sheng147_ Annabelle ChihGetty Images_taiwansemiconductors Annabelle Chih/Getty Images

China Should Emulate Taiwan’s Tech Policies

Taiwan’s experience offers valuable lessons for China. Perhaps the most important one concerns the “financialization of innovation,” whereby technology investment is funded by risk capital from the stock market, rather than by the risk-adverse banking system.

HONG KONG –Ma Ying-jeou, Taiwan’s president from 2008 to 2016, who last year became the first former or sitting Taiwanese leader to visit mainland China, made a return trip in April. His 11-day visit, which included a meeting with Chinese President Xi Jinping, is significant not only because it highlighted the two sides’ historical and cultural links, but also because it refocused the Chinese government’s attention on areas where it could learn from and cooperate with Taiwan.

A small island with few natural resources, Taiwan punches well above its weight economically. From 1980 to 2008, Taiwan’s annual real GDP growth averaged 6.8% – significantly higher than the under-2% average in OECD countries. While growth slowed after the 2008 global financial crisis, it stabilized relatively quickly. Today, Taiwan is the world’s 22nd largest economy, with a GDP of $803 billion, and ranks 14th in per capita purchasing-power-parity terms. Taiwan’s GDP per capita in PPP terms stood at $73,000 last year, compared to just $3,500 in 1980.

Moreover, Taiwan’s stock market is thriving. At the end of last year, its total stock-market capitalization amounted to 241.4% of GDP, much higher than in mainland China (61.3%), South Korea (114.4%), Japan (146.6%), and even the United States (158.4%). Taiwan’s 1,001 listed companies have an average price-to-earnings (P/E) ratio of 24.6, strongly outperforming Chinese companies (9.08).