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Strait talk on foreign investment in
China
By Gary LaMoshi
HONG
KONG - During the late 20th century, it became
fashionable to say that democracies don't attack other
democracies. The early days of this century could test
whether investors attack their own mainland investments
across the Taiwan Strait.
Foreign investment in
the People's Republic of China is approaching US$500
billion and constitutes a modern version of the Great
Wall to protect the Middle Kingdom. For investors, the
idea of that sum going up in smoke in the fog of war
clouds moral clarity.
US President George W Bush
seemed befogged last week when he meekly accepted
visiting Chinese Premier Wen Jiabao's contention that a
national referendum in Taiwan's democracy threatens the
status quo between the island and the mainland (Taiwan
has proposed a referendum on whether to ask Beijing to
renounce the use of force and remove hundreds of
missiles pointed at the island). Bush chastised Taiwan,
and experts explained that away by saying that the
United States needs China's help to unravel the Korean
nuclear mess, and desperately wants to avert yet another
foreign policy crisis on its menu. That explanation
ignores US investments in China, the $50 billion gorilla
in the closet.
Before he stepped down in 2000,
Taiwanese president Lee Teng-hui recognized the danger
of economic integration clashing with strategic
interests. Lee tried to curb Taiwan's appetite for
mainland investments, but the restrictions he backed are
now largely ignored. If Taiwanese businesses don't grab
opportunities in China, other foreign investors will
gladly jump in and beat Taiwan in its own back yard.
Besides, a strong economy is also a strategic imperative
for Taiwan.
Now, with President Chen Shui-bian
pushing for a referendum that, regardless of its
content, symbolizes a move toward independence in the
eyes of the mainland leadership, the world may see how
well the Great Wall of foreign investment works.
War games
Suppose China
attacks Taiwan over some largely symbolic issue such as
holding a national referendum or drafting a new
constitution. Since China's navy has the blue-water
capabilities of the Austrian or Sudanese armadas, assume
that the mainland would express its dismay with its
nearly 500 missiles in Fujian province aimed across the
strait.
When Beijing threatened Taiwan by
conducting missiles tests ahead of the island's first
legitimate presidential election in 1996, the
administration of US president Bill Clinton dispatched
an aircraft carrier to the Taiwan Strait to show his
country's resolve to protect Taiwan. Today, that resolve
would have to be weighed not only against US strategic
interests and commitments, including legislation
committing the US to defend Taiwan, but also against a
vastly expanded portfolio of US investments in the
mainland.
Some observers contend that the
mainland has the most to lose from an attack on Taiwan,
its largest foreign investor and a key engine of China's
export industries (see Two bulls, one China shop, November
21). But risks to foreign investors are just as profound
and more focused than the risks to China. After all,
foreign investments in China are on mainland soil and
highly vulnerable to coercion.
Let's say
Taiwan and its US protector, despite Bush's kowtow to
Beijing, decide to fight back, supported by Taiwan's
former colonial ruler, Japan. At a minimum, the Beijing
government could retaliate by seizing those countries'
mainland investments. Whichever way the economics fall -
the mainland gains assets but may lose foreign expertise
and overseas markets - the move against enemies of the
motherland would likely win widespread popular support.
That would insulate Beijing's leadership, at least
temporarily, against discontent over further
consequences, such as international sanctions.
Market solution
Business
interests would hope to avoid this whole mess, lobbying
for the US and its allies to go softly with China.
That's the approach they took during the days of the
annual US debate over extending most-favored-nation
trading privileges to China on the basis of Beijing's
progress in human rights. In those antediluvian times,
business lobbyists undermined efforts to pressure China
in order to keep their profits flowing.
In those
debates, commercial interests never mentioned those
profits. Instead they spotlighted how trade benefited
the Chinese people and opened up Chinese society,
contending that expanding business ties was the best
avenue for expanding human rights. The cost of
restricting trade with China was tallied in terms of
lost opportunities and retarded progress for the Chinese
people - never in terms of lost corporate earnings.
To safeguard massive investments in China in the
event of cross-strait tensions, business lobbyists
certainly won't talk about those investments. Instead,
they'll lament the tragic consequences of war and the
enormous disruptions it would cause to the world
economy.
It's not the money
...
They'll warn of higher costs and perhaps
limited availability of some products, including key
information-technology items vital to world economic
growth, since so many computers include components
assembled in China these days. It's not about the
billions in investment that General Motors or Sony would
lose if their plants were confiscated; it's about the
potential impact on the global economy and your
retirement plan.
Weigh those costs for assisting
23 million people in Taiwan, a relic of history, against
1.3 billion mainland Chinese, the wave of the future.
Strategic considerations might dictate siding with the
mainland in any case, but foreign investment in China
guarantees highly motivated businesses and their
lobbyists arguing the case against Taiwan.
What's shocking is that the Bush administration
short-circuited this process by selling out Taiwan on
the referendum issue that Beijing finds
disproportionately offensive. Despite commitments to
defend Taiwan, the Bush people have sided with the
business lobbyists before the debate has begun.
Despite what the experts say about free markets
and democracy going hand-in-hand, that's not the case
when it comes to Taiwan, China and a half-trillion
dollars of Western investment.
(Copyright 2003
Asia Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication policies.)
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