iBusiness, 2013, 5, 18-22
doi:10.4236/ib.2013.51b004 Published Online March 2013 (http://www.scir p.org/journal/ib)
Post WWII Japan-Taiwan E conom ic Relations
Developm en t an d Future Direct ion
Hsiung-shen Jung1, Shin-Fa Tseng2
1Department of Applied Japanese, Aletheia University Chinese Taipei; 2Department of Applied Foreign Languages, Minghsin Uni-
versity of Science and Technology Chinese T aipei.
Received 2013
ABSTRACT
Japan’s victory in the Sino-Japanese War of 1894-1895 lead to 50 years of colonial rule of Taiwan. The industrial
hardware facilities and equipment left behind by the Japanese withdrawal from Taiwan after the World War II (WWII)
provided Taiwan with a basis for industrial development. The frequent economic exchanges between Taiwan and Japan
economies, even before the Second World War, became stagnant with the withdrawal of Japan from Taiwan after the
war. Afterwards, due to the outbreak of the Korean War, a large number of special needs promoted the rapid growth of
the Japanese economy, which led to the economic development of Taiwan and other Asian countr ies. Onc e again, Tai-
wan and Japan were economically joined and exchanges became even more active, as compared to the situation before
World War II. The success of T aiwan's economic development still cannot escape the trade and economic development
model highly dependent on the United States of postwar Asian countries, in particular, foreign capital is a very impor-
tant factor. Japanese capital, ranking the second place in foreign investments in Taiwan, is one of the indispensable fac-
tors. On the other hand, the opening up of the Chinese market has given a great deal of room for cooperation between
Taiwanese and Japanese enterprises adept in direct investment.
Keywords: ODA; Japanese Assistance; the Taiwan-Japan Economic Cooperation; Chiwan
1. Introduction
Since its World War II defeat and the success of eco-
nomic reconstruction, Japan started to provide foreign
economic assistance, officially started in the participation
of 1954 Colombo Plan and the signing of the Myanmar
Compensation Agreement [1]. In the early period, tech-
nical cooperation was implemented in postwar compen-
sations for Asian countries; however, the aid of this pe-
riod was the promotion of an export policy.
As shown in Tables 1 and 2, the first loan to India in
1958 was the official beginning of ODA (Official De-
velopment Assistance) of Japan [2]. Japanese assistance
payments increased over the years, amounting to USD
8.965 billion in 1989, and ranked the first in the world by
being more than USD 7.664 billion over the United
States.According to the data of the Intelligence and
Analysis Service of the Ministry of Foreign Affairs of
Japan, from 1967 to 1971, the Japanese overseas eco-
nomic aid amounted to USD 7.07billion, and the percen-
tage at 6.5% of the total sum to Taiwan (USD 0.45 bil-
lion) was considerably low, as compared to the percen-
tage to Hong Kong at 8.4%, South Korea at 12.5%, In-
donesia at 8.8%, and the Philippines at 7.8%. However,
the aid was an extremely great contribution to the eco-
nomic development of Taiwan at that time [ 3] . As sho wn
in Table 1, the amount of Japanese ODA remained un-
changed over the years. The interactions between Taiwan
and Japan were suspended, along with Japanese aid in
1972, when Taiwan and Japan severed diplomatic rela-
tions. Afterwards, the Japanese governmental economic
assistance was replaced by exchange foundations. How-
ever, the unofficial investment, which began before the
breakoff of diplomatic relations, remained active.
Table 1. The amount of Japan’s overseas aid by year Unit :
USD million.
Year 2002 2003 2004 2005 2006
Amount 9,283 8,880 8,992 13,126 11,136
Year 2007 2008 2009 2010 2011
Amount 7,697 9,601 9,467 11,021 10,604
Source: Minist ry of Foreign Affairs of Jap an ODA.
http://www.mofa.go.jp/mofaj/gaiko/oda/index.html

Post WWII Japan-Taiwan E conomic Relations Develo pment and Futu r e D irection
opyright © 2013 S ciRes. IB
19
Table 2. Comparison of ODA amount of major countries in 2011 Unit: USD million.
