Introduction

When Taiwan reverted to China's control upon Japan's surrender in 1945, its economy was overwhelmingly agricultural. Under a half-century of colonial rule which sought to make the island an agricultural base serving Japan's strategic needs, Taiwan's agriculture had been commercialized and given a strong foreign trade orientation. Sugar and rice were exported to Japan, while Japanese manufactured goods were imported into Taiwan as part of Japan's effort to create an economically integrated East Asian empire. ¹ Japan created a fairly strong physical and institutional infrastructure in support of trade. But there was only a modest expansion of modern manufacturing. Chinese control brought to Taiwan the devastating inflation that racked Mainland China in the late 1940s. There followed, within a few years, the arrival of over a million demoralized and angry soldiers, desperate refugees, and officials of the Chinese Nationalist Party (Kuomintang, or KMT) that had lost the civil war in China. Absorbing this flood was a heavy burden and created considerable disruption. Meanwhile, across the Taiwan Strait the powerful military forces commanded by the Chinese Communist Party (CCP) were preparing to invade and “liberate” Taiwan. Prospects for Taiwan's survival as anything other than another province of the People's Republic of China (PRC) under the rule of the CCP looked extremely remote.