|BUSINESSWEEK ONLINE : MARCH 20, 2000 ISSUE|
|INTERNATIONAL -- ASIAN COVER STORY
Taiwan's Tightrope (int'l edition)
Supporters set off firecrackers as a big black van carrying James C.Y. Soong cruises a rural highway of Hualian county. During a 14-hour campaign tour of this remote coastal area of Taiwan, Soong never stops. He lays a memorial wreath to honor victims of a 1947 government massacre. He reduces elderly veterans of China's civil war to tears as he extols their sacrifices. He wows a gathering of a poor, aboriginal minority with a few words in their native tongue. He works a crowd of 2,500 at a wedding between offspring of two local political chiefs.
Viewing this lively campaign, it would be easy to conclude that Taiwan has arrived as a fully developed, democratic, and independent nation. The Mar. 18 vote, Taiwan's first truly contested presidential election ever, is locked in a dead heat between three very different candidates: the U.S.-educated, China-leaning Soong, Vice-President Lien Chan of the ruling Kuomintang party, and Chen Shui-bian of the pro-independence Democratic Progressive Party.
Never before has control of Taiwan's government been more in the hands of its people. And never has it seemed more a fiction that this technology powerhouse, whose economy is virtually joined at the hip to America's Silicon Valley, is an inseparable part of a China ruled by the repressive Communist Party.
ANGRY RANTS. But make no mistake. In Beijing, patience over Taiwan's passage into democracy is running thin. The lengthy white paper released on Feb. 21 by the powerful State Council, which threatens war if Taipei drags its feet on reunification talks, is the most authoritative manifestation. And the tirades at the annual National People's Congress have been as ominous. ''Taiwan independence means war,'' General Zhang Wannian, a Central Military Commission vice-chairman, thundered on Mar. 5. President Jiang Zemin vowed ''drastic measures'' if Taiwan delays unification talks. Even Premier Zhu Rongji, the chief economic reformer, threatened war.
The ferocity of Beijing's rhetoric underscores that Taiwan is on a collision course with its giant neighbor. As the island grows more democratic, it is drifting ever further from China's grasp. And although all three presidential contenders claim they want better relations with Beijing, they all endorse the reality that China and Taiwan are effectively two separate countries, and that most Taiwanese want it to stay that way. ''We know their position, and they should know our position,'' says Acer Inc. Chairman Stan Shih. ''A resolution will have to wait for the next generation.'' To the hardliners in Beijing, however, that status quo is no longer tolerable. As the prospects that Taiwan will follow Hong Kong and Macau in peacefully rejoining the motherland grow more remote, their frustration just keeps building.
As the anger rises, the danger of a military conflict that could devastate Taiwan's economy, set back reform in China, and involve the U.S. