Chapter 11   Economic Miracle

Currency and Land Reforms

         The Kuomintang regime, being called a "government in exile", had no other way but to swiftly maintain political stability and reconstruct economy in order to survive in Taiwan.  Therefore, while building up an authoritarian political system of one-party dictatorship on one hand, the regime rushed to rebuild the economy as top priority.  It was so-called "dictatorial development".  Not only the rebuilding or development was successful, but a "miraculous" economic growth has also been achieved to this date, and the "dictatorial development", now named as "Taiwan Experience", is being used as a model for developing countries.

         When the Kuomintang regime took over Taiwan, in addition to the administrator’s misgovernment, economic chaos worsened influenced by civil war between Kuomintang and the Communist.  It was not long before critical situation arrived.  Among the problems, multiplying inflation was the most dreadful: between 1945 and 1950, the prices rose as much as ten thousand times.  Citizen's lives were reduced to wretched poverty, and the situation was so bad that salaries were calculated at the beginning of each month to cope with accelerated inflation, but only to find fraction of its value remained at the end of the month.  The daily progressive inflation has confused the economic activities and driven the citizen's livelihood to difficulties mercilessly.  Besides, government officials, soldiers and their dependents, around 1.5 million in number, have moved into Taiwan, hence Taiwan's economy was further brought to bay by the sudden population increase.

        Beginning from February 1949, in order to prevent Chinese communists infiltration and control the population over-inflow, Garrison Command Headquarters blockaded all harbors and river mouth, brought shorelines under control, and denied entry into Taiwan without permit.  Moreover, on June 15, 1949, the Kuomintang regime cut off China and Taiwan currency relations, and took decisive action in issuing a new denomination of New Taiwan Dollar, which exchanged at one to 40,000 old Taiwan Dollars.  This forcible currency reform compelled Taiwanese people to make severe sacrifices, but it isolated the influence from China’s endless inflation, and was a necessary measure in stabilizing the Taiwan currency and economy.  In June 1950, at the outbreak of Korean War, when U.S. President Harry Truman declared "Neutralization of Taiwan Straits", Taiwan was completely separated from China.

        In April 1948, before moving to Taiwan, the Kuomintang regime carried out land reform in Taiwan, limiting rents on farmland to 37.5 percent of the value of crops.  It was done with the help from "United Committee of Chinese Rural Reconstruction" under the U.S. Aids program, and by the leadership of Wolf Rezinski from the U.S. State Department, who was appointed as an advisor.  The Farm Rent Reduction Policy reduced the rents that the tenant used to pay the landlord from 50% to 37.5%.

        Further, in June 1951, after moving to Taiwan, Kuomintang regime announced  "Regulations regarding disposition of public land", based on which, lands owned by Government or public industries were disposed to the farmers who actually tilled the lands.  The conditions for farmland disposition were: (1) Price of land set at 250 percent of the value of annual crops; (2) Price of land payable in a ten year installment plan; (3) Total annual repayment and rents limit to less than 37.5 percent of the annual crops.

        Later in January 1953, Kuomintang regime adopted the "Land for the Tiller” program, a second phase of land reform.  This "Land for the Tiller", means taking land away from landlords and giving it to tenants, was a revolutionary measure among the land reforms.  The method was: (1) Allow each landlord to retain three Jias (one Jia equals to approximately 9700 square feet) of rice field and six Jias of other tillable land; (2) Government purchases all lands, except lands retained by landlords, and distributes to tenant farmers; (3) Set land price at 2.5 times of annual crops, similar to the public land disposition; (4) Payment to the landlord is to be made 70 percent in bonds of rice or other crops on 10 year installment plan, and 30 percent in stocks of public industries; (5) Farmers, who become land-owners, to repay the Government in rice or other crops on ten year installment.

