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The transformation of Taiwanese political economy since the mid -1980's: From authoritarian to quasi -democratic state

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The transformation of Taiwanese political economy since the mid -1980's: From authoritarian to quasi -democratic state

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Content THE TRANSFORMATION OF TAIWANESE POLITICAL
ECONOMY SINCE THE MID-1980’S: FROM AUTHORITARIAN
TO QUASI-DEMOCRATIC STATE
by
Tai-Jane Wang
A Dissertation Presented to the
Faculty OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
in Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(POLITICAL ECONOMY AND PUBLIC POLICY)
May 2001
Copyright 2001 Tai-Jane Wang
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UMI Number: 3027795
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UNIVERSITY OF SOUTHERN CALIFORNIA
THE GRADUATE SCHOOL
UNIVERSITY PARK
LOS ANGELES. CALIFORNIA 90007
This dissertation, written by
under the direction of h..&C... Dissertation
Committee, and approved by all its members,
has been presented to and accepted by The
Graduate School, in partial fulfillment of re
quirements for the degree of
DOCTOR OF PHILOSOPHY
Dean of Graduate Studies
J a n u a r y 2 6 , 2 0 0 0
DISSERTATION COMMITTEE
Chairperson
/
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Tai-Jane Wang
Student’s Name
SunhyukKim
Committee Chair’s Name
ABSTRACT
THE TRANSFORMATION OF TAIWANESE POLITICAL ECONOMY
SINCE THE MID-1980’S: FROM AUTHORITARIAN TO QUASI-
DEMOCRATIC STATE
The state in Taiwan since the 1950’s was politically characterized as being an
authoritarian state. Externally, it belonged to the anti-communist and capitalist camp
headed by the U.S. These sociopolitical bases facilitated the state’s playing the
developmental role in the economy internally. The leitmotif of this dissertation is to
provide a comparative theoretical framework for epitomizing and anatomizing
Taiwan’s change of state structure beyond authoritarianism. It argues that Taiwan
has marched toward quasi-democratic since the mid-1980’s. In the process of
building up democratic system, first destruction then construction, it demonstrates
what the obstacles and deficiencies are.
Politics can not be separated from economy and culture. This work obligatorily
probes the relations between the democratic transition and the economic
transformation in Taiwan. Democratization endows the citizens opportunity to cast
votes for allocating resources by market instead of by state. This economic
rationality is both endorsed and constrained by Taiwan’s quasi-democratic politics.
Chapters are devoted to display how Taiwan gains ground in economic liberalization
and privatization on the one hand, and how general populace’s myopic and self-
centered economic appeals through democratic electoral practices on the other hand.
1
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Meanwhile, the invisible culture factor, its influence on Taiwan’s politics and
economy and vice versa, the Confucianism and Christianity dialectic, the question
“where are we heading” are synthesized into this study when it fits.
Politics is not local either. Taiwan’s existence in giant neighbor China’s shadow
also eclipses the luster of its democracy. Taiwan’s love-hate national sentimentalism
nexus towards China, present Sino-U.S.-Taiwan triangular wrestling, the meaning of
Taiwan’s huge trade and investment interactions with China to its economy, and the
policy-making process of Taiwan’s restrictive and defensive China policy are
addressed in depth.
The writer hopes that the holistic approach and research can offer readers a
direction towards understanding Taiwan today and provoke their ideas and thought.
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Acknowledgements
This work stems from a wish to understand and capture Taiwan’s political,
economic and social change in recent years. It tries to establish theoretical
framework and analytic structure of argument.
Professor Sunhyuk Kim, my advisor and Committee Chair has provided insightful
and brilliant ideas. I am very fortunate to know and work with him. His
encouragement and trust will always be deeply appreciated.
My thanks also go to Professor John Elliott for his time.
I am also grateful for Professor Teh Fu Yen’s participation.
Finally, May God bless the accomplishment of Taiwan-China reunification.
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Table of Contents
Acknowledgements ii
List of Tables iv
List of Figures vi
Chapter 1 Introduction: The Emergence and Withering Away of the
Authoritarian State 1
Chapter 2 Hypothesis Framework and Research Agenda 31
Chapter 3 The Progress and Limitation of Taiwan’s Domestic Politics:
Quasi-Democratic 61
Chapter 4 The Metamorphosis of Taiwan’s Domestic Economy:
Interaction of Politics and Economy 99
Chapter 5 The Making of Taiwan’s China Policy: Quasi-Authoritarian 141
Chapter 6 Taiwan’s Cross-Straits Economic Relations
and Regulatory Policy toward China:
Interaction of Power and Truth 177
Chapter 7 Conclusion and Prospect 208
Bibiography 221
iii
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List of Tables
1.1 Output and Investment Shares of Public Enterprises 11
1.2 The Gross National Product (GNP) Per Capita Comparison 25
3.1 Ratio Between the Supplementary Members and Their Senior
Colleagues in the National Representative Bodies 64
3.2 The Votes and Elected Percentage of County Councilors and
Township and Its Equivalent Level Elections 83
3.3 The Comparison of Current Electoral System and Proposed Changes 84
3.4 Comparative Analysis of the Consensus of the National Development
Conference (NDC) Regarding the Constitutional System and the
Existing System 89
3.5 The Year 2000 Presidential Election Outcome 92
4.1 Taiwan’s Foreign Exchange Reserve Holdings 99
4.2 The Savings and Investment Rate of Taiwan 101
4.3 The Level and Score of Economic Freedom 113
4.4 The Ranking of Economic Freedom of 156 Countries 115
4.5 The Distribution of U.S. Aid and Loan between Public and Private
Enterprises 119
4.6 Tax Revenue by Type of Tax 121
4.7 Relative Importance of Taiwan’s Public Enterprises 125
4.8 State Enterprises under the Supervision of Central Government 127
4.9 State Enterprises under the Supervision of Provincial Government 128
4.10 Privatization Timetable for Enterprises of VARS 129
iv
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4.11
4.12
5.1
5.2
5.3
5.4
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
Financial Summary of Taiwan’s Public Enterprises for Fiscal Year
1993 130
The Policy Tasks of SOEs under Ministry of Economic Affairs
(MOEA) 133
A Chronicle of Diplomatic Relations with the ROC, 1971-1998 142
Difference of China Policy among DPP’s Major Factions 152
New Party’s View on Taiwan’s Three Major Political Parties’
China Policy 156
Public Opinion on Taiwan Independence Movement 166
The Industry Structure Percentage in GDP 178
Taiwan’s Trade Surplus with Hong Kong and Its Contribution to
Taiwan’s Economic Development 187
The Situation of Foreign Countries’ Investment in China and
China’s Borrowing from Other Countries in 1995 and 1996 191
The Priority of Taiwan Businessmen’s Motives of Making Investment
In China Made by Different Agencies 192
The Previous Announcements of the Approved and Forbidden Items
of Making Investment and Technical Cooperation in China 195
Manufacturing Investment in China (from 1991 to December 1995) 196
Service Business Investment in China (from 1991 to December 1995) 197
Taiwan’s Approved Overseas Investment 201
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List of Figures
1.1 The level of Electoral Activities from 1950 to 1990 8
2.1 Hypothesis Framework 33
2.2 Politics Axis 34
2.3 Economy Axis 41
2.4 Culture Axis 47
2.5 External Factor Axis 49
3.1 The Trend of Seats of the Members of Taiwan Provincial Assembly
Elections among Political Parties, 1951-1994 (% of Seats) 70
3.2 The Result of Provincial Governor, Taipei and Gaoxung Mayors
Election (% of Votes) 72
3.3 Elections of the Supplementary Members of the Legislative Yuan,
1969-1995 (% of Seats) 74
3.4 Elections of the Supplementary Members of the National Assembly,
1969-1996 (% of Seats) 75
3.5 Elections of President in 1996 (% of Votes) 78
3.6 The Election Result of County Magistrates and City Mayors in
November, 1997 80
3.7 The Elections of the County Magistrates and City Mayors in Taiwan,
1950-1997 82
5.1 Diagram of the Organizational System of Mainland Policy Making and
Operations 161
6.1 China and Taiwan’s Share in U.S. Market 181
6.2 China and Taiwan’s Share in Japan Market 182
6.3 China’s Trade Dependence Rate on Taiwan 185
6.4 Taiwan’s Trade Dependence Rate on China 186
vi
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THE TRANSFORMATION OF TAIWANESE POLITICAL ECONOMY SINCE THE
MID-1980’S: FROM AUTHORITARIAN TO QUASI-DEMOCRATIC STATE
CHAPTER 1 INTRODUCTION: THE EMERGENCE AND WITHERING AWAY OF
THE AUTHORITARIAN STATE
In the mighty torrent of history, countries wax and wane, nations sink or
swim, and various events pass us by in our lifetime. At the turn of the 21s t
century, we need only to look back to the last hundred years of China to find
the following scenes on the world stage where change is, more than ever,
the name of the game: the baptism of revolutionary thoughts, the last
Chinese emperor’s exit, the conflicts among different groups, the urban
civilization generated by commerce and industry, and the encounter of
Eastern and Western cultures. With a view to ridding China of its
predicament and in pursuit of China’s prosperity, both the Guomindang
(the Nationalist Party) under Dr. Sun Yi-Xian and Jiang Jie-Shi and the
Gongchandang (the Communist Party) under Mao Zedong and Deng
Xiaoping each went their own different ways. In 1949, after decades of war,
the Communists seized the mainland and the Nationalist Guomindang
retreated to Taiwan.
The Emergence of the Authoritarian State
The state in Taiwan since the 1950’s was politically noted for being an
authoritarian state. Externally, the existence of the hegemonic U.S. in the
l
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East Asian region during the cold war time period provided a stable context
for the rise of authoritarian states such as Taiwan and Korea and for their
accompanying economic development. In the post Second World War era,
the East Asian NICs (the Newly Industrialized Countries) were recruited as
capitalist bulwarks confronting neighboring socialist bloc countries in Asia.
The United States bearing ultra anti-communist consciousness supported
anti-communist and capitalist-oriented countries, but not necessarily
democratic ones. Scholars argue that the external U.S. military and capital
(aid) did not undercut, but enhanced state autonomy. ‘The outer limit was
cautiously and skillfully respected by the East Asian states ..., the
[authoritarian] states have gained an even better maneuvering position and
more power in promoting certain economic sectors or favoring certain
classes or social constituencies.1 ”
Internally, following its evacuation from the Mainland with, altogether,
about two million military personnel, government officials and civilians, the
Nationalist Party practiced the authoritarian rule in which its party structure
became similar to the Soviet Union’s Leninist political party, i.e., the party
structure not only controlled administration and the military establishment but
also infiltrated into the social structure.
1 The author of this dissertation adopts Mainland China’s Pinying system
while transliterating Chinese characters into English characters. Some published
works use different systems. Hsiao, (Xiao in Pinying system), Michael Hsing Huang
(Xin Huang,) “An East Asian development model: empirical explorations,” in Berger
and Hsiao eds. In Search of an East Asian Development Model, 1990: p. 17.
2
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In the authoritarian system, the concept of the political core is power; the
political structure is a set of the political relations, kinships or norms. Political
oppositions were suppressed and media was monopolized by the state. The
ruler held the supreme power, which was then recognized by the party.
Through party organizations, the general populace was mobilized to support
the ruling party’s decision through which three social structures were
controlled from one level to another. It was shaped as a top down triangle as
follows:
a. ruling-society structure;
b. political society structure;
c . civil society structure
One scholar pertinently analogizes this authoritarian system to a three-
dimensional umbrella. The ruler is the push button and the party the
umbrella axis and the mechanism capable of controlling all the ruling society,
political society, and civil society through its umbrella-ribs-like party
organizations and keeping the umbrella of authoritarian government open.2
The two Jiang Presidents (namely, father Jiang Jie-Shi from 1949 to
1976 and his son Jiang Jing-Guo from 1977 to 1987) were two authoritarian
rulers. In consecutively establishing their family-centered ruling group, a
3
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highly closed privileged stratum or society was shaped. On the major axis in
the ruling party’s authoritarian mechanism, both the military structure and the
entire civilian official structure of all government departments were most
closely controlled. Hence the formation of the authoritarian militarism and
bureaucrats.
In relation to civil society, the ruling party’s authoritarian rulership utilized
the government’s military and political bureaucratic structure (including the
intelligence and public security units of the police and military police units) to
directly monitor people’s thoughts and activities on the one hand and, on the
other hand, put under direct or indirect party control all occupational and
industrial organizations, thus creating authoritarian corporatism.3
It should be pointed out, however, that for all the resemblance in practice
and structure to a Leninist party, the Nationalist Party Kuomintang (Taiwan’s
transliteration system, KMT) differs in following ways:4
i. Not only did the KMT not promote nationalization of the tools of production,
but it promoted market economy that allows open acquisition and recognized
private property.
2 Hu, Fo, “The umbrella theory of modem authoritarianism,” The 2(fh
Century, Fall Issue, 1993: pp. 37-40.
3 “The corporatist state therefore embodies the morality, ethic, and ideology
for the public rather then reflecting public values and norms. While the ideal-type
corporatist state is not inherently antidemocratic, it is likely that the leadership will
comprehend the common good without asking interest groups or the voters.” Camoy,
Martin, The State and Political Theory, 1984: p. 39.
4
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ii It did not advocate proletariat dictatorship nor did it have bloody class
struggles.5
iii. Based on Dr. Sun Yi-Xian’s political ideal and teaching “governing by the
people, the KMT’s long-term goal was constitutional democracy. But in view
of the domestic situation, KMT believed it necessary to practice military
government and tutelage government stages. Local election was gradually
started in the 50’s to train people to involve in elections and pool local elite
into KMT.
Political Behaviors of the Authoritarian State
Nevertheless,Taiwan’s political system before the mid-1980’s is labelled
“authoritarian” regime which has implict association with “questionable,”
“coercive,” or “arbitrary” authority, at least from democratic or liberal values
perspective. In typical authoritarian system, decisions regarding politics and
economy are made by a narrow group of elite and at the expense of the
4 Haggard, Steven & Cheng, Tun-jen, Political Change in Taiwan, 1992: pp.
6- 8.
5 In contrast to communist regime’s red terror, some people characterize
Taiwan’s authoritarian regime as white terror. Life would be miserable if one is
regarded or fabricated as communist spy. Criticizing the leader was also deemed
felony. One young man in my childhood neighbourhood was arrested at his home by
military police for his verbally attacking president Jiang Jie-Shi. I still clearly
remember the scene today. I did not see him come back before his family moved a
few years later. To probe learders’ and their family members’ personal life was not
appropriate either at that time. You’d better curb your curiosity and gossip about it in
a hush-hush tone. It is much safe and encouraged if you chanelled your energy into
securing and pursuing your material demand.
5
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general public’s participation. Government is the instrument of carrying out
the will and policies of the group at top. It has used a single party to organize
the control over society. The function of party members are not significantly
distinguished from that of subordinate government bureaucrats. The freedom
to create a broad and diversified range of media, civil organizations, civil
associations and political parties to compete for power and to question the
decisions or capability of the ruling class is largely curtailed or conditionally
granted with quantitative restriction, for instance, one only in each district.
The authoritarian system in Taiwan, carrying the above-mentioned traits,
introduced elections to its citizens as early as in the 1950’s. Guided by Dr.
Sun Yi-Xian’s political idea, rule by the people, the chief executives and
members of representative institutions should be elected by general
populace. This principle was only partially practiced in Taiwan because not
all levels of positions were equally open to elections.
There are four major levels of electoral systems in Taiwan since the
1950’s: the central, the provincial and special Municipal level (Taipei City in
the north and Gaoxung City in the south), county and city levels, and
township and equivalent levels. The village and equivalent level is at the
bottom. The central government is composed of five Yuans (Departments),
among them Executive Yuan, Legislative Yuan, the Control Yuan, the
Judicial Yuan and the Examination Yuan, the members of Legislative Yuan
and Control Yuan were also elected on the mainland in 1947. In addition, the
6
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members of the National Assembly were also elected on mainland before the
retreat. They were entrusted to elect the President and Vice President every
six years and to amend the Constitution when necessary. The Control Yuan
is in charge of the impeachment of government servicemen.
However, the KMT suspended the 1946 Constitution by Martial Law. It
decreed that the three national representative bodies, the Legislative Yuan,
the Control Yuan and National Assembly, represent provincial constituencies
on the mainland and no elections could be held for them prior to the
government’s recovery and return to the mainland. However, since 1969 the
government permitted direct supplementary elections for the members of the
Legislative Yuan and National Assembly and indirect ones for the members
of the Control Yuan Instead of elected by the general populace, the
Provincial Assembly elects new members of the Control Yuan, while letting
those elected on the mainland remain their seats and not be subject to
reelection in Taiwan. In contrast to the national level which constrained
supplementary elections, local level comprehensive elections were held
earlier in the 1950’s. The outcomes and the frequency of elections of
different levels are laid out as in Figure 1.1.
In order to consolidate its legitimacy in Taiwan, serious and obedient
Taiwanese political careers are channeled or co-opted into the ruling party
KMT to fulfill the mandates of it. In 1968 party membership accounted for
only 6.9% of the country’s population and 60% of them were officials, public
7
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Figure 1.1: The Electoral Activities from 1950 to 1990
Central Level
President &
VicePresident
Elected in 1952, 1958, 1964,
1970, 1976, 1982, 1990
by National Assembly
Examination
Yuan
Judicial
Yuan
Executive
Yuan Supplementary Supplementary
Control
Yuan
National
Assembly
Legislative
Yuan
elections were
held in 1969 ,1972,
1975, 1980,1983,
1986,1989
elections were
held in 1969,1972,
1980,1986
Provincial Level
The Provincial Governor, Taipei,
Gaoxung Mayors were
appointed until 1994
every 3-5 years since 1951
County and City Level
Provincial
Assembly
Elections were held
Taipei,
Gaoxung
Municipal
Assembly
County, City
Councilors
County Magistrate,
City Mayors
Elections were held Elections were held every 3-5 years
every 3-5 years since 1951 since 1951
Township and Equivalent Level & Village Level
Township representatives and township heads were elected every 3-5 years since 1951
Village heads were elected every 3-5 years since 1951
Source: Summary of Elections in the Republic of China, Book 1 & 2, Central Election
Commission.
8
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officers and military personnel and 61% were mainlanders. The 70’s and
80’s witnessed a sharp KMT party membership increase. Also, as a result of
people from all walks of life being absorbed into the Party, Taiwanese KMT
party members accounted for over 70% of the 2.35 million members in the
mid-1980’s.6
However, dissidents wanted more. They were unsatisfied with one party
rule. They criticized that the President and those governing in the central
level, once they seize power or are appointed, or even elected, are hard to
be displaced by citizens’ free choice among candidates from competitive
parties. Part of the non-KMT independent personages who progressively
gained major positions in political circles and political power through
provincial and local elections and re-elections to fill the vacuum left by aging
and deceased Central Representatives were increasingly keen on and
ambitious to form a Democratic Progressive Party (DPP), so they could
become legal competitors. In 1977 and 1979 the first violent demonstrations
since 1949 occurred.7 In 1977, KMT’s attempt to rig the Tao-Yuan County
Magistrate’s election exasperated people. In 1979, the attempt to open
offices in different locations and operate as a political party by the
6 Cheng, Tun-jen, and Haggard, Stephan eds., Political Change in Taiwan,
1992: p. 81 and p. 40.
7 For a detailed record of what the DPP has gone through, refer to Gold, B.
Thomas, State and Society in Taiwan Miracle, 1986: pp. 97-121.
9
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predecessors of DPP (the Formosa Group) went beyond KMT’s limits of
tolerance. Several leaders ended up with stiff jail sentence.
Economic Behaviors of the Authoritarian State
Created in the midst of political trauma, economic depression and social
upheaval, the immigrant mainlander ruling class without the firm basis of the
will of the indigenous Taiwanese populace in governing them, the
authoritarian state needed to offer carrots in addition to the political stick of
compulsion to strengthen the raison d’etre of this authoritarian regime. The
authoritarian state in Taiwan aimed at economic development to build up
wealth and strength of both the state and civilians as their imminent and
long-term goal. The Republic of China took the following forty-odd years
developing Taiwan into an island of so-called miracle and what is broadly
praised as the Taiwan experience is the record of this process of
development. Had the authoritarian state failed or unsatisfactorily delivered
this goal, the people could have rebelled against it or risen to overthrow it
much earlier.
There has been a general consensus that the developmental orientation
of the authoritarian state of East Asian countries plays a crucial role in their
economic life and prosperity. One of the unique elements of the authoritarian
state of Taiwan includes the rise of a political and economic elite
bureaucracy and its pilot agency to initiate and implement politico-economic
10
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Table 1.1 Output and Investment Shares of Public Enterprises
Time Percentage Share Percentage Share in Gross
Period of GDP at Factor Cost Fixed Capital Formation
Taiwan 1951-1953 11.9 31.4
1954-1957 11.7 34.3
1958-1961 13.5 38.1
1966-1969 13.6 28.0
1970-1973 13.3 30.5
1974-1977 13.6 35.0
1978-1980 13.5 32.4
Korea 1963-1964 5.5 31.2
1965-1969 24.2 24.2
1970-1973 7.0 21.7
1978-1980
—
22.8
Japan 1966-1969
—
12.7
1970-1973
—
9.9
1974-1977
_ _
11.6
1978-1980
—
11.4
India 1960-1961 5.3 34.7
1962-1965 6.1 36.8
1970-1973 7.3 29.0
1974-1977 9.8 33.8
Asia 1974-1977 8.0 27.7
(average)
Argentina 1968-1969
—
15.4
1978-1980 4.6 19.6
Brazil 1968
. . .
14.0
1980
. . .
22.8
Europe 1974-1977 6.6 23.4
(average)
United States 1960
. . .
4.0
1978
. . .
4.4
Source: Short, 1983. Excerpted from Wade, 1990: pp. 176-177.
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policies within the state apparatus. The authoritarian state’s visible hands
are in both public and private enterprises.
Despite Taiwan’s membership in capitalist world, Taiwan embodied a
mixed economic system. In contrast to South Korea’s Chaebol (large-scale
private enterprises), Taiwan moved in a different direction. From the 1950’s
onward Taiwan has had one of the biggest public enterprises sectors of the
non-communist world. We can see from Short’s study (1983) that comparing
with other countries Taiwan’s public enterprises accounted for a high
percentage share of output or GDP at factor cost and a high percentage
share in gross fixed capital formation. In Asia only India and Burma and in
Latin America only Bolivia have similar magnitudes. And their shares
remained high in the 1970’s. 8 Table 1.1 reveals it.
There were unique ideological bases and historical background in
Taiwan’s implementation of state-run enterprises. First, the founding father,
Dr. Sun Yi-Xian’s economic principle of People’s Livelihood “for the people”
has been the supreme guiding spirit in Taiwan’s early economic
development. The planned market economy - mixed economic ideology of
public and private ownership as the means of Taiwan’s wealth distribution -
is reflected in the Constitution of the Republic of China (Taiwan). The
8 Short R., “The role of public enterprises: an international statistical
comparison,” Department Memorandum Series 83/84, International Monetary Fund,
1983, excerpted from Wade, Robert, Governing the Market, 1990: pp.176-177.
12
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National Economy Section in the Constitution’s Basic National Policy makes
it clear:
‘ Article 142 stipulates: The basic principle of national
economy is the Principle of the People's livelihood. Land
ownership should be redistributed on an egalitarian basis
and capital should be regulated to make the national
economy and people's livelihood equally abundant.
‘Article 144 : Public utilities and other monopoly enterprises
are in principle run by the government and that which is legally
permissible may be run by private owners.
‘Article 145: The state legally restricts private wealth and
private enterprises deemed harmful to the equilibrium or
balanced development of the national economy or the
people's livelihood.
Private enterprises should be encouraged and
protected by the state.
The citizens' productive enterprises and foreign
trade should be encouraged with incentives, guided and
protected by the state.9
Following the defeat in its struggle with the Communists, the Nationalist
Government learned from its bitter experience to avoid social wealth being
controlled by private enterprises which might again give rise to popular
discontent. It put the state and private enterprises co-existence principle into
the Constitution. Second, at the initial stage of the Japanese occupation of
Taiwan, the measures taken in Taiwan's economic development formed part of
the colonial domination model of "industry in Japan and agriculture in Taiwan."
When Japan started the invasion war against China and later the Pacific
9 The Constitution of the Republic of China, in The Newest Complex Book of
the Six Laws, eds. Tao Bai-Chan et al 1981: pp. 10-11.
13
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countries, it introduced some small-scale industries to manufacture supplies for
its southward (Southeast Asia region) invasion. Some plants and equipment
suffered severe destruction by heavy bombing during World War II, To speedily
resume production and stabilize the economy, the KMT decided that those
enterprises and especially communal facilities and public utilities originally run
by the Japanese to undertake operation had to be run by the state or jointly by
state and Taiwan provincial government. Medium size enterprises usually
were run by the province and small enterprises were auctioned for private
ownership and management. The Taiwan bank provided loans to civilians to
facilitate their development. These industries included power generation,
cement, paper pulp, sugar production, fertilizers, textile, acids and alkalis, oil
refining, and other light industries of lesser scale.1 0 Production became the
responsibility of the many technical bureaucrats who had followed the
Nationalist government to Taiwan.
The traditional neo-classical theory emphasizes the superiority of market
forces. Those who advocate a market-friendly strategy argue that economic
policies facilitating a free market mechanism lead to the highest and most
efficient wealth accumulation and better physical and human resource
distribution. They depreciate the state as an alternative institution to repair
market failure, such as public goods, externalities, oligopoly and monopoly.
In reality, the authoritarian state played a more active role in its import
1 0 Li Guo-Ding, and Chen Zai-Mu, General Discussion of the Economic
Development Strategy of Republic of China, 1987: Vol. 1, pp. 6-8, Vol. 2, pp: 264-265.
14
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substitution phase (1950-1962) and export orientation phase (1962-1980)
operation than the neo-classical theory assumes.
The authoritarian state in Taiwan was a significant navigator and active
actor in Taiwan’s political and economic development. The statist approach
scholar Evans argues that its strong administrative and technocratic capacity
and economic agencies aimed at market conforming, stimulate investment
and entrepreneurship and achieved both autonomy (insulate bureaucracy
from particular interest) and embeddedness (competence and extensive
organizational and interpersonal network allow bureaucrats to engage with
private sector or public enterprises in Taiwan.1 1 )
Wade holds that the authoritarian, autonomous East Asian states were
able to lead and guide the market to intervene and collaborate with private
sectors of the economy and to develop strategies and interventions. As he
summarizes:
The corporatist and authoritarian political arrangement of
East Asia have provided the basis for market guidance... In
particular, the government guided the market by: (1)
redistributing agricultural land in the early post war period;
(2) controlling the financial system and making private
financial capital subordinate to industrial capital; (3)
maintaining stability in some of the main economic
parameters that affect the viability of long-term investment,
especially the exchange rate, the interest rate, and the
general price level; (4) modulating the impact of foreign
competition in the domestic economy and prioritizing the
use of scarce foreign exchange; (5) promoting exports; (6)
promoting technology acquisition from multinational
1 1 Evans, Peter, in Haggard, Stephan and Kaufman, Robert eds„ The Politics
of Economic Adjustment, 1992.
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companies and building a national technology system; (7)
assisting particular industries.1 2
Amsden thinks that the state’s role in late industrialization East Asian
NICs is to mediate market forces. She explains that:
Insofar as the state...has intervened to establish multiple
prices in the same market, the state cannot be said to have
gotten relative price “right, as dictated by supply and
demand. In fact, the state in late industrialization has set
relative price deliberately “wrong” in order to create
profitable investment opportunities.1 3
On the other hand, culturalist scholars regard Confucian teachings also as
an undeniable element in shaping the political and economic realms of East
Asian NICs. Pye explains that some East Asian political and cultural features
were conductive to the sustenance of the authoritarian state and modern
economic development. They were: a highly developed sense of collective
solidarity, obedience to authorities, competent bureaucrats and
nationalization of risk.1 4 Berger mentions the beneficial cultural features
showed in post- or vulgar-Confucianism were the enormous prestige of
education, respect for authority, severe meritocratic norms and institutions,
1 2 Wade, Robert, Governing the Market, 1992: pp. 27-28.
1 3 Amsden, Alice, Asia’ s Next Giant, 1989: pp. 13-14.
1 4 Pye, Lucian W., “The New Asian Capitalism: a political portrait”, in Peter
Berger and Michael Hsiao Hsin-Huang eds., In Search of an East Asian
Development Model, 1990: pp. 84-87.
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an achievement-oriented work ethic and frugality.1 5 Rozman assesses the
East Asian version of authoritarian capitalism as either capitalism with a
Confucian face or Confucianism with a capitalist face, and it will continue to
challenge Western capitalism in the future.1 6
Culture is a repository of traditions, language, customs, morality and
values. It has been widely accepted that cultural characteristics influence the
political and economic behaviors of individuals and nations, and political and
economic conceptions of individuals and nations, can mutate culture and its
components. If we regard self not only as individual self but as composed of
individual self and communitarian self, then I would argue that the cultural
entity of Taiwan before the mid-1980’s leaned more towards communitarian
(community oriented) self. It viewed authority and responsibility as more
valuable than liberty and rights.
Remarks on the Authoritarian State
The authoritarian state in Taiwan has been a significant, visible and
sensible hand in Taiwan’s political and economic development. As an
authoritarian developmental state, political power is controlled by a
monopolized political party and military like organizations. Political
competition and opposition is strictly repressed. But the state does not own
1 5 Berger, Peter, “An East Asian development model?” ibid., 1990: pp. 5-7.
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means of production and, despite a large portion of state enterprises, private
ownership and business is allowed and protected. The centralized economic
policy making institutions are established and the high quality administrative
bureaucrats and technocrats are looked up to command and promote the
economy. The developmental role of the state in the economy provides
strategies and basic rules to beef up enterprises and exercise export-
oriented industrialization.
There is a variety of complex international, domestic and cultural factors
dovetailed together which led to the rise and decline of the authoritarian
state. If one single cause is identified, such as international influence, culture
and politico-economic system, it seems to see the tree for the forest. The
theoretical explanation or analysis should be holistic, not compartmental, and
synthetic, not partial. It includes a myriad of academic fields, such as state
theory, international political economy, cultural-sociological study, industrial
development, comparative politics and economy...etc.
As I see it, two major components, namely, “nationalism (insecurity
consciousness)” and “emphasizing education” need to be particularly
emphasized for studying the authoritarian state.
One element largely explains and is conductive to East Asia’s
authoritarian political development in the last few decades: the insecurity
consciousness and pursuing national survival. Some Chinese quotations are
1 6 Rozman, G., “The Confucian faces of Capitalism,” in M. Borthwick ed.
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well said: “Beware of panic, the underdogs’ anxieties are devastating and
their fear abysmal.” “Anxiety breeds wisdom; disaster makes the state
prosper.” “Predicament brings prosperity to the state; insecurity breeds
aspiration.” In adversity, one is expected to endure hardships and break up
the cocoon of predicament. That a nation like China is capable of surviving a
host of vicissitudes standing like a granite rock because it abides by its
principles but makes changes when necessary. The insecurity
consciousness is a value inherited from ancestors that has stood the test of
hardships. This value has sunken to the bottom of the Chinese people’s
conscious and unconscious mind, which constitutes the cultural mentality
that supports China’s response to challenges from outside and inside.
This viewpoint to some extent can also apply to other societies. Olson’s
organization theory explains the rise and decline of nations. He argues that
a trauma may break the noxious influence of tenacious special interest
groups and build a state from scratch and achieve higher economic
efficiency.1 7 Hilter’s regime emerging during economic and social unrest is
an example. The considerable turmoil stemming from Western infiltrations
and inroads since the late Ching Dynasty, domestic warlord battles and the
conflict between nationalist government and communists destroyed old and
generated a new environment outwardly; inwardly the adversity strengthened
people’s expectations for their nation’s resurrection and prosperity. In spite
Pacific Century, 1992: p. 319.
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of the excessive worship of and blind faith in things foreign to the extent that
the foreign moon is deem round than that in China, the Chinese, conscious
of China’s backwardness and crisis, feel incited to strive. In Taiwan, since
the 1950’s, people have craved stability and deferred to the authoritarian
regime and expected statecraft to preserve order, develop economy and
bring about national success. As long as the authoritarian state was not
predatory, it would not push the people to an extremity to oppose it.
In terms of the authoritarian state’s achievement in economy, I think
“valuing education” of traditions and “changing the content of education” is
the biggest credit that should be given to the authoritarian state. In his book
The Protestant Ethic and the Spirit of Capitalism, Max Weber probes the
relevancy of capitalism and modern economy from the viewpoints of both
culture and religion.1 8 Ever since some East Asian countries like Japan,
South Korea, Taiwan, Singapore and Hong Kong demonstrated their
economic dynamism, the Confucian ethics has disproved the claim that the
Protestant ethic is the only necessary condition or the sufficient condition for
breeding capitalism. It seems that from the point of view of his own Western
capitalist society, Weber pessimistically blames the Confucianism for
obstructing economic society that was mainly agricultural. In contrast,
modern culturalist scholars argue that post-Confucianism or vulgar
1 7 Olson, Mancur, The Rise and Decline of Nations, 1982.
1 8 Weber, Max, The Protestant Ethic and the Spirit of Capitalism, 1958.
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Confucianism is the real activating force in the development of East Asia’s
economy. These scholars are optimistically grafting the Confucianism of an
agricultural society to that of an industrial society.
Some scholars raised the Confucian paradox without answering it.
Zakaria says: “If Confucianism explains the economic boom in East Asia
today, does it also explain that region’s stagnation for four centuries? ...
Cultures being complex, one finds in them what one wants.1 9 ” Others try to
untangle the paradox as a start but do not dig deep enough. Pye mentions
that it is the ethical-moral dimension of the Confucian sense of legitimacy
that makes the East Asian governments think that they are obliged and
entrusted to intervene in the economy to benefit their people, while Western
economic knowledge offers non-detrimental ways to do it.2 0 He also
attributes two other features of Confucianism which impeded East Asian
economic progress before but have endured and supported the authoritarian
capitalism in this region. They are:
[1.] In traditional Confucianism stress was placed mainly on
the virtues of the man who embodied leadership. In recent
times the idea of rule by an educated elite has meant the
legitimization of technocrats in government... [2.] The
valuing of harmony in Confucian political cultures [yields
1 9 Zakaria, Fareed, “A Conversation with Li Guan Yao,” in Foreign Affairs,
March/April 1994. In his article, he questions the former Singapore Premier’s
fascination with Confucian culture. Li sees that culture determines a nation’s destiny
and the expansion of individual rights in America may lead to the breakdown of
social order.
2 0 Pye, Lucian W., “The New Asian Capitalism: A Political Portrait,” In
Search of An East Asian Development Model, 1990: p. 86.
2 1
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demands for conformity and] places obstacles in the way of
political critics, labor agitators, student rebels, and other
challenges of status quo.2 1
I think that it is the “emphasizing education and the change of education
content” can bridge the gap of Confucianism of agricultural and industrial
society and decrease the presumption of regarding Confucianism as either
the stumbling block or the deus ex machina of East Asian growth.
In responding to the paradox why Confucianism did not help economic
development in China before the 20th century, the writer agrees with
Schumpeter that capitalism is created through technological innovation.2 2
Following the inventions of such world-known technological products as the
compass, gunpowder, paper and printing; China remained stagnant over an
extended period of time. Though Weber is wrong in blaming Confucian
cultural predispositions for lack of the spirit of developing capitalism, we
should give him some credit for his criticism of the peculiarity and weakness
of Confucian culture. Weber thinks that Confucian “heaven (cosmos)-human
unity harmony” concept of the literati and officialdom (that humanity depends
