Changes More Important Than US Policy?
You can make a
case that while Taiwan is mentioned often as a key player in US-China
relations, relatively little current reporting is done about the
island itself. That’s the impression I got from talking with
Ambassador John R. Malott, a retired career diplomat who is currently
President of the World Affairs Council of Orange County. Mr. Malott
visited Taiwan in May along with 10 other WAC leaders. He reported
to our local council in late June and I talked with him a bit afterward.
John noted that while Taiwan is the United States’ 7th
largest trading partner, Yahoo had not updated its economic coverage
site on Taiwan in six months at the time he made the trip, and that
during that time economic problems had been building in Taiwan.
"Academics and foreign policy pundits focus on China and tend to
think of Taiwan only as an appendage of that ‘Big Picture,’"
Malott said. "Their framework for analysis is the Shanghai Communiqué
of 1972 – to which Taiwan, of course, was not a party –
and they seem oblivious to the major political, economic, and social
transformations that have taken place on Taiwan."
DEMOCRACY IN GRIDLOCK
Malott says that
democracy is alive and well in Taiwan, but that, as usual, it is
a messy business and that the system seems to reflect fairly accurately
some deep divisions within the body politic. Taiwanese President
Chen Shui-bian was elected in March 2000 as the candidate of the
Democratic Peoples’ Party (DPP) after decades of virtual one-party
rule by the Kuomintang (KMT). The peaceful transfer of power to
an opposition-party winner was an important moment in Taiwan’s
history, but it has led, more than a year later, to something resembling
The DPP, Malott believes, "has no more experience in governing
than the KMT has as an opposition party." His impression, after
talking with numerous people on the island, is that the DPP hasn't
learned much in a year about how to govern effectively and that
it "seems short on talent, especially in the economic area." There
will be legislative elections in December that might or might not
sort out the political landscape with more clarity.
Although the DPP holds the presidency, the KMT still holds
The KMT, Mr. Malott believes, will appeal to the "mainlander"
vote on the island in an effort to win back members of the Peoples’
First Party, formed by KMT dissidents, and remind Chinese that the
economy was in better shape when the KMT ran things. But most of
the observers he talked to expect the KMT to lose its majority in
December, with President Chen counting on yet another split in the
old KMT ranks.
But even a partisan realignment is unlikely to break the governance
gridlock in Taiwan. The divisions about the island’s future
are too deep, unless an unexpected dose of inspirational leadership
Taiwanese economy, for so long one of the wonders of Asia and the
world, is in trouble. In the first quarter of 2001 the economy grew
at its slowest pace in 26 years. Unemployment has almost tripled
– from 1.5 percent to 4 percent, which is low enough by world
standards but much higher than Taiwan is accustomed to. Exports
could decline by 5 percent this year. Malott notes an estimate that
some 15 percent of all bank loans are non-performing, but nobody
wants to talk about it or do anything about it.
While the downturn in the US economy has played a role, longer-term
trends are at work. Taiwan’s manufacturers are shifting production
to lower-wage Asian countries, notably to mainland China. Of Taiwan’s
80,000 manufacturers, 24,000 have plants in the mainland. Some 300,000
Taiwanese managers are now working at Taiwanese subsidiaries on
the mainland. About 30 percent of Taiwan’s production of semiconductors
is likely to be done on the mainland by the end of this year. "Some
Taiwanese businessmen say they find it easier to do business there
than at home," Malott told me. "Not only are costs lower, they say
there is less red tape and bureaucracy."
HOLLOWING OR ADDING
An active debate
is underway, as happens in many countries that move from low-wage
havens to centers of higher-value design and capital provision,
as to whether Taiwan’s manufacturing sector is being "hollowed
out" or this is simply a natural progression toward becoming an
upscale center that farms out low-wage work. The question is whether
enough research and development is being done to sustain such a
transition. "Taiwan’s government, universities and businesses
together spend less on R&D than IMB," Mr. Malott claims.
