Foreign trade of the Republic of China will pass the US$5 billion mark this year and move out ahead of the Chinese Communists' volume of commerce. An island of less than 14,000 square miles and 15 million people will be out-trading a subcontinent of 3.7 million square miles and 700 million people. No less an authority than Walter McConaughy, the American ambassador to the Republic of China, has predicted that Taiwan's trade advantage over the mainland will reach US$1 billion within two years and much more by 1975.
The miracle has not been wrought in a day. It has been in the making for more than 22 years—since the dark days of 1949 when the Communists usurped the mainland and the free Chinese began transforming the island province of Taiwan into a bastion for the recovery of continental China. In 1952, the mainland had US$1,750 million worth of trade compared with Taiwan's US$320 million. By 1959, the Communists had widened the gap. Their trade stood at US$4,200 million and Taiwan's at US$408 million.
The 1960s saw the faltering of Chinese Communists economically as well as politically. From the "great leap forward" through the "cultural revolution" and the Lin Piao purges, one failure succeeded another. Taiwan, meanwhile, was engaged in a great economic take-off. By 1971, the mainland showed a trade figure of about US$4,300 compared with just under US$4,100 for Taiwan. The task of catching up was nearly complete.
Clearly, the difference is one of freedom and the absence of freedom. Taiwan is not rich in natural resources. It has, for example, scarcely any discovered and exploited petroleum. The mainland now claims self-sufficiency in crude oil. Taiwan's coal seams are running out and the potential for additions to hydro-electric power is small. What Taiwan has in plenty is free enterprise encouraged by a democratic government. Entrepreneurs are motivated by the expectation of a fair and legitimate profit. Workers are motivated by a rising standard of living and in many cases by the hope of becoming entrepreneurs.
Taiwan's economic advance has paralleled those of Britain, Western Europe and the United States in many ways. The surplus of a prospering agricultural society was plowed back into burgeoning industry. As steam began to turn the wheels, goods were spewed out in a constantly growing stream to an endlessly expanding market. Behind it all stood the operation of the free enterprise economy, which subsequently was modified by minimal state controls intended to assure that everyone received a fair share of production.
The Chinese Communists have shown in word and deed that they hope to isolate the Republic of China economically. Chou En-lai first laid down his conditions for trade with Japan. To get an ambassador into Peiping, the British had to close their consulate in Taiwan. But the nature of trade, the fact that the Republic of China is carrying on commerce with more than 110 countries of the world and the trade gains of 1971 and the first two months of 1972 suggest that the Peiping conspiracy cannot possibly succeed. Trade is largely a private matter in the free world. Traders seek a good product at the right price. Taiwan obviously has a great deal to offer—more, in fact, than a populous land area which is 264 times larger.
Regionally, Asia remains Taiwan's principal source of supply but perhaps surprisingly to many is not the island's principal buyer. Imports from Asian countries paced by Japan rose to US$952 million in 1971, but exports to the region were US$718 million compared with the US$996 million to North America. Imports from North America reached US$607 million in the same year.
Then comes Europe, which has found Taiwan's processed foods, textiles and other light manufactures to its liking. Exports to Europe doubled in two years, going from US$112 million in 1969 to US$224 million in 1971. Imports from the European countries rose a little more slowly, moving from US$113 million to US$199 million in the same period. The government has set great store by increased European trade. There has been discussion of opening trade channels to countries of Eastern Europe which are not hostile to the Republic of China.
Commerce with Africa is small but has excellent potential. Exports were US$65 million and imports US$20 million in 1971. Trade is slightly unfavorable with the Middle East and somewhat more so with Latin America. Middle and Near Eastern exports totaled US$32 million and imports US$34 million in 1971. The figures for Latin America were US$32 million in exports and US$47 million in imports. Finally comes Oceania with exports of $37 million and imports of US$64 million last year.
Country by country, the United States is the biggest buyer of Taiwan goods and Japan is the main supplier. Sales to the United States have more than doubled in two years, going from US$398 million in 1969 to US$578 million in 1970 and US$883 million in 1971. The Americans sold Taiwan US$333 million worth of products in 1969, US$463 million worth in 1970 and US$594 million worth in 1971. The trade deficit with Japan is a commercial albatross around Taiwan's neck. In 1969, exports to Japan were U5$178 million and imports US$489 million. Exports increased to US$235 million in 1970, but imports climbed to US$582 million. The 1971 figures were US$267 million for exports and US$767 million for imports. In other words, the imbalance stands at about 3 to 1 in Japan's favor and with no immediate prospect for much improvement.
Even in Taiwan, many people might make a mistake in guessing the ROC's third largest trading partner. West Germany would be mentioned, and Canada; perhaps Australia, too. The correct answer is Hongkong, which is also a major trading partner of the Chinese Communists. Taiwan is buying almost as much from the British crown colony as the mainlanders. For 1971, the Hongkong trade of Taiwan was close to the US$200 million mark with exports of US$157 million and imports of US$39 million.
