The island of Taiwan, formerly known as Formosa, lies off the southeast coast of mainland China. Mountains running north to south cover two-thirds of the island. The lowlands are highly fertile, cultivated mostly with rice, and densely populated. In 1949, when the Chinese Communists ousted Chiang Kai-shek's nationalist Kuomintang (KMT) from power on the mainland, he established the Republic of China government on the island. De facto military rule has been democratized progressively since 1986. Mainland China still considers Taiwan a renegade province, and only a few countries now give official recognition to the regime there.

Most Taiwanese are Han Chinese, descendants of the 1644 migration of the Ming dynasty from mainland China. The 100,000 nationalists who arrived in 1949 established themselves as a ruling class and monopolized the most prestigious jobs in the civil service. This caused resentment among the local inhabitants, but as the generation elected on the mainland in 1947 has aged, so local Taiwanese have entered the political process.

There is little ethnic tension in Taiwan, although the indigenous minorities who live in the eastern hills do suffer considerable discrimination.

As in the rest of southeast Asia, the extended family is still important and provides a social security net for the elderly. However, the trend is toward European-style nuclear families. Housing shortages are a major issue.

Women are not well represented in the political process, but are prominent in business and the civil service.

Strengths

Highly educated and ambitious workforce, many US-trained and educated, with an inside knowledge of the US market. Manufacturing economy based on small companies which have proved extremely adaptable to changing market conditions. Track record of capturing major markets. Successively the world's biggest TV, watch, PC, and track shoe manufacturer. Economy in strong surplus, allowing it to invest in other southeast Asian economies.

Weaknesses

Small economic units lack the muscle of Western multinationals, and are unable to follow predatory pricing policies. Weak research and development: economy has no tradition of generating new products or creating new markets. Unresponsive banking system.

Profile

Taiwan's economy has proved resilient. Double-digit growth ended with the Asian financial crisis of 1997–1998, but Taiwan emerged relatively unscathed, and global downturn caused only a brief recession in 2001. Competition from underdeveloped countries with low production costs is dictating a difficult transition toward service industries. This will entail moving from labor-intensive to capital- and technology-intensive industries. Comprehensive Six-Year Plans reflect a strong element of state direction. Heavy investment abroad includes over 60% of inward investment into China since 1990. Taiwan was admitted, along with China, to the WTO in 2001.

From 1986 Taiwan has been a multiparty democracy, though electoral domination by the KMT only ended in 2000. The government is headed by the president, who is answerable to the National Assembly, an additional body convened when constitutional affairs arise.

Profile

For nearly four decades from the establishment of the Republic of China government on Taiwan in 1949, Chiang Kai-shek's KMT monopolized political power and ruled by strict martial law. In 1986, General Chiang Ching-kuo, Chiang Kai-shek's son and successor, decided to open the way for more democracy. Later that year the first free multiparty elections were held. In March 1996 Lee Teng-hui became the country's first directly elected president.

The KMT retained power in the 1998 legislative elections, winning an absolute majority of seats. Its 50-year political monopoly came to an end with the presidential elections in March 2000 which saw the KMT candidate coming a poor third. Chen Shui-bian of the pro-independence DPP took office in May 2000. The KMT went on to lose its parliamentary majority in 2001.

Main Political Issues

Relations with China

The DPP has advocated independence from China, despite Chinese threats of military action. Adopting a more prudent stance since his presidential victory, Chen Shui-bian promised to make no independence declaration during his term of office. The KMT, officially committed to eventual reunification with China, now favors a more flexible arrangement that presupposes the recognition of a separate Taiwanese national identity.

Political stability

The KMT, in power ever since the Chinese civil war brought Taiwan into existence, has been displaced by the DPP, first in the presidency and then in the legislature. This has meant an unprecedented degree of change within Taiwanese political life. The preservation of political and economic stability, however, remains essential as China intensifies its sovereignty claims on Taiwan after the return of Hong Kong in 1997.

China rejects Taiwan's sovereignty claims and regards it as a renegade province, so Taiwan conducts overseas relations via trade delegations. Since losing its seat on the Security Council in 1971, it has been unable to rejoin the UN. The handover to China of Hong Kong in July 1997 deepened fears that China would intensify pressure on countries to sever links with Taiwan. China mounted military exercises in 1999 after President Lee spoke of Taiwan as a separate state. In 2000 China sought unsuccessfully to frighten Taiwanese voters away from backing pro-independence candidate Chen Shui-bian. However, each depends on the other economically; Taiwan is a major foreign investor in China and has recently permitted direct trade. After US rapprochement with China in 1972, Taiwan effectively ceased to be a US client state. US security guarantees are vague, but in practice there are strong bilateral ties with the USA and Japan.

China remains the main defense threat, given the recurring tensions over the issue of independence or reunification. Taiwan has the fifth-largest navy in the world and a sizable army, in order to face a possible Chinese invasion: there are over one-and-a-half million reservists, and military service lasts for two years. Worries about US loyalty have resulted in the purchase of French Mirage fighters in addition to US F-16s.

