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Short Review So Far 1950s: US Aid (1951-1965) – Three 5 year periods --(a) safety and basic needs, (b) capital infrastructure and (c) agriculture surplus,

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Presentation on theme: "Short Review So Far 1950s: US Aid (1951-1965) – Three 5 year periods --(a) safety and basic needs, (b) capital infrastructure and (c) agriculture surplus,"— Presentation transcript:

1 Short Review So Far 1950s: US Aid ( ) – Three 5 year periods --(a) safety and basic needs, (b) capital infrastructure and (c) agriculture surplus, export and private business push. total $1.5 billion over 15 years Land Reform – Three stages (rent reduction, sale of government land, land to tiller) Forex Control – multiple exchange rates, ESCs, stabilization of prices, move to single exchange rate Taiwan’s SOEs inherited from the Japanese. Government policy was to support good state run enterprises and 1 st stage of important substitution (i.e. reduce consumer imports and buy domestic, not from Japan – especially clothing and fertilizers). Good SOEs were electricity, cotton textile, and fertilizer industries. US Aid was directed at these SOEs especially electricity and fertilizer industries. 75% of manufacturing was due to SOEs. Evidence that around 1950 there was a poverty trap (or its potential) in Taiwan – low saving, high risk, high population growth (including high immigration), lack of technology, lack of infrastructure, government spending dominated by military. Extreme surplus of labor in Taiwan, coupled with an output elasticity with respect to capital that was apparently greater than 1. US Aid in early 1950s help push capital upward despite lack of domestic saving. Provided important push to help economy takeoff. Aid tied to specific reforms Taiwan expanded the scope and scale of its economy by exporting. This allowed better division and specialization of labor and industry, raising productivity and increasing income and wealth. Both exports and imports increased during this period.

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3 Minchuan East Rd 1970s Chung Hsiao West Road 2000s Near Taipei Train Station

4 19 Point Program of Economic and Financial Reform of 1960 US Aid authorities gave an inducement to the Taiwan government of a $30-$40 million program loan. The conditions for the loan aimed at increasing economic growth -- encourage saving and investment -- establish a capital market -- sell industrial enterprises to private investors -- speed investment projects -- adopt fiscal reforms -- remove subsidies -- rationalize utility rates -- establish a central bank -- liberalize exchange and trade regulations -- hold military expenditures to 1960 level East Asian Development By Dwight H. Perkins p. 85

5 US Aid ended in 1965 – US prepared the Taiwan government for the transition, encouraged a transition to private enterprise, exports, and freer markets. Real economic growth over the period 1961 – 1972 was 10.25% while average inflation was only 3%. This low average inflation rate was due in part to strong productivity growth and stable international prices. During the 1960s 12 major industries arose in Taiwan. These were the following: (1)canned goods – L (7) fertilizer – K (2)lumber – L (8) petroleum refining – L (3)textiles – L (9) electric power – L (4)paper – L (10) plywood – B (5)sugar – K (11) plastics – B (6)cement – K (12) electrical appliances – B These industries could be classified into labor intensive (L), capital intensive (K), or balanced intensity (B) industries. (See the article by Liu on the class webpage)

6 State Owned Enterprises The founding father of the Republic of China and of the Kuomintang, Sun Yat-sen, was heavily influenced by the economic ideas of Henry George, who believed that the rents extracted from natural monopolies or the usage of land belonged to the public. Sun argued for Georgism and emphasized the importance of a mixed economy, which he termed "The Principle of Minsheng" in his Three Principles of the People. As Sun proclaimed in 1913, "The railroads, public utilities, canals, and forests should be nationalized, and all income from the land and mines should be in the hands of the State. With this money in hand, the State can therefore finance the social welfare programs.“ (see Simei Qing, Harvard University Press, 2007 p. 19) American Henry George Chinese Sun Yat-Sen

7 Taiwan’s State Owned Enterprises (Some of the Big Ones) Controlled under the MOEA – Ministry of Economic Affairs 1965 – “National Corporation Department” restructured to “Commission for the Commercialization of National Corporations” 1969 – reorganized into simply “Commission of National Corporations”, which would supervise and manage SOEs, it also worked to move privatization along – renamed “State-Owned Enterprise Commission”. Five Big SOEs Tai-power CPC Corporation (China Petrochemical) Tai-sugar Tai-water Aerospace Industrial Development Corporation

