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

Comparison area –mainland: 9,596,961 km 2 –Taiwan: 35,980 km 2 population –mainland: 1.35 billion –Taiwan: 23 million

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 1920s

Political similarities Leninist party-state in mainland and Taiwan –political liberalization in Taiwan since 1980s 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 P.P.P. GDP ( ) –mainland $7 trillion to $13 trillion –Taiwan: $ trillion trade volume ( ) –mainland $1.1 trillion to $3.8 trillion –Taiwan: $ trillion

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

Time-lagged development Promotion of small and medium size enterprises –Taiwan (1960s- ) and mainland (1980s- ) depreciation of currency exchange rate differences –decentralization in mainland (1980s- ) –foreign direct investment in mainland (1980s- ) 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 1940s: agricultural exports –import manufactured consumer goods 1950s: import substitution growth –export of processed agricultural commodities –import decreasing share of manufactured consumer goods 1960s: export diversification growth –export of processed agricultural and industrial commodities

Taiwan’s export upgrading 1960s: export diversification growth –import food, manufactured consumer goods and producer goods 1970s: 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 –increased exports of petroleum & raw materials : “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$480 billion in Q1-3 of 2013 –29% of total exports from mainland –88% are exported by foreign-invested enterprises –less innovation-driven than in Taiwan

Market share development Flying-geese model –more advanced economies loses 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 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