       "375 Farm Rent Reduction", "Public Land Disposition", and "Land for the Tiller" programs were land reforms that needed no funding.  Kuomintang regime was able to carry out these reforms with little or no resistance from the landlords, because after "Feb. 28 Incident”, the authoritarian rule was nearly perfected.  In other words, the landlord’s lips were "sealed up with guns".  Moreover, the public lands for "disposition" and the stocks of public enterprises that had been paid to the landlords were all "enemy properties" taken over from the Japanese.

       The land reform that “needs no funding” had made a great contribution to the stability of Kuomintang regime and economic reconstruction.  Politically it resulted in: (1) Conciliating public feeling (in the aftermath of Feb.28 Incident) by turning tenant farmers into land owners; (2) Weakening the resistance of dissidents by degenerating the economic strength of intellectuals who were mostly landlord class; (3) Securing staple food for government officials and soldiers with rice and crops that farmers paid for land.  Economically there were the following effects: (1) By jacking up the prices 9 times, reducing the value to one ninth in substance, the stocks and capitals of the government enterprises, namely Taiwan Cement, Taiwan Paper & Pulp, Taiwan Mining & Engineering, Taiwan Forest & Agriculture, which were paid to the landlords for compensation, enabled these enterprises to retain enough stocks in securing management control; (2) By transforming the landlords (agricultural capitalists) into industrial capitalists, helped promoting industrialization; (3) By improving purchasing power of the farmers, activated consumer economy.

Exploitation of Farmers

       While doing a favor to the farmers with land reforms, Kuomintang regime also exploited the farmers.  In October 1947, Food Bureau and Food Corporation of the former Colonial Government were merged as "Taiwan Provincial Food Bureau".  In order to secure provisions for government officials and soldiers, including their dependents, and at the same time, shift the losses from inflation to the farmers, land tax was paid in kind.  At that time, 8.5 kilograms of paddy was converted to one Taiwan dollar.  Furthermore, starting from July 1947, the government began compulsory buying at about half of the market price.

       In September 1948, a system of bartering chemical fertilizer for rice crop was introduced.  Chemical fertilizer, either from monopolized production by the government-owned Taiwan Fertilizer Corporation or imported by Central Trust of China under Administrative Yuan, was bartered with the farmers for rice at the ratio of one to one.  For example, in 1952 the price of rice was l.9 yen per kilogram whereas the price of chemical fertilizer was 0.9 yen.  Farmers suffered great losses from the exchanges; it was near plunder.  Later the difference was magnified further; by 1960, the price of chemical fertilizer was 1.5 yen as compared to rice for 4.1 yen.

       Since the Dutch Era, Taiwan has been a well-known sugar exporter.  After taking control of Taiwan, Kuomintang regime took over the Japanese Sugar Manufacturing Company and turned it into government owned Taiwan Sugar Corporation.  Moreover, through this Corporation, the sugar cane growers were exploited on the pretext of "Sugar Dividing System".  Taiwan Sugar Corporation, monopolizing sugar cane processing, took 50% of sugar products as processing fees, and charged additional 10% for harvesting, transportation, and interest on cash advance, etc., hence the sugar cane farmers actually only received 40% of the finished products.  Furthermore, under the pretext of unified management and sales, Taiwan Sugar Corporation forced the farmers to sell 20% of products back to them at a price much lower than international market price.  Therefore, what left for the sugar cane farmers to sell freely in the market were only 20% of the total production.  This was the actual condition of so-called "Sugar Diving System".

       Exploitation of the farmers as such, was like forcing them to spit out the benefits given to them in the land reforms.  After going through high degree of economic growth in the 1960's, and by early 1970's as industrialization was in progress and the economic gap between farm villages and cities was widening, the flux of excessive labor force from the farm villages to the cities had made the agricultural condition worse.  Partly because of this, the unequal bartering system of rice and fertilizer was abolished in 1973, and a minimum purchase price for rice was guaranteed.  Nevertheless, it did not stop the slacking of agriculture, and finally, a policy was put in place whereas rice as staple food was revised and rice production was reduced.