on self-cultivation to achieve the realm of Heaven-human unity), which
discriminated against the attitude of regarding nature as an object of study
and hindered humanity’s vigorous probe into the realm of nature.2 3
2 1 Ibid.
2 2 Schumpeter, Joseph, Capitalism, Socialism, and Democracy, 1942.
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I agree with Weber’s on this point and think that this tendency may have
negative influence on imperial China’s science and technology development.
It does not follow that China is not scientific-minded or technically capable at
all. The above- mentioned sporadic great breakthrough in technological
history and development, such as the compass, gunpowder, paper and
printing are proofs. We must admit, however, to quite an extent technology
was not what the mainstream upper ruling bureaucrats, intellectuals and
culture of agricultural China was pursuing. It was, rather, spiritual cultivation
and ethical norms that Confucian culture was mainly concerned about.
However, fortunately this deficiency was made up by the valuing of education
element of Confucianism.
Scholars of East Asia area mention that the late industrializing countries
of the 20th century like Korea and Taiwan are unlike the early industrializing
countries, such as England, Germany and the United States, which were
mainly characterized by innovation. The former concerns learning and
borrowing from existing technologies.2 4 When the founding father of the
Republic of China, Dr. Sun Yi-Xian, advocated catching up with the
advanced countries, he also is talking about absorbing that which is most
advanced in the West head-on. After the impact of the West in China, the
wisdom and talent of the intellectuals with the encouragement and steering of
2 3 Weber, Max, The Religion of China, 1964.
2 4 Amsden, Alice, Asia’ s Next Giant, 1989.
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the state, have been gradually shifting their attention from learning from the
sages to learning, first, technology and natural science and, later, social
science from the West. The technology analysis does highlight an important
reason in East Asian countries’ economic success. The profusion of
technology makes borrowing or copying possible, then on a more solid and
advanced technological basis the East Asian countries can have their own
inventions. We can establish clearer links between placing emphasis on
education and shifts in the contents to the study of metaphysical philosophy
versus practical physics which has given the “Confucian paradox” a way out.
The Withering Away of the Authoritarian State
However, this authoritarian rulership weakens when time went on and
started transforming in the mid-80’s. What, then, were the forces that
withered the authoritarian state? The issue needs to be probed in terms of
both objective environment and subjective will factors.
Objective Environment: In his seminal work of modernization theory,
Upset points out that the precondition for democracy is a high degree of
economic development, including a high level of national income per capita
(see Table 1.2), literacy, industrialization, urbanization, and the popularity of
the media.2 5 In other words, a higher living standard and the popularity of
education may lead more people into political activities and policy making to
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improve their own well-being and to tolerate one another, thus providing
fertile soil for the germination of democratic development.
Table 1.2 The Gross National Product (GNP) per capita Comparison
Unit: U.S. Dollars
Year Taiwan U.S.A. Japan England South Singapore
R.O.C. U. K. Korea
1971 443 5,310 2,195 2,561 289 1,058
1972 522 5,778 2,847 2,903 319 1,345
1973 695 6,415 3,814 3,300 396 1,855
1974 920 6,887 4,161 3,584 542 2,255
1975 964 7,401 4,471 4,262 594 2,490
1976 1,132 8,176 4,984 4,145 803 2,575
1977 1,301 9,038 6,117 4,596 1,012 2,789
1978 1,577 10,107 8,592 5,818 1,396 3,329
1979 1,920 11,145 8,730 7,530 1,644 3,950
1980 2,344 11,996 9,137 9,605 1,592 4,688
1981 2,669 13,264 9,925 9,214 1,734 5,469
1982 2,653 13,616 9,168 8,670 1,824 6,012
1983 2,823 14,505 9,963 8,235 2,002 6,921
1984 3,167 16,926 10,544 7,779 2,158 7,563
1985 3,297 16,779 11,322 8,216 2,194 7,160
1986 3,993 17,513 16,552 10,039 2,505 7,022
1987 5,275 18,714 19,847 12,233 3,101 7,688
1988 6,333 20,029 23,786 14,472 4,112 9,350
1989 7,512 21,219 23,493 14,770 4,983 10,595
1990 7,954 22,105 23,965 17,180 5,552 11,856
1991 8,982 22,709 27,226 17,624 6,752 15,798
1992 10,470 24,491 29,686 18,323 7,004 17,945
1993 10,852 25,426 33,928 16,341 7,508 20,155
1994 11,597 26,594 37,048 17,742 8,506 24,186
1995 12,396 27,551 38,971 19,193 10,068 28,666
Source: 971-1990 data exerted from Appendix , Li, Kuo-Ting, 1992, pp. 289-290
1991-1995 data from Ministry of Economic Affairs of Taiwan,
http://www.moea.gov.tw
2 5 Lipset, Seymour Martin, The Political Man: The Social Bases of Politics,
1981.
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Judging from applicable economic development indicators — taking the
GNP growth as an example (Table 1.2), Taiwan surely has made spectacular
progress in economic development. However, regarding this method of
analysis, there is room for deliberation as follows:
a. The criteria for the promotion of economic development indicators are not
absolute, but rather are relative. To what extent of modernization can it
be regarded as “democratic parturifacient?”
b. While a number of countries resemble Taiwan at the stage of economic
development their democratic progress remains more authoritarian, e.g.,
Singapore’s lack of influential opposition party; or is different from Taiwan,
e.g. South Korea’s provocative labor and student demonstrations.
Therefore, a modernized living standard environment is not the only
decisive factor that produces democracy. In addition to a rising living
standard-objective circumstances, we must take into consideration the
mutual wrestling among the social, political and economic factors such as
ethnic groups and classes factors.
Subjective Will: Barrington Moore suggests that the way to democracy
leading to capitalist democracy is in itself part of history. It is questionable
that such history will repeat itself.2 6 In Taiwan, although superficial ethnic
harmony was reached, there was an undercurrent of opposition. Province of
origin has played a role in Taiwan’s political environment. In 1949, about 2
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million servicemen and civilians relocated to Taiwan from the Mainland. The
mainlanders at first stood for the leadership holding senior party or
government positions and occupied the overwhelming number of seats of the
three central representative bodies. The situation gradually changed when
the KMT encouraged ethnic Taiwanese (whose ancestors immigrated to
Taiwan in the Ming and Ching Dynasty from China), honed for political
activities, to join the KMT. Provincial and local elections attracted a large
batch of Taiwanese into the political arena. And through the supplementary
elections for Legislative Yuan, National Assembly, and Control Yuan,
Taiwanese ethnic groups could not be rejected access to the center of the
nation’s political power anymore. In fact, in the 1990’s, 15% (approximately
3 million) of Taiwan’s 20 million population were Mainlanders and their
posterity.2 7
On the other hand, the Mainlander ethnic group always claimed that it is
the only legitimate government representing the entire China, its ultimate
goal being recovering the Mainland. So it must provide a proper rationale for
the permanent existence of the National Government representing the entire
China. However, Taiwan’s international stance has plummeted since more
and more countries have recognized Mainland China as the only legitimate
government of China. The United States also severed official diplomatic
2 6 Moore, Barrington, Jr., Social Origins of Dictatorship and Democracy,
1966.
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relations with Taiwan in 1979. The KMT realized that it had to put its best foot
forward in Taiwan. To sustain its ruling position, in addition to economic
growth, it had to compromise to meet the political demand of newly educated
middle class elements. The anti-KMT -monopoly political movement took
shape throughout the 1970’s and 1980’s.
This democratic pushing force generated from below by the people
brought the KMT’s response. Faced with reality, even the KMT in its
subjective will deemed the time ripe for a great push to stop cracking down
on democratic movement and avoid being toppled violently. Three major
events in 1986 mark milestones in Taiwan’s political development under
President Jiang Jing-Guo. These were, the lifting of martial law as well as
the political party and media ban. The Democratic Progressive Party (DPP)
was founded in late 1986 and became the first phenomenal opposition party.
The general public began to enjoy more freedom of speech, of forming
associations, and personal freedom.
To recap: Taiwan’s political development experience from the 1950’s to
the mid-1980’s testifies to the interactions between politics and economy.
Political and economic development requires a favorable international and
domestic environment. As a member of the anti-Communist camp headed
by the United States during the cold war period, the political leaders and
bureaucrats have the centripetal support from the populace and initiated
2 7 Zhongguoshibao {China Times), June 6, 1995.
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Taiwan’s economic planning. They maintain state enterprises, guide private
industries and advocate the use of policy force to prevent excessive market
fluctuations. Effective government leadership and guiding market operations
have complemented each, as a result the economy and people’s livelihood
grew to higher levels. Ironically, the authoritarian state endeavors to
consolidate its legitimacy through a developing economy, the success of
economic development in turn brings democratization and sounds the death
knell or withering away of authoritarianism.
The authoritarian state development is not static; it is dynamic. Instead of
living in the period of euphoria restating what Taiwan has went through from
1950’s to the early 1980’s, the leitmotif of this dissertation is concentrated on
addressing Taiwan’s politico-economy development in the latest decade,
namely, after the mid-1980’s.
Since then, externally, following the demise of the cold war, a different
international climate has shaped Taiwan. China, bearing reunification with
Taiwan in mind, incrementally replacing the United States became the most
influential external factor. Domestically, within Taiwan, the authoritarian
political system and the developmental role of the state in directing political
and economic affairs have been challenged by prosperous bourgeois, vested
interest groups, a vocal working class and concurrently more individual-
oriented instead of group-oriented people’s mindset. The authoritarian state
may lament that people are so ungrateful - after it has done a lot for the
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people, the people want to transform the nature of it. The transition from an
authoritarian state toward modern representative democratization appears to
be a tremendous test in Chinese history. If it was an authoritarian state
before then what are the characteristics of the state now? How shall we
label it? Is the transition to democracy in Taiwan constructive and
successful? What are the obstacles? Why and How? What does the
democratic strength intend to achieve in economy and what kind of role does
it expects the state to play in the economy? The research question, the
hypothesis framework of this dissertation, will be presented and interpreted in
Chapter 2.
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CHAPTER 2 HYPOTHESIS FRAMEWORK AND RESEARCH AGENDA
Transition and metamorphosis is a fact for state structure in Taiwan. This
transformation process is incessantly destroying the old role of state, and
incessantly creating a new role. Just as a writer endeavors to reflect the
spirit and reality of human life, a social science intellectual labors to extract
the features and pulse of time.
Apparently, to address the evolution of the authoritarian state, it is hard to
choose one year as a clear-cut watershed. The mid-1980’s or the year 1985
was picked, because that on the one hand, many significant institutional and
policy reforms had appeared around that year. Nevertheless it is not a
rigorous dichotomy, some of the seeds of change had been sowed before
that.
In the mid-1980’s, Taiwan’s political climate became more mild and free. In
October 1986 the martial law and ban on organizing political parties was lifted
which symbolized the waning strength of previous authoritarian state. Later,
President Jiang Jing-Guo passed away in January 1988. The strong men
Jiang, father and son era, ended.
The main argument of this dissertation is that since the mid-1980’s the
authoritarian state in Taiwan and its role in politico-economy development has
changed dramatically. This change has been a fertile spawning ground for a
new hypothesis or theory, namely the authoritarian state of Taiwan has
transited from “authoritarian” to “quasi-democratic” and “quasi-authoritarian.”
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This hypothesis is worth studying because democratization is a major,
challenging and fascinating topic in political, economic and national
development. It implies twists, risks and opportunities. The hypothesis
framework and research agenda is depicted in Figure 2.1 on next page.
Since the mid-1980’s in the wake of authoritarian regime, Taiwan has
transitted to quasi-democratic and quasi-authoritarian state. This change also
brought about the transformation of Taiwan’s economy. The hypothesis
framework in Figure 2.1 offers the theoretical analysis of this transition. The
dotted vertical 1985 is time division line. As discussing the rise and decline of
the authoritarian state in Chapter one, the transition from authoritarian to quasi-
democratic state is anatomized from four elements: political, economic, cultural
and external. Taking the political development as the main axis expressed and
emphasized by the horizontal bold line, economic and cultural axes are
auxiliary ones. The movement on axis of politics (P) is denoted by P1, P2 and
P3, while that on economy (E) and culture axes (C) is E1, E2 and E3 as well as
C1, C2 and C3 respectively. The external factor (Ex) China is located at the
right end of the figure coupled by the United States at the left end. The mutual
influence of different elements is shown by arrowheaded lines, in contrast to
the regular arrowheads on the left of 1985 time dividing line, the bold
arrowheads are used to show what happened after the mid-1980’s. When we
study the change in politics, it is unavoidable to make reference to economy,
culture underpinning and external factors.
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Figure 2.1 Hypothesis Framework
1985
Politics
1 9 1 50 Pi - - au
Economy
)
thorite
\
rian--------- P2 19
/
. i
B5 P2 -~ quasi-democratic
1
-- P3 2000
f
19!50 E1 --- d €
Culture
/
ivelop
\
\
nental — £2
/
E2 — inconsistent —
regulatory
a
E3 2000
w
1950 C 1 — comm
self (rr
f External \
V Factor )
\
Unitarian — C2
ore)
(
C2— individual —
self (more)
C3 2000
1950 Exi — United States — Ex2 Ex2 — People’s Republic -- Ex3 2000
(more) of China (more)
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HYPOTHESIS FRAMEWORK EXPLANATIONS
Politics
There have been different kinds of regimes in this world. The great
political thinkers from ancient imperial China and Greece, the liberal
democrats of the 18th and 19th century and earlier, the socialist Marxists of
the 19th and 20th century, the totalitarian Fascism and Nazism of the 20th
century and the representative democracy of present day, contest the nature
of governance arrangements and the concept of democracy. If we try to put
them on an axis or spectrum, then from left, center to right, different forms of
government all try to justify their legitimacy.
Figure 2.2 Politics Axis
Liberal Representative Pluralist
b
i | Democracy , . I
emocracy I 1 --------------1 --------------------- 1 --------------- ! --------- 1
Imperial Monarchy Socialist Totalita Authori i
China &Aristocracy Democracy -nanism -tarianism Y
Quasi-authoritarian
I — ----------------------L Quasi-democratic
One Political Party
Democracy
In imperial China, the emperor was the “Son of Heaven,” who was
entrusted with the mandate of heaven. The democratic philosophy in this
system was that people come first, country second and the emperor the third.
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‘The will of the people was the will of heaven” and the emperor or the ruling
class should “respect the people as heaven” itself and provide benign politics
and economic good for the people.
Confucius follower philosopher Meng-Zi justified regicide to replace a
unrighteous emperor.2 8 In addition, human relations were divided into five
categories in Confucianism: emperor and ministers, father and son, husband
and wife, elder and younger brother, and among friends. The ethics and
morals of these relations were: benevolence (emperor) and loyalty
(ministers), kindness (father) and filial piety (son), righteousness (husband)
and compliance (wife), elder brother (friendliness) and younger brother
(respect), and trustworthiness (friends). Moral humanism regulated two
thousand years of agricultural Chinese society.
In the west, after few centuries of monarchy and aristocracy, liberal
democrats opened a new era of reflecting state and society relations.
Machiavelli (1469-1527) and Hobbes (1588-1679) sought the balance
between state power and civil rights. The people surrendered their cruel
state of nature and liberty in exchange for order, trade and commerce
prosperity offered by the state.2 9 Locke (1990-2000) and other liberal
democrats challenged Hobbes’ more pessimistic view on human nature, his
2 8 Kim, Dae Jung, “A Response to Lee Kuan Yew: Is Culture Destiny? The
Myth of Asia’s Anti-Democratic Values,” in Foreign Affairs, Nov./Dec., 1994.
2 9 Machivalli, Niccolo, The Prince and the Discourses, 1950. Hobbes,
Thomas, Leviathan, 1968.
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coercive sovereignty theory and tried to solve the authority and freedom
dilemma by emphasizing the ideas of citizens’ inalienable right, free market
mechanism and the checks and balances of government power.3 0 They
thought that state might and citizen right were compatible if government and
officials accountability was derived from popular representative democracy.
The state was obliged to pursue the greatest goodness of the greatest
number.
On the other hand, in ancient Greece, citizens were directly involved in
the decision-making of public affairs. Direct democracy in a small state also
fitted Rousseau’s democracy of seeking general will.3 1 But due to the broad
territory and complicacy of social structure of many countries, direct
democracy remained more as a lofty idea. To elect representatives to make
decisions on public affairs for general citizens became the realistic
institutional devise. In contrast to emperors, monarchies and aristocracies,
direct democracy or liberal representative democracy implies the notion of
equal political participation among the people. Christian theologist Michael
Novak says that our concern about the check and balance of democratic
system comes from the concept of original sin. Everybody once for a while
may commit sins, therefore, we cannot entrust any individual, class or social
3 0 Locke, John, Second Treaties of Government, edited by Macpherson, C. B.,
1980.
3 1 Rousseau, Jean-Jacques, The Social Contract and Discourses, 1991: p.
240.
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group entirely and hand them the power of controlling conscience, thought
and information. Similarly, James Madison writes that democratic system is
not designed for angels or animals but for common, fallible people like us.3 2
Implicitly, it doubts and denies rulers with absolute power and devises
strategy to prevent power abuse.
However, the liberal democracy under the market capitalist system is not
sufficient for Karl Marx. Marx saw the inherent class inequality and
contradiction of capitalist economy and the erroneous and limited modus
operandi of coexisting liberal democracy. He conceived that proletariat
revolution will lead to human emancipation. His followers argued that
communist party is the true vehicle for pursuing common interest.3 3 Marx’s
thought appeared to be the blueprint for Soviet Union, Eastern European and
Chinese communist parties.
In 20th Europe after World War I, the totalitarian Fascist philosophy and
regime originated in Italy by Mossolini and spread in Germany with the
founding of Hilter’s National Socialist (Nazi) Party. Facism was exercised
with an aim to recover the glories of ancient Rome and the Aryan super race
and was an integral doctrine of sociality antithetical to the atomism of liberal,
democratic and socialist theories. It was a politics predisposed citizens to
coerced or voluntary mass participation and violent or irrational dogmas.
3 2 Su, Bai-Dai, “The Special Speech in Breakfast Prayer Meeting,” Overseas
Campus, April Issue, 1999: p.29.
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The single self-righteous and intolerant political party represented the truth
and demands complete state regulations of all economic activity. It
emphasized industrial growth, large defense budget and led the country to
disastrous wars.3 4 In contrast to liberal democratic thought, human behavior
seemed to be quite obsequious and had the tendency to grovel to the
appeals of Hitler and Mussolini.
The authoritarianism practiced in East Asia and Latin America since the
mid-1950’s was a type of politics with less ideology, violence, and more
tolerance than that of totalitarianism. In post-colonial age, one party systems
and charismatic leaders emerged in these areas. Without committing to the
megalomania of totalitarianism, military strong men led the countries and
controlled the participation of other groups. Many authoritarian regimes have
transited to competitive democracy since the 1970s in “the third wave” of
democratization, in Southern Europe first, then in Latin America and East
Asia. In the 1990’s are joined by former Soviet Bloc countries.
The rationale for democratic transition is different from country to country.
The fading of political strongmen and the cold war, the rise of another
generation of politicians with different growing experience and education
background, the timing of laissez faire capitalism, and the appeals of racial,
religious and labor groups all pave the way for political democratization.
3 3 The Marx-Engels Reader, edited by Robert C. Tucker, 1978.
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If the pluralist democracy locates at the right end of political axis, then
Taiwan’s case since the mid 1980’s is sitting between authoritarianism and
pluralist democracy. In the pluralist perspective, individuals are the
fundamental unit of analysis. From rational choice theory approach,
individuals can act in their own interest and accommodate themselves to
other individuals’ actions. Organizations and societies are derivative forms of
self-regulating individuals. The state minimizes to be the microdecision unit,
which mainly serves as a mechanism to aggregate individual preferences or
to embody the consensual democratic value system. The state is a highly
differentiated mosaic of institutions open and accessible to competitive
influence from voters and diverse groups.3 5
As discussed in chapter one, Taiwan’s political reform was achieved both
from above and from below. In the wake of economic development, Taiwan
has been steadily embarking on the phase of democratization and mass
political participation. The entire population on the island has won a high
degree of freedom of speech, publication, assembly, association and party
organization. There are now hundreds of registered political parties. However,
Taiwan’s rapid progress toward democracy has not been all smooth sailing. It
is widely recognized that current President Li Deng-Hui to quite extent imposes
3 4 Communism, Fascism, and Democray: the Theoretical Foundations,
edited by Carl Cohen, 1972.
3 5 Alford, Robert R. and Friedland, Roger, Powers of Theory: Capitalism, the
State, and Democracy, 1985: pp. 1-58.
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his personal will and preference on policies and people can see the shadow of
a strong man from him. Democratization has also given rise to a multitude of
problems such as the acute, complicated inter-party struggles, the ethnic
disharmony, and the use of bribery in elections. All these political phenomena
and characterization manifest that politically Taiwan stays in quasi-
democratic and quasi-authoritarian stage.
Economy
From discussing political ideals and regimes so far, we can find out that it
is hard to have a pure political theory alone. Political thinkers from ancient to
present, from Aristotle, John Locke, Karl Marx, Dr. Sun Yi-Xian, all have their
preferred economic blueprint to correspond with their political theories. The
link between politics and economy is conditioned by the political and
economic development of a given time. Human economic civilization up to
the 17th century had three great epochs: (1) Hunting and fishing; (2) Pastoral;
(3) Agricultural, when people settled in one place. The dominant mode of
producing in ancient medieval times was agriculture, and most people were
peasants. Commerce functioned at the fringe of the agricultural society. The
economic context of modern political economy at the time of its emergence in
the 17th century is what we have called commercial capitalism.
Capitalism as the noun is the generic phenomenon, and commercial
capitalism is the variant of capitalism in the first three stages in its evolution:
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commercial capitalism in the 16th and 17th centuries (in which the focus is on
trade, exchange and markets), manufacturing capitalism in the 18th century
(factory production) and industrial capitalism in the 19th and 20th centuries
(mechanization and technological advancement). Capitalism in general is
commonly identified in terms of (1) private capitalist ownership of the means
of production (land, capital, factories, etc.), (2) market exchange relations,
including particularly a labor market where “free labor” (people owning
themselves, not slaves or serfs) sell their labor power to capitalist employers
owning the physical means of production and land, with which labor is then
comingled to produce output, the ownership of which is in the hands of the
capitalist employers.3 6
Similar to what we did with polity, the different types of economy can be
put on an axis as below:
Figure 2.3 Economy Axis
Commercial Manufacturing Industrializing Laissze faire
Capitalism Capitalism ^ ^
Agriculture Socialist Authoritarian
Capitalism Or State Economy Capitalism ▼
Competitive
Capitalism:
Inconsistent regulatory role of state
3 6 Elliott, John E., “Potical Economy and Public Policy,” Class Notes, 1993.
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Capitalism
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In the 17th and 18th centuries, political writers argued either that capitalism
posed a threat to democracy, or that democracy posed a threat to capitalism.
This is the general context in which we are discussing Hobbes, Locke,
Machiavelli, Jean Bodin, Thomas Jefferson,3 7 James Madison, Alexsander
Hamilton, ...etc.3 8
The idea of coexistence or even that capitalism and democracy could
contribute to one another emerged as the dominant idea in the 19th century.
The founding father figure of this point of view is Jeremy Bentham. His
contemporary, James Mill, his son John Stuart Mill, and John Stuart Mill’s
successors in the late 19th and early 20th centuries, are the major examples
of those who endeavor to blend the theory of capitalism and the theory of
democracy and to jointly espouse and propound both.3 9 They declare that it
is possible to put together in the same society a capitalist economic system
and a democratic political system.
On the other hand, Marx criticizes capitalism’s economic contradictions
and social conflicts, such as concentration of capital, increasing cyclical
severity, and working class misery. He sees that working-class
consciousness and organization will lead to the opposition of capitalism,
institutional transformation and socialization. He and his followers propose
3 7 Communism, Fascism and Democracy: the Theoretical Foundation, on
Jean Baldin, 1972: pp. 268-273, on Thomas Jefferson, pp. 437-442.
3 8 Dahl, Robert A., A Preface to Democratic Theory, 1956: pp. 4-34.
Baldwin, David A., Economic Statecraft, 1985: pp. 87-94.
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the socialization of the means of production so as to allocate resources to
satisfy human needs.4 0
The market mechanism with the mixture of socialist rhetoric in the East
Asia case, makes the authoritarian developmental state assume the major
role in economic growth. The export oriented strategy of this area cultivates
their countries to be international competitors. Comparing with the import
substitution of Latin American authoritarian states, East Asia achieves both
more rapid growth and equity.
However, at the economic front, the economy has also transformed
around the mid-1980’s. Though neo-economic field scholars downplayed the
facts that would obstruct the neat fit between Taiwan’s economic
development since the 1950’s to early 1980’s. Neoclassical precepts,
liberalization and privatization measures of neo-classical principles have step
by step gained ground. The major element in neo-classical economics views
state mainly an agency providing secure property right and regards market
as the most important social regulatory mechanism. The policies pursuing
and realizing free market reflects in trade, fiscal, monetary, financial policies,
and capital movement liberalization as well as the privatization of state
enterprises ...etc 4 1
3 9 Macpherson, B.C., The Life and Times of Liberal Democracy, 1977.
4 0 The Marx-Engels Reader, edited by Robert C. Tucker, 1978.
4 1 Williamson, John, “In search of a manual for technopols” in The Political
Economy of Policy Reform, 1994: p. 11-30.
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The trend of economic development in Taiwan has marched toward the
direction of market-conformity since the mid-1980s. But it is not a free-
market shock therapy as what happened in the former Soviet Union and
current Eastern Europe. It is a process of policy-cum-institutional changes
mandated by the overall socio-economic and political conditions. Political
democratization and economic liberalization is closely related. It is dogmatic
to establish a general case for saying that economic growth and liberalization
precedes political democratization, or vice versa, or come hand in hand.
Various countries experience different sequences. Taking Latin American
countries as examples, Chile accomplished successful economic reform
under highly repressive political auspices then entered into resonant political
democracy. Argentina represents another path of prior political liberalization,
followed by thriving economic reform. Columbia and Brazil have experienced
prolonged, always intertwined and sometimes reversed economic and
political reform.
In Taiwan’s case I would argue that successful economic development
under authoritarian regime catalyzes political democratization. Then
economic liberalization comes hand in hand with political democratization.
Nevertheless, Taiwan’s economy sits between authoritarian capitalism and
laissez faire capitalism proposed by economists such as James Buchanan,
Milton Friedman, and Friedrich A. Hayek. These conservative economists
present a coherent repudiation of the liberal-democratic welfare, regulatory
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and interventionist state.4 2 Taiwan’s economy bears inconsistency, though
gaining ground in liberalization and privatization in large fields, government
still implements policies from political consideration of securing KMT ruling
position instead of from economic consideration of efficiency and justice. It is
a collateral product of the quasi-authoritarian and quasi-democratic
character of Taiwan’s politics.
Culture Axis
Culture is an endogenous and exogenous variable. For example, China’s
simplifying Chinese traditional character changes culture per se. On the
other hand, culture is influenced by political and economic environment and
foreign contact.
Huntington claims a theory in his hotly debated article “Clash of Civilization”
that in the future the source of the problem of international competition will be
the clash of civilization, which will replace political and economic clashes 4 3
Huntington sets his mind to distinguish the West from the Rest on the basis of
the regions of Christianity Kingdom. He holds that the greatest threat to
Western freedom and democracy will be Confucianism and Islam. Among
Asian countries, he only includes Japan in the western circle and categorizes
China, Taiwan, Korea and Singapore as Confucian nations. This argument is
4 2 Waligorski, Conrad P., The Political Theory of Conservative Economists,
1990.
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not convincing and even self-contradictory. Data show that “Japan is not the
East Asian country with the lowest percentage of church-affiliated Christians
but also, in the eyes of many observers, the least religious, even considering
the influence of the Easter religious tradition themselves.”4 4 On the contrary,
Korea has the largest number of Christians in Asia, approximately one fourth to
thirty percent of Koreans are Christians.4 5 The proportion of Christians in
China, Taiwan, Singapore is all larger than that of Japan. Culture is fluid and
changeable not fixed and static.4 6
Huntington has neglected or disregarded the possibility or the fact of culture
fusion and worries about the cooperation of Confucianism-lslam linkup, which
will challenge the interests, values, and power of the West. It seems that it is a
forced and unnatural analogy to attempt to link Confucianism to Islam.
Confucian culture is devoid of the Islamic exclusiveness and militancy. There
4 3 Huntington, Samuel, “The Clash of Civilizations?” Foreign Affairs,
Summer 1993: pp. 22-49.
4 4 Swyngedouw, Jan, “The Role of Christianity,” In Search of An East Asian
Development Model, 1990: p. 118.
4 5 Shijieribao(Chinese Daily News), Dec. 18, 1998
4 6 In Taiwan, late President Jiang Jie-Shih, Jiang Jing-Guo and current
President Li Deng Hui all claimed to be Christians. The findings of a study indicate
that Singapore’s education level is closely related to religious belief. Figures in the
recently published “1990 Singapore Census Report” show that the majority of the
better educated ethnic Chinese in Singapore are either Christians or non-believers.
Take the ethnic Chinese college students for instance: 40.6% of them are Christians;
only 24.8% are Buddhists and Taoists (believers of traditional religion); 34.3% have
no religious affiliation. On the contrary, among the ethnic Chinese who have
attended Only elementary school or below, only 7% are Christians, while as high as
81.5% are either Buddhists or Taoists.
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are cultural or civilization conflicts, but may not reflect on international politics
area. Culture differences can merely be an excuse or a mask of the conflicts of
international power politics. For example, U.S.-China conflicts are very much
caused by intellectual property rights disputes, Taiwan problem, human rights
interpretation difference than by Confucianism vis-a-vis Christianity.
Figure 2.4 Culture Axis
Communitarian Self (more) Individual Self (more)
Virtures (praiseworthy characters): Virtues:
obedience, hierarchy, tolerance independence, equity, ambition
modesty, self-effacement, abstinence rationality, competitiveness,
responsibilities rights
I would argue that along with Taiwan’s political and economic reality, the
post-Gonfucian culture in the authoritarian developmental state stage has
entered into the post-post-Confucianism stage. The mentality of people on
Taiwan does not strongly adhere to the collective solidarity as before. The
individualism element has accentuated so that people feel they can be more
congenial to modern democratic polity and market economy society. Former
praiseworthy characteristics of more communitarian self may become
blameworthy characteristics of individual self oriented.
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External China Factor
Many political and economic theories and practice has focused only on
locality, such as the community and the nation. Nowadays, national border is
like revolving door, people traveling back and forth. Electronic age allows
people absorbing information at their desk through internet. Global
interconnectedness and its influence pose problems must be addressed.
When we study recent political economic development situation of
Taiwan, it is self-deceiving if we don’t include China factor. China, among
other things the turbulent ten-year-long Cultural Revolution (1966-1976), is
steadily turning to an economic-reform-and-openness road. It is predicted
that Mainland China will be the locomotive in the sustained growth of the
Asian-Pacific region. In its current and future social development, Taiwan
differs very much in the realistic environment from other countries and
regions which have pursued or are pursuing political democracy. In that
Mainland China has never officially or unofficially given up it claim to
sovereignty over Taiwan’s. Consequently, despite the incremental
democratization of Taiwan’s community, the future of the community is not
completely determined by its people but is also conditioned by the words and
deeds of Mainland China across Taiwan Strait.
Following the normalization of relationship with the United States in 1979,
Taiwan’s long-term dependence on U.S. political support hits the red light.
In the U.S.-Taiwan-China triangular relations, China gradually become the
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center interest to the U.S. and Taiwan retreats to periphery. But, as
mentioned earlier, the U.S. under the flag of anti-communism to some extent
enhanced the state autonomy in Taiwan’s early military bureaucratic
authority; China poses a more direct threat and restriction to Taiwan’s
politics.
Figure 2.5 External Factor Axis
1985
950 20Q0
China
(more) (more
China put forth a nine-point declaration in 1981 proposing that the
Taiwanese Guomindang and the Chinese Communist Party (CCP) carry out
peace talks on a reciprocal basis. According to China’s design, Taiwan will
become a province actually a special administration region of China. Partial
content includes:
After the country is reunited, Taiwan can enjoy a high
degree of autonomy as a special administrative region and
it can retain its armed forces. The Central Government will
not interfere with local affairs on Taiwan. Taiwan's current
socio-economic system will remain unchanged, so will its
way of life and its economic and cultural relations with
foreign countries. There will be no encroachment on the
proprietary rights and lawful right of inheritance over private
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property, houses, land and enterprises, or on foreign
investment.
People in authority and representative personages of
various circles in Taiwan may take up posts of leadership in
national political bodies and participate in running the state.
When Taiwan’s local finance is in difficulty, the Central
Government may subsidize it as is fit for circumstances. For
people of all nationalities and public figures of various
circles in Taiwan who wish to come and settle on the
mainland, it is guaranteed that proper arrangements will be
made for them, that there will be no discrimination against
them, and that they will have the freedom of entry and exit.
Industrialists and businessmen in Taiwan are welcome to
invest and engage in various economic undertakings on the
mainland, and their legal rights, interests and profits are
guaranteed.
We hope that Guomindang authorities will stick to their one-
China position and their opposition to ’two Chinas’ and that
they will put national interests above everything else, forget
previous ill will and join hands with us in accomplishing the
great cause of national reunification and the great goal of
making China prosperous and strong.4 7
Reunification with China was a conforming policy in the era of Jiang
Jie-Shi (1949-1976) and Jiang Jing-Guo (1976-1988). When Taiwan was
expelled from the United Nations in early 1970’s, the government did not use
the name of an independent Taiwan state to rejoin it to avoid splitting China
into two countries. Both sides have insisted that there is only one China and
claims that the Republic of China on Taiwan and People’s Republic of
China represents the sole legitimate China state.
4 7 Foreign Broadcasting Information Service (FBIS), Daily report: China, Sep
30,1981: p.U l.
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With an aim to ameliorate animosity and increase the understanding
between the two sides of Taiwan Strait, around 1985, the three- decade hostile
and frozen relationship between China and Taiwan began to thaw. Taiwan
authorities began to relax its restrictive policy governing Chinese on Taiwan
(Taiwanese) going to the Mainland to visit relatives, travel, invest, carry out
reexport trade, and conduct non-governmental cultural exchanges with the
mainland. In fall of 1987, before the death of President Jiang Jing-Guo the
Republic of China (ROC) government had permitted residents of Taiwan to visit
their relatives on the mainland on tourist visas. Chinese people on two sides of
Taiwan Strait started more overt and active interactions.
Taiwan also put forth its National Reunification Program in 1991. The main
points include near, intermediate and long-term reunification strategies and
policies:
1. The near-term exchange stage, in which hostility shall
be eliminated and mutual understanding and mutual