8 On December, 1998, because of a simplification policy of Taiwan Provincial Government, all the banks and businesses under it were turned over to the Central Government. The Taiwan Tobacco & Wine Monopoly Bureau was renamed Taiwan Tobacco & Liquor Corporation on July of Taiwan Development Corporation was also privatization. The Ministry of Finance still held the stocks of both organizations above and attending their board of directors. The Printing Plant of Taiwan Provincial Government was also then subordinated and renamed as Printing Plant, Ministry of Finance. Until January of 2011, the businesses held by the Ministry of Finance included Taiwan Financial Holding Companies, Bank of Taiwan Corporation, Taiwan Land Bank Corporation, Export-Import Bank of ROC, First Financial Holding Corporation, First Commercial Bank, Hua Nan Financial Holdings, Hua Nan Commercial Bank, Cooperative Bank, Business Bank, Chang Hwa Bank, Central Reinsurance Corporation, Financial Information Corporation, Taiwan Tobacco & Liquor Corporation, and Trade-Van Information Service Corporation.

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11 Chang Hwa Commercial Bank -- In December 1997, the Taiwan provincial government made public its shareholdings in the Bank in line with the government's policy of financial privatization. The Bank was officially privatized on January 1, In Oct. 3, 2005, Taishin owning with 22.01% ownership replaces the government as CHB’s largest shareholder. First Commercial Bank -- First Commercial Bank was originally established on November 26, 1899 as Savings Bank of Taiwan. On January 22, 1998 the Bank was transformed from a government entity into a private bank. After the establishment of First Financial Holding Co. on January 2, 2003, the Bank became a subsidiary of First Financial Group. Hua Nan Commercial Bank -- A large number of government-owned shares was released on January 22, 1998, enabling the Bank to complete privatization and embark upon a new era. In order to adapt to government financial reforms and changes in the financial environment, the Bank convened extraordinary shareholders’ meetings on November 14, 2001 and passed a proposal to establish Hua Nan Financial Holdings Co., Ltd. (HNFHC) via a 100% stock conversion. Taipei Business Bank -- The TBB was transformed into a private bank on Jan. 22, 1998 and entered a brand-new age of operations. Bank of Taiwan – On Sept. 16, 2004 the Bank received permission from the Financial Supervisory Commission to become a public company. The Bank completed merger with Central Trust of China on July 1, The Taiwan Financial Holding Co., Ltd. was established on Jan. 1, Land Bank of Taiwan -- On 21st December, 1998, it became a state-run organization upon implementation of the Province Simplification Statute; on 1st July, 2003, it was reorganized as the “Land Bank of Taiwan Co., Ltd.;” further on 21st May, 2004, it was transformed into a public company to prepare for initial public offering of its stocks upon privatization. Farmers Bank of China (Now Taiwan Cooperative Bank) -- TCB achieved corporate status under the provisions of Article 52 of the Banking Law in May It was reorganized as the Taiwan Cooperative Bank, Ltd. on Jan. 1, 2001; went public in June 2003; was listed on the stock market on Nov. 17, 2004; underwent a Chinese name change in 2006; and merged with The Farmers Bank of China on May 1 of the same year. Chiao Tung Bank -- Transforming from a licensed bank for industries in 1928, an industrial bank in 1975, and a development bank in 1979, CTB turned from a state-controlled bank into a privately–owned one in With a view to enlarging the business scale and increasing the market share, ICBC and CTB formally merged into one bank under the name of Mega International Commercial Bank Co., Ltd. on August 21, Export-Import Bank of China -- The Export-Import Bank of the Republic of China (Eximbank) was established in 1979 with the aim of facilitating export and import trade of Taiwan through offering Export Credit Insurance, Relending Facility and other various kinds of financing facilities. It is a government-owned bank. Taipei Bank -- Taipei Fubon Bank (Chinese: 台北富邦商業銀行 ) [1] is a bank based in Taiwan. It was founded on January 1, 2005 from a merger of Fubon Bank with TaipeiBank. Bank of Kaohsiung -- The Bank was privatized on Sep. 27, 1999 and was upgraded as a national bank under the approval of the Minister of Finance on May 31, Government Run Banks

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13 The Ten Major Construction Projects (Chinese: 十大建設 ; pinyin: Shí Dà jiànshè) were the national infrastructure projects during the 1970s in Taiwan. Taiwan government believed the country lacked key utilities such as highways, seaports, airports and power plants. Moreover, Taiwan was experiencing significant effects from the 1973 oil crisis. Therefore, to upgrade the industry and the development of the country, the government planned to take on ten massive building projects. They were proposed by the Premier Chiang Ching-kuo, beginning in 1974, with a planned completion by There were six transportation projects, three industrial projects, and one power-plant construction project, which ultimately cost over NT$300 billion in total. The Ten Projects National Highway No. 1: from Keelung City to Kaohsiung City, with a branch to the Chiang Kai-shek International Airport Electrification of Western Line railway North-Link Line railway Chiang Kai-shek International Airport Port of Taichung Su-ao Port China Shipbuilding Corporation (CSBC) Shipyard, Kaohsiung China Steel factory Oil refinery and industrial park Nuclear power plant Ten Major Construction Projects 1973

