The Economics of Taiwan

A prolonged slowdown in domestic pri vate consumption, stagnant real estate and a sluggish stock market, and a series of bank runs all dampened the ROC's economic growth in 1995. Heightened tensions between mainland China and Taiwan further depressed the growth rate to 6.06 percent, the lowest in five years. But a reviving global economy helped boost Taiwan's foreign trade, with export and import values both exceeding US$200 billion. In general, export-related sectors, including manufacturing and the information technology industry, performed extremely well, while sectors aimed primarily at the domestic market, such as the automobile industry, housing construction, restaurants, and many other service businesses, all suffered slowdowns.

Taiwan's economy was one of only eight worldwide that the 1997 Heritage Foundation/Wall Street Journal Index of Economic Freedom classifies as "free." The ROC shares this distinction with Hong Kong, Singapore, Bahrain, New Zealand, Switzerland, the United States and the United Kingdom. The Index scores the relative freedom of economies from 150 nations based on trade policy, tax policy, government consumption of economic output, monetary policy, foreign investment, wage and price controls, property rights, regulations, and the size of the black market. This chapter profiles the ROC's economy in five sections: macroeconomic indicators, trade, services, industry, and energy. An introduction to the ROC's small and medium-sized enterprises, which have contributed so much to the economy over the past few decades, is also included.

The Financing of Taiwan

T he financial road was a rocky one for the Republic of China in 1997. The great gains and losses in the Taiwan stock market, the shrinking of Taiwan's trade surplus, and the South East Asia monetary crises were just a few events which shook Taiwan's financial markets last year.

When the Taiwan stock exchange index surged from 6,800 points to 10,256 points in just a few months, it sucked a considerable amount of capital into the market. When the shrinking of Taiwan's trade surplus and the South East Asia monetary crises occurred, the financial markets began to sink sharply. Panic-selling in the stock market and  massive capital outflows in the foreign exchange market put considerable pressures on the financial system. How monetary authorities react to these pressures will determine the direction of Taiwan's financial development.

In addition to these events, a silent revolution in the financial sector was under way last year: the role of direct financing, funds that were channeled through money markets, bond markets and stock markets, was greatly enhanced; new security exchanges and institutions were set up; new instruments were allowed to be traded; a new surveillance committee for banking institutions was drafted; and many restrictions on the operatio n of financial institutions were eased. All were efforts by the government to prepare for joining the World Trade Organization (WTO) and to build Taiwan into one of the financial centers in the Asia-Pacific area.

rapid industrial development

Following four decades of rapid industrial development, growing popular and governmental awareness of the severe extent and ultimate cost of pollution is propelling the environmental protection movement in the Taiwan area today. A number of factors have conspired to shift the focus of policymaking. The predominant concern for stimulating economic growth of the 1960s and 1970s has given way over the last decade or so to a more balanced consideration of the needs for additional growth against the short- and long-term environmental costs. As Taiwan today approaches developed-nation status, its people are starting to demand a quality of life commensurate with their level of economic achievement. The move toward democracy in the Republic of China has accelerated over the past few years, heightening the Taiwan public's awareness of its environmental responsibilities and prerogatives.

Although the fight to clean up and preserve Taiwan's environment has brought about improvements in recent years, the ROC government has put new urgency into a major initiative for 1997. The demands on Taiwan's environment stem from a dense population of more than 21.5 million people on 36,000 square kilometers of land and the impact of the rush over the last couple of decades to become an industrialized nation. Effective environmental protection measures have taken on added significance in recent years because Taiwan, now a major world trader, faces greater international pressure to protect the environment and step up its wildlife conservation efforts.

In all respects, the key to continued improvement is strict enforcement of already existing laws, coupled with a sustained campaign to inculcate a positive environmental protection and wildlife conservation ethic among the public of Taiwan. This chapter recounts the vicissitudes of environmental protection and wildlife conservation in Taiwan and describes the mandates as well as legal and financial resources at the disposal of the various government agencies that work to preserve the environment, conserve Taiwan's natural resources and protect its wildlife.