benefit achieved in the course of exchange, instead of
going against the other party’s security and stability or
denying its status as a political entity, so a benevolent
interactive relationship can be built up.
2. The intermediate-term mutual cooperation stage, in
which: i. Both regions shall build up reciprocal official
communication channels, ii. Both regions shall spare no
efforts in helping the other party participate in international
organizations and activities, iii. Direct navigation and
direct trade shall be opened between both regions, and
Guangdong and Fujian Provinces and the Yangzi Delta
jointly developed, which shall be steadily expanded to the
areas, to shorten the livelihood discrepancy between
Taiwan and the Mainland, iv. Mutual visit to the other
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region by high-level personnel shall be promoted to create
favorable conditions for negotiations.
3. The long-term negotiation-unification stage, which
includes the negotiating organizations operating on the
basis of the wills of the people on both sides on the principle
of political democracy, economic freedom, social justice,
and military nationalization--to complete the great enterprise
of national reunification, study and draft a constitutional
system, and build a democratic, free, and wealth-equal
China4 8
At present, the relationships between Taiwan and the Mainland still linger at
the near-term stage. Largely due to the Taiwan authorities’ cautious attitude
and their insistence on the strategy of “not negotiating and not making contacts
officially, and not compromising politically.” Even when it comes to exchange, it
is in fact loose for Mainland-bound and tight for Taiwan-bound traffic for fear of
instant assimilation by the Mainland. China authorities suspect that the Taiwan
authorities are saying one thing but doing another by its delaying tactics, by
saying “one China” in name but practicing “two Chinas” in reality. As China
saw it, after Taiwan announced the National reunification Program in 1991, its
claim in recent years that unification can only be negotiated on the basis of the
recognition of the separate government phenomenon is a marked regression
from “one China” standpoint. In the view of China, that is not much different
from the independence movement on the island.
4 8 Zhongguoshibao(China Times), Feb. 24,1991: p.2.
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While Taiwan government claimed that the “personal visits” of President Li
and Executive Yuan Minister Lien to the United States and Europe respectively
in June 1995 marked significant breakthroughs of Taiwan’s pragmatic
diplomacy, they elicited strong repercussions from Mainland China. Not only
did it launch violent attacks through its official media and suspend the unofficial
general affairs negotiations, but it also conducted a series of military actions,
such as rocket test flight and military maneuvers. In March 1996 before
Taiwan’s presidential election, there was a very large scale navy-air force-army
joint practice with live ammunition. It drew the attention of the world, created
tension in East Asian areas and brought about economic and social panic in
Taiwan.4 9
In contrast with the converging force of nationalism under previous
authoritarian state that facilitated Taiwan’s early development, now the
fundamental “state identity” splits the country. The intriguing unification
problem and independence (separation) challenge produce centrifugal strength
on Taiwan’s political unity. It also limits and tests Taiwan’s democracy. In its
first ever direct presidential election held in March 1996, though in form
Taiwan’s democracy was pushed to the pinnacle in form, however, in reality
under China’s military threat, the problem of reunification rather than domestic
public policies discussions and debates dominated the election.
4 9 Shijieribao (Chinese Daily News), Feb.28, 1996: p.l.
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However, paradoxically, China is like a magnet absorbing Taiwan’s
economic strength. The amount and scale of Taiwanese investment and
trade with China are especially astounding. Attracted by China’s cheap labor
and huge market, Taiwanese entrepreneurs rush to bring their factories to
China. Taiwan wants to resist China politically, but economically Taiwan
irrevocably needs China. Taiwan authorities neglect businessmen’s opinions
of demanding direct commercial relations with China and carry out
unrealistically restrictive economic policy in terms of trade and investment
toward China, which appears to be another major problem of Taiwan’s quasi-
democratic and quasi-authoritarian politics. Based on the above discussed
hypothesis framework, the politics, economy and US-China the physical
factors will be chapter titles, the abstract culture element will intervene when
it fits. The research agenda is as follows:
RESEARCH AGENDA
Methodology
A case study strategy will be used in the overall research plan. For the
case study, usually a "how" or "why" question is raised about a contemporary
or historical development of event and phenomenon, over which the author
or investigator has little or no control but tries to probe and analyze it in a
scientific way by using related data. The transition of the authoritarian state
in Taiwan is apparently an empirical inquiry on a contemporary issue from a
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bird’s-eye view and in which multiple sources of evidence need to be used to
support and justify the hypothesis.
Data Collection Method
The research question will be answered with both historical and
contemporary data. But that which is history will only serve as part of the
prologue. Contemporary data starting from early and mid-1980’s will be
heavily relied on. Meanwhile, the data is inherently qualitative as well as
quantitative. The concrete methods of data collection include:
1. Literature Review
The main skill of getting useful information by reviewing literature includes
record data abstraction and their content analysis. Academic journals, the
printed media and official documents will be consulted from.
2. Statistical Data
Periodical or unperiodical statistical data of both government and private
sources regarding Taiwan's political and economic activities will be used.
Sometimes there is great disparity in the published figures by China and
Taiwan, e.g. the trade and investment volume. In this study, the angle adopted
at the time of the analysis and the rationale on which it is based will be
assessed and the more credible data will be taken.
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3. Public Opinion Review
In order to study the public opinion regarding Taiwan’s situation, such as
people’s views on reunification and independence issue, relevant surveys done
by privileged institutions or newspapers will be helpful.
4. Elite and Expert Interviews
An interview can be defined as "a conversation with a purpose" initiated by
the interviewer. The elite and experts are expected to offer intelligent or
systematic description, interpretation and/or prediction on the relevant research
questions. Researcher from Heritage Foundation (located in Washington
D.C.) evaluating the economy liberalization level of countries all over the
world will be interviewed and questioned over the phone.
Chapter Content
Chapter 1 Introduction: the emergence and fading away of the
authoritarian State
This dissertation is organized into seven chapters. Chapter 1 lays out the
rise and decline of the authoritarian state and its developmental role in
economic affairs. It offers the holistic theoretical analysis of studying the
authoritarian state. The horizontal endogenous variables politics (P),economy
(E) and culture( C ), namely the meaning from P1 to P2, E1 to E2 and C1 to C2
in Figure 2.1 have been studied. The vertical exogenous interaction between
politics, economy and culture has also been addressed.
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Chapter 2 Hypothesis framework and research agenda
Chapter 2 is the hypothesis framework , its explanation and research
agenda. The major argument of this dissertation is that in the wake of
authoritarian regime, Taiwan has transited to quasi-democratic and quasi
authoritarian state. Correspondingly, Taiwan’s economy has also transformed
with its politics. Based on the theoretical analysis used in Chapter 1, taking
the political development as the main axis, external economic and culture
axes as auxiliary ones, and their mutual influence is expressed by vertical
arrowheaded lines, what happened to the right of 1985 line of the hypothesis
framework in Figure 2.1 will be studied.
Chapter 3 The Progress and Limitation of Taiwan’s Domestic Politics:
Quasi-Democratic
In Chapter 3, we will look at the achievements and limitations of Taiwan’s
domestic politics toward populist democracy. We basically will examine the
political development from stage P2 to P3 in Figure 2.1. In addition to the
DPP, how other major political parties emerged since the mid-1980’s. What
are their major political appeals? How’s their performance in different levels of
elections? How does the President modify political system through the
National Development Conference? What factors limit Taiwan’s democracy?
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Chapter 4 The Metamorphosis of Taiwan’s Domestic Economy: A
Collateral of Quasi-Democratic Politics
Democracy in both political and economic realms is a matter of sharing
power, of participating policy making, of fulfilling individual value and of
promoting social justice. In chapter 4 we will also study the movement from E2
to E3 and its interactions with politics axis in Figure 2.1, namely, what elements
in economy per se pushes it toward liberalization? And what is the relation
between political democratization and economic liberalization?
Democratization endows the citizens opportunity to cast votes for allocating
resources through market instead of through state. It seems that this
opportunity is endorsed and limited by Taiwan’s politics. We will demonstrate
how and why the ruling party, the parties not in power and capitalist class
promote and curtail economic liberalization to secure their own interest.
Chapter 5 The Making of Taiwan’s China Policy: Quasi-authoritarian
In chapter 5, we will analyze Taiwan’s major political parties’ China policy
appeals and how their subjective recognitions about the Taiwan-U.S-China
relations affect their China policy claims? How does the making of Taiwan
government’s restrictive policy in Taiwan’s economic interactions with China
bear strong authoritarian color? How the voice of business circle is neglected?
How does this affect state-business relations?
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Chapter 6 Taiwan’s Trade and Investment Policy toward China:
Interaction of Political Power and Economic Reality
In Chapter 6, we will see how Taiwan government’s regulatory economic
policy toward China as the outcome of quasi-authoritarian decision-making
goes against Taiwan’s economic reality. In recent years, the trade and
investment between China and Taiwan have been growing by leaps and
bounds. Businessmen realizing that their voice is suppressed, they show their
determination by exiting their enterprises to China even against current
regulations. Taiwan needs China more than China needs Taiwan. The
complimentarity and competitiveness of trade and investment between Taiwan
and China, Taiwan entrepreneurs' overseas investment motives, investment
amount and performance will be analyzed. The content and character of
related regulations from Taiwan on the economic interactions with China will
also be probed.
Chapter 7 Conclusion and Prospect
In concluding section, we will summarize the findings. The dissertation is to
study the change of Taiwan’s state structure. Politically, it has transited from
authoritarian and quasi-democratic state. The quasi-democratic and quasi
authoritarian character of Taiwan’s politics affects the transformation of
Taiwan’s economy. Domestically, democracy endorses and gains ground in
economic liberalization and privatization, but authorities still manipulate
economy for their benefit. Externally, the authoritarian way of Taiwan’s
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economic policy-making also contradicts with Taiwan’s domestic economic
liberalization trend. In their recent effort to promote democracy, to rely on
market to develop economy, to realize different values and aspirations and to
handle its relations with China, the Taiwan government and its people should
know that it is not a task of general optimism. With Taiwan undergoing triple
transition in terms of politics, economy and culture from left to right, people and
government should contemplate and pay attention to how to handle and
minimize concurrent disorder and achieve more constructive outcome.
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CHAPTER 3 THE PROGRESS AND LIMITATION OF TAIWAN’S DOMESTIC
POLITICS: QUASI-DEMOCRATIC
The passing away of President Jiang Jing-Guo and the founding of DPP
in 1986 lead Taiwan into a new political era. The vice-president at that time
Li Deng-Hui succeeded Jiang’s position. The Veep Li did not earn his
political way through local or central representative elections. He was at first
a professor of Agricultural Economics Department in National Taiwan
University, having earned his doctoral degree in Cornell University. When
KMT realized the importance and being unavoidable to co-opt Taiwanese
elite and general public to Taiwan’s politics, as a native Taiwanese. Li was
promoted by Jiang Jing-Guo as short term mayor of Taipei City, the
Governor of Taiwan Province and later the vice-president in 1984 and
became president on January 14, 1988 next day of Jiang’s passing away. Li
had been regarded as a no-voice and non-threaten assistant. By contrast,
another prominent native Taiwanese political figure Lin Yang-Gang, who
emerged from County Magistrate election battles in his early age and
enjoyed wide popularity from grass roots, was less favored in Jiang’s eyes.
Having assumed Taipei City mayor too, he ended up with Ministry of Internal
Affairs and the Ministry of Judicial Yuan.
An undercurrent emerged in Li’s succession to president. It was rumored
and is verified by Li Huan (who was the general-secretary of KMT in January
1988) recently in 1998 that Madame Jiang wrote him a letter and proposed to
61
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postpone the Central Standing Committee meeting.5 0 But with the initiative
of Song Chu-Yu (James Sung, then deputy general-secretary of KMT and a
younger generation mainlander), the meeting was convened at the end of
January and Li was elected as the acting chairman of KMT. On surface, Li
was both administration and party head. But the real power was shared
among three senior mainlanders appointed by Jiang Jing-Guo: Li Huan, the
chief of the general staff Hao Bo-Cung and an obedient Prime Minister Yu
Guo-Hua. The KMT Central Committee was held in February 1990 to
nominate president and vice-president candidates. Some Central Committee
members, such as Li Huan, urged for a more democratic process of
nominating President candidate but was rejected.
Li Deng-Hui and his running mate Li Yuan-Cu (a scholar of National
Zheng-Zhi University) stepped out and will be voted by National Assemby
members in March 1990. Lin Yang-Gang and Jiang Wei-Guo (Jiang Jing-
Guo’s half brother, a military general and the secretary general of the
National Security Council) gained Li Huan’s support and intended to
challenge two Li’s as president and vice president.5 1 However, Lin and
Jiang’s aspiration was vilified by Li Deng-Hui’s supporters. Lin was
5 0 Shijieribao (Chinese Daily News), January 30, 1998, Interview with Li
Huan.
5 1 To know the detailed recording of how President Li strengthened his
political base, please take reference of The China-Taiwan Connections, by Leng, Ze-
Gang, 1995: chapter 2. Moody, Jr., Peter R., Political Change in Taiwan: A Study of
Ruling Party Adaptability, 1992: chpater 7.
62
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appeased by Li that he will not run for the second term in 1996 so that Lin
could have opportunity to win. Li was elected first president with native
Taiwanese origin by National Assembly in 1990.
In order to consolidate his power, Li, to many people’s surprise, appeared
to be not only strong, but also scheming and calculating. Li Huan, though
became the Prime Minister in June 1989, was replaced by Hao in May 1990
by president Li Deng-Hui after the resignation of former Prime Minister Yu
and Li Huan was pushed sideline. Hao’s exit and promotion to the head of
Executive Yuan gave President Li more room to maneuver military field.
Hao’s tough style in domestic affairs and loyal position toward reunification
with China soon became an attacking target by DPP legislators in the
interpellation of Legislative Yuan.
First local and national representative elections in Li’s time took place in
1989. In December, the elections for supplementary legislators, Provincial
Assembly, County and City Magistrates and Taipei and Gaoxung City
Councils met together. The KMT performed worse then ever. In
supplementary legislator election, the votes gained by the KMT dropped from
1986’s about 70% to 60%, Provincial Assembly election from 1985’s about
70% to 62%, that of County Magistrates and City Mayors from 1985’s about
63% to 53%.5 2 DPP and independent political figures rose up in electoral
competition and won more votes than before.
5 2 Political Change in Taiwan, edited by Cheng and Haggard, 1992: pp. 166-
171.
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Table 3.1 Ratio Between the Supplementary Members and Their Senior
Colleagues in the National Representative Bodies
National Assembly Legislative Yuan Control Yuan
Years Senior Supplementary Senior Supplementary Senior Supplementary
Members Members Members Members Members Members
No. % No. % No. % No. % No.
%
No.%
1969 1399 98.94 15 1.06 468 97.70 11 2.30 69 97.18 2 2.82
1972 1344 96.20 53 3.79 419 92.09 36 7.91
1973
1975 377 87.88 37
15"
8.62
3.50
63 80.77 10 12.82
5" 6.41
1980 1152 93.81 76 6.19 309 76.11 70
27"
17.24
6.65
42 56.76 22 29.73
10" 13.51
1983 270 73.37 71
27"
19.29
7.34
1986 880 91.28 84 8.71 224 69.14 73
27"
22.53
8.33
37 53.02 22 31.88
10" 14.50
1989 150 53.57 101
29"
36.07
10.36
1991 64 15.88 339 84.1
1992
1993
1995
0 155
6"
158
96.2
3.7
96.3
10 34.5 19 63.5
(no election)
6n 3.6
1996 0 334 100.0
Source: a. To 1989 in Table of Cheng & Haggard, p. 167,1989 on data from World Daily
News after election coverage. "Supplementary members selected from the overseas
Chinese
b. “In the National Assembly, 630 members were elected in the mainland in the 1940s or
added to the body in the last forty years in a manner not subject to election... In the
Legislative Yuan..., 140 were elected in the 1940s. In the Control Yuan..., 20 were elected
in the 1940s.” In Feldman, Harvey J, edited, Constitutional Reform and the Future of the
Republic of China, 1991: p.4. c. Since 1993, the members of Control Yuan, whose
responsibility is to impeach public service officials were nominated by President, instead of
being elected.
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The unprecedented poor election result for KMT solicited criticism from
relevant responsible persons, such as Li Deng-Hui, Li Huan and Lin
Yang-Gang... etc. While the two Li’s found faults with KMT campaign cadres,
factionalism factors and KMT’s undisciplined nomination competition. Others
blamed KMT authorities’ stubbornness and dogmatism.5 3
As said earlier, along with the emerging local election politics in the late
1950’s, in national level representative elections, supplementary elections
started from 1969. One of the KMT’s major political reforms or engineering
projects, by using soft and hard tactics, the senile central grade
representatives’ (who were elected before they came to Taiwan) voluntary
retirement or forced retirement made it possible for an overall re-election in
1991 and thereafter.5 4 Table 3.1 shows the metabolism and succession.
The major responsibility of assemblymen was to revise Constitution, elect
and recall President and vice President. In the National Assembly
supplementary election held at the end of 1991, only 64 senior members did
not retire with others. The rest, 339 seats, included contested seats at the
ballot box, and seats filled by delegate-at-large seats and overseas Chinese.
Among the total 403 seats, the KMT won 320, DPP 75, the Non-Party
Democratic Independent Alliance 2, the Chinese Social Democratic Party 1
5 3 Moody Jr., Peter R., Political Change in Taiwan: A Study of Ruling Party
Adaptability, 1992: pp. 166-170.
5 4 Wachman, Alan M., Taiwan: National Identity and Democratization,
1994: chapter 6 & 8.
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and non party affiliated independent persons captured 5 seats. KMT won
about 71% of total votes cast, and DPP about 27%.5 5 It is worth mentioning
in 1991 National Assembly election, under freer political climate, Taiwan
independence emerged as an issue to be advanced openly by DPP. DPP’s
alleged goal was to gain more seats to revise Constitution (three fourth votes
will be needed eventually) to recognize Taiwan’s de facto independence and
to establish a new country, or to abolish National Assembly and ultimately
promote direct populist election for President. However, KMT’s winning by a
large margin was disappointing to DPP. DPP realized its radical
independence appeal lacked wide market and could not shake the very
foundations of Taiwan people’s stability first consideration yet, namely not to
provoke, exasperate China and possibly end up with military conflict. At the
same time, not to damage the burgeoning Taiwan-China economic relations
since the 1990’s also has a stake.
Inside the DPP, they were divided into the main stream individuals and
extremists. The former, the New Wave Pact, openly sought, as they did in
1991 election, independence for Taiwan through violent mass movement
with a view to replacing the Republic of China (ROC) with the Republic of
Taiwan. Emotionally, they wanted to cut off the blood-is-thicker-than-water
tie with the Mainland. The latter, the Formosa Pact aspired for the check and
balance of the multi-party system of Western democracy and the probability
5 5 Zhongyangrebao (Central Daily News), December 23, 1991
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that the party not in office may be in office and thought that time was not ripe
to bring independence to the fore.
Having learned from the 1991 election experience, DPP modified its
campaign strategy and the Formosa Pact gained the upper hand. The DPP
incrementally evaded more sensitive Taiwan independence appeal in
domestic elections to pacify voters and expected to make progress in
election battlefield.
In the post-Jiang era, the KMT was also embittered by democratization,
liberalization, and decentralization. Having supported Li as late president’s
Jiang Jing-Guo’s successor, the older generation KMT members and some
younger mainlander KMT members were more and more dissatisfied with KMT
figures’ authoritarian style in high echelon and its plutocracy and its
Taiwanization of KMT and were suspicious of the sincerity of their mainland
policy. In 1993, the non-main stream New KMT Alliances, broke away openly
and formed the Chinese New Party, which has gained no small ground in
recent years’ elections.
In December 1992, for the first time all the seats of Legislative Yuan were
open to be elected and a new Legislative Yuan was born. Among the 161
seats, 125 seats were to be elected at the ballot box. The remaining 36 were
allocated as at-large seats and overseas seats based on votes percentage of
all political parties.5 6 In this Legislative Yuan election, one member of the
5 6 Zhongyangribao {Central Daily News), December 22, 1992.
67
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New KMT Alliances Zhou Shao-Kang, and the former Minister of Finance of
Hao Bou-Cung Cabinet, Wang Jian-Xuan, who annoyed President Li and
stepped down because of his position of levying higher taxes of stock and
real estate trade, won the first and second high votes in Taipei and Taiwan.
The KMT won 96 seats, DPP 50, Chinese Socialist Democratic Party (CSDP)
1 and non-party affiliated independent candidates 14. KMT gained 53%
votes, DPP 31%, CSDP 1.3% and the rest about 14.6%.5 7 For KMT, several
wealthy and puissant legislators or candidates were replaced or lost to
candidates with clear and clean image, such as Wang and Zhou. While for
DPP in this election, the China shadow continuously hovering overhead
general public and weakening the Formosa Pact’s influence. Instead more
moderate factions emerged, such as Formosa Pact and the Righteousness
Alliances.
After the election, President Li undertook cabinet reshuffle. Taiwan
Provincial Governor Lian Zhan replaced the resigned Premier Hao and KMT
general secretary Sung Chu-Yu took over Lian Zhan’s post. Lian’s
grandfather was a Taiwanese gentry and wrote the famous The General
History of Taiwan (Taiwan Tong Shi). Lian were bom in Shanxi, a province in
the northwest of China, came to Taiwan with his family in his childhood. His
rich family background did not cover the glory of his being a capable official.
5 1 Ibid.
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Sung, second generation of Hu-Nan province mainiander, landed in Taiwan
around 1949. He helped crowning Li and was regarded as Li’s favorite.
In 1994, it was the turn for the election of Provincial Assembly, among
the total 79 seats (2 seats more than 1989), KMT obtained 51 seats
(including seats won by KMT members not nominated by KMT), five seats
less than 1989 election. DPP gained 23 seats, 7 seats more than that of
1989. The first run New Party (NP) occupied 2 seats, non-party independent
personages reduced from 1989’s 5 seats to 3 seats. KMT’s seats percentage
dropped from 1985’s 76.6% to 69.8% in 1989 and to around 65% in 1994.
Votes percentage dropped from 1985’s 69.8% to 1989’s 62.1% and further to
51.03% in 1994. By contrast, DPP’s votes percentage increased gradually.
In 1994, it gained 32.54% of votes, NP 3.74% and others 12.69%.5 8
Figure 3.1 is the outcome of Taiwan’s Provincial Assembly elections from
1969 until the latest one in 1994. The solid line represents KMT seats
percentage, the dotted line stands for DPP, the dot New Party, and the bold
dotted line denotes others’ harvest. It is worth noting that other non-KMT
seats before the founding of DPP were from independent non party affiliated
personages or from Young China Party, Democratic Socialist Party. The
latter two parties were formed in mainland China before 1949. After 1986,
diversified political alliances and associations were organized.
5 8 Shijieribao (Chinese Daily News), After Election Report, Dec. 12, 1994.
69
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From Figure 3.1, we can obviously see that since the mid-1980s from the
1986 election on till the 1990,s, the KMT seats curve goes downward
dramatically, while those of DPP and NP climb up. We can see similar trend
in elections of other categories and levels. In 1994, coinciding with
Provincial Assembly members election, the relevant laws were modified first
time to allow Provincial Governor, Taipei and Gaoxung mayors ( the two
Figure 3.1 The Trend of Seats of the Members of Taiwan Provincial
Assembly Elections among Political Parties, 1951-1994 (% of Seats )
% ioq
40
30-
20
Year 1954 1957 1960 1963 1968 1972 1977 1981 1985 1989 1994
Total 57 66 73 74 71 73 77 77 77 77 79
§ 6 cits
KMT:________ DPP:___ NP: A Others:____
Source: 1951 -1989 chart data exerted and compiled from Table 7.7 in Cheng and Haggard,
1992: p. 169. In 1951, members of Provincial Assembly were elected indirectly by the county
and city councilors; from 1954 they have been elected directly by the people. 1994 result
from World Daily News, December 4,1994
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special municipalities in Taiwan, which are under the jurisdiction of Central
Government like a province) to be elected directly from the people instead of
being officially assigned by central government. During this election, we
could find that the voters kept distance from the DPP Provincial Governor
candidate Chen Jian-Nan’s flagrant Taiwan independence claims, while the
NP was not advantageous in large whole province district election and
received low votes percentage. KMT candidate Sung was nominated by
President Li. His mainlander origin does not harm him in the presence of
native Taiwan people’s Li Deng-Hui nexus.
In mayors’ election, DPP Taipei mayor candidate Chen, a former DPP
Legislator, played down Taiwan independence topic and focused his political
views on municipal residents’ primary concerns and interests, such as the
inefficiency and corruption of government, public security, air pollution, traffic
jam...etc. Chen and some conscientious candidates from different parties also
emphasized ethnic integration. The election ended up with DPP’s victory in
Taiwan’s capital. But the DPP was the beneficiary from the split of KMT and
NP. The sum of KMT and NP votes dominated over that of DPP. In Gaoxung,
the KMT still maintained its mayoral turf.
In the elections of Members of the Taipei and Gaoxung Municipal
Councils held in the same year (1994), among the total 52 seats of Taipei
Municipal councilors, KMT occupied only 22 seats. Comparing with 1989’s
37 seats, there is 40.5% decrease. In Taipei Municipal Council, KMT first
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time degraded from ruling party to opposition party. DPP increased from
1989’s 14 seats to 18 seats. NP made its debut and gained 11 seats. Non-
party personage had 1 seat. Since no party exceeded 50% of votes this
phenomenon will bring new phase into Taipei Municipal Council. In the
competition for Gaoxong Municipal Council, among the total 44 seats, KMT
hit the lowest record and decreased from 1989’s 29 seats to 23 seats. DPP
increased from 8 seats to 11 seats. NP won 2 seats and non-party
Figure 3.2 The Result of Provincial Governor, Taipei and Gaoxung
Mayors Election (% of Votes)
Taiwan Provincial Governor Taipei City Mayor Gaoxung City Mayor
Others Others Others
2.80 3.45 NP 0.75 4.31 0.27
NP
25.8!
NP, 30.17
I KMT
39.29
DPP / 38.72
DPP 54.46
KMT 56.22 43.67
KMT DPP
personage 8 seats. Judging from above, DPP and NP appeared to
have good result in Taipei and Gaoxong metropolitan areas. The higher
living standard and education cultivated more independent judgment ability of
the middle class of metropolitan residents to resist KMT’s campaign
propaganda and explained the outcome.
72
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The once every three years’ Legislative Yuan election was again held in
December 1995. KMT won 85 seats, which was barely 3 seats more than
half. It was 9 seats less than that of 1992, votes percentage was 46%. DPP
occupied 54 seats, increased 2 seats, votes percentage was 33%. First time
under the banner of NP, it turned out to be the biggest winner. It grasped 21
seats, 14 seats more than that of 1992, and votes percentage was 13%.
Non party affiliated personnel dropped from previous 1992’s 7 seats to 3
seats, and votes percentage was 7%. In the mid-1990, Taiwan’s economy
was in a troubled time. Not only the domestic demand faced the depression,
unlawful financial scandal erupts one after another; but this election was
also held 6 months after China’s first military maneuver in the wake of
President Li’s visiting the U.S. The Taiwan-China trade and investment
activities were severely influenced. The tension caused general public to
reduce their fervor toward politics and expected the three major parties to
propose concrete policies to rejuvenate economy. The three parties all
emphasized stability and proposed their respective finance-economics
policies.5 9 Further discussion will be later in chapter 5.
Figure 3.3 shows the outcome of Legislative Yuan’s supplementary
elections from 1951 until the one held in 1995. The KMT continuously goes
downhill in terms of seats and votes percentage since the 1980’s. When
5 9 Guojiribao (International Daily News), December 2,1995
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Figure 3.3 Elections of the Supplementary Members of the Legislative
Yuan, 1969-1995 (% of Seats)
100
80
70
50-
20
Year 1969 1972 1975 1980 1983 1986 1989 1992 1995
Seats 11 36 37 70 71 73 101 161 164
Open
KMT:------ D P P :----------- NP: ===== Others: .......
Taiwan’s politics evolved into post-authoritarian stage, the culture of
western democratic election competition practiced in Taiwan in the 1990s
may make Confucius shake his head. Confucius’s teachings of modesty,
restraint, and respect for others have been forgotten in the midst of Taiwan’s
election fever. Taking 1995’s election as an example, some candidates
behave like proud peacocks, blowing themselves up and treading on their
competitors by presenting them under a microscope or in a distorting mirror.
74
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In certain respects, whereas democracy seems harmful to social or individual
moral development.
Following the 1995 Legislative Yuan election, in 1996 came the overall
National Assembly election. Among the total 334 seats, KMT obtained 185
seats and 49.68% of votes. DPP won 99 seats and 29.85% of votes. NP won
46 seats and 13.67% votes. The political strength of the rest took 6 seats
and 6.80% votes. Again since 1986 and especially in the 1990s, the KMT
Figure 3.4 Elections of the Supplementary Members of
the National Assembly, 1969-1996 (% of Seats)
%
100
90
80
70
60
50
40
30
20
10
Year 1969 1972 1980 1986 1991 1996
Seats 15 53 76 84 339 334
Open
KMT: ---- D D P :---------- NP: ===== Others:
75
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seats curve goes downward steadily, while that of DPP and NP go upward.
However, deeper analysis tells us the DPP’s votes percentages all along
linger at 30% cap in two central level elections (Legislative Yuan and
National Assembly), which implies DPP’s limitation caused by its either overt
or covert Taiwan independence stand. Figure 3.4 is the outcome of Taiwan’s
national assembly elections from 1969-1996.
The original major responsibility of National Assembly stipulated by
Constitution was to elect President and Vice President and to amend
Constitution. However, as a part of constitutional reform, in 1996 President
became directly elected by the whole people along with the National
Assembly members election in March 1996. Since other executive heads of
central and local levels (Taiwan Provincial governor and county and city
mayors) have been elected, this move was said by KMT authorities to better
and appropriately justify President Li’s legitimacy. Lin Yang-Gang and Hao
Bou-Cun the two then Vice Chairpersons, never joined in anti-Li sub
alliances inside KMT and insisted their being true and loyal KMT members,
were ejected from KMT for their competing with Li for president election. Lin
thought that President Li broke his only-one-term promise in 1988. In
addition, Lin had some different ideals of ruling a country, he decided not to
make concession again and chose Hao to be his running mate. Chen Lyu-
An, the Minister of Control Yuan and son of Chen Cheng, former Taiwan
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Provincial Governor in Jiang Kai-Shi’s rule, quitted his job, returned his KMT
member credentials and ran against Li.
In 1996, DPP Chairman Xu Xin-Liang , who advocated boldly moving
westward (toward China) and strengthening economy and trade relationship
with the Mainland, was beaten by Peng Ming-min in DPP’s presidential
nomination. Peng, in contrast to Xu, held that in Taiwan’s economic
interactions with the Mainland should be restrained and cautious. Peng had
gone into exile in the U.S. for years for his Taiwan independence thought.
During 1996’s Presidential election, the NP did not have a candidate of its
own but instead some NP members supported for Lin Yang-kang and others
for Chen. Both Lin and Chen advocated “three communications” {Santung,
direct two-way transportation, commerce and mail delivery) and to strengthen
trade and investment relationship with mainland China. They both pointed
their fingers at Li Deng-hui insisting that his restrictive measures in China-
Taiwan economic relations were not rational and he should be held
responsible for the tension between the two Coasts caused by his provoking
diplomacy. But Lin and Chen’s KMT and DPP opponents stuck on them
such stickers as “Communist China’s fellow-travelers” and “Capitulationists.”
During the one month presidential election activity period, China launched
a series of military maneuvers and fired four missiles in northern and southern
off shore areas of Taiwan to warn against any separation tendency. It turned
out that incumbent President Li won in a landslide. As the DPP reflected
77
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afterward upon their loss, they hold that it not because the KMT was especially
strong or the DPP especially weak, but that Taiwan is a crisis community, in
which national security is people’s priority. Part of Peng’s (or DPP’s) votes
were lost to Li Deng-Hui because the election coincided with Communist
China’s rattling with both the pen and the saber, thus creating the sense of
Figure 3.5 Elections of President in 1996 (% of Votes)
Others 9.! 14.90 NP
DPP
21.13
54.00 KMT
Notes: Chen chose a female Control Yuan member, Wang Qing-Feng, as his partner
insecurity and crisis. Li’s ambiguous China policy - no independence, no
instant reunification - absorbed certain wishy-washy independence
supporters. On the other hand, under verbal attacks and missile launch,
some reunification camp populace were afraid of forced reunification and its
uncertainties. They therefore reserved their support for Lin and Chen. The
votes gained by Lin and Chen don’t match with their usual popularity.6 0
6 0 Anthony Down’s treatment of voting in An Economic Theory of Democracy
(1957) shows that if political parties behave rationally, they will adopt policies aimed
78
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One year after President and National Assembly’s elections of 1996, in
November 1997, County and City Councilors elections came to the stage.
While DPP’s not being able to break through the around-30%-votes
bottleneck in national representative elections, it was a different story in local
County Magistrates and City Mayors election.
Among the total 23 seats, DPP pocketed more than half’s 12 seats. All
the northern county’s fell in the hands of DPP including the biggest and the
most wealthy county in Taiwan, the Taipei county and all five cities under the
jurisdiction of provincial government (Jilong, Xinzhu, Taizhong, Jayi and
Tainan). KMT only won 8 seats, three of them were off shore small islands-
counties (Jin-Men, Lian-Jian and Ma-Zu.) Non party affiliated candidates
won 3 seats.
KMT’s risk of losing ruling party legacy rose up, because the counties
won by DPP account for 71.53% (versus KMT’s 22.16% and others’ 6.31 %)
of Taiwan’s total population and 83.12% (versus KMT 13.31 % and others
3.57%) of Taiwan’s total tax resources. NP’s poor performance may attribute
to its internal disputes in recent years. For instance, one well-known female
NP legislator, not being nominated, split from NP and ran for Taipei County
Magistrate independently.
at the median voter. Caporaso & Levine, Theories o f Political Economy, 1992:
pp.138-141
79
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Figure 3.6 The Election Result of County Magistrates and City Mayors
in November, 19976 1
5 » < m r
KMT (dark part):
Seats: 8 Votes: 3,229,635 Votes %: 42.12%
DDP (white part) NFP
Seats: 12 Votes: 3,322,087 Votes %: 43.32% Seats: 0 Votes: 14,675
Voters %: 0.19%
NP
Seats: 0 Votes: 108,812 Votes %: 1.42% Others (slant lines part)
Seats: 3 Votes: 987,247
Voters %: 12.87%
6 1 Shijieribao(Chinese Daily News), November 30, 1997
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On the other hand, bounded by constrained campaign fund the NP could
not find much leeway between the intensive mobilization of KMT and DPP in
large electoral district campaigns. The Nation Founding party formed in 1996,
some party members breaking from DPP and having Taiwan Independence as
its clear appeal, captured very small portion of votes in its first election. Inside
KMT the accusation voice toward President Li and Administration was getting
louder following the election result. Radical KMT street posters waved banners
demanding Li’s hand over power and step-down. Critics pointed fingers to
KMT’s inappropriate and nondemocratic nomination procedure and questioned
KMT authorities’ ability to attract and integrate party members.
Although DPP’s votes percentage (43.32%) unprecedentedly surpassed
KMT’s 42.12%, it was very close. In Taipei County, one candidate Lin (who
had experience in charging and organizing KMT local elections) unsatisfied
with not being nominated, left the KMT and ran independently in the election.
While the total votes of his and KMT nominated candidates were much
higher than DPP’s elected county magistrate, KMT lost the super Taipei
county (the most wealthy and populated county in Taiwan) anyway.
In the similar vein, in Miaoli county, a former KMT member was excluded
from KMT for insisting to run on his own. It turned out that he beat KMT’s
candidate and won. In Taizhong county, KMT being unable to please and
compromise two factions, nominated two candidates, though their combined
votes were higher than that of DPP candidates, DPP won Taizhong county.
81
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If KMT could have more clear and accurate vision in advance, they would
have had at least 3 more seats.
On the other hand, the poor performance of several KMT incumbent
county magistrates and city mayors also attributed to KMT’s failure. For
Figure 3.7 The Elections of the County Magistrates and City Mayors in
Taiwan, 1950-1997
100
70
40
Year 1950- 1954 1957 1960 1964 1968 1972 1977 1981 1985 1989 1993 1997
1951_______________________________________________________
Seats 21 13 18 13 15 15 11 13 17 18 19 23 23
Open
KMT:-------- DPP: - - - - Others: ---------
Source: Chinese Daily News, November 30, 1997
Xinzhu and Jiayi were upgraded to province governed cities in 1985, and Jinmen
and Lianjian offshore islands-counties were open to election in 1993.
