How Japan Nurtured Taiwan's Colonial Economy
A complicated legacy, with long-lasting repercussions
Author’s note: You can watch the video below. It was and is still one of my favorites.
I often hear that Taiwanese have a favorable view of the Japanese. I always found this to be a curious thing to say. For one thing, what do you mean when you say Taiwanese? The Waishengren who fought them in WW2? The Indigenous Aborigines who were slaughtered en masse by them in 1915?
The reality is that the Taiwanese have a rather complicated view of their former colonial masters. If the sentiment is meant to be in contrast with how the mainland Chinese or Koreans feel about the Japanese - well then, that’s not really saying all that much.
I think the Taiwanese have a measured view of the Japanese colonial legacy. For one thing, they appreciate the things that the Japanese achieved while they were there - but it was not all honey and milk. You end up really conflicted.
Economically, it is a bit easier to come down on a more positive than negative impression. Japan infused the island with their culture and economic skills. Even today, visitors note that the Taiwanese business culture is a mix of Chinese and Japanese, for better or worse. It laid down a foundation for future economic prosperity:
They gave Taiwan a goal: to be the best agricultural nation that it can be
However brutally and crudely they did it, they established a coherent system of land ownership rights
They mapped the island (not easy in the days before Google Maps)
They gave Taiwan baseball which is great because baseball is great
They gave the Taiwanese a lot of their money - so much to the extent that it probably hurt their own economy. There is some evidence that ultra-cheap rice and sugar from the colonies (Japan and Taiwan) would destabilize Japanese farmers’ income in the inter-war years and lead to political instability
And then for a final (albeit probably bittersweet) gift, when the Japanese lost the war and had to leave, they vacated infrastructure, land and property that the KMT was able to seize without political consequence and redistribute to the people.
But at the same time, the Taiwanese people never got to actually govern themselves under Japanese rule. The Japanese saw them as an inferior peoples - especially in the early years. The Taiwanese struggle for independence from their Japanese colonists would never succeed, but it is what called out to me while researching the video of the short-lived Formosan (or Taiwanese) Communist Party of the 1930s.
With all that being said, there is such a thing as nostalgia for the past. My grandfather was born in Tainan in the 1920s. He never really spoke Mandarin. He preferred to speak Japanese and Taiwanese dialect. In his last days, he did not perk up unless we were talking about the old days of his youth. Taiwan was so different back then.
In 1895, Japan acquired Taiwan island from the Qing Empire. They would cede it along with the rest of their short-lived colonial empire at the end of World War II in 1945.
Over those fifty years, the Japanese left a lasting legacy on the island. They conducted its first geological survey, sorted out property rights, built up a taxpayer base, and eradicated several diseases. Their work transformed a violent, ethnically divided Qing Dynasty frontier territory into a functioning state.
Impressively, they performed this nation-building as the Chinese Nationalist government spasmed through power struggles, food shortages, and endemic poverty across the Strait on the mainland. The contrast has always been fascinating to me. Mainland China squandered some of the richest, most fertile and vibrant resources of any country. The Kangxi Emperor called Taiwan a ball of mud. How did the island develop so well?
Here, we look at colonial Taiwan’s early economy and how it developed under Japanese influence.
The Geopolitics of Taiwan Under Japanese Rule
At the turn of the 20th century, Japan sought to enter the ranks of the European colonizing nations. The way they saw it, it was either to colonize or be colonized. This meant that Japan had to acquire some colonies of their own. However, the Japanese economy at the time could not support expensive, colonial acquisition forays far from home. Not to mention that most of the land in traditional areas like Africa and Latin America had already been spoken for.
Thus, the Japanese looked across the Sea of Japan towards Korea. By many criteria, Korea would make for a poor Japanese colony. The Korean kingdom was relatively sophisticated and possessed a coherent identity — a distinct nation of peoples led by a king. Not to mention that Korea allied itself with its much larger neighbor to the north, China.
But Qing China’s decline as a world power would in turn destabilize its neighbor. The Japanese government’s biggest nightmare was to have an unstable, hostile Korea — or worse, one colonized by a Western power — lying across the Tsushima straits from them. This laid the impetus for the Korean annexation in 1910 and in their minds justified a brutal, heavy-handed military rule. Korea’s geopolitical importance gave the ruling colonial government justification to rebuff any calls from liberal voices back home to reform the colonization strategy.
Taiwan in contrast did not face the same situation. Japan had first taken control of Taiwan island after the Qing lost the First Sino-Japanese War in 1894. The island was at the time a largely unsettled, Wild-West type frontier far from both China and Japan alike. The whole island had not even been completely pacified yet — fierce aboriginal tribes and the Han settlers regularly clashed in the center and east.
