Day Linim, vice minister of finance in Taiwan, views Taiwan's situation as entering a crisis phase that includes both opportunities and dangers. For him, Taiwan must act quickly in order to become the next major financial center in the region or it may lose its overall competitive edge in the global marketplace. He noted that Taiwan lacks important natural resources, so that it is even more important that its financial system provide the foundation for Taiwanese industry to be competitive in the global marketplace (Hutton, 1996).
The intention in this paper is to look at the present situation in Taiwan to determine the potential for it to become an important regional financial center, while also examining the short term performance of the Taiwanese stock index, as a representation of its current financial position.
The story of Taiwan is the story of waves of immigration from mainland China. Most of the people of Taiwan are descendant of immigrants from China, with 85 percent of Taiwanese descended from Chinese who migrated from the mainland hundreds of years ago. They created a small island nation, but one that was tied to mainland China by blood, trade, and other cultural factors (Tyler, 1996).
The modern history of Taiwan is inextricably linked to the modern history of China. While initially a province of China, it was ceded to Japan late in the last century after the Sino Japanese war, and not returned to China until Japan lost in World War II. At that point, Taiwan was ceded back to China under the control of Chiang Kai shek and the Kuomintang. It has remained under the control of the Kuomintang, although in a fashion different from that anticipated in 1945. Essentially, it remained the last bastion of support for Chiang Kai Shek and the Kuomintang after they lost control of mainland China to Mao. About 1 million Chinese took refuge on Taiwan in 1949 and they, under the government of the KMT, have provided the...