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instance, there was hard evidence showing that private business groups or
black society (gansters) bribed a couple of them into abusing their
administrative power. Also the horrible crimes took place in recent years,
such as the unsolved brutal execution of the KMT Tao-Yuan county
magistrate in his residence. The kidnap, extortion and death of a famous
actress’s daughter, and the building related disasters caused by violation of
building code eroded people’s support for KMT. The statistics in Figure 3.7
tells the diminishing power of KMT in magistrates and mayors elections in
recent decade. As time goes on, the DPP appears to be the biggest winner.
The end of county magistrates and city mayors elections at the end of 1997
was followed by the elections of county and city councilors as well as basic
level township and its equivalent chiefs elections which were held in late
January 1998 (see Table 3.2). Stimulated by the serious setback in County
Magistrates and City Mayors election, the KMT spared no efforts to recover
lost territory. The KMT candidates cried to voters for taking off DPP’s edge
so as to generate balanced county and city councils and to strengthen KMT’s
ruling foundation in basic township levels. The election outcome was much
worse than DPP expected. DPP attributed it to four factors. First, voters
were more candidate or relationship net-oriented than party-oriented in lower
level elections. Second, the DPP Central did not actively play the auxiliary
role. Third, the opponents bribed the voters to gain their votes. Fourth, the
KMT candidates from different factions combined and supported each other
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Table 3.2 The Votes and Elected Percentage of County Councilors
and Township and Its Equivalent Level Elections
Background Candidates Elected Votes % Elected %
KMT 434 232 55.39 53.45
DDP 112 28 18.93 25.00
Township NP 6 0 0.94 0.00
And Its Other parties 1 0 o.oo 0.00
Equivalent Others
Level KMT self 116 18 10.18 15.52
Elections DPP self 13 3 1.38 23.08
NP self 1 0 0.1 0.00
Independent 144 38 13.08 26.39
All 274 59 24.74 21.53
Total 827 319 100.00 38.57
Background Candidates Elected Votes % Elected %
KMT 824 523 49.04 63.47
DPP 268 113 15.70 42,16
County NP 95 10 3.11 10.52
And City Other Parties 38 1 0.61 2.63
Councilors Others
Elections KMT self 148 42 5.51 28.38
DPP self 33 3 0.99 9.09
NP self 18 1 0.22 5.56
Independent 527 197 24.82 37.38
All 726 243 31.54 33.47
Total 1,952 890 100.00 45.59
Notes: Others (self) means party candidates not nominated but approved by parties, or not
approved by party and run still after left parties voluntarily or excluded from parties.
If there is any difference from data publicized by Central Election Committee,
the latter should be taken.
Sources: Chinese Daily News, January 25,1998
for fear of funding reduction if the KMT lost power.6 2 Still dominating basic
election relieved KMT of collapsing.
Meanwhile, in recent years, the National Development Conference (NDC)
called by the president has played a significant role in Taiwan’s political
development. The participants of this conference are from different sectors
6 2 Shijieribao (Chinese Daily News), January 25,1998.
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of society and political parties. The first one held in 1990 debated and
decided the overall retirement of National Assembly and Legislative Yuan
members, which was a compromise between KMT and DPP. However, due
to the majorities of KMT elites, it is criticized as an instrument of fulfilling
Table 3.3: The Comparison of Current Electoral System and Proposed
Changes
NDC CONSENSUS EXISTING SYSTEM
C o m p e
tence
Division
B etw een
C entral
& Local
G ov’t
and
Coordi
nation
B etw een
Adm inis
trative
District
& G ov’t
Level
1. Adjust and stream line Provincial
G overnm ent's functional affairs and
organizations, set up com m ittees to
com plete execute projects and freeze
up next term ’s provincial autonom ous
election. 2, C ancel village, town, and
m unicipal autonom ous elections;
village, town and municipal m ayors will
be appointed. 3. Add posts of Vice
M ayor at county and municipal levels;
functions of county and municipal
governm ents should be strengthened.
4. G eneral local tax rules and division of
financial revenue and expenditure
should be com pleted or revised as soon
as possible to strengthen local finance.
1.Governor, Provincial Assem bly
m em bers directly elected by voters.
2 .H e a d s of Villages, towns, and
m unicipalities elected.
3. N o deputy heads at county or
m unicipality level. Pow ers limited to
county and municipality autonom ous
m atters.
4. Local governm ents have only such tax
sources as [land] assessm ent tax, land
increm ent value duty, house tax, death
tax, and gift tax, but local governm ents
often find financial sources insufficient.
Election
System
1. N um ber and term of Central Popular
R epresentatives: * N um ber of National
Assem bly m em bers should be reduced.
V acancies should be filled according to
political party ratio. Election shall be
stopped for next term . Term should
rem ain four years. * Legislative
m em bers m ay if necessary be
increased to 2 0 0 -2 5 0 , with term
changed to four years.
2. Division of election system and
constituency of Central and Local
Popular Representatives: * M ixed two-
vote Single constituency and
proportional representation system
adopted for electing Central Popular
Representatives. * Intends to set up a
neutral, party-transcending constituency
division deliberation com m ittee for
constituency division.
1 .Total num ber & appointm ent of
C entral Popular Representatives:
T h e r e are now 2 3 4 National Assem bly
Representative seats, of which 8 0 have
no district division, 2o are elected by
overseas C hinese, and the rem ainders
created from districts, the term being
4 years. T o ta l num ber of Legislator seats
are 164, of which 3 0 have no district
division, 6 have elected by overseas
Chinese, and the rem ainder created from
districts, the term being 3 years.
2. Election system and district division
of Central and Local Popular
Representatives: * It now practices both
multiple constituency and single vote
system. ’ Constituency division is the
responsibility of Central Election
Com m ittee.
Source: Shijieribao, (Chinese Daily News).
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President Li’s reform plan. Major changes have been made in political
system reform at the National Development Conference held in 1997, The
major issues included: Central Government system reform, competence
division between central and local governments, and election system reform.
At the same time, the existing four-tier executive system (central, provincial,
county/city, village/town) will be simplified into a two-tier system (central and
county/city). While the province will be eliminated with no more provincial
governor election, the village, town, and municipality mayors will be appointed.
Table 3,3 summarizes it.
Ever since the Central Government was relocated to Taiwan, the Central
and the Provincial Government structure have been overlapped many areas.
When it comes to the presidential and legislative Yuan member elections at
the Central Government level on the one hand and the Provincial Governor
and councilor elections on the other hand. The only difference to voters is
the latter does not include the population in the two municipalities directly
under the Central Government Taipei and Gaoxung City and some offshore
islands.
During the Legislative Member Election at the end of 1995 the KMT
issued a booklet criticizing the DPP-proposed “Single Parliament” and
“ Weakening the Provincial Government” and other government streamlining
proposals as lacking profound knowledge of the Taiwan’s political experience
and realistic ecology and the DPP’s attempt to simplify the intricate
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administrative problems as a negligence of the ROC’s political experience.
However, now the KMT has the same view with that of DPP.
The decision of NDC throws a bomb into China-Taiwan relations. It has
given rise to political association that in so doing the ROC will be equivalent
to Taiwan and Taiwan Province no longer exist, nor will it be a province of
China. That is why some people inside Taiwan ask, ‘The overlapping of
Central Government and province is a chronic problem why pick this
sensitive time discussing this issue to stimulate China?” “Why not streamline
the Central Government?” Externally, China is enraged by this decision and
threatens with venting their spleen with more severe measures then missile
firing if it comes true. China authorities say after 1999 when Macao returns
to China, China will solve Taiwan problem with strong sense of emergency.6 3
In my view, if a comparative study is conducted in terms of population,
area and election frequency and density, it may show that Taiwan’s electoral
system is overly complicated, which consumes large material and human
resources. Taking the United States for instance, given the 200 million-plus
population and larger size, it has 100 Senatorial seats and 435
Congressional seats. This is smaller than Taiwan’s total number of
Legislative Members (360) and National Assembly Members (around 500).
Abolishing the provincial government and some basic level elections is more
6 3 Far East Economic Review, March 13, 1997.
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or less the consideration of the structural streamlining and efficiency
enhancing consideration. It appears to make sense.
However, the decision-making process is questionable and discussible.
The unprecedented Provincial Governor election was just held in 1996, and
the elected Provincial Governor Sung Chu-Yu was very upset that he was
not informed in advance by President Li Deng-Hui or central government
officials about this arrangement. Recalling Sung, supporting Li to succeed
to the throne when Li was surrounded by KMT old guards, is one of few
prominent political figures with mainlander originality. Sung’s losing
Provincial Governor position (if not getting similar level new job) is concerned
by some people as part of President Li’s Taiwanization tendency: to fill
Cabinet and appoint other important positions with Taiwanese.
Given the fact that minimizing elections has its substantial economic
significance, it does not necessarily have anything to do with independence.
It all depends on what comes next after the province was abolished. Due to
the strong repercussions from Governor of Taiwan Province and his
supporters, abolishing province movement was not carried out immediately.
Further development remains to be watched after the expiration of the term
of Governor Sung in 2000. Sung already announced that he will run for
President in 2000, even will not be nominated by the KMT.
On the other hand, the Central Government system reform has increased
the democratically elected President’s power in the Central Government by
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appointing the Minister of the Executive Yuan and dissolving the Parliament. At
the same time, it has increased the Legislative Yuan’s power in toppling the
Table 3.4 Comparative Analysis of the Consensus of the National
Development Conference (NDC) Regarding the Constitutional System
and the Existing System
NDC Consensus Existing Constitutional System
Central
Gov’t
S y s te m
1. R e la tio n s h ip among President,
Executive Yuan and Legislative
Yuan:
* President appoints M inister of
Executive Y u an without consent of
Legislative Yuan. * President m ay
dissolve Legislative Y u an w hen
necessary. * Executive Yuan
Minister m ay also ask President to
dissolve Legislative Y uan. But there
should be a necessary norm and
restrictions. * Legislative Yuan
m ay bring out non-confidence
motion against Executive Minister.
‘ Auditing right shifted to Legislative
Yuan. Im peachm ent of President
or Vice President should conform
to the rigorous procedure of
Constitution and shall be executed
by Legislative Y u an. * legislation of
hearing system an d certiorari shall
be conducted by com m ittees under
Legislative Yuan.
2. National Assembly and
Execution of Right of Initiative
and Referendum:
* Freezing up National Assem bly’s
Right of Initiative and Referendum .
The people m ay exercise Right of
Initiative and R eferendum
regarding nationwide affairs.
1. Relationship among President,
Executive Yuan and Legislative Yuan:
* President nom inates, and appoints upon
Legislative Y u an ’s approval, Minister of
Executive Yuan.
* Neither President nor Legislative Yuan has
the right to dissolve Parliam ent, but Legislative
Yuan;s resolutions, after being approved by
President, m ay be transferred by Executive
Yuan to Legislative Y uan for reconsideration.
'N o design of non-confidence motion, but if
Legislative Y u an does not approve of
Executive Y u an ’s m ajor policy, it m ay pass a
resolution to ask Legislative Y u an to change it.
Executive Yuan also has a reconsideration
right. If, however, 2 /3 of th e Legislative Yuan
m em bers present m aintain original resolution,
Minister of Executive Y u an should either accept
it or resign.
'R econsideration right rests with Supervisory
Y uan. * Right to im peach President or Vice
President shall be exercised by Supervisory
Yuan. R equires to be proposed by at least 1/4
of the entire Supervisory Y uan m em bers,
exam ined and resolved by ever V z of
Supervisory Y uan m em bers, and to be brought
forward to the National Assem bly.
* At present, there is no system or pow er in
Legislative Y uan for hearing or certiorari
2. National Assembly and Exercise of
initiative or referendum
* Initiative and referendum are vested with
National Assem bly, but Constitution clearly
stipulates that after half the counties and
municipalities have exercised initiative and
referendum , National Assem bly shall
form ulate som e m easures to exercise them .
Source: Shijieribao (Chinese Daily News).
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Cabinet and auditing, but has stripped Legislative Yuan’s approval power on
Minister of Executive Yuan. Table 3.4 lays out the changes. The proposed
change of previous presidential-cabinet mixed system gives rise to keen
discussions and attacks. More than one thousand professors signed and
opposed it but could not reverse it. They argue that under new system
president will become too powerful and less accountable.6 4 President Li’s
conducting reform through his own will draws dissatisfaction and criticism.
The 1998 Local and Central Level Election
December 5th 1998 marked an important step in redrawing Taiwan’s
political map. The second election for the mayors and city councils in Taipei
and Guoxung and the fourth election for the Legislative Yuan were held. The
mayoral Elections in both Taipei and Guoxung saw incumbents lose. Chen
Shui-Bian of the DPP, gaining as high as 70% of approval rating in initial
polls, was expected to breeze through the election into a second term.
However, the KMT’s candidate Ma Ying-Jiu and that of the NP’s Wang Jian-
Xuan both bear image of uprightness and probity and have closer ideas in
dealing China than that of the DPP.
At the last moment, the NP leaders called for their supporters to vote for
Ma. The combination of two parties resulted in a resounding victory for Ma,
who garnered more than 50% votes cast. Chen Shui-Bian followed next by
6 4 Zhongyangribao (Central Daily News), April 3, 1998
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winning 45.9% of the vote. Chen’s iron fist style in dealing with illegal video
game arcades, the razing of illegal structures and actions against the sex
industry and licensed prostitutes, as well as his constant disputes with city
council, led to growing opposition from interested parties and groups
representing the disadvantaged.6 5
In Southern Taiwan, KMT incumbent Wu Duan-Yi lost by a tiny margin of
just over 4,000 votes to DPP’s Xie Chang-Ting. The tape recording of Wu’s
intimate conversation with a female reporter caused damage for Wu. There
were no dramatic changes in the elections of Taipei and Gaoxung city
councils. None of the three political parties achieving an overall majority.
Major changes occurred in the election for the Legislative Yuan. The KMT
won 46.43% of the vote and secured 125 of the available 225 seats. The DPP
won only 70 seats, its share of the vote falling from 33% to 29.56%. The KMT’s
being able to control the Legislative Yuan was partially the result of the
downsizing of the provincial government. Of the total 57 provincial assembly
members running for seats in the legislature, 46 were selected. Many critics
have attributed the DPP’s apparent failure to the party’s support for Taiwanese
independence in its charter. The 1998 election was regarded as a warm-up
for the presidential election in March of the year 2000.
6 5 Guanghu (Sinorama), Feb. 1999, pp. 76-77.
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The Year 2000 Presidential Election
In the year 2000 Presidential election campaign, Chu-Yu (James) Song,
not nominated by the KMT, jointed the fray. Song crossed swords with the
KMT’s official candidate, Vice President Lian Zhan, official nominee of the
DPP Chen Shui-Bian, Xu Xin-Liang (former chairman of the DPP, who has
left the party o stand in his election), and the NP’s nominate Li-Au (a writer,
historian, social critic and political gadfly). The result of the election held on
March 18, 2000 for five candidates and their respective running mate is as
follows in Table 3.5.
Table 3.5: The Year 2000 Presidential Election Outcome
Song Lian Li Xu Chen
& Zhang & Xiao & Feng &Zhu & Liu
% of Vote 36.84% 23.10% 0.13% 0.63% 39.30%
No. of vote 4,664,932 2,925,513 16,782 79,429 4,977,737
Source: Shijieribao (Chinese Daily News), March 19, 2000.
The outcome of Taiwan’s second democratic presidential election stunned
the KMT and discomforted China. KMT’s Lian Zhan only won 23% of vote,
far behind independent candidate Sung Chu-Yu (former Secretary of KMT
Central Committee, the first and the last elected Taiwan Provincial Governor,
and the expelled KMT member) 37% and Chen’s 39%. Raucous crowds
surrounded and protested in front of the KMT’s headquarter and Li’s home
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and demanded his resignation. Li was forced to step down in disgrace as
KMT chairman. For KMT and DPP, it appears to be a chance for a fresh
start.
Remarks
Democracy, though, on the one hand, is widely praised and pursued. On
the other hand, it is true and pertinent to say that:
As long as people are people, democracy, in the full sense
of the word, will always be no more than ideal. One may.
approach it as one would the horizon in ways that may be
better or worse, but it can never be fully attained. In this
sense, you, too, are merely approaching democracy.6 6
Western scholars try to define democracy. Robert Dahl brings out the
following points which he says should be included in modern democracy:
1 )Constitution should clearly stipulate that the Government resolutions
should be supervised by elected officers. 2) These are officers created by
elections that are fairly organized and frequently conducted. 3) Adults have
the right to vote for these officers. 4) In practical life all adults should
participate in election to obtain public position. 5) All citizens have the right
to express their views on the most extensive political issues without being
punished. 6) Citizens have the right to obtain information from sources other
than the official media. Other domestic sources of information should be
6 6 Dionne Jr. E. J., Why Americans Hate Politics? 1991: p.6.
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protected by the law. 7) Citizens have the right to set up associations and
organizations with relatively independence, including independent political
parties and interest groups.
To all these conditions, Schmitter has two more to add:6 7 1) All officers
created through popular elections should be able to execute the power
endowed on them by the Constitution without being officially or unofficially
hindered by non-selected officers through exercising their superior power.
2) The nation’s political system must have the ability to manage itself. It
must have the ability to act independently without being bound by any other
ambitious political system.
Then, wherein does Taiwan embody these features? Wherein does it
not? In what ways is Taiwan democratic? In what ways is Taiwan not
democratic? Political change in Taiwan has been startling and thought-
provoking in Chinese history. The accomplishments of democracy have
been rooted in a relaxation of ideological control in the wake of prosperous
economic development and the harsh reality of loosing diplomatic recognition
from the world. The Nationalist government has gradually adjusted itself
from being the springboard for counterattack mainland, an externally
imposed government-in-exile, to a localized regime based in Taiwan.
6 7 Schimitter, Philippe, “What is Democracy?” Zhishifenzi( Intellectual),
Spring 1994: pp.89-94.
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After the fall of the wall of authoritarianism since the mid-1980’s, however,
Taiwan appears to be the unusual case of having the big ruling party
(KMT) remain in power democratically. This is partially because the local
and central level elections held for three decades gave people channels to
outlet their opinion and dissatisfaction. Also, President Li Deng-Hui has been
bearing the role of being a strong man and guides the process of Taiwan’s
democratization. Ironically and finally, the year 2000 Presidential election
outcome shows what Taiwan’s democracy can do. The democracy emerged
in Li’s era brings about this downfall.
However, Taiwan’s democracy is not yet full-fledged and gratifying but
limited. It faces severe political parties conflicts, racial group differences and
reunification and independence problems. Taiwan is a crisis society which
has high level sensitivity toward security. The quasi-democratic politics is a
special phenomenon in special history period. We can examine the
inefficiency and point out the following aspects:
1. Since the mid-1980’s, with the listing of the political party ban and
other liberalization measures, the domestic civilian social force is
emancipated to a better degree. KMT also adopts some DPP’s policy
appeals such as, to lift martial law, abolish 1948 temporary provisions, hold
full parliamentary elections, let exiled dissidents return, elect governor, big-
city mayors and directly elect president.6 8 However, President Li steers
6 8 Chao, Linda, and Myers, Ramon H., The First Chinese Democracy:
Political Life in the Republic of China on Taiwan, 1998.
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Taiwan’s democratic development through National Development
Conference. KMT’s nomination process is also questionable. From the top,
there is no preliminary for presidential candidates. It created the split of Li
Deng-Hui and Ling Yang-Gang in 1992. Ling ran for president independently
and was expelled from KMT. In the year 2000, current Vice-president
Lian Zhan competed with former Provincial governor James (Chu-Yu) Sung .
Sung faced the same destiny as Ling Yanggang and lose his KMT member
status.
Similar situation may also occurred in DPP. Chen Shuibian, nominated
by DPP as 2000 presidential candidate already, needs to run againt DPP
chairman Xu Xing-Liang. Apparently, Taiwan’s political parties all face the
lack of integration ability problem. From top to bottom, in different levels of
election, if people cannot be nominated by their parties, they either choose to
break from the party or to run against party nominees. The rules of political
party games need to be strengthened. The split and the failure of KMT in
year 2000 presidential election is a fruit of KMT’s lack of democracy within
itself.
2. In authoritarian stage, KMT nomination meant being elected. But in
current political climate, it is no longer the case. In order to secure ruling
party’s position, the KMT needs to support those who have better local
connections, or can supply more election fund which sometimes may
sacrifice the standard of the quality and capability of the candidates. Quite a
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percentage of KMT candidates have criminal or gangster background. The
“black-gold” politics is severely criticized by general public. DPP’s anti
corruption appeals attract vote in local and national level elections.
3. Chen and his DPP take on other difficult tasks. They need to face
fragile support from the populace (39% vote in Presidential election) and a
Legislative Yuan dominated by the KMT. Comparing with strong President Li
Deng-Hui, Chen foreseeably to some extent will be a weak President. In
addition, they have to handle KMT’s huge party property problem without
hostile and divisive actions or forcing the KMT’s inadequate asset sell-off.
On March 31, 2000 James Sung officially announced that he would not
return to the KMT and the establishment of a new Political Party - Chin-Ming
Dang (People First Party). How far can this party can go? How much real
power and financial support can this party demonstrate and receive? How is
it going to influence Taiwan’s political ecology? All these need to be watched.
4. The election campaigns are full of false accusations, personal slanders
and are inclined to please the voters with claptrap, which manifest the
vulgarity of Taiwanese election culture under democracy.
5. The constrain of China-Taiwan complex: Toward the end of the 80’s,
the lifting of the ban on going to the Mainland for sight-seeing, relative-visits,
the development of trade and investment and sovereignty struggle
demonstrate Taiwan’s ambivalent love-and-hate relationship with the
Mainland. It continuously becomes the topic in central and sometimes local
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elections. When it comes to the political relationship with Mainland China,
the KMT has restricted normal interactions between the two Coasts in an
authoritarian way. Mainland China threat also makes the transformation of
DPP from active independence appeal to silent and hidden one. How to
handle Taiwan-China relations mounts to be the most significant issue in
Taiwan. The division of a nation on the spiritual level brings people unrest
and pain. The unification-independence controversy has elicited the Chinese
Communists’ threatening actions but foiled the realization of full democracy
and freedom. The KMT, the DPP and the NP, though have more convergent
domestic economic development policies, they and the more radical Nation
Building Party differ in their Mainland policy, which we shall study later in
Chapter 5. During the March 2000 Presidential election, in addition to his
splitting the KMT accusation from the people, Li Deng-Hui’s seemingly
sympathizing DPP’s separating from China intention is another factor of his
recent step-down finale. Facing the pressure of China, the newly elected
President Chen Shui-Bian immediately softens his independence voice in his
after-elect speech, which has surprised and disappointed some of his loyal
supporters. They admire and miss Li’s confrontational big-mouth toward
China. Apparently, China is a formidable challenge for the government and
people of Taiwan.
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CHAPTER 4 THE METAMORPHOSIS OF TAIWAN’S DOMESTIC
ECONOMY: INTERACTION OF POLITICS AND ECONOMY
Economic development itself is a process of continual innovation,
including the improvement of production technology, the development of
industrial structure, new concepts in investment and management, and
reform in laws, rules and regulations. While the successful economic
development has brought about Taiwan’s political reform and openness, it
also brought Taiwan a period of economic liberalization.
In the 80’s the following new aspects and problems emerged in Taiwan’s
economy. They were:
1. High Foreign trade surplus: Having survived two energy crises,
Taiwan’s over-dependence on foreign trade remained unchanged. As said
before, the East Asia newly industrialized countries adopt the export-
oriented economic strategy. This creates and accumulates their great trade
surplus, which they use for reinvestment, which in turn brings about domestic
economic development. It is this kind of circle that accounts for their
Table 4.1 Taiwan’s Foreign Exchange Reserve Holdings
Unit: US $ billions
1964 0.24 1970 0.54 1976 1.52 1982 8.53 1988 73.90 1994 92.45
1965 0.25 1971 0.62 1977 1.35 1983 11.86 1989 73.22 1995 90.31
1966 0.28 1972 0.95 1978 1.41 1984 15.66 1990 72.44 1996 88.04
1967 0.34 1973 1.03 1979 1.47 1985 22.56 1991 82.41 1997 83.50
1968 0.30 1974 1.09 1980 2.21 1986 46.31 1992 82.31 1998 90.34
1969 0.36 1975 1.07 1981 7.24 1987 76.75 1993 83.57 1999 106.20
Source: 1964-1991 from Li, 1992, Appenc ix, 1992-1996 from http://www.stat.gov.tw
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prosperity. Foreign trade surplus has created high foreign exchange reserve.
Table 4.1 is the statistic table.
2. Savings rate, investment rate lowered: High savings rate, high
investment rate, and low social welfare expenses have been the three
dynamic forces accountable for Taiwan’s economic miracles, but these
advantageous situations have changed: both savings rate and investment
rate are moving in the opposite direction while social welfare expenditure
ratio is increasing, making it impossible for Taiwan’s economy to maintain its
previous magnificent growth.
According to the Executive Yuan’s statistics, during the 70’s and 80’s,
Taiwan experienced the fastest economic growth - when with a 33%
average savings rate and the highest 38.52% in 1987; the average 27%
investment rate and especially the 1970’s 31%, the social welfare accounting
for only 4.4% of the Government’s total expenditure.
However, these “2-high, one low” trends began to show signs of reversion
in the 90’s. The statistics of the Chief Controller’s Office indicate that
between 1992 and 1996 Taiwan’s average savings rate tumbled to 26.8%,
the investment rate was only 24%. The savings rate drop in Taiwan
indicates its inadequacy compared with international standards. Taiwan’s
average savings rates were the lowest among Asia’s four little dragons in the
past five years, during which the average savings rate was 46% for
Singapore, 36% for Korea, and 34% for Hong Kong. According to officers in
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Table 4.2 The Saving and Investment Rate of Taiwan
Time Saving and
Total Savings
Investment Rate
Total Investment
In GNP (%)
Extra Savings
1952 15.3 15.3 -0.02
1955 14.6 13.3 1.2
1960 17.8 20.2 -2.4
1965 20.7 22.7 -2.0
1966 22.2 21.2 1.0
1967 23.1 24.7 -1.6
1968 22.4 25.2 -2.7
1969 23.8 24.5 -0.7
1970 25.6 25.6 0.01
1971 28.8 26.3 2.6
1972 32.1 25.6 6.5
1973 34.4 29.1 5.3
1974 31.5 39.2 -7.7
1975 26.7 30.5 -3.8
1976 32.3 30.8 1.6
1977 32.6 28.3 4.3
1978 34.4 28.3 6.1
1979 33.4 32.9 0.5
1980 32.3 33.9 -1.6
1981 31.3 30.0 1.0
1982 30.1 25.2 4.8
1983 32.1 23.4 8.7
1984 33.8 21.9 11.9
1985 33.6 18.7 14.9
1986 38.5 17.1 21.4
1987 38.5 20.2 18.3
1988 34.5 23.1 11.4
1989 31.1 22.9 8.2
1991 29.4 22.7 6.7
1992 28.3 24.4 3.9
1993 27.8 24.8 3.0
1994 26.5 23.8 2.7
Source: Li, Guoding, 1995: pp 420-421
the Chief Controller’s Office, a nation’s strong savings can be the fund basis
for public structures. The continued reduction in Taiwan’s savings rate
directly impacts her economic competitive power.6 9
6 9 Shijieribao {Chinese Daily News), June 21, 1996.
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Aside from Taiwan’s weakening savings rate, her investment rates have
almost remained stagnant during the last several years. For two years
running in 1994 and 1995 it fell short of 24%. Given the fact that a number of
domestic public constructions are not performing to capacity, coupled with
the indistinct future of the two Coast relationship, in the next few years
investment rate may dip further.7 0 Table 4.2 is the saving and investment
rate of Taiwan since early 50’s.
The deregulation and liberalization pressure was therefore increased to
alleviate undesirable results. For instance, in the 80’s, due to increased
trade surplus and the failure to cope with it through relaxation of foreign
exchange, the large-scale increase of surplus money supply has given rise to
realty price hike, which has in turn given rise to the rush to money and stock
games; hence the “bubble” economy, which may upset economic stability.
On the other hand, since the 80’s, the slow increase in the total
investment amount has given rise to excessive savings, which increase year
by year. For instance, the 1986 figure reached an amount equal to 21.4% of
the GNP, which indicated that a sizable portion of the resources were not
effectively utilized. In the past eight years, however, decreased national
savings have shrunk the surplus savings.
The worsening performances of savings and save imbalance, the trade
imbalance and increasing social welfare spending have weakened Taiwan’s
7 0 Ibid.
102
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economic development dynamism. High growth rate will be a thing of the past
if relevant industries and the public don’t make advance adjustment.
Bureaucrats of Taiwan sense that the Government should lose no time in
pushing forward industrial escalation, reward savings, boost investment, and
properly control social welfare expenditure, or Taiwan will be overtaken by the
three East Asia tigers and China Mainland, Vietnam, India and other Asian
countries. Government decided therefore to adjust her role by introducing both
market mechanism and competition to expand the economic pie and promote
economic development. Many economic and financial liberalization measures
were introduced.
Aside from internal push, there was also the external pull factor for
deregulation and liberalization. With the economic growth of East Asia,
internationally it was mainly the United States that demanded these East Asian
countries to open up their merchandise, finance, and service markets and
reduce protection of domestic industries. However, “the fact is that no country
is completely liberalized economically. Even in the United States, commodity
supplies are restricted to a certain extent. For instance, a quotas system is
practiced regarding imports. The restriction on labor supply is even bigger.
Foreign labor cannot be freely imported.7 1 ”
It is controversial what does economic freedom mean since the rise of
modern economy. Leading economists and political theorists only now are
7 1 Yu, Zong-Xian, The metamorphosis of Taiwan’ s Economy, 1993: p. 170.
103
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reaching consensus on this important concept, economic freedom can be
defined as the absence of government coercion or constraint on the
production, distribution, or consumption of goods and services.7 2
Economic liberalization may include following measures:
i. Liberalization of interest rate and exchange rate.
ii. Trade Liberalization: Quantitative trade restriction should be gradually
replaced by lowering tariff.
iii. Cancellation of control on foreign companies’ direct investment to allow
fair competition with domestic companies.
iv. State-owned enterprise liberalization.
v. Provision of uniform criteria for security, environmental protection,
financial organization supervision and guarantee for free entry of firms.
vi. Provision of a legal system for the formal and informal sectors for
property rights.
vii Financial Principle: Inflation tax should not be used as a means to cover
budget deficit.
viii. Area often neglected but with recovery and room for improvement
deserves priority consideration of public spending, e.g., capital
construction, public education, and medicine, rather than administration
or defense.
7 2 Johnson, Bryan T., Holmes, Kim R.and Kirkpatrick Melanie, 1998 Index of
Economic Freedom, Heritage Foundation, 1998: p.36.
104
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ix. Tax should be reduced to incite work motivation and equality; flight
capital should be taxed.7 3
Many of Taiwan’s economic liberalization measures are gradually moving
forward in the direction referenced above.
The Relations Between Economic Liberalization and Political
Liberalization
With the precipitous changes in domestic and world economic conditions,
Taiwan’s economic development had entered a pivotal stage and faced an
increasingly rigorous challenge. How, then, should Taiwan overcome the
hindrance to private investment? How to accelerate the adjustment of the
domestic economic structure? How to maintain sustained economic growth?
How to re-orient Taiwan internationally in response to the new international
economic order and the Asian-Pacific Region’s economic take-off and play a
major role in Asia-Pacific and even the whole world? How to take advantage
of the rapid growth in the economic and trading relationship with the
Mainland by promoting the economic benefits between the two Coasts and
achieve the win-win goal? All these pose severe tests for Taiwan’s capability.
Aside from economic factors mentioned above, political development can
promote or hinder economic development adjustment. Whereas Taiwan’s
economic development is giving rise to political reform and economic
7 3 Williamson, John, “In Search of a Manual for Technopols, Appendix:
Washington Consensus,” The Political Economy of Policy Reform, 1994.
105
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liberalization, political reform in turn supports economic liberalization and
further political democratization. The complementation of economy and
polity, their inheriting the past and marching in the future, and their intricate
mutual relationship are exactly the issues being probed here. Unlike the
disharmony of mainland policy, the political platforms and stands of Taiwan’s
three major political parties, the KMT, the DPP and the NP all pledge
economic deregulation or liberalization and privatization.
In 1984, the Guomintang (KMT), the ruling party, adopted economic
liberalization, globalization, and systematization as her national development
policy. So far as the economy is concerned, the KMT announced five major
principles for promoting economy:7 4 1) emphasizes a competitive policy,
subordinated by an industrial policy; 2) emphasizes advantages,
subordinated by prevention of disadvantages; 3) adjusts government’s roles
by changing its double role as operator and administrator to merely
administrator and encourages participation from the private sector; 4)
improves administration efficiency by substituting the credit system for the
examination system and providing client-oriented all-bearing service; 5)
pursues a transparency policy to clearly stipulate the Government’s sphere of
responsibility so that quick and resolute action can be taken to gradually put
into practice Taiwan’s law and regulations.
7 4 The Economic Policy of Guomindang, 1987.
106
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In addition to bring out the economic liberalization, globalization, and
systemization, in 1989 the Cross-Century Economic Reconstruction Blueprint
- the plan for developing Taiwan into the Asian-Pacific Operation Center. In
specific operation, it can be divided into two parts:
Firstly, an overall economic adjustment has to be made to coordinate with
the decision to join the GATT and WTO by accelerating economic
liberalization and internationalization. These adjustment measures include :
1) promotion of trade and fund withdrawal liberalization: lowering tariffs,
removing tariffs and trade barriers, and lifting bans on the service sector; 2)
minimization of personnel entry and exit obstructions: loosening restrictions
on foreign professional and technological personnel’s short stay and work in
Taiwan; 3) relaxing restrictions on incoming funds: successive gradual
relaxing of foreign exchange control; 4) establishing legal environment
required for the information community.
Secondly, a specialized operation complex center has to be built:
Matching the selections of Taiwan’s most potential key developments which
include a manufacture center, a sea transportation center, an air
transportation center, a financial center, and a telecommunications center.7 5
However, grand these ideas are and good their intentions, it is easier
said than done. To create an overall economic environment where
7 5 The Brief Explanations of'Continuing Economic Development,
Guomindang Working Document, 1994: pp. 1-6.
107
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commodities, labor, funds, and information to go in and out, it is inevitable to
get involved in the Mainland market. At this stage no significant
breakthrough has been made.
According to the DPP, liberating the vitality of economic development is
the economic development blueprint. They blame the KMT’s authoritarian
clientelist regime for being the monopolistic economic interest group with
their basic mechanism of state bureaucratic monopolistic capitalist system as
its major economic basis. In other words, it is through the state machine that
the monopolistic economic interest privileges various in type and common in
scope are created. On the basis of some politically applied principles these
privileges are distributed from the central government down to the local
sects. Basically, the nationwide oligopolistic economic benefits are
distributed to the bureaucrat-held state enterprises, KMT-enterprises,
veterans’ enterprises, and some private monopolistic enterprises. The
regional oligopolistic economic benefits are distributed among the local sects
in exchange for their political loyalty. This corresponds to the “open
externally but monopolistic internally” economic characteristic.
The DPP argues that in its last 40 years’ of economic development,
Taiwan has had a double personality of being progressive and regressive.
One may say that Taiwan’s economic development dynamism depends on a
batch of middle and small entrepreneurs and laborers who were not linked up
with politics. They gave full play to the capitalistic activism and labored
108
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gingerly under the pressure of keen international competition in the
international market. That is the progressive side.
On the contrary, the monopolistic enterprises with public enterprises as its
kernel do not depend on the initiative of capitalism for operation, but rather,
under the Government’s political umbrella, with privileged monopoly as its
