Taiwan's President Tsai Ing-wen attends an unveiling ceremony for a prototype of advanced jet trainer "Brave Eagle" in Taichung, Sept. 24, 2019. (Military News Agency/Handout)
Taiwan's President Tsai Ing-wen attends an unveiling ceremony for a prototype of advanced jet trainer "Brave Eagle" in Taichung, Sept. 24, 2019. (Military News Agency/Handout)

TAIPEI - Taiwan set out nearly 50 years ago to grow its own defense industry because the island's leaders never know how many arms they can get from abroad. Taiwan seeks a strong defense to deter China, an old military adversary with the world's third strongest armed forces.

That industry is growing steadily now in line with goals established by the ruling party in 2014 and contributing to an economy long dependent on tech but facing pressure to diversify.

"Over the past few years President Tsai Ing-wen has been promoting a self-defense industry policy and that's a good thing," said Michael Tsai, chairman of the Institute for Taiwan Defense and Strategic Studies in Taiwan.

2020 goal

The party's defense committee suggested in 2014 that to "revitalize" Taiwan's defense industry expenditures to domestic weapons production should reach at least 60% of military investments by 2020.

The party said a year later its defense industry policy would eventually generate revenue of at least $8.17 billion and create 8,000 new jobs.

Party representatives reached Monday were unable to say whether these goals were on track, and for security reasons the Ministry of National Defense does not disclose current or past revenues from the self-defense sector.

But a ministry spokesman pointed Monday to recent breakthroughs, such as a fighter jet trainer prototype unveiled last month and groundbreaking in May for Taiwan's first homegrown submarine.

The $2.2 billion jet project has created 1,200 jobs, officials said last month. The submarine, to be built by CSBC Corp. in Taiwan for a target operation date in 2025, is expected to cost $15.9 billion.

Flares are set off from Kee Lung (DDG-1801) guided-missile destroyer (R) and navy vessels during a military drill near Hualien, Taiwan, May 22, 2019.

Three years ago the government also announced $14.7 billion in naval shipbuilding programs.

"Over the past three years, we have developed our national defense industries and purchased advanced weapons, boosting military morale and enhancing our combat capabilities," the president said Thursday in a National Day speech.

The current government fosters the industry by matching military needs with the Taiwanese companies most able to meet them. It also raises the military budget every year. A NT$358 billion budget for "national defense needs" in 2020 will mark a record high, Taipei-based Central News Agency reports.

Jobs and profits

Defense might eventually claim 3% to 5% of the $589 billion GDP and create jobs, said John Brebeck, senior adviser at the Quantum International Corp. investment consultancy. Taiwan is good at electronics, precision manufacturing and shipbuilding, he said.

"If they can put their mind to it I don't think there's anything they can't do," Brebeck said. "Taiwan's got the technology."

Government-run National Chung-Shan Institute of Science and Technology develops most of Taiwan's weaponry, particularly missiles and advanced radar systems. At least 200 other companies in Taiwan do work related to defense.

Military aircraft developer Aerospace Industrial Development Corp., which made the trainer jet prototype, posted a NT$2.09 billion ($68.3 million) profit last year and a $1.74 billion profit in 2017.

Taiwan does not export weapons.

In this photo released by Military News Agency, Taiwan war planes are parked on a highway during an exercise in Changhua in southern Taiwan, May 28, 2019.

Taiwan has manufactured high-tech exports since the 1980s, but in the face of competitors overseas, officials and leaders hope to diversify away from contract orders for consumer electronics.

Companies could eventually share discoveries in military technology with peers in Taiwan that work in the civilian sector, said Liang Kuo-yuan, president of the Taipei-based economic think tank Yuanta-Polaris Research Institute.

Unsteady sales from abroad

Washington is legally bound to answer any threats against Taiwan, which in turn counts it as the island's top foreign arms supplier.

China has claimed sovereignty over self-ruled, democratic Taiwan since the Chinese civil war of the 1940s. It occasionally threatens the use of force, if needed, to unify the two sides.

U.S. President Donald Trump's government has approved five arms deals for Taiwan since 2017, but some presidents OK far fewer to avoid offending economically powerful China.