Taiwan has few strategic resources and its minerals industry is not a significant foreign exchange earner. Oil is imported. Taiwan is a major buyer of South African uranium, but proposals to increase reliance on nuclear power met strong opposition on safety and waste disposal grounds. Hydroelectric power has been largely exploited and thermal power remains a controversial option. Fishing is highly successful, and Taiwan is a major supplier to the huge Japanese market. The fleet is often accused of plundering Atlantic stocks.

The dash for growth meant the absence of city planning or pollution laws. There is growing opposition to a fourth nuclear power plant, set for completion in 2006, and concern over coal-fired thermal power. Taiwan's fishing industry has been criticized for using long-line techniques which trap dolphins, and for plundering other countries' fishing grounds without regard to stock levels.

A railroad circumnavigates the island. A $16,000 million high-speed rail link along the west coast, linking Taipei to Kaohsiung, is under construction with the help of the Japanese Shinkansen Corporation. It is due for completion in 2005. Car ownership is 148 times higher than the 1971 level. The bicycle is not as popular in Taiwan as in mainland China. However, Taiwan is the world's biggest bicycle producer, exporting mostly to Europe and the USA.

Access to mainland China has increased as relations slowly improve. By boat, passengers have to travel from the tiny offshore islands of Matsu and Quemoy. The number of visitors is restricted both ways by yearly quotas.

Most health provision in Taiwan is in the private sector. Taiwanese take out elaborate health insurance schemes and it is essential to prove cover before treatment is provided. Health facilities are on a par with the best in the world, and the Taiwanese enjoy a high life expectancy, similar to that in Sweden or Japan. The incidence of AIDS is low, but the rate of new infections is inceasing. An enteroviral epidemic swept Taiwan in 1998, killing scores of babies and affecting thousands of young children.

Beginning in 2000, government funding has given less priority to higher education and more to reforming and improving the antiquated school system, which is rigid and heavily exam-oriented.

Free schooling is available to age 15 and there are also a number of private schools. Enrollment at tertiary level, at a variety of institutions, is one of the highest in the world.

Since the end of martial law in 1986, most political prisoners have been released. Taiwan does not suffer from organized crime to the extent found in Hong Kong or Japan. Multimedia pirating is a major problem.

Export-led growth over a long period enabled Taiwan to build up large cash reserves. The Taiwanese people share much of the benefit of this success, and average living standards are among the highest in Asia. Inequalities of income distribution are comparatively small, and a high degree of social cohesion has been achieved. In part, this is the result of the land reforms of the 1950s, which gave agricultural workers control of the land while compensating landowners and encouraging them to set up business in the cities. Today, the great majority of Taiwanese would describe themselves as middle class. Consumer goods are widely available, and conspicuous consumption is celebrated.

Taiwan is not a major tourist destination, and it has only recently begun promoting itself in the USA and Japan. Restrictions on Chinese tourists are being eased. Successive Six-Year Plans focus on upgrading hotels and improving tourist faciities at international airports. The major attraction is the Palace Museum in Taipei, which includes the massive treasure looted by the nationalists from Beijing. Only 5% can be shown at any one time. Sex tourism is an important business in Taipei. Sex establishments often masquerade as barbershops.

Following the 1949 communist revolution in China, Gen. Chiang Kai-shek's nationalist KMT party sought refuge in the island province of Taiwan. The KMT saw the revolution as illegal and itself as the sole rightful Chinese government.

• 1971 People's Republic of China replaces Taiwan at UN, including on Security Council.
• 1973 Taipei's KMT regime rejects Beijing's offer of secret talks on reunification of China.
• 1975 President Chiang Kai-shek dies. His son Gen. Chiang Ching-kuo becomes KMT leader. Yen Chia-kan succeeds as president.
• 1978 Chiang Ching-kuo elected president.
• 1979 USA severs relations with Taiwan and formally recognizes People's Republic of China.
• 1984 President Chiang reelected.
• 1986 Political reforms: KMT allows multiparty democracy, ends martial law, and permits visits to Chinese mainland for "humanitarian" purposes for first time in 38 years. In 1988, mainland Chinese are allowed to visit Taiwan on same basis.
• 1988 Lee Teng-hui president.
• 1990 KMT formally ends state of war with People's Republic of China.
• 1991 DPP draft constitution for Taiwan independence opposed by ruling KMT and Beijing. KMT reelected with large majority.
• 1995–1996 Legislative elections. KMT majority reduced.
• 1996 Lee Teng-hui wins first direct presidential elections.
• 1998 KMT secures absolute majority in elections to Legislative Yuan.
• 1999 Chinese threats over reference to "separate states" status. September, thousands die in earthquake.
• 2000 Chen Shui-bian of DPP wins presidency; overturns KMT dominance.
• 2001 Elections: DPP becomes largest single party. Taiwan admitted to WTO.