basis for growth. That is the backward aspect of Taiwan’s economic
development. In hindering Taiwan from furthering its economic dynamism,
this inappropriate economic control has created privileges which in turn has
become political chips for playing the game of political booty sharing. Hence
what is known in Taiwan as the “gold-power politics” aftereffect.7 6
The DPP’s derogatory criticism is over belittling the KMT bureaucrats’
measures and achievements in guiding and encouraging middle and small
enterprises in their efforts in market development. However, some of the
criticisms are not without grounds. Their appeals include decontrol of resource
distribution, land taxes, relationship between the central government and the
locality, labor-management relationship, and a fair and just relationship
between the agricultural and non-agricultural sectors.
As for the monopoly in public and KMT enterprises, DPP demands that: 1)
vernment should distinguish between public construction and public
enterprises, single-mindedly engage in public construction. Not to waste
7 6 To Emancipate Economy and Develop Vitality: The Blueprit of Economic
Development of the Democratic Progressive Party, 1993.
109
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Taiwan’s resources by getting the public enterprises involved in producing
injustice; 2) Political parties should not operate industries, legal party-run
industries may be deemed rule-violating buildings, which should be purchased
by the state. KMT-owned and operated enterprises of unknown sources or
illegally obtained should be confiscated, and that political parties can only
operate cultural enterprises that promote their own political ideas; 3) Profit-
making incorporated foundations and enterprises re-invested with party funds
shall not be increased. Management must be under the supervision of a public
opinion organization and gradually privatized together with public-run
enterprises; 4) Privatization of public enterprises must be genuinely privatized
on the principle of openness; 5) Management right of different privileged
enterprises be open to the public and no special private enterprises be
approved individually as special cases or subsidized to create new privileges.
Founded in 1994, the NP also shares the DPP’s advocacy in its economic
liberalization public policy. Basically, they hold that despite Taiwan’s
stunning economic growth during the last forty or fifty years, some negative
phenomena are also obvious, which encroach on the foundation of her
achievement. These minuses include the overall shrinkage of competitive
power and the utilization of privileges to pursue private benefits and wealth
accumulation, which has given rise to inequality and ecological problems. In
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strengthening the overall competitive power and economic growth, they
advocate the following:7 7
1) Economic liberalization: respect for market mechanism, decreased
control, opening to foreign investors, reduced subsidization (it is especially
necessary to correct the excessive control over the land and stock markets,
which make it possible for the minority to cash in on. 2) Economic
internationalization: speeding up the establishment of the Asian-Pacific
Operation Center, joining GATT, WTO, and other international organizations
and lifting trade control. 3) Speeding up privatization of public enterprises and
opening up channels for market competition. For instance, in water, power,
telecommunications, postal service, finance, communication, retirement
counseling and various production enterprises, the capital must be actually
popularized in the process of privatization. In maintaining economic stability
the Central Bank must remain independent without becoming a tool of the
party. 4) The economic policy must not destroy the stability of the system or
the market mechanism with temporary makeshift measures. 5) In labor policy,
it must be pointed out that the privatization of state enterprises must protect
labor rights. In the process of privatization, employees of such enterprises
should be given priority and preferential treatment (according to the face value
of the stock certificates) to purchase the shares released. In so doing, not only
7 7 To Manage Domestic Policy Diligently and to Love Taiwan: New Party’ s
Public Policies, 1995.
I ll
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is there substantial significance in share purchase and bonus distribution, but
the employees’ efforts in developing the enterprise will be rewarded.
Taiwan’s Achievements in Economic Liberalization and State
Enterprises Privatization
Taiwan’s liberalization effort since the mid-1980s has reached quite an
achievement. A comparison and appraisal of 156 countries in the degree of
economic freedom conducted by the Heritage Foundation published in 1998
indicates that Hong Kong, Singapore, the United States, and Taiwan are first,
second, fifth and seventh in position respectively. The researchers from U.S.
Heritage Foundation use altogether 50 independent economic variables to
analyze and evaluate a country’s economic freedom level. These 50
variables are categorized into 10 economic indices. The score for each
indices is from 1 to 5. The lower the score means the higher the economy
freedom of a given country. The 10 indices are: trade, taxation, government
intervention, monetary policy, foreign investment, banking, wages and prices,
property rights, regulation and black market. Tables 4.3 and 4.4 show the
snapshots of partial study result. They say that Taiwan’s overall economic
freedom is a little less than that of the United States and is at the same level
with that of Luxembourg and the United Kingdom. Japan and South Korea are
behind Taiwan and ranked twelfth and twenty fourth. Taiwan gets highest
economic freedom score 1 in monetary policy (very low level of inflation),
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Table 4.3 The Level and Score of Economic Freedom
Taiwan, the Republic of China
1997 Score: 1.95 1996 Score: 1.95 1995 Score: 1.95
Trade 2 Banking 3
Taxation 2.5 Wages and Prices 2
Government Intervention 2 Property Rights 1
Monetary Policy 1 Regulation 2
Foreign Investment 3 Black Market 1
Hong Kong
1997 Score: 1.25 1996 Score: 1.25 1995 Score: 1.25
Trade 1 Banking 1
Taxation 1.5 Wages and Prices 2
Government Intervention 1 Property rights 1
Monetary Policy 2 Regulation 1
Foreign Investment 1 Black Market 1
The United States
1997 Score: 1.90 1996 Score: 1.90 1995 Score:1.90
Trade 2 Banking 2
Taxation 4 Wages and Prices 2
Government Intervention 2 Property Rights 1
Monetary Policy 1 Regulation 2
Foreign Investment 2 Black Market 1
Japan
1997 Score: 1.95 1996 Score: 1.95 1995 Score: 1.95
Trade 2 Banking 3
Taxation 2.5 Wages and Prices 2
Government Intervention 2 Property Rights 1
Monetary Policy 1 Regulation 2
Foreign Investment 3 Black Market 1
Source: Excerpted from 1998 Index of Economic Freedom, Heritage Foundation, 1998
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property rights protection (very high level of protection) and in black market
activity (very small black market).
On the other hand, in the field of trade, government intervention and
wages and prices, the score for Taiwan is 2 and in taxation area the score is
2.5. This represents the low level protectionism (in trade), low level
government intervention in the economy (government consumes 14.2
percent of Taiwan’s GDP), low level government regulations (for
entrepreneurs to open business) and the moderate tax rates (the average
income level is taxed at 6% and the maximum corporate tax rate is 25%.7 8 )
The score 3 happens in foreign investment and banking. That means there
is still room in Taiwan for removing her moderate barriers for capital flow and
foreign investment and lifting her moderate restrictions for bank opening and
privatization. As pointed out and agreed by the Research and Development
Committee of the Ministry of Economy, Taiwan still bars foreign investment
from cable TV, tobacco and wine, construction, etc. A host of protective
measures remain in automobile and locomotive manufacture. There is rigorous
control over financial investment by aliens and bank establishment by
Taiwanese.7 9
Heritage Foundation’s economic freedom measuring incurs at least two
criticisms. The Fraser Institute conceives that economic outcomes instead of
781998 Index of Economic Freedom, 1998: pp. 117-118.
7 9 Shijieribao(World Daily News), December 2, 1997.
114
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Table 4.4 The Ranking of Economic Freedom of 156 countries
Free (1-7) Mostly Free (10-69) Mostly Unfree (74-129) Repressed (132-154)
1 Hong Kong 1.25 10 Bahamas 2.00 74 Colombia 3.00 132 Haiti 4.00
2 Singapore 1.30 10 Ireland 2.00 74 Ghana 3.00 132 Kyrgyzstan 4.00
3 Bahrain 1.70 12 Australia 2.05 74 Lithuania 3.00 132 Syria 4.00
4 New Zealand 1.75 12 Japan 2.05 77 Kenya 3.05 135 Belarus 4.05
5 Switzerland 1.90 14 Belgium 2.10 77 Slovak Republic 3.05 136 Kazakstan 4.10
5 United States 1.90 14 Canada 2.10 77.Zambia 3.05 136 Mozambiqu 4.10
7 Luxembourg 1.95 14 United Arab Emirates 2.10 80 Mali 3.10 136 Yemen 4.10
7 Taiwan 1.95 17 Austria 2.15 80 Mongolia 3.10 139 Sudan 4.20
7 United Kingdom 1.95 17 Chile 2.15 80 Slovenia 3.10 140 Myanmar 4.30
17 Estonia 2.15 83 Honduras 3.15 140 Rwanda 4.30
20 Czech Republic 2.20 83 Papua New Guine 3.15 142 Angola 4.35
20 Netherlands 2.20 85 Dkibouti 3.20 143 Tajikistan 4.40
22 Denmark 2.25 85 Fiji 3.20 145Turkmenistan 4.50
22 Finland 2.25 85 Pakistan 3.20 146 Uzbekistan 4.55
24 Germany 2.30 88 Algeria 3.25 147 Congo/Zaire 4.70
24 Iceland 2.30 88 Guinea 3.25 147 Iran 4.70
24 South Korea 2.30 88 Lebanon 3.25 147 Libya 4.70
27 Norway 2.35 88 Mexico 3.25 147 Somalia 4.70
28 Kuwait 2.40 88 Senegal 3.25 147 Vietnam 4.70
28 Malaysia 2.40 88 Tanzania 3.25 152 Bosnia 4.80
28 Panama 2.40 94 Nigeria 3.30 153 Iraq 4.90
28 Thailand 2.40 94 Romania 3.30
32 El Salvador 2.45 96 Brazil 3.35
32 Sri Lanka 2.45 96 Cambodia 3.35
32 Sweden 2.45 96 Egypt 3.35
35 France 2.50 96 Ivory Coast 3.35
35 Italy 2.50 96 Madagascar 3.35
35 Spain 2.50 96 Moldova 3.35
38 Trinidad &Tobago 2.55 102 Nepal 3.40
39 Argentina 2.60 103 Cape Verde 3.44
39 Barbados 2.60 104 Armenia 3.45
39 Cyprus 2.60 104 Dominican Republic 3.45
39 Jamaica 2.60 104 Russia 3.45
39 Portugal 2.60 107 Burkina Faso 3.50
44 Bolivia 2.65 107 Cameron 3.50
44 Oman 2.65 107 Lesotho 3.50
44 Philippines 2.65 107 Nicaragua 3.50
47 Swaziland 2.70 107 Venezuela 3.50
47 Uruguay 2.70 112 Gambia 3.60
49 Botswana 2.75 112 Guyana 3.60
49 Jordan 2.75 114 Bulgaria 3.65
49 Namibia 2.75 114 Georgia 3.65
49 T unisia 2.75 114 Malawi 3.65
53 Belize 2.80 117 Ethiopia 3.70
53 Costa Rica 2.80 117 India 3.70
53 Guatemala 2.80 117 Niger 3.70
53 Israel 2.80 120 Albania 3.75
53 Peru 2.80 120 Bangladesh 3.75
53 Saudi Arabia 2.80 120 China (PRC) 3.75
53 Turkey 2.80 120 Congo 3.75
53 Uganda 2.80 120 Croatia 3.75
53 Western Samoa 2.80 125 Chad 3.80
62 Indonesia 2.85 125 Mauritania 3.80
62 Latvia 2.85 125 Ukraine 3.80
62 Malta 2.85 128 Sierra Leone 3.85
62 Paraguay 2.90 129 Burundi 3.90
66 Greece 2.90 129 Suriname 3.90
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Heritage Foundation’s institutional inputs approach should be put more
weight in evaluating economic freedom. Bruce Scott from Harvard University
argues that the positive role of government in building economy such as
driving citizens to save and achieving more equal income distribution
deserve more credit.8 0 However, when we scrutinize the rationale of the
index, one major question arises. The economic freedom level in trade,
foreign investment, government intervention and regulation groups all focus
on inbound activities only. While Taiwan’s gate is generously open for
capital inflows, investment inflows and incoming trade by having moderate
restrictions and low tariff rates and barriers, Taiwan government’s
interventions and regulations on capital outflows, investment outflows and
trade with mainland China are very much neglected. Taiwan government’s
coercive measures toward Taiwan-China economic activities apparently go
against her economic freedom ideas and wind. This justifies the title of this
dissertation. We will leave the paradox to Chapter 5 and 6.
As mentioned earlier in this chapter, Taiwan’s economic conditions and
three major political parties all demand and advocate a government with high
efficiency rather than a housekeeper-type government which meddle with
everything. Whatever the private sector can do without harming the national
economy or the people’s livelihood should be shifted to the private sector. In
Heritage Foundations Index, it does not evaluate the performance of Taiwan’s
8 0 1998 Index of Economic Freedom, 1998: pp. 5-8.
116
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state enterprises privatization. In next section, we will make up the deficiency
and show how widely the previous economic development trade mark and hero
of Taiwan - the state enterprises - are loosing their glory. At the juncture, how
the government should play well the role of regulator to facilitate the
deregulation and privatization of the state enterprises are also covered.
State enterprises have played a significant role in Taiwan's initial economic
development. At that stage the capitals were mainly channeled to state
enterprises. State industry can be defined and is usually run by the state for
following reasons: 1) National defense industry or the lifeline industries of state
economy; 2)products that the people desire and demand without being able to
provide on their own due to immense capital requirement; 3) products that the
people demand and are able but unwilling to produce due to their public goods
character or high risk; 4)potential monopoly products that private owners can
derive benefit and enormous profit from or would disrupt the market; 5)
enterprises in which the state owns over 50% capital or company stock.
As said earlier in chapter 1, Dr. Sun Yi-Xian’s People’s Livelihood
ideological basis and historical background of Japanese occupation facilitate
Taiwan’s practice of state-run enterprises. In addition, between 1951 and 1965
the Taiwan Government was a recipient of U.S. aid. A large bulk of this aid
went to public enterprises:
Of the $1,092 million of total aid allocations to sectors of
Taiwan’s economy..., over 37 percent was made to
infrastructure. The next largest allocation... went to human
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resources, with agriculture a close third, and industry a poor
fourth. It is a striking fact that only about 6 percent of all aids
went to strictly private enterprises. About 27 percent went to
projects of mixed public and private ownership, or to
agencies that served both kinds of enterprises. Two-thirds
of all aid was allocated to purely public enterprises and
agencies. It follows that U.S. aid helped to create a booming
private sector of Taiwan’s economy indirectly, by inducing
favorable Chinese economic policies and by making
available increased power, transportation, efficient labor,
and low-priced raw materials. Unless AID had used its
influence actively, the private sector would have
languished.8 1
Data in Wen’s study indicate similar result that the U.S. aid was mainly non
project type assistance. The ratio of project type assistance to non-project type
assistance was 3:7. Military aid accounted for the majority of the assistance
while economic aid is concentrated on government departments,8 2 as indicated
in Table 4.5.
However, Wen’s study shows reserved opinion on the relations between
U.S. aid Taiwan’s private enterprises. She points out that the aids were
pinned down in their results by their strong support for the Government
enterprises, so it had little to do with the process of privatization. She also
argues that that the strategy of the U.S. aid toward propelling the development
of private enterprises was a negative way of not helping the Government
establish new businesses. That is why the development space of the private
8 1 Neil, H. Jacoby, U.S. Aid to Taiwan: A Study of Foreign Aid, Self-Help,
and Development, 1967: pp. 49-51.
8 2 Wen, Xin-Ying, Behind Economic Miracle, 1990: p. 369.
118
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Table 4.5: The Distribution of U.S. Aid and Loan between Public and
Private Enterprises
Unit: %, Millions of New Taiwan Dollars, Millions of U.S. Dollars
Items New Taiwan Dollars
Distribution % Industry %
Public Civil Public Civil
U.S Dollars
Distribution % Industry %
Public Civil Public Civil
Mine Industry 80 20 16 8 83 17 26 58
Electricity 100 0 59 - 100 0 40 --
Shi-Men Dam 100 0 7 - 100 0 6 --
Transportation 98 2 13 0.6 100 0 1 7 --
Agriculture, Forestry
&Fishery
1 99 0.4 57 69 31 2 12
Water Supply Project 100 0 5 - 100 0 0.7 --
U.S. Troops Construction
Materials
-- ~ — 100 0 0.5 —
Industrial Loan for
Medium and Small Businesses
0 100 - 24 0 100 — 30
Loans for Discounted
Notes of Civil Industries
0 100 7 — — — —
House Loans 0 100 3 — — — —
Others 87 1 3 1 0.3 99.9 0.1 8 0.1
Total (%)
(Amount)
68
4406
32
2066
100 100
4406 2066
92
285
8
25
100
285
100
25
Source: Collected from (Economic Cooperation Committee, 1964:1-3) in Wen, 1990: p. 250
enterprises in the industrial sector was protected. The application of this double
strategy in inhibiting the expansion of public enterprises and getting actively
involved in public enterprises, i.e., attempts to resolve the contradiction
between using U.S. aids to assist public enterprises and the claim to propel
free competition. The strategy of these aids in inhibiting establishment of new
public enterprises and providing loans and raw materials to assist private
119
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enterprises did not benefit all private enterprises. Only such private
businesses as monopolized or oligopolized by U.S. funds and import
substitution industries benefited from them. On the other hand, the United
States offered intermediate assistance such as funds, technologies, and
marketing. Not only did the U.S. capitalists share the monopoly benefits of
these private enterprises, but in so doing Taiwan’s dependence on the United
States on many levels was aggravated.8 3
The correspondent dependence of Taiwan on the U.S. through aid
operation is not the main subject of this dissertation. However, from relevant
studies and chronology we can aptly confirm that U.S. aid played a critical role
in consolidating Taiwan’s public enterprises.
Generally speaking, the function of state enterprises of various countries
include following respects:
1. To facilitate national economy: To develop national economy, the state
controls strategic domestic industries, because in a backward economy or
region some key projects or infrastructure must be established. Public
investment must ensure that the surplus will be reinvested as to speed up the
growth rate. That is a mission of coordinating government policy and state
capital development.
2. To finance government income: In the initial stage of economic
development, people’s income level was low, it was hard to collect income tax,
* Ibid, pp. 264-265.
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and tax usually was collected in the form of indirect tax to avoid the resource
utilization waste. The state enterprises have to surrender certain amount of
profits; this kind of profit, accordingly, carries the character of indirect taxes. If
similar state enterprises were privately owned, then the monopolistic profit
mostly belonged to private individuals. For instance, in 1962 the surplus from
Taiwan’s Wine and Tobacco Monopoly accounted for 27% of Taiwan’s total tax
84
revenue.
Table 4.6 Tax Revenue by Type of Tax (% of Total Tax and Monopoly
Revenue)
Income Tax
Customs
Duty
Commodity
Tax
Business
Tax
Monopoly
Revenue Other
1960 10.4 18.4 10.2 5.7 21.4 33.9
1970 9.4 23.4 17.1 5.9 16.4 27.8
1980 17.2 21.8 16.0 7.9 9.3 27.8
1985 19.2 16.9 13.8 9.7 10.6 29.8
Source: CEPD 1986: table 8-6a. In Wade, 1990: pp. 175.
Note: Monopoly revenue is from the Wine and Tobacco Monopoly. “Other” includes more
than eleven kinds of taxes, such as land tax, house tax, labor dues, and license tax.
Other studies show supportive result. ‘Taiwan has relied heavily on indirect
taxes [see table 4.6.] Before 1980 only 10 percent of tax revenues came from
levies on income. ■ 8 5 “
8 4 Yu, Zong-Xian, The Metamorphosis of Taiwan’ s Economy, 1993: p. 136.
8 5 Wade, 1990: pp. 174.
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3. To promote equity of social welfare: The public goods are usually offered
by the state. These services do not mainly consider the profitability, but the
availability to general public, so that people from different strata , and especially
the less advantaged social groups or low income people can utilize them, for
example, public education, transportation, hospitals, parks.. .etc.
4. To create employment opportunities for people and cultivate bureaucrats
for economic development: State enterprises due to its large scale can
accommodate quite amount of working forces. In addition, through running
public enterprises first officials or managers can accumulate their experiences
and abilities in governing economic affairs, and later became high rank
bureaucrats or cabinet members. Or they can move into private enterprises to
create their own future.
Theories advocating liberalization tend to criticize the drawbacks of state
enterprises. The reasons for regarding state enterprises as a shortcoming or
hindrance to economic development include:
1. High cost: The decision process of state enterprises usually take a long
time. The hiring of personnel, the purchase of materials and equipment,
finance and accounting... etc. all need to go through lengthy procedures which
may lead to a higher production cost.
2. Inefficiency: Many state enterprises are monopolies, they do not have to
worry about competitors. Hence, there is less leverage to stimulate their
efficiency. Sometimes charging officials may love to show off and be unrealistic
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in choosing operating strategies. On the other hand, state enterprises have to
implement policy tasks or obey government rules or legislatures in the
respects of the price of input and output factors, capital expenditure, issuance
of debt obligations and equity, hence they lack flexibility and autonomy and are
hard to adapt to a changeable environment.
3. Soft constraint: The state considers itself the supreme head and designer
capable of grasping and understanding the physical and spiritual needs of the
public enterprises, it does not demand the enterprises to take profit and loss
responsibility. The government considers it has its own "soft budget
constraint,8 6 ” it more often than not assists and supports factories or
businesses on the brink of bankruptcy through loans or tax cut.
4. The dependent mentality of employees: In a certain sense, state
enterprises are in practice the enlargement and reconstitution of the traditional
Chinese family or group oriented structure. The provision of an overall
livelihood support for the family members (workers) and the fact that it is a
relation (labor system) for life can strengthen their sense of belonging, security
and dependence in the enterprises, and build up an environment of "large
family" ethics.
When it comes to business management of state enterprise, only the "soft
constraint" in work ethics is emphasized to the exclusion of the "hard
constraint" in sound rigorous rules and regulations or contracts and law to bring
8 6 Romer, John E., A Future for Socialism, 1994: pp. 32-33.
123
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about economic benefits. The result is only those who are ethical, conscious,
and dedicated can build up a consciousness of self-constraint. On the
contrary, those who resist moral education lack an effective coercive restraint.8 7
If we think that our self is constituted of communitarian self and individual self,
then how to capture employees’ minds of unselfish and devoting
communitarian self and reduce free-rider shirking attitude is pivotal.
However, it is not true that all state enterprises are evil and privatization
always means better efficiency. Some task-burdened or well-managed state
enterprises have put up outstanding performances. It all depends on whether
the government running its state enterprises and employees can overcome the
possible negative sides of state enterprises, design and execute a far-sighted
mechanism and policy and to activate employees’ working ethics and
aggressiveness.
Despite their splendid past, when time moves on, starting from the mid-
1980s, Taiwan’s state enterprises incrementally lost their luster.8 8 As said
earlier, the pull and push from mature domestic private sectors and from
international pressures are the main impetus for economic liberalization and the
privatization of state enterprises. The privatization of state enterprises is
8 7 Zhang, Hong-Yi, “China’s Current Enterprise Culture and Economic Ethics of
Confucianism,” The 2(fh Century, Spring 1995.
8 8 Regarding the privatization of SOEs in China, the Premier of China, Zhu
Rong-Ji, once says that SOEs in China have dropped from the privileged elder son’s
position to that of the prodigal son.
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regarded as the greatest wave of economic reform since Nationalist
government moved to Taiwan, which generates far-reaching layers of ripples. It
encompasses trillions of capital, influences the lot of millions of workers and
reshapes the structure of economy.
In 1984, to be with realities, the Taiwan government proposed
“economic liberalization, internationalization and systematization” as the
fundamental policy for future economic development. In July 1989, a
privatization Task Force was established under Taiwan’s Executive Yuan
which clearly identify the primary goals of privatization as: “ To increase
management autonomy and operating efficiency, to finance various public
Table 4.7 Relative Importance of Taiwan’s Public Enterprises
Period Gross Fixed Capital
Formation %
GDP
%
Period Gross Fixed Capital
Formation %
GDP
%
Production of
Industries %
1952 31.7 14.7 1979 31.1 15.4
—
1955 37.8 14.0 1980 34.1 15.2 20.90
1960 33.5 15.9 1981 32.7 16.0 18.80
1965 20.9 15.9 1982 33.8 15.4 18.94
1966 24.5 15.9 1983 31.1 15.6 18.65
1967 27.8 16.4 1984 25.4 15.2 17.72
1968 29.7 17.7 1985 24.0 14.9 17.69
1969 29.9 17.8 1986 23.8 14.4 16.46
1970 29.4 17.6 1987 21.9 13.9 16.31
1971 31.6 16.7 1988 18.6 13.7 17.07
1972 32.8 16.1 1989 19.4 12.7 17.07
1973 28.4 14.9 1990 24.5 11.8 16.84
1974 31.6 14.7 1991 24.1 13.4 16.04
1975 40.3 16.4 1992 21.1 12.6 16.24
1976 38.1 16.8 1993 18.0 12.0 16.93
1977 29.9 16.4 1994 15.4 11.8 16.49
1978 31.0 15.4 1995* — 16.71
Sources: Chang, Carl D.H. Present Phase of Privatization in Taiwan, R.O.C., 1995: p.2.
* First quarter of fiscal year 1995
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construction projects and to raise life quality, to absorb excess liquidity and
release the pressure of inflation, and to develop capital market.”8 9
Table 4.7 shows the steadily diminishing importance of the public
enterprises in Taiwan’s economy since the 1950’s. As we can see, the
proportion of state enterprises in gross fixed capital formation first time drops
below 30%, share in GDP percentage below 15% around the middle of
1980’s.
As at the end of 1993, there was a total of 115 state owned enterprises
(SOEs) in Taiwan. Among them, 27 are enterprises under supervision of
various ministries of the central government, 34 are under the supervision of
the provincial government. These SOEs and their privatization time are listed
in Table 4.8 and Table 4.9. The other SOEs are 7 of Taibei City government,
4 of Gaoxung City government, 8 of counties (mainly city bus enterprises),
and 35 of the Vocational Assistance Services (VARS). Quite a lot of state
enterprises under the supervision VARS have been privatized as showed in
Table 4.10.
As we can see from earlier, China Petrochemical, BES Engineering
Corporation and China Steel (all under the Ministry of Economy) have been
privatized in1994 and in 1995. A lot more are on privatization waiting list.
The resolution of National Development Conference (held at the end of
8 9 The Privatization of State Enterprises under the Ministry of Economic
Affairs, September 1994.
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Table 4.8 State Enterprises under the Supervision of Central Government
Enterpri ses Privatization
Schedul e
Method
1. Under the M inistry of Transportation
and Communicati ons (MOTC)
(1) Directorate General of Posts
(2) Directorate General of Communications During 2001
(3) Yangming Marine Transport Corp. February
1996
Sale of Stock (remaining State shares
45.04%)
(4) China Merchants Steam Navigation Co.
(5) Directorate General of Postal
Remittance and Savings Banks
2. Under the M inistry of Finance (MOF)
(1) The Export-Import Bank of ROC
(2) Jiao Tong Bank During 1999
(3) Central Trust of China
(4) Central Insurance Co., Ltd.
(5) Central Reinsurance Corp.
(6) The Farmers Bank of China During 1998
(7) Zhong Guo Insurance May 1995 Sale of Stock (remaining state
shares 36.36%)
(8) Central Deposit Insurance Corp.
3. Under the Department of Health
(1) Nacotics Bureau
4. Under the M inistry of Economi c
Affairs (M OEA)
(1) Taiwan Power Co., Ltd. During 2001
(2) Chinese Petroleum Corp. Early 2001
(3) Chinese Steel Corp.(CSC) April 1995 Sale of Stock (remaining state shares
40.35%)
(4) BES Engineering Corp. June 1994 Sale of Stock (remaining state shares
0%)
(5) China Shipbuilding Corp. Early 2001
(6) Taiwan Fertilizer Co., Ltd. During 1998
(7) Taiwan Sugar Corp.
(8) Taiwan Salt Works Early 2001
(9) China Petrochemical Development June 1994 Sale of Stock (remaining state shares
18.87%)
* (10) Taiwan Machinery Manufacturing During 1998 Assets Sale to Specified Parties (3
factories)
4. Others: Under the Executive Yuan
(1) Central Bank of China
(2) Central Mint of China
(3) China Engraving & Printing Works
Total: 27
Sources: organized from 1. Privatisation in Taiwan R.O.C., Ministry of Economic Affairs, 1993: pp. 4-5
2. Present Phase o f Privatization in Taiwan, R. O. C., 1995: Appendix B. 3.Going with the Flow,
Sinorama, November 1997.
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Table 4.9: State Enterprises under the Supervision of Taiwan Province
Provincial Public Enterprises Schedul ed Privatization Time
1. Industry
(1) Gao-Xung Ammonium Sulphate Co., Theend of 1995
(2) Taiwan Zhong Xin Paper Co. The end of 1994 ( Postponed)
(3) Agricultural and Industrial Enterprises June 1996
(4) Tang-Rong Iron Works Co. Ltd. June 1998
(5) Provincial Printing Office
2. Agriculture & Forestry
(1) Taiwan Provincial Food Bureau
3. Communication Service
(1) Taiwan Railway Administration
(2) Taiwan Passengers’ Bus Co. Ltd. June 2003
(3) Taiwan Navigation Co. Ltd. June 1996
(4) Jilong Harbor Bureau
(5) Taizhong Harbor Bureau
(6) Gaoxung Harbor Bureau
(7) Hualian Harbor Bureau
(8) Railway Stevedore Co. Ltd.
4. Banking & Insurance
(1) Bank of Taiwan
(2) Land Bank of Taiwan
(3) Co-operative Bank of Taiwan
(4) First Commercial Bank End of 1998
(5) Hua-Nan Commercial Bank End of 1998
(6) Zhang-Hua Commercial Bank End of 1998
(7) Medium Business Bank of Taiwan End of 1998
(8) Taiwan Land Development Co. Ltd.
(9) Taiwan Life Insurance Co. Ltd. End of 1998
(10) Taiwan Fire & Marine Insurance Co.
(11) Bureau of Labor Insurance
5. W ater Supply
(1) Water Supply Co. Ltd.
(2) Shi-Men Reservoir Administration
(3) Zeng-Wen Reservoir Administration
6. Miscellaneous
(1) Taiwan Alcohol and Tobacco Monopoly
Bureau
End of 2000
(2) Taiwan Provincial Mining Bureau
(3) Taiwan Bookstore
(4) Xin Sheng Press Co. Ltd.
(5) Taiwan United Bank
(6) Taiwan Film Culture Co. Ltd.
Total: 34
Sources: ibid.
1 2 8
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Table 4.10: Privatization Timetable for Enterprises of VARS
Administration Agency Public Enterprises Scheduled Privation
Time
Vocational Assistance
Commission for Retired
Servicemen
Ret-Ser Engineering Agency During 2001
Taibei Iron Works June 30,1996
Veterans Nan-Tsu Abrasives Factory June 30,1996
Veterans Pharmaceutical Plant March 30,1996
Veterans Gas manufactory March 30,1996
Mineral Resources Development
Agency
December 30,1996
Liquidised Petroleum Supply
Administration
March 1995
Veterans Printing Works September 30,1996
Lung-Chi Chemical Plant June 30,1996
Veterans Food Products Factory June 30,1996
Veteran Plastic Works June 30,1996
Veterans Chemical Works December 30,1996
Taibei Paper Manufactory September 30,1996
Tao-Yuan Furniture Factory September 30,1996
Tai-Chung Lumber Factory December 30,1996
Zhang-Hua Factory December 30,1996
Gang-Shan Factory December 30,1996
Veterans Blanket Factory December 30,1996
Total Public Enterprises: 35 Total: 18
Sources: Data of Ministry of Economic Affairs of the Executive Yuan, 1996: p. 52.
1996), manifests government’s determination to privatize SOEs. It orders all
SOEs of central and local government levels to be privatized within 5 years.
Otherwise, the enterprise director will be replaced and supervising authorities
will be punished. The privatization business cannot be wishy-washy anymore.
National Development Conference’s ultimatum pushes it into high gears.
When the privatization of the state-run enterprises are completely done in the
future, the percentage of the indexes showing the relative importance of public
1 2 9
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enterprises in Taiwan’s economy in Table 4.3 will apparently all drop to one
digit or zero.
Table 4.11: Financial Summary of Taiwan’s Public Enterprises for Fiscal
Year 1993*
Unit:: New Taiwan (NT) Dollar
1 U.S $ roughly equates 29 NT $
State
Enterprises
Total Asset Total Issued
Capital
Total Revenue Net Income
After Tax
Central Govt.
(24)
8,307,622,831,070 594,085,554,059 1,402,371,058,039 150,194,039,728
Provincial
Govt. (34)
7,923,749,278,950 289,012,178,281 817,597,126,051 56,550,566,965
VARC N/A N/A N/A N/A
Taibei City**
(7)
485,401,178,359 35,056,682,030 37,822,478,670 2,585,812,215
Gao-Xung
City*** (4)
114,168,061,921 5,923,181,632 7,925,071,788 212,043,916
Sources', organized from Chang, 1996: pp. 47-50
* Fiscal Year ended on 30t h June
** The seven public enterprises under Taibei City are: Taibei Bank, Taibei City Pawn Shop, Taipei
Printing House, Taipei City Bus Administration, Taipei Water Department, Taipei Rapid Transit
Systems Company, and Taipei Transit System Development Fund
*** The four under Gao-Xung City are: Bank of Gao-Xung, Gao-Xung City Pawn Shop,
Slaughterhouse of Gao-Xung, Department of Gao-Xung Municipal Bus & Ferry Administration
All the public enterprises under different level of governments accounted
for tremendous share in Taiwan’s economy. As we can see the large
amount of their assets, capital, revenue, and net income after tax in Table
4.11.
The Regulatory Role of State
When it comes to a public enterprise being privatized or liberalized, the state
has to involve heavily to stipulate sound regulations to promote market function
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and protect social justice to overcome or diminish hurdles confronted with
liberalization and privatization process. “For governments to reduce their role
in the economy and expand the play of market forces, the state itself must be
strengthened. Miles Kahler has called this the “orthodox paradox.9 0 ” The
market mechanism alone will not transform public enterprises into successful
and competitive private enterprises without prudential and attentive
government guidance and coordination.
On the other hand, if the state is not able to play the orthodox paradoxical
role well, then the privatization of state enterprises will become a matter of
psudo-privatization. For example, it is pointed out that the liberalization and
privatization of post-socialist Eastern European countries have been strongly
biased toward small firms and weak states:
Guided by the ideological conviction that virtually any means
were justified to achieve privatization, the privatization
method finally resorted to in desperation was one of
“giveaways” - shares in state-owned enterprise were
distributed to adult citizens virtually free of charge. This
amounted to “pseudo-privatization”; it represented an
attempt to create capitalism without any capital, or without
the credit, skills, and expertise necessary to restructure now
“private” enterprises hindered by long-term bottlenecks ,
pseudo-privatization [has] been emblematic of the pseudo
capitalism,... The success of capitalism depends on the
emergence of institutions to support long-term investment
and risk taking. Yet...did not find serious institution building
along these lines throughout most of Eastern Europe.9 1
9 0 Haggard, Stephen and Kaufman, Robert R, The Politics of Economic
Adjustment, 1992: p. 25.
9 1 Amsden, Alice, When Market Meets Its Match, 1994: pp. 12-13.
131
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Other implications of pseudo-privatization may include: In case the
candidates of private takeover were not carefully selected and evaluated in
advance, then Government may still have to actively monitor their performance
after privatization. Following privatization of a public enterprise, if it is
necessary, a team with management know-how could be found to manage it.
By avoiding letting go of the management of a public enterprise once it is
disposed of, in some cases, the Government can achieve desired long term
result. On the other hand, in propelling privatization of public enterprises,
syndicates should strictly forbidden to get involved in privatized share
speculation.
To achieve the goal of real-privatization, the Government needs to pay
attention to and solve some other common and potential problems:
1. The policy tasks of public enterprises need to be removed: The public
enterprises, facing pressure of market open and privatization and bonded by
complicated public enterprises related laws, still have to play the dual roles of
“profitable enterprises” and “policy instrument” and carry many policy tasks.
The policy tasks of the public enterprises under the Ministry of Economic Affairs
are laid out as follows in Table 4.12. Therefore, how to plan in advance to
avoid the privatized public enterprises only concerning their profit and
neglecting public interest and to regulate them to share responsibility fairly or
evenly is very important.
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Table 4.12: The Policy Tasks of SOEs under MOEA
Companies Policy Tasks
Taiwan Machinery
Manufacturing Corp.
None
Taiwan Fertilizer Co., Ltd. 1. To cooperated with Government’s agricultural fertilizer policy,
it has to supply farmers the fertilizer in a way of right time,
quantity, and single price.
2. To lower fertilizer price, it has consecutively lowered 14 times
since 1981.
China Shipbuilding Corp. To coordinate with the ship construction policy of the state
Taiwan Salt Works 1. To purchase the salt made (to sun seawater to obtain salt) by
population engaged in salt industry: the Government purchases
ill-quality salt with favorable price.
2. It has to pay the resignation fee to people in salt industry who
decide to change job.
3. To subsidize the salt consumed by farmers and fishermen, and
absorb the price difference.
Chinese Petroleum Corp. 1. To absorb the oil price difference of all offshore islands.
2. To invest in the oil-transporting equipment of offshore island
King-men and Mazu.
3. To subsidize oil and natural gas to particular areas (such as
Jingmen and Mazu) or companies (such as Taiwan Fertilizer
And China Petrochemical Development Co.
4. To fulfill the task of depositing security oil.
5. To share the personnel expense of Energy Research Foundation
and Energy Resource Committee.
6. To follow the policy of external investment (such as China
Shipbuilding Corp.
Taiwan Power Co., Ltd.
1. To absorb the price difference of remote areas.
2. The power companies of Jingmen Mazu areas are
incorporated into the management Taiwan Power.
3. To give preferential rates for specified uses, such as railroad
operations, water pumping, streetlights, and schools.
Taiwan Sugar Corp. 1. To take care of the livelihood of sugar farmers, some amount of
sugar still is domestically produced (the price of imported sugar
is lower).
2. To subsidize sugar farmers the freightage of raw materials
sugarcane.
3. To provide preferential price for export processing sugar.
Source: The Summary o f Suggestions fo r Privatization, Ministry of Economics, 1996: p. 129.
2. Slow process of law amending or legislation: The privatization of SOEs
need to amend the outdated or uncalled-for regulations and stimulate new
laws. Due to the fact that the Taiwanese have become far more enlightened,
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and opposition party politics is gradually taking shape, the pressure of
liberalization and privatization has hence increased. However, the decision
making stratum is afraid of the government monopoly being metamorphosed
into enterprises controlled by a handful of private owners or syndicates. At the
same time, those in charge also have fear of being accused of “benefiting from
or for others,” so much as that the decision and regulation process of
privatizing and liberalizing state enterprises tend to be cautious.9 2 On the other
hand, when it comes to a public enterprise being privatized or liberalized, a
people’s advocate may abuse his/her power for profiting from a public
enterprise when exercising his/her budget auditing power.
3. Heavy personnel burden and employee compensation: Many SOEs face
the problem of having superfluous, aging, and inefficient employees. In the
process of privatization, there is opposition from the state enterprise employees
who feel anxious about being unable to keep their iron rice bowls. They worry
about lay-off, salary reduction, or benefit trimming after privatization. Their
protest or resistance delay the privatization process or discourage would-be
private candidates. According to existing regulations, the government has to
pay a tremendous compensation to public enterprise employees whether they
stay in the privatized enterprises or how many years they have worked.
9 2 Yu, Zong-Xian, 1993: p. 30.
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Moreover, it has to pay the employees who are laid off on the day of transfer.9 3
This appears to be a great financial burden for government.
4. Adequate pricing and the time of releasing stocks: Large portion of