West Germany ranks fourth at US$169 million—exports of US$93 million and imports of US$76 million in 1971. After Germany comes Canada, despite its ardent wooing of the Chinese Communists, at US$126 million (exports of US$113 million and imports of US$13 million). European trade is well diversified. Leaders after Germany are the Netherlands, US$69.5 million, and the United Kingdom, US$67 million, both for last year. Exports to Holland were US$45 million compared with imports of US$24 million. The U.K. figures were US$34 million in exports and nearly the same for imports.
In Asia, Taiwan's biggest customer after Japan and Hongkong is South Vietnam, which bought US$61 million worth of goods last year. Then come Singapore, US$47 million; Indonesia, US$45 million; South Korea, US$36 million; and Thailand, US$30 million. Malaysia ranks after Hongkong in imports at US$34 million. Then come Indonesia, US$30 million; Philippines US$28 million; and Thailand, US$26 million.
Australian trade favors the continent "down under" by nearly 2 to 1. Exports were US$35 million and imports just under US$62 million for 1971. Major markets in the Middle East in 1971 were Saudi Arabia, US$8 million; Iran, US$7.8 million; and Kuwait, US$6.4 million. Oil is the principal commodity imported from the area—US$18.6 million worth from Kuwait and US$10 million from Saudi Arabia in 1971. Leading African markets last year were Nigeria, US$14.9 million; South Africa, US$9.9 million; and Ivory Coast, US$9.6 million. Imports were paced by 50mh Africa, US$8.7 million, and the Sudan, US$5.1 million.
Sugar was king of Taiwan exports for more than 300 years. Dethronement came as recently as 1966, when textiles took over. Textile, leather, paper and rubber products paced exports in 1971 at US$926 million. The breakdown included knitted and crocheted articles, US$301 million; footwear, wearing apparel and made-up textile goods, US$215 million; textile products, US$202 million; and wood and cork products except furniture (mainly plywood), US$154 million.
Metal products was in second place at US$417 million, paced by electrical machinery apparatus at US$276 million. Some economists expect electrical machinery to displace textiles and products as the No. 1 export category within the next few years. Third place went to foods at US$247 million. Canned and preserved fruits, vegetables and seafoods was the leader (US$151 million) with canned mushrooms, asparagus and pineapple as the top earners. Miscellaneous manufactures was fourth at US$195 million and agricultural, forestry, livestock and fishery products fifth with volume of US$171 million.
These figures reflected the fact that Taiwan is no longer an agriculture-dominated land. For last year, agriculture's share of the net national product was 17.7 percent versus 34.2 per cent for industry. Agriculture continued to be important, but aside from bananas and fresh fish, the big agricultural sellers were processed—such as sugar and canned vegetables, fruit and seafood.
Imports were dominated by capital goods and the raw materials and grains which Taiwan lacks. Metal products was far out in front at US$758 million last year. The breakdown included electrical machinery apparatus, US$291 million; machinery other than electrical, US$275 million; and transportation equipment, US$165 million. Agriculture was second at US$299 million with farm products, US$190 million, and forestry products, US$89 million, as the leaders. Chemicals and their products, including pharmaceuticals, stood at US$259 million, followed by textiles, leather, paper and rubber products at US$235 million and basic metals at US$200 million.
Details of trade will be found in accompanying tables. What needs to be stressed is the rich variety of both imports and exports which have been developed during the last decade or so. Before that, Taiwan had no export industry. Under the Japanese (1895 to 1945), the island was supposed to be Japan's rice, fruit, sugar and vegetable bowl. There was no nonsense about manufacturing aside from brooms and the like. If anything was more complicated than a hairpin, Japanese home island factories made the product and shipped it to Taiwan for sale at an inflated price. The Japanese economic policy toward Taiwan was that of mercantile colonialism. Now Taiwan's factories have taken up the task of supplying daily necessities and have re placed those of Japan as a major source of low-cost goods not only for Asia but for the world. Japan can no longer compete with Taiwan in this sphere.
Government and private industry are moving jointly and cooperatively to see that trade growth is unimpeded and that any challenges from the Chinese Communists are answered. The Bank of China has been converted to private ownership. Its overseas branches now have the flexibility to serve the needs of exporters and importers. New trade offices are being opened. Trade missions of government, industrial and business leaders will be traveling to the leading free countries of every continent this spring.
Although reaffirming its anti-Communist position, the government announced that:
1. "Restrictions against imports from Communist countries are being gradually relaxed and there is no restriction on import commodities from countries which do not have diplomatic relations with the Republic of China. Our attitude toward foreign companies which do business with the Chinese Communists will be determined on a case-by-base basis."
2. "At present foreign-invested companies in Taiwan are not permitted to export their products to Communist countries. However, the government is considering the relaxation of this restriction with regard to exports to East European countries."
