Page 74 - AEI Insights 2019 - Vol. 5, Issue 1

AEI Insights, Vol 5, Issue 1, 2019

Therefore, this book fits well into the ongoing discussion of East Asian development, analysing
the role of the state, businesses as well as changes in international factors in affecting the
development of South Korea and Taiwan. The author assesses how South Korea and Taiwan
have been affected by China’s rapid development, the role of the small and medium enterprises
(SMEs) in both countries, and the governments’ policies towards industrial upgrading and
promotion of trade. The author also looked at some of the contemporary challenges faced by
both countries namely income inequality and an ageing population.

Summary of the book and main arguments

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With the Asian Development Bank arguing that the 21 Century in the ‘Asian Century’, it is
only natural to examine how the leaders of the Asian development experience has continued to
grow in recent times (ADB 2011). The changing economic environment and the increasing
trade interdependence demands that governments play a role in facilitating freer trade but at
the same time provide the best means of growth and development for its people. This book
takes a comparative perspective on South Korea and Taiwan’s more recent economic
development experience. As mentioned earlier, the author presented three main factors in the
initial development experience of South Korea and Taiwan – the importance of the United
States as a trade partner, the role of the state in terms of setting and implementing economic
policies, and the effort of the private sector in driving growth.

The role of the United States, the most important trading partner for Taiwan and South Korea,
have been replaced with China. China’s changing economy also changed the dynamic of the
business and trade of Taiwan and South Korea. Not only has Taiwan’s and South Korea’s
investments and productions facilities in China have to adjust with China’s economic growth
but the production effort has also begun to focus on producing for Chinese local market as
opposed to export. China’s impact on manufacturing production was also discussed in the
following chapter where “the relocation of labour-intensive manufacturing” meant that Taiwan
and South Korea depended on China’s considerably cheap labour (p.88). This changed as China
continued to grow and both South Korea and Taiwan’s manufacturing bases needed to relocate
to different parts of China in order to continue benefiting from lower labour cost.

The book provides an important viewpoint on the impact that China has had on what was
previously two of East Asia’s faster-growing economies. In particular, Taiwan’s complicated
relations with China has also shaped its economic relationship with its much larger neighbour.
Much of Taiwan’s outward direct investments (ODI) has been in China despite policies
discouraging investment (p.26). According to the author:
The “Southward Policy” was launched twice in the 1990s with an aim to divert Taiwan
investors’ interest from China to Southeast Asia. Despite the policy discouragement, Taiwan’s
investment in China continued to surge (p.26)
In the following chapter, the author also explored how China’s economic rise also changed the
environment for the small and medium industries of Taiwan and China. This is especially
critical for Taiwan as Taiwanese SMEs were the main drivers of its export drive as opposed to
South Korea’s reliance on its large conglomerates (chaebols). The rise of China has resulted
not only in increasing labour cost which most SMEs can no longer afford but China’s industrial
and technological catch-up has also created more competition for the manufacturing sectors of
Taiwan and South Korea (p.89)

In the case of small and medium enterprises (SMEs), both Taiwanese and South Korean SMEs
focused on their domestic market and despite their declining contribution to export, the SMEs
from both countries continue to provide a high percentage of domestic employment. However,

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