A view of Keelung Harbor from Zhongzhen Park.
A view of Keelung Harbor from Zhongzhen Park.
When the Nationalist government retreated to Taiwan in December 1949, its demise seemed imminent. Li Tsung-jen, the acting president, flew to New York seeking medical treatment for a gastric ulcer.1 Most of the Nationalist armies were either lost on the battlefield or had surrendered to the Chinese Communists.2 After repeated defeats, the remaining officials, soldiers, and members of the Nationalist Party (Kuomintang, or KMT) that made the journey across the Taiwan strait suffered from low morale. Internationally, the Republic of China (ROC) lost its position as one of the four great powers. Only Korea decided to transfer its embassy to Taiwan, while others either followed the Soviet Union in recognizing the People’s Republic of China (PRC) or like the United States, waited until the dust settled before deciding which government to recognize. The following two decades might be considered the most trying period for Taiwan as the Nationalist government tried to rebuild its strength by laying the foundation for what would become the “Taiwan miracle.”
In late 1949 and early 1950, U.S. policy toward China was very clear. America would not get involved in the Chinese civil war, which seemed to be approaching a quick end. The U.S. State Department was even contemplating the right timing and occasion to recognize the newly founded People’s Republic of China. Hence, no military aid was forthcoming, nor would the United States use its military power to defend Taiwan because its loss would not affect vital U.S. interests. Although the Nationalist troops scored several impressive victories on the offshore islands at that time, they were not enough to bring about any change in U.S. policy toward Taiwan.3 Only after the outbreak of the Korean War on June 25, 1950, did President Harry Truman order the Seventh Fleet into the Taiwan strait to neutralize the conflict. A year later, economic and military aid from the United States to the Nationalist government resumed and a U.S. Military Assistance and Advisory Group was established in Taiwan. The change in U.S. policy toward Taiwan provided the latter with a chance to devote itself to internal reform.
Chiang Kai-shek, who remained head of the KMT, was asked by the Emergency Committee of the KMT and the Legislative Yuan to resume the presidency.4 At his inaugural ceremony on March 1, 1950, Chiang frankly and publicly admitted full, personal responsibility for the fall of the mainland. Learning from the recent defeat, Chiang started to rebuild the party, the government, and the island.
Chiang first dealt with the problem of revitalizing the KMT. The KMT became the prime force for the reconstruction of Taiwan as well as for the consolidation of the Nationalist government’s power in Taiwan. After several months of preparation, Chiang implemented his reform project by first appointing a Central Reform Committee composed of sixteen faithful followers.5 There were several reasons why he chose these younger cadres (their average age was forty-seven) for this project. Many senior KMT members who accompanied the government’s exodus to Taiwan were responsible for the fall of the mainland and were involved with the many political cliques that had paralyzed the bureaucracy in the first place. The younger members were more energetic and hardworking, and those chosen were either former students or confidential cadres. The Standing Committee of the Central Executive Committee granted Chiang permission to invest this committee with the full authority to reform the party while temporarily suspending the power of the Central Executive Committee and the Central Supervisory Committee.
The Central Reform Committee soon drafted various reform plans on organization, discipline, ideological reindoctrination, and the removal of all evil practices among party members. As for the party organization, all party members who came to Taiwan had to reregister with various levels of the Reform Committee within a certain time and then were put into specified party branches according to their location and profession. Party branches were established everywhere, including local districts, governmental departments, and even central and local people’s representative bodies. Then the KMT examined its members and purged those who had defected, were corrupt, or were incompetent. In addition to requiring its members to study party papers, the KMT re-educated some thirteen thousand cadres through the newly established Sun Yat-sen Institute on Policy Research and Development within three years.6
When the Central Reform Committee concluded its mission and returned its power to the Central Executive Committee at the Seventh Party Congress in October 1952, the Nationalist Party was totally different. Many senior cadres had lost power, and “bad elements” were purged or driven out of the party. Because improved communication was established between related party branches in various government departments, the government went about doing its business more efficiently. Through self-examination, self-criticism, cadre training, and the establishment of various party branches, the Nationalist Party became a party with strong leadership, concrete structure, tight discipline, high morale, common faith in shared doctrines, greater efficiency, and less corruption. Even the party enrollment increased 200 percent in these three years, and the percentage of Taiwanese members climbed as high as 57.12 percent of the total membership.7
In order to maintain the legitimacy of the government, Chiang Kai-shek retained the title and structure of the government as set out in the constitution. The government retained the structure of the central government while establishing a provincial government for Taiwan divided into sixteen counties and five municipalities. The central government would select the governor of provincial government. Beginning in the early 1950s, elections were held at the county, municipal, and provincial levels.8 In other words, local people could participate in local and provincial politics through elections, but not at the national level.
As early as May 1948, the government had already implemented the Provisional Amendments for the Period of Mobilization of the Suppression of Communist Rebellion, which entrusted the president with almost unlimited power to deal with the emergency situation. Based on these provisional amendments, Chiang Kai-shek instituted martial law, which continued when he regained power in Taiwan. The provisional amendments made the Nationalist Party domestically unchallengeable as long as a state of civil war existed. The people could not form any new political parties or publish new newspapers. Those restrictions were not removed until the late 1980s.
Chiang’s reform also extended to the top-heavy army and the internal security apparatus. In order to eliminate cliques and deadwood, Chiang ordered several hundred incompetent generals and colonels to retire, and their soldiers were reorganized into different units. Sun Li-jen, a Virginia Military Institute graduate and the commander-in-chief of the Chinese army, helped to retrain and make nearly two hundred thousand soldiers into elite troops. In 1950, the Ministry of Defense established a Political Affairs Department, headed by Chiang Ching-kuo (Chiang Kai-shek’s son), for the purpose of supervising and extending political and psychological training to the armed forces. The political officer system, under the Political Affairs Department, became juxtaposed with the regular military command system to ensure the loyalty of the troops. Later, Chiang Kai-shek inaugurated the Academy for Political Officers in 1952 to supply political officers.
The government paid attention to the problem of student movements. In the 1940s, student movements had a disastrous effect on society and the government’s ability to govern during the civil war period. Chiang Ching-kuo dealt with the problem by establishing the Chinese Anticommunist National Salvation Youth Corps in October 1952 to promote various youth activities on all college and university campuses. This popular Youth Corps, the only legal intercollegiate organization, indoctrinated students with patriotism and the Three Principles of the People while searching for any kind of seditious activity. It also recruited young talent for the party and the government. Because of Chiang Ching-kuo’s connections and influence, the corps obtained many privileges and received full cooperation from various governmental offices, playing a major role in indoctrinating and entertaining students.
The Nationalist government’s security apparatus was notorious for its motley character and its abuse of privilege. Each security office administered its own affairs without coordination and at times competed for power with others. To rectify this practice, Chiang Kai-shek founded a Political Activities Committee in 1949 to reorganize the security system. This committee was a secret organization and, from its second year on, registered all personnel in the security system.9 With Chiang Ching-kuo as head, this inconspicuous office gradually took control of the entire security system.
Economic collapse was one of the major reasons for the Nationalist regime’s “loss of China.” Interesting enough, economic reform in Taiwan turned out to be the most dazzling and successful part of Nationalist rule. To deal with skyrocketing inflation and plummeting currency value, the provincial government of Taiwan introduced the New Taiwan (NT) dollar with an exchange rate of one NT dollar to 40,000 old Taiwan dollars in June 1949. In March 1950, the government also initiated a preferential interest rate to absorb the surplus money. The interest rate was initially 7 percent per month or 125 percent per year (if compounded) before being gradually lowered to 2 percent per month in November 1952.10 The amount of money in circulation and the inflation rate soon declined. From having reached 3,000 percent in the first half of 1949, the inflation rate then dropped to 300 percent in 1950 and then to 8.8 percent after 1952.11 In addition to stabilizing prices the government also persuaded the private sector to invest in national reconstruction.
At the end of World War II, the agrarian situation did not look good. Land rents were unfavorable for the tenant farmers and the distribution of land poor, with most of the land resting in the hands of a few landlords.12 The government, with no connection with local landlords, implemented economic reform, which involved rent reduction, the sale of public land, and a Land-to-the-Tiller program. In April 1949, Ch’en Ch’eng, the governor of Taiwan province, oversaw the reduction of rent prices to a maximum of 37.5 percent of the annual yield of the main crops. The government based this figure on the assumption that the landlord and the tenant had an equal total annual yield after first deducting 25 percent of the yield for basic labor and agricultural investment of the tenants. The first reform aimed to rule out many old customs such as exploitation of the tenants while guaranteeing a reasonable rent for the landlords. The second part of the land reform, started in 1951, was the sale of the public land to tenant farmers. The government opened to landless farmers about 181,490 chia of public land—nearly a fifth of the arable land in Taiwan—which was acquired by the government from the Japanese nationals and the Japanese administration after the conclusion of World War II. The tenant farmers could buy 0.5 to 2 chia of paddy land and 1 to 4 chia of dry land priced at 2.5 times of the annual main crop yield per chia of cultivated land.
The most powerful impact of the land reform came after January 1953. After a careful evaluation of all available land in Taiwan, the government declared that each landlord could only retain for himself a maximum of 3 chia of medium-grade paddy land or 6 chia of medium-grade dry land, or the equivalent amount of paddy and dry land of superior or inferior quality.13 Private land in excess of this amount was purchased by the government and resold to Taiwanese tillers at a price of 2.5 times the value of the main crops, against a market value of between 5 and 8 times. The landlords were reimbursed by the government with mostly (70 percent) land bonds in kind and stock shares (30 percent) from four government enterprises.
The government achieved tremendous results with its land reform. Many landless farmers benefited from this reform as 139,267 hectares of private farmland were transferred to 194,823 tenant families by the end of 1953. The leased land was reduced from 38.6 percent of total farmland to 15.2 percent while owner-farmer families increased from 36 percent in 1949 to 65 percent in 1952. The number of tenant families dropped from 39 percent to 11 percent.14 This redistribution of the land promoted a more equitable distribution of the land as well as income. While working on their own land, farmers were more hardworking and hence received a better yield. Consequently, the average income of tenant farmers rose 81 percent from 1949 to 1952. Rice yields quickly surpassed prewar levels. This was achieved in 1952. The value of agricultural exports reached U.S.$114 million in 1952. Furthermore, the government successfully shifted landlord investments from the land to industry, which had a deep and broad influence on the future.
After the land reform, farmers’ associations were organized everywhere to offer services and facilities, such as rural credit and savings, the sale and marketing of farm products, rural health and transportation services, and the promotion of rural industry. Since the government monopolized chemical fertilizers, the farmers could obtain fertilizer only from these fanners’ associations through the rice—fertilizer barter system. The government therefore could control the supply of rice and make huge profits from this barter system. The success of the land reform and related rural programs must be attributed largely to the financial support and technical advice of the Sino-American Joint Commission on Rural Reconstruction (JCRR), which, based on the China Aid Act, was a joint effort to devise and monitor the various rural projects in Taiwan.
The United States resumed its military and economic aid to the Nationalist government when it established the U.S. Military Assistance and Advisory Group in Taiwan in 1951. From this time until 1964, the United States offered $1.5 billion in nonmilitary aid to Taiwan, about U.S.$100 million per year. Needless to say, the Nationalist government and Chiang Kai-shek were pleased with these developments. It is generally believed that the appointment to important positions of several liberals, such as Wu Kuo-chen as governor of Taiwan province and Sun Li-jen commander of the army, were intended as friendly gestures to attract the support of the United States.
Both the Communist threat and U.S. aid helped promote the legitimacy of the Nationalist rule in Taiwan. Furthermore, with more and more Nationalist troops moving onto the island and with the consolidation of the Nationalist Party as well as the security system, the Nationalist Party came to life again. Taiwanese people, while still remembering the bloody suppression of the “February 28 incident,” had no outside power to appeal to and had no choice but to accommodate themselves to the Nationalist government. Like the owner-farmers, the Taiwanese now concentrated on making economic gains and improving their surroundings.
With the conclusion of the Taiwan—U.S. Mutual Defense Treaty in December 1954, Taiwan’s position was further secured and the United States at the same time was further dragged into the Chinese mire. With the cold war nearing its peak, Washington could not afford to lose the confidence of its allies and to become the target of the domestic anti-Communist sentiments by letting Taiwan fall into Communist hands. However, on the other hand, the United States did not want to start World War III over Taiwan. Thus the treaty served several positive purposes. It demonstrated, first, American determination to defend Taiwan and the P’eng-hu islands (Pescadores). Moreover, it put a “leash” on Chiang Kai-shek by preventing him from attempting to “recover the mainland” by force.15 It also made Taiwan a fortified link in the U.S. containment policy and, finally, appeased the protests of the China Lobby.* Although the PRC had taken I-chiang-shan island and forced the withdrawal of Nationalist troops from Ta-chen island in early 1955, it failed to take the two most important offshore islands—Quemoy and Ma-tsu—by heavy bombardment in 1958. After that, no more military offensives were ever launched by either the ROC or the PRC. The stalemate across the Taiwan strait remains to the present. Looking at it from another angle, these two crises in the Taiwan strait made the Nationalist government more dependent on the United States and strengthened the need for martial law in Taiwan.
The United States also rendered its support to the Nationalist government in the international arena. After 1950, the Soviet Union began to challenge the Nationalist government’s position as representative of China at the United Nations. At that time, most UN members opposed the PRC’s involvement in the Korean War and maintained diplomatic relations with the Republic of China. With U.S. help, the ROC had no difficulty in using the strategy of “deferment resolution,” that is, deferring a vote in the China question, to deal with this problem. However, with more and more nations becoming independent, the Republic of China gradually faced strong competition from the PRC in winning friendship and support from these new countries.16
The ROC government, therefore, could once again concentrate its energy and effort on domestic affairs. The Nationalist government dealt with the problem of legitimacy by relying on the central representative bodies of the people—the National Assembly, the Control Yuan, and the Legislative Yuan. According to the constitution, the National Assembly and Control Yuan were to hold elections every six years, and the Legislative Yuan would hold elections every three years. After 1951, Chiang Kai-shek extended the tenure of the delegates of the Legislative Yuan every year. Up to 1954, the tenure of the delegates of the other two branches of government also came to an end. At the request of the Executive Yuan, the Council of Grand Justice of the Judicial Yuan reviewed this matter and concluded that all delegates should remain in their positions because the ongoing civil war prevented elections over all China. This ruling perpetuated the status of those delegates and also made their delegation exist in name only because they could not represent the provinces or the groups in mainland China and seldom reflected the views of the local people. Chiang Kai-shek himself also faced the same problem because of the two-term restriction in the constitution. When he reached the end of his second term in 1960, the National Assembly passed a constitutional provision releasing him from this two-term restriction “during the period of Communist rebellion.”
In order to keep local politics under control, the Nationalist Party also did its best to manipulate local elections. Two methods were used to check and control the local politicians. The first was the granting of government-dominated economic privileges to cooperative politicians. The ruling party exerted its influence through the issue of licenses in great profit-making businesses, such as banking, insurance, transportation, broadcasting, securities, and shipping. Only those who would cooperate with and listen to the government could receive such licenses. The second method was manipulating local elections. The Nationalist Party tried to avoid fractional domination of any area. Therefore, it often tried to foster two or more factions in the same area. The KMT permitted the factions to take turns at controlling the mayoralty or the city council through nomination. By using this strategy of playing one against another, the KMT could win cooperation from all factions. Not many local politicians could resist the temptation of wealth and power, and the KMT had long enjoyed its control of local politics.17 The KMT ruled in Taiwan by suppressing the formation of any possible opposition forces. Whenever there was indication of opposition, the government would deal with it unrelentingly, as discussed below.
An important reason for the extraordinary success of Taiwan’s economy was the recruitment of many highly trained professionals to take charge of economic planning and development of state-run industries. This economic elite was composed of economists and engineers. Many had studied abroad and thus had years of fieldwork experience. This young and well-educated group received the full authorization of the government to cooperate with the American aid officials in the design and promotion of economic development in Taiwan. Among them, Chung-yung Yin (K.Y. Yin) and Kuo-ting Li (K.T. Li) were the two most important and distinguished figures. Yin and Li were not economists, but held degrees in electric engineering and physics, respectively. They had diligently and incorruptibly devoted themselves to the construction of the nation for many long years. Based on their long-term fieldwork and understanding of the Chinese scene, they successfully accommodated Western economic theories to Taiwan. It was also because of their past experience in the West that they had no problem in communicating with American aid officers while working together to build up postwar Taiwan. Many of those who participated in economic planning and affairs, such as Yen Chia-kan, Sun Yun-hsuan, Tsiang Yen-shih, Wang Tso-yung, and Lee Teng-hui, later became important government officials.18
To what extent U.S. aid assisted and promoted economic development in Taiwan is still debated by scholars. However, the impact of U.S. aid should not be underestimated. Of the U.S.$100 million in nonmilitary aid that Taiwan received every year between 1951 and 1965, about two-thirds was spent on the development of infrastructure projects and human resources. During this time, U.S. economic aid constituted about 40 percent of capital formation in Taiwan. Most of the American assistance was spent on communications, electricity, and transportation, which were important for agricultural and industrial development. The U.S. human resources program included the dispatch of specialists to Taiwan to train technicians or offer study tours to Chinese people. American aid also led American businessmen to invest in Taiwan.19 Many sources indicate that U.S. aid officials, through many joint programs, such as the JCRR and the Council on U.S. Aid, exerted a strong influence on the making and execution of economic policy in Taiwan.20
At that time, most daily necessities, raw materials, and industrial equipment came from abroad, while only a few items, such as rice and sugar, were exported. This trade imbalance led to a huge trade deficit, causing a serious shortage of foreign reserves.21 Worsening this situation was the 3.6 percent population growth rate and the more than 5 percent unemployment rate in Taiwan in early 1950. The government therefore adopted an import-substitution industrialization strategy to develop labor-intensive light industry. Many measures were formulated to assist this strategy. For example, the average nominal tariff rate was 44.7 percent, while the rate for some items increased to 160 percent in order to protect infant industries. In July 1955, a system of rebates was created to return to the manufacturer the import duties of the goods for export purpose. In 1956, certain industrial categories, new companies, or old companies making new investments that would enlarge production by 30 percent were exempted from paying a business tax for three years.22 The government decided to abolish its dual exchange rate system and devalued the exchange rate in the second half of the 1950s from NT$15.55 per U.S. dollar to NT$25 in 1955, NT$38 in 1958, and NT$40 in 1960.23 Ever since then, the government has maintained a unified exchange rate. In 1954 and 1955, other favorable measures were also introduced to attract foreign or overseas Chinese investment.
At the suggestion of the U.S. Agency for International Development mission, the government established the Economic Stabilization Board in 1951 to review and coordinate trade, payments, and monetary and fiscal policies in the interests of stabilizing price levels. The board was enlarged to absorb other related institutions in July 1953 and started its first and second four-year Economic Development Plan in 1953 and 1957, respectively. The first four-year plan placed strong emphasis on the development of electricity, fertilizers, and textiles. The reason for these priorities was simple. Electricity was the basis for all other industries. Fertilizers and textiles were two major imported commodities; while the former was crucial for agriculture, the latter was a basic daily necessity.24 The government left the development of the textile industry to private enterprise. The government provided textile manufacturers with funds to start production and with raw cotton provided by the United States. In the end, the government bought the production of these companies. The quick development of textile industry created many job opportunities and permitted textilers to profit. Until 1958, the amount of textile exports surpassed that of textile imports. Electric power offered by the Taiwan Electric Company expanded 2.56 times between 1952 and 1960. At the end of the first four-year plan, the industrial production index went up 154.7 percent, while Taiwan’s income per person rose 40 percent. However, the plan failed to reach the goal of industrial and agricultural self-sufficiency or to pay the balance of international payments. In 1956, the trade deficit was U.S.$98 million.25 The second four-year plan extended the original goal to the issues of employment and income inequality. The second plan also focused on heavy industry, national defense industry, advanced technology, and regional cooperation. Extending the economic and industrial goals to the domestic and international arena over the next several decades was justified.
Besides textile manufacturers, other entrepreneurs benefited indirectly from the government’s land reform. After the government compensated landlords with stock shares from four government enterprises (Taiwan Cement, Taiwan Pulp and Paper, Taiwan Industry and Mining, and Taiwan Agricultural and Forestry), people interested in these industries bought stock shares from landlords, who had no interest in these enterprises. Because of the government’s protective tariffs and other inducements, they, on the basis of former government enterprise, successfully earned huge profits in the fields of cement making, petrochemicals, plastics, and agricultural production.
Another important reason for the success of Taiwan’s economy was the government’s ability to maintain and raise the quality of human resources. Moving to Taiwan with the Nationalist government were a large number of migrants with a good education, technical skills, administrative ability, and entrepreneurial experience. They soon found positions at the various levels of the government and filled the vacuum left by the Japanese. Their specialty and loyalty also contributed to the consolidation of the Nationalist government in Taiwan. Once the Nationalist government became stable again, it made great efforts to promote education, which later produced high quality human resources able to contribute to the political, economic, and social development of the “Taiwan miracle.” The number of higher education institutions jumped from four in 1952 to fifteen in 1960. There were 1,248 primary schools and 148 secondary schools in Taiwan in 1952. By 1960, the number of primary schools rose to 1,982 whereas secondary schools increased in number to 299. The effect of increasing the number of schools can be seen from statistics showing that the percentage of six-year-old children who were not able to attend school dropped from 42.1 percent in 1952 to 27.1 percent in 1960 and to 14.7 percent in 1970.26
The security apparatus was also further strengthened. The Materials Section under the Presidential Office was transformed into the National Security Bureau under the new National Defense Council in 1955. This new bureau, under Chiang Ching-kuo, coordinated all security agencies, including related offices in the Kuomintang, the Ministry of Defense, the Ministry of Foreign Affairs, the Ministry of the Interior, Taiwan Garrison Command, the military police, and the local police. This widespread and enhanced security system, which contributed to the consolidation of the Nationalist government in Taiwan, also became a useful instrument for suppressing dissidents. The security apparatus was constantly “cracking down” on alleged Communist conspiracies or subversive cases. In its determination to exterminate all Communist agents and influence in Taiwan, the government arrested, imprisoned, and executed thousands on insufficient or circumstantial evidence. The 1950s became known as the period of “white terror.” People dared not criticize the government, make comments on current politics, or voice grievances to strangers.
The suppression of any conspiracies and dissidents was not limited to the local people. At this time, government and party officials, no matter what their position, could be easily persecuted or purged. Some liberals who did not agree with or conform to policy were kicked out of the government. Wu Kuo-chen, then the governor of Taiwan province, was the first case. Wu was not a member of Chiang Kai-shek’s circle and often publicly criticized Chiang Ching-kuo’s methods of suppressing so-called Communist insurgents. Wu was forced to leave Taiwan in 1953 and formally broke relations with the Nationalist government in 1954, when he held a press conference in New York to criticize Chiang and his government as “undemocratic,” for making Taiwan into a “police state,” and for making the people submit to “one-party rule.”27 In 1955, Sun Li-jen, who was commander of the army and personal chief of staff to Chiang Kai-shek, was implicated in a plot to overthrow the government after a former subordinate, Kuo T’ing-liang, voluntarily confessed to being a Communist agent. Sun was forced to resign for “negligence” and spent the rest of his life under house arrest. It is commonly believed that the fall of Sun was in fact related to displeasure with Chiang Ching-kuo for imposing the political official system on the army.28
Another famous case was the suppression of the Free China Fortnightly, a magazine published by Lei Chen and supported by a group of liberals including Hu Shih, Yin Hai-kuang, T’ao Po-ch’uan, Ch’en Ch’i-t’ien, and Fu Cheng. They were critical of the government’s growing autocratic tendencies and the overex-tension of the party system because this undermined democratic politics. When Lei Chen and a few Taiwanese politicians tried to organize a China Democratic Party in 1960, Lei was arrested for employing a Communist agent. Lei was sentenced to ten years in prison, thus silencing and dispersing the famous Free China Fortnightly group. It is clear that no opposition force or liberal groups were allowed to play a role in politics in this period and no one dared to try again until the 1970s.
In the late 1950s and early 1960s, both Taiwan and the international environment underwent significant changes. The domestic market was saturated and economic development slowed down. Because of the success of land reform, the agrarian population grew every year, reaching 4.8 million in 1958. Farmland, which had heretofore experienced little expansion, became divided into small parcels. On average, a farmer owned 0.18 hectares of farmland in 1958. Profit from agricultural production fell, and farmers gradually lost interest in putting more labor and investment into the land. On the other hand, although the government had already begun to promote industry, the industrial products of Taiwan were unable to find an international market. The export statistics for 1958 show that agricultural products made up 86 percent of all exports. The population grew at a rate of 3.6 percent between 1953 and 1958, totaling more than 10 million people in 1958.29
The change in the international environment also played a role in the transformation of Taiwan’s economy. The United States, with strategic and economic considerations in mind, began to promote self-financing and the improvement of the investment climate in Taiwan in the late 1950s. In America’s competition with the Soviet Union, Taiwan served as a model in contrast to the PRC. A U.S.-supported Taiwan demonstrated that an open society would prosper more in its economic development. Equally important were economic considerations. Because of growing labor costs in their domestic markets, American and Japanese enterprises went overseas to seek less expensive labor. Furthermore, when the major industrial countries moved toward more advanced technology, they left room for the developing countries to move in.30 All these factors gave Taiwan a golden opportunity to change its economic course.
In late 1959, the Council for U.S. Aid, which took over the duty of economic planning and development after the dissolution of the Economic Stabilization Board in 1958, was advised by American officials to accelerate Taiwan’s economic growth. The United States hoped to expand its aid to Taiwan in the next several years so that Taiwan could become independent and plan its economic development and thereby become an example for other recipients of U.S. aid.31 Stimulated by a promise of additional U.S. aid and a draft reform plan, government officials worked out a comprehensive nineteen-point program of economic and financial reform in 1960. This reform sought to increase production, liberalize trade, encourage savings and private investment, fully utilize government production facilities, and hold military expenditures to the real 1960 level. American aid officials even promised to offer an additional loan of $20–30 million to encourage the ROC government to implement the program promptly.32
The government started an export-oriented strategy to accommodate itself to the domestic and international factors. The government promoted many economic reforms, such as liberalization of foreign exchange controls, an increase in the electricity rate, the adoption of a single foreign exchange rate, a reduction in the rate of effective protection, establishment of investment banking machinery, and setting up a stock market. The reactivation of the Central Bank of China in 1961 was carried out to stabilize the currency, promote production, and assist economic development. Two other banks, the Bank of China and the Bank of Communications, were also reactivated in 1960 to assist domestic industries and enterprises as well as to deal with matters of foreign exchange and international trade. The tendency toward an export-oriented economy could be seen from its third four-year plan for “accelerated economic development” from 1961 to 1964.
One of the most important economic reforms in this period was the enactment of the Statute for the Encouragement of Investment in September 1960. This statute successfully attracted funds from local and international investors and diverted them to industrial construction in Taiwan. The incentives of the statute included a five-year tax holiday to a productive enterprise conforming to the statute’s criteria; a maximum business income tax rate of 18 percent; business tax exemption on machinery; and business tax exemption on all imported raw materials for exporting manufacturers.33 In addition to these benefits, the government also promised to assist in the acquisition of plant sites for enterprises because the land reform regulations had created obstacles in the transaction of the industrial-use land.
In addition to export promotion, the other major economic strategy of the government was the encouragement of investment in labor-intensive industries, which did not require a great deal of capital or advanced technology. An abundant labor force became available as the agricultural sector’s labor needs decreased. The rapid growth of labor-intensive industries not only created job opportunities for unskilled labor but also promoted more equitable income distribution. Textiles, plastic and rubber products, paper and paper products, and chemicals were among the government-promoted industries. Statistics reveal Taiwan’s transformation from an agricultural economy to an industrial economy. Agriculture’s share of the labor force declined from 52.1 percent in 1952 to 35 percent in 1971, while that of industry increased from 20.2 percent to 30 percent. However, in terms of the growth rate of the net domestic product (NDP), the industrial sector of the economy averaged 14.2 percent between 1953 and 1970 compared with 4.9 percent of the agricultural sector. In 1952, agriculture accounted for 35.9 percent of the NDP, but this figure dropped to 30.4 percent in 1959 and to 19.2 percent by 1970. Meanwhile, industry grew from 18 percent of NDP in 1952 to 25.7 percent in 1959 and to 32.5 percent in 1970.34 Various statistics prove that Taiwan’s economy moved progressively toward industrialization.
The economic planning and strategy of this period came into realization with the establishment of export processing zones. With the promulgation of the Statute for the Establishment and Management of the Export Processing Zones in 1965, the first zone was completed in Kao-hsiung harbor in December 1966. The administrators of the zone were authorized to process all import and export transactions, and this has greatly facilitated business for the investors. Furthermore, in addition to tax incentives, all import taxes were exempted if the material and manufacture were for export purposes. This zone, the first one in Asia, received an overwhelmingly favorable response locally and internationally, the latter mostly referring to American and Japanese investors. The goals of the Kao-hsiung Export Processing Zone—the investment of U.S.$1.8 million, annual exports totaling U.S.$7.2 million, and the employment of 1,500 people—were reached within two years.35 The government then decided to establish two more export processing zones in Taichung, another harbor city. The establishment of these zones absorbed foreign investment, created job opportunities, assisted the training of laborers, promoted the development of industry, and increased exports from Taiwan. Export growth in this decade averaged 25 percent, rising from U.S.$174 million in 1960 to U.S.$1.56 billion in 1970—eightfold growth. Imports grew from U.S.$252 million to U.S.$1.52 billion, an average 20 percent growth rate.
Despite the cessation of American aid in 1964, Taiwan became the fastest-growing economy in the world because of the sound economic and industrial infrastructure and the Statute for the Encouragement of Investment. Between 1960 and 1970, the average annual growth rate of the gross national product (GNP) in Taiwan was 9.7 percent while that of per capita income was 6.6 percent. The growth of capital formation was more impressive. It rose from 20.1 percent of GNP in 1960 to 26.3 percent in 1970. The wealth of the people in Taiwan, as well as their confidence in their own economy, is also evident in the amount of domestic investment, of which 60 percent came from domestic savings in 1960 and 95 percent in 1970.
Another characteristic of the “Taiwan miracle” was the remarkable equalization of income distribution. Many scholars used the Gini coefficient, which compares the income share of the richest 20 percent with that of the poorest 20 percent, to show the degree of income distribution inequality. In 1953, the Gini coefficient for Taiwan was 0.558, similar to that of Mexico or Brazil, but by 1970 it fell to 0.321, better than the U.S. rate of 0.36.36
The rapid development of Taiwan’s economy was closely related to improvement in the quality of human resources, which reflected the education policy of the government. The government spent about 13 percent of its budget on education from 1954 to 1968. While the nation became richer and more stable, the Nationalist government decided to increase the allocation for education. In 1968, it extended compulsory education from six years to nine years. The proportion of primary school graduates who went on to junior high school jumped from 51 percent in 1961 to 80 percent in 1971.
Despite the smooth economic developments, the ROC met with less success in international politics. At this time, the United Nations became a major battlefield for the ROC. With the rapid increase in UN membership in the 1960s, it became more and more difficult for the ROC to compete with the PRC in claiming to represent “China.” A new strategy was devised to win friends overseas. The ROC initiated the International Technical Cooperation Program in 1959 to offer its specialty—agricultural technology—to other countries. The first technical assistance team (agricultural mission) was sent out in 1961 and soon was in some forty countries in Africa, the Middle East, Southeast Asia, and Latin America. This strategy achieved some returns in the form of abundant diplomatic support for the ROC.37 That same year, the United States and four other nations proposed and passed a resolution making the PRC’s application to the United Nations an “Important Question” requiring approval by two-thirds of the General Assembly.38 Despite the ups and downs of the fight at the United Nations, the ROC was able to keep its seat through the 1960s.
America’s war in Vietnam had a mixed effect on U.S.-ROC relations. On the one hand, Taiwan had strategic and logistical value for U.S. forces operating in Southeast Asia. The U.S. Air Force used Ching Chuan Kang airfield for transporting, refueling, and airlift support for its aircraft. Taiwan also became a major station and resort for thousands of U.S. soldiers in this period. On the other hand, the Vietnam War played a major role in leading U.S. policymakers to seek a compromise or understanding with the PRC in order to get the United States out of the war. Many suggestions from inside and outside the administration had been raised in the 1960s about the establishment of relations with the PRC. Although the “Cultural Revolution,” launched in 1966, had temporarily dampened any U.S. expectations in this matter, the Sino-Soviet split in 1969 and the emergence of the PRC as a nuclear power in 1963 had a lasting influence on U.S. policymakers. Faced with growing antiwar sentiment at home and hoping to have a peaceful and stable Asia, President Richard Nixon decided to seek improved relations with the PRC after he was elected in 1968. To show its goodwill, the Nixon administration adopted some conciliatory measures toward the PRC, including the resumption of the Warsaw talks with the PRC, which had been put on hold for two years.39
Domestically, there were some new domestic political developments in Taiwan in this period. Ever since the founding of the Taiwan Provincial Assembly in 1959, the people in Taiwan had an opportunity to participate in politics at the provincial level. Changes also occurred as more and more Taiwanese entered the upper echelons of government and the military. Because of suspension of political participation at the national level for two decades, many delegates in the three parliamentary representative bodies died off, leaving the government no choice but to hold supplementary elections after 1969. Although the supplementary quota for the three parliaments was small at this time, these elections were quite significant in two ways. First, the old system and old representatives presenting the “legitimacy” of the government on Taiwan were doomed to be replaced as the time passed. Second, the elections for the representatives at both provincial and central levels permitted local KMT and non-KMT politicians a greater role in politics.
The Nationalist government, though enjoying its success in economic development, did not loosen its grip on domestic politics. The government crushed dissension in every way in society. One famous dissident was Dr. P’eng Ming-min. P’eng, then the chairman of the Department of Political Science at National Taiwan University, and two of his students (Hsieh Ts’ung-min and Wei T’ing-ch’ao) issued a “Self-Rescue Declaration of Taiwan” in September 1964. The declaration appealed to all people in Taiwan—both Taiwanese and mainlanders—to work together to establish a democratic country because Taiwan was in reality already independent of China. They were soon arrested. P’eng and Wei were sentenced to eight years in prison whereas Hsieh was to serve a ten-year term. Because of P’eng’s distinguished status and the pressure of the U.S. government, he received amnesty in November 1964 and left for Sweden in 1970.
Literature, popular songs, and artistic activities were also under strict scrutiny by the authorities. No criticism of the established political culture was tolerated. Two popular writers, Li Ao and Kuo Yi-tung (pen name Po Yang), wrote satires on the politics of the time, the conservatism of the government, and the negative features of traditional Chinese culture. The magazine Wen Hsing, which carried Li Ao’s articles, was closed for a year in December 1965 while Li Ao was sentenced in 1972 to ten years in prison for his involvement in P’eng Ming-min’s case. The government accused Kuo Yi-tung of being a communist agent, and he too was sentenced to ten years in prison in 1968. Liberals of this period usually were cowed into silence or lived abroad in self-imposed exile.
Throughout these two decades, consolidation, stability, and prosperity were major concerns of the Nationalist government. While the government was preoccupied by these concerns, it failed to consider other, much-needed basic political and cultural issues with serious implications for the future. A review of those negative aspects illustrates the other side of the “Taiwan miracle.”
The obsession of “recovering the mainland” led the Nationalist government to spend much of its budget on military expenditures. To maintain its “legitimacy” as the sole representative of all of China, the Nationalist government diligently defended its international status and, with the help of the United States, was able to maintain its status in the United Nations. However, the enlargement of the UN and the changing attitude of the United States toward the PRC inevitably put the ROC on the periphery of American concerns in Asia.
The Nationalist Party became revitalized after its reform movement in the early 1950s. The party, through the extension of the branches, became all-pervasive in the society and in the government. No opposition force could be formed by the “freezing” of parliamentary representatives, by the operation of the security apparatus, and by the manipulation of local politics. In the government, because of the dual status of most high-ranking officials, there was no distinctive line between the party and the government. The Nationalist Party could receive privileged support from the government, and some government policies and measures were formulated in favor of the ruling party. The party–state ruling system became entrenched and undermined the progress of democratization in Taiwan.
After the outbreak of the Korean War, the United States played a major role in the economic development and defense of Taiwan. Using U.S. economic assistance as both an incentive and a threat, the U.S. government guided the ROC toward becoming an industrialized and modernized country. The ROC also proved itself to be a model U.S. aid recipient—it graduated from the aid program and experienced rapid economic growth thereafter. However, contrary to its later policy of pressuring Taiwan to improve its human rights record, the U.S. government did not exert any strong pressure on the Nationalist government on the issue of democratization in Taiwan.
Since the Nationalist leaders never identified themselves as a regime in Taiwan, they thus did not pay due respect to local people and local culture. Only Chinese culture and Mandarin were officially honored in school and in society. Except for the symbolic representation of several Taiwanese in the cabinet in these two decades, the Taiwanese people had little opportunity to share political power in the central government. However, with the accumulation of wealth and the formation of a middle class in Taiwan, people on Taiwan, both Taiwanese and mainlanders, would soon look for the opportunity of political participation and their own way for the future of Taiwan.
1. When President Chiang Kai-shek announced his retirement as president on January 21, 1949, Vice President Li Tsung-jen became acting president.
2. It is generally estimated that about six hundred thousand Nationalist soldiers withdrew from the mainland and some offshore islands to Taiwan.
3. Those victories were gained in Quemoy in October 1949, in Ten-pu island in November 1949, and Ta-tan island in July 1950.
4. The Emergency Committee, a twelve-member council, was organized in July 1949 to take over the function of the Central Political Council as a supreme policymaking organ in the party in order to deal with the crises of the time.
5. Twenty of the old comrades were entitled to an honorary Advisory Committee of the Central Reform Committee. For the KMT’s reform in 1950–52, see Ch’in Hsiao-i, ed., Chung-hua min-kuo cheng-chih fa-chan shih, vol. 4 (Taipei: Chin-t’ai Chung-kuo ch’u-pan-she, 1985), pp. 1607–1664; Hsu Fu-ming, Chung-kuo kuo-min-tang ti kai-tsao (1950–1952) (Taipei: Cheng-chung shu-chu, 1986).
6. Ramon H. Myers and Linda Chao, “A New Kind of Party: The Kuomintang of 1949–1952,” in Proceedings of Centennial Symposium on Sun Yat-sen’s Founding of the Kuomintang for Revolution, vol. 4 (Taipei: Chin-t’ai Chung-kuo ch’u-pan-she, 1995), p. 32.
7. Wu Nai-teh, “The Politics of a Regime Patronage System: Mobilization and Control Within an Authoritarian Regime” (Ph.D. dissertation, University of Chicago, 1987), p. 66.
8. Beginning in 1951, the Provisional Provincial Assembly was elected by county and municipal assemblies. This practice continued until the establishment in 1959 of the Provincial Assembly, which would be chosen by direct election.
9. Operated under a newly founded office, the Materials Section under the Office of the President.
10. Shirley W.Y. Kuo, Gustav Ranis, and John C.H. Fei, The Taiwan Success Story: Rapid Growth with Improved Distribution in the Republic of China, 1952–1979 (Boulder: Westview, 1981), p. 65. The government did not suspend the preferential interest savings deposits until the end of 1958.
11. Ibid., p. 64.
12. The land rent generally equaled 50 percent—and sometimes as much as 70 percent—of the total annual yield of the main crop. At that time, landlords with more than 5 chia (1 chia = 0.97 hectare or 2.4 acres) of private farmland owned more than 30 percent of total private farmland land and comprised only 4.6 percent of the farmers. Fanners with less than 0.5 chia of farmland owned only 5 percent of total private farmland and comprised more than 30 percent of the farmers.
13. T.H. Shen, The Sino-American Joint Commission on Rural Reconstruction: Twenty Years of Cooperation for Agricultural Development (Ithaca: Cornell University Press, 1970), p. 61.
14. Ch’in Hsiao-i, ed., Chung-hua min-kuo ching-chi fa-chan shih, vol. 3 (Taipei: Chin-t’ai Chung-kuo ch’u-pan-she, 1983), pp. 1026–1029; Han Lih-wu, Free China on Taiwan (Taipei: Huo Kuo, 1972), p. 100.
15. The ROC’s agreement not to attack mainland China without prior consultation with its treaty partner, the United States, demonstrates that the Mutual Defense Treaty restricted Nationalist troops in their attack on mainland China. Furthermore, Chiang Kai-shek was forced to state publicly in 1958 that the ROC would not resort to force to reunify China.
16. The states maintaining diplomatic ties with the ROC and the PRC changed from 39 : 19 in 1953 to 53 : 36 in 1960.
17. On the KMT’s control of local politics, see Ch’en Ming-t’ung, “T’ai-wan ti-ch’u cheng-chih ching-ying ti ts’an-hsuan hsing-wei,” National Science Council research paper (ROC), 1989; Wu Nai-teh, “The Politics of a Regime Patronage System”; Ch’en Ming-t’ung, P’ai-hsi cheng-chih yu T’ai-wan cheng-chih pian-ch’ien (Taipei: Yueh-tan ch’u-pan-she, 1995), pp. 152–190.
18. For an analysis of these economic elites, see Alan P.L. Liu, Phoenix and the Lame Lion: Modernization in Taiwan and Mainland China, 1950–1980 (Stanford: Hoover Institution, 1987), chap. 3.
19. The inflow of private capital to Taiwan totals about $30 million a year since 1956.
20. See Richard E. Barrett, “Autonomy and Diversity in the American State on Taiwan,” in Contending Approaches to the Political Economy of Taiwan, ed. Edwin A. Winckler and Susan Greenhalgh (Armonk, NY: M.E. Sharpe, 1988); Thomas B. Gold, State and Society in the Taiwan Miracle (Armonk, NY: M.E. Sharpe, 1986), pp. 68–69.
21. The trade deficit in 1950–55 totaled U.S.$444 million.
22. P’eng Po-hsien, “Chan-hou T’ai-wan tsai-cheng chih fa-chan yu pian-ko,” (paper presented at the T’ai-wan kuang-fu hou ching-chi fa-chan yen-t’ao-hui, 1995), p. 3.
23. Yin Nai-p’ing, “T’ai-wan kuang-fu i-lai ti wu-chia wen-ting cheng-ts’e,” (paper presented at the T’ai-wan kuang-fu i-lai ti wu-chia wen-ting cheng-t’se, 1995), pp. 14–15.
24. Textile imports from Japan alone in 1949–51 totaled 90 million yards, not including from other areas. In 1951, textiles became the most imported item, totaling 17.29 percent of all imports. Japan also became the chief source of Taiwan’s fertilizer imports, which totaled half a million tons a year.
25. Imports totaled U.S.$228 million and exports U.S.$130 million. For an evaluation of the first four-year plan, see Ch’in Hsiao-i, ed., Chung-hua min-kuo ching-chi fa-chan shih, vol. 3, pp. 1041–1043; Wang Tso-jung, Wo-men ju-ho ch’uang-tsao lo ching-chi ch’i-chi (Taipei: Shih-pao wen-hua, 1989), p. 26.
26. Taiwan Statistical Data Book, 1989.
27. Howard L. Boorman, ed., Biographical Dictionary of Republican China (New York: Columbia University Press, 1970), vol. 2, pp. 439–440; Ch’en Ming-t’ung, P’ai-hsi cheng-chihyu T’ai-wan cheng-chih pian-ch’ien, pp. 140–142.
28. Ibid., p. 167.
29. Wang Tso-jung, Wo-men ju-ho ch’uang-tsao lo ching-chi ch’i-chi, pp. 37–40.
30. See Edwin A. Winckler, “Mass Political Incorporation, 1500–2000,” and Susan Greenhalgh, “Supranational Processes of Income Distribution,” in Winckler and Greenhalgh, ed., Contending Approaches to the Political Economy of Taiwan.
31. Chien-kuo Pang, The State and Economic Transformation: The Taiwan Case (New York: Garland, 1992), pp. 180–185.
32. Neil H. Jacoby, U.S. Aid to Taiwan: A Study of Foreign Aid, Self-Help, and Development (New York: Praeger, 1966), pp. 134–135.
33. Kuo, Ranis, and Fei, The Taiwan Success Story, pp. 74–75.
34. Taiwan Statistical Data Book, 1982, p. 33.
35. Ko Chen-ou, Chia-kung ch’u-kou-chu tishe-chih (Taipei: Lien-ching, 1983), p. 21.
36. Kuo, Ranis, and Fei, The Taiwan Success Story, pp. 44, 92–93.
37. Yu San Wang, “Foundation of the Republic of China’s Foreign Policy,” in Yu San Wang, ed., Foreign Policy of the Republic of China on Taiwan: An Unorthodox Approach (New York: Praeger, 1990), pp. 5–7; Bi-rong Liu, “Continuity and Change in the ROC’s Foreign Policy” (paper presented at the Conference on the Period of Transformation of Contemporary China, May 20–22, 1988), p. 5; Ralph N. Clough, Island China (Cambridge: Harvard University Press, 1978), p. 151.
38. Clough, Island China, p. 151.
39. Ibid., pp. 21–25.
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* The lobby was an eclectic aggregation of politically conservative organizations and individuals who supported the interests of the ROC in the United States.