       In 1975, the population of Taiwan had already exceeded sixteen millions.  Encouraging crop conversion and reduced rice production under population increase also had something to do with the import of large quantity of wheat from America.  Since 1951, the United States has been providing military and economic aids to Taiwan, which included supply of wheat, America's surplus farm products.  Even after 1965, when the American aids were terminated, due to high production cost of rice and in order to balance the trade, Taiwan continued to import wheat from the U.S.  This had not only greatly influenced the rice producing agriculture in Taiwan, but also changed the eating habit of the Taiwanese, who began to love bread or "mantou", a Chinese-style steaming bread.

The Causes of Economic Development

       Immediately after the Kuomintang regime took over Taiwan from Japan and before the outbreak of Korean War, for a period of about five years, Taiwan economy was extremely chaotic.  However, since Taiwan Strait was "neutralized" because of Korean War, Taiwan's relationship with China was severed, and Taiwan was freed from the restraint of the impoverished Chinese economy.  That was how the Kuomintang regime has been able to look after the reconstruction of Taiwan economy, and later achieved "miraculous" economic developments, although there were other causes that made the economic achievements possible.

First of all, there were the futile lands and deligent residents:

       In the era of agriculture centered economy, Taiwan was blessed with futile lands and natural environments; just as it had been said: "one harvest is good enough for three year's livelihood".  Besides, the residents, who were mostly descendants of Chinese immigrants, had nothing but to depend upon their own efforts and abilities in order to survive in the new land, since there was no state or government to protect them.  This had brought up the hard-working and thrifty spirit.  In addition, the massacre and purge of "Feb. 28 Incident" led the Taiwanese away from politics and leant toward economy. As a result, Taiwanese economy is supported by the Taiwanese who operate medium and small-sized enterprises today.

There were also the "inheritances" succeeded from Japan:

     Though colonized by the Japanese for fifty years, Tawamt had accomplished "modernization under colonial rule".  After an inspection trip to Taiwan at the "Exposition Commemorating the 40th Anniversary of Japanese Rule over Taiwan" which was held in October 1935, a management group of Kuomintang's Amoy City and Fukien Provincial Governments praised highly on Taiwan situation in their "Inspection Report on Taiwan". The report, written by stern critics of Japanese imperialism, was worthy of notice as a testimony of "Taiwan's success in modernization under colonial rule".  At the time when Japan gave up, Taiwan was already at the doorstep of industrialized society, even though there had been some destructions from the bombings by Allied Forces during the Pacific War, the infrastructures construction, promotion of industrial developments and of education, etc. were unrivaled by any other developing countries which had also undergone colonial rules but became independent countries later.

U.S. aids and Japanese loans also provided great helps:

       The United States began its aids to Taiwan in 1951, giving an annual average of 100 million dollars equivalent in aids and continued for 15 year until 1965, totaling approximately 1.5 billion dollars.  As to the content of aids, more than half were military aids, and the rest were supply of surplus agricultural products, financial deficiency fill up, investment in industrial equipments and agricultural developments, etc.  Somewhat different from time to time, the U.S. aids roughly accounted for 5% of Taiwan's GNP, bringing a "blood transfusion" effect to Taiwan economy after the war.  Since the U.S. ended its aids in June 1965, Kuomintang regime had concluded an agreement with the Japanese Government for a loan of 150 million U.S. dollars.  Of the loans, 100 million U.S. dollars was provided by Japan Import-Export Bank at an interest rate of 5.7% per annum to be repaid in 15 years, and 50 million U.S. dollars was provided by Japan Overseas Economic Cooperative Funds at 3.5% rate with a term of 20 years.  These loans in yen were not comparable with the U.S. aids, but it made up for the suspended aids, and at the same time, resulted in the close cooperation between Taiwan and Japanese economies.