public sector should be privatized within five years, the government should
conduct releasing of public shares on a large scale in the mode of “releasing
shares to the public” to facilitate privatization of public enterprises. Therefore, it
is advisable to first amend the public enterprise related regulatory law to make
sure the common people do not buy shares at unreasonable prices. For
example, China Petroleum, Taiwan Power, Taiwan Communications, etc.,
possess huge land assets and, while most of them have not been re
evaluated, whether in the future the per-share value will be computed again
after the value is increased upon re-evaluation might be a controversial and
lengthy issue.
5. Another concern is that though releasing public enterprises shares can
fulfill the objectives of scattering share-ownership and popularizing securities,
massive release of stocks within five years might not only have a crowding out
effect on private investment and grave impact the stock market. “ Do the math:
42 SOEs will be lining up to issue stock. If each only issues 50% of its stock...,
that is virtually equivalent to two-thirds of the capitalization of all the nearly 400
currently listed companies.” Firms privatized later may be difficult to recruit
9 3 The Summary of Suggestions for Privatization, 1996: pp. 1-23.
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funds that would have a negative effect on the selling prices of stocks and state
assets.9 4
In summary, the difficulties encountered by privatization are largely that the
method of privatization lacks flexibility, the ways and means of transfer lack
diversification, the processes are too long, and the demand in Taiwan’s stock
market is not large enough to digest. Incessant personnel requests, and time-
consuming hearings conducted by public opinion organizations also complicate
the matter. To facilitate privatization, more channels of transfer and capital
resources for privatization, proper guarantee for employees’ right, financial
support for managing businesses in distress, and strengthening
communications with public opinion pollsters are necessary. All these tests
government’s regulatory role wisdom.
Remarks: Economic Liberalization and Welfare State as a Collateral of
Quasi-democratic Politics
Since the mid-1980’s, Taiwan has experienced political democratization,
economic liberalization and state enterprises privatization, and started entering
into the ranks of the “welfare state.” On the one hand, Taiwanese people start
judging the political system using standard of democracy and the liberty of
political participation. As it is in politics, liberty is important in Taiwanese
economy. The major political parties and buninessmen support the idea of a
free-enterprise economic system, calling the nation’s economy widely efficient
9 4 .Shijieribao (Chinese Daily News). November 25, 1997.
136
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and fair. However, if people trust the freedom in the market place then it
means they believe in maintaining “equality of opportunity” in the economy but
not “equality of results”. The pursuit of political equality through democracy may
need to tolerate economic inequality.
In an authoritarian stage, the development oriented decision makers, though
being criticized for privileged ruling class, could set the course for economic
development and insulate themselves from group predatory or pork-barrel
politics. These conditions are difficult in a more democratic society. The rich
groups and different interest private sectors rent-seek on their own behalf. For
example, they lobby politicians to lower land appreciation tax, business profit
tax ...etc. Profit from security exchange does not include in income tax,
instead, only a levy of 6 thousandths transaction fee from total amount. Some
of the central reprensentatives of ruling party KMT and other parties also
benefit from these policies. They form political alliances, bargain and negotiate
and pass laws to reduce taxes. The economic dominant classes come around
to support and use democracy system to protect their interests.
On the other hand, the rise of “entitlement mentality” or “disguised-relying-
on-state” mentality” among citizens has urged citizens to demand the state to
fulfill their need through democratic competition. Under the calculations of
winning elections, candidates from different political parties have promised
plans to give subsidies to inferior or senile social groups. Social welfare
budgets at all levels of government have been growing. “Concerning social
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justice” or potentially “exchanging votes with bill” may be both of their motives.
Politicians cater to general public, scramble to look for ways of maintaining
benefits while hiding the rising costs. Welfare is supposed to help people “truly
in need”. The political culture under Taiwan’s Quasi-democratic polity is willing
to help people not only “truly in need” but also those deemed “able to take care
of themselves.”
The economic mentality of Taiwan political parties and general public
appears to be a mix or confusion of modem conservatism and liberalism.
Theoretically speaking, conservatism argues that the natural difference in
human ability and endowment will bring inequality in wealth, power and social
status. A good society maintains hierarchy and is not composed of
homogeneous or equally rational individuals. Government should play the
minimum role in governing economy and offers minimum and mild social
welfare so that the individual’s self-fulfilling motivation and process will not be
blocked. 9 5 The political platforms of Taiwan’s major political parties all claim
that previous authoritarian government, though having had contribution in
economic development, hampered economic freedom and created injustice.
If politicians of Taiwan truly stick with conservative ideals then they should
have the courage to point out the inadequacy of demanding or granting
excessive social welfare. Even modern liberals who are more inclined and
confident to achieve greater equality within the boundary of capitalism, do not
9 5 Clark, Barry, Political Economy: A Comparative Approach, 1991: pp. 79-
85.
138
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suggest a quick and speculative solution to end inequality or poverty.
“Modern Liberals, ... have been reluctant to specify an optimal distribution...
Modern Liberal economists have expressed concern that, beyond a certain
level, equality is incompatible with economic efficiency. 9 6 ” Too many
equality efforts will decrease incentives of hard working or talented individuals and
generate social pests. They propose “means-tested benefits” that would
restrict government benefits to only those falling below a certain level of
income or wealth, such as social security, student loans, and farm
subsidies.9 8
Taiwan’s social welfare program goes pretty far. For instance, the Xinzhu
County has a favorable place in the hearts for elderly people. In the last two
city and county executive elections, the DPP candidates had promised to
provide New Taiwan (NT) $ 5,000 (about $190 US dollars) subsidy per month
to persons over 65 years old regardless of assets. Xinzhu is the only county so
far to have realized this. “ The county executive is more filial than my son!”
appears to be the slogan for elderly welfare there. Early 1999, the Executive
Yuan eliminated “means testing” requirement which excluded wealthy farmers
from receiving the “elderly farmers” subsidy. Thus, all elderly farmers can
receive NT$ 3,000 monthly payment. In Xinzhu’s case, the nearly NT$2 billion
per year needed for elderly has accounted for more than 90% of the county’s
9 6 Ibid., pp. 170-171.
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social welfare budget. This has not only squeezed out welfare programs for
other disadvantaged groups, it has been halting local construction.
Quasi-democracy brings Taiwan a government which can promote
economic liberalization on the one hand, and increase dramatic social welfare
on the other hand. Isn’t it the best government? We can not stop but ask is it
possible? Will democracy hinder or foster economic growth? Economic
realization and private enterprises liberalization is to stimulate economic
growth. The released vitality may be eroded by higher social welfare at the
same time. Will today’s welfare be tomorrow’s nightmare? Economic myopia
will lead to long-term worry? The easy promises of handouts from democracy
may drain the treasury and burden the future generations. It is a matter testing
the government’s ability to provide leadership in resolving populist collective
pressures problems. It has to commit to formulate more cohesive
developmental goals in line with a nation’s collective aspirations and avoid
dilemma-type deadlocks.
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CHAPTER 5 THE MAKING OF TAIWAN’S CHINA POLICY: QUASI-
DEMOCRATIC AND QUASI-AUTHORITARIAN
External China Factor
Taiwan’s internal and external (the Mainland district excluded) economic
policy referenced above is an unambiguous liberalization policy. For all the
controversies over the time for execution and some technical problems, while
all these remain to be settled, basically liberalization moves forward in a
straight line. The only difference is in the speed. Meanwhile, the major
political forces such as DPP and the NP also have similar views on this issue
and entrepreneurs are eager to meet this challenge.
On the contrary, however, the Taiwan Government, the parties in power
and out of power as well as general populace dispute over Taiwan’s
Mainland policy. Their views are even poles apart among themselves and
with those of China, far from being able to reach any consensus, because
some knots simply cannot be untied. The fundamental two knots are
sovereignty and the use of military force in solving reunification.
1. The ruling party KMT’s view points regarding sovereignty are:
The Mainland’s “one country, two system” Taiwan policy is intended to dwarf
Taiwan rendering it a local government. Taiwan holds that China should
recognize the political reality that the two Coasts are temporarily split by
recognizing Taiwan as a political entity, so that the relationship can move
forward on an equal basis toward the unification objective. To protect the
1 41
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Table 5.1 A Chronicle of Diplomatic Relations with the ROC, 1971-1998
Year Countries Breaking Ties Total Countries Establishing Total
with the ROC and Establishing or Reestablishing Ties
Ties with PRC later on with the ROC
1971 Austria, Belgium , C am eroon, Chile
Ecuador, Iran, Kuwait, Lebanon,
M exico, Peru, Sierra Leone, Turkey 12
1 9 7 2 Argentina, Australia, Chad, Luxemburg,
M ad agascar, M aldives, M alta,
N ew Z ealan d , Rw anda, S enegal, Togo 11 Tongo 1
1 9 7 3 Bahrain, Spain, U p per Volta, Zaire 4
1974 B otsw ana, Brazil, G abon, the G am bia,
M alaysia, Niger, V en ezu ela 7
1975 Philippines, Portugal, Thailand, Sam oa,
V ietnam
5
1977 Barbados, Jordan, Liberia 3
1978 Libya 1
1979 United S tates of Am erica 1 Tuvalu 1
1980 Colom bia 1 Nauru 1
1981 St. V incent and the G renadines 2
1983 Ivory C oast, Lesotho 2 Dom inica, Solom on Islands,
St. Christopher]' and Nevis 3
1984 St. Lucia 1
1985 Bolivia, N icaragua 2
1988 Uruguay 1
1989 B aham as, B elize, G renada, Liberia 4
1990 Saudi A rabia 1 Lesotho, Nicaragua, G uinea-Bissau 3
1991 Central African Republic 1
1992 South Korea 1 Niger 1
1995 South Africa 1
1998 Central African Republic and G uinea-R issau 2
Source: 1991-1992 from Taiwan in World Affairs, edited by Sutter and Johnson, 1994: pp.
156-157, 1995 from announcement of Ministry of Foreign Affairs of ROC.
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respect of the ROC, aside from stabilizing her bilateral relationship with the
nation with which she has diplomatic relations (Table 5.1), Taiwan should
expand and upgrade her substantial relations with nations with which she
has no diplomatic relations.
The Taiwan government is making every effort to pool together the
strength of the world’s friendly nations to actively promote her participation in
the United Nations (UN) and other international organizations to break
through Mainland China’s measures to internationally isolate and blockade
Taiwan. Through striving for Taiwan’s reasonable international status by
pushing forward UN participation, Taiwan authorities intend to correct
China’s erroneous notion she is promoting internationally that “Mainland
China is China.” Taiwan also stresses that her “pragmatic diplomacy” is not
intended to challenge China or create “two Chinas,” “one China, one
Taiwan,” or “independence for Taiwan.”
On the other hand, China holds that Taiwanese can trade and travel
internationally without any inconvenience, so her intention to join the
international community serves only internationalize China’s unification issue
by getting foreigners involved. On Taiwan, there are also open objections to
and criticisms of this practice, which hold that the UN participation policy
goes against the principle of economic benefits and is unnecessary. That it
consumes large quantities of national resources in the diplomatic arena,
competing with China by fighting for some small Central American and
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African countries’ diplomatic recognition using money as a relationship
establishment conditions.9 7
In fact, Taiwan has lost one battle after another in the diplomatic war in
recent years: Saudi Arabia and South Korea severed relationship with
Taiwan in 1992 and 1995 respectively, and Central African Republic and
South Africa are to establish relationship with China in 1998. After above
vital four big countries’ turning their back to Taiwan. Taiwan now will only
keep official diplomatic relations with 27 countries in total. Among them, 8 of
them are African countries, many of the rest are micro South American
islands or mini nations in term of territory and population.9 8 One did not ever
learn in schools’ geographic class. And it takes some time for Taiwanese to
find them on world map. It is predicted that after China took over Hong Kong,
she may use Hong Kong as a bait to make other nations to sever relationship
with Taiwan so they can keep their consulates in Hong Kong.
9 7 It is widely reported in media that several countries swing back and forth
their diplomatic relations between China and Taiwan. For instance, Central Africa
unreasonably asked Taiwan to pay salaries for their public service personnel.
Guinea-Bissau negotiated with Taiwan about 100 million US dollars economic aid
in February 1998, but established diplomatic relations with China later in April.
Taiwan estimated that China might offer more generous conditions to win their
support. Which is a great embarrass to Taiwan was that Guinea-Bissau’s government
announced establishing diplomatic relations with China, next day after their Prime
Minister finished visiting Taiwan and during his stay, he did not reveal this secret at
all to Taiwan. Taiwan’s warm welcome ended up with being poured by cold water.
9 8 Zhongyangribao {Central Daily News), April 25,1998
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2. The second knot is the issue of using force:
China declares that peaceful unification negotiation is their consistent
proposition, in that both parties may conduct negotiation and reach an
agreement regarding “officially ending the hostility between the two sides of
Taiwan Strait under the one China principle.” China also stresses that no
coercive measures will be taken and it must be peaceful unification. If
separatism is conducted, it will let the Communists down and they will not be
softhearted. Not promising to give up using force is not directed against the
Taiwanese people, but rather against domestic dissidents and foreign
powers meddling with China’s unification and engaging in ‘Taiwan
Independence.”
Taiwan’ s attitude toward the issue of the two Coasts negotiating ending
hostility is that it does not fear negotiation, but cannot talk under fear. So she
insists that Communist China first shows sincerity by renouncing
the use of force as the precondition for negotiation. Apparently, both sides
cannot meet halfway simply because they both insist that the other party give
up her precondition first.
After three rounds of negotiation and seven rounds of routine talk,
although the two sides have completed such subscribed exchanges as
document certification, registered mail, protection of Taiwanese merchants’
interests. However, when it comes to higher level talks, it invariably involves
1 4 5
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the sovereignty issue which is too different a cognition to bridge. So it
always ends up with nothing substantial achieved.
In summer 1996, during Taiwan’s presidential election period, after the
Mainland flexed its military muscles by test-flying its missiles targeted close
to Taiwan to demonstrating its displeasure of President Li Deng-hui’s US
visit, the Mainland has unilaterally suspended the routine talks until now in
spite of Taiwan’s repeated appeal for their resumption.
Taiwan seems to be handling the relationship and the economic and trade
problems with the Mainland on the principle of politics over economy or
separate from economy. She wants to stand firm politically on the one hand
and develop curbed economic relationship with the Mainland on the other
hand.
When it comes to economic and trade relations with the Mainland,
government intervention is used in the hope that results favorable to Taiwan
are achieved or negative impact is minimized. Regarding the santong (three
direct connections in commerce, mail and transportation) issue between the
two Coasts, due to the ups and downs of the relationship and the
consideration of internal politics, after all these alternate on and off, hot and
cold. The authorities are now deliberately playing down the correlation
between santong and Asia-Pacific Operation Center (Taiwan’s way of
survival deliberated in the light of the international economic competition
situation) by making it clear that the development of the Center does not
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consider the Mainland as its back-land. That makes the policy too high-
sounding to be practical. It is questionable as to how attractive it can be to
foreign investors.
Economic relationships between the two Coasts’ trade and investment are
not led by the market, nor does marketing play a major mechanism role.
When it comes to the interactions between the two parties, the Taiwan
authorities invariably mix it up with subjective expectations and demands by
stipulating it with a norm of her own.
As the Minister of Economy of Taiwan Xiao Wan-Chang pointed out in
January this year, “At present, the Mainland has become the region in which
the Taiwanese industrialists invest most heavily outside Taiwan. The
accumulated figure has reached US$6,786 billion (or, according to
Communist China’s data, US$13.9 billion). Because the Mainland’s target in
the Taiwanese entrepreneurs has been shifted to mainly large-scale
enterprises, technology, capital-intensive, and basic industries. Therefore,
given the principle of ensuring Taiwan’s competitive power and cross-strait
division of labor, a “rationalization norm” must be set for large-scale
industries and specified industries investing in the Mainland. Also, strict
restrictions have also been laid on trading items, Mainland laborers or
residents coming to Taiwan for trade and/or economic activities, in the hope
that these can be used as political chips or good will for serving certain
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political purposes.9 9 ” Political and economic contradictions are the main
reason why the two Coasts’ economic and trade relationship cannot move
forward extensively. It seems that Taiwan’s increasing dependence on
China in trade and investment apparently renders Taiwan not having
powerful offensive weapons at her disposal. In turn, Taiwan mainly plays a
defensive game.
By anatomizing Taiwan other major political parties’ China policy and
China-U.S.-Taiwan triangular relations, we can see how the China factor
plays a role and affects Taiwan’s politics.
Democratic Progressive Party (DPP)
The DPP basic guiding principle regarding the China Policy before its
victory of County Magistrates and City Mayors elections, held at the end of
1997, is founded on its Party Platform as follows: “Redefine Taiwan’s
national domain sovereignty and diplomatic sovereignty in accordance with
the reality of Taiwan, so that the two Coasts of the Taiwan Strait can
establish the legal order for the interactions according to the international
law and guarantee the rights of the people on both sides interacting with
each other.” ‘The future of Taiwan should be jointly determined by Taiwan’s
9 9 Shijieribao {World Daily News), January 15, 1998. In addition to that, the
prospectus of KMT’s economic policy toward China published in recent years, again
and again conveys the same message.
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entire residents in a free, autonomous, universal, fair, and just way.1 0 0 ” They
look forward to having a referendum but realizing that it is not a good time to
pursue the topic aggressively for the time being.
It is on the basis of the above-referenced propositions that DPP thinks
Taiwan can seek to end the hostility across the Strait and, in the increasing
exchange of visits among the people across the Strait, seek out a way of
peaceful settlement giving equal consideration to different ideals and realities
and traceable to practicable procedures and build up a relationship framework
for peaceful, equal, mutually beneficial, and stable coexistence.
According to the DPP, given its self-claimed legitimacy and its vested
power derived thereof (the remnant of the legally constituted authority
complex), the KMT insists on its unrealistic, persistent views, refusing to
recognize “the fact that the PRC is a legal and legitimate country effectively
ruling China Mainland, which is recognized by the international community.”
The fact, however, is that, since Beijing started practicing her new Taiwan
Policy in 1979, rapid and substantial changes have occurred between the
two Coasts. As can be seen from many signs, the KMT’s persistence in the
‘Triple No Policy” i.e., no compromise, no contact, and no negotiation with
China for the sake of protecting its vested interests and power structure has
not been able to stand the test of time. Given the pressure of internal,
1 0 0 Policy White Paper of the Democratic Progressive Party, 1993: p.229.
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external, subjective and objective environment, its roots are being loosened
and, in the foreseeable future, will be completely disorganized.1 0 1
Attacking KMT’s China policy, the DPP also criticizes the PRC as
originated from the outdated 19th Century historical sovereignty concept,
which unambiguously regards Taiwan as China’s local government in its
Taiwan Policy known as “One Country, Two Systems.” But that is not
reasonable, nor is it acceptable to the Taiwan community. Taipei’s stance in
the issue of reunification is embarrassed to the extent of being self
contradictory: on the one hand, it is seeking the independence in the sense
of being a political entity and on the other hand stressing the “One China
Policy,” so much so that the KMT authorities have not been able to make a
pragmatic, well-defined Mainland policy, ending up in making the problems
arising from China being split more and more entangled in the distorted,
ambiguous Mainland policy.
In opposition to the KMT’s disregard of the principle of self-determination
for the people by unilaterally making the “National Unification Program,”
which presupposes the ultimate goal of China’s unification, resulting in mis-
identification of the national personality. However, through the outcomes of
elections, DPP realized that whether or not the it will be able to alloy the
Taiwanese residents’ fear of national security with concrete proposals and
action is pivotal to its dream of being a ruling party. It therefore expediently
1 0 1 Ibid., pp. 217-245.
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hides and changes its bold image toward China and expediently holds that
Taiwan is already a sovereign country. At current stage, it is not necessary
to announce its independence and the major concern is to make sure this
independent sovereignty will remain intact. The DPP, hence, incrementally
became more restraint in Taiwan’s local and central popular elections,
adopting the “reunification-independence detente” policy and instead stress
their internal program to win votes in elections. As a result, though they have
not been able to break the 30% votes bottleneck in central level elections,
they perform much better in local elections. After the County Magistrate and
City Mayors election in December 1997, bearing the hope and complacency
that DPP may become a ruling party in the future and face the thorny
Taiwan-China relations, DPP held a debate on its China Policy in the
middle of February 1998. Table 5.2 analyzes the main arguments of DPP’s
factions.
Apparently, there is no consensus among DPP’s different factions. Based
on various understanding and assessment of international situations, U.S.-
China and U.S-Taiwan relations, each group says what it thinks and the
debate can not have resolution. Formosa Pact represented by DPP
chairperson Xu Xinliang proposes three communications and intends to
ameliorate current two coasts impasse. Formosa Pact thinks that there is
pressure from international society headed by the U.S. to urge Taiwan to sit
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Table 5.2: Differences of China Policy Among DPP’s Major Factions
Focus Topic Formosa Pact New Tide Pact Others Factions:
Righteousness
Alliance, Welfare
Country Alliance
International
(inti.)
Situations
Cold war ends and
detente is the
priority of inti. New
order
cold war ends and
conflict and detente
coexist
former U.S.-USSR super
power system was
broken
and the U.S. dominate
detente and Asia Pacific
area which benefits
Taiwan more than hurt
Security Collective Security
System
balance of power or
dominant power
leads
collective security
system
Economic
View
Internationalism of
economic liberalism
internationalism of
economic nationalism
incline to believe
internationalism of
economic liberalism
China-
Taiwan
Economic
Interactions
to march toward
west (China) bravely
strengthen self and
gradually go west
to be patient and to
restrain from being
hasty to deal with
China
Taiwan’s
Crisis
Assessment
In case of Taiwan
Straits conflict, inti.
Society will isolate
Taiwan
Intl. Society will de-
emphasize Taiwan’s
position but will
guarantee Taiwan’s
security
The U.S. have “clear
strategy and ambiguous
tactics” toward China
and Taiwan and will
guarantee Taiwan’s
security
Policy
Option
to replace politics
with economy and
to involve in China’s
internal political
conflicts to gain
Taiwan’s safety
internally to shape
people’s consensus
and to establish
International security
framework externally
to strengthen Taiwan’s
self-defense ability and
to solve conflicts through
inti, framework of order
Economic &
Trade
Relations
China-Taiwan
mutually beneficial
and complementary
national security is
higher than economic
development
national security and
economic development
are both important
Sovereign
Problem
no talk no talk no talk
Intl.
Pressure on
China-
Taiwan Talk
it exists and is
disadvantageous
to Taiwan
it exists and has no
influence on Taiwan
it exists and has no
influence on Taiwan
Attitude
toward Intl.
Society and
China
not to challenge
inti, reality, not to
talk Taiwan
independence to
stimulate China
to converge national
identity and to break
through diplomatic
blockade
not to challenge inti,
reality and to
strengthen Taiwan’s
inti, consensus
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Table 5.2 (continued)
Self-protection
strategy
To use economic
integration and
dependence to
check Ghina and to
lower China’s
hostility to Taiwan
To keep distance
from China
China and Taiwan
are two sovereign
countries and should
interact equally
Axis of talk To negotiate three
communications and
to avoid political
subjects
To begin from less
sensitive subject
and talk less political
subject
To talk non-political
issues first and other
controversial views
Source: Shijieribao (Chinese Daily News), Feb. 13,1998.
down to talk with China. Taiwan’s refusal would be regarded as the “trouble
maker” who affects the peace of East Asian area. As a small country,
Taiwan should not go against international macro environment. To detente
with China can also help Taiwan’s businessmen to actively enter into
burgeoning China market. Xu even mentioned recently that if DPP becomes
ruling party, it will not announce Taiwan Independence.
New Tide Pact, insisting on Taiwan independence route, opposes three
communications. Although also wanting to reduce tense two coasts
relations, New Tide does not think there is pressure and necessity for
immediate negotiation. Present Taipei Mayor Chen Shui-Bian belongs to
third category.
The New Party parades itself as a symbol of new hope, new strength,
new choice, claiming that the KMT, which has made contribution to the
nation, has become corruptly engaged in money-power politics and that the
DPP, which has made contribution to democracy, is now playing the fire of
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independence disregarding the national security of Taiwan. NP hopes that if
the voters are not willing to vote KMT candidates and do not trust the DPP,
the NP may cash in on this contradiction and win more votes to awaken the
two other parties from their dreams of plutocracy and being in power. The
majority of NP member are the anti-Li Deng-hui KMT members following the
death of Jiang Jing-Guo. Though there are some original Taiwanese, they
are predominantly KMT Mainlanders and their second generation.
Given the fact that NP was founded in 1993, in two years it put up a good
performance in the 1995 National Representative Election. In the Central
Legislative Yuan Election, they espoused the “None of the three parties can
get half the votes and the President won’t dare to mess things up” slogan.
As a result, although the KMT won three seats more than one half, its
popular support fell to 46%. As a small party squeezed in the middle by the
two bigger parties, the NP managed to use a flexible strategy to coordinate
their ideas by resorting to a risky strategy in shifting older candidates to
different electorates to give full support to new candidates. As a result, it
managed breaking the restrictions of ‘Taipei City Party” and “non-Taiwanese
Party.” With their 21 seats in the Legislative Yuan, NP became a pivotal
minority party with its proposal power capable of control more than two sub
committees, initially making a tri-party framework a reality in Taiwan’s
political arena.
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The New Party (NP)
The NP holds that, aside from Taiwan’s domestic hidden worries, the
gravest problem it faces is how to properly handle her relationships with the
Mainland, because Taiwan’s economy becomes a problem as soon as the
relationships turn sour, but both the DPP and the KMT are engaged in
independence activities. This separatism is a destabilization factor for
Taiwan’s future.
The NP proposes that the diplomatic policy of the ROC must first of all
recognize its fragile international position and the interactional relationship
between the two Coasts and diplomacy, rather than placing too much
emphasis on realizing the subjective national identity consciousness.
Instead, Taiwan should make the best of the objective environment and
conditions. All political parties should shun ideological fight and relinquish
prejudices to avoid diplomacy becoming a tool of political struggle. Taiwan
should also prevent herself from being a tool of any foreign power to counter
Mainland China. The NP advocates seeking both sides’ acceptance to the
commonwealth system in which both sides respect each other’s space of
existence in the international community and retain a flexible interpretation
regarding the belonging of sovereignty. While the strife for entering the UN
and head-of-state diplomacy could be listed as medium or long range
objectives in the diplomatic policy; as a short range policy, diplomatic and
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human resources should be used more sparingly.1 0 2 Table 5.3 is a
comparative and contrastive analysis of Taiwan’s three major political
parties’ diplomatic policies with regard to China from New Party’s view:
Table 5.3: New Party’s View on Taiwan’s Three Major Political Parties’
China Policy
New Party Guomindang Democratic Progressive Party
Insists on maintaining
ROC;s international
status.
ROC on Taiwan Found a new Republic of
Taiwan Eventually
Strengthen diplomatic
strength: avoid wasting
resources in fighting
diplomatic battles with
China.
Challenge China with
head-of-state as well as
unofficial diplomacy.
Challenge China on all sides;
intensify relationship between
the two Coasts.
Equidistant diplomacy Dependent on US US priority
Interaction between
diplomacy and two-Coast
policy
Diplomacy as a tool to
manipulate the two
Coasts Relations
Diplomacy as a priority even
at the cost of the two-Coast
relationship.
Executive Yuan
resolution
President-dominant Unknown
Source: New Party’s Working Paper, 1995.
The Nation-Founding Party (NFP)
While the NP is a break-away party from the KMT, the Nation-Founding
Party (NFP) is a break-away from the DPP. The NFP established in
February 1995 holds that the DPP has degraded itself. The DPP’s priority
has shifted to become the party in power, so it inclines to de-emphasize or
shun the Taiwan independence issue in election but emphasizes that Taiwan
is already independent in essence (de facto) and even declared openly that
1 0 2 To Manage Domestic Policy Diligently and to Love Taiwan: New Party’ s
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when the DPP is in power, there is no need, nor will it, declare independence
(dejure).” Said and done the DPP has, with dexterity, got around what the
party platform is after: the independence of Taiwan.
In the eyes of the NFP, not only is independence not active enough, but it
is a betrayal of ideals. While the DPP believes it takes a practicable mean to
the end, the NFP resorts of an extreme ideology. It is estimated that the NFP
may attract some more radical voters and seize 7~9% of the DPP’s
traditional votes. But one has to wait until election can verify that. In the
County Magistrates and City Mayors election of November 1997, NFP only
won 0.19% about 14,675 votes.1 0 3
Taiwan’s Quasi-Authoritarian China Policy Decision Process
The National Development Conference started at the end of 1996 has
resulted in the following key points, which represent current Taiwan’s China
Policy:
1) Strategy and Principle of Two-Coast Interactions: The protection of
ROC’s existence and development should be the basis in developing the
two-Coast relations. On the principle of priority for Taiwan, the security and
well being of the 21 million residents in Taiwan, Penghu, Jinmen, and Mazu
Public Policy, 1995: pp. 1-65,
1 0 3 Please take reference of p. 60.
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must be resolutely protected. The Mainland policy and foreign policy should
be each other’s interior and exterior and reinforcing each other.
2) Basic Issue of Consultation: The two Coasts may conduct consultation
concerning the signing of a peaceful agreement when the time is ripe. At this
stage, both Coasts can promote a ‘Two Coasts Forum” by inviting personages
and representative of the two Coasts to attend on a personal basis, without
preconditions, for the purpose of views exchange on a broad basis, to
energetically promote the resumption of the Two-Coast Conference, and,
through constructing the newTaiwan-Hong Kong relationship and solving
relevant problems concerning the two Coasts joining WTO, make it possible for
leaders of the two Coasts to visit each other at the opportune time.1 0 4
3) Establishment of the Two Coast Economic and Trade Relationship: In
developing the two Coasts; economic and trade development, that which
must be taken into special consideration is the political risk, which must move
forward in proper sequence, to push forward relevant policies. There should
be a global diversification strategy in Taiwan’s economic development. The
Government should initiate a variety of foreign economic and trade
relationship including the South-Bound (Southeast Asia) Policy. As a link in
Taiwan’s overall foreign economic and trade relationship, the three
connection issue (Santong) as part of the two Coast relationship should be
built through consultations on the principle of security and mutual benefit
1 0 4 Zhongyangribao (Central Daily News), December 12,1996.
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when the time is ripe. For the time being, Taiwan should continue to push
forward the construction of the “External Shipping Center.” Large enterprises
intending to invest in the Mainland should be assessed with precaution and a
reasonable norm.
4). Interactions Between Relationship with the Mainland Foreign
Relationship: the Government should actively push forward its foreign policy
and expand Taiwan’s international activity space, should oppose handling the
two-Coast problems with “One Country, Two Systems”. The Government
should have a stable policy to reduce to a minimum the possibility of conflicts
between the two Coasts by actively utilizing the regional and global security
and cooperation mechanism to ensure Taiwan’s security. At this stage, Taiwan
should continue to energetically promote joining such international organization
as the WTO, the International Monetary Fund, joining the UN being a target for
long-term struggle. Carrying over the Hong Kong and Macao Policy to Ensure
the Rights of the Taiwanese: When Hong Kong and Macao will become the
Mainland’s Special Administrative Zone in 1997 and 1999 respectively, Taiwan
should continue to maintain and strengthen her service functions in Hong Kong
and Macao and according to the situation adjust or establish relevant
organizations. After 1997, Taiwan and Hong Kong should be oriented to their
special course lines, which should be handled as is in international course
lines.1 0 5
m lbid.
159
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The above pronouncement had struck old tone and signaled no significant
breakthrough regarding the two-Coast relationship. In the consensus
reached at the National Development Conference, there is no mention of
either “reunification” or “one China.” Also, the KMT also openly announced that
the KMT-operated enterprises shall not be allowed to invest in the Mainland,
which does not help solve this existing deadlock. To understand why this
phenomenon happens, we have to study the process-making of Taiwan’s
China policy. It is demonstrated in Chart 5.1.
The National Unification Council in the Office of President was established
in September 1990 and the Mainland Affairs Council (MAC) under the
Executive Yuan in January 1991 to enhance relations between Taiwan and
the mainland and to press forward the reunification of China. Later, a non
official and non-profit Straits Exchange Foundation was formed in February
1991 to toe the line of implementing policy and contact with China. The
National Unification Council is an apparatus headed by President Li Deng-
Hui himself with the Vice President Lian Zhan and the Premier Xiao as his
deputies and composed of leaders of various segments of the society,
functioning as an advisory organ and providing the President with guidelines,
suggestions and research findings for setting the fundamental course on
national unification.
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Chart 5.1 Diagram of the Organizational System of Mainland Policy
and Operations
Functions Organizations Main Tasks
Research and Consultation
Policy making
policy planning
and implementation
Implementation
(Presently, of
all matters that
involve contacts with
Chinese Communists,
or matters that must
be handled in
authorities
the mainland.)
The Executive Yuan
Strait Exchange Foundation
(Private, non-profit
organization)
National
Unification
Council
(Task Force)
Mainland
Affairs
Council
Other Ministries and
Commissions under
the Executive Yuan
The President Consultation and research
on fundamental guidelines
of national unification
Formulation of Mainland
policy and promotion of
related work
MAC: Overall research,
Planning, deliberation,
coordination and partial
implementation of
Mainland Policy
Other Ministries:
individual Research,
planning and
implementation of
Mainland Policy
Entrusted by the
government to
handle technical matters
that arise in the course of
people-to-people
interactions which involve
the ROC government
* *
................. means coordination
------------------------ means supervision
Source: Working Paper, China Policy and Two Coasts Relations, Mainland Affairs Council,
1994.
1 6 1
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However, it is widely believed that President Li’s personal willingness
plays a major part and other elements do not have much say or input in the
decision making of China Policy and the formation of the task force. ‘The
MAC’s longest serving chairman [ in the 1990s], Huang Kun-Hui, earned his
position not because of his expertise in economics or Chinese Affairs but
because of his access to President Li.1 0 6 ” The economic bureaucrats of
Taiwan’s Ministry of Economic Affairs (MOEA) and Taiwan’s entrepreneurs
often grumble at or at odds with Taiwan’s conservative China policy. They
think that by acting passively, Taiwan just gives business opportunities to
other competitors such as United States, European countries, Japan, South
Korea...etc. Some businessmen were pushed to observe rules and orders
ostensibly and to undertake their underground business plans in China.
After being promoted from Minister of Economics to Premier, the
experienced elite of economic affairs Xiao Wan-Chang at first was expected
to bring a new phase of China-Taiwan economic interactions. But he is not
as outspoken as before. The head of Straits Exchange Foundation Mr. Gu, a
