Political Influences on Business and Economic Development in China and Taiwan

1. Political Influences on Business and Economic Development in China and Taiwan Ali Mondragon, James Begg, Rosalynn Thaveekittikul, Adam Bray

2. China Brief Overview • Population, geographical vastness, and social diversity frustrate attempts to rule from Beijing • Political power has become less personal and more institutionally based • Chinese Communist Party considers China to be in the initial stages of socialism • Due to social, cultural, political, and economic consequences of market reform, tensions between the “old way” and “new way” of doing things are increasing • A robust system of monitoring and control is in place to counter the growing pressure for political change

3. China’s Economy • 3rd largest economy and fastest growing major economy in the world • 2nd largest trading nation in the world, largest exporter and 2nd largest importer • Exports manufactured goods, textiles, electronics, some agricultural products and chemicals • Imports industrial supplies, capital goods, machinery and high tech equipment • Two most important sectors of the economy: agriculture and industry • Disparities between the two sectors have combined to form an economic-cultural-social gap between rural and urban areas • 10.8% of people still live on less than $1 a day

4. China’s Nominal GDP International Monetary Fund 2009 List

5. China’s Distinctive Economic Development • 11th Five-Year Program • Role of the government • Total economic enterprise • Operational supervision • Relationships • Vital aspects of the economy • Less vital aspects of the economy • Policy process • Special Economic Zones (SEZs)

6. China’s Unique Business Culture • Asia-Pacific Economic Cooperation (APEC) • China Council for the Promotion of International Trade (CCPIT) • Foreign investment • Outward foreign direct investment • Foreign trade • Changes in the agricultural sector • Private sector and State Owned Enterprises • Significant variations • Drastic measures

7. China Post WW II • 1949 – Mao assumes control of the People’s Republic of China • China governed as a Communist State • Complete planned economy • 1950 – Korean war • Chinese volunteer troops enter Korea, patriotic nationalist feelings strengthened • 1958 – “The Great Leap Forward” • “Women hold up half the sky” • Agricultural communes established • Terrible failure resulting in famine and massive deaths • Establishes the mentality of Western competition

8. China 1960-1970 • 1961 – China becomes politically isolated • 1966 – The Great Proletarian Cultural Revolution • Attack of the “Four Olds”: culture, ideas, customs, habits • Massive persecution of intellectuals, experts, bourgeois • Universities and colleges closed • Territorial disputes with Russia • Overtures made to the United States for aid

9. China 1970-1980 • 1972 – Richard Nixon visits China • Diplomatic relations established • Full recognition of the PRC in 1979 • 1976 – The death of Mao • 1978 – Hua Guofeng becomes Mao’s successor but Deng Xiaoping essentially China’s leader • Promotes economic prosperity and industrialization • Agriculture arranged into a market system • Factory workers and office managers rewarded on productivity • Small private businesses allowed • 1979 – One Child Policy

10. China 1980-1990 • 1980 – Special Economic Zones established • Tax Incentives • International trade independence • Market oriented, designed to attract foreign capital • Massive economic growth • 1986 – Government control over peoples lives declines • “I don’t care if a cat is white or black as long as it catches mice” • Growing sense of self improvement to rid themselves of “the wasted years” • 1989 – Tiananmen Square • Democratic protests crushed • Worldwide audience issues massive condemnation severely damaging international relations

11. China 1990-2000 • 1992 Deng Xiaoping travels to SEZs and calls on the country to copy their example saying, “Communism will not be saved by rhetoric but by improving people’s living standards.” • 1994 Deng appears in public for the last time and Jiang Zemin named his heir-apparent • 1997 Deng Xiaoping dies • Premier Zhu Rongji announces a three-year plan to reform state enterprises, ends the “iron rice bowl” of jobs and benefits for life and lays off millions of Party officials

12. China 2000-2005 • 2001 China agrees to open its markets to gain WTO membership and within a few years WTO accession boots foreign investment to record highs \ • The 16th Party Congress replaces aging leadership but Jiang Zemin retains influence • 2003 Chinese Legislatures revealed several proposed amendments to the state constitution • Proposal to provide protection for property rights • Efforts to reduce employment • To rebalance income distribution between urban and rural regions • To maintain economic growth while protecting the environment and improving social equity • 2004 Amendments approved by The National People’s Congress

