Taiwan/ROC/Nobody knows

By: Vincent Vitti & T. Peter Kelly

History

• 2 million nationalists flee from mainland China to Taiwan due to communist victory in civil war of 1949.

• The Chinese Nationalist Party (KMT) took the gold reserves with them when they fled.

• Immediately issued their own currency.• From 1950-1965 Taiwan received nearly 4 billion

dollars in economic and military aid from USA• Economic Prosperity led it to be one of the Four

Asian Tigers.

History

• Followed in the Flying Geese Model of Trade Structures

• Went from an agriculture to cheap, labor-intensive manufacturing. Then heavy industry and lastly advanced electronics.

• Switched from reliance on exporting to USA to exporting to China. – Drop from 49% of exports to USA in 1984 to 20%

in 2002

Industry

• 85% of Taiwanese industry is medium –sized enterprises.– Good because they are much more efficient with resources– Bad: Unable to make extreme investments and thus relies

on tech from USA and Japan.• Taiwan relies heavily on technology.• Huge Semiconductor industry – Accounts for 28.4% of IC designs worldwide (2nd)– Also large in petroleum refining, chemicals, machinery,

vehicles, and pharmaceuticals

International Relations

• Victim of “brain drain” – skilled workers taking their talents to other countries

• Diplomatic isolation imposed by Beijing, still maintains worldwide trade (import partners include China ~$81 billion, Netherlands ~$4 billion)

• However… pressure from Beijing excludes Taiwan from many FTAs

• China attempting to reabsorb Taiwan, leading to Taiwan’s ambiguous sovereignty

Ambiguous Sovereignty

• Officially recognized as the only China until 1971 by the United Nations and United States– Lost it’s status in UN once United States

recognized the People’s Republic of China• 21 nations officially maintain diplomatic

relations with Republic of China (ROC)• Independence is highly unlikely because it

would mean renouncing democratic claim on mainland China

Relations with China“We try not to put all of our eggs in one basket, but mainland China is such a huge basket” –

Taiwan President Ma Ying-jeou

• The line between Chinese and Taiwanese is blurred...– 1992 Consensus promises unification into “one

China”• Chinese and Taiwanese relationship admixture

of hostile and complementary– China has 1,400 rockets aimed at Taiwan, fired

missiles at Taiwan’s coast to commemorate Taiwan’s first democratic elections in 1995-1996

– August 2012: cross-Strait currency settlement signed

Economic Make-up and Outlook

• Main exports: electronics, machinery, petrochemicals

• President Ma pushing for trade liberalization– Wants to join TPP and RCEP trade blocs

• Sliding GDP (12% in 2010, ~3% expected in 2015)– Other issues: stagnant wages, rising housing prices, and

scarcity of entry-level positions• Economic dependence on China (Taiwan’s #1

import partner, last link in “carry trades” chain) at a time when political differences remain unresolved

Upcoming Election• Election scheduled for Jan. 16, 2016

– Major candidates:• incumbent Ma (National Party) • Tsai Ing-wen (Democratic Progressive Party)• James Soong (People First Party

• National Party and PFP – embrace relations with China• DPP and Sunflower Student Movement seek Taiwanese independence