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The Japanese began developing industry in Taiwan at the end of the 19th century, shortly after they made Taiwan a colony, and the pace of industrialization increased even more during World War I (1914–18). World War II provided a further stimulus for manufacturing on the island, including establishing some heavy industry—all of which contributed significantly to the island’s economic growth. Taiwan’s manufacturing sector really boomed, however, beginning in the late 1950s, when the annual growth rate was about 12 percent. Manufacturing grew even faster in the 1960s and ’70s, when it reached rates that were almost unprecedented in world history. During those years Taiwan’s industrialization was increasing at double the pace for the United Kingdom or Japan during those countries’ periods of most-rapid growth.
Taiwan’s industrialization started with light industry—e.g., textiles and small appliances. It soon progressed to more labour-intensive and capital-intensive production—radios and other electronic devices and computers and other ICT products, including integrated circuits.
Meanwhile, Taiwan built a flourishing petrochemical industry utilizing imported petroleum that included spin-off products, including plastics, drugs, and synthetic products, many of which were used in improved textiles. Taiwan also began producing steel and other metals and components that were used to build ships, oil rigs, and automobiles (mostly under coproduction agreements with Japanese and U.S. companies). Tools, auto parts, electrical equipment, optics, and telecommunications became important businesses. Taiwan also produced some state-of-the art weapons, including jet fighter planes and missiles, although it had limited success in competing on the world market for sales.
Finance
The Central Bank of the Republic of China, attached to the Executive Yuan (the executive branch of government), maintains monetary stability, controls banking, and regulates the money supply. It issues the New Taiwan dollar (Taiwan’s currency) and manages Taiwan’s foreign exchange. The value of the New Taiwan dollar has been relatively stable for several decades. Taiwan’s foreign-exchange reserves are considerable, ranking it among the world’s top five countries in that category. The banking system was commended during the 1997 Asian financial crisis for preventing problems in neighbouring countries from affecting Taiwan.
Nearly three dozen large domestic banks and nearly as many foreign banks operate in Taiwan, each domestic institution having dozens of local branches. There are also numerous credit cooperatives and scores of farmers’ and fishermen’s associations that provide financial services.
Insurance companies have thrived in Taiwan since the late 20th century after having started at a low point in the 1950s and ’60s. Beginning in the early 1990s, the government revised the insurance laws, which gradually opened the market to foreign interests while easing restrictions on investments by domestic companies in foreign real estate and securities. A clear distinction is made between life and nonlife types of insurance, and the Ministry of Finance controls premiums.
Taiwan now has high levels of insurance coverage. That situation came about as a result of Taiwan’s rapid economic growth in the second half of the 20th century, insurance being a way to save while reflecting some insecurity about future prosperity by purchasers. Taiwan’s insurance industry was hit hard by the global recession in 2008, but it has recovered since then.
The Taiwan Stock Exchange (TWSE) opened in 1962 and has flourished since then as a place for private savings and investments. Originally the TWSE traded almost exclusively in stocks, but it subsequently began to also offer bonds and other forms of investments. The TWSE is among the largest in the world.
Trade
Taiwan was an important trading entity at times during its history, which even included serving as a commercial centre in East Asia. For extensive periods of time pirates operating out of Taiwan carried on illicit foreign trade. During the time when China ruled Taiwan there was considerable commerce between the island and the mainland. Taiwan’s trade was mainly with Japan, however, during the Japanese colonial period.
Early in the post-World War II period Taiwan’s leaders realized that because of the island’s lack of natural resources—especially fossil fuels—Taiwan had to strongly develop trade in order to survive. Exports were essential to pay for the imports. Taiwan’s cheap labour helped make its exports competitive. Later, the export of its human talent became key.
After the brief period of protecting domestic industries through its import-substitution policy, the government shifted to strongly promoting exports, a strategy that was highly successfully. One of the keys to that policy was producing higher-value goods and then improving their quality. Another key was Taiwan’s small companies’ ability to find foreign partners.
Taiwan’s main exports are electronics, basic metals and metal products, plastics and rubber, chemicals, and machinery. Its principal export trading partners include China (including Hong Kong), the United States, Japan, Singapore, South Korea, Malaysia, and Germany. Taiwan’s major imported commodities include electrical machinery and appliances, mineral fuels and mineral products, and chemicals. Its chief import sources are China, Japan, the United States, South Korea, Malaysia, Australia, Germany, and the Netherlands.
Services
The service sector of Taiwan’s economy is now its most dynamic and fastest growing, accounting for some two-thirds of the annual gross domestic product (GDP). The main components of services (in descending importance in terms of GDP) include wholesale and retail trade, government services, finance and insurance, real estate (including renting and leasing), transport (including storage), health care and social services, professional and high-tech services, accommodations (including food), education, and culture (including sports and recreation).
