, Ilan County, Taoyuan County, Hsinchu City and Hsinchu County-the Lien-Soong ticket won 54.77 percent to Chen-Lu's 45.23 percent of valid votes. In Taipei City, the Lien-Soong ticket won 56.53 percent to Chen and Lu's 43.47 percent. 
In the south of Taiwan, the DPP again pulled in its strongest support gaining more than 55 percent of vote in Chiayi, Tainan and Kaohsiung.
Overall, the DPP improved its vote in all areas and made significant inroads into areas that were traditionally support bases for the pan blues. This included the Hakka strongholds of Hsinchu, Taoyuan and Miaoli.

The Referendum is Defeated
One of the major controversies surrounding the presidential election was the decision made by President Chen and his party to hold two referendums on the same day as the presidential poll. The questions were simple enough: the first issue was whether to set up a mechanism for talks with China and the second was whether to increase national defences against Chinese missiles aimed at Taiwan. 
The opposition alliance (known as the "Pan-Blue" camp), overall takes a more conciliatory line towards Beijing than does the DPP and had campaigned heavily against the holding of any plebiscite Indeed the questions asked were politically loaded to draw distinction between the DPP position with regard to the Taiwan-China relationship and that of the Pan-Blues and the latter had asked its supporters to boycott the referendum. China also had been vitriolic in its condemnation of the referendum believing it to be one step removed from a formal declaration of independence.
In the end both the referendum questions were defeated but not because a majority of people voted against them; rather because the referendum failed to receive the support of 50 percent of registered voters, as required for passage. 
Nevertheless, from the perspective of President Chen and the DPP, the referendum served its purpose in galvanizing their supporters into turning out to vote and in making a clear demarcation between the "Taiwan First" slate of the DPP which advocates dealing with China on the basis of equality and that of the KMT which at times has appeared almost to follow a policy of appeasement in dealing with Beijing.
At the same time, the defeat of the referendum-no matter the explanation of it-has given the government of Taiwan a breathing space to back away from any further action that could inflame Beijing. In fact from the point of view of President Chen, it was possibly the best of all possible outcomes, the referendum served its purpose in galvanizing support on polling day and its failure assured that Beijing could not see the outcome as further provocation.

Reaction from Beijing
Beijing had been remarkably quiet in the run-up to the election. Its distaste for the politics of Chen Shui-bian and the DPP generally was well enough known already and to comment further would have only been received with even greater indignation by most Taiwanese with the result that Mr. Chen's support base would have grown even stronger. Instead China had confined itself initially to commenting on the referenda and had made its position known in no uncertain terms: it viewed the two referendum questions as being a first step towards a plebiscite for Taiwan's independence. The questions themselves were largely immaterial: seeking the will of the people through a referendum has no place in the "one country-two systems formula advocated by China for a political solution to what it sees as the "Taiwan problem" but which the rest of the world increasingly sees as Chinese myopia.
China's Xinhua news agency did not report on Taiwan's election result until several hours after the poll had been declared and even then its story was muted and did not mention that Mr. Chen had been re-elected; rather their story concentrated on the disputed and "suspicious" results. A spokesman from Beijing's Taiwan Affairs Office, an agency under the State Council merely confirmed that China is closely watching the development of the disputed result.
China was less restrained in announcing the failure of the referendum. A statement from the Taiwan Affairs Office noted ". the Taiwan authorities insisted on holding the referendum, attempting to provoke cross-straits relations and split the country. The referendum has been rejected." ". It has been proved that the illegal measure was very unpopular. Any attempts to split Taiwan from China are doomed to fail."
In fact China can take no comfort from the result. Pressure from China over the years has slowly altered public attitudes towards China over the years and has had the unintended result of only feeding Taiwanese nationalism and sense of separate identity. In Taiwan's first ever presidential election held in 1996 China fired missiles into the Taiwan Strait and over northern Taiwan in an effort at intimidation; in 2000 while the missiles remained in their silos the level of political rhetoric was shrill and played a major role in giving Mr. Chen sufficient support such that-with the aid of a divided opposition (Mr. Lien and Mr. Soong at that time were standing as rival candidates supporting the status quo)-he emerged the victor. 
For the past four years, Beijing has refused to enter into any form of negotiations with the Chen government and has looked upon it as an aberrant regime. Instead Beijing has waited patiently for a return of a government led by the "devil it knows." After all both the Communist Party of China as well as the Nationalist party (KMT) that predates it were set up on Leninist principles (back during the 1920's when Soviet influence in China was high) and both blur the distinction between party and state. Indeed the ability of the KMT to transfer state assets (property and corporations for the most part) from state ownership to party ownership during the period of martial law enabled it to become the world's most wealthy political party (we will leave aside its involvement in the Burmese opium trade) and the recipient of a number of legal suites filed by the DPP seeking recovery of these assets on the part of the people of Taiwan.
Dealing with a government on Taiwan that is truly democratic however-and which appears to be settling in for the long haul-is an entirely different conundrum to vex the minds of Beijing's policy makers. No longer is Taiwan governed by an aberrant regime but by a democratic government that has been elected by a majority of the population (again assuming the result is held to be valid), which increasingly is finding a self-identity that is quite separate from China. The problems China is facing in Hong Kong right now are miniscule in terms of the sea change that has to be made in coming to grips with the reality of Taiwan in the 21st Century and ultimately could work in favor of greater democratization in the former colony.

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