14 Twelve Projects 1978 encompassed infrastructure and development projects. These included (1)An around the island railroad (7) New towns and housing (2) The New Cross-Island Highway (8) Regional drainage (3) Kaohsiung-Pingtung traffic improvement, (9) Dike and levee construction (4) Expansion of China Steel Corp (10) Pingtung-Olampi Highway Widening (5) A nuclear power plant, (11) Farm mechanization (6) Taichung Harbor expansion (12) Cultural centers Twelve Projects of 1978

15 Taipower, as the operator of the power plant, is required by the Radiation Monitoring Center of the Legislative Yuan to hand in the 2018 decommissioning plans for the plant by December 2015 for the authority to review all of the plans before the decommissioning date. Once the reactors have been shut down, the plant should be dismantled within 25 years. The Jinshan Nuclear Power Plant or Chin Shan Nuclear Power Plant[4] ( 金山核能 發電廠 or 核一 ) is a nuclear power plant in Shimen, New Taipei, Taiwan. Commissioned in 1978 for its first nuclear reactor, the plant is Taiwan's first nuclear power plant as well as Taiwan's smallest nuclear power plant.

16 The first controlled-access highway, and a predecessor to the national highways in Taiwan, was the MacArthur Thruway, built in 1964 between Keelung and Taipei. Construction on the first modern national highway, National Highway 1 began in The northern section between Keelung and Zhongli was completed in 1974, and the entire freeway was completed in It runs from the northern harbor city of Keelung to the southern harbor city of Kaohsiung, while there was an 8.6- kilometre (5.3 mi) branch (No. 1A) connecting to Chiang Kai-shek International Airport (now Taiwan Taoyuan International Airport) Highway 1 Completed

17 The TRA Western Line (Chinese: 西部幹線 ) is a railway line of the Taiwan Railway Administration running along Taiwan's densely populated western corridor. As a result of this, it remains the busiest rail line in Taiwan. In 2009, the line served over million passengers, averaging 450,244 passengers per day. The concept "Western Line" is actually a combination of line sections as the following: Taiwan Trunk Line ( 縱貫線 ): Northern section: From Keelung Station to Zhunan Station Coastal Line ( 海線 ): From Zhunan Station to Changhua Station, through Taichung Harbor and the seaside areas of Miaoli County and Taichung City. Mountain Line or Taichung Line ( 山線, 台中線 ): From Zhunan Station to Changhua Station, through the inland areas of Miaoli County and Taichung City. Chengzhui Line ( 成追線 ): A small section of railway connection Chenggong Station on the Mountain Line, and the Zhuifen Station on the Coastal Line. Southern Section: From Changhua Station to Kaohsiung Station Pingtung Line ( 屏東線 ): From Kaohsiung Station to Fangliao Station The total length of the combined line of Taiwan Trunk Line is km, of which km is double track.

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19 Growth Rate – How to Calculate It Suppose you have a variable in year t like Y t = real GDP. How do you calculate the growth rate of Y t for the year t ? Annual Data G t = 100*(Y t – Y t-1 )/Y t-1 Quarterly Data G t = 100*(Y t – Y t-4 )/Y t-4 Monthly Data G t = 100*(Y t – Y t-12 )/Y t-12

20 Useful Growth Rate Calculation Rules Approximately True Growth Rate of A*B = Growth Rate of A + Growth Rate of B Growth Rate of A/B = Growth Rate of A – Growth Rate of B Exactly True Growth rate of (1+x) t = x Growth Rate of A = 0 implies A = constant

21 The Rule of 72 – How to Use it The average real economic growth rate in Taiwan over the period 1962 – 1979 was %. Of course, economic data is never that precise. Therefore, we can just estimate the growth at 10.8%. Remember that this is an annual rate of growth. Next, to calculate the number of years it takes to double GDP we use the Rule of 72. this is easy. Just take the growth rate 10.8% and divide it into 72 (actually 69 is a better number to use - if you have calculator). The rough answer is 72/10.8 = 6.7 years to double GDP The more exact answer is 69/10.8 = 6.4 years to double GDP This tells us that the size of the Taiwan economy doubled between 1962 – mid-1968, it doubled again mid , and it doubled again between mid That is very fast growth indeed! By contrast, population grew about 2.5% per year over the period

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