Two bulls, one China shop
By Macabe Keliher and Craig Meer

TAIPEI - As missiles from the People's Republic of China flew into the Taiwan Strait in the spring of 1996, ostensibly trying to intimidate Taiwanese against voting for pro-independence presidential tickets, PRC officials met with representatives of the Taiwanese business community on the mainland. The military exercises, the officials told them, were designed merely to deter Taiwanese authorities from conducting independence activities. "There will be no scenario of attacking Taiwan," they said.

Beijing's military threats were, in essence, empty. The same is very likely true of this week's rhetoric from China's Taiwan Affairs Office that "war will break out if the island declares independence" (see Beijing rattles war sabers at Taiwan again, November 20).

With the economies of mainland China and Taiwan becoming more and more economically integrated, the inimically opposed Beijing and Taipei governments are finding their political options more and more limited. Where live fire once filled the Strait, foreboding the reality of invasion, the fact that each side today accounts for substantial percentages of the other's gross domestic product has abrogated the ammunition and made invasion a fading ambition.

Beijing has not only punctuated its economic policy to accommodate Taiwanese investors, but has also allowed its Taiwan policy to be influence by them at times. "Cross-Strait economic exchange is the security coefficient for cross-Strait relations," said Tung Chen-yuan, research fellow at the Institute for International Relations, Taipei.

Taiwanese investment on the mainland is the mainstay of China's economic growth. At somewhere between US$80 billion and $100 billion accumulated foreign direct investment, outside of Hong Kong, the Taiwanese are the largest single group of foreign investors in the PRC. Furthermore, best estimates suggest that Taiwanese firms in China are responsible for about 40 percent of the PRC's total exports. Some 65 percent of foreign-sourced, high-tech investment originates from Taiwanese companies, and annual PRC imports of Taiwanese capital - estimated at more than $22 billion last year alone and about $1.8 billion per month this year to date - provide one of the few constants in China's annual investment equation (see Taiwan and China: Too close for comfort?, October 24).

With China closing down state-run enterprises and transforming its economy, Taiwanese investment is not just important in maintaining strong economic growth and cushioning unemployment, it is vital. As then Chinese president Jiang Zemin said in 1995, right before the missiles began to fly, "We hold that political differences should not affect or interfere with the economic cooperation between [Taiwan and China] ... Whatever the circumstances may be, we will safeguard the legitimate rights and interests of industrialists and business people from Taiwan."

China has obfuscated its political differences with Taiwan when dealing with the island's investors. In 1999, for example, the Taiwan Electrical and Electronic Manufacturers Association (TEEMA) visited China and lobbied a set of regulations then being drafted. Eighty-eight percent of TEEMA's suggestions were implemented, said Tung. "It is not unusual for the leaders of Taiwan's important business associations to meet with the president and premier, or at least ministerial officials, when visiting Beijing," said Tung, who is also the author of Cross-Strait Economic Relations in the Era of Globalization.

Even more telling is what Jiang reportedly told Taiwan business associations in 2001: "China's Taiwan policy will consult with Taiwan investors." The Taiwanese business community must be the only interest group in the world that has input on arguably China's most vexing policy question. How far will this consultation go? Are Taiwanese businessmen to be consulted on the missile buildup in Fujian?

In the years prior to this, Beijing played a two-faced goblin: a conciliatory economic suitor on the one side, and an opprobrious political monster on the other. While missiles bracketed the island in 1995 and 1996, Beijing's Taiwan Affairs Office deputy director, Chen Yunlin, told representatives from Taiwanese investment associations that "Taiwanese investors have an important bearing on the development and prosperity of the Chinese nation ... No matter what happens, the rights and interests of Taiwan business people investing in the mainland will always be protected and will not be harmed," he said, his remarks later canonized by the Xinhua News Agency under the banner: "Political disparities won't affect Taiwan investors: Official".

In 2000, after he was done ranting about war in the Taiwan Strait should voters elect Chen Shui-bian, then Chinese premier Zhu Rongji emphasized the "vigorous promotion of cross-Strait economic and trade relations, and conscientiously protect the legitimate rights and interests of Taiwan compatriots, including their legal rights and interests related to investment and business operation on the mainland".

Tung says the eighty-some Chinese scholars and officials he interviewed last year "unanimously agreed that cross-Strait economic exchange has restrained Beijing's Taiwan policy".

Which puts Taipei in a dilemma. If the island declares independence, will Beijing attack regardless of the economic consequences? Will zealous nationalism and Chinese pride prevail over cool economic sense, igniting Zhu Rongji's "fires of war" to send not only China's economy into perdition but possibly all of East Asia?

"Good question," said Lin Wen-cheng, a senior cross-Strait policy adviser on Taipei's National Security Council. "It depends on the rationality of Beijing leaders." That is to say, there are no constants in this equation. If political instability shakes China, then leaders could attack Taiwan to divert attention. Or, if the domestic economy is not growing at necessary rates, Taiwan could become a way to suppress strikes and protests and lead the country into war.

"It may be an empty threat, but psychologically we feel it is a very real threat," said the NSC official.

Professor David Brown from the John Hopkins School of Asian Studies notes that this "psychology of pessimism" has been amplified by Taiwan's sluggish economic growth in the last two to three years. Indeed, the Taiwanese feel more vulnerable now than they have for years.

The experts do not think war in the Strait is a high possibility today, nor do high-level officials in Taipei and Washington. However, they are quick to remind that China has not only refused to renounce the use of force, but also continues to increase the 450 missiles now pointed at Taiwan at a rate of 75 per year. "In the early 20th century everyone said Europe was too economically integrated to go to war," said a high-level US State Department official referring to China and Taiwan, "but we still had World War I." A chilling reminder of the region's instability.

Macabe Keliher is an independent historian and journalist, and a regular Asia Times Online contributor. Craig Meer is a post-doctoral research fellow at Academia Sinica in Taipei.

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