successful tycoon in cement business, also has to wear white gloves (symbol
of limited authority) to shake hands with China.
Preceding analysis of DPP and NP’s China policy shows that Formosa
Pact and NP’s positions are more aggressive than that of KMT. However,
1 0 6 Leng, Ze-Gang, The Taiwan-China Connections: Democracy and
Development across Taiwan Straits, 1996: p.75.
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we cannot discern their institutional weight and participation in forming China
policy Legislators, having financial and economic interest groups’ support,
lobby for businessmen in the Legislative Yuan on the one hand, on the other
hand endeavor to establish personal connections with China. Political figure
who are more friendly to China , such as Lin Yang-Gang (who ran for
president in 1996), before President Li, visited China in May 1998 and met
with China’s leaders.
The ROC government declares itself firmly advocating “one China” and
opposing “two Chinas” or “one China, one Taiwan.” But it also holds that
China and Taiwan each only has jurisdiction over its respective territory and
should coexist as two legal entities, hoping to buy time and earn Taiwan
more advantageous conditions to deal with China. KMT’s this “pragmatic
diplomacy” or “One Country, two governments” appeal puzzles Taiwan
people. President Li said that he already said 126 times that he is not
pursuing Taiwan independence, but enemy from different parties and media
keep throwing mud at him. Nevertheless, the polls do reflect Taiwan people’s
confusion.
A survey conducted by Gallop Survey in November 1995 shows that only
19% of interviewees side President Li for reunification, while 11.3% believe
he is for independence. Those who reply his reunification and independence
position is unclear reach 36.9%, and other 32.7% people either do not know,
think it is hard to say or refuse to answer. At the same time, the survey
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indicates that 23% interviewees support Taiwan independence, and 50.6%
express that they are “against” or “strongly against” it. In addition, 53%
picture that if Taiwan announced independence, China possibly will invade
Taiwan. Only 18.5% think its “impossible” or “very impossible”. 45.1%
respond that the U.S. “do not” or “strongly do not” support Taiwan
independence, only 16.4% believe that the U.S. do. People who believe the
U.S. will offer military aid only account for28.7%, 39.3% say “impossible” or
“very impossible”. Three consecutive survey made by DPP in May and June
1995 demonstrate interviewees who think that President Li’s reunification
and independence stance is ambiguous always keep around 40% regardless
of their differences in political party preference, ages and education level.1 0 7
Taiwan’s wait-and-see China policy decreases Taiwan people’s trust on
their leader, aspires independence advocators and upsets reunification
upholders inside and outside the island. It also alerts China to the dangers of
Taiwan’s possible precipitous actions and strengthens China’s operations on
U.S. policymakers to accommodate China’s demand. Hong Kong’s pro-
China newspaper says that China believes the reasons for Taiwan’s not
actively responding to China’s “one country, two system” scheme are: 1.
Taiwan authorities think that China’s military strength has not developed to a
level that can solve Taiwan problem easily, 2. There is international force
stands behind Taiwan to support her nation-split activities.1 0 8 China often
1 0 7 Shijeribao (Chinese Daily News), November 5, 1997.
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declares that Taiwan is the major obstacle for healthier and closer Sino-U.S.
relations.
Other surveys investigating people’s attitude toward Taiwan’s future made
by various institutions or complied by scholars in recent years can also help
us understanding China-Taiwan reunification issue. The outcome is laid out
in Table 5.4. These surveys (most of the samples polled approximately 1,000
adults) tell that the majority people in Taiwan value stable and sustained
economic and political development and do not want to rock the Taiwan boat
violently. Even after the One Thousand Lake tragedy (Taiwan tourists were
killed then burned in China by bandits when they were sightseeing the lake in
early 1994), the emotional aversion did not obscure people’s rationality.
After DPP’s increasing Taiwan Independence article in its Party Platform,
when asked by Taiwan’s Business Weekly journal, 88.1% of the total
samples (159 Taiwan entrepreneurs) disclosed their concern and belief of
China’s determination of using force. In 1995, after four decade’s of peace
since the 1950s, like it or not Taiwan people experienced China’s missile
firing,
China-U.S.-Taiwan Triangular Relations
Taiwan is not isolated from international society. Whether Taiwan can
announce independence does not unilaterally depend on her authority and
1 0 8 Wenhuibao, October 28, 1997.
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Table 5.4 Public Opinion on Taiwan Independence Movement
Time Survey Conductor Taiwan Independence Would Mainland China use
force against Taiwan if
Taiwan declares independence?
June 1990 Public Opinion
Research Foundation
Approve
Disapprove
12.5%
67.0%
June 1991 Public Opinion
Research Foundation
Approve
Disapprove
12.0%
61.7%
Yes 58.4%
Sept. 1991 Mainland Affairs Yes 60.6%
Oct. 1991 Gallop
(Before DPP states Taiwan
Independence in its
Party Platform)
Yes 56.9%
Oct. 1991 Business Weekly Yes 88.1%
Nov. 1991 United Daily Approve
Disapprove
9.0%
64.0%
Oct. 1992 Public Opinion
Research Foundation
Approve
Disapprove
15.1%
63.3%
May 1993 Public Opinion
Research Foundation
Approve
Disapprove
23.7%
54.3%
Nov. 1993 Gallop Approve
Disapprove
20.0 %
54.7%
May 1994 Gallop
(After One Thousand
Lake Tragedy)
Approve
Disapprove
27.3%
48.4%
Yes 52%
Source: 1. Ma, Ying-Jiu, Policy Towards the Chinese Mainland: Taipei’s View, In the
Shadow of China, p. 203.
2. World Daily, June 2,1994, “Gallop Survey indicates that after the Tragedy of One
Thousand Lake the anti-Independence ratio once again dominates the wave of
independence appeal.”
3. China Policy and Two Coasts Relations, Mainland Affairs Council, July 1994, pp.
49-50.
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people’s subjective willingness and aspiration, the cold reality of international
politics must be taken into account. After the U.S. opened China’s gate
under Nixon administration, substantial change in the U.S.-China-Taiwan
triangular relations occurred. The 1972 Shanghai Communique (the product
of U.S. President Nixon and Kissinger’s surreptitious diplomacy), the 1979
Communique of U.S. recognizing China officially, the ensuing Taiwan
Relations Act regulating the unofficial U.S.-Taiwan relations, and the 1982
Communique stating the diminishing arm sales of U.S. to Taiwan all tell U.S.
shifting its stance on Taiwan. China more became an initiator and player in
international affairs, Taiwan turned more to be a receiver of strong powers’
deal.
President Li’s visiting the U.S in 1995 could mainly use the status of
Cornell University alumnus. His trip was kept in a nonofficial and low profile.
It is doubtful whether he can make it next time. Taiwan’s other high rank
public officials’ journey in U.S. are also fulfilled in private way. By contrast,
China’s leader Jiang Ze-Min met with President Clinton in October 1997 and
marked China’s gradual stepping out of the shadow of June 4th Tianmen
Incident and developing normal relationship with U.S and western countries.
However, China never forgets to remind the U.S. that Taiwan problem has
been the most sensitive issue and the biggest obstacle in improving Sino-
U.S. relations and always urges the U.S. to support China’s reunification
position. Meanwhile, China policy under Clinton administration pronounced
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in Sino-American Summit held in October 1997 and several important
occasions is pronounced as “one China”, “against one China and one
Taiwan,” and “not supporting Taiwan join the United Nations.” It was
predicted that during President Clinton’s China trip in June 1998, Taiwan
undoubtedly will be brought to the table. How Americans see China-Taiwan
issue? We can probe it from administrative and academic points of view.
In a seminar devoted to the problem of the two sides of Taiwan Strait
held in San Francisco University on February 12th 1998, participated scholars
think that the U.S. strongly hope to solve China-Taiwan issue in a peaceful
way and that Taiwan should avoid moving along independence course and
Taiwan’s government policy should not leave room for the growth of Taiwan
independence. In addition, though it is not necessary for China to recognize
Taiwan’s having her own sovereignty, they suggest China can at least stop
negating this reality, by doing so it can facilitate the two sides resuming
negotiation.1 0 9
In a closed door meeting convened by U.S., China and Taiwan
representatives Professor Kenneth Liberthal of Michigan University evaluated
current Taiwan Strait situation and emphasized that it has very serious
potential crisis. Therefore, it is critical not to let it go its own way. America’s
recognition of excluding fundamental crisis hidden in current situation fulfills
1 0 9 The seminar was hosted by professor Stephen Uhalley from University of
San Francisco, China study scholars Thomas Gold, Ramon Myers, Franz
Schuramman, and John Copper participated.
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U.S. national interest. He suggested that under “one China” framework, both
sides change names.1 1 0
In fact, earlier in 1998 right after DPP’s scored heavily in County Magistrate
and City Mayor election at the end of 1997, former high ranking U.S.
government officials suddenly gave Taiwan the honor of visit. Joseph S. Nye,
former Deputy Minister of Defense, current Dean of Kennedy School of Public
Policy of Harvard University, visited Taiwan in January 9,1998 and expressed
that U.S. policy of maintaining the security of Taiwan Strait, namely peaceful
settlement and one China, can no longer enough be applied after DPP’s victory
in County Magistrate and City Mayor election. The U.S. should clearly tell DPP
that its Taiwan Independence proposition will not be accepted by Washington
and U.S. should distinctively covey U.S. intention of “not supporting Taiwan
Independence.” He thinks that only under this clear policy can a stable
framework be kept. His visit followed by former U.S. ambassador to China
James Lilley and former Assistant Secretary Dick Holbrooke under Carter
Administration. Their conversation with Taiwan authorities was not released.1 1 1
Later still in January 1998, the Observation Team of Strategy and Security
led by former U.S. Minister of Defense Perry, current professor of Standford
University arrived. He contacted DPP members and exchanged concrete
points of view regarding the Taiwan Coast situation. He clearly stated that
1 1 0 Lianghebao {United Daily News), February 10, 1998.
1 1 1 Shijieribao {Chinese Daily News), January 10, 1998.
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the U.S. and China both do not support Taiwan Independence proposition.
And he also clearly expressed that the U.S. will not interfere militarily into the
possible crisis caused by Independence. It is said that based on the
messages provided by Beijing, Perry told DPP people that Beijing won’t
hesitate to inflict blow on Taiwan for the sake of China’s internal reform or the
stability of Asia Pacific area. He is optimistic about the resumption of China-
Taiwan talk.1 1 2 The unusually frequent visits of heavyweights can be
interpreted that U.S. gradually feels impatient about Taiwan’s stiff and delay
attitude and to assert negotiation pressure on Taiwan.
Meanwhile, at least two resources doubt American people will support
Taiwan Independence. When asked by DPP member a presumptive
question whether the U.S. will apply the provisions in Taiwan Relations Act to
protect Taiwan if the PRC would use force against Taiwan, David Dean,
former ambassador to Taiwan, replied that he cannot visualize the U.S.,
Japan, European countries, or other countries would jeopardize diplomatic
relations with Beijing to recognize an independent Taiwan. And the lack of
international support would leave the PRC a pretty clear field to do
something.1 1 3 In a similar tone, professor Ralph Clough of John Hopkins
University, in a book published in 1997 says it would be hard to convince the
American people that in case Taiwan declares de jure independence, they
1 1 2 Shilieribao (Chinese Daily News), January 20, 1998.
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would be willing to sacrifice their relations with the PRC and risk being
dragged into a military conflict in the Taiwan Straits.
To most Americans, such a declaration would seem to be an
undesirable and unnecessary step that could only endanger,
not improve, the welfare of the people on Taiwan, and they
would ask why it was in the U.S. interest to support such a
114
move.
Therefore, many sings show that after decades’ effort of diplomatic
deployment, to quite an extent China’s position is recognized by U.S. and major
countries in the world. On May 22nd 1998, in a seminar held in University of
Southern California (USC), three former U.S. State of Secretary Christopher,
Shultz, and Haig put “one China” policy on the table and hope Taiwan problem
can be resolved in a peaceful way. They all think President Clinton should not
delay his planned China trip in June 1998 because of domestic opposition
caused by satellite technology transfer to China and donations to democratic
party from China.
1 1 3 Dean, David in Constitutional Reform and the Future of the Republic of
China, edited by Harvey J. Feldman, 1991: pp. 57-58.
1 1 4 Clough, Ralph, “U.S. Policy toward the People’s Republic of China and
Taiwan: Adjusting to Change”, in Taiwan’ s Expanding Role in the International
Arena, edited by Maysing H. Yang, 1997: p. 124.
1 7 1
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Remarks
Having examined the elements related to Taiwan’s China policy: major
political Parties’ (KMT, DPP, NP...etc.) positions, general Taiwanese
populace’s mindset, and international milieu (U.S. China-Taiwan policy), we
can reach following analysis and conclusions: the KMT’s China
policy mainly is “wait and see”: politically, to use national resources to secure
Taiwan’s survival and to carry out pragmatic diplomacy; economically, to
refrain from having active and comprehensive relations with China. DPP,
ever since its founding, there existed various opinions regarding whether to
flag Taiwan Independence conspicuously. Nevertheless, in the early stage of
its growth, DPP’s drive for democratization cannot be separated from
absorbing Taiwan independence supporters. Their influence reached peak
in DPP’s fifth Party Assembly in 1991 and managed to successfully write the
Taiwan Independence article into party’s platform. But when time moves on,
the China factor enters into Taiwan people’s heart. DPP hits winning around
30% votes bottleneck in central level elections because people worry if they
will be worse off if DPP comes to power with its independence color and
clashes with China. In response, DPP converts its original color to protective
color and tones down its independence appeal so to be more conformable to
Taiwan’s political weather.
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If we put the major political forces’ China policy on a spectrum, then the
New Party should be located at the ultra right (for reunification and for three
forms of communications), and the Nation Foundation Party at the ultra left (for
independence), while with the Kuomingdong in the center (for unification in
words but ambiguous in reality and against the three communication). As to
DPP pacts such as New Tide and Welfare Country Alliances...etc. stand in
central left (against reunification and against three communications), while
Formosa Pact deserves to be put in a spot in central right for their support of
santong (for negotiation and for three communication). KMT’s open-mouth
reunification policy does not combine with open-market (to China) policy. This
stance converges with that of New Tide Pact and Welfare Country Alliances
and stays aloof from that of Formosa Pact and New Party. New Party proposes
to stand on Taiwan’s own legs (instead of depending on the U.S.) and to work
out reunification. Nation Foundation Party is a independence daredevil and is
absent-minded from gathering other countries’ policy frames through their
words and deeds. KMT and DPP are very concerned about U.S. China-
Taiwan policy. KMT uses pragmatic diplomacy to expand Taiwan’s
international room. However, its walk-out diplomacy becomes a setback, one
country after another have turned to China based on their individual national
interest consideration. Huge China gains more attention and small Taiwan is
less favored, a fact which KMT is reluctant to admit.1 1 5
1 1 5 For Example, South Korea President Kim Da-Chung has made steady
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Formosa Pact of DPP thinks that regional stability appears to be U.S.
primary policy, U.S. is recruiting China to be a member of new international
order. Once this strategic partnership relation is soundly established, under the
urge of China, U.S. can no longer beg off being a China-Taiwan negotiation or
reunification propeller. Not to negotiate with China may bring serious
outcome. New Tide and other minor DPP pacts, though like Formosa Pact
realizing Taiwan’s only being a chip in Sino-American relations, they have
different interpretations of changing world order. They argue that although new
international order may restrain Taiwan from expressing national identity and
sovereignty, under the check of new world order, China won’t dare to act rashly
against Taiwan. Taiwan hence can gain certain extent of freedom and security
and U.S. eventually will not be a bystander if China attacked Tawian. In DPP’s
China policy debate in February 1998, which held after former U.S.officials’
visits and words y passing, each group expressed their views. New Tide and
other DPP pacts are still inclined to downplay China’s determination of
reunification and hold unrealistic romanticism toward U.S. and international
community, New Party and Formosa Pact of DPP are speaking truth to KMT
power.
efforts to persuade Beijing authorities to allow Chinese people to travel in South
Korea. Originally only Singapore, Malaysia, Thailand, Philippine, Australia and
New Zealand six countries and Hong Kong, Macao two areas are on China’s list of
issuing tourist visas. On May 5th , 1998, South Korea became a travel country for
Chinese people.
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To sum up, since the mid-1980’s, politically Taiwan has undergone a
transition from authoritarian state to competitive democracy. Political
liberalization has granted people more civil rights such as freedom of speech,
organizing political party, and press. The institutionalization of a electoral
mechanism for political posts has expanded channels for conveying people’s
opinions and has rendered other parties’ sharing KMT’s power. However, I
would argue that the representative democracy is not a genuine and full-
fledged democratization. Instead, Taiwan’s state is still quasi-authoritarian or
quasi-democratic because strong residuals of authoritarian regime remain in
current regime. The formative competitive democracy has not resulted in
substantial value of democratization, namely to participate and influence
government policymaking and stipulate clear public policy. Taiwan’s China
policy limits Taiwan’s democracy development and lames government’s
prestige. Democracy does not lead to Taiwan independence, in turn, it curbs
this appeal. DPP said after its County Magistrates and City Mayors elections
that DPP’s real opponent is China. In the coming five years, if DPP can not
deal with China successfully, DPP will be a total loser. President Lee
Deng-Hui has made contribution to Taiwan’s political liberalization and
democracy, but we can see a strong man’s shadow in terms of imposing his
own will and value on Taiwan’s China policy draws dissatisfaction and
criticism. Legislative institution and opposition parties can say but do not
have capacity to change policy. Entrepreneurs and businessmen are in
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similar situation and they follow the call of market and run ahead of
government’s politics-first China policy and gradually have a stake in
mainland China. A more innovative and less confrontational China policy is
needed. In next chapter we will examine Taiwan’s restrictive policy in trade
and investment with China.
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CHAPTER 6 TAIWAN’S CROSS-STRAIT ECONOMIC RELATIONS AND
REGULATORY POLICY TOWARD CHINA: INTERACTION OF TRUTH AND
POWER
Since the mid-1980s, some characteristics of Taiwan’s economy come to
the surface:
1) The rise of production cost: enterprises have found themselves at an
unprecedented turning point. Major conditions which once constituted the
Taiwan miracle, such as cheap labor, hard-working folk custom,
protectionism, loose environmentalism, stable land prices no longer exists,
subjecting different Taiwan enterprises to unparalleled pressure. Political
liberalization has brought about a variety of social movements, for instance,
environmental protection, labor welfare and social welfare. While society is
more dynamic, it is no longer as obedient and harmonious as it used to be.
2) The change of economic structure: When time goes on, the
percentages of agriculture and industry (including manufacturing) in GDP
have been shrinking year after year, on the contrary, the percentages of the
service sector have been increasing. Sectors other than service therefore
need to seek their second spring and prosperity. Table 6.1 manifests this
trend:
3) The intensified competition of foreign trade: Both the first (1973~74)
and the second (1979) petroleum crisis damaged Taiwan’s economy which
depended largely on foreign trade and the stability of her commodity prices.
Because Taiwan has very limited natural resources, to cope with future
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development, since the mid-1980’s the government placed emphasis on
research and development (R&D) with a systematic technological escalation
Table 6.1 The Industry Structure Percentage in GDP
Industry Structure (in GDP %)
Time (Year) Agriculture Industry Manufacture Service Total
1952 32.2 19.7 12.9 48.1 100.0
1955 29.1 23.2 15.6 47.7 100.0
1960 28.5 26.9 19.1 44.6 100.0
1965 23.6 30.2 22.3 46.2 100.0
1966 22.5 30.6 22.5 46.9 100.0
1967 20.6 33.0 25.0 46.4 100.0
1968 19.0 34.4 26.5 46.5 100.0
1969 15.9 36.9 29.1 47.3 100.0
1970 15.5 36,8 29.2 47.7 100.0
1971 13.1 38.9 31.5 48.0 100.0
1972 12.2 41.6 34.3 46.2 100.0
1973 12.1 43.8 36.8 44.1 100.0
1974 12.4 40.7 32.8 46.9 100.0
1975 12.7 39.9 30.9 47.4 100.0
1976 11.4 43.2 33.8 45.5 100.0
1977 10.6 44.0 34.2 45.4 100.0
1978 9.4 45.2 35.6 45.4 100.0
1979 8.6 45.3 35.9 46.1 100.0
1980 7.7 45.7 36.0 46.6 100.0
1981 7.3 45.5 35.6 47.2 100.0
1982 7.7 44.3 35.2 48.0 100.0
983 7.3 45.0 35.9 47.7 100.0
1984 6.3 46.2 37.5 47.5 100.0
1985 5.8 46.3 37.6 47.9 100.0
1986 5.6 47.1 39.4 47.3 100.0
1987 5.3 46.7 38.9 48.0 100.0
1988 5.0 44.8 37.2 50.1 100.0
1989 4.9 42.3 34.6 52.8 100.0
1990 4.2 41.2 33.3 54.6 100.0
1991 3.8 41.1 33.3 55.1 100.0
1992 3.6 39.9 31.7 56.5 100.0
1993 3.7 39.0 30.5 57.3 100.0
1994 3.6 37.3 29.0 59.1 100.0
Source: Li, Guoding, Taiwan’s Economic Plan and Its Realization, 1995: pp. 422- 423.
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development program to produce technical-intensive products and increase
international competitive ability. However, Taiwan has to face and overcome
economic predicaments: developed countries getting in way of Taiwan’s
forward march (technical-intensive products have to compete with developed
countries) and other developing countries catching up form behind (the
existing labor-intensive industries have been impacted by sharp competition
in the international market from China Mainland and other low labor-cost
countries of South East Asia).
4) The search for export market and investment destination: As said
before, the Taiwan business circles aimed their eyes on and ran to China
before Government did. In recent years, the trade and investment between
China and Taiwan have been growing by leaps and bounds. The above three
points has pushed Taiwan to diversify its export and find more advantageous
investment conditions. Given the fact that Taiwan’s businessmen find the
China Mainland providing the investment conditions they need, having the
same ethnic origin and common language convenience and cheap land and
labor, it is difficult to stop them with the national security concern and it
seems hardly fair to blame them for making the move ahead of government
policy.
During a telephone interview in March 1998, I talked with one of the
authors of 1998 Index of Economic Freedom Bryan T. Johnson and raised
the question that market mechanism does not prevail in Taiwan-China
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economic flows. Taiwan government regulates bilateral indirect trade and
unilateral Taiwanese investment in China through regulative laws and rules.
It appears to be a loophole if not taking Taiwan’s market-restricting measures
into account and gives Taiwan “very free” grading scale. Mr. Johnson admits
that they do not examine outbound unfree economic activities and says that
even the very free U.S. have economic sanctions on Cuba and Iraq. I reply
that the U.S. the leader of cold war era now has major economic interest in
China and the outcome of economic sanction is mainly supposed to punish
and hurt opposite party. Taiwan on the one hand is hurting herself by curbing
China-bound investment, on the other hand is enjoying trade surplus with
China by permitting Taiwan’s export to China and limiting China’s import to
Taiwan. We at the end agree that Taiwan is a quite unique case and
deserves special attention. We can analyze the meaning and importance of
Taiwan-China economic activities for Taiwan through trade and investment.
Trade
As official data point out, in recent years, the import of China products to the
United States and Japan has grown substantially in monetary figures. Taking
1995 as an example, the United States imported US$ 45.37billion’s worth of
products from the Mainland, which was more than its import from Taiwan by
US$16.5 billion. In terms of market share in the United States, mainland
products continued to lead Taiwan for six years running since 1992. The
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following figures show the magnificent rise of China’s trade share to U.S and
Japan.
Figure 6.1 China and Taiwan’s share in U.S. Market
_ China
- Taiwan
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Source: Monthly Statistics on Cross-Straits Economy, Mainland Affairs Council,
1999. http://www.mac.gov.tw
The unfavorable situation of Taiwan products in Japan is even more
obvious. In 1995, Japan imported US$35.92 billion’s worth of products from
the Mainland, which substantially led Taiwan by a US$21.6 billion in margin. In
the same year the market share of Mainland products in Japan had reached
the 10.7% mark, more than double Taiwan’s 4.3%. On the contrary, the sales
decreased.
Taiwan has already found itself in an inferior situation in its trade war
overseas with the Mainland. However, Taiwan’s loosing ground to China is
181
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Figure 6.2 China and Taiwan’s share in Japan Market
China
Taiwan
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Source: Ibid.
made up by her trade surplus with China. The mainland customs’ data
indicate that the Mainland suffered a US$11.5 billion deficit in its trade with
Taiwan 1993, which accounted for 96% of its total foreign trade deficit. The
Mainland side attributes this huge deficit in its trade with Taiwan to the
abnormal product of the economic relations between the two regions,
because over a long period of time Taiwan has imposed unreasonable
restrictions on the import of Mainland products. As a result, most of the
products imported from the Mainland are natural resources with low
additional value, while Taiwan’s export to China is quite comprehensive.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Taiwan-China Trade Relations and Regulations
The trade form between two-Coasts is indirect trade, namely, trade is
conducted through third area or countries close to Taiwan or China, among
them Hong Kong is the major re-export station or buffer zone, others include
Macao, Singapore, Thailand, Philippine, South Korea and Japan...etc. In
1987, Taiwan government approved 29 important categories of agricultural
and industrial materials to be imported from China. In I988 it stimulated
“Regulations Governing Products Imported from Mainland China.” The main
content is: 1 The imported goods should be on the list of import publicized by
Economic of Foreign Affairs. 2 The imported goods should fulfill three
conditions: a. they shall not threaten national security; fa . they shall not bring
negative influence on domestic relevant industries; c. they shall facilitate the
raise of competitive ability of Taiwan products’ export. 3. Imported goods
should apply for import permission credentials from Bureau of Foreign Trade.
The Bureau can stop issuing credentials when it deems necessary. Also, on
documents of import should specify “made in China” words.1 1 6
Taiwan authorities gradually adjusts and expands the list to meet the
demand. In May 1994, there are about 255 categories (based on
commercial products category CCC code of ROC) of products can be
imported from China. Further regrouping and rearranging, 93 categories are
1 1 6 “ The Regulations of Indirect Importation from Mainland,” The Probe of
Economic Trade Relations between Two Sides of Taiwan Straits, Taiwan Institute of
Social Science Academy of China, 1993: p. 366.
183
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chemical or chemical related industrial products, 46 textile products, 46
plantation products, 45 mineral products, and 40 wooden and weaving
products.1 1 7 The allowed imported items are expanded year after year or
every two years gradually.
On the other hand, in 1990 Taiwan government stipulates the
“Regulations Governing Products Exported to China”, the main points
include: 1. The export should be conducted through third countries or areas;
2. The export products should not affect national security or economic
development; otherwise the Bureau of Foreign Trade can stop it; 3. The
export documents should clearly states that the export destination is
China.1 1 8 However, since the regulations are quite general and there are no
lists for allowed exporting products, the volume of Taiwan’s export to China is
quite awesome. The Bureau of Foreign Trade does not have rules punishing
those who do not abide the regulations. Many companies do not specify
China as their last stop on their export documents.
According to statistics of Hong Kong Customs, in the first half of 1995,
China’s total trade dependence rate on Taiwan is 4.45%. Among them,
import dependence rate is 8.60% and export dependence rate is 1.09%.
This means that China opens her arms and Taiwan’s export to China
1 1 7 The Study on Taiwan Businessmen’ s Investment and Trade with Mainland
China, Chung-Hua Institution for Economic Research, 1992: pp. 87-88.
1 1 8 The Regulations of Indirect Exportation to China, Ministry of the
Executive Yuan, 1990.
184
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accounts for 8.60% of China’s total import volume, almost reaches one tenth
high, while Taiwan meets China with cold face and only absorbs 1.09%
China’s total export. Figure 6.3 lays out the data:
Figure 6.3: China’s Trade Dependence Rate on Taiwan
12------------------------------------------------------------------------------------------------------
Export
Import
0 ----------1 ----------! ----------1 I ----------1 ----------1 ----------1 ----------1 ----------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Source: Mainland Affairs Council, Monthly Statistics of Cross-Straits
Economy, 1999. Also in http://www.mac.gov.tw
On the other hand, based on China-Taiwan trade statistics of Taiwan
Customs, which is much higher than the calculation of Hong Kong Customs,
Taiwan’s total trade dependence rate on China is in Figure 6.4. By contrast,
in first half of 1995, 18.21 % of Taiwan’s total export goes to China and only
3.08% of her total import comes from China.
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Figure 6.4: Taiwan’s Trade Dependence Rate on China
24
11-
Source'. Ibid.
In studying Taiwan-China trade relations, if we compare Taiwan and Hong
Kong Customs statistic data we can find out that Taiwan’s Customs data of
‘Taiwan’s total export amount to Hong Kong ” is much higher then Hong Kong
Customs statistics of “Hong Kong’s total import amount from Taiwan.” Based
on Hong Kong statistics data, the two coast trade is underestimated. The
reason for this discrepancy is that Hong Kong Customs official statistics only
reflects commodities passing through Customs and re-exported to China by
ships, and due to lack of data, they do not include commodities re-exported to
China by land and by ships around Hong Kong waters not entering into
Hong Kong harbor and Customs. On the other hand, Taiwan data mean the
186
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Table 6.2 Taiwan’s Trade Surplus with Hong Kong and Its Contribution
to Taiwan’s Economic Development
Unit: Millions of US dollars; %
Taiwan’s Trade Surplus Situation
Areas
Year
Hong Kong U.S. Other Japan Total Trade Surplus
(Trade Deficit: Excluding
Trade Surplus with
Hong Kong
1990 7,110 9,134 3,915 -7,661 12,498
(-5,338)
1991 10,484 8,207 4,296 - 9,669 13,318
(-2,834)
1992 13,634 7,801 901 -12,873 9,463
(-4,171)
1993 16,724 6,865 -1,350 -14,209 8,030
(-8,694)
1994 19,729 6,294 -3,758 -14,565 7,686
(-12,043)
1995 24,263 5,636 -4,681 -17,109 8,109
(-16,154)
1996 25,100 6,890 -4,588 -13,830 17,572
(-11,528)
1997 26,710 6,310 -8,044 -17,320 7,656
(-19,054)
1998 22,890 9,700 -9,043 -17,690 5,917
(-16,973)
Source: http:// www. moea.gov.tw & http://www.trade.gov.tw
Trade Statistics Monthly Report of Finance Department
Explanation: In recent years, Taiwan’s investment in mainland China leads to the growing
demand of domestic material, parts and machinery equipment, and causes the dramatic
increase of Taiwan’s trade surplus with Hong Kong. At the same time, excluding Taiwan’s
trade surplus with Hong Kong, Taiwan suffers a total trade deficit, which shows Taiwan’s
dependence on Hong Kong and China market. However, since 1992, Taiwan government
continuously opens import items from China and hence slows down the increase space of
trade surplus with Hong Kong.
total commodities heading for Hong Kong through Taiwan Customs.1 1 9
n9Leng, Tse-Kang, The Taiwan-China Connection: Democracy and
Development Across the Taiwan Straits, p. 109 & Monthly Economic Statistics
Across Two Straits, August 1995.
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In fact, in 1991 Taiwan’s trade surplus with China via Hong Kong
(US$10.4 billion) first time surpassed her trade surplus with the U.S.(US$8.2
billion). The 1992 data alone indicate that while Taiwan had a US$13.6
billion surplus from its trade with the Mainland, its total trade surplus was only
US$9.4 billion. Had it not been for its surplus from the Mainland, Taiwan
would have suffered a US$4.1 billion trade deficit for that year. This situation
starts from 1992 and continues since then. Taiwan’s trade dependence on
China appears to be a kind of lifesaving or at least blood infusion for Taiwan.
This interaction henceforth is apparently irretrievable. Table 6.2 reveals this
fact.
It is worth mentioning, the Mainland manages trade with Taiwan
differently than it does with other countries. Instead of transferring the power
to the local levels, the management is concentrated at the center. And
China’s Ministry of Foreign Economic Relations and Trade established the
Bureau of Economic Relations with Taiwan in late 1988, which was to design
trade and investment strategies toward Taiwan.1 2 0 The mainland authorities
also mobilize human and material resources and their organizations to
receive Taiwanese visiting relatives or doing business on the mainland. To
the Mainland, it is not simply a matter of economic exchange, but rather part
of their “political united front.” While Taiwanese funds and resources are
used to strengthen their economic power, at the same time, it is hoped that
188
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Taiwan’s public opinion and government policy coincides with the economic
benefit of the Taiwanese on the Mainland, the latter will have the incentive to
lobby or push Taiwan government effectively. China’s Deputy Prime Minister
Chian Chi Shen says that China tolerates huge trade deficit with Taiwan
because China is Taiwan’s motherland. Politically some Taiwanese
businessmen have been selected as China’s political Assembly members of
local and central levels.1 2 1
As said above, Taiwan’s trade regulations limiting the categories of
commodities that can be exported from Taiwan or imported from China,
henceforth trade structure is not determined by both parties’ comparative
advantage consideration. Taiwan government also curbs Taiwan’s investment
in China by stipulating that small and medium investment ought to go through
third country and large scale investment on China should be approved in
advance.
If someday Taiwan becomes a province of China, then Taiwan’s investment
in Mainland will be domestic investment so is trade. Then it will be a totally
different story and all the restrictions and concerns would be superfluous.
However, current situation is very awkward and reunification is not settled
yet. Therefore, Taiwanese government gives signs of being torn between
adherence to lessons of free investment and unconstrained international
1 2 0 Simon, Denis Fred and Kau Michael, Taiwan Beyond the Economic
Miracle, 1992: pp. 286-287.
189
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trade, as it sees it, to be wary of possible negative political-strategic fallouts
from too sweeping, hasty, or simplistic applications of those lessons. This
bottom line makes businessmen vulnerable to charges of insensitivity to
broader, more sublime, but less quantifiable considerations, such as national
security threat, industrial hollowing-out and high trade dependence. One the
other hand, government is criticized as simply not willing to perceive the
problem objectively and to listen to businessmen’s demand.
China is viewed by many countries as a promising market and has
continuously attracted overseas investment, and investment from Hong Kong
(many Taiwanese companies simply making investment by totally using
Hong Kong companies’ names) accounts for the highest percentage of
foreign investment (about 40%), followed by Japan, Taiwan, U.S., Singapore,
South Korea, Britain...etc. Table 6.3 explains the spread of investment
origins in China.
Investment
In recent years, Taiwan’s industrialists have been confronted by such
adverse factors as domestic land price hike, labor shortage, wage inflation,
New Taiwan dollar appreciation, environmental protection demonstrations and
deteriorating social order. Such added management difficulties have worsened
Taiwan’s investment environment to such an extent that some medium and
1 2 1 Reiminribao (People’s Daily), June 3, 1998.
190
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Table 6.3 The Situation of Foreign Countries’ Investment in China and
China’s Borrowing From Other Countries in 1995 and 1996
Unit: Ten thousand U.S. dollars
1995 1996
Total China’s
Debtors
Foreign
Investors
Total China’s
Debtors
Foreign
Investors
Total 4813269 1032700 3780569 5480416 1266900 4213516
Hong
Kong
2040183 21672 2018511 2087301 2141 2085160
Japan 511332 190085 321247 609605 240481 369214
Macao 43982 — 43982 60628 - 60628
Singapore 186061
. . .
186061 224716 - - 224716
Korea 119053 14343 104710 156612 6196 150416
Thailand 28824 — 28824 32818 - 32818
Taiwan
(R.O.C)
316516 — 316516 348202 — 348202
Britain 100931 9411 91520 140019 9826 130193
Germany 52746 13693 39053 113045 61158 51887
France 71626 42924 28702 92073 49608 42465
Italy 54780 27760 27020 34268 17324 16944
Spain 46973 44341 2632 43016 40943 2073
Austria 9261 7396 1865 7170 5435 1735
Sweden 54523 52119 2404 14894 9225 5669
Swiss 12044 4106 7938 24412 2971 21441
Canada 61966 36262 25704 47965 14168 33797
U.S. 313466 5093 308373 505070 160653 344417
World
Bank
214945 214945 — 188000 188000 —
Asia
Develop
ment
Bank
54142 54142 110200 110200
Source: China Statistic Yearly (1997)
small enterprises and export-oriented businesses find it difficult to continue their
existence that, in desperation, they no longer care about their relationship with
the Government but rather building relationships between the two Coasts for
the sake of their own benefits and development. Table 6.4 surveys the motives
of Taiwan businessmen’s making investment in China. China offers what
191
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Taiwan lacks, and language convenience, culture and lower production cost
are the first considerations contribute to Taiwan businessmen’s investment in
China decision.
Table 6.4. The Priority of Taiwan Businessmen’s Motives of Making
Investment in China Made by Different Agencies
Investment Motives CEI 1 CEI II CSF GAOW Gao
Low wage, abundant labor 1 1 1 1 1
Similar language, culture
background
2
— —
2 2
Cheap land rent and easy to
obtain factory use land
3 3 2 3 3
The demand of foreign import
companies
4 —
— —
To diversity the management
risk of mother company
5
— — — —
To dispose outdated or spare
equipment
6
— —
5
—
To encourage investment
and lower taxes
7
—
5 7 5
To struggle for China’s big
domestic market
8 2 3 4 5
To enjoy MFN and quotas 9
— —
8 6
To obtain raw material supply
—
4 4 6 4
Source: CEII (China Economic Research Institute, sample: 96 Taiwanese shoe-making
factories in China, 1990), CEI II (sample: 157 Taiwanese companies making investment in
China, 1991), CSF (Cross-Straits Foundation, sample: 43 Taiwanese companies making
investment in China, 1991), NAOW (National Association of Workers, sample: 368
Taiwanese companies making investment in China, 1991), Gao, Xi-Jun, Lee, Cheng and