No. Country Actual a m ount Pr oportion Growth rate over the previo us yea r (%) Ratio against GNI Ranking
1 The United States 30,745 23.0% 1.3% 0.20% 19
2 Germany 14,533 1 0.9% 11.9% 0.40% 12
3 England 13,739 10.3% 5.3% 0.56% 6
4 France 12,994 9.7% 0.6% 0.46% 10
5 Japan 10,604 7.9% -3.8% 0.18% 21
Source: Ministry of Foreign Affairs of Japan ODA, http://www.mofa.go.jp/mofaj/gaiko/oda/index.html
2. Motivation and Purposes
In recent years, due to China's rapid economic develop-
ment, many Japanese companies specified Taiwan as a
forward base with the same culture and language as
mainland China. Japanese companies employed Taiwa-
nese p ersonne l that und erstoo d Japane se busines s cultur e
and the Japanese language, as well as Chinese language
and culture, and furthermore, successfully and smoothly
transferred technology and management to mainland
China.
As sho wn in Table 3-1 and Table 3-2, there has been
a great problem of economic and trade deficit between
Taiwan and Japan for years. Japan is Taiwan's second
largest trading partner and the main source of foreign
capital and tec hnology. According to t he Statistics of the
Bureau of Foreign Trade, the 2010 Taiwan-Japan bilater-
al trade volume was nearly USD 70 billion. In terms of
the amount of the balance of trade, the 2011 Japan to
Taiwan trade surplus amounted to USD 27.61 billion. In
2011, Japan mainly exported to countries/regions by vo-
lume, as follows, mainland China, the United States, the
10 ASEAN nations, 27 member states of the European
Union, South Korea, and Taiwan, in proportions of
19.7%, 15.3%, 15.0%, 11.6%, 8.0%, and 6.2%, respec-
tively. In 2011, Japan’s five major sources of imports, in
order, were China, the 10 ASEAN countries, 27 member
states of European Union, the United States, and Aus-
tralia, in proportions of 21.5%, 14.6%, 9.4%, 8.7%, and
6.6%, respectively. Taiwan was ranked from No. 10 in
2010 to No. 14 (surpassed by Malaysia, Qatar, Thailand,
and Germany), with its proportion reduced from 3.3% to
2.7%.
By observing Japan’s trade relations with Taiwan’s
major trade competitors in 2011, such as South Korea,
Singapore, and Hong Kong, it can be found that Tai-
wan’s proportions of export and import were lower than
South Korea, and ranked in second place. In terms of
expo rt gro wth rat e, Tai wan was the o nly one o f the Fo ur
Asian Tigers to be negative in growth. In addition, Tai-
wan ranked last in terms of import expansion rate, by
falling far behind South Korea, Singapore, and Hong
Kong.
Table 3-1. Statistics of Japan’s Trade with countries in the
world in 2011 Unit: USD million; %.
Country/region Trade volum e
Amount Gro wth ra te Proportion
Taiwan 74,113.1 -1.8 4.4
Hong Kong 44,520.3 1.6 2.7
Kor ea 105,923.0 16.5 6.3
Singapore 35,943.2 7.7 2.1
The United States 200,560.3 7.8 11.9
Canada 21,887.7 8.0 1.3
NAFTA 240,288.5 7.8 14.3
China 346,141.8 14.2 20.6
Wor ld 1,679,589.9 14.7 100.0
Table 3-2. Statistics of Japan’s Trade with countries in the
world in 2011 Unit: USD million; %.
Country/
region
Export Im p or t
Amount
Growth
rate
Proportion Amount
Growt h
rate
Proportion
Taiwan 50,862.8 -3.0 6.2 23,250.3 0.7 2.7
Hong Kong 42,976.2 1.6 5.2 1,544.1 1.6 0.2
Kor ea 66,087.6 6.1 8.0 39,835.4 39.0 4.7
Singapore 27,264.8 8.0 3.3 8,678.4 6.4 1.0
The United
States 126,07 4.8
6.2 15.3 74,485.4 10.4 8.7
Canada 8,927.1 -4.2 1.1 12,960.6 18.4 1.5
NAFTA 147,087.9
5.5 17.9 93,200.6 11.6 10.9
China 162,013.1 8.2 19.7 184,128.6 20.0 21.5
Wor ld 823,544.1
6.9 100.0 856,045.8 23.3 100.0
Note: 1. APEC currently has 21 members, along with those listed in the
table; Brunei and Papua New Guinea are also member states of APEC. 2.
ASEAN currently has 10 member stat es, along with those lis ted in the table,
Myanmar, Laos, Cambodia, and Brunei are also ASEAN member states.
Source: Japan Customs Data.

