Economic History of Taiwan - Modern History

Modern History

Main article: Taiwan after World War II See also: economy of Taiwan

After the Kuomintang retreat to Taiwan, the Taiwanese society was relatively stable politically in the 1950s. However, it faced some obstacles economically as a result of the mass destruction during World War II and the Chinese hyperinflation in the 1940s. The sudden increase in population caused by the Kuomintang migration from mainland China also affected Taiwan's economy.

Facing the economic pressure, the Kuomintang regime established several economic plans and policies. Of primary importance for the long-run growth of this economy was the commitment to education, beginning with universal elementary education, expanded to upper level schooling as basic levels of literacy were attained. The New Taiwan dollars were issued to replace the Old Taiwan dollars. Successful land reform also took place, enabled by the KMT's interesting role as recent immigrants, and not vested landowners. In addition, the United States aid also helped the reformation of Taiwan's economy.

The government also carried out an import substitution policy, taking what was obtained by agriculture to give support to the industrial sector, trading agricultural product exports for foreign currency to import industrial machinery, thus developing the industrial sector. The government raised tariffs, controlled foreign exchange and restricted imports in order to protect domestic industry. By the 1960s, Taiwan's import exchange industry was faced with the problem of saturating the domestic market. At the same time, the factories of some industrialized nations, because of rising wages and other reasons, slowly moved to certain areas that had both basic industry and low labor costs. By slow steps, the economic policy of Taiwan changed to pursue export expansion under advice of academic economists such as Ta-Chung Liu and Sho-Chieh Tsiang of Cornell University. They also promoted allowing interest rates to rise, to encourage domestic savings and expand the amount of resources available to fund new businesses. Additional academic advisers also members of Academic Sinica provided sound advice encouraging innovation in agricultural techniques, enabling one of the few successful takeoffs toward modern growth based on agricultural investment in cash crops for export.

A major turning point in Taiwan's economy was during the 1970s. The expulsion of the Republic of China (Taiwan) from the United Nations in 1971, the 1973 oil crisis, and the switching of American diplomatic relations heavily affected the economy of Taiwan. But executive premier Chiang Ching-kuo's Ten Major Construction Projects served as the basis for heavy industrial development in Taiwan.

After the 1980s, Taiwan's economy began to stabilize. It eventually became one of the Four Asian Tigers as a dynamic capitalist economy. The 1997 Asian financial crisis did not affect Taiwan nearly as harshly due to greater restrictions on the outflow of invested foreign capital than were in place in countries hurt by rapid capital flight. The Chen Shui-bian administration in the 2000s focused on joining international organizations. Taiwan was able to join the World Trade Organization in 2002.