Libmonster ID: VN-1216

M. L. Gorbunova

Doctor of Economics


Lobachevsky National Research Nizhny Novgorod State University

Keywords: Taiwan's economic development, "Asian tigers", China's special administrative regions, Taiwan's foreign trade, "strategic triangle": USA-China-Japan

The study of the economy of Taiwan (Republic of China) is of research interest, primarily because of the peculiarity of its economic model combined with the uncertainty of its international legal status.

Being one of the four "Asian tigers" along with Singapore, Hong Kong and South Korea, Taiwan, as a result of an active interventionist policy focused on the production and export of high-tech products, reached a leading position in Asia by the end of the XX century, second only to Japan in terms of development.

The functioning of Taiwan's economic system is currently conditioned not only by the internal development of the island, but also by a combination of geopolitical forces: the increased integrated power of the People's Republic of China, a new round of US activism in Asia, the aggravation of military and political tensions in the East and South China Seas region1, and the actualization of Japan's role as a key Washington's military ally. The current status of the island administration - non - diplomatic recognition as a legitimate State in the international arena 2-has an impact on Taiwan's development and foreign economic relations.

The People's Republic of China and the Republic of China do not recognize each other's sovereignty. The leadership of mainland China, after receiving the island's seat in the UN in 1971, successfully implements a diplomatic blockade of Taiwan, not allowing its independent representation in any international organizations and agreements. From the UN point of view, Taiwan is an administrative unit of the People's Republic of China, which deprives it of the prospects of participating in newly created regional integration associations in Asia. Thus, the formal subordination to China creates problems for the full-scale development of the island's foreign economic relations. At the same time, the dynamic development and unlimited opportunities of the Chinese domestic market create prerequisites for successful and effective cooperation between the island and the mainland.


Unlike mainland China, the island's political system is multi-party. It involves electoral competition between the mainland - oriented "blue coalition" parties led by the Chinese National People's Party (Kuomintang) and the "green coalition" formed around the Democratic Progressive Party (DPP), which emerged in 1986 and called for the proclamation of Taiwan as an independent state.3

By the early 1990s, the Kuomintang leadership, for objective reasons, abandoned its claims to sovereignty over the territories ruled by the PRC, and the island began to develop an ideology of"Taiwanization". Its foundations were laid during the tenure of the first popularly elected President of the Republic of China, representative of the Kuomintang Li Denghui in 1988-2000. After retiring, he left the party and founded the Taiwan Solidarity Union, now part of the Green Coalition. The focus on independence intensified in 2000-2008, when the country was led by DPP leader Chen Shui-bian, who won two consecutive presidential elections in 2000 and 2004.

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The stay in power from 1988 to 2008 of the forces that sought the island's independence was accompanied by tension in relations with the mainland, with the threat of turning into a military confrontation due to the fact that the reunification of the nation (incorporation of Taiwan) is a key foreign policy task of the PRC. During such periods, ties with the United States and Japan, the guarantors of its independence, are strengthened.

The return of the Kuomintang to power in Taiwan in 2008 as a result of Ma Ying-jeou's victory in the presidential election, on the one hand, and the consequences of the global financial and economic crisis, on the other, created prerequisites for reorienting the island's foreign economic strategy from the United States and Japan to the culturally and geographically close, dynamically developing mainland China.

In particular, in 2008, after a 9-year break, the dialogue between the semi-official intermediary organizations of the two sides of the Taiwan Strait was resumed: the Association for the Development of Relations between the Shores of the Taiwan Strait and the Taiwan Strait Exchange Fund, as a result of which 6 agreements were signed: on charter flights through the Taiwan Strait, tourist trips to Taiwan by residents of the mainland China, direct air and sea service, postal cooperation and food safety 4.

