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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.
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: 005 - (01/06/04)
President Chen Shui-bian inaugurated for a second term
Although Taiwan's High Court has yet to hand down its final verdict on the recount of the presidential ballot, the inauguration ceremony for President Chen Shui-bian's second four-year term went ahead as planned on May 20. Mr. Chen who is chairman of the Democratic progressive Party (DPP) won the election by a wafer-thin margin of 0.22 per cent after he and his deputy, Vice-President Annette Lu were mysteriously shot a day before the election. His narrow win and call for a referendum to push for a new Constitution in 2006 widened the ethnic divide on Taiwan, outraged the opposition and soured relations with Taiwan's major ally - Washington.
As expected the opposition boycotted the inauguration ceremony. KMT chairman Lien Chan who ran against Mr. Chen and his People First Party (PFP) counterpart James Soong, who ran against Ms Lu in the election, refused to take part, as did Taipei Mayor Ma Ying-jeou.
The election contest was bitterly fought and Mr. Chen in his bid for a second term re-opened the ethnic divide between native Taiwanese and "mainlanders" - those from families who came to Taiwan following the rout of the KMT by the People's Liberation Army at the end of the Chinese Civil War (on the mainland of China). In recent years, and especially under the watch of former KMT President Lee Teng-hui, the hostility between the two groups had largely been laid to rest. Now old wounds have been re-opened and hostilities rekindled.
In his inaugural speech, Mr. Chen struck a conciliatory tone and stressed the need for "tolerance and understanding" both with respect to Taiwan society but also with respect to the mainland of China. Indeed in his address Mr. Chen specifically pledged to improve relations between Beijing and Taipei and said he would work toward reestablishing dialogue with China.
Taiwan's High Court has completed the recount of the election votes but is not expected to issue a final ruling for some weeks.
Beijing is not impressed.
While Washington saw the inaugural speech as "responsible and constructive" Beijing, not unexpectedly took a different view. It took China a full week to respond and to brand Mr. Chen as being "insincere."
Zhang Mingqing, a spokesman for the Chinese cabinet's Taiwan Affairs Office, said that Mr. Chen's speech implied he has not given up the intention of moving Taiwan toward independence. The spokesman went on to say that if Mr. Chen were sincere, he would recognize that Taiwan and the mainland are part of the same country.
While Mr. Chen, during his first term in office backed away from his party's official stance of advocating a formal declaration of independence from China to replace the de facto independence that Taiwan has achieved since becoming self-governing in 1949, China has relentlessly pushed Taiwan to accept the "one country - two systems" formula it applied to Hong Kong and to Macau. This formula has never been acceptable to either of Taiwan's two major political parties: the difference is that the KMT has advocated allowing the status quo to remain ("letting sleeping dogs lie") while Mr. Chen has in recent times advocated altering Taiwan's constitution - a move that many in both Beijing and Washington fear may be an excuse to formalise independence and provoke Beijing into retaliatory action.
The belligerent language used by Beijing in its formal response to Mr. Chen's inaugural address appears to indicate that China has dismissed any conciliatory overtures and has decided to keep a steady course in pressuring Taipei to accept China's terms. Beijing may also have one eye on the coming U.S. presidential election and a number of analysts believe that any movement on the part of China - if indeed there is any at all - will have to await the outcome of the U.S. poll.
Other analysts have paid greater attention to a statement from Beijing issued 3 days before the inauguration - on May 17 - and which appears to indicate that Beijing is adopting the "carrot and stick" approach in order to get some movement out of Taipei. That statement, issued in the name of two Chinese government agencies that deal with Taiwan affairs held out the promise of significant rewards for Taipei including closer economic cooperation and a role in international affairs should Taiwan give up seeking to become an independent state. A spokesperson for China's foreign ministry denied that China was becoming "soft" on Taiwan. Rather (he claimed) it reflected an attempt by Beijing to inject some fresh ideas into the approach to peaceful reunification. The proposal from some quarters in Beijing to adopt a "reunification law" should be seen in the same light and as an attempt by China to counter the U.S. Taiwan Relations Act.
Reunification - by the Opposition
Reunification between China and Taiwan may not be on the cards for the foreseeable future but one other form of reunification is certainly being contemplated. Taiwan's two main opposition parties have announced plans to merge by the end of this year. Leaders of the Kuomintang, the main opposition Nationalist party that ruled Taiwan for more than 50 years have agreed to combine with the People's First Party (PFP) of James Soong. Mr. Soong left the Nationalists in 2000 to run for president against KMT Chair, Lien Chan and both lost because of the divided vote. This year the two leaders combined forces but were narrowly beaten by Mr. Chen and the DPP.
