New Taiwan dollar (TWD)
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.
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.
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.
Update No: 002 - (01/03/04)
Taiwan goes to the polls on March 20 to elect a new president for the next four years and the latest surveys appear to put the two main candidates neck and neck.
A poll conducted by one of Taiwan's leading media groups in mid February showed that Taiwan's undecided voters had dwindled in number but that neither of the two main presidential contenders-President Chen Shui-bian and his KMT rival, Mr. Lien Chan- had been able to gain a decisive edge in the campaign.
With the campaign moving into its final phase, the one single issue separating the two candidates is that of how to deal with "the China question." China regards Taiwan as a "renegade province" that it wants to see reunited with the motherland under the same formula as applied to Hong Kong and to Macau. On the other hand, the Taiwanese-who have not been ruled from the mainland in more than 100 years-see the situation slightly differently. President Chen, who is a native Taiwanese, is known to be in favor of Taiwan's eventual independence from China although for reasons of pragmatism he supports retention of the status quo with China. Many in the KMT, a political party that had its origin on the Chinese mainland and which for many years ruled Taiwan under a martial law regime with scant regard for the rights of the indigenous Taiwanese, would like to reach an accommodation with Beijing sooner rather than later.
Taiwan's Mainland Affairs Council (MAC) recently released details of a poll commissioned last year which shows that around 80 percent of Taiwan's people want to maintain the status quo vis-à-vis China, while less than 10 percent support either a declaration of Taiwan's independence or of unification with China. These latest government polls broadly confirm the results reported by other private polls on the public's stance toward the independence issue. Those polls have shown that most people favoured the status quo with China. The balance of the vote was almost equally divided between those who wanted unification and those who wanted independence.
Yet the whole issue continues to boil away. President Chen maintains that a KMT victory would result in a "sell out" of the interests of Taiwanese to Beijing. Lien Chan is quick to retort that Chen's antagonistic stance towards China endangers the safety of Taiwan.
The two main contenders faced off on February 14 for Taiwan's first-ever presidential debate in the nation's history. It was the first of three that have been scheduled in the run up to the March 20 vote. By and large it was a highly civil affair devoid of the mud-slinging and shrill allegations and counter-allegations that have marked the campaign so far. The debate - the first of three - was wide-ranging encompassing political developments, the economy, education and the legal framework. But it was the issue of Cross-Straits ties that dominated the discussion.
The debate was co-sponsored by the Taipei Society, the Public Television Service (PTS) and a newspaper group including the Liberty Times, China Times, United Daily News and Taiwan Daily. The debate itself was divided into three segments with the final segment providing an opportunity for teach candidate to question the other about their policies.
President Chen appeared to have the upper hand throughout the discussion. Mr. Chen is a lawyer by profession, a veteran street campaigner and an astute politician. By contrast, his opponent is a life-long political bureaucrat who has been likened to a general manager - perfectly good at running "KMT Inc." but less comfortable on the hustings. The difference showed.
President Chen cut to the chase and focused his questioning on the KMT's "China policy" while Mr. Lien spent much of his time focused not on policy but rather on the president's character, calling Chen "capricious," "irresponsible" and "unreliable."
The president portrayed himself as a "Taiwan first" advocate prepared to defend Taiwan against all-comers - but particularly China. He stood firm on the issue of Taiwan's sovereignty and brushed aside any notion that the issue of "sovereignty" should be put aside when dealing with China. Almost as if his comments were equally directed at an international audience (and Washington in particular), he said : "our stance is clear; that is, the national name of Taiwan is the Republic of China and we're dedicated to safeguarding the status quo across the Taiwan Strait." The president called on Lien to stop hindering the nation's first national referendum, which is scheduled to be held alongside the presidential poll on March 20.
By contrast his opponent called the government's approach toward China "dangerous" and in place of the present cautious approach to China - an approach that by implication was over-cautious - he called for a peace pact with China to last for 50 years.
