Taiwan's Economic Resilience
TEN years ago this month the United States terminated diplomatic relations with Taiwan and established nation-to-nation ties with the People's Republic of China. As a result, Taiwan lost official links with its most important friend and ally. The event was a blow to Taiwan economically. President Chiang Ching-Kuo ordered the stock market closed. When the market reopened, it lost 52 points (9 percent of its value) in two days. Housing prices fell. The Taiwan dollar dropped to 46 to one US dollar. (The official rate, which was very close to the trading rate, was 36.)
Many observers felt Taiwan's diplomatic defeat would lead to isolation, being dependent on exports, and it would collapse economically. Moreover, China was poised to compete with Taiwan in the international marketplace, and many thought China would succeed.
These predictions have proven wrong. Ten years later Taiwan is doing surprisingly well.
A decade ago, Taiwan's gross national product was less than $20 billion. The per capita income was around $1,000. Today its gross national product is near $100 billion - up five-fold. Per capita income is over $6,000 - making Taiwan no longer a developing nation.
Taiwan's foreign trade has grown much faster than the gross national product and has continued to be the dynamo behind growth. Recently, Taiwan's foreign commerce passed the $100 billion mark, to make it the 12th largest trading nation in the world - bigger than China, which is 60 times its size.
Taiwan's foreign reserves amounted to just over $1 billion at the time of derecognition; its foreign debt was much larger. Because of its growing trade, (with exports increasing faster than imports), Taiwan now has $76 billion in foreign exchange - ranking it the No. 2 nation in the world, second only to Japan.
Taiwan's currency, (worth 46 to the US dollar in early 1979), is pegged at 28. And $10 billion in speculative money is invested in Taiwan with the expectation that it's dollar will appreciate further. The savings rate is near 40 percent - the highest of any nation in the world. This reflects confidence in future economic growth. There is no shortage of money to start new enterprises. In fact, Taiwan is making successful transition to capital and knowledge intensive products. It is the world's leading producer of small calculators and computer parts.
Foreign investment is also up. The stock market in Taiwan is now the third largest in the world in capitalization. It grew by nearly 300 percent in the last year. And land in some places is more expensive than in Manhattan, even though tall buildings are banned because of earthquakes.
Why has Taiwan succeeded in the face of such adversity?
First, it is a nation that is accustomed to difficulty, sacrifice, and hard work. In 1950, the Nationalist Chinese had little hope. Mao Zedong was about to invade Taiwan. It was over-populated, and its economy was in shambles. Taiwan was described by some as doomed. But it survived.
Taiwan's populace wants to keep the prosperity they have since earned; they don't want to live under communism.
Second, Taiwan's economic success up to 1979 was built upon astute government planning, capitalism, a free market, foreign trade, and a work ethic: the proven ingredients for success. The loss of diplomatic ties with the US didn't change this system. So Taipei could substitute economic ties for diplomatic relations. It even has given economic help to China, making Chinese leaders question the wisdom of using force against Taiwan.
Finally, Taiwan was and is viewed by many as a model: of growth with equity under capitalism, of economic-producing democracy, of trade - making it prosperous. Therefore, most countries want to see Taiwan survive, and have acted accordingly.