3. There will be no discrimination against investors or friendly foreign nationals working in the Republic of China regardless of their government's political position vis-a-vis the Chinese Communists.
H.K. Shao, the deputy director of the Board of Foreign Trade, predicted trade volume exceeding US$5 billion for 1972. January exports were US$196 million, compared with US$151 million in the same month of 1971. Imports were US$194 million, up from US$125 million. The export column was down only US$9 million from December, which is usually one of the year's top months, while the import decline was less than US$6 million.
Henry Kearns, president of the U.S. Export-Import Bank, was to visit Taiwan in early April to assess the economic situation in the light of loan applications for the further expansion of industry. Eximbank said that commitments to the Republic of China have totaled US$405 million over the years and that US$245 million in loans, guarantees and insurance remains outstanding. Financing has been extended for two nuclear power plants, thermal power plants, jet aircraft, radio and television broadcasting facilities, machinery, a chemical plant and water filtration plant and many others.
External investment is another evidence of Taiwan's sound business health and continuing ability to repulse any economic offensive mounted by Peiping. Foreign and overseas Chinese investment approvals reached a record of US$162,956,000 in 1971, compared with US$138,896,000 in 1970. The increase was 17 per cent. External capital committed to Taiwan since 1952 totaled US$722 million at the end of 1971.
The Council for International Economic Cooperation and Development said that of 1971 investments, 76.7 per cent (US$125,148,000) came from foreigners and 23.3 per cent (US$37,803,000) from overseas Chinese. Comparable figures for 1970 were US$109,165,000 and US$29,731,000, respectively.
Basic metals and metal products industries received US$67,500,000 (4.14 per cent) of last year's total, US$66 million of this was accounted for by equity investment of US$16 million and loans of US$50 million pledged by Voest of Austria for an integrated steel mill at Kaohsiung. The next biggest industrial category was the electrical machinery apparatus industry with US$33 million (20.2 per cent). Then came chemicals at US$12 million (7.3 per cent) and rubber and plastics at US$7.4 million (4.6 per cent). Financial institutions such as investment and trust companies and insurance firms brought in US$9.3 million (5.7 per cent).
Europe led the regional list for the first time as the result of the Voest investment. The European total was US$69 million, followed by toe United States at US$43.7 million and Japan at US$12.4 million. The biggest part of the overseas Chinese share came from Hongkong, whose entrepreneurs provided US$21.3 million.
There were 198 cases of increases in capital that totaled US$33,452,000. General Instrument (Taiwan) raised its capitalization by US$7,500,000 and Goodyear Tire by US$3,600,000.
CIECD said there were two important developments in 1971 investment. First, capital was concentrated in such sophisticated industries as basic metals, electronics, chemicals and rubber processing. This indicates the higher level of Taiwan industrialization and the success of the government in attracting more sophisticated plants. Second, both the number of cases and the amount of capital increased substantially, verifying continuing investor confidence in Taiwan as a safe and profitable place to invest.
Taiwan's auto industry has growing pains but promises to become a backbone of the island's future and an exporter. (File photo)
Minister of Economic Affairs Y.S. Sun said the government would continue to improve the investment climate. He told the Legislative Yuan that the Republic of China would take the initiative, improve the quality of exports, reduce production costs and compete strenuously for a larger share of international markets. He also stressed the need for the ROC to defend its position in the International Monetary Fund, the World Bank and the Asian Development Bank.
Representatives of the International Monetary Fund, who attended a 10-day consultative meeting in Taipei, expressed confidence that the free Chinese economy would continue to maintain a high rate of growth. The three IMF-World Bank officials expressed approval of the change of status in the Bank of China and suggested that the number of other private banks should be increased. They backed increased productivity and increased attention to the relationship between wages and output. Mechanization, improved utilization of land and better marketing can increase sales of agricultural products, they said.
Government attention was given to the decline in Japanese investment. The amount was down 56.5 per cent from 1970 and the number of cases from 51 to 18. Investment officials said that the criteria of screening may be relaxed. Domestic sale of a small portion of output is also under consideration, although this may be difficult because of the impact on long-established, Chinese-owned business and industry.
Most American companies with investments in Taiwan said they would be prepared to increase capitalization as required by market demand. Only one said that an increase was unlikely, although there would be no pullout. Investment approvals in January and February were US$9,713,000, which represented a gain of 50 per cent over the first two months of last year.
Those who had put US$732 million into the Taiwan economy in the last 20 years were mostly aware that they could not invest even one dollar in the mainland economy while it remains under Communism. Some industrialists and businessmen in Japan, the United States and other countries were impressed by numbers rather than realities and were hoping for a vast market and an astronomical market on the mainland. If they are prepared to look at the actual trade figures for both Taiwan and the Chinese Communists (see "Mainland trade bubble" in this issue), they cannot escape the conclusion that they are chasing a rainbow. The pot of gold is on Taiwan, not in continental China. That's the way it must be until the mainland is free to grow and prosper once again.