Due to Taiwan's inability to conclude its own free trade agreements with other countries, Ma Ying-jeou in 2008 proposed to the leadership of mainland China to conclude an "Economic Cooperation Framework Agreement", which was approved by then-President Hu Jintao, signed in June 2010 and entered into force in January 2011.5 At the same time, Ma Ying-jeou has repeatedly stated that the Taiwanese administration is focused on peaceful cooperation and a diplomatic truce with the PRC and will not enter into unification negotiations, emphasizing the business nature of relations.6

According to Taiwanese researchers P. Chu and T. Kong, the undemocratic, closed procedure of negotiations between the two governments and the ratification of the agreement suggests that it is inconsistent with Taiwan's interests and means the end of the island's economic resistance.7 British researcher C. Gray believes that the political impact of the agreement is twofold: it simultaneously strengthens and threatens the stability of relations on both sides of the Strait.8

Early Harvest, the first phase of the Framework Agreement program, provided more preferences to Taiwan: mainland concessions on imports of Taiwanese goods covered 539 commodity items, which in value terms amounted to $13.8 billion. And on the Taiwanese side, the reduction of duties concerned 267 items for goods supplied from the mainland, which amounted to $2.8 billion.9 However, during this stage of the program (2011-2015), the island's trade surplus with the mainland decreased by $13.4 billion, which, according to the authors ' calculations, led to a 2.55% decrease in the island's GDP.

Thus, despite the fact that, according to many observations10, China in the agreement with Taiwan pursued more political than economic goals related to accelerating Taiwan's incorporation, the results rather indicate its negative impact on the island's competitiveness in trade with the mainland, which, however, is typical for the United States. most of China's agreements on trade preferences with Asian countries 11.

Taiwan-US relations are of key importance for the island, with the "Taiwan problem"being a means of mutual manipulation by the PRC and the US12. In the period studied by the authors (2000-2015), the erosion of political ties between Taiwan and the United States was observed. 2000-2008 (years of two terms of the radical Democratic Progressive Party) The US has repeatedly questioned its support for Taipei, showing respect for the PRC's position.13

The trend continued in 2008-2016 under the political leadership of the Kuomintang, when the number and level of bilateral contacts between high-ranking officials of the United States and Taiwan decreased amid increased interaction with the mainland. 14 It was only at the end of 2015, on the eve of the presidential elections of the Republic of China in January 2016, in anticipation of a change in the ruling party on the island, that During the four years of Barack Obama's second term, the US Congress approved $1.83 billion worth of arms supplies to Taiwan.15

Economically, Taiwan has historically been closely linked to the United States: the development of an independent state and its industrialization relied on financial assistance and access to the American domestic market16. At the same time, it is significant that in the face of a negative balance in trade with East Asia, Washington forced Taiwan to liberalize its economy and improved its performance in trade with the island.17

Japan's influence on Taiwan's political and economic life is also great. As Ma Ying-jeou pointed out in his inaugural address at the beginning of his second term, Japan is "the most friendly state to Taiwan."18 The Taiwan issue affects relations between Japan and China: by strengthening its policy of reunification with Taiwan, the PRC seeks diplomatic support from Tokyo, 19 while Japan is interested in preserving Taiwan's independence.

The economic aspect of Japan-Taiwan ties is determined by the fact that the overall integration and

page 42

The intensification of economic ties between the mainland and the island contradicts the interests of Japan, primarily from the point of view of ensuring navigation in the Taiwan Strait. Therefore, Japan, in order to maintain the status quo in relations on both sides of the strait, seeks to expand and strengthen trade and investment cooperation with the island in every possible way, reducing its dependence on the mainland. 20 With a positive trade surplus with Taiwan and thus a negative contribution to its GDP, Japan managed to reduce this imbalance by $14.54 billion in 2011-2015, adding 2.77% to the island's GDP.21

Thus, the internal and external economic development of Taiwan depends on the party affiliation of its leadership, which determines the content of the island's foreign policy relations with China, the United States and Japan - the countries of the so-called "strategic triangle". Among them, only the PRC can build formal relations with the island, which was reflected in the conclusion of the "Framework Agreement on Economic Cooperation" mentioned above, while the United States and Japan interact with Taiwan on an informal basis, maintaining a balance between economic feasibility and security interests in the region.

The current status of Taiwan can be preserved for a long time, because, on the one hand, it is supported by the "Law on Countering State Division" adopted in 2005 by the PRC, which directly implies rejection of any referendum on Taiwan's independence, the idea of which was put forward by the DPP. On the other hand, under the Taiwan Relations Act of 1979, the United States can provide Taiwan with any military assistance it deems necessary.22

It seems that the political situation on the island creates uncertainty regarding the further development of events around the international situation and Taiwan's foreign relations due to the return, after an 8-year hiatus, of the Democratic Progressive Party to the leadership of the Republic of China as a result of its victory in the 2016 presidential election. Tsai Ing-wen, the first female chief executive in the island's history.


