Comparison of Mainland China and Taiwan

Similar pattern, different timing?

Comparison

• area– mainland: 9,596,960 km2

– Taiwan: 35,980 km2

• population– mainland: 1.35 billion– Taiwan: 23 million

Political similarities

• Chinese Communist Party (CCP)– Marxism-Leninism and Mao Zedong Thought– “Deng Xiaoping Theory”– “Three Represents”

• Nationalist Party (KMT or GMD)– the “three principles of the people”

• both CCP & KMT borrowed party-building principles from Soviet Union in 1920s

Political similarities

• Leninist party-state in mainland and Taiwan– political liberalization in Taiwan since 1980s

• organizational principles of party-state– party as the guardian of the people– strict party hierarchy and discipline

• no organized opposition to party leadership is allowed

Comparison

• P.P.P. GDP (2004-2014)– mainland

• $7 trillion to $18 trillion– Taiwan: $0.6-1.1 trillion

• trade volume (2004-2014)– mainland

• $1.1 trillion to $4.3 trillion– Taiwan: $0.3-0.6 trillion

Time-lagged development

• Land reform– Taiwan (1950s) and mainland (1970s)

• economic takeoff– Taiwan (1950s- ) and mainland (1980s- )

• tariff rebates– Taiwan (1950s- ) and mainland (1980s- )

• special economic zones– Taiwan (1960s- ) and mainland (1980s- )

Time-lagged development

• Promotion of small and medium size enterprises– Taiwan (1960s- ) and mainland (1980s- )

• depreciation of currency exchange rate• differences

– decentralization in mainland (1980s- )– foreign direct investment in mainland (1980s- )

• significantly contributed to export upgrading• technology-oriented selection criteria (1995- )

Taiwan's Currency Exchange Rate (per US$)

0

5

10

15

20

25

30

35

40

45

1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974

Taiwan & Mainland's GDP Growth Rate

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

Taiwan's GDP Structure 1984-2002

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

service

industry

agriculture

Export dynamics

• Continuous upgrading in the structure of exports– inclusion of more sophisticated commodities– development of new markets– growth in export volume

• structural changes cause the growth in export volume

Evidence from Taiwan

Taiwan’s export upgrading

• 1940s: agricultural exports– import manufactured consumer goods

• 1950s: import substitution growth– export of processed agricultural commodities– import decreasing share of manufactured

consumer goods• 1960s: export diversification growth

– export of processed agricultural and industrial commodities

Taiwan’s export upgrading

• 1960s: export diversification growth– import food, manufactured consumer goods

and producer goods• 1970s: import & export substitution growth

– increasingly sophisticated commodities• after 1986

– exports of labor-intensive goods decrease– exports of hi-tech products increase

Evidence from mainland

Mainland’s export upgrading

• Before 1978:– emphasis on self-reliance and inward-looking– trade based on self-sufficiency

• 1978-1985– increased exports of petroleum & raw materials

• 1985-1995: “export substitution” growth– export of labor-intensive manufactured

consumer commodities

Mainland’s export upgrading

• after 1995: further diversification– attempt to export more sophisticated

commodities• exports of hi-tech product

– total US$661 billion in 2014– 28% of total exports from mainland– 73% are exported by foreign-invested

enterprises– less innovation-driven than in Taiwan

Market share development

• Flying-geese model– more advanced economies lose comparative

advantages in labor-intensive industries– movement of industries through foreign direct

investment– does not seem to hold true for manufactured

commodities that require• high research and development (R&D) expenditure• rapid product and process innovation

Export of office machinery

• Can’t be explained by flying-geese model• Taiwan became major developer,

producer, and exporter• special case

– 1 category– 8 years