BSI - Business Strategies International


An Offshore Dynamo

By David James and Rajeev Merchant

The modern history of Taiwan (the Republic of China, or ROC) – as well as its economic future – is uniquely tied to China (the People’s Republic of China, or PRC).  True, they are separate countries, at least in the minds of much of the world, but Taiwan and China have a different view of that.  According to Taiwan, it – the ROC – is the true government of all of China.  According to China, there is only one undivided sovereignty of China, and it – the PRC – is the sole representative of all of a sovereign China, including Taiwan.  Each maintains a “One China Policy” wherein it is the legitimate representative of all of China, but each recognizes a “One China Principle” wherein both are inalienable parts of a single “China.”

This may seem to be an inconsequential, semantic political tiff, but these views of the two governments are deeply held, strongly impacting the political and economic policies of each toward the other.  As China grows in economic strength and influence, the consequences are increasingly to Taiwan’s disadvantage.

The roots of the division lie in the Chinese Civil War (1927-1950) during which the Kuomintang-led Nationalist Government and the Communist Party of China fought for control of each other‘s territories on mainland China.  The two sides suspended their hostilities to fight the Japanese invasion of northern and coastal China from 1937 until the end of World War II in 1945.  Thereafter, they resumed their hostilities until the Nationalists, led by Chiang Kai-shek, were forced to retreat to Taiwan in early 1949, where he established the seat of the ROC government in Taipei.  In October 1949, Mao Zedong proclaimed the establishment of the PRC with its capital in Beijing.

Beginning in the early 1950s, Taiwan frequently and steadfastly invoked a policy of the “Three No’s” toward mainland China:  No Negotiation, No Compromise, No Contact.  In addition, each country has threatened the other with military action from time to time.  But their antagonism moderated over time.  In 1992, a meeting of semi-official representatives of the two countries reached agreement, termed the “1992 Consensus,” that there is only one China – each belonging to the same China – but that each would verbally express the meaning of that one China according to its own individual definition of the concept.  Subsequently there were various non-governmental and semi-governmental exchanges between the two sides.  From 2008, negotiations led to the restoring the “three links” (transportation, commerce and communications).  Regular direct flights between Taipei and Beijing were approved, obviating time-consuming stopovers in Hong Kong.  Taiwan businesses established operations in China and entered into joint ventures there.  Cultural exchanges increased.  Today, the reunification of one China is high on the policy agenda of both countries.

Following the Chinese Civil War, Taiwan began its steady progress to economic success when the United States began pouring military aid into the country during the Korean Conflict (1950-1953).  Taiwan’s leaders took the opportunity to move the country swiftly toward an export-driven, free enterprise economy.  Large government-owned corporations were set up to develop strategic industries such as steel, petrochemicals, shipbuilding, and energy.  New airports, highways, railways, seaports, and communications systems were built.  Foreign investment was encouraged, and the economy thrived.

Taiwan’s economy grew more rapidly than China’s following the Chinese Civil War, but China’s picked up steam with its introduction of economic reforms in 1978.  Today, the economies of the two countries are strong and synergistic, but Taiwan’s economic opportunities remain handicapped by its resistance to China’s “One China” policies and its consequential diplomatic exclusion from many global trade initiatives.  However, at the 1993 summit of the Asia-Pacific Economic Cooperation (APEC), an organization that seeks to promote free trade and economic cooperation in the region, China posed no objection to Taiwan’s membership.  And in 2010, China and Taiwan signed the Economic Cooperation Framework Agreement (ECFA) which aims to reduce tariffs and commercial barriers between the two countries.

Westerners once knew Taiwan as Formosa, the name given it in the 1600’s by the Portuguese, for whom Ilha Formosa meant “Beautiful Island.”  Its present name, Taiwan, means “Terraced Bay” in Chinese.  Owing to its proximity to trade routes (it lies off the east coast of China, between Japan and the Philippines), Taiwan was occupied from time to time by the Dutch, the Spanish, and the French.  In 1894 it was invaded by the Japanese and remained under Japanese control until the end of World War II, when it was returned to Chinese rule.  Culturally, politically, and economically, Taiwan has remained predominantly Chinese throughout its history.  Some 80 percent of its inhabitants are descendants of emigrants from mainland China’s neighboring Fukien and Guangdong provinces; the remainder of the population are “mainlanders” who have arrived from various Chinese provinces since 1949.

This ethnic and cultural homogeneity aside, Taiwan is an island state of great diversity.  There are both high mountains and open seas; half of the island is covered with forests, so there are both forestry and fishery industries.  One-third of the land is arable, producing rice, wheat, corn, and other crops, as well as supporting livestock.  However, agriculture now accounts for only about one percent of Taiwan’s gross national product.  Manufacturing accounts for about 32 percent and services for about 67 percent.  Manufacturing now produces virtually everything from garments to high tech computers, from household television sets to industrial shipbuilding.

Despite the significant sway of Taiwan’s large, government-owned corporations, the strength of its economy lies principally in small, entrepreneurial firms.  In the manufacturing sector, fully 98 percent of Taiwan’s business enterprises employ fewer than 50 workers.  The Taiwanese are especially proficient in product development, designing new products and bringing them to market faster than anywhere else in the world.

Although Taiwan is westernized in many ways, it remains fundamentally and traditionally Chinese.  Age is venerated; social and organizational hierarchy is carefully observed; men dominate the senior levels of business and government (although there are many professional women, and family businesses are sometimes headed by a daughter and only child of the patriarch).  Nonetheless, Taipei, Taiwan’s capital city and commercial heart, is a lively, energetic city bursting with vitality.  Its traffic jams and sprawling growth are characteristic of Taiwan’s urgent quest for achievement.

It is highly probable that China and Taiwan will gradually resolve their differences over their opposing claims to be the legitimate representative of all of China.  There is much to be gained by each.  For China, whose many historical sites, artifacts and archives were destroyed during the Cultural Revolution, there are many historical works of art and cultural traditions that are preserved and available for sharing in Taiwan.  For Taiwan, the economic strength and influence of China can enhance their own impressive growth.

© Copyright 2013 ABC-CLIO