Developed transportation

A well-developed transportation network is essential to the Republic of China's export-oriented economy. Transportation has therefore always been an important priority in our national development programs, from the Ten Major Construction Projects of the 1970s through the Six-Year National Development Plan of the 1990s. With the official approval of the Asia-Pacific Regional Operations Center plan on January 5, 1995, the expansion and improvement of the island's transportation infrastructure is even more critical. The plan- which targets the six major sectors of manufacturing, air transportation, sea transportation, finance, telecommunications, and media-aims to transform Taiwan into a center of business and investment in the Asia-Pacific region. Thus, not only are considerable resources being devoted to achieving the plan's sea and air goals in particular, but also underway are many projects designed to ensure that businesses in Taiwan enjoy the advantages of an extensive and efficient transportation network. This chapter reviews the organization of the ROC's railways, harbors and shipping, civil aviation, freeways and highways, and urban transportation systems, as well as discusses recent developments that are shaping the new face of transportation in the country.

health care

Shifting demographic patterns and changes in modern lifestyles have modified health care in Taiwan. The graying of the population has highlighted pension issues and long-term care for the elderly. A recent influx of foreign laborers has exacerbated the problem of providing health care for them. Serious pollution and smoking problems have triggered a high rate of lung cancer, especially in the urban areas of Taipei, Kaohsiung, Keelung, and Tainan. Industrial development and growth in urban traffic have resulted in an alarming rate of occupational and traffic accidents. Of the 12,422 fatal accidents recorded in 1996, 4,012 cases were transportation-related fatalities, constituting the leading cause of death for people under the age of 44. Accidental falls were the second leading cause for those aged over 45. An unprecedented number of students are using amphetamines. Health authorities are also concerned about the sanitation standards of Taiwan's many unregulated eateries, roadside stalls, lunch box caterers, and galleries of food vendors.
 

On the other hand, the control of infectious diseases in the ROC has greatly improved. Forty years ago, acute infectious diseases were the number one killer in the Taiwan area; today, they are no longer among the top ten causes of death in Taiwan. Bubonic plague, smallpox, and cholera were all eradicated long ago, and a single case of rabies has not been discovered since 1959. In 1965, the World Health Organization of the United Nations declared malaria non-existent in Taiwan. Other infectious diseases such as diphtheria, pertussis, neonatal tetanus, poliomyelitis, Japanese encephalitis, and tuberculosis are now under strict control. Major immunization drives in 1995 focused on eradicating poliomyelitis, measles, congenital rubella, and neonatal tetanus.

The increase in economic prosperity of the Taiwan area has brought greater access to health care resources and enabled the government to launch the National Health Insurance program, which officially began on March 1, 1995. By May 1997, more than 96.1 percent of the 21.5 million people in the Taiwan area were insured under the new program.

The health situation in Taiwan has already made many impressive gains over the past 40 years. For example, life expectancy from 1951 to 1996 has jumped from an average age of 53.38 years to 71.87 years for males, and from 56.33 years to 77.92 years for females. The crude death rate dropped from 18.15 per 1,000 persons in 1947 to 5.71 per 1,000 persons in 1996, and the infant mortality rate also dropped from 44.71 per 1,000 live births in 1952 to a low of 4.80 per 1000 in 1993. However, in 1996 it rose to a ten-year high of 6.66, mainly due to the implementation of a newer, more efficient nationwide registration system for   reporting newborns.

Media

V irtually all media markets in the Republic of China have changed dramatically in recent years, partly in response to technological advances, but perhaps more in concert with the lightning pace of democratization. New cable service authorizations and broadcast spectrum allocations have greatly increased the diversity of radio and television stations available to domestic audiences. Taiwan enjoys a flourishing multimedia and information industry. The domestic publishing industry is also thriving, and more than a few foreign publishers are joining Taiwan's magazine market. With increasing joint use of resources and global competition, more and more media operators are engaging in cross-media as well as international cooperation. This chapter discusses the most significant of recent changes in the ROC media industry, which include the proliferation of print media, the growth of cable TV, the release of new broadcast allocations, and the governmental and private-sector efforts to strengthen the industry.

Education

Education is strongly emphasized in the Republic of China, as it has been throughout Chinese history. As such, the ROC Constitution allocates a lion's share of national expenditures for educational purposes (Article 164). In the last decade or so, the focus of ROC's educational development was on higher education. Around 22 percent of the education budget was allocated for approximately 800,000 students in the higher education system, whereas only slightly more than 40 percent was spent amongst some 3 million elementary and junior high students in the compulsory education system. This uneven distribution caused the government to shift its focus in the ROC's educational development and to place greater emphasis on a quality compulsory education, resulting in several major changes to the ROC Constitution. On July 18, 1997, the second session of the Third National Assembly passed a provision to Paragraph 8, Article 10, of the Additional Articles of the Constitution of the Republic of China (for a complete version of the ROC Constitution, see Appendix II). Promulgated three days later on July 21, the provision states: "Priority shall be given to funding for education, science, and culture, and in particular funding for compulsory education, the restrictions in Article 164 of the Constitution notwithstanding."