For the most part Taiwan’s manufacturing companies are
small to medium-sized enterprises with little or no experience or
expertise in international marketing. Furthermore, the infrastructure
of business and financial services is something short of world-class,
so it is unlikely that in the near future Taiwanese firms can make
profits exporting services as well as goods.
The situation doesn't resemble an imminent crisis, Malott says,
but the possibility of stagnation that would be difficult to overcome
for a while is quite real. Such an outcome is more likely if the
leadership is unable to muster the necessary political will to enact
reforms that would make various firms, especially banks, more open,
honest and "transparent" in their dealings and more likely to acknowledge
bad loans and other problems before they become too big to handle.
THE TIES THAT BIND
of manufacturing to the mainland is just part of an increasingly
intricate web of relationships that have developed between Taiwan
and the mainland, largely off the radar screens of international
observers and reporters. Taiwan’s Central Bank estimates Taiwan’s
cumulative investment in the mainland at between $70 and $80 billion.
That would make Taiwan, as a political entity, the largest foreign
– if it is foreign – investor in mainland China.
But that’s just the beginning of formal and informal
ties across the Straits that John Malott found striking in their
extensiveness. Every day about 500,000 phone calls are exchanged
through direct dialing. Marriages between mainland women and Taiwanese
managers stationed on the mainland are becoming common, "by one
estimate over 50,000." Transportation, postal services and telecommunications
are not governed by formal agreements between the two – er
– political entities. Despite that – or perhaps because
of it – they are extensive and growing.
The National Palace Museum in Taipei hosts both visitors and
curators from the mainland. Chinese academics visit with Taiwanese
think tank and universities, sometimes for fairly extended periods.
A Taiwanese religious group provided earthquake disaster relief
to the mainland. One poll showed that 25 percent of the Taiwanese
responding said they have visited the mainland. If true that would
amount to some 5 million people.
All this is occurring while formal political discussions about
possible new political links have been suspended since 1995.
believe Taiwan can’t wait to declare formal independence from
China and could do so as soon as it thinks the risk of military
retaliation is low, whether through a US guarantee or mainland lack
of interest. But Malott believes Taiwanese are split about as evenly
– in about four directions – on this issue as they seem
to be on almost every other issue. Indeed, many Taiwanese seem to
be concerned that the United States, with its desire for clarity
and its aversion to ambiguity, could push Taiwan in the direction
of de facto independence before the people on the island are ready
to consider that a real option.
However that political question plays out, cross-straits relationships
are likely to continue to grow. Taiwanese are fully capable of arguing
among themselves about who really benefits from increased investment
in the mainland, but it is likely to continue whether the Taiwanese
public approves of it or not.
DOMESTIC ISSUES DOMINATE
John Malott, whom
I have known long enough to believe he has generally good judgment
and pretty good observational skills, suggests that almost all outside
observers have fallen into the habit of viewing Chinese-Taiwanese
issues from an essentially external framework. The focus has been
on foreign policy, questions about what the United States might
do if various alternative scenarios developed, military security
and official government pronouncements.
He believes that it will be essentially domestic considerations
within each country – political, economic and social dynamics
on either side of the Straits of Taiwan – that dominate future
The fact that Taiwanese-mainland ties on the level of economic,
travel, tourism and subsidiary manufacturing interests are more
extensive than most Western observers realize, suggests that resolution
of political issues could come about in surprising or unexpected
ways. It might not be strictly true that, as Frederic Bastiat observed,
when goods do not cross borders armies will. But it does seem likely
that the more extensive the economic and social ties, the greater
the deterrence – from economically and therefore politically
influential elements within each country – against future
military adventures there will be.
Does this mean that without US involvement the Chinese-Taiwanese
issues will eventually resolve themselves peacefully? Not necessarily.
But it does suggest that more extensive US involvement might not
be helpful and might even precipitate unnecessary violence or bitterness.
The Chinese and Taiwanese might not work things out perfectly, but
they might have a better shot at it with minimal US meddling. And
they might find, somewhere down the road, that some sort of cultural,
economic and personal unification has already occurred and the main
political question will be whether to put a political stamp on it
That's hardly a prediction. But it might not be a bad guess.
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