Taiwan is one of the most advanced economies in Asia. The main features of the Taiwanese development model are: 1) high living standards of the population, ensuring the consolidation of various strata of society and the activation of its creative potential; 2) development of education and science (technocratic model) in order to ensure the production of modern high - tech products-the main export item of the country; 3) creation of an effective decision-making mechanism in relation to the specific situation on the island and global market trends 23.

China's desire to" reunify the nation " runs counter to the autonomy and uniqueness of Taiwan's economic system. Hypothetically, due to the growing foreign policy dependence on the mainland, Taiwan's GDP growth rates should correlate with the production dynamics of the PRC and its special administrative regions-Macau and Hong Kong, losing touch with the indicators of other "Asian tigers", as well as with the GDP dynamics of Taiwan's traditional economic partners - the United States and Japan.

However, the authors 'analysis of GDP changes in all these countries and territories showed that the island's economic growth rates are most consistent with the dynamics of other "Asian tigers" (see graph. 1), showing a smaller correlation with the pace of development of China and its special administrative regions. Thus, according to the authors, it is premature-

Graph 1. Dynamics of nominal GDP growth rates of the four "Asian tigers", %.

Источник: World Bank, National Statistical Bureau (Republic of China).

page 43

Graph 2. GDP per capita of the four "Asian tigers" ($).

Source: World Bank...

but we can talk about the significant dependence of the island's economy on the dynamics of the situation on the mainland, despite the changes in political relations between the shores of the Taiwan Strait.

Analysis of changes in GDP per capita of the four "Asian tigers" (see graph. 2) shows that China's impact on living standards in the

Hong Kong and Taiwan, which are administratively dependent on Beijing, are rather negative. After the transition to Chinese sovereignty, Hong Kong began to lag behind Singapore, while Taiwan, after the conclusion of the "Framework Agreement on Economic Cooperation", began to give way to South Korea. Although this second trend is not stable, and, most likely, the influence of the PRC is not the only factor determining this trend.

Turning to the analysis of Taiwan's foreign economic relations with the countries of the "strategic triangle", it is necessary to check the following facts. First, the change in separatist and pro-Chinese sentiments in the leadership of the Republic of China should affect the island's trade and investment ties with China, the United States and Japan. Secondly, the role of the dynamically growing mainland China should steadily increase, with the exception of the period when Chen Shui - bian, a representative of the forces focused on the island's independence, first of all, from the PRC, served as president in 2000-2008. Third, the share of the United States and Japan in foreign trade turnover and investment attraction should show the opposite trend-to decrease, except for 2000 - 2008, when this process should be slowed down or inverted. Fourth, with the return of the Chinese-oriented Kuomintang to a leading position in the country's political system in 2008, economic ties between the mainland and the island should increase at a faster pace, to the detriment of relations with the United States and Japan.

Analysis of real trends in Taiwan's foreign trade turnover in 2001-2015 (see graph. 3) shows a steady decline (after pre-crisis growth) in the share of Japan, a generally stable position of the United States and the dominance of the PRC, which began to decline in 2011, which, according to the authors, is due to the entry into force of the "Framework Agreement".

Thus, there is no connection with politics, except for a decrease in Japan's share in the island's foreign trade turnover, however, as noted above, due to Taiwan's negative trade balance with Japan, the reduction in trade turnover is favorable for the island's GDP dynamics.

The results of the study are consistent with me-

Figure 3. Taiwan's foreign trade turnover with the United States, China, and Japan ($ million).

Source: Bureau of Foreign Trade Taiwan.

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Figure 4. Foreign investment inflows to Taiwan from the United States, China, Hong Kong, and Japan ($ million).

Source: UNCTAD.

According to V. I. Balakin, a leading researcher at the Institute of International Relations of the Russian Academy of Sciences, 24 who believes that business relations between countries are determined by the fact that Taiwan is interested in China as a partner that provides a more stable base for economic growth compared to the United States. However, it should be noted that the role of foreign trade in the island's economy is decreasing. A comparison of data from the National Bureau of Statistics and the Taiwan Foreign Trade Bureau, conducted by the authors, showed that, first, changes in GDP and its component - net exports - are in opposite phases, and the rate of change in net exports is higher (the twofold increase in the indicator observed in 2001 and 2009 is indicative in this sense) than fluctuations in GDP and its component-net exports GDP that does not exceed the 20% threshold. Thus, the influence of the world's leading countries on Taiwan's economy by maintaining a certain level of trade balance with the island is currently limited.

