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The international dimension of the urban system

The rate and pattern of Taiwan's urbanization have been influenced more by national and international economic trends than by planning or public policy. This situation can be seen in table 6.16. When exports grew at a rapid rate, so did industry. The growth rate of the urban population almost paralleled those of exports and industry, except for the period 1953-1960. The level of urbanization increased with industrial development.

Urbanization in Taiwan has been the consequence of industrialization, and industrialization has been driven by exports. Export growth, in turn, has been induced by foreign effective demand. That is, Taiwan's urban system has been significantly influenced by changes in the international economy and the globalization of economic growth.

Overseas (private foreign and overseas Chinese) investment and technology transfers have helped to promote Taiwan's industrialization. Given Taiwan's abundance of labour but lack of capital and technology in the early stage of economic development, the policies promoting both labour-intensive agriculture and labour-intensive manufacturing were well conceived. At the same time, the government also established policies to continue improving the investment climate and encouraging an inflow of overseas capital and technology. There were many incentives and guarantees for overseas investors, such as the establishment of industrial districts, export-processing zones, and an industrial-scientific park, and the introduction of a five-year income tax holiday and accelerated depreciation.

Overseas investment

During the 39 years from 1952 through 1990, overseas investment in Taiwan totalled US$13.25 billion. By area of origin, Japan was the source of US$3.68 billion, or 28 per cent of combined foreign and overseas Chinese investment; the United States trailed in second place with US$3.29 billion, or 25 per cent; followed by Europe with US$2.01 billion, or 15 per cent. Overseas Chinese contributed US$1.95 billion, or 15 per cent of the total.

This inflow of capital made a significant contribution to Taiwan's economic development and the formation of its urban system. Most overseas capital was invested in large-scale manufacturing, including capital-intensive, technology-intensive, and higher value-added industries, and in urban infrastructure, such as housing, power, and transportation. Statistics show that over 60 per cent of overseas investment in Taiwan is concentrated in electronic and electrical products, chemicals, services, and machinery, equipment, and instruments (table 6.17). These products are also Taiwan's major exports and are produced in urban areas. The growth of export industries has spurred both industrialization and urbanization.

Table 6.17 The top four recipients of overseas investment, 1952-1990

Source: See table 6.16.

Table 6.18 Distribution of multinational corporations in Taiwan, 1989 (%)

Source: Industrial Development Bureau, Ministry of Economic Affairs, "Overseas Investment Statistics," 1990.

Moreover, statistics for the year 1989 show that 65 per cent of the multinational corporations operating in Taiwan are based in Taipei. In addition, 57.22 per cent of their investment is concentrated in that city, although Kaohsiung and provincial cities have also received foreign capital investment (table 6.18). Since technology always follows foreign investment, it is understandable why Taipei is Taiwan's leading city.

The formation of Taiwan's 20 largest cities has been the consequence of industrial and service agglomeration. The sites of these cities correspond to the locations of Taiwan's top five export-oriented manufacturing industries: textiles and garments, electrical machinery and apparatus, machinery, metal products, and chemicals. According to a correlation analysis of export-oriented industries and city spatial distribution, the correlation coefficient between these two variables was larger than.⁷ for 1966, 1976, and 1986 (table 6.19), and the effect of globalization (in terms of exports) on city spatial distribution is growing over time.

Some will question whether multinational corporations have significantly affected the formation of Taiwan's large cities as they have in respect of primate cities in third world countries. The multinational corporations operating in Taiwan export over half of the products they produce on the island. This is especially true of the multinational corporations from the United States and Japan. Although considerable overseas capital has flowed into Taiwan and is concentrated in Taipei (accounting for about 3-7 per cent of Taiwan's total capital formation during 1952-1990, as shown in table 6.20), it has been insufficient to stimulate the formation of a primate city in Taiwan.

Table 6.19 Correlation coefficient spatial distribution between the employment of export oriented industries and population

Table 6.20 Capital invested by multinational corporations as a percentage of Taiwan's capital formation, 1952-1990 (%)

Source: Calculated from CEPD, Taiwan Statistical Data Book, 1991.

Technology transfer

Industrialization has been the driving force behind economic growth in post-war Taiwan. An increasing ability to adopt new technology is one of the most important factors behind industrialization. The adoption of technology involves the successful introduction to the market-place of improvements in the transformation of inputs into outputs. Improvements cover activities ranging from the imitation of existing products with mature technologies to self-starting technology-based innovations. Such improvements are an integral part of the process of economic development.

Manufacturing was for many years the most dynamic and fastest-growing sector in Taiwan owing to technology transfer from advanced countries. Rapid increases in industrial output - in particular, the sequential growth of the textile and electronics industries - provided the basis for self-sustaining economic growth. Manufacturing's contribution to real gross domestic product increased at an average annual rate of 12.0 per cent between 1962 and 1990. Within manufacturing, the most dynamic subsectors were the export-oriented textile, garment, and electrical and electronics industries, which experienced annual real growth rates of 10.1, 13.3, and 20.3 per cent, respectively. These significant differences in growth clearly reflect the dynamic process of change made possible by new economic opportunities and technological innovations. Channels for the adoption of technology include overseas investment and technical cooperation with foreign high-tech enterprises. The most popular method is technical cooperation projects between foreign firms and companies in Taiwan, including the transfer of technical know-how and patent licensing. The major reason for setting up export-processing zones was to transfer and diffuse new technology. The diffusion of technology from the developed world favours modern, large-scale urban industries and thus promotes city growth. New high-tech industrial parks and science parks will be built to further promote technological progress and innovation in Taiwan.

The internationalization of business

Limited natural resources and a small domestic market meant that Taiwan had to export to achieve fast growth. Foreign trade became the major driving force of rapid economic growth. In the 1950s, foreign trade was small, grew slowly, and was consistently in deficit. At the turn of the 1950s, the government adopted export-oriented development policies, including fiscal and monetary policies to facilitate the rapid structural transformation of local industries and to encourage exports. Annual exports subsequently rose from US$200 million in 1961 to US$2 billion in 1971, a tenfold increase over 10 years. Foreign trade produced a surplus. By 1988, the Republic of China's total exports had risen to over US$60 billion, representing a 302-fold increase over a period of 27 years. The rapid export growth has made Taiwan 13th among the world's major exporters. On the other hand, Taiwan's imports also rose rapidly, from US$300 million in 1961 to US$50 billion in 1988, making Taiwan the 16th largest importer in the world.

Exports accounted for 8.6 per cent of gross domestic product(GDP) in 1953, when the government launched the First Four-Year Plan. The share gradually increased and reached its peak at 58.1 per cent in 1986, then decreased to 47.7 per cent in 1990 owing to a rise in international protectionism. Imports were 13.8 per cent of GDP, higher than exports, in 1953. The share grew steadily and reached 30.4 per cent in 1970, almost equal to that of exports. Imports as a percentage of GDP peaked at 53.7 per cent in 1980, decreasing to 42.2 per cent by 1990 (table 6.21).

Table 6.21 Exports and imports as a percentage of GDP, 1953-1990

Source: Directorate-General of Budget, Accounting, and Statistics (DGBAS), Statistics of National Income, 1991.

Table 6.22 Small and medium-sized enterprises as a percentage of total business establishments, 1971 and 1986

Source: DGBAS, Report on the Industrial and Commercial Census, Taiwan-Fukien Area, The Republic of China, 1973 and 1988.

Foreign trade is vital to Taiwan's economy, and most enterprises are trade oriented, especially those in manufacturing. As mentioned above, almost half of Taiwan's domestic production is exported. Most export products are produced by small and medium-sized establishments (with fewer than 50 workers), and such establishments accounted for about 91 per cent of manufacturing establishments in both 1971 and 1986 (table 6.22). The implication is that there has been a close relationship between world demand and the development of small and medium-sized enterprises in Taiwan. Furthermore, because of Taiwan's sound infrastructure, convenient transportation, well-developed communications, the transfer of commercial skills from trading companies, and the predominance of small and medium-sized enterprises, Taiwan's business establishments are well dispersed throughout the island. This has helped promote an even distribution of cities and accelerated the urbanization of medium-sized cities. The medium-sized cities comprise prefectural cities, the administrative centres of counties, and the satellite cities of metropolises.

The impact of globalization on the mega-city of Taipei

Definition of mega-city of Taipei

The mega-city of Taipei is defined as the Taipei Metropolitan Area. The boundary of the Taipei Metropolitan Area has changed over time. This chapter uses the boundary given in Issues and Development Strategies of the Taipei Metropolitan Area, a study commissioned by the Ministry of Interior. The boundary has been defined according to the interdependence of vicinity areas, commuting and shopping areas, sewerage systems, water supply systems, flood protection projects, mass-transit networks, population growth, population density, and current common problems. The Taipei Metropolitan Area includes Taipei Municipality, Panchiao, Sanchung, Hsinchuang, Hsintien, Yungho, Chungho, Hsichih, Tucheng, Shulin, Yingko, Luchou, Wuku, Taishan, Linkou, Sanhsia, Pali, Tamshui, Sanchih, Shihmen, Shenkeng, Shihting, Wulai, Pinglin, and Kueishan. With regard to administrative units, it consists of a core city (Taipei Municipality) and 24 towns and hsiang, with an area of 1,896 km². Taipei Municipality occupies an area of 272 km², 14.4 per cent of the metropolitan area (fig. 6.5).

Socio-economic characteristics of the Taipei Metropolitan Area

The core city of the Taipei Metropolitan Area, Taipei, had a population of only 0.3 million in 1940. When the central government of the Republic of China relocated to Taipei in 1949, Taipei's population increased dramatically. There were 1.15 million people in Taipei in 1961 and 2.70 million in 1989, 2.35 times the number in 1961. Table 6.23 shows that the metropolitan area had a population of 1.81 million (including a core city of 1.15 million and a periphery of0.66 million) in 1961, and 5.64 million (2.70 million and 2.94 million, respectively) in 1989. The population of the Taipei Metropolitan Area grew 4.1 per cent per year between 1962 and 1989. The periphery grew at the rate of 5.5 per cent, much faster than the core-city growth of 3.1 per cent. The peripheries of Taipei City have enjoyed a spillover effect that has created many more job opportunities than in other cities. Meanwhile a number of industrial estates are spreading into the periphery, such as the Tu-Chen industrial estate, the Shu-Lin industrial estate, the Lin-Kou and Northern Special Area, and the Kuang-In and Taoyuan industrial estates. There are also some traditional textile and food-processing factories in Panchiao, Hsinchuang, and Sanchung. These plants, most of which are labour intensive and export oriented, created many job opportunities in earlier years and attracted many people to this area, contributing importantly to the rapid growth of medium-sized cities.

Fig. 6.5 The location and boundary of Taipei Metropolitan Area

Table 6.23 Population and population growth rate in the Taipei Metropolitan Area, 1961-1989

Source: Ministry of Interior, Population Statistics, Taiwan-Fukien Area, 1962, 1972,1973, 1982, 1990.

Table 6.24 Natural population growth rate in the Taipei Metropolitan Area, 19601990 (per thousand)

Source: See table 6.22.
Abbreviations: NIR - natural increase rate; BR - birth rate; DR - death rate.

It can be seen that the periphery's growth rate reached its peak during 1972-1981, and then dramatically decreased. The period between 1972 and 1981 was the golden era of Taiwan's exports, and Taiwan began to enjoy a foreign trade surplus from 1971. With the expansion of exports, the export-oriented industries grew rapidly and attracted population into the periphery.

Population growth is determined by migration and natural growth. Table 6.24 shows that the periphery also had a higher natural growth rate than the core city. The total population growth rates in both the periphery and the core city were higher than the natural growth rate. This implies that people in the core city are better educated, have higher incomes, are more sophisticated, and have lower rates of fertility and mortality than people in the periphery. The migration factor has had a greater influence on population growth than natural increase.

Table 6.25 Age structure of the Taipei Metropolitan Area, 1970-1990 (%)

Source: See table 6.23.

Looking at the age structure of the Taipei Metropolitan Area, it can be seen that those of working age (15-64) and the elderly increased their shares of the total population between 1970 and 1990, whereas the share of young people (0-14) decreased. A comparision of table 6.25 and table 6.8 shows that the Taipei Metropolitan Area has a larger share of working-age population and a smaller share of elderly than the Taiwan Area as a whole. However, the core city has larger shares of working-age people and the elderly and a smaller share of youth than the periphery.

The employment structure of the Taipei Metropolitan Area has been influenced by economic globalization and the expansion of exports. Secondary industry's share of total employment showed the most rapid rate of increase, growing from 28.6 per cent in 1971 to 38.1 per cent in 1989. Tertiary industry's share remained stable, amounting to 59.6 per cent in 1971 and 59 per cent in 1989, although it dropped to 57.5 per cent in 1981. The share of primary industry declined dramatically, from 11.8 per cent in 1971 to 2.9 per cent in 1989.