This helped Taiwan’s Japanese rulers in two ways. First they did not have to face a completely unified force nostalgic for their lost nation unlike with Korea. Second, the lower strategic priority that the military assigned to Taiwan island meant that its rulers were not hardline generals and were open to (relatively) more liberal policies.
At the same time, this also meant that the Japanese had to do a lot of ground work to build a functioning national economy out of this ball of mud.
Positioning Taiwan’s Economy
Japanese strategy positioned Taiwan’s infrastructure and economy as a supplier of agricultural goods for the homeland — focusing on rice and sugar.
Nothing about Taiwan’s climate or soil makes it particularly well-suited for growing such crops — Japan could have easily gotten sugar for much cheaper from Dutch-ruled Indonesia — but at the time Japan was importing a considerable amount of sugar. Japanese rulers sought a self-sufficient source of the stuff. Taiwanese sugar would allow Japan to save its foreign exchange reserves for other imports such as those needed for the industrialization process.
Critically, Japan bought Taiwanese goods without competition. Taiwan’s goods were exempt from Japanese tariffs. This created a captive market for Taiwan exports and jolted the economy, abruptly shifting it out of its former status as a neglected Qing province to a fully export-oriented economy.
This meant that for the first couple decades (1911 to 1941), Taiwan’s economy grew steadily from export agriculture. Taiwan would eventually count for 92% of all of Japan’s sugar supply and 36% of its rice supply as well. Between 1897 and 1908, Taiwan would accumulate a 34.5 million yen trade surplus through its captive export relationship with Japan — representing a large flow of capital transferring from Japan into Taiwan.
While the Japanese government never really budged from its positioning of Taiwan as an agricultural breadbasket, by doing so it nevertheless primed the economy to make the jump from agriculture to industrialization. This was further primed through the development of its people.
Infusing and Growing Human Capital
As many gardeners know, it is less about the plot of land but the effort put into it. With crops like rice (and most things in life, really), the more work you put into it, the more you get out of it. You need good workers.
This meant that in order to build up Taiwan as Japan’s food basket, Japan had to improve the health and lives of the Taiwanese living there — a concept economists would call “improving human capital”.
This began with the public health system. Diseases like the plague and cholera were eliminated from society. These advances cut the death rate in half and sparked a baby boom. Taiwan’s population mushroomed from 3.3 million to 6 million in 30 years.
At the same time, the Japanese colonial government sought to educate the native people with the express philosophy of making the Taiwanese people more “Japanese”. They introduced large-scale primary education in the late 20s, raising the share of kids in primary school attendance from 20% to 71%. This created a class of educated people.
In addition, Japan recruited Japanese from its homeland to immigrate to Taiwan, infusing it with specialized human capital. Some 20,000 Japanese technicians and white collar managers were working in Taiwan by 1940, accounting for over 60% of its agricultural technicians.
This two-pronged strategy of importing human capital to meet short term needs while improving the wares of the native population for long term benefit would in the end arm the economy for its future industrial development and growth. Taiwan’s economy would make the transition from agriculture to industry with ease thanks to these benefits.
Lastly, we want to talk about money. In addition to the massive amount of Japanese capital transferred to Taiwan through its captive export relationships in sugar and rice, Taiwan also benefitted from outright transfers of capital in not-insignificant amounts.
This began with a massive capital infusion in the first two years of Taiwanese colonization. 13 million yen, comprising over 50% of the Taiwan government’s cash receipts. Japan, excited about its first colony, threw great financial resources into the effort. But for a country that itself was struggling to develop and industrialize, Japan found these capital subsidies quite burdensome and the public attitude towards Taiwan turned unfavorable. This manifested in a popular movement to sell Taiwan to France for 100 million yen in 1898. This did not happen but the popular pressure would force the colonial government to generate revenue on its own.
The cash subsidies at the start though would help jumpstart the development process and get the Taiwan government going on a comprehensive land survey leading to a land tax as well as profits from government-run monopolies. This left Taiwan with a largely corruption-free government able to pay its bills and run its own affairs.
Economic development is a melting pot of ingredients. It requires specialized human capital, favorable government policies, and an infusion of financial capital through exports or loans.
Judged on human rights grounds, Japan‘s record in Taiwan is mixed. The brutal counter-insurgency against the Taiwanese aboriginal population. The systematic racial subordination of the Taiwanese Han population. The lack of representation for the islanders. This all should not be forgotten and is a stain on the Japanese colonization period.
Economically and developmentally however, Japan gave a great deal to Taiwan during its colonial years. It is almost as if they wanted to be a European colonial power but had no idea how to do it like how the Europeans did. So unlike with the European colonizations across Africa and Latin America, Japan infused millions into nation building, inadvertently gave the island a profitable agricultural export monopoly, and sent tens of thousands of their own people there to work and build up the economy. The Japanese built their island into a nation, and the Taiwanese on the whole have good feelings about the Japanese occupation — setting the stage for the next period of its history.