Kuomintang regime's crisis consciousness cannot be overlooked:

       After fleeing to Taiwan and having "their backs pushed to the wall", Kuomintang regime was desperately seeking survival measures.  Having been given up by the United States once, although Kuomintang regime regained U.S. military and economic aids after Korean War, there was no guarantee how long the aids will continue.  To cope with the threat from China, it was imperative to speed up political stability and economic development.  This was also necessary to maintain the fictions of "One and Only China" and "China's Legitimate Government".  The fact that crisis consciousness led to evil dictatorial government is undeniable, but it also prompted the economic development.  One of the most successful examples was the "Export Processing Zone", a deferred duty-processing zone, established in 1965.  Measures were taken inside Export Processing Zone to give favorable tax treatment, simplified administrative procedures, lighten foreign exchange restrictions and remittance guarantee, etc.  While goods were produced exclusively for export, it had contributed greatly in acquiring foreign currencies, increasing employment opportunities, introducing foreign capitals, transferring technologies, and fostering domestic industries.  Taiwan's Export Processing Zone has later become a model for many developing countries including China.

There was also considerable influence from the Cultural Revolution:

       Chinese Government (Communist regime), which watched vigilantly for a chance to "liberate Taiwan", was tossed back and forth by the storm of Cultural Revolution, the so-called "Ten Year Rebellion" since 1966, and did not have the time to worry about Taiwan.  Cultural Revolution enabled the Taiwanese as well as the Mainland Chinese in Taiwan to have better understanding of Chinese Communist regime.  Thus, it gave a great influence on Taiwan economy; not only a remarkable growth in economy was achieved, but improvement on infrastructures and the "Ten Great Constructions" of heavy industries also started in 1973.  In traffic and transport, there was Taipei International Airport expansion, construction of North-South Superhighway and electric double-tracked railways, seaports expansion in Taichung and Soo Au, etc.  For maintaining power generation, nuclear power plants were constructed, and for heavy industries centered in steel manufacturing, petrochemicals, and shipbuilding, a total sum of 5.8 billion U.S. dollars had been invested.  The propulsion of "Ten Great Constructions" was regarded as Kuomintang regime's determination to settle down and be engrossed in "rebuilding Taiwan".  In any case, the " Ten Great Constructions " had undeniably contributed to the growth of Taiwan economy later.

Introduction of foreign capitals was another important element:

       Investments from foreigners and Oversea Chinese had also contributed to the development of post-war Taiwanese economy.  Kuomintang regime enforced the "Regulations of Foreign Investment" in 1954, the "Regulations of Oversea Chinese Investment" in 1955, and the "Regulations for Encouraging Foreign Investments" in 1960, promoting the introduction of foreign capitals.  These regulations had guaranteed favorable treatments in taxes and in acquiring industrial lands, etc. for foreigner and Oversea Chinese investments, whereby the influx of foreign capitals had increased rapidly since 1960's.

       From 1952 to 1990, there were 3,587 cases of foreign investment amounting to US$1,129,780,000 and 2,187 cases of Oversea Chinese investment amounting to US$195,390,000, which totaled 5,774 cases of investments amounting to US$1,325,160,000.  Among the foreign investments, Japan stood first with 32.6%, followed by the U.S. 21.9%, European countries 13%, and Hong Kong 7.3%.  Generally, most of Japanese investments were joint ventures with the local industries, and the manufactured goods had been exported or sold in Taiwan.  As to the U.S. investments, almost none of them were joint venture, and all manufactured goods were exported to America.  The scale of Oversea Chinese investments was relatively small, centering in servicing businesses, and there was hardly any investment in high-tech industry.  The investments from Japan, Europe, and America resulted in an effect of technology transfer, while the Oversea Chinese capitals strengthened the competitiveness of Taiwanese businesses; both played the leading role of opening the oversea markets for Taiwanese products.

