Republican Reference - Area (sq.km) 35,980 - Population 23,071,779 - Capital Taipei - Currency New Taiwan dollar (TWD) - President Ma Ying-jeou

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Key Economic Data 
 
  2012 2009 2008 Ranking(2012)
GDP
Millions of US $  474,000 (est)       27
         
GNI per capita
 US $
Ranking is given out of 213 nations - (data from the World Bank)

 


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Background:
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: 111 - (26/10/13)

Is Taiwan burning?
While Taiwan's export-oriented economy continues to languish in the doldrums, President Ma Ying-jeou appears to be single-mindedly focused on building a legacy for his presidency defined in terms of the cross-straits issue and building the relationship with China, rather than in giving support to his domestic constituents. With a popularity rating that last month plummeted to single digits and the Asian Development Bank now blaming poor governance for the root cause of Taiwan's economic backtracking, some observers believe that Ma has taken a leaf from the Roman Emperor Nero and is (metaphorically) fiddling while Taiwan is burning.

This year Taiwan's 'Double-10) National Day commemoration was hardly a celebration, with the public banned from the main event and a heavy police presence intended to discourage all but the most diehard activists. Ma's speech to the nation appeared to give more encouragement to those on the Chinese mainland urging unification than to the nation that elected him to govern.

The latest update to Asian Development Outlook 21013, issued by the Asian Development Bank has put Taiwan last among the four Asian tiger economies and has cut the economic growth forecast for this year from 3.5 per cent to 2.3 per cent. This is slightly more pessimistic than the official forecast of 2.31 per cent issued by the government's own Directorate General of Budget, Accounting and Statistics (DGBAS): While acknowledging that a poor external environment had to shoulder some of the blame - particularly for Taiwan's sagging export performance, the ADB report clearly stated that poor governance was the root cause of the problem. Yet, the government, and in particular President Ma Yiing-jeou continues to ignore such concern and has his legacy firmly fixed (some would say 'fixated') on cementing the 'one-China' principle. Does he have designs for a role on a bigger stage?

Last month we reported on the political standoff between veteran legislator and Legislative Speaker, Wang Jin-pyng and President Ma. Wang and Ma represent rival factions within the ruling KMT party and the feud between these two men was widely interpreted as further evidence that Ma would brook no internal opposition in his efforts to enforce his policies on the Party and, indeed, on the country. Ma wanted the popular Wang removed from his post, expelled from the party and - as a 'legislator at large' (meaning elected on the basis of proportional representation rather than a single-seat constituency - removed from the legislature where, at 73 years of age, he was expected to slide into oblivion.

But Wang refused to kow-tow and elected to take the battle over his removal to the courts rather than to the party disciplinary committee. The battle between the two men continues to be played out in the public arena with claims that, while President Ma holds himself up as a defender of the Constitution, the allegation against Wang - trivial though it is - was on the basis of evidence gained by the Prosecutor-General through illegal wire tapping. Once again the impartiality of the Taiwanese justice system has been called into question with claims, not without foundation, that the courts - and in particular, the office of the prosecutor - are once again serving the interests of the president and the ruling party and that in such an environment, judicial actions often bow to political expediency.

The feud remains unresolved but it seems differences were set aside, at least temporarily, for the celebration of the 'Double-10', Taiwan's National Day that commemorates the start of the Wuchang Uprising of October 10, 1911 - an event that led to the collapse of the Qing Dynasty in China and the establishment of the Republic of China on January 1, 1912. The Kuomintang (KMT) as a party dates its origins from that time. Both Wang and Ma shared the podium for the flag-raising ceremony though this year, and breaking with tradition, the general public were not invited. Instead there was a heavy police presence all around the presidential palace no doubt designed to stop any demonstrators that might be encouraged to protest. There was certainly plenty to protest about.

Indeed in marked contrast to the festivities that usually mark the commemoration, this year's event appears to have been a rather sombre affair. There was no given reason by the presidential office for cancelling the public ceremony but the reasons are not hard to fathom. The Ma administration remains besieged on a number of fronts with growing public anger over a number of his policies and his high-handed method of governance. In addition to public anger over the witch hunt against Speaker Wang, demonstrators have been active in recent weeks protesting such issues as the construction of the 4th nuclear power plant, land seizures and the forced demolition of homes; and, of course, suspicion over the cross-straits trade services pact and the fear in many quarters that yet another cross-straits agreement will be rammed through by the KMT-controlled legislature without proper scrutiny and thereby binding Taiwan's future ever closer to that of China.

Those that listened to Ma's National Day speech were not assuaged by his words. In his address, Ma ignored the protests and the political instability and concentrated instead on what he saw as the achievements of his presidency. He touted his efforts at economic liberalisation and the creation of an open and prosperous economic environment and projected himself as the leader bringing Taiwan to an ever more prosperous future. Fortunately, the Asian Economic Update was issued by ADB after his speech.

But it was in his handling of relations with China, that his words rang alarm bells in that it appeared to many observers that he was taking a further step closer towards the Beijing position on the form of the cross-straits relationship and the demand by China's leaders to begin a dialogue on political issues. In his speech he abandoned his former 'three noes' policy (no unification, no independence and no use of force) and described cross-straits ties as being non-state-to-state relations that had to be considered in the context of 'one China':

"The people on both sides of the Taiwan Strait are all Chinese by ethnicity. Cross-strait relations are not international relations... Each side acknowledges the existence of 'one China,' but maintains its own interpretation based on the '1992 consensus,'

Although a KMT spokesperson downplayed the shift in wording, many observers of the local political scene believe his statement further weakened Taiwan's sovereignty and was a hint directed at both Japan and the United States that cross-straits issues were none of their business. Effectively, he made the issue a Chinese internal one, thereby denying any other country the opportunity to intervene in the event of any military conflict or threat of one.

Once again it seems that Ma has sought to deflect local concern over the direction of his domestic policies by refocusing on China. The smart money suggests that it was meant to pave the way for a meeting between him and China's President Xi Jinping, perhaps at next year's APEC meeting.

This idea appears to have been reinforced by the meeting at the recent APEC summit in Bali, Indonesia between Ma's envoy to the summit, former vice president Vincent Siew and Chinese President Xi. It appeared that Xi was putting pressure on Taiwan to begin political talks when he emphasised that the problems caused by long-term political disagreements between the two sides must be resolved and could not be left to future generations. The implication in those remarks was clear.

Pundits are expecting an interim political agreement between Taipei and Beijing before the APEC meeting next year, a development that could enable Xi to attend the next summit as the leader of 'one China' with its Taiwan protectorate of 'Chinese Taipei' represented by Ma. Once that happens, it will be game over. Meanwhile President Ma continues to fiddle, apparently oblivious to the fires he has started.
 

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