While tourism is not a category of services, tourist-related activities account for a meaningful segment of Taiwan’s economy. Tourism was not encouraged in the years just after World War II over concerns of its being a security threat. That policy changed in the mid-1950s, and the number of annual tourist visits increased rapidly after that. In the early 21st century the number of visitors to Taiwan has grown to several million annually. For years most tourists came from Japan, Hong Kong, the United States, and Southeast Asia, but with the improvement in relations between China and Taiwan since 2008, large numbers have arrived from the mainland.
Labour and taxation
Labour has played an important role in Taiwan’s dramatic economic development. Initially, labour was cheap and the work ethic high. Over time, increases in labour costs were compensated for by good education, high skill levels, and a flexible workforce. Because of Taiwan’s high birth rate in the years following World War II, the labour force doubled in size between 1950 and 1970. Some three-fifths of working-age citizens are in the labour force, a high figure by international standards. The number of workers employed in agriculture has diminished to only a tiny fraction of the workforce. About one-fourth of workers are in manufacturing, and roughly three-fifths are in services.
During the period when Taiwan was under martial law (1949–87), strikes were forbidden, and the government formed unions. When martial law ended in 1987, workers organized but did not become as active as had been anticipated. Two attempts to form political parties that represented labour failed, mainly because their socialist agendas did not appeal to workers. The rate of unionization is now relatively high (more than one-third of workers), which is much higher than rates in the United States or Japan—although that is mainly because of laws in Taiwan that require union membership. Safety and other issues are dealt with through a number of labour laws passed in the early 21st century. Strikes and labour protests are infrequent, in large measure because most of Taiwan’s companies are small and family owned.
Unemployment, though in the early years high, subsequently has been low—during the 1980s and ’90s about 2 percent annually, which was among the lowest in the world. As a result, at times Taiwan has experienced labour shortages. Such a situation has spurred companies to adopt automation and other labour-saving devices and to relocate factories to China and other places in Asia. Many companies have also employed foreign workers, which has become a social and political issue in Taiwan. The left-of-centre Democratic Progressive Party has opposed the importation of foreign labour over concerns that the policy might dilute their voter base, which is largely Fukien Taiwanese. As a product of the 2001 recession, unemployment rose above 5 percent; it subsequently came down but rose again with the 2008 recession only to drop again to previous low levels.
Women have increasingly entered the workforce in Taiwan. Before the early 1960s the number was small compared with that for Western countries, but the rate increased after that. By the early 21st century the proportion had exceeded 50 percent and was nearly on par with the rate in the United States.
Personal income taxes in Taiwan are progressive but low, somewhat lower than rates in Japan but higher than those in western Europe or the United States. Business taxes are also low, and there is a strong sentiment in Taiwan that those taxes must be kept down in order to keep Taiwan’s products competitive in the global marketplace.
About three-fourths of the central government’s revenue is derived from taxes. The next largest portion comes from public enterprises and other business profits. Much smaller amounts are obtained from a variety of sources, including fees, fines and indemnities, and property leases and sales. The largest government expenditures, in descending order, are social welfare, education, science and culture (one line item in Taiwan’s budget), national defense, economic development, and general administration. Smaller amounts are earmarked for pensions and humanitarian assistance and debt obligations.
Transportation and telecommunications
Early in its history Taiwan had a dearth of good roads and no railroads. Few people traveled far from their homes, and those who did used rivers or coastal boats. There was no islandwide transportation system. Likewise, there were no developed communications systems.
Improvements in both transportation and communications accompanied economic development. Roads were built or improved from late in the Chinese period and continuing through the Japanese era. Taiwan’s economic boom beginning in the mid-1960s made possible the construction of the present-day systems. One of the first major accomplishments was the Sun Yat-sen Freeway, completed in 1978, which runs north-south in Taiwan and connects Taipei and Chi-lung with Kao-hsiung. Other express highways followed, most of them being toll roads, with tolls adjusted higher or lower to regulate traffic.
Railroads were improved at the same time, and since the late 20th century, lines have been expanded and new ones built as the road system could not handle the dramatic increase in vehicular traffic. In 2007 a high-speed railroad from north to south on the island was finished. Taipei and Kao-hsiung have modern mass-transit systems that are built mostly underground.
Taiwan has four major seaports that can accommodate oceangoing ships and large traffic. The one at Kao-hsiung is the largest, followed by Chi-lung, T’ai-chung, and Taipei. Taiwan has two international airports, one located near Taipei, and the other near Kao-hsiung.
The train lines are mainly publicly owned, although the high-speed rail line was a unique government-to-private-enterprise venture. Shipping lines are mainly privately owned. Taiwan has a national airline: China Airlines. Several private air carriers also provide international and local flights. Taiwan’s citizens enjoy a high rate of private automobile and motorcycle ownership.
Taiwan’s traditional means of communications was the post office, which was very efficient. Letters were delivered within hours in the cities. Telephones became common in private homes in the 1970s and ’80s. Chunghwa Telecom, the majority of which was government-owned until 2005, is the largest telecommunications company. It commands a sizeable share of Taiwan’s fixed-line, mobile, and broadband markets. Internet use grew rapidly in Taiwan after its introduction, and broadband became widely available.
