1 Overview of Taiwan’s Development and Implications for Relations Across the Straits

2 Historical Background—Japan’s colony 1895 Annexation of Taiwan by Japan following China’s defeat in Sino-Japanese War

3 Historical Background—Japan’s colony 1895 Annexation of Taiwan by Japan following China’s defeat in Sino-Japanese War Contrast between European- and Japanese-style of colonial rule  Japan Geographic proximity Higher degree of integration with Japanese economy, especially after 1930 Colonial bureaucracy staffed by Japanese  Policies benefitted Japan  Promoted primary education but had to study Japanese  Promoted adoption of modern agriculture techniques but had to supply Japan with sugar, rice Higher degree of penetration/control of colonial society Close relations between Japanese business and colonial state within colony Large Japanese repressive apparatus Office of the Governor-General in the Japanese colonial government (now Taiwan‘s Presidential Office )

4 Historical background Political uncertainty during civil war  1945 defeat of Japan in WW II  1947 February 28th Incident  1949 Declaration of Martial Law in Taiwan

5 Historical background--economic development 1950 Korean War 1954 US-ROC Mutual Defense Treaty  US Aid to Taiwan;  land reform;  industrial policy 1950s-1980s:  “economic miracle”: growth with equity  Export access to US market

6 Taiwan’s Path of Industrialization in the 20th Century (period of Japanese colonialism) 1950s ~ Commodity Exports combined w/ Primary ISI beginning in ‘30s Primary ISIPrimary EOI 1960 “Statute for Encouragement of Investment” Secondary ISI combined w/ Secondary EOI  High tech

7 China’s Path of Industrialization in the Late 20th–Early 21st C present Primary & Secondary ISI (Planned Economy = Extreme ISI) Virtually autarkic State monopoly over foreign trade through foreign trade corp’s “airlock” Primary EOI & Continued Secondary ISI High tariff barriers, quotas, licienses, “off-sets”— technology in exchange for access Increasing global integration WTO 2001 Deepening of EOI & ISI

8 Terms Autarkic: denoting a closed economy that does not rely significantly on trade and particularly avoids imports ISI: import-substituting industrialization EOI: export-oriented industrialization Primary: low-tech, low-capital intensity  labor intensive ex: toys, shoes, garments, consumer electronics Secondary: higher-tech, higher-capital intensity  capital intensive ex: automobiles, machinery

9 Historical background—changing political situation 1971 PRC takes up China seat in UN 1972 Shanghai Communique 1972 first step expanding elections to national representative bodies in Taiwan 1977 Emergence of “dangwai (outside the party)” especially in local elections 1979 Normalization of US-PRC Relations; US derecognition of Taiwan 1979 Taiwan Relations Act  Peace reunification, US support for Taiwan defense

10 Democratization 1986 Democratic Progressive Party formed  Tolerated by KMT under Chiang Ching-kuo 1987 Lifting of martial law in Taiwan and open emergence of Taiwan identity 1990s: increasing economic integration of Taiwan and mainland China 1992 New, full legislative election for Taiwan 1996 First direct Presidential election in Taiwan: Lee Teng-hui (KMT)  PRC missile tests in Taiwan Straits in lead-up to election.

11 Democratic consolidation 2000 Election of Chen Shui-bian of the Democratic Progressive Party (DPP) with pro-independence platform  Election of opposition  democratic consolidation—1 indicator

12 Democratic consolidation 2004 Election “Pan-Blue” vs. “Pan-Green”  “Pan-Blue (KMT, People First Party) leading in polls  Apparent assassination attempt on Chen Shui-bian Re-election of Chen (“Pan-Green”) concurrent with  “defensive referendum”  “demand that China should renounce the use of force against the island”  Chen: “rising Taiwan consciousness” 2004, 2008, 2012 Legislative elections—”Pan-Blue” wins more seats

13 Subsequent elections 2008 Election 2012 Re-election  Ma Ying-jeou (KMT) Closer ties with Mainland Three “no’s”  No independence  No unification  No use of force

14 Reform of Legislative electoral system From  Single, non-transferable vote system To  Dual ballots Single member districts by winner-takes-all Nationally by proportional representative with party lists

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16 Review: Economic Integration of China and Taiwan How and why is it emerging?  enabled by certain political initiatives  driven by economic complementarities Geographic proximity Exchange rates  1980s appreciation of New Taiwan Dollar Stricter environmental regulations in democratizing Taiwan  Ex: electro-plating  arsenic in ground water Land values increase in Taiwan in 1980s Upward pressure on wages in Taiwan in 1980s  facilitated by linguistic and cultural affinities

17 Taiwan and China Economic Interdependence & Relative Political lndependence

18 “Status-quo” Taiwan Opinion Polling  Independence even if war with China Agree 26.7% Disagree 73.3%  Unification even if two sides incompatible Agree 24.3% Disagree75.7%

19 Origin of Direct Foreign Investment Cumulative

20 Trade follows investment