Analysis of bilateral investment flows (see graph. 4), first of all, shows their greater volatility in comparison with the dynamics of foreign trade indicators, which is typical for foreign capital investments, the value of which varies depending on investors ' perception of political risks. Second, the investment dynamics of the "strategic triangle" countries - the United States, Japan, and China* - reflect changes in the island's political leadership to a greater extent than foreign trade.

During the period of" separatism " (2000 - 2008), financial flows from the United States and Japan showed rather positive dynamics, but significantly decreased after Ma Ying-jeou came to power, focused on intensifying business ties with the mainland. It should be noted that such a drop in investment from abroad can also be explained by the global financial and economic crisis, in which the world leaders under consideration were the most affected.

* * *

The study of the economic model of Taiwan allows us to draw the following conclusions.

First, Taiwan's economic development is determined by the quality of its relations with China. In particular, according to the authors ' estimates, despite the implementation of the first stage of the "Framework Agreement on Economic Cooperation", according to which a larger range of preferences was granted to the island, Taiwan's net exports to China since 2010 decreased by 2.55% of nominal GDP, while this" contribution " to the decline in GDP in the period under review was compensated a comparable decline in the negative trade balance with Japan.

Secondly, the island's economic system retains a significant level of independence. In particular, Taiwan's GDP dynamics are more consistent with those of the Asian tigers, rather than China and its special administrative regions. The authors revealed the fact of the ambiguous influence of the PRC on the development of Hong Kong and Taiwan, since in the period under review, the former began to lose in the level of well - being to Singapore, and the latter to South Korea.

Third, it should be noted that, despite its problematic international status, Taiwan's economy is developing along the lines of developed countries and has already acquired post-industrial features. According to the authors, its dependence on production and commodity exports is decreasing, which is confirmed by the multidirectional dynamics of GDP and net export growth rates. At the same time, the role of the PRC in Taiwan's trade turnover is difficult to oppose, since the factors of strengthening the role of the mainland, in addition to its strategy of rapprochement with the island, are its close geographical location and increasing its share in the global economy.

Fourth, the study showed that the dynamics of foreign investment inflows to Taiwan demonstrates a greater sensitivity to the situation in China.-

* Due to restrictions on the export of capital from the mainland, it is necessary to take into account the inflow of foreign investment not only from the PRC, but also from Hong Kong.

page 45

relative to the political situation of the island in comparison with trade relations. The peak of investment inflows from the United States is indicative of the 2008 elections, when the leadership of the island returned to the Kuomintang. The role of the PRC and Hong Kong, which is separately taken into account in international statistics, in Taiwan's economy is still modest: the level of economic development and restrictions on foreign investment prevent mainland businesses from playing a large role in the island's financial system.

Entry May 16, 2016 Tsai Ing-wen, representing the independence-oriented Democratic Progressive Party, as President of the Republic of China for the first time, according to the authors, will have little impact on the island's foreign policy relations. During the election campaign, the new leader focused on interventionist social policies in order to attract the electorate with low and middle incomes, so in the near future, the cabinet formed by Tsai Ing-wen will focus on the domestic political agenda, which seems justified against the background of reducing the influence of the external sector on the dynamics of the country's development.

At the same time, despite the fact that the PRC is striving for further peaceful incorporation of Taiwan and more effective positioning itself as the leader of the East Asian region, the authors believe that the revealed reduction in Taiwan's competitiveness in comparison with China, the growing economic influence of Japan on the island, is likely to make it difficult to maintain stable relations between the two.

1 For more information, see: Lokshin G. M. South China Sea: Islands of Discord / / Asia and Africa Today. 2015. N 9. (Lokshin G.M. 2015. Yuzho-Kitaiskoe more... // Aziya i Afrika segodnya. N 9) (in Russian)

Rich T. 2 Status for sale: Taiwan and the competition for diplomatic recognition // Issues and Studies. 2009. Vol. 45(4), p. 159 - 188.

Denisov I. E. 3 the evolution of the Taiwan factor in relations between China and the USA in the medium term (Military-political and economic aspects) // Yearbook of the Institute of international studies, MGIMO (U) of the MFA of Russia. 2013. N 3, pp. 189-201.