While spokespersons for the two groups have put a positive spin on the planned merger claiming that it will provide a stronger and more organized opposition ahead of the December legislative elections, many doubt that the merger will be anything more than cosmetic. Taiwan's opposition is fractious and about the only thing that really unites them is their opposition to the DPP. The PFP generally draws its support from those who formerly were part of the more conservative wing of the KMT and can be expected to resist calls by the more progressive elements within the party for further (and more democratic) reforms.
The Kuomintang - the party of Sun Yat-sen - ruled Taiwan since its independence from Japan in 1945 and moved its seat of government to Taipei in 1949 after facing defeat on the Chinese mainland. Initially ruling under martial law as a one-party dictatorship, the party slowly eased martial law following the death of Chinese nationalist leader Chiang Kai-shek. Lee Tung-hui was the first native Taiwanese, himself a KMT member, to assume the presidency. In 2000, President Chen became Taiwan's first leader from outside the Kuomintang to assume the presidency.
Taiwan's economy is showing signs of renewed strength. The growth rate of GDP reached 6.28 percent for the first quarter of 2004 up by 1.12 percentage points from the estimated 5.16 percent achieved in February. Improved export performance and a surge in private investment - up respectively by 18.6 percent and 21.7 percent in Q1 2004 were the main contributions to the improved performance.
As a result of the strong showing in the period to end-March the Directorate General of Budget Accounting and Statistics (DGBAS) has revised upwards its estimates for the year as a whole. The government is now predicting that GDP growth this year will come in at around 5.4 percent - up 0.67 percent from the 4.74 percent growth level predicted in February: on a quarterly basis the government is hoping for a growth figure of 6.77 percent, 4.6 percent and 4.18 percent for the next three quarters.
Further large scale investments are already in the pipeline including the Formosa Group's sixth naphtha cracker plant as well as development of the nation's DRAM (dynamic random access memory) chip making, optoelectronics and textile sectors, The government expects that Taiwan's private investment may grow an average 22.9 percent for the year and that this will contribute 2.6 percentage points to the nation's full-year economic growth.
Domestic consumption is expected to see a 3 percentage-point increase this year, and may contribute 1.8 percentage points to the nation's full-year economic growth, the government believes.
Taiwan's consumer price index (CPI) also bottomed out to see 0.51 percent growth in the first quarter with an estimated 0.8 percent for the full year. However, rising oil prices could negatively impact the nation's CPI, which could contract by 0.11 percent if the price of oil rises by one US dollar.
Taiwan, Indian IT software organizations to hold talks over cooperation deals
Taiwan's information-technology (IT) enterprises and their Indian counterparts will hold talks in Taipei over cooperation deals as the first step of materializing their idea that cooperation between them is business conducive for both sides, China Economic News Service (CENS) reported.
The Indian National Association of Software and Service Companies (NASSCOM), the premier trade body and the chamber of commerce of the IT software and services industry in India, will organize 10-some member companies, under the lead of chairman, Kiran Karnik, to join the meeting.
According to Taiwan's insiders, the Indian companies to visit the island are big players that have long-term partnerships with European and American multinationals. They said these Indian companies hoped to enter into alliances with the island's IT manufacturers.
Consulting-service company TCS of the Indian delegation plans to open a research and development unit in Taiwan. Satyam of the delegation has opened a branch in Shanghai of mainland China.
Invited by Taiwan's government-backed IT think tank Institute for Information Industry (III), the Indian delegation will visit the Computex Taipei computer trade show and will hold a conference addressing co-development of overseas markets with its Taiwanese counterparts at the sideline of the show. The meeting will be co-organized by III, Industrial Technology Research Institute (ITRI) and the Economic Daily News, a sister publication of China Economic News Service (CENS).
Taiwan's industry watchers analysed that the cooperation between the two sides will largely benefit them on grounds that Taiwan is a world leading supplier of contract electronics devices while India is noted for its software industry. India is a potential market for IT products with its population of one billion buying only four million computers a year, on average.
Last year alone, Indian IT industry reported revenue of US$9.5 billion, up 25% from a year earlier. Software industry accounted for around 58% of the 2003 revenue, with its over 3,000 companies.
The lucrative market potential has piqued interest of Taiwan's IT companies including Asustek Computer, Giga-Byte Technology, Acer, BenQ and Elite-Group Computer System to tap.
For Indian companies, Taiwan is an important market. NASSCOM vice chairwoman Sangeeta Gupta said the Indian trade delegation would use the visit as a chance to scramble for Taiwan government's digitised-service contracts. The vice chairwoman felt that Taiwan's outstanding IT hardware industry and India's software profession could form a synergy partnership.
III pans to send some of its software personnel to receive training in India while two to three Indian companies plan to ink cooperation deals with Taiwanese companies this year.
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