The Locus of Economical Development       

       Owing to the decisive monetary reform in new denomination, cutting off Taiwan's relation with China, the vicious inflation calmed down at last, and starting from 1952, under the U.S. Aids program, the first "Four Year Economic Plan" was launched.  As a result, agricultural production in 1950's recovered to the highest level of what was under the Japanese rule.  On industry, import-substitute industry centered in light industries got under way and prospered. 

       By 1960's, the growth of annual agricultural production remained at 4.6%, while the industrial production and export attained high growth rates of 15.9% and 22.9% respectively.  GNP was maintained as high as 9.2%, while inflation was held at low standard of 4.9%; so-called "high growth without inflation" has been achieved.  With this prosperity as background, by 1968 one million surplus labor from farm villages streamed into Export Processing Zones, whereby full employment was attained.  These low-wage but excellent labors contributed much to the development of labor-intensive export-processing industries and export of industrial products prospered rapidly.  At that time, electric appliances and electronic goods initiated by foreign capitals, and textile fabrics held the position of two major export product categories.  In general, industrialization and export prompted by foreign capitals, cheap labor and export ambition, Taiwan economy in1960's had gone through a transition from import-substitute industry to export-processing industry, whereupon high degree of economic growth was achieved.

       The economic development of 1970's was the extension of 1960's.  The "Ten Great Constructions" started in 1973, whereupon infrastructure expansion and construction of basic industries were continued.  Struck twice by oil crisis in 1973 and 1979, there was a big amplitude in economic growth.  However, the oil shocks exercised no severe influence to the growing economy of Taiwan, which imported oil and processed synthetic fiber and plastic products for export.  The reasons have been many: Taiwan's friendly relationship with the oil producing countries, especially Saudi Arabia, the merit from the high Japanese yen, and the blessing of "special procurement" for Vietnamese War which continued from the latter half of 1960's.  As a result, annual agricultural production was maintained at an average of 4.6% in 1970's, industrial production and export enjoyed high growth rates of 15.2% and 28.3% respectively.  On the other hand, while annual GNP growth averaged at 10.3%, inflation rate reached an annual average of 9.5%.  Overall, with the fruit of high growth in the 1960's, Taiwan was ready to switch over from export-intensive industries to heavy industries in 1970's.

       Even though lack of stability, the economic growth of 1980's was in growing pace.  The growth rate of 1979 was 8.5%, followed by a downward trend of 7.1% (1980), 5.8% (1981), 4.1%(1982), but owing to reduced oil price and revival of the U.S. market in 1983, the growth rate was recovered to 8.7% and reached double digits to 11.6% in 1984.  In 1985, due to recession in the U.S. economy, the growth rate suffered a sharp decline to 5.6%.  It was obvious that Taiwan economy was closely inter-locked with the U.S. economy, in other words, largely depending upon the U.S. market.  By the influence of cheap dollar and high yen in 1986 and 1987, the growth rates were 12.6% and 11.9% respectively.  However, trade balance in the black toward the U.S. became a pressure to push up Taiwan currency sharply, which accompanied with high wages and shortage of labor, etc., resulted in declined growth rates of 7.8% (1988), 7.3% (1989), and 5% (1990).  Though the annual average growth maintained 8.3% in 1980's, the downslide trend from 1988 on foretold the weak Taiwan economy after.

       Laying emphasis on cultivating high-tech industries was the characteristic of Taiwan economy in 1980's.  "Hsinchu Scientific Industrial Zone", a long-term collective development for high-tech industries, started its operation in December 1980.  The industrial policies were centered in export-processing for some time, but in order to maintain the economic growth of the past, cope with wage-increase, extensive oil crisis, labor shortage and environmental pollution, etc., the principle of “large production effect and potential market, high technology intensive and added value, less energy consumption and pollution” was considered in selecting strategic industries.  Based on these principles, information processing industries such as computers, electronic parts, computer software, etc., machine industries such as precision instruments, agricultural machines, automotive parts and electrical goods, etc. were promoted as industrial policy.