Post WWII Japan-Taiwan E conomic Relations Development and Future Direction
20
3. Prepare Literature Review
Regarding studies of Taiwan's economy, [4] focused on
the pre-war Japanese construction and development of
Taiwan. [5] discussed the industrialization of Taiwan
after WWII. Sun (1983) focused on the technical cooper-
ation of Japan and Taiwan. On the other hand, regarding
studies on the Japan-Taiwan alliance, [6] argued that,
although Japanese enterprises started to invest in China
and tap the Chinese market earlier than Taiwanese enter-
prises, their performance is poorer due to major reasons,
such as a lack of understanding of the social conditions
of China regarding aspects including, customary com-
mercial practices, labor management, human resource
structure, etc., coupled with a lack of flexibility for busi-
ness management of Japanese businesses, meaning it is
extremely difficult to adapt to rapid environmental
changes in China. in recent years, Japanese enterprises
gradually paid increasing attention to the huge domestic
market in Chi na and atte mpted to expand sales in China,
resulting in major business operational problems, while
Taiwan has similar cultural habits, ideas, and behavior
patterns, but without the language barrier; therefore,
Taiwanese enterprises are more active in China [6].[7]
pointed out that cross-strait economic cooperation has
been noted by various countries, as evidenced by the
emergence of the new term Chiwan (China + Taiwan).
The term was coined by the Chosun Ilbo of South Korea,
whe n warni ng So uth K ore a busi nes ses to pay attention to
the S ino-Taiwan Industrial Cooperation [7]. However, to
Japan and Taiwan, it might be a business opportunity.
Japan-Taiwan economic cooperation started before the
war, by a hundred years, and has developed to become
known as “investment in China by taking advantage of
Taiwan”. [8] argued that this is because Taiwan is an
important location of overseas branches of Japanese en-
terprises, major destination of technology supply, and the
historical background of close trade relations between
Taiwan and Japan [8].
Run-tsu Peng, president of the Association of East
Asian Relation s, Ministry of Foreign A ffairs, and Mitsuo
Ohas hi, the ne w pres ident o f the Int ercha nge As sociat ion
of Japan, signed on September 22, 2011, on behalf of the
two countries, “Agreement between the Association of
East Asian Relations, Ministry of Foreign Affairs of the
Republic of China and the Interchange Association of
Japan on Investment Liberalization, Promotion, and Pro-
tection”. The Ministry of Foreign Affairs said that this
agreement would further strengthen the economic and
trade cooperation between Taiwan and Japan, and the
resulting niche to both countries was very significant.
after the 311 earthquake, the Japanese raw material
supply chains were broken, and Japanese industry rea-
lized that Taiwan would be the ideal “backup location”
for Japan, providing Taiwan and Japan sign an invest-
ment agreement to bring Taiwan-Japan relations even
closer.
4. Research and Analysis
During the Japanese colonial era in Taiwan, Japan im-
plemented all types of construction, including railway,
highway, post office, and telephone services of great
contribution to economic development for the purpose of
colonial explo itation [4 ]. Afte r the o utbreak o f the war i n
the Pacific, Taiwan became Japan’s base for marching
into the South [5]. Economic relations between Taiwan
and Japan originated in the prewar colonial era were in-
terrupted by the withdrawal of Japanese businesses due
to Japan’s defeat in 1945. However, the relations were
soon resumed after the war, and the postwar economic
relations between Taiwan and Japan were expanded and
deepened.after the Plaza Accord of G5 in 1985. In the
face of the adjustment in the exchange rate of the U.S.
dollar, crude oil prices p lunged, the le vel of international
interest rates reduced, and the United States-Japan-NIEs
Pacific Triangle’s interdependence relationships were
gradually strengthened, giving rise to great economic
force in the region. The Taiwan-Japan relations were
included in this framework and became more substantial
in qualit y and quantity.
In the structure of “importing capital goods and inter-
mediate goods from Japan, and exporting products over-
seas”, the pattern of “increased exports of Taiwan led to
increased imports from Japan” became the major cause
of the trade balance with Japan. Regarding the trade im-
balance between Taiwan and Japan since the 1980s, by
1985 it amounted to about USD 2 billion to USD 3 bil-
lion. However, since 1986, the trade imbalance had been
on the rise. In particular, with the implementation of
Taiwan’s “National Construction Six-year Plan” (1991
~96), when Taiwan imported machinery and equipment
from Japan, the Japanese economy fell into recession,
causing t he co ndition to worsen.
Regarding the yearly increase of trade imbalance, how
Japan addresses the problem is an issue that cannot be
ignored. Among the causes for the inability to solve the
problem, the issue of Taiwan’s economic structure plays
a very large part. In particular, due to the increase of
Chinese exports to Japan, the market share of Taiwanese
products in the Japanese market reduces due to the com-
petition of Chinese products, most of which are labor-
intensive, low capital, and low technology p r oducts.
