Taiwan is one of Asia’s economic powerhouses, often compared to Japan, South Korea, Hong Kong, and Singapore. According to the International Monetary Fund (IMF), Taiwan’s GDP per capita skyrocketed from $2,370 in 1980 to over $32,440 by 2023. However, not everyone understands how Taiwan achieved this remarkable growth. South Korea’s rise is well known, driven by exports from electronics giants like Samsung and Hyundai. Japan’s wealth largely comes from its automotive and electronics industries, with companies like Toyota and Sony leading the way. Hong Kong and Singapore became global financial hubs, with Hong Kong serving as a gateway to China.
So, how did Taiwan reach this level of success? Taiwan’s journey involved strategic planning and an industrial revolution unique to a few Asian countries in the 20th century. Even before this economic boom, Taiwan played a significant role as a trading hub under Dutch rule in the 1600s. The island experienced further development during Japanese colonialism, which, though often seen negatively, left positive impacts on infrastructure, education, and public health. These changes laid the foundation for Taiwan’s post-WWII “economic miracle,” which drove its modern economic success.
When Japan took control of Taiwan after the First Sino-Japanese War in 1895, Taiwan’s infrastructure was underdeveloped, with limited transportation and industry. The Japanese transformed the island into an agricultural hub for Japan, building a railway system in 1899 to connect the island and support economic expansion. By the 1930s, Taiwan had a robust railway network that integrated local markets and boosted export agriculture.
Japan also modernized cities like Taipei and Kaohsiung, introducing urban planning focused on sanitation and clean water. Taiwan’s cities gained modern amenities, improving living standards for many. The Japanese shifted Taiwan’s economy from subsistence farming to market-oriented agriculture, with a focus on cash crops like rice. By the 1930s, nearly 45% of Taiwan’s rice harvest was exported to Japan.
Public health improved dramatically during this time. In 1906, life expectancy for females was around 29 years, but by the 1930s, it had risen to 45 years. Mortality rates also dropped significantly due to better sanitation, disease control, and healthcare services.
This period of Japanese colonialism is often misunderstood, but it played a major role in Taiwan’s economic foundation. After World War II, Taiwan entered its next phase of growth.
After the war, Chiang Kai-shek’s nationalist government retreated to Taiwan following defeat in the Chinese Civil War. Though Taiwan was relatively prosperous from Japanese rule, it faced challenges like hyperinflation, poverty, and a foreign exchange shortage due to an influx of refugees and soldiers from mainland China.
Taiwan relied heavily on U.S. foreign aid during this time. However, relying on aid wasn’t sustainable in the long term. The nationalist government enacted economic policies focused on tight trade controls, rationing foreign exchange, and maintaining multiple exchange rates. Despite these efforts, Taiwan’s exports accounted for less than 10% of its GDP in the 1950s.
A major shift occurred in the mid-1950s, when policymakers, led by economist S.C. Tsiang, advocated for export promotion. Tsiang suggested that Taiwan focus on increasing exports rather than limiting imports. This idea was embraced by key figures like K.Y. Yin, who led Taiwan’s economic reforms in 1958. Taiwan devalued its currency, unified its exchange rate system, and allowed exporters to keep or sell their foreign exchange earnings. These reforms spurred rapid export growth, particularly in labor-intensive goods like textiles and electronics.
By the 1960s, Taiwan’s economy was growing at an unprecedented rate, and the island joined South Korea, Hong Kong, and Singapore as one of Asia’s “Four Tigers.” However, Taiwan’s growth differed from South Korea and Japan, which were dominated by large conglomerates. Taiwan’s rise was largely driven by small- and medium-sized enterprises (SMEs), though the country also developed a few large conglomerates.
One of Taiwan’s most significant economic successes was its investment in high-tech manufacturing, especially the semiconductor industry. In the 1970s and 1980s, the government invested heavily in research and development, creating the Industrial Technology Research Institute (ITRI) in 1973. This led to the establishment of Taiwan Semiconductor Manufacturing Company (TSMC) in 1987, now the world’s largest independent semiconductor foundry. TSMC’s success made Taiwan a global leader in the tech industry and attracted other high-tech companies to the island.
TSMC’s importance extends beyond Taiwan. As the world’s largest semiconductor producer, countries like the U.S. and China depend heavily on Taiwan. U.S. Commerce Secretary Gina Raimondo once warned that a Chinese invasion of Taiwan and a takeover of TSMC would be “devastating” for the U.S. economy, as 92% of advanced chips come from TSMC.
Taiwan’s rise from a small island to a global economic force is the result of many historical factors, starting with Dutch rule and later Japanese colonialism.