       Looking back at industrialization development of Taiwan economy, we find traces of transforming process from import-substitute industry in 1950's, export-processing industry in 1960's, heavy industry in 1970's, to the cultivation of high-tech industry in 1980's.  By 1990's, the object was to get high-tech industry under way and to secure competitive power to be ranked among the countries with advanced technology.  As of July 1991, a "Six-year National Construction Plan" with a scale of 300 billion U.S. dollars was enforced, aiming at (1) increasing national income, (2) reinforcing industrial foundation, (3) balancing development of various sectors, and (4) improving quality of life.  By the last half of 1970's, Taiwan had already become the standard bearer of Asian NIES (New Industrial Economic Sector), leading Korea, Hong Kong, and Singapore.  Upon completion of the high-tech industrialization and the Six-year National Construction Plan, the dream of joining the advanced economic nations was expected to fulfill.

The Problems of Taiwanese Economy

       Starting from 1952, Taiwan economy had continuously been so successful that it was regarded as "miracle".  The national GNP had kept increasing proportionally from US$50 in 1950 to US$6333 in 1988, reaching the level of "High Income (US$6000)" category defined by World Bank.  Later in 1992, the GNP per head had risen as high as US$10,000.  Keeping pace with the economic growth, the exchange rate of Taiwan Yuan to U.S. dollar had also risen.  The foreign currency reserve had increased rapidly since the last half of 1980’s, reaching 46.31 billion U.S. dollars in 1986, and 76.748 billion U.S. dollars in 1987.  Following Japan and Germany, Taiwan was noticed as a "nation of wealth".  Since then, GNP had kept increasing, and with the level of 85 billion U.S. dollars, Taiwan had maintained the position as the “Country possessing the world's largest foreign currency reserve" after July 1992.

       However, Taiwan economy, which appeared to be going well, was not without problems. As for one, it depended too much on export, expecially depending upon the U.S. market.

       After 1980's, due to wage increase, stagnant international trade, and catch-ups by the developing countries, Taiwan's export became dull, particularly noticeable from 1988.  Moreover, due to imbalance of trade with Taiwan, the United States, seeking to correct the situation, demanded for import liberalization, custom duty reduction, opening of service industry, and protection of intellectual property rights, etc.  Taiwan was forced to revalue Taiwan Yuan.  Further, in 1989, due to the cancellation of General Special Privilege (G.S.P.), Taiwan's competitiveness in export to the United States dropped sharply.  This was related to the abrupt declination in Taiwan's economic growth after 1989.  In order to reduce dependence on the United States, even if for a little, Taiwan tried to disperse the destination of export products, and realized export to ex-socialist countries after the collapse of Cold War between the East and West Blocs.  After all, it was not a scale big enough to replace the U.S. market in the past.

Medium and small enterprises being the breadwinner of economy is another problem.

       TTaiwan had been called the "Kingdom of medium and small enterprises", for there were 773,511 medium and small-sized enterprises at the end of 1988, which accounted for 97.72% of total enterprises.  The population of Taiwan at the end of 1988 was approximately 20 millions, so in simple calculation, there was a boss in every 26 persons.  The medium and small-sized enterprises also played the leading role of export; of the total of US$60.585 billion export in 1988, the medium and small-sized enterprises accounted for 60% amounting to US$36.353 billion.  However, the small and medium enterprises generally had many weaknesses.  For example: (1) Low productivity, (2) Short of funds, (3) Lack of reserve for new equipment and technical renovation, (4) Family-run business difficult to secure talented people, (5) Unable to raise capital from the stock market, (6) Lack of market research ability, etc., and these weaknesses may well be the weaknesses of Taiwan economy.

"Subcontractor of Japan structure" is also a serious problem.

