A most notable economic development in the Republic of China in the past decade or so is the steady metamorphosis from the benign government control to free competition among private entrepreneurs.
Taiwan had been held by the Japanese from 1895 to 1945. When Japan moved out and China moved back in 1945, title to most industrial properties had to be vested in the government. At the time, both entrepreneurs and capital were lacking for private operation, even if that had been adjudged in the best interest of a people who had been economically ground down for half a century.
So government was the primary instrumentality of business in the years from 1945 to 1949 and immediately thereafter. Problems were multiplied by the heavy war damage that was inherited along with the factories, transportation lines, and means of communications. Some of the businesses didn't seem worth having—but they were essential to the economy and had to be put back in operating order, whatever the cost.
After a period of rehabilitation and reconstruction, the government began to cast around for a policy. The question was whether it should try to pull out of industrial operations, where that was feasible, and encourage private initiative and enterprise.
A full-blown answer was found in the requirements of a land reform program that is one of the world's most extensive and also one of the most successful. Obviously, in a democratic state, the holdings of huge landholders could not be confiscated without compensation. How, then, to pay the large sums necessary to take the land from those who had too much and turn it over to tillers who had none or very little? With a number of successful, or promising, corporations in hands of the government, the answer was not hard to find: Pay at least part of the land price in the stock of government corporations, which then would become private companies under private management.
Kaohsiung plant of the Taiwan Cement Corporation. (File photo)
This was done. Landlords were permitted to keep 7.4 acres of medium-grade paddy field or the equivalent for their own use. The rest had to be sold to the government and then was resold to tenants. Compensation at a fair price was paid on a basis of 70 per cent in land bonds (these redeemable in crops or the monetary equivalent) and 30 per cent in the stocks of four government industries.
That was in 1953. The four companies were the Taiwan Cement Corporation, Taiwan Paper and Pulp Corporation, Taiwan Industrial and Mining Corporation, and Taiwan Agricultural and Forestry Development Corporation. More than a decade later, the status of these four industrial operations should attest to the success—or the failure—of free China's attempt to de-socialize and increase the economy's content of free enterprise.
This is the story of what has happened to these four bellwether corporations.
Success of the Taiwan Cement Corporation is the most dramatic. It has more than doubled its production in 11 years—from the 519,676 metric tons of 1953 to the 1,154,271 of 1963. Stockholders are mostly the landlords who were fortunate enough to get a share of 'the company when they parted with their rice lands. In fact, the shares of TCC sell for double their face value on the Taipei stock exchange, and little wonder—dividends run close to 25 per cent annually. Revaluation of the company has just revealed a net worth that is 25 per cent higher than the stock outstanding, and stockholders will receive an extra share for every four they hold.
Cement Success
Koo Chen-fu, the general manager of TCC, is concurrent chairman of the Chinese National Association of Industry and Commerce, chairman of the Taiwan Stock Exchange, and managing director of the Chang-hwa Commercial Bank. Under his leadership, Taiwan Cement Corporation ranks first, with more than half of the production. Taiwan itself is the world's fourth largest exporter of cement. The island has 12 manufacturers with annual production of 2.3 million metric tons and export of 1 million.
Since 1953, TCC has expanded its plants at Kaohsiung, Chutung, and Suao, modernized equipment, and built a new plant at Hualien. It has cut costs by making its own bags and mining its own coal. Its workers are among top wage earners and have such benefits as bonuses, profit sharing, pensions, and medical care.
Quality of TCC cement exceeds international standards. The American Society for Testing Materials demands a minimum of 3,500 pounds of compression strength per square inch after 28 days. The compression strength of TCC's Quality brand runs as high as 6,312 pounds.
Exports have been increasing and now account for half of production. Buyers include Vietnam, Korea, Hongkong, the Philippines, Malaysia, the Ryukyus, and North Borneo. TCC has joined with other Taiwan producers in establishing a cement grinding plant in Hongkong and has provided technical assistance for the Tasek Cement Manufacturing Company at Ipoh, Malaya.
At the time of the ownership transfer, Taiwan Paper and Pulp Corporation operated five plants at Lotung, Shihlin, Hsiaokang, Hsinying, and Tahtu. Taking over the assets of the Lotung and Shihlin plants, the Taiwan Chung Hsing Paper Corporation and Shihlin Paper Company have become independent. The Hsiaokang plant was purchased by the Taiwan Cement Corporation for the production of cement bags.
TPPC therefore has two plants left, those at Hsinying and Tahtu. But its production has risen from 22,000 metric tons before the transfer to 33,000 metric tons, and paper board production has been maintained at 15,000 metric tons a year. Art the same time, the number of employees has been reduced from 1,332 to 1,112.
TPPC personalizes the story of how the Chinese Communists have attempted to sabotage the Taiwan economy. In 1960, it was discovered that the vice president and chief of the Hsinying plant, Tsai Ping-kun, was a Communist agent. In the 1950s, bagasse pulp used by some 60 local paper manufacturers was mostly supplied by TPPC's Hsinying plant. As chief of this plant, Tsai raised the price of pulp, forcing users to establish new pulp plants in order to obtain a cheaper supply. However, the new plants were too small to be economical. Before long, the local pulp situation was a mess.
New Plants
Tsai also wasted as much money as he could. He employed too many people, spent lavishly for social functions, and bought raw materials at inflated prices. TPPC came close to collapse, as Tsai intended, but he was apprehended and removed from his position in time. Since then, TPPC has improved its administration and increased production.
To expand production still further, TPPC is negotiating with the Parsons and White-more-Lyddon Organization and Hudson Paper Corporation of New York to invest in the construction of two new plants.
Taiwan Paper and Pulp Corporation will build new plants with aid of private U.S. capital. (File photo)
The Taiwan Industrial and Mining Corporation had 51 plants and mines at the time of transfer to private ownership. However, some of these became independent, because stockholders thought that would increase profits.
By 1956, the company had 17 plants and mines and was reorganized into the Taiwan Industrial Development Corporation with administrative assistance from the government. Today the company has nine productive units: two textile mills, a jute mill, a flax mill, a refractory, a ceramic factory, an iron and steel works, and two coal mines.
Despite contraction in size, private ownership has led to increased valuation: from NT$193 million in 1956 (17 production units) to NT$230 million in 1963 (9 production units.) The number of employees in 1963 was 4,021 as compared with 6,610 in 1956.
The Taiwan Agricultural and Forestry Development Corporation originally had four departments: tea, pineapple, marine products, and animal husbandry. The corporation subsequently was broken up into several independent segments, all of which are profitable.
Taiwan Pineapple Corporation plantation at Pingtung. (File photo)
The Taiwan Tea Corporation has seven plantations and its exports go to Africa, North America, Europe, and East Asia. The company's biggest problem is a shortage of tea pickers. Girls are leaving the seasonal work in the hot sun for better paying jobs in textile mills and other factories.
The Taiwan Pineapple Corporation has five canneries, an agricultural center, an experiment station, four pineapple plantations, and a can factory. Production has increased from 77,561 cases in 1956 to more than 1,000,000 cases in 1963. In addition to pineapple, it cans mushrooms, tomato juice, fish, and such fruits as litchi, mango and longan.
The animal husbandry department became part of the Wei Chuan Foods Corporation, which is the largest producer of milk and milk powder in Taiwan. Wei Chuan is capitalized at NT$150,000,000 (US$3,750,000). The marine products department has been split into a number of small enterprises producing sea foods.
Gamut of Red Tape
Managers of the former government properties attest a preference for private operation. Wu Tsu-ping, general manager of the Taiwan Paper and Pulp Corporation, said that with private ownership, it is easier to raise funds for expansion. Approval is required only from the board of directors. If the enterprise is operated by the government, the gamut of red tape may include the Ministry of Economic Affairs, the Executive Yuan (Cabinet), and the Legislative Yuan, highest lawmaking body.
Wu said private administration is also easier. In purchasing, for example, the government must invite three bids and require suppliers to post a bond. Private companies can buy when and where they please, with an eye out for quality as well as price.
Milk powder is being produced locally from cows that are imported principally from Australia. (File photo)
Of Taiwan's 12,000 industrial plants, more than 80 per cent are in private hands. In 1949, when the Chinese government moved its seat to Taiwan, the private sector accounted for only 27.6 per cent. The government has gotten out of business and at the same time has positively encouraged free enterprise, especially for new industry.
Under a series of four-year economic development plans that began in 1953, the government stipulates that new investment projects are to be undertaken by private interests with technical and credit assistance from government and financial institutions. It also encourages early transfer of additional public enterprises to private ownership.
For industries involving great risk and advanced technical ability, the government may take the initiative by sharing the risk with a minority participation that can be withdrawn at an appropriate time.
As for disposing of additional properties, the government has announced decision to sell the Taipei Gas Company, which has been operated by the Taipei municipal government. The government also plans to sell a plant of the Taiwan Alkali Company, a processing department of the Taiwan Aluminum Corporation, two coal mines, trawlers of the China Fishery Corporation, the Chang Hwa bagasse plant, Hsinying yeast plant, and Taitung pineapple cannery of the Taiwan Sugar Corporation.
What is good for stockholders also has turned out well for workers. Paying better than government, private industry has helped give Taiwan the second highest per capita income and standard of living in the Far East. The contrast with Communism is even more dramatic. On an island of 13,885 square miles, 12 million people are exporting about a fourth as much as the Communist-occupied mainland of 4 million square miles and more than 600 million people.