Therefore, although this provision places compulsory education as the higher priority with respect to funding within the education budget, it also removes the minimum expenditure requirements for different levels of the government stipulated in Article 164 of the ROC Constitution. Thus, after the implementation of the Additional Articles, the government will have more freedom in allocating budget resources for different government functions. At present, though, no changes to the budget layout will be implemented until fiscal 1999. For fiscal 1996, government spending for education, science, and culture amounted to more than US$18.324 billion, or about 6.95 percent of the GNP; this amounts to roughly US$694 per citizen.

Nine years of education has been compulsory since 1968, and there is a wide range of other educational options for citizens of all ages. In the 1996 school year from August 1, 1996, to July 31, 1997 (hereafter, SY1996), more than 99 percent of all school-age children (age six to 11) were in school. The enrollment rate of the population aged between six and 21 was 84.96 percent, and more than one-quarter of the total population was attending an educational institution of some type. In 1996, there were 7,357 registered schools, with an average of 38 students per class. The national illiteracy rate that year was 6 percent.

Even though a larger proportion of the population now receives higher education, the education system in general has been criticized for its inflexibility and for failing to address the needs of Taiwan's rapidly changing society. As a result, educational reform has become a major issue, and in the last few years, measures have been adopted to tackle problems in different aspects of the educational system. These measures will be discussed in the following sections.

Science & Technology

News of that handy device, the wheel-barrow, took almost 1,000 years to reach Europe from China. Similarly, fourteen centuries elapsed before something as simple as a screw was brought to China from the West. The tremendous lag in the diffusion of fundamental technology slowed the economic and intellectual growth of both East and West. Such a sluggish pace of technology transfer would be unpardonable in the late 20th century when the ability to design, develop, and produce state-of-the-art technology is a crucial component of economic progress and national strength.

The Republic of China is certainly aware of the need to stay abreast of scientific development. The ROC government has allocated an ever increasing portion of its budget and manpower to the research and development of new technologies. Indeed, the government's education, national defense, and economic policies all focus, to some extent, on the development of scientific expertise. The absolute and relative amounts of funding for R&D in both the public and the private sectors have grown rapidly over the last decade. In 1995, national R&D expenditures totaled 1.81 percent of GNP. The figure is expected to reach 2.5 percent by the year 2000.

This commitment is born of pragmatism. Land and natural resources, two essential factors of production, are limited in the Taiwan area. A third factor of production, labor, is increasingly expensive. Where does Taiwan turn for comparative advantage? Brain power.

More people in Taiwan than ever before are graduating with bachelor of science degrees, master of science degrees, or Ph.D.s in hard sciences. More ROC scientists are traveling abroad and more non-Chinese scientists are visiting Taiwan. There are more R&D institutes, more experiments, and more scientific publications in Taiwan than ever before.

Direct scientific research in Taiwan is motivated first by profit--Taiwan's freewheeling market economy provides plenty of incentives for R&D in profitable technology; and second, by the National Science Council, the highest ROC government office charged with coordinating national science and technology policy, which closely coordinates all R&D activities and funds public-sector scientific and technological research projects through grants and subsidies (see inset, next page).

One major stride taken toward building Taiwan into a high-tech island is the science and technology white paper, issued by the government for the first time on June 26, 1997. R&D work will be intensified so as advance the goal of building Taiwan into an Asia-Pacific regional research stronghold by the year 2000. On July 31, 1997, the ExecYuan sent a draft of the Basic Law of Science and Technology drawn up by the NSC to the Legislative Yuan for approval, aiming to lay a legal foundation for facilitating science-technology development.

Social

The vast majority of the ROC people in the Taiwan area now enjoy a greater quality of life than ever before, such as equal access to education, jobs, housing, medical care, travel, and political participation. These are the result of profound social and political changes accompanying the astounding economic success of recent years that has capped Taiwan's transformation over the past four decades from a traditional agricultural economy into a modern industrial entity. However, this restructuring of society has also given rise to new social ills, which have made life more hazardous in many ways, especially for disadvantaged groups. This chapter highlights services provided by the government and private sector in Taiwan to children, juveniles, women, the elderly, people with mental and/or physical handicaps, and the poor.

Labor

Taiwan's economic growth over the past 40 years has been powered by a well- educated and highly motivated work force. Over the years, the structural composition of labor has changed, but workers themselves have retained their traditional spirit of dedication and hard work. Today, Taiwan has a diversified and skilled work force of roughly 9.4 million people, with a comparatively low unemployment rate of less than 3 percent; approximately 6.4 million are paid workers, as opposed to those who are self-employed or have some other working status.

During 1997, as in previous years, the government has sought to maintain a productive and qualified work force. Legislative priorities have focused on the rights of workers, including workers' welfare, labor-management relations, safety and health, and appropriate quotas for foreign workers.

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