Comparison of Mainland China and Taiwan Similar pattern

Comparison of Mainland China and Taiwan Similar pattern, different timing?

Comparison • Land area – Mainland China ≈ U. S. – Taiwan < 1/3 Tennessee – 267 times bigger • population – mainland: 1. 38 billion – Taiwan ≈ Shanghai – 59 times bigger

Political similarities • Chinese Communist Party (CCP) – Marxism-Leninism and Mao Zedong Thought – “Deng Xiaoping Theory” – “Three Represents” • Nationalist Party (KMT or GMD) – the “three principles of the people” • both CCP & KMT borrowed party-building principles from Soviet Union in 1920 s

Political similarities • Leninist party-state in mainland Taiwan – political liberalization in Taiwan since 1980 s • organizational principles of party-state – party as the guardian of the people – strict party hierarchy and discipline • no organized opposition to party leadership is allowed

Comparison • GDP (nominal or P. P. P. ) – Mainland 20 times bigger • Per capita GDP – Taiwan 3 times bigger – Taiwan = Australia (P. P. P. ) • Exports or Imports – Mainland 6+ times bigger – Taiwan > Russia

Time-lagged development • Land reform – Taiwan (1950 s) and mainland (1970 s) • economic takeoff – Taiwan (1950 s- ) and mainland (1980 s- ) • tariff rebates – Taiwan (1950 s- ) and mainland (1980 s- ) • special economic zones – Taiwan (1960 s- ) and mainland (1980 s- )

Time-lagged development • Promotion of small and medium size enterprises – Taiwan (1960 s- ) and mainland (1980 s- ) • depreciation of currency exchange rate • differences – decentralization in mainland (1980 s- ) – foreign direct investment in mainland (1980 s- ) • significantly contributed to export upgrading • technology-oriented selection criteria (1995 - )

Export dynamics • Continuous upgrading in the structure of exports – inclusion of more sophisticated commodities – development of new markets – growth in export volume • structural changes cause the growth in export volume

Evidence from Taiwan

Taiwan’s export upgrading • 1940 s: agricultural exports – import manufactured consumer goods • 1950 s: import substitution growth – export of processed agricultural commodities – import decreasing share of manufactured consumer goods • 1960 s: export diversification growth – export of processed agricultural and industrial commodities

Taiwan’s export upgrading • 1960 s: export diversification growth – import food, manufactured consumer goods and producer goods • 1970 s: import & export substitution growth – increasingly sophisticated commodities • after 1986 – exports of labor-intensive goods decrease – exports of hi-tech products increase

Evidence from mainland

Mainland’s export upgrading • Before 1978: – emphasis on self-reliance and inward-looking – trade based on self-sufficiency • 1978 -1985 – increased exports of petroleum & raw materials • 1985 -1995: “export substitution” growth – export of labor-intensive manufactured consumer commodities

Mainland’s export upgrading • after 1995: further diversification – attempt to export more sophisticated commodities • exports of hi-tech product – total US$661 billion in 2014 – 28% of total exports from mainland – 73% are exported by foreign-invested enterprises – less innovation-driven than in Taiwan

Market share development • Flying-geese model – more advanced economies lose comparative advantages in labor-intensive industries – movement of industries through foreign direct investment – does not seem to hold true for manufactured commodities that require • high research and development (R&D) expenditure • rapid product and process innovation

Export of office machinery • Can’t be explained by flying-geese model • Taiwan became major developer, producer, and exporter • special case – 1 category – 8 years