Lin, Zu-Jia (scholars, sample: 314 Taiwanese companies making investment in China,
1992), exerted and compiled from The Study of Taiwanese Businessmen’s Investment and
Trade with China, 1992: pp. 104&105.
Theoretically speaking, the influence of enterprises’ investing abroad on the
host country’s economy are determined by the characteristics and strategic
192
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orientation of the investment. If the aim of making foreign direct investment
(FDI) is to establish vertical relations between production and sales, to expand
market, to get rare resources or to purchase or merge high technology, then it
will not have negative impact on the host country’s production activities. On the
contrary, this kind of FDI is complementary with domestic production activities.
On the other hand, if overseas investment is caused by deteriorated domestic
production conditions and environment, then outgoing enterprises will
horizontally replace domestic production and consequently constitute the
negative constraints on the host country’s economic growth. If domestic
enterprises do not actively upgrade their products and technology to respond
to the changing economic environment, then this industry will decline at
home. We can characterize this type of investment as competitive
investment. Taiwan’s investment in China is a mixture of both
complementary and competitive investment.
Labor-intensive industries have been Taiwan businessmen’s major
investment in China since early stage. These sunset light industries
experienced decreasing production in Taiwan and gradually moved to China.
This may generate concern of industrial hollowing-out. However, Taiwan’s is
continuously endeavoring in industrial escalation and technological
improvement to ameliorate adverse impact. Electronic, electronic equipment,
chemical and machinery industry grows positively. The exodus of sunset
industries’ to China facilitates the improvement of Taiwan’s industry
193
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structure. Nevertheless, the products produced in China by Taiwanese firms
have competed against Taiwan domestic products for Taiwan and
international markets and in recent years electronic and electronic equipment
industry also rush into China to establish production line. In the long run, the
larger and larger investment in China, unavoidably will increase the trade
dependence of two coasts. If Taiwan’s capital continuously unilaterally flows
to China, then it will slow down the speed of Taiwan’s capital accumulation
and bring negative impact on capital formation.
Taiwan-China Investment Activities and Restrictions
According to the Regulations of Making Investment and Conducting
Technical Cooperation in China, there are approved, forbidden and special
examination items and categories. Until December 1995, after multiple times
announcements, there are 222 approved agricultural, 4,444 manufacturing
items and 20 categories of service business that can be operated in China.
And there are 9 forbidden agricultural, 299 manufacturing items and 4
service business. Please find the detail in table 6.5.
The Investment Examination Committee of Ministry of Economic Affairs
sums that by the end of 1995, there are 11,254 approved and reported
investments in China with total amount of 5.64 billion U.S. dollars. Among
them manufacturing industries account for the largest ratio of weight and
electronic, electronic equipment, food and plastic manufactures are the top
194
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Table 6.5 The Previous Announcements of the Approved and Forbidden
Items of Making Investment and Technical Cooperation in
China
Groups Industry Date Items
Approved Agriculture July 31, 1992 27
March 1,1993 103
October 14, 1994 31
August 9,1995 61
Manufacture October 19,1990 3,353
April 8, 1991 326
March 26,1992 58
March 1,1993 74
August 29, 1994 285
November 9,1994 220
Service December 21,1994 132
Forbidden Agriculture March 1, 1993
October 28,1994
August 9, 1995
20 categories
Manufacture March 1,1993 International negotiation 62
Defense technology 111
Leading new products 58
Key parts 68
Service March 1,1993
January 14,1994
4 categories
Source: Investment Examination Committee of Ministry of Economic Affairs
http:// www. moea.gov.tw
ones. They mainly focus in China’s coastal provinces (Guangdong, Fujiang,
Jiangsu, Zhejiang provinces) and Beijing area (Hobei province). Table 6.6 is
the situation of approved manufacturing investment in China and that of
service business is in table 6.7. Wholesale, retail and trade top the service
business investment list.
At present, at stipulated in the Two-Coast Relationship Regulations,
Taiwan residents, corporations, and other organizations are not permitted to
conduct such commercial behavior as trade, investment, or technological
195
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Table 6.6 Manufacturing Investment in China (from 1991 to December
1995)
Unit: Ten thousand U.S. Dollars
Category Guang
Dong
Fujian Jiangsu Zhejian Hobei Others Total
Food,
Beverage
7,526 7,482 20,680 2,204 9,456 18,009 65,357
Textiles 9,750 3,124 9,817 3,777 330 5,020 31,818
Clothes 2,916 3,881 6,712 1,315 426 1,838 17,088
Leather 3,571 1,458 1,029 527 182 531 7,298
Bamboo,
Willow
4,224 2,550 7,280 935 1,421 4,298 20,708
Paper,
Printing
4,410 954 5,856 352 795 1,261 13,628
Chemical 11,632 2,842 14,688 2,183 2,411 4,832 38,588
Rubber 7,914 4,953 3,151 812 2,411 5,425 22,534
Plastic 32,217 11,002 7,739 891 2,015 4,077 57,941
Mineral 4,975 6,520 10,126 3,123 1,659 6,122 32,525
Metal 13,952 5,360 18,356 1,932 2,019 6,743 48,362
Machinery 2,480 722 8,277 482 513 1,886 14,360
Electronic 36,307 12,072 24,630 3,538 5,290 6,457 88,294
Transpor
tation
6,301 4,758 7,952 423 972 7,505 27,911
Source: http://www. moea. gov. tw , one can log on through Yahoo Chinese
cooperation without the approval of the appropriate body. Violators could be
penalized in the amount between three million and fifteen million New Taiwan
dollars ( one US dollar approximately equates 35 New Taiwan Dollars.) The
1 9 6
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appropriate body’s investment examination could impose penalties
continuously until the behavior is corrected.1 2 2
Table 6.7 Service Business Investment in China (from 1991 to December
1995)
Unit: Ten thousand U.S. Dollars
Category Guang
Donq
Fujiang Jiangsu Zhejiang Hebei Others Total
Wholesale
, Retail
717 442 6,078 272 685 1,272 9,466
Intl. Trade 420 170 2,802 51 1,092 827 5,362
Restauran
t
216 431 588 40 170 856 2,301
Transpor
tation
0 — 1,583 358 35 893 2,869
Storage 85 180 600 865
Finance &
Insurance
— — — — — 244 244
Other
Services
517 1,132 2,656 455 1,421 3,715 9,816
Total 1,955 2,175 13,887 1,176 4,003 7,807 31,003
Source: http://www.moea.gov.tw, one can log on through yahoo Chinese
Also, according to the spirit of the Two-Coast Relationship Regulations,
Taiwanese going to the Mainland to invest shall do so indirectly through a
third country or region. In particulars, the investing company shall has a
subsidiary in the third country and hold at least 20% share-ownership or act
1 2 2 Regulations of Making Investment in China of Two Coasts Relations,
1992
197
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as board chairperson or supervisor, apply to the Investment Examination
Committee of the Ministry of Economy and obtain its approval before going to
the Mainland to invest.1 2 3 In reality, if the funds of the subsidiaries in the third
country comes from Taiwan, the Government may still be able to “restrain”
their investment behavior, but if the funds are raised in the third country, it
will be difficult to regulate the investors. In the similar vein, it is very difficult
for the Government to control the circulating fund. For instance, Taiwan’s
foreign exchange control is very liberal and loose. Each individual is free to
remit up to US$5 million out of the country annually. Any company can break
the investment funds down to individual quotas and remit them out in the
name of individuals or remit them in a zigzag way through a third country to
avoid Government tracing. So the Government can do nothing about it. The
Two Coast Regulations have been legislated five years, the Government still
keep its eyes half-open on enterprises investing in the Mainland, and not a
single Taiwanese entrepreneur has been penalized.
China’s and Taiwan’s data manifest big discrepancy in Taiwan’s
investment amount in China. From 1991 to December 1997, Taiwan sources
say that 20,362 investment projects have been approved and total
accumulated investment capital is around 11.21 billion U.S. Dollars. While
China statistics state that by September 1997, the total investment cases
are 37,652, the contracted investment amount is $37.37 billion and the
1 9 8
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realized amount is $17.57 billion. The reasons contributing to this
phenomenon are:
1. The recognition difference between government and businessmen
regarding Taiwan’s China policy: In view of the need of overall economic
development, Taiwan government adopts regulatory policy but stage by
stage widens the approved investment and technical cooperation list.
Businessmen think government’s policy is too conservative and unrealistic,
therefore their willingness to cooperate with government’s policy is not high.
2. Businessmen’s dissatisfaction toward the efficiency of approving
investment projects: Merchants think that the approval process is time
consuming and complicated, which may be detrimental to the confidential
and speed up need of making investment, therefore they do not want to go
through official approval channel.
3. The businessmen avoiding the restriction of government rules:
According to current approval rules, Taiwan companies’ investment in China
cannot surpass certain ratio of their domestic real capital and total net asset.
Some companies may henceforth underreport their investment amount in
China to get approved and others may overreport investment amount so as
to have preferential investment treatment in China.1 2 4
1 2 3 Ibid.
1 2 4 Mainland Affairs Council Statistics, December 1997, http:// w w w .
mac.gov.tw
199
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4. The entrepreneurs investing in the Mainland are largely medium and
small businesses, few of which are quoted companies, which are not
regulated by the securities administration organization. Therefore it is not
necessary to file any application.1 2 5
With an aim to avoid over-dependence on the mainland, in early 1992
Taiwan government proclaimed the “South-bound policy,” which encouraged
entrepreneurs to invest in Southeast Asia. The state- and party-run
enterprises and some private companies followed this route. However, the
racial hatred against Chinese-lndonesian and the economic storm blowing in
Thailand and Malaysia this year caused Taiwan government officially
announce the halt of this policy in September 1998.1 2 6 Some who did
respond to government’s appeal now complain that the government has
misguided them and plunged them into wrong direction and heavy loss.
Table 6.8 is the statistics of Taiwan’s approved overseas investment by
regions.
Although Taiwan’s large business, like smaller businesses, face the same
deteriorating investment environment. The outward relocation of large
enterprises, aside from the industry itself, impacts not only the entire
economy but also social psychology to an extent equally not negligible. Big
enterprises find it more necessary to keep up a good relationship with the
1 2 5 Shijieribao (Chinese Daily News), June 6,1998
1 2 6 Shijieribao(C7u'n200
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Table 6.8 Taiwan’s Approved Overseas Investment
Unit: Millions of US$; %
Year 1994 1994 1995 1996
(1-4)
Global Ratio
Regions Countries 1994 1995 1996
(1-4)
Malaysia 101.1 67.3 50.0 3.9 2.7 4.3
Thailand 57.3 51.2 3.7 2.2 2.1 0.3
Indonesia 20.6 32.1 0.7 0.8 1.3 0.1
Asia Area Philippine 9.6 35.7 10.7 0.4 1.5 0.9
Vietnam 108.4 108.1 22.4 4.2 4.4 1.9
China 962.2 1092.7 369.0 37.3 44.6 31.7
Hong Kong 127.3 99.6 14.7 4.9 4.1 1.3
Others 135.2 73.7 8.0 5.2 3.0 0.7
America U.S. 143.9 248.1 75.6 5.6 10.1 6.5
Others 844.3 538.9 597.4 32.7 22.0 51.3
Europe Subtotal 988.2 787.1 4.7 0.9 2.4 0.4
Others Subtotal 22.2 59.9 7.1 1.8 1.7 0.6
Total 2579.1 2449.4 1164.0 100.0 100.0 100.0
Source: Investment Examination Committee of Ministry of Economic Affairs
Explanations: The ratio of Taiwan’s investment in China is the highest one since 1992.
http:/www. moea.gov.tw
government. Over a long period of time they have had to coordinate with the
Government’s policy by assisting it to expand its diplomatic horizon and give
financial assistance to the political parties. On the other hand, they also benefit
from Taiwan’s public and private resources, which help develop their export
trade. The government is consequently especially concerned about every
move of the large enterprises.
Take for instance Taiwan’s biggest industry Formosa Plastics Group. For
years it has made indelible contribution to Taiwan’s economic construction.
Petrochemical is Formosa Plastic’s foundation. Given the metamorphosis of
the macro-climate, the domestic “Six naphtha cracker project” was delayed
201
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over a long time before it got started, because of Taiwan domestic high land
prices, environmental protection protest, and lack of communication between
government and local residents.
In the petrochemical industry, the mid- and down-stream enterprises keep
moving out to invest in the Mainland. To the Government itself, their impact
is still tolerable as long as the up-stream headquarters remain in Taiwan.
The mid- and down-stream firms all have demands on Formosa Plastic’s
products. Once the clients started making the move, Formosa was worried.
That is why it joined forces with some petrochemical-related industrialists in
China and invested US$5 billion “Tsanghai Project” in Fujian Province.
China would earnestly assist ‘Tsanghai” and wish it all success. Earlier than
that Formosa already planned to build an electric power plant in Zhangzhou
of Fujian province to lay the basic structure foundation and facilitate Formosa
Plastics’ future development.
Both projects, however, have been discouraged by the Taiwan
government on grounds of engendering Taiwan. After all, the impact of
Formosa Plastic’s outward move would be too heavy on Taiwan’s economy.
Formosa Plastics is the “dragon head” of Taiwan’s private enterprises, its
behavior constitutes no small challenge to the Taiwan Government’s
intention to squeeze the Mainland investment policy. The Ministry of
Economy thinks that Formosa Plastic’s intended move will have a barometer
effect. An investment as high as 5 billion US dollars would be the highest
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ever throughout these years. Once the money flows into the Mainland,
Mainland’s gain would mean Taiwan’s loss, but more serious would be like a
chain reaction.
In response to Formosa Plastics’ intention, the Taiwan Authorities have
not made any concession. They resist it with new regulations. New criteria
stipulate that industries investing in public works or infrastructure
construction in the Mainland which requires heavy funds more than US$50
million (such as Formosa Plastics) will be restricted. The illegal enterprises
will be energetically investigated and prosecuted, which will change the
situation in which no enterprises have been sanctioned since the Regulations
• ■ 1PT
were put into practice.
According to the officials, investing in Mainland infrastructure is not part of
enterprise development but rather assisting the Mainland’s economic
development. It should not be Taiwanese industrialists’ job to conduct
infrastructure construction in China’s Mainland. The purpose of the
Government permitting industrialists’ investment projects in the Mainland is
to help either the industrialists or both Mainland and Taiwan. That is why the
category of infrastructure construction shall be a prohibited item. At present
industrialists are only allowed to invest in small hydraulic power plants and
steam-electricity paragenetic plants, because such power plants are
regarded no big threats.
1 2 7 The New Inspection Principles of Approving Investment in China, 1996.
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The new regulations will also clearly restrict industrialists’ share-holding
ratio and industry categories if they invest through overseas control
companies. Formosa Plastic’s Zhangzhou Power Plant case will be
examined on a larger scale: On the one hand, the Investment Examination
Committee will be ordered to investigate the sources of Formosa Plastics’
funds. The non-regulatory practice will no longer be applicable to control
companies with less than 22% share-ownership, so that even if Formosa
Plastics makes use of control companies with less than 22% share-
ownership funds it remitted in, it will have to be approved or reported. On the
other hand, the authorities will continue to counsel Formosa Plastics to follow
the “Resisting being hasty and Having Patience” policy on ethical grounds.
Formosa Plastics claims that theirs is a law-abiding company, that the
setting up of Zhangzhou Electric Plant does not constitute any regulation
violation, and that the Company will cooperate with the Government to the best
of its ability and postpone the two projects. To these large enterprises, the
Government’s persuasion affected their action in current stage mainly because
they try to save Government's face and do not want to have conflict with it
openly. However, the entire case has exposed the government’s
embarrassment and negative practice in the way it counters market forces.
Before Formosa Plastics took the initiative to “postpone” the two projects, all
the related ministerial meetings found the case hard to handle.
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Nevertheless, Wang Yung-tsing with many other heads of Taiwan big
enterprises continuously criticize Taiwan government’s highest China economic
policy “Resisting being hasty and impatient.” He also admits that the
Zhangzhou Power Plant Project construction has broken ground and he can
hardly resist and does not know how long he can tolerate it.1 2 8 The original
weak consensus and divergent standpoint among the official and the public
opinions, especially businessmen, regarding Taiwan’s Mainland economic and
trade policy have surfaced. The major 20 enterprises making investment in
China, such as Taiwan Cement, Evergreen Navigation, Far East Textiles...etc,
are reported to have a meeting with President Li Deng-Hui soon to discuss
current regulatory investment policy.
Remarks
To sum up, trade, investment, humanitarian and civil interactions between
Taiwan and China have grown rapidly since China adopted the open-door
policy in 1979. Taiwan-made products indirectly exported to China increased
thousands-fold during the 1979-90 period and totaled US$20.7 billion in 1996,
accounting for 17.21 % of Taiwan’s total export for that year. China-made
products exported to Taiwan were worth US$ 3 billion in 1996. The Taiwan-
China trade balance has always been in favor of Taiwan. As of the end of
1997, Taiwanese had invested in 37,652 projects on the mainland, for a total
amount of U.S.$17.5 billion. From 1988 to December 1997,11.73 million of
1 2 8 Shijieribao(World Daily News), July 5, 1996. 205
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Taiwanese have applied for Taiwan Compatriot Visa and visited China and
about .25 million Chinese visited Taiwan. The telephone and mail interchanges
are abundant.1 2 9
Taiwan’s industrial and business circles hold that the promotion of
national competitiveness depends of Taiwan’s economic liberalization,
industrial escalation as well internationalization. The potentially strong
Mainland market being an indispensable link in Taiwan’s economic
development. The business circles are puzzled over the government’s
political illogic and economic impracticality in talking about
internationalization on the one hand and excluding the Mainland on the other
hand. Government officers once openly praised the benign influence of the
Zhangzhou Power Plant Project, but as a result all economic benefits have
made way to political consideration.
To quite an extent, the vitality released by Taiwan’s domestic economic
liberalization will also unavoidably be spent in China. Investing in the
Mainland does not necessarily mean lacking any sense of responsibility or
sense of mission. They now call on the government to look squarely at the
reality and work out feasible, flexible cross Strait economic and trade policy
rather than force the enterprises to coordinate with the shrinking Mainland
policy, lest the enterprises would be forced to behave clandestinely by using
other channels or individuals to hide their investment and operation. “There
1 2 9 The Statistics of Two-Coasts Interactions, Ministry of Economic Affairs,
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is policy above and there is counterpolicy beneath” hurts government’s
image and credibility. Underground activities would only set government and
enterprises farther and farther apart, making it more difficult for the
government to control and giving rise to more and more aftereffects. By
abiding by the rigorous restrictive rules and regulations, the enterprises will
miss out on many of the priority opportunities to develop the Mainland
market. It would be better for government to invite supportive mindset and
communication instead of blocking and making regulations which cannot be
carried out effectively. Anyway, the populace demand for state action that a
given action cease is the very guts of politics. Taiwan’s China policy is a
topic of debate for businessmen, political parties, intellectuals and
government officials. The newly elected President Chen Shui-Bian appealed
for direct transportation with China. China responded by saying that unless
Chen recognizes “One China”, no negotiations will be done. The Taiwan
government is trapped in the dilemma of economic gain and political
uneasiness.
http://www.moea,gov.tw.
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CHAPTER 7 CONCLUSION AND PROSPECT
This study has attempted to demonstrate how and why the role of
Taiwan’s government has been transformed from an authoritarian to a quasi-
democratic one. In light of this challenge, to use merely political
development as a variable would not be a sufficient approach to an in-depth
comparative study. This change of role denotes a constellation of
interrelated political, economic, cultural and international transitions. The
transition in politics would affect and be affected by economic policies and
institutions, individual behaviors and values and social and international
changes.
The hypothesis framework laid out in chapter 2 appears to be a useful
structure for analyzing the development of a particular country. For example,
China with its authoritarian political monopoly, state socialist economy and
communitarian sense indoctrinated by communist propaganda and in
conjunction with the invocation of nationalism may sit to the left of Taiwan in
the political, economic and cultural axe. Externally, China as a legitimate
independent regime is less influenced by the U.S. than Taiwan’s case.
Taking India as another example, with its enormous population and as the
largest democracy on the world stage, it is limited economically by its
hangover from socialism, so does not push through economic development
with the zeal and speed of the more authoritarian East Asian dragons. India
can be on the political axis similar with or to the right of Taiwan, but on the
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economic axis it still sits to the left of Taiwan due to its having large scale
state enterprises. It does not justify the coincidence of the dual transition of
democratization and economic liberalization. Internationally, in addition to the
U.S., former British colonial influence also plays an important role. While
there is no article on hand that studies the culture of Taiwan and India.
Weiner’s observes that the mass and the elite are the two major political
cultures in India. “...This is not the same as the distinction between
traditional and modern. Rather there is much that is quintessential^
‘modern’ and fiercely democratic about local politics.” He argues that
comparison with Turkey shows individualism is at least one of the values that
distinguishes the culture of village India from that of village Turkey. The loss
of the “saintly” tradition of “harmony, unanimity and sacrifice” can be
observed in India’s case, while in Turkey group’s welfare is more important
than the individual’s.1 3 0
Democracy has prevailed as the dominant political ideology in the last
few decades of the 20th century, no matter if it has been socialist democracy
or pluralist democracy. However, when time moves on the wave of liberal
democracy appears to be the mainstream. The liberal democracy sits at the
right end of the axis of politics. Scholar like Francis Fukuyama on the one
hand, announced it is the triumph of liberal democracy and the end of history.
He, on the hand shares the melancholy of the deepest thinkers who have
1 3 0 Lane, Ruth, “Political Culture: Residual Category of General Theory?” In
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concluded that there is no such thing as History - that is, a meaningful order
to the broad sweep of human events.
Our own experience has taught us, seemingly, that the
future is more likely than not to contain new and
unimagined evils, from fanatical dictatorships and bloody
genocides to the banalization of life through modern
consumerism, and that unprecendented disasters await us
from nuclear winter to global warming.1 3 1
Fukuyama eulogies that the liberal democratic revolution has widely
achieved and that the blessings of liberty and equality have been extended to
all people. He is still a pessimist and says that “no regimes - no ‘social
economic system’ - is able to satisfy all men in all places, including liberal
democracy.” He says that “this dissatisfaction arises precisely where
democracy has triumphed most completely: it is a dissatisfaction with liberty
and equality. Thus those who remain dissatisfied will always have the
potential to restart history.1 3 2 ”
In economic arena, the globalization of capitalism demonstrates its
invincible attraction and destroys the boundaries of nations. The magic of
the market promises this world more wealth and security. On the other hand,
the extreme disparity between the rich and the poor creates strong
repercussions. The gap between the winner and the loser deepens.
Comparative Political Studies, October, 1992, pp. 368-370.
1 3 1 Fukuyama, Francis, The End of History And The Last Man, 1992: pp. 3-4.
1 3 2 Ibid., p. 334.
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However, scholars argue that there are two camps of capitalism: New
American Model and the Rine model. The former worships individual
success and pursues short-run financial interest; the latter, mainly including
Germany and Japan, emphasizes collective effort and values of long-term
interest. This is a new round of ideological wars. It is not the war between
communism and capitalism. It is a war engendered within liberalism and a
war between capitalism.1 3 3
Meanwhile, George Soros detects the crisis of Capitalism. He lets
readers see that the unquestionable belief toward market strength make
people ignore the significant unstable factors. The chain reactions of these
uncertainties cause present crises, such as financial storms. These crises
may deteriorate and the acceptance of the notion of open society can save
our financial system and save our civilization.1 3 4
In the culture side, western ideas such as individualism, liberalism,
constitutionalism, human rights, equality, liberty, the rule of law, democracy,
free markets are the cornerstones of an admirable secular culture. However,
on the spiritual side, the extremity of individualism brings moral relativism.
Bible scholars study the prophecies and trumpet the approaching
Armageddon1 3 5 and the begging of the end.1 3 6 The end of history of
1 3 3 Albert, Michael, Capitalism Against Capitalism, 1995.
1 3 4 Soros, George, The Crisis of Global Capitalism: Open Society
Endangered, 1998.
1 3 5 Hindson, Ed, Approaching Armageddon, 1997.
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Fukuyama coincidentally echoes the end of the world for Christian
theologists. For them, the restart of history means the second coming of the
Christ, the Rapture and the Revelation.
Dickens the author of “The Tale of Two Cities” is pertinent in describing
his age as: It is the best of ages; and it is the worst of ages, it is the warmest
spring; and it is the coldest winter. It is still right and more true for our era.
The 20th century is ending. In 1999, it is a good time to examine the past and
look to the future.
Back to reality and to Taiwan’s case study, this dissertation depicts and
analyzes the critical events, phenomena and the tide of thought that forms
and affects Taiwan’s destiny in the last few decades, especially since the mid
1980’s. Authoritarian developmental state is an epitome of rule for Taiwan
before the mid-1980’s, then how shall we coin news words that can represent
Taiwan after that. The quasi-democratic and paradoxically (inconsistent)
regulatory state will fit it.
Since the 1950s, Taiwan has been an authoritarian state, created in the
midst of social upheaval, political trauma, and economic depression, in
governing the indigenous Taiwanese populace and immigrant mainlanders
without firm basis of the will of the people. The Taiwan government ruled by
inciting people’s nationalistic yearning or collective solidarity and appeal to
1 3 6 Hagee, John, Beginning of the End, 1996.
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their communitarian-self oriented cultural features of obeying paternalistic
authority and emphasizing discipline.
Most importantly, the Taiwan government aimed at economic
development to bring wealth and strength to both state and people as their
imminent and long-term noble goal. Had the authoritarian government failed
or unsatisfactorily achieved this developmental goal, the people could have
risen to overthrow it. The government’s defense of nondemocracy is its
economic take-off that attracted such admiration. In Taiwan’s situation,
following the economic success, people start thinking it would be formidable
indeed if Taiwan could match its economic story with a similar achievement
in its democracy in political arena. The authoritarian developmental state
has completed its task and it was time for its fading out in the course of
history.
In the mid eighties and nineties, Taiwan people’s confidence generated
from economic prosperity, widespread education and influence of world
system made them embrace change and demand more political participation.
People aspire to the general idea of democracy. Western liberal democracy
appears to be one popular variant and model of democracy. In this view, in a
political system the government is said to be democratic if its decision will
serve the true interest of the people and government officials are
accountable to the people. Plurality, the autonomy of human being, free
discussion of different views are inherent values in democracy.
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It is not easy to grasp what is a full-fledge or absolute democracy,
considering the diverse histories, values and problems of different countries.
Instead, it is possible to say a government is not democratic enough when a
government deviates to a certain degree from above-mentioned criteria.
The island state Taiwan has politically entered into quasi-authoritarian
and quasi-democratic stage. On the one hand, President Li has disabused
the notion that Taiwanese people are incapable of greater control of their
future and to allow Taiwan to march on the road of democracy. Political
parties and civil organizations thrived and mushroomed. He still flourished
his predecessors’ (two Jiangs) capes in guiding Taiwan’s democracy through
National Development Conference. His subjective will influences constitution
amending and the shape of a strong presidential system.
On the other hand, despite the fact that frequent elections and
democratization keep moving forward, the KMT wanting to secure its ruling
position has nominated inappropriate candidates through administrative
maneuver. The overlapping function of the Legislative Yuan and National
Assembly and the large number of the two central level representatives also
distracts from the luster of democracy. Lack of party integration is another
problem for Taiwan’s democracy. This phenomenon exists in local and
central level elections.
With the announcement of former Provincial Governor Chu-Yu Sung’s
candidacy, in year 2000’s presidential election, he will run against current
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Vice-president Zhan Lian. The other two powerful candidates are Shui-Bian
Chen, the official nominee of DPP, and former chairman of DPP now
independent candidate Xin-Liang Xu. Both KMT and DPP cannot mend the
rift. Song proposed earlier to conduct an intra-party primary in which the
winner would be decided by direct voting by KMT members. KMT rejected it
and argued that such practice of party democracy would be cumbersome
and disruptive for a party like KMT with so many members. Sung’s
participation in the presidential fray divided KMT Liang’s share of votes and
benefited DPP’s candidates.
In addition, Taiwan’s democracy is also constrained by the strong
neighbor China factor. In the ancient Book of Mencius is recorded Emperor
Hsuan of Tsi State as asking: “Is there a way to make contacts with a
neighboring state?” To this Mencius responds: “Yes, only the benevolent can
serve a smaller state, just as the Emperor of Wen serves Kunyi. Only the
wise can serve the big, just as you, Sire, serve Hsun Mi and Emperor Kou-
Chien serves Emperor of Wu. The big serving the small are the happy-go-
lucky. The small serving the big are the intimidated. The happy-go-lucky
keep the entire China; the intimidated keep their own state.” Here Mencius
emphasizes two words, namely, “benevolence” and “wisdom.” A big country
should treat a small one with broad-mindedness, but not take advantage of it
or make unlimited demands; a small country should deal with a big one with
agility and tact, not rashness, or it could be causing disaster. The Mainland
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government deems the “one country, two systems” Taiwan policy to be the
realization of the way the big should serve the small one.
In Taiwan, the DPP has the ability to be the majority party in local politics
but moderate and worried voters seemed determined to avoid any candidate
who strayed from the middle in Taiwan-China policies. We’ve had enough
empty war of words in confronting these issues. While Taiwan’s President Li
Deng-Hui articulates his stance that China and Taiwan deal with each other
as equal “states”, the U.S. reiterate its one-China policy and complained that
Li had not done enough to ease tensions.1 3 7 Taiwan authorities abrupt and
bold positions do not concur with majority Taiwan people’s carefulness. The
reality of Taiwan’s needing China to invigorate sagging economy and
people’s yearn for social and political stability will continue.
Politics affects economics. Views about how political life should be
carried out will apply to economic life, though with some important
differences. In the process of democratization, different political parties have
quite strong consensus to liberalize domestic economy and strengthen
market function, and view economic liberalization as a way of accelerating
and consolidating democracy. Listing the liberalization measures in different
economic activities in Appendix, we also use the privatization of state
enterprises as a major indicator in demonstrating how the state plays the
shrinking government role in economy.
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However, the insatiate demand and grant of social security from ail the
major political parties contradicts with the self-reliant economic liberalization
mentality. Free market promotes the growth of private sector and its
expansion without government hindrance. Competition and rational business
practices are encouraged. Quotas and high tariffs are omitted. The energy,
resilience, and talent of the Taiwanese people are released. In this sense,
they expect the government plays the minimum neo-classical regulatory role
in economy, namely, the government is to stipulate regulations to facilitate
the function of the market.
However, it seems that Taiwan political parties’ policies all carry a mixture
of conservatism and liberalism. They all propose social security in line with
economic liberalization. Social security has positive meaning. If offering to
more than deserved socially weak groups with an aim to exchange votes with
bills is a phenomenon of immature or quasi democracy.
In the recently passed budgets covering the second half of fiscal 1999
and all of the fiscal 2000 social welfare accounts for 16.4% of the budget,
more than for culture and education (16.1%), defense (15.8%) and economic
development (15.7%). Taiwan is well ahead of nearby countries like
Singapore (which spent only 2% of its GNP on social welfare in 1995) and
Korea (2.6%).1 3 8 This reliance on government mentality is inconsistent with
1 3 7 Butler, Steven, “Why Beijing’s Grumpy Old Men Are So Grumpy,” U.S.
News and World Report, Aug. 9,1999: pp. 31-32.
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government’s regulatory role and appears to be an paradox in domestic
economy.
In addition, compared with setting standards for domestic economic
liberalization, setting standards for the relationships between Taiwan and
China is a far more negative process. It is a paradox in external economy.
Taiwan businessmen have courage and show gumption in launching
enterprises in China. When forming the economic relationships, especially in
terms of trade and investment, between the two sides of Taiwan Strait,
Taiwan authority tends to do something restrictive by impacting the economy
with political means. Newly elected Chen Sui-Bian’s wanting to have direct
interactions between the two coasts of Taiwan Strait so far is refused by
China. Without announcing and agreeing the “One China” policy and Taiwan
being part of China, China regards his ‘Two Coast” interactions proposal as
‘Two-State.” It is a reflection of Taiwan’s quasi-democracy.
On the other hand, what is abstractly and invisibly embedded in people’s
mind will influence and be influenced by outside factors. Economic liberalism
and political democratization are exerting tremendous impact on the
intervening culture element. Previous communitarian culture trait has
gradually shifted toward individual self side.
Economically, people have to reengineer their psychology, cannot rely on
the iron rice bowl system and need to believe in themselves and be
1 3 8 Guanghua ( Sinorama), August 1999, p. 101.
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responsible for their own actions and well-being. Politically, the era of man
made god is over. People preoccupied with their rights have to seek their
own value.
The findings published in 1995 of Taiwan’s largest-scale research project
- a survey jointly conducted by a number of Taiwanese social scientists over
ten years titled “Social Change in Taiwan: A Basic Survey” indicate that, on
the basis of the five years’ interval survey, the comparison between the first
and second batch of data confirms a striking change in both social structure
and values following the tremendous structural change in Taiwan’s politics
and economy.1 3 9
In family structure, however, as pointed out in “Change in the Concept of
Filial Piety,” the Taiwanese remain habitually committed to “hastening home
for their parents’ funeral,” “grateful to their parents,” “treating their parents
well even if the latter are not nice to them,” and “seeing to their parents’
comfort in life.” Concepts such as “saying nice things for the sake of one’s
parents reputation” and ’’bringing honor to one’s ancestor’s” receive only
lukewarm support. In addition, they begin to disregard concepts such as
“living with parents after marriage,” “restraining oneself to obey one’s
parents,” and “carrying on the ancestral line.” The report points out that,
among all traditional concepts, whereas such filial piety concepts as based
on parent-child emotion can last. Concepts based on non-emotional role-
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playing factors are subject to a decrease in importance given external
influence. “Carrying on the ancestral line” and “suppressing oneself to obey
one’s parents”, for instance, belong to this category. More individualism
gives themselves more room to develop themselves, but overall speaking, it
is not the extreme individualism.
In summation, Taiwan is evolving. It is moving toward democracy though
still limited, it is marching toward economic liberalization, though with
constrains and paradox. Concurrently, people need to live on with lost and
found identity. And its relations with China appear to be the biggest event in
the coming years. All the transitions open a new page for East Asia study.
All the change of Taiwan needs to be observed continuously.
1 3 9 “ Social Change in Taiwan: Basic survey, ” Academia Sinica, Spring,
1995.
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Asset Metadata

Creator Wang, Tai-Jane (author)

Core Title The transformation of Taiwanese political economy since the mid -1980's: From authoritarian to quasi -democratic state

Degree Doctor of Philosophy

Degree Program Political Economy and Public Policy

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, General,history, Asia, Australia and Oceania,OAI-PMH Harvest,political science, general

Language English

Contributor Digitized by ProQuest (provenance)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c16-113020

Unique identifier UC11339146

Identifier 3027795.pdf (filename),usctheses-c16-113020 (legacy record id)

Legacy Identifier 3027795.pdf

Dmrecord 113020

Document Type Dissertation

Rights Wang, Tai-Jane

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA