This is Taiwan, or officially, the Republic of China, a country in east asia,
which if you can’t tell by how delicate I am being with these
titles here is consistently under a bit of ehh let’s call it scrutiny.
The Republic of China primarily occupies this island here but it officially lays claim to all
of this area which of course makes the People's republic of china very angry.
To make matters worse, the peoples republic of china,
headquartered in Beijing, the china you would normally think of when you think of
“china” lays claim to this island as well so the whole thing is a bit, contentious.
So contentious in fact that any country that is doing business with the people's
republic of china, you know china china, has to officially declare
that they recognise the island of taiwan as the sovereign territory of China.
While this is all very confusing, the fallout is that the nation of Taiwan,
is only officially recognised by a tiny selection of countries from around the world.
These countries include economic superpowers like Guatemala,
Haiti, the Marshall Islands and vatican city collectively making up only accounting for
around 50 million people and covering a tiny portion of world trade.
So its not exactly like they have brought their A team there either.
In Fact about 2 thirds of the worlds population that officially recognises
Taiwan as a nation are citizens of taiwan. There are some sovereignty claims in
outback australia that have been more widely recognised than this nation of 23 million.
This isn’t just something that is brought up to poke fun at the country,
or to dazzle viewers with intriguing factoids either… this whole situation
has some very serious political, social and of course economic consequences.
On one hand the nation is constantly living under at least the passive threat of being invaded by
one of the world's most powerful militaries, but even more mundane realities become an issue.
Things like trade deals,
raising finance on international markets or even setting up international business operations
is very difficult in a nation that almost every other nation in the world swears does not exist.
But maybe we have seen this all before, nations that are born out of political sepearation,
live with hostilities from world superpowers, scare off international businesses,
and fail to even raise capital can only really go one way right?
Well maybe not…
Despite all of these substantial hurdles Tiawan powers on. It has a GDP per capita of
$25,000 and an average net worth per citizen of $142,733.
Those are Per Capita GDP figures that are only beaten out by Japan and South Korea
in the region. And average net worth figures that are only beaten by a
very select group of the wealthiest most developed nations on the planet.
So what is going on here?
Why are countries so quick to dismiss Taiwan as not a real nation?
What issues does this cause in an increasingly globalised world?
How is it that Taiwan has been so prosperous besides this?
And of course once we have finished going over the nations quirks and features,
we have to give it an EE score.
INTRO ADD
So before we get into exploring this particular, country, nation, island, hmm place???
We must first understand why there is all this confusion in the first place.
If you ask the average person on the street what taiwan is they are likely to say well its a
country, and in many ways that recognition is the only thing that really makes a country a country
rather than a madman that planted a flag on their cattle ranch.
But if it seems so simple to an average person why has this place been
Shunned by the world.
Well as with everything it comes down to history and politics.
The Republic of China, the one that is now the government of taiwan was formed in 1912
after the revolution that saw the end of imperial rule in china. At this time the
Island of taiwan was actually still the territory of japan.
Now 1912 was not a great time to start a new government, because in just 3 short decades
following its formation the country fell into warlording chaos, which started a civil war
which was only truely brought to an end when japan invaded mainland china.
Once that common enemy was dealt with, it was straight back to a civil war
between the Republic of China, and the Communist Party of China.
They fought back and forth for 4 years before eventually the Government representing the
Republic of china was facing almost certain defeat. So they did what anybody else would do.
They packed up all the gold and currency reserves,
loaded them onto ships and sailed away to find some tropical island in the pacific.
Taiwan which had been handed over to china after the japanese defeat in WW2 did nicely for that.
A temporary capital was established in taipei to serve as a wartime base
of operations for the nation and then basically nothing ended up happening.
I mean the nations shook their firsts back and forth at eachother over the south china sea
but outside of that the newly formed peoples republic of china got down to
being a workers paradise (go watch our video series on china to find out how that went)
and the Republic of China (or Taiwan) got to establishing any nation at all.
This was actually a surprisingly long process because for a long time
Tiawan genuinely saw itself as a temporarily misplaces military centre
that was just biding its time to take back the mainland from those pesky revolutionists.
It wasn’t really until a new president was elected in 1988
alost 30 years later, that the nation started to realise that maybe that dream of taking back
the motherland wasn’t gonna happen and maybe we should learn to appreciate what we have.
With this, things like marshall law were put to an end,
and yes the nation basically lived under wartime marshall low for over 30 years.
But it also did more symbolic things as well,
The rhetoric of the nation was changed to be proud of taiwan,
the government structure was changed from treating the island like a territory
to recognising it as the nation in which to be governed, and banknotes were now to be printed
from the Tiawanese central bank rather than the Provincial Bank Of Taiwan.
Now of course this recount history is extremely brief
and I would definitely recommend reading about this separately,
not only because it is fascinating but because it has been extremely influential.
But the takeaway for the sake of the economy should be that all of this poised the nation
nicely to make the transition from some bitter outpost of an shunned regime to one of the
Economic miracles of asia
When the Government that went on the form Taiwan was planning their sweet escape
they were very clever with what they packed.
The piles of gold and foreign currency reserves were definitely a big win
and were instrumental at fighting off hyperinflation during a period
of currency transition in the newly established country.
But there was potentially an even more valuable type of cargo that they brought with them.
Smart people.
You see at the time the Chinese Communist Party was not exactly an intelectuals paradise.
Infact people that were seen as prestigious academics or elites
were branded as class enemies and yeah well, wasn’t great for them.
So when given the option of legging it to this new island there were plenty of very smart,
very innovative citizens that were fully onboard… literally.
A combination of this strong academic background as well as some infrastructure
left over from the japanese occupation made the nation a hotbed for a technical revolution.
As soon as the whole martial law thing cooled off this all came pretty quickly.
For a long time Japan had been the low cost, high quality manufacturer
of things like consumer electronics, home appliances, and manufacturing components,
but they japan was running into a problem they were becoming too rich.
By the 1990’s the average salary of a japanese worker was comparable to that
of the average american worker, so low cost manufacturing was no longer their domain.
This is collectively known as the middle income trap, and we have explored it many times on
this channel when we explored countries like Brazil, China, Mexico, and yes of course Japan.
The takeaway here was that Tiawan was ready to fill that
role and they were ready to do it a full decade before mainland china
was even on most international companies' radars as a place you would ever consider doing business.
This headstart of being in the right place at the right time with the right workforce
meant that the nation attracted a swath of international companies like Foxconn, IBM, Sony.
What’s more is that they used this momentum
to start a collection of very well known companies themselves.
HTC, Acer, and Asus are all headquartered in taiwan and sell products all over the world.
Because of this Taiwan has built up one of the strongest current account surpluses in the world.
Their huge foreign currency reserves furtherer helped this because they were
able to exchange money easily with other nations to assist with trade
while being able to monitor their own currency to ensure they stayed competitive.
So it looks like this was a happily ever after kind of scenario for Taiwan right?
Well no.
You see being so heavily dependant on trade came with some problems.
How can you trade with nobody?
Alot of international trade in the world today relies on trade agreements.
These are formal agreements between two nations that they won’t tax the importation
of certain items from another country. Now we have explored the benefits and drawbacks
of international trade many times before so I dont want to repeat too much here.
but what is an important takeaway is that these are formal agreements between two countries.
Now because the Chinese Communist Party Puts so much pressure on the international community,
including the UN not to recognise Tiawan, almost nobody does.
It may not be right, bet when the decision is between access to the second largest
consumer market in the world and a source of technical manufacturing, unfortunately
most nations are forced into looking the other way for the good of their domestic businesses.
This kind of control even extends to things like embassies where most nations around
the world do not have a taiwanese embassy but will instead have the rebranded Taipei Economic
And Cultural Representatives office which is definitely not an embassy wink wink nudge nudge.
This pandering to China to ignore Taiwan might not be the right thing,
or the moral thing, but you know, money talks.
Now the result of this is that it's extremely difficult for taiwan to get a seat at the table
because the international community knows that there is only room at that table for one China,
and they would rather talk to the big rich one.
This has meant taiwan has has to focus its exports primarily on very technical goods
with a large margin for value adding.
They just wouldn't have the connections or the capacity
to turn a profit trading in commodities and fortunately they haven’t needed to.
Today the nations biggest exports are semiconductors,
wireless communications equipment, and flat screen displays. All items
that rely more on brand name and reputation rather than simply being the lowest bidder.
Thats not to say that this problem is solved by any stretch of the imagination for the country and
as other naitions move into their technical industries they are going to increasingly feel
this pressure, but a solution has come from a relatively unlikely source. Mainland China.
This month marked the 10 year anniversary of the Economic Cooperation Framework Agreement
which is a bilateral trade agreement between this china and this china.
This agreement has made china the main import and export partner of taiwan which
many have pointed out may put them in a very precarious position
should these animosity between these two nations ever come to the forefront again.
Either that, or making money through trade will strengthen their relationship into the future,
let me know what you think in the comments below, the most reasonable answer for
or against this strong trade relationship will get featured in the next video.
Like this comment right here which thoughtfully made the distinction
of component parts in GDP calculations from the video earlier this week on why GDP is terrible.
Thankyou for your brilliant explanation and doing my job of explaining the economics for me.
Ranking
Ok so now it’s time to put Taiwan on our national leader boar using our predetermined categories.
The list is currently topped by a something that blurs the line
between nationionhood so lets see how Taiwan does.
With a GDP of 586 billion dollars as of 2019 the national economy of Taiwan is one of the
largest in the world, but it doesnt break into the trillion dollar club and it is still obviously a
very long way behind the true superpowers of china and the united states so it gets a 7 out of ten.
GDP per capita is an interesting one, the figure is just under $25,000 per year,
but average citizen net worth is exceedingly high even by developed nations standards. Either way
GDP per capita is the metric so I have to give it a 7/10.
Stability and confidence, well this one is is quiet difficult.
The nation has been free from alot of political instablity and hostilities that
probably would have plagued any other nation put in its position, but a lack of a seat
in the UN and a very powerful historic rival on its doorstep means it can only get a 4/10
Growth, the economy has doubled in the past 2 decades with an average
annual growth rate of over 4% it is certainly slowing from its industrial transition period
but it is still very strong. It gets an 8/10.
Finally, industry. A strong balance of trade surplus fueled by
very technically proficient industries that are fueling the information age
mean that the nation has done very well for itself. It’s very well educated population means
that these industries should continue to thrive despite hostilities and the nation gets a 10/10.
All together the country gets an average score of
7.2 out of 10. A very impressive score that puts it into equal second place with France.
Final Thoughts.
Taiwan is one of those countries you could almost forgive for being a complete disaster
but despite a short and tenous history it is not.
Sure its had some wins along the way, and yes it has been in the right place at the right time,
but it was able to capitalise on this in a way not many other nations would have.
If there is a takeaway from the vivid economic history of this nation
it’s that sure, natural resources, trade wealth,
or even a friendly spot in the world can be very helpful to building a prosperous economy.
But the greatest resource a country can have is a collection of smart and technically proficient
people to make the most of whatever opportunities they are given no matter what the situation.
What do smart people all have in common? They plan
for and invest in their future, all of which is made a lot easier.