5. Japanese Enterprises’ Investment in
Taiwan
Due to geographical convenience, Asia is Japanese en-
terprises’ most i mportant over seas direct investment des-
tination for most branch offices and factories. In retros -

Post WWII Japan-Taiwan E conomic Relations Develo pment and Futu r e D irection
opyright © 2013 S ciRes. IB
21
pect, before WWII, Japan invaded and exploited coun-
tries across Asia, especially primary industry natural re-
sources in Southeastern nations, in order to support its
warfare in East Asia. After the war, by direct overseas
investment, Japanese companies produced and sold
products around the world by taking advantage of the
cheap labor in Asia. Afterwards, with rising living stan-
dards in Asian countries, Japan expects to dominate the
Asian consumption market through department store
busine sses o f the tertiary industry.
In the above mentioned three waves of Japanese do-
mination of Asia, Taiwan was and is an important
stronghold of Japanese companies. The reasons beyond
the geographic closeness of Taiwan and Japan include
the cheap labor and abundant suppl y of talent s with pro-
duction skills and language proficiency. Therefore, from
a very early time, Taiwan became the best overseas
stronghold of Japanese enterprises. For example, Nis-
san’s first overseas cooperative partner is Yulon Motors
of Taiwan.
The postwar Japanese investment in Taiwan began in
1953. However, investment activities did not become
active until the formulation of the “Investment Incentive
Ordinance” and the establishment of the Kaohsiung Ex-
port Processing Zone in the 1960s. In 1972, due to brea-
koff of d iplomati c relation s with Jap an, the a mounted was
reduced to 1/3 of that in 1970, to USD 7.73 million. As
the impact was temporary, the investment amount ex-
panded once again in the following year. Since the Plaza
Accord in 1985, and with the appreciation of the Japa-
nese Yen and the depreciation of the USD, coupled with
the globalization of Japanese enterprises, Japanese in-
vestment in Taiwan was accelerated, and peaked for the
second time in 1990, amounting to USD 838,940, 000.
According to the Council for Economic Planning and
Statistics, after the 311 major earthquake of Japan in
2011, Japanese companies accelerated its overseas layout
bases, and especially, as the yen continues to rise, the
signing of ECFA and the Taiwan-Japan investment
agreement, Taiwan becomes the preferred choice of Jap-
anese overseas investment. Last year alone, for the first
time, cases of Japanese investment in Taiwan exceeded
400, and the investment amo unt increased by 11%, while
Ta iwan ’s i nvest me nt i n J a p an gr e w sub s tanti al ly by mor e
than five t imes .
From the primary industry in prewar times to the sec-
ondary industry shortly after WWII and to the late stage
of the tertiary industry, from resource development to
labor acquisition to market share, Japan’s investment in
Taiwan originally concentrated on manufacturing; how-
ever , with t he gradual expa nsion o f the domestic needs of
Taiwan, for example, in the mid-1980s, the then Ever-
gree n De pa r t ment S to r e a nd J a p an’ s To kyu Gr o up jo intl y
opened cooperation between Japanese and Taiwanese
department store businesses. Since then, Japan-Taiwan
joint ventures and cooperative department stores ap-
peared one after another. In a very short period of time,
Japan’s major department stores appeared in Taiwan in
clusters. Enterprises from Japan and Taiwan did busi-
nesses separately on mainland China. Without technolo-
gical cooperation, technology-intensive manufacturing
businesses can easily produce products of poor quality,
while department stores in the service industry can do
busi ness acc ordi ng to their own exp erie nces. The smoo th
development of Taiwan’s domestic Far East Department
Store on mainland China, with its experience over years
of business operations, can be regarded as a successful
example.
Taiwan’s industrialization further strengthens the Tai-
wan-Japan economic relationship, and Japan has played
an important function of supplying technology. After
WWII, Taiwan received technology supplies from vari-
ous countries, including the UN, most significantly, from
Japan. This supply was similar to the prewar period, with
Taiwan as the receptor and Japan as the supplier. In ac-
cordance with the “Sino -Japanese Technical Cooperation
Program”, 380 Japanese technicians and experts (1961~
76) were dispatched to Taiwan. The number was even
greater than the 346 personnel sent by the UN under the
“UN Technology Assistance Program” (1952~71). In
accordance with the “Sino-Japanese Technical Coopera-
tion Program”, and in addition to providing vocational
training center technicians, experts, and donating equip-
ment, Japan also assisted Taiwan in setting up vocational
trai ning c ente rs i n no rthe rn, c ent ral, and s out her n reg ion s
in Taiwan, which had a very deep impact on industrial
talent cultivatio n in Taiwan.
