Under the Japanese, about 90% of the industrial enterprises were owned by the government or by Japanese corporations with government assistance. After the restoration of Taiwan to China in 1945, the ROC government took over these enterprises. Some were sold to private owners, and the rest were grouped under the management of 18 public corporations, operated either by the national government or by the provincial government, or by both. Added to the confiscated enemy properties were public enterprises evacuated from the mainland. As a result, government-operated enterprises came to dominate Taiwanese industry. Although the proportion accounted for by these enterprises in the production value of manufacturing industries has been falling in recent years in contrast to the private sector, it still accounts for a significant amount of value added. Beginning in 1992, Taiwan authorities have made efforts to reduce the size of the public sector. These efforts have gained momentum after democratization in 1996. By 2002, the government had sold equity shares and reduced public ownership to below 50% in 23 state-owned enterprises (SOEs), mostly banks and insurance companies, but including a steel mill and one fertilizer company. In 1998 and 1999 privatization announcements included the Chinese Petroleum Corp., Chunghwa Telecom Corp., and Taiwan Power Corp. Plans for privatization have been announced for SOEs involved in power, oil, tobacco, wine, railway transport, mining and telecommunications. Since 1998, also, a number of construction projects—the north-south high speed railway, the mass rapid transit (MRT) systems in Kaohsiung (KMRT) and the between Taipei and the CKS Airport—were given to private firms, including many foreign companies, on a build-operate-transfer (BOT) basis.
The average annual growth rate in manufacturing was 13% during 1953–62, 20% during 1963–72, 9.6% during 1973–85 and 5.9% for 1986–92. The private sector outpaced the public sector during each of these periods. The number of workers in manufacturing rose from 362,000 in 1952 to 736,000 in 1967 and to almost 2.8 million in 1987. By 1992, however, this number declined to about 2.6 million as the rapidly expanding service sector absorbed more of the workforce. Manufacturing for export has been encouraged by the establishment of free-trade export-processing zones (EPZs) in the Kaohsiung harbor area, at Nantze (near Kaohsiung), and at T'aichung. Since the late 1980s rising production costs and a 40% appreciation of the New Taiwan dollar have prompted many export-oriented companies to relocate their manufacturing plants to mainland China and Southeast Asia. In particular; labor-intensive industries, such as toys, footwear, umbrellas, and garments, have relocated. In 1986, industrial production accounted for nearly half of GDP. By 1997 this figure had dropped to about 35% and in 2000, it was an estimated 31/.9%, including manufacturing at 26.4% of GDP; construction at 3.4% and electricity, gas and water at 2.1% of GDP. For to June 2001, industrial production accounted for 29.4% of GDP., with manufacturing accounting for 24%.
Production rose spectacularly after the end of World War II, especially between 1952 and the early 1980s. Slower economic growth since the mid-1980s and greater investment emphasis on heavy and high-technology industries as well as services has resulted in declining production figures for traditional manufactures such as cotton yarn and fertilizer. Labor intensive industries have gradually been replaced by capital and technology intensive industries. In 2000 electronics and information technology (IT) products accounted for 27% of industrial output. The two largest made-to-order computer chip manufacturers are Taiwan Semiconductor Manufacturing Company (TSMC), Taiwan second-largest company, and United Microelectronics Company (UMC). In 2000, Taiwan global share in scanner production was 90%; in motherboards, 65%; monitors, 57%; in notebook PCs, 57%; in digital cameras, 45%, and in D/DVD drives, 39%. Strong growth in IT products continued in many IT products despite the overall 10.4% contraction in industrial production in 2001. Sales of LCD monitors, for instance, reached $3.13 billion, a 66% increase over 2000, while sales of digital cameras reached $7.132 billion, a 95.5% yearly increase. In 2000, Taiwan was the world's fourth-largest computer hardware supplier. Taiwan has become the world's leading supplier of computer peripherals, including motherboards, monitors, mice, interfaces, network cards, and graphic cards; and holds the largest market share of notebook computers and semiconductor. The structure of Taiwan's IT industry is a pyramid with a handful of large companies that make the major investments in research and development, and over 1000 small and medium-sized operations that account for about 85%s of the output. The sector employs about 130,000.
Taiwan's petrochemical industry consists of mainly of 45 upper and middle-stream manufacturers, many concentrated in the Kaohsiung special chemical zone. In 1999, Taiwan's petrochemical production capacity was only 51% of domestic demand. As of 2000, this was raised to 79% with the completion of a naphtha cracking plant in the more recently developed Mailiao industrial zone. The Mailiao zone also includes its newest oil refinery, a 450,000 barrels per day facility built by Formosa Petrochemical Company (FPC), which, with Taiwan's three other refineries—a 270,00 barrels per day refinery at Kaohsiung, a 270,000 barrels per day refinery at Ta-Lin, and a 200,000 barrels per day refinery at Taoyuan—establishes refinery capacity in excess of domestic demand. In December 2002, an export contract was concluded with the mainland China state petroleum company
In heavy industry, Taiwan has 10 manufacturing companies, most of them contractual joint ventures with Japan. The production value of the automotive industry reached $10 billion in 2000, about 4% of its aggregate manufacturing. Taiwan's small size and the availability of efficient MRT lines limits the demand for automobiles. Domestic demand for vehicles fell from 542,000 in 1995 to 420,000 in 2000.
Textiles were the leading export until the 1980s when labor costs, land prices and environmental protection concerns led to a relocation of much of the industry to Southeast Asia and China. The domestic industry is based on man-made fibers. In 2000, Taiwan was third in the world in the production of man-made fibers, and second in the production of polyester, which constitutes 80% of its output.
Overall industrial production fell 2.6% in 1998 from an increase of 7.4% in 1997, due largely to the effects of the Asian financial crisis. Industrial production recovered quickly to growth rates of 7.5% and 7.4% in 1999 and 2000, but then slid 10.4% in 2001 in the wake of the dot.com bust. In 2002, the economy recovered, registering a 3.3% growth rate, and in the first quarter of 2003, industrial production had risen 6.4%.