Comparing the employment structure of the core city and the periphery, it can be seen that in 1989 the core city was dominated by tertiary industry, and the periphery by secondary and tertiary industries. Tertiary industry maintained roughly the same level of importance in the core city throughout the period 1971-1989. As primary industry declined, secondary industry was given a boost by the growth of manufacturing. The employment structure in the periphery showed different changes. The total employment share of tertiary industry increased from 45.7 per cent in 1971 to 48.5 per cent in 1989. The share of secondary industry soared from 34.4 per cent in 1971 to 45.9 per cent in 1981 as a result of an increase in world demand. Owing to the world recession, it increased only slightly between 1981 and 1989, from 45.9 per cent to 47.5 per cent. The share of primary industry decreased precipitously, from 19.9 per cent in 1971 to 4.0 per cent in 1989 (tables 6.26-6.28).

The impact of globalization

Taipei, the political, economic, social, cultural, and military centre of Taiwan, occupies 272 km² in the northern part of the island. Because of the city's many advantages - well-developed infrastructure, highways, railways, a mass-transit system, and a domestic airport - it has expanded rapidly over the years and its population has grown apace. Although Taipei does not have an international airport or harbour, it is located near the Taoyuan International Airport and Keelung Harbour (both of which can be reached within half an hour). It is therefore one of the main stops for Euro-Asia airlines and Far East airlines.

Table 6.26 Employment structure of the Taipei Metropolitan Area, 1971-1989 (%)

Source: See table 6.22.

Table 6.27 Employment structure of Taipei City, 1971-1989 (%)

Source: See table 6.22.

Table 6.28 Employment structure of the periphery, 1971-1989 (%)

Source: See table 6.22.

Taipei has many medium-sized satellite cities endowed with abundant labour, which has made possible the rise of light, export-oriented industries in the city and its periphery. Owing to a good investment climate, foreign capital and advanced technology were introduced first in Taipei, and many multinational corporations have established branches there. According to statistics on overseas investment cov ering the period from 1953 to 1990, 65 per cent of foreign-invested companies engaging in the manufacture of electrical appliances and electronics, chemicals, and machinery and in the provision of such services as transportation, banking, insurance, and trading, were located in Taipei. The Industrial and Commercial Census of 1976 and of 1986 showed that most trading companies (export, import, or both) in Taiwan were located in the Taipei Metropolitan Area: 82.4 per cent in 1976 and 87.9 per cent in 1986, with 78.8 per cent and 84.6 per cent, respectively, concentrated in the core city. Thus concentration in the core city seems to be increasing (table 6.29). Nevertheless, it should be noted that foreign trading companies that have set up branches in Taipei have helped to collect orders for Taiwan's small and medium-sized manufacturing firms, which are spread island-wide. In addition, foreign banking is also heavily concentrated in Taipei. The number of foreign banking units increased rapidly from 7 in 1976 to 33 in 1986. Of these only one unit is located outside Taipei City.

In summary, owing to its special administrative status, favourable location, and abundant human resources, Taipei's infrastructure was already well developed when the government introduced its export-promotion strategy in the 1960s. Taking advantage of its own abundant labour, Taipei, together with its periphery, expanded rapidly, and its favourable investment climate attracted considerable foreign capital. Overseas investment, accompanied by new technology, flowed not only into manufacturing and services such as trading companies and banking, but also into urban social overhead capital (hospitals, education, housing, etc.), creating many job opportunities and improving the living environment. As a result, many residents of other areas were induced to relocate to Taipei. The improvement in living conditions further increased investment opportunities, which, in turn, attracted more foreign capital. This favourable circular cumulative causation has been the driving force behind Taipei's growth.

Table 6.29 Distribution of trading companies, 1976 and 1986 (%)

Source: DGBAS. Report on the Industrial and Commercial Census, Taiwan-Fukien Area, Republic of China, 1978,1988.

By no means does this imply that the favourable circular cumulative causation will continue indefinitely. Overcrowding always produces negative social effects, which may slow or even terminate a city's expansion. In fact the serious traffic jams and air pollution with which Taipei is nowadays confronted are encouraging a growing number of people to migrate to the city's periphery.

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