13. China 2005-2010 • 2006 11th Five-Year Economic Program approved by The National People’s Congress • Increase GDP by 45% by 2010 • Reduce energy intensity by 20% by 2010 • 2007 China recorded its fastest growth since 1994 when GDP grew by 13.1% (vs. approximately 10% in previous years) • 2008-2009 Launch of China’s Economic Stimulus Plan to deal with the Global Financial Crisis • Focused on increasing affordable housing • Easing credit restrictions on mortgage • Lower taxes • Pumping more public investment into infrastructure development

14. Taiwan Overview • Republic of China (ROC) • Democratic – 2 major political parties 1. Kuomintang (KMT) – Chinese Nationalist Party > Chinese reunification 2. Democratic Progressive Party (DPP) > Taiwan Independence • Dynamic capitalist, export-driven economy • Decreasing state involvement in investment and foreign trade • Industrialized developed country - member of “The Four Asian Tigers”

15. Taiwan 1945-1950 • Post-World War 2: Re-identification and Martial Law • 1943 - Cairo Agreement ensures Taiwan goes back to the Chinese following WW2 • China to ‘occupy Taiwan on behalf of the Allies’ • 1947- Re-kindling of Civil War between Communists (PRC) and Nationalists (ROC) leads to tensions in Taiwan and the 2-28 INCIDENT • 1949- Nationalist defeat and retreat to Taiwan • 40 years of Martial Law begin under the Kuomintang Nationalist Party • Taiwan becomes new Chinese Nationalist center • Separation of Taiwan Dollar from Chinese Yuan

16. Taiwan 1950-1960 • 1950’s seen as gaining significant US support, as well as making major agricultural reforms which would change the Taiwanese economy forever • Civil War unrest still present • 1950- Korean War - US sends ships to Taiwan Strait • Injects $ 4 bil. in Aid Into Taiwan- Land Reforms • 1952 San Francisco Treaty officially ends WW2 • Taipei Treaty also enacted for PRC and ROC • 1954 First Taiwan Strait Crisis- Kinmen & Matsu • 1955- Formosa Agreement galvanizes US support • 1958 Second Taiwan Strait Crisis- Kinmen

17. Taiwan 1960-1970 • Taiwan enters ‘Industrial Era’ > ‘Economic Miracle’ • Statute for Encouragement of Investment • Encourages foreign investment • Stimulates business/government relations • Free market governance • Mainland China faces Cultural Revolution and global isolation, as Taiwanese economy expands by 10% of GDP per year • 1963 - Industry overtakes agriculture • 1966 – Export Processing Zones established

18. Taiwan 1970-1980 • Beginning of transition towards democracy • Economic shift from industrial > high-tech/electrical • Taiwan recognized as ‘Economic Tiger’ of Asia • 1971- Shanghai Communique • UN recognizes PRC: sole legal representative of China • 1975 – CE Chiang Kai-Dek dies and is replaced by his son Chiang Ching-Kuo • 1979- Joint Communique on Diplomatic Relations • Normalizes US/China relations • Kaosiung Incident • Beginning of the end of Marshall Law

19. Taiwan 1980-2000 1980 - 1990: Transition Towards Democracy • New political parties and a free press are allowed. • > Formation of DPP (as opposition party) • Lee Teng-hui (KMT) becomes the first native Taiwanese president. • Martial Law was dropped. (1987) • Nationalists declare for first time that there are “two legitimate governments” of China. 1990 – 2000: Consolidation of Democracy • KMT’s claim to rule all of China was dropped. • First direct presidential elections (1996) • Lee Teng-hui (KMT) is elected president.

20. Taiwan 2000-Present 2000 – Present • 2000 election - Chen Shui-bian (DPP) • The end of Nationalist Party rule • The rise of the DPP. • 2008 election - Ma Ying-jeou (KMT) - The rise of Nationalist Party. • KMT still clings to the belief that “Taiwan is part of China”

21. Business cultures & Economic Development • Business Culture: - Liberal Democracy -> Free Trade - Open & Close at the same time > Open - to international trade. > Close – to PRC (sense of suspicion towards PRC). - Business direction toward PRC > Depends on political parties in charge. • Trade Policy: - Liberalization and tariff reduction. - Emphasis on hi-tech industry. - Begins to invest heavily in China and SE Asia - Admitted to WTO (2001) – KMT in charge - FTA - ECFA (2010) – DPP in charge

22. Questions?