6. Conclusions and Suggestion
In the early stages of economic development, Taiwan
attracted capital and technology from around the globe
thro ugh i nexpensive land, a quality labor force, and other
business elements, as the overseas production bases of
various countries to enhance and improve industrial
competition conditions. With the rise in land prices and
salaries in Taiwan, and increased awareness of environ-
mental protection and labor welfare, Taiwan’s invest-
ment environment changed greatly. Meanwhile, as the
investment environments in China and Southeast Asian
countries were improved, governments actively intro-
duced foreign capital, resulting in decreased foreign in-
vest me nt i n Ta i wan, i n te r ms o f b ot h the nu mb er o f ca se s
and monetary amounts. In addition to foreign capital,
Taiwan’s investors came to realize the changes in the
domestic investment environment and continuously
transferred manufacturing b ases of labo r intensi ve indus-
tries without international competitiveness to China or
Southeastern Asian countries with cheaper labor. Some

Post WWII Japan-Taiwan E conomic Relations Development and Future Direction
22
companies had to upgrade labor-intensive industries into
capital and tec hnology inte nsive industries.
Taiwan and Japan are closely joined due to historical
factors. Before WWII, Taiwan helped the Japanese mili-
tarily, while Japan economically helped Taiwan after
WWII. The Taiwan-Japan relations are mutually benefi-
cial if the two are on good terms, otherwise, the relations
will be mutually harmful. Although Japanese enterprises
made great contribution to Taiwan’s economy, in terms
of employment and technological aspects after WWII, in
the background of expanding the Taiwan-Japan trading
volume, and on the premise of solving the trade deficit
with Japan, how to find a new method suitable for both
parties is an issue of top priority at present. From prewar
times to the postwar era, fro m the primary industry to the
tertiary industry, from the colonial economy before
WWII to the current horizontal labor division economy,
Japan and Taiwan may march in the direction of cooper-
ation in joint eco nomic development.
From the flying geese model of economic develop-
ment to the industrial division, “Investment Protection
Agreement to Strengthen Economic and Trade Coopera-
tion” is the first agreement between Japan and Taiwan
that promotes and protects investment of indicative sig-
nificance. Meanwhile, it is a major progress of the over-
all economic development strategy of “Strength Taiwan,
Link to the Asia-Pacific, and Lay out in the World ” .
On September 22, 2011, the representatives of both
Taiwan and Japan signed the “Taiwan-Japan Investment
Agreement”. The contents of the agreement consist of
investment promotion, investment protection, and in-
vestment liberalization. In addition, after the agreement
came into effect, Taiwan and Japan granted investors
from each country “national treatment” and “most fa-
vored nation treatment”, thus, ensuring free access of
investment capital. Regarding this agreement, Taiwan’s
public opinion believed it a significant progress in for-
eign trade relations, and had high expectations of the
signing of the Taiwan-Japan free trade agreement. Japan
expected Taiwan to be a powerful alternative to Japan’s
overseas production base in response to external factors,
such as the rising value of the Yen.
Taiwan and Japan are quite high in the complementary
nature of industrial structures, and via the Taiwan-Japan
investment agreement, the two sides industries will fur-
ther strengthen cooperation and enhance their willingness
to invest, eliminate barriers to investment, and protect
inves tors’ int erests, and thus, enhanc e mutual i nvest ment
to bring abo ut the following benefits: (1 ) to provide both
stable and institutionalized investment environments; (2)
to promote the Taiwan-Japan industrial supply chain to
become more closely linked; and (3) to establish a way to
resolve inter national arb itration of inve stment disputes.
REFERENCES
[1] S. Nagano, and M. Knodo, M. Japan’s postwar repara-
tions---start of Asia’s economic cooperation. Keisoshobo
Publis hing , 1992, pp. 25 3 p161
[2] T. Fujino. Review of Japan ODA policy and future direc-
tions---strategic ODA and national support as a policy.
2005, 40
[3] The Intelligence and Analysis Service of the Ministry of
Foreign Affairs of Japan. Japan’s Economic Cooperation.
1972, 58 .
[4] C. H. Lin. “A Historical Review of Taiwan’s Economic
Development” Interchange Association of Japan, 2002,
258
[5] L. S. Song. “Preliminary Technological Conditions for
Postwar Industrialization of Taiwan” , The Economics
Society, Meiji Gakuin University, Econ Study 1996, 107:
26
[6] Y. Chu. Taiwanese-Japanese enterprise alliance in com-
merce in China. (research r eport) 20 04, 23