       Japan had continuously been the top of Taiwan's import, and was top in Taiwan's trading deficit.  Looking at 1989 for an example, the total import from Japan was approximately 90%, of which machinery and equipment (53%), industrial materials (34.2%) were both indispensable to the processing of products for export.  Since up to 80% of parts and materials for Taiwan's export-processing products were imported from Japan, and increase of export would result in increase of trade deficits to Japan, Taiwan economy, which chiefly dependent upon export, literally became a "Subcontract structure" under Japan.  Furthermore, a great part of trade surplus obtained from export had been making up for the trade deficit to Japan.  Synchronizing with the increase of Taiwan's trade surplus, the trade deficits to Japan also increased from year to year: US$7,660,710, 000 in 1990, US$9,669,400,000 in 1991, and reached 12.9 billion U.S. dollars in 1992.  Incidentally, the trade surplus to the U.S. in 1992 was 7.8 billion U.S. dollars.  In an effort to reduce the trade surplus to Taiwan, the Ministry of International Trade and Industry of Japan was propellant in transferring high-tech industries to Taiwan, expecting that it would bring "boomerang effect" with import of finished products to Japan.  Nevertheless, the "Subcontract structure", which was nearly fixed, had not been easy to rectify.

Influence from the isolated diplomatic relations is a big problem.

       Kuomintang regime had held fast to the fictions that "Republic of China (Taiwan) is the only China" and "Kuomintang regime is the Legitimate Government of China".  With the returning of People's Republic of China to United Nations in October 1971, most of the countries in international community, including Japan rushed into establishing diplomatic relations with China, and broke off with Taiwan.  The United States, which had been relied most, also normalized its relations with China in January 1979, and severed diplomatic relations with Taiwan.  Most of the countries, although severed diplomatic relations with Taiwan, have maintained non-governmental relations with Taiwan.  For instance, through Japan's "Cultural Exchange Association" office in Taiwan and "East-Asian Relations Association", the representative's office of Taiwan in Japan, substantial exchanges between the two countries are being conducted.  Nevertheless, for Taiwan, which depended much of its economic activities on international trade, many problems got in the way when having economic exchanges with countries that it did not have diplomatic relations.  It is not difficult to understand how much hardship Taiwanese businessmen were compelled to go through in obtaining a visa for export destination.  In a period of twenty some years since 1971, Taiwan has exerted itself in promoting international trade under such unfavorable condition, and is worthy of praise that it has grown to be the world's No.13 trade nation.  However, as long as the diplomatic isolation continues, Taiwanese economy is apt to be influenced by it.

The tendency of increasing trade with China may also present a problem in the future.       

       By 1980's, the hostile relations with China were changed for the better, and after November 1989, Taiwan residents have been allowed to travel to China.  At the same time, investment in China has become brisk, and relay trade through Hong Kong has increased every year.  During the four years from 1987 to1990, there was a tendency of abrupt increase in the trade between Taiwan and China that shows 44.1% averaged increase rate in export from Taiwan to China, and 54.8% from China to Taiwan.  In 1990, the amount of bilateral trade has exceeded 4 billion U.S. dollars, and the same has reached 5.79 billion U.S. dollars in 1991, of which export from Taiwan to China was 4.66 billion U.S. dollars while import from China was 1.13 billion U.S. dollars. 

       It was an overwhelmingly excess of exports for Taiwan in trading with China.  The surplus from trade by way of Hong Kong in 1992 suddenly increased to 13.64 billion U.S. dollars, without which Taiwan's trade balance of that year would have been in the red.  In a situation as such, the "Three No Policy" towards China, that is "No negotiation, No compromise, No contact", has lost its meaning.  Although Chinese market is very attractive in making-up for the loss of American market, especially when there is no strict condition, but Chinese government claims that "Taiwan is a part of China" and insists on "unifying" it sooner or later.  If Taiwanese economy excessively depends upon the Chinese market, there is the danger of being controlled and encroached upon by China.  Obviously, Chinese government intends to induce Taiwan to become economically dependent upon China, and by promoting close economic cooperation today, it aims for a political "unification" in the future.  Therefore, we should be too pleased about expanding businesses in Chinese market.

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