4. Leksyutina Ya. V. 4 Politika SSHA v otnosheniyu k Taiwanyu v kontekste amerikano-kitayskikh otnosheniy v nachale XXI V. [US policy towards Taiwan in the context of American-Chinese Relations at the beginning of the XXI century]. 2009. N 1, pp. 197-220. M.I., Tan A.C. 5 Crouching tiger, lurking dragon: understanding Taiwan's sovereignty and trade linkages in the twenty-first century // International Relations of the Asia-Pacific. 2015. Vol. 15, p. 81 - 112.

6 // Territory of new opportunities. Bulletin of the Vladivostok State University of Economics and Service. 2010, No. 3, pp. 144-148.

Chow P. 7 The ECFA, its impact on cross-strait relations, and implications for the United States' // P. Chow (ed.), National Identity and Economic Interests. New York: Palgrave MacMillan, 2012, p. 67 - 92; Hong T. The ECFA: a pending trade agreement? // P. Chow (ed.).., p. 39 - 66.

Gray K. 8 Taiwan and the geopolitics of late development // The Pacific Review. 2011. Vol. 24 (5), p. 577 - 599.

Brown D.G. 9 China-Taiwan Relations: Economic Cooperation Framework Agreement Signed // Comparative Connections. 2010. 12 - 2 (July 2010) -

Rosen D.H., Wang Z. 10 The Implications of China-Taiwan Economic Liberalization. Washington, D.C.: Peterson Institute for International Economics, 2011.

Holslag J. 11 China's Coming War with Asia / J.Holslag. Hoboken.NJ: Wiley, 2015.

American vector of China's foreign policy at the turn of the XX-XXI centuries. (based on the materials of Internet resources) // Uchenye zapiski Komsomolskogo-na-Amure GTU. 2011. Vol. 2. N 6. pp. 9-13. (Petrunina Zh. V. 2011. Amerikansky vektor vneshnei politiki KNR na rubezhe XX-XXI vv. / / Uchenye zapiski Komsomolskogo-na-Amure GTU. Vol. 2, N 6) (in Russian)

Leksyutina Ya. V. 13 Edict. op.

Voitenko E. M., Leksyutina Ya. V. 14 Taiwan between China and America / / Russia in Global Politics. 2011. Т. 9. N 1. С. 111 - 120. (Voitenko E.M., Leksyutina Ya.V. 2011. Taiwan mezhdu Kitaem i Amerikoi // Rossiya v globalnoi politike. Vol. 9, N 1) (in Russian)

Parameswaran P. 15 US Approves New Taiwan Arms Sale Package Worth $1.83 Billion // The Diplomat. 2015. December 17 - on/

Larin A. G. 16 Taiwanese modernization on the background of Russian and Chinese / / MEiMO. 2011. N 12. pp. 79-88.

Gray K. 17 Op. cit.

18 President Ma's Inaugural Address, 21 May 2012 -

Medvedeva T. I. 19 Japanese-Chinese relations in the context of American Interests in the Asia-Pacific region. 2014. N 16. pp. 62-68. (Medvedeva T. I. 2014. Yapono-kitaiskie otnosheniya v kontekste amerikanskikh interesov v ATR // Sibirskiy mezhdunarodnyi. N 16) (in Russian)

Matsumura M. 20 Japan's Policy Options for Taiwan // RIPS Policy Perspectives No. 8. June 2009. Research Institute for Peace and Security. Tokyo - %20Taiwan. pdf Gordeeva I. V. Japan-China-USA and the Taiwan problem / / Asia and Africa today. 2013. N 6. P. 2-7. (Gordeeva I. V. 2013. Yaponiya-KNR-SSHA i Taiwanskaya problema // Aziya i Afrika segodnya, N 6) (in Russian)

21 Authors ' calculations based on the data of the National Statistical Bureau (Republic of China), Bureau of Foreign Trade Taiwan.

Larin A. G. 22 Taiwan is a socio-economic, political, and ideological phenomenon.Istoriya i sovremennost ' [History and Modernity]. 2006. N 1, pp. 72-88.

Larin A. G. 23 2011. Edict op.

Balakin V. I. 24 Taiwan in the system of East Asian integration of the PRC / / China in World and Regional Politics. History and modernity. 2013. Vol. 18, No. 18, pp. 223-231.


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