Mr. Chen said that he could never accept the "one China" principle if it meant "one China; two systems" as applied to Hong Kong. Indeed the "no change for 50 years" promised by China's former paramount leader, Deng Xiaoping, was already starting to sound hollow with Beijing's opposition to further democratization within Hong Kong and its insistence that the former British colony be governed by "Chinese patriots." Mr. Lien sounded rather that he was endorsing a similar path.
As the press has pointed out in its own analysis of the debate Mr. Lien was somewhat handicapped throughout the debate by the political "baggage" he carried with him. As a lifelong advocate of "one China" he cannot readily embrace the current government formula despite his claims that he would never put the interests of Beijing ahead of those of Taiwan. That is almost certainly true but he had difficulty in finding words to articulate his viewpoint.
Mr. Lien was equally ill at lease having pointed out a number of areas where the government had "failed the people" and had it thrown back to him that this was in large measure in those areas that the present government had inherited from its predecessor - including polices that had been put in place during the period while Mr. Lien was premier. In fact as the press was quick to point out while Mr. Lien had sought to criticize the government on a number of fronts he had failed to offer solutions to the problems he claimed existed.
The president challenged his opponent to help push through a bill now before the (KMT controlled) legislature which would halve the number of legislative seats by March 20. Mr. Lien, however, remained evasive and said that it had always been the KMT's policy to halve the legislative body without offering any explanation as to why his party was not supporting the current bill. He was equally elusive on the question of "black gold" - money that accrued to the party while it was the sole legal party on Taiwan and which the government claims should really be returned to the government and the people.
Overall, it appears that President Chen has won Round 1 of the presidential debate. Round 2 is scheduled for later in the month.
Where is Washington on the Referendum Issue?
At the same time as Taiwan will conduct its presidential poll, two referenda questions which indirectly impact on Taiwan's relationship with China will be put to Taiwan's voters (see "Stepping Back from the Brink" - January 2004.) With China vehemently opposed to any referendum being held on Taiwan, Washington has found itself between a rock and a hard place.
"Powell Approves of Referendum" - at least so read the headline in one Taiwan newspaper. But, wait a moment! "Powell sees no need for Taiwan to hold referenda" claimed another local headline (on the same day). People can be excused for being somewhat confused on the question.
Appearing in mid-February before a U.S. Congressional Committee, U.S. Secretary of State Colin Powell said that he saw no need for Taiwan to hold a referendum. The remark was made before the House International Relations Committee and in response to a question posed by the U.S.-Taiwan Caucus co-chair Representative Sherrod Brown, a Democrat from Ohio.
Powell went on to add that "Taiwan is a democratic place, and if they choose to have a referenda, they can have a referenda." He also added that the U.S. administration was "not expressing support for either of the referenda" and reiterated the standard Washington line that the U.S. is against either Taipei or Beijing taking any actions to change the cross-strait status quo. At the same time he also restated the U.S. commitment to Taiwan, including to the island's security.
Washington is in an unenviable position. On the one hand it cannot but provide support to a democratic Asian state that is threatened with military action for the sole reason of it being democratic (and wanting to be more so). On the other hand it cannot alienate Beijing at a time when sensitive trade matters remain under negotiation. Indeed strengthening the Washington-Beijing relationship and the building of confidence is high on Washington's political agenda. Washington no doubt wishes the issue would just go away.
Beijing itself has not helped either and has kept stoking the fires of uncertainty. Zhou Wenzhong, Chinese vice foreign minister, claimed last month in an interview with the Wall Street Journal that Beijing "may "take military action if Taiwan continues down the referendum road." Zhou claimed "it would set a dangerous precedent, laying the groundwork for a future ballot to declare formal independence." This, Zhou warned, is an outcome that Beijing would stop "at all costs." Hardly the voice of reason but certainly a crude threat.
President Chen has once again reaffirmed his intention not to change the formal name of Taiwan and to continue to maintain the status quo across the Taiwan Strait. Whether this is enough for Beijing to live with remains to be seen. Unfortunately for China, any such threat as made again by Zhou last week will likely translate into more votes for the DPP and away from the KMT, which it appears to trust more highly. And if the year 2000 elections are anything to go by, Messrs, Lien and Soong can only be dismayed by the turn of events.
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