With 1949 as 100, the index of Taiwan's industrial production in 1961 had reached 1,003 in the private sector and 239.6 in the government sector. The difference in the rate of expansion stems from government limitation of its own enterprises and the reservation of new industries for private entrepreneurs.
Before Taiwan's restoration to the Republic of China in 1945, industrial development was primarily to serve the needs of Japan. Important industries were controlled by a handful of Japanese. Industrial activities were largely limited to the processing of agricultural products including sugar refining, pineapple canning and tea drying and packing. Chemicals, aluminum and petroleum refining were developed later to meet war needs. Compared with agriculture, industry was weak.
During World War II, most industrial establishments of any size were destroyed. Those that were spared soon ceased production because of inadequate maintenance; shortage of raw materials and loss of overseas markets.
Until 1949, the postwar economic rehabilitation of Taiwan was slow. The island's long-time colonial status under Japan made the adjustment of economic structure difficult. In addition, the National Government was preoccupied with the Communist rebellion on the mainland. Production had been declining sharply. Rice dropped to 640,000 metric tons (704,000 short tons) in 1945 from the 1938 peak of 1,400,000 metric tons (1,540,000 short tons). Sugar fell to 330,000 metric tons (363,000 short tons) in 1945 from the 1938 peak of 1,420,000 metric tons (1,562,000 short tons).
The removal of the Central Government to Taiwan in 1949 brought an influx of personnel and capital, and offered an unparalleled opportunity for economic development. The government gradually changed the old patterns to place emphasis on a better livelihood for the people. In 13 years, most old industries have been rehabilitated and expanded, and many new plants established. Taiwan is on the way to becoming economically self-sufficient and has some surpluses for export. The ratio of government private production has been reversed to favor the latter.
Postwar development of private industry can be divided into four stages. The first was from 1946 to mid-1949, an embryonic period. From 1949 through 1952 there was consolidation, followed by the expansion of 1953-1960. Overseas market exploitation began in 1961 and is continuing.
Government Dominance
In 1946, all major industries were in the hands of the government. These included power, sugar, aluminum, petroleum refining, cement and shipbuilding. Some machinery, steel, chemical, food and textile plants were operated by the government. Coal, gold and copper mining were divided between government and private enterprise. (The most active private enterprises were concerned with food, lumber, paper, tanning, chemicals, steel and machinery. Such undertakings were small in scale, with obsolete equipment and limited production.
Taiwan Iron Manufacturing Corp. produces 12,000 tons of pig iron, 20,000 tons of steel ingots and 28,000 tons of steel bars a year. (File photo)
The 1946 ratio of private and government industry was 92.6 to 7.4. However, the number of workers employed by private industries amounted to only 34.6 per cent of the total, averaging 4.4 persons to an enterprise. The value of production from the private segment of industry was 40.3 per cent of the total.
From 1949 to 1952, the number of private enterprises rose from 9,621 to 9,821 and the number of employees soared from 67,600 to 132,600. With 1946 as a base, the production index doubled in 1949 and climbed 400 per cent in 1952. The average number of employees per plant rose from the 4.4 persons of 1946 to 13.5 in 1952. During the same period, the ratio of employees between government and private enterprises changed from 65.4 versus 34.6 to 36.4 versus 63.6.
In 1953, the first Four Year Economic Plan was launched, emphasizing the improvement and expansion of established industries and the development of new enterprises. The government announced a policy of transferring all government enterprises to private ownership except monopoly operations for revenue purposes. Subsequently, four large government undertakings—the Taiwan Cement Corporation, Taiwan Pulp and Paper Corporation, Taiwan Industrial and Mining Corporation and Taiwan Agricultural and Forestry Development Corporation—were transferred to private ownership under the land reform program. More transfers are being considered.
To provide technical assistance to private industry, especially establishments of small and medium size, the China Productivity and Trade Center was created in 1955 with U.S. aid. Between 1952 and 1959, some 20 per cent of private investment came from American aid projects.
Second Economic Plan
The second Four-Year Plan extended from 1957 through 1960. Natural resources were put to more effective use. Greater efficiency and higher standards were emphasized in export industries. Coordination of agriculture and industry was encouraged.
Expansion took place in production of power, coal, canned pineapple, textiles, paper, plywood, bagasse board, industrial chemicals, fertilizers, plate glass, cement, iron and steel, and electrical appliances.
The third Four-Year Plan was launched in 1961. Development of the economy is to be accelerated to create more jobs, raise the standard of living and expand exports—all in the face of increasingly heavy population pressure and the scarcity of land and other resources. The goal of industrial production is an annual increase of 13.8 per cent, while exports are to be increased from US$164 mil lion in 1960 to US$260 million a year by 1964. In 1962, export sales totaled US$240 million.
Tatung fans were first made for export. (File photo)
Industrial production of private enterprise accounted for 27.6 per cent of the total in 1949. This had been increased to 61.4 per cent in 1961, while employing 80.8 per cent of the island's industrial workers.
Industries in private hands include those making or processing wheat flour, edible oil, tea, foods, monosodium glutamate, paint, printing ink, canned pineapple, soap and detergents, glass, cement, ceramics, plastics, pharmaceuticals, electric appliances, stationery, plywood, pulp and paper, textiles, metals, machinery, ships and automobiles. Government-owned are power, sugar, fertilizer, petroleum, aluminum, alcoholic beverages, cigarettes, camphor and some chemical industries.
Taiwan's industrial development differs from that of other underdeveloped areas. Main factors promoting Taiwan industries are low wages, ample supply of power, modern transportation facilities and widespread education.
Low prices have helped. Taiwan products win a share of the international market. Wages for skilled laborers average US$2 a day. As a result, Taiwan canned pineapple has become salable in Hawaii despite tariff exactions.
Capacity Increase
Installed capacity for the production of power grew from 275,655 kw. in 1949 to 923,420 kw. in 1961. With the completion of the Shihmen Dam and the Tachien Reservoir by the end of 1966, capacity will be increased to.1,741,000 kw. The minimum cost of power for industrial use is NT$30 (US$0.75) per kilowatt hour, with an additional charge of NT$0.36 (US$0.009) for each additional kwh.
With an area of 35,961 square kilometers (13,885 square miles) and population of 11 million, Taiwan has about 4,600 km. (2,852 mi.) of railroad and 16,228 km. (10,115 mi.) of highway. The average transportation density is about 0.42 km. (0.36 mi.) of railroad and 1.5 km. (0.93 mi.) of highway per 1,000 inhabitants.
Tatung makes 280,000 watthour meters a year. (File photo)
Ten years ago, school enrollment on Taiwan was about one million, or 14 per cent of the population. Today it is 2.6 million, or more than 23 per cent of a much larger population. More than half of industrial employees have secondary school education.
The Tatung Engineering Company in Taipei is an example of a private industry developed with government assistance and encouragement.
Nominal capitalization is NT$70,000,000 (US$1,750,000), making it one of the largest private concerns in Taiwan. Eleven plants employ 300 clerks and 1,700 other workers.
Productive capacity includes watt hour meters, 280,000; condensers, 160,000; electric fans, 150,000; rice cookers, 100,000; paint, 50,000 gallons; motors of 1/10 to 1,000 h.p., 10,000; refrigerators, 10,000; transformers, 3 to 10,000 KVA, 5,000; and window-type air conditioners, 1,000. Gross sales are expected to reach NT$300 million (US$7,500,000) this year. About 20 per cent of output is exported to more than 20 countries in Southeast Asia, the Middle East, Africa and the Americas. Average annual growth rate is 30 per cent.
During the last decade, Tatung has achieved several pioneering triumphs in the expansion of Taiwan private industry.
Electric Fans Exported
Electric fans first were manufactured on the island by Tatung in 1949. Five years later, they were sold to the Philippines, the first export of a manufactured product. This provided a big incentive for local entrepreneurs. As of today, 70 plants are producing electric fans.
Electric rice cookers were first produced locally by Tatung in 1960. Now there are some 30 competitors. Refrigerator production started in 1961, and eight other companies were active by 1962.
Tatung plants also provide facilities for industrial education. An industrial school has enrollment of 300. In 1956, a three-year institute of technology was established. Four hundred students are studying mechanical engineering, electrical engineering and business management. The institute will become a full-fledged college this fall.
Night schools promote on-the-job training at low fees. Enrollment runs into the hundreds. Nearly half of the graduates remain at Tatung and some have been promoted to be plant managers.
Tatung issued the first preferred stock in Taiwan through the post office. With annual dividends running at a rate of 22 per cent, NT$10 million (US$250,000) was sold out within an hour. Tatung subsequently issued NT$15 million (US$375,000) worth of bonds with monthly interest of 2.2 per cent. To meet increasing demand, additional preferred stocks and bonds were issued in 1959 and 1960.
Technical Assistance
Lin Ting-sheng, president of Tatung, said that the success in issuance of preferred stocks and bonds was the most unforgettable experience in his life. He said:
"I had never dreamed that our preferred stocks and bonds would attract so much interest from the public. People lined up in long queues in front of the post office. Those who were unable to buy asked me whether additional securities would be issued."
In connection with implementation of the first Four-Year Economic Plan, Tatung concluded a 1954 technical cooperation agreement with the Tokyo Shibaura Electric Company (Toshiba) of Japan for manufacturing watt hour meters. In 1960, another agreement was signed for heavy electrical appliances. Toshiba invested NT$10,500,000 (US$262,500). Tatung turns over five per cent of its output to Toshiba. Motors have been built since 1956 under a 10-year cooperation project with the Westinghouse Electric Company of the United States.
Taiwan's 160 pharmaceutical plants manufacture 2,000 items of medicine. (File photo)
Tatung was established in 1918 by Lin Ti-tsao as a construction company. For the first 21 years, it was called Hsie Tsu, meaning "cooperative spirit." Because of expanding operations, Hsie Tsu was reorganized into the Tatung steel mill in 1939. Lin and several relatives invested US$90,000. It was the first Taiwan steel mill financed by private capital. In the two decades since, capitalization has been increased 20 times. Of the 6,360 stockholders, a third are women and another third are public functionaries and teachers. Tatung employees own a sixth of the company. Biggest stockholders are the Tatung Institute of Technology and the Tatung Vocational School of Industry, each holding a tenth of the stock. The schools are financed by Tatung earnings.
Reduction of Prices
Tatung has pioneered in social welfare. It pays 75 per cent of labor insurance premiums for its workers. In 1951, Lin Ti-tsao established the Hsie Tsu Association for the Advancement of Industry. Scholarships are given to employees and members of their families, and prizes for inventions and research. The association has published more than 50 books on industry, the social sciences and the humanities. Some 80,000 volumes worth US$25,000 have been presented to2,200 schools and libraries.
Tatung's goals are "profits for customers" and "industrial autonomy." Ten years ago a Tatung fan cost about an ounce of gold. Today that much gold would buy four Tatung fans. "Industrial autonomy" seeks to put ownership in the hands of the workers. Except for new staff, nearly all Tatung employees are stockholders. This is realization of Dr. Sun Yat-sen's principle of the people's livelihood.
Lin Ting-sheng took over Tatung's management from his father, Lin Ti-tsao, in 1942. Since school days, young Lin has been inspired by Thomas Carlyle's Past and Present. Carlyle stressed that a nation should cultivate "captains of industry" (engineers) to expand its wealth. Out of such thinking came the Tatung Institute of Technology. Lin says the institute follows the founding spirit of Harvard University to cultivate "ministers in business." Ample capital is the driving force behind economic development. Because domestic sources are limited, the Industrial Development and Investment Center was set up in 1959 to improve the investment climate.
In 1960, the government formulated a19-point reform program to accelerate economic growth and assure success of the third Four-Year Plan. It removes investment obstacles of various laws and regulations, offers tax relief and other incentives, limits government investment, provides for sale of government-operated enterprises, liberalizes trade controls and promotes exports.
Overseas Investment
Foreign investment and overseas Chinese investment statutes were amended in 1957 and 1960 to provide unlimited earnings repatriation and 15 per cent repatriation of invested capital annually. The amendments also removed restrictions on the nationality and domicile of promoters, shareholders, directors and managers.
Tatung home appliances include automatic rice cookers and refrigerators. (File photo)
A 1960 law to encourage investment provides an income tax holiday of five years, limitation of business income tax to 18 per cent, tax exemption for reinvested earnings and tax exemption for undistributed profits.
Results of this legislative farsightedness are beginning to filter through the economy. From 1951 to 1962, overseas Chinese invested US$82,500,000 in 403 plants. Leaders are chemicals with 77, food processing with 41 and textiles with 40. Other investments are in transportation, housing, mining, animal husbandry, fishing, pharmaceuticals, machinery, agriculture, hotels, electrical appliances, handicrafts, metal manufacturing, printing, tea processing, paper and pulp, ceramics, movies, banking and insurance.
During the same period, non-Chinese foreign investments totaled US$36,380,110. Technical cooperation constitutes the investment in 68 of 132 cases. Leading areas of investment are chemicals, 23; machinery, 18; pharmaceuticals, 18; and electrical appliances, 17. Others are textiles, food processing, mining, petroleum refining, tires, telecommunications, agricultural machinery, aviation, automobiles, fishing net, wire rope and television. Investors are from Japan, 82; United States, 39; Panama; 2; West Germany, 2; France 1; South Africa, 1; Switzerland, 1; Sweden, 1; the Philippines, 1; Canada, 1; Italy, 1.
Despite tremendous progress of the last decade, Taiwan industry is still short of top-notch managerial talent. Merchants are held in low social repute. Talented people tend to prefer governmental or educational employment. According to findings of Stanford University researchers, free China will need 7,000 more business administrators by 1965. To meet this requirement, National Chengchi University will enroll 50 graduate students in its Institute of Business Administration this fall in a cooperative project involving the University of Michigan.
If the island's private industry is to continue to grow, it must win a larger share of the international market. The domestic market has sharp limits. Established industries face the necessity of revolutionary changes to become competitive internationally. New industries must be designed to hold their own against all competitors both at home and abroad.
With low wage rates, more skillful workers and improved management, prospects are good for further industrialization and economic advancement. In 1962, Taiwan had a paracholera epidemic, the United State—imposed limitations on textiles and the price of sugar slumped. Despite such economic headaches, the favorable trade balance—excluding U.S. aid-was US$7,442,000. It is not surprising that the U.S. aid objective is economic self-sufficiency before 1968. Considering the progress already made and the prospects just ahead, there is every reason to be optimistic.