Agricultural production is dominant, as industry focuses mainly on processing agricultural products.
Japan uses Taiwan as a wartime supply base, developing munitions-related industries with astonishing speed. Modern industries such as steel, chemistry, textile, metal, and machinery are developed. By 1939 industrial production surpasses agricultural production and reaches its highest point in 1944, before a sharp decline at the end of the war.
Japan leaves Taiwan devastated, with railroads, roads, and harbors operating at half capacity and inflation completely out of control. Prices rise as much as 10,000 times between 1945 and '50. With the influx of nearly 1.6 million mainlanders by 1949, people begin to hoard supplies, which fuels even worse inflation. The government focuses on land reform to develop the agricultural sector.
The United States resumes aid to Taiwan during the Korean War and defends the Taiwan Strait. Over the next 15 years, U.S. aid will top $4 billion, accounting for 5 percent of Taiwan's gross national product and enabling it to invest in infrastructure. Agricultural production increases by 14 percent and provides much of the investment capital and labor needed for later industrialization.
Emphasis on agricultural production stimulates the economy, with sugar as Taiwan's main export. Inflation shrinks to 8.6 percent while international trade deficits are covered by American aid.
Agricultural production holds steady as industrial production and exports boom. Taiwan enters the Industrial Era as workers who were displaced from rural jobs find employment in labor-intensive export industries. Low-cost loans and low tariffs on imports needed to make exports bring an increase in foreign investors eager to capitalize on the island's cheap labor.
With U.S. aid to Taiwan ended, the government turns to Japan and receives a loan of 150 million U.S. dollars, to be repaid over a 15-to-20-year period. While not comparable with the United States's aid package, these loans result in close cooperation between the Taiwanese and Japanese economies.
By the '70s Taiwan is considered one of the four "mini-dragons" of Southeast Asia; the other three are Singapore, Hong Kong, and South Korea. Agricultural production remains steady, and industrial production and exports grow rapidly. Ten large construction projects expand Taiwan's industrial infrastructure. Oil crises in 1973 and 1979 do not seriously hurt the economy.
To maintain growth in the face of wage increases, labor shortages, oil supply problems, and industrial pollution, the government shifts emphasis from export processing to high-tech industries. An entrepreneurial class is encouraged, and research and development are funded. By the mid-1980s Taiwan invests more than $2 billion annually in Southeast Asia, even before it begins investing in China.
With the largest capital reserves in the region, Taiwan begins to invest heavily in Guangdong, Fujian, and Zhejiang. By 1993 its investment in China soars to $8.5 billion per year. With its vast trade surplus, foreign investment profile, and ties to overseas Chinese networks, Taiwan is a major regional economic and financial power.
Taiwan experiences a small recession as its gross domestic product falls from 6.8 percent in 1997 to 4.8 percent in 1998. This is mild in comparison to the shocks felt in other Asian countries during Asian financial crises.
Taiwan produces 30 percent of the world's high-tech computer equipment, and per capita income has risen to nearly $14,000. But export dependence makes Taiwan vulnerable to the global slowdown of 2001-02, and recession sets in. Resistance to a farm loan reform scheme forces a finance minister out of office. Seeking lower wages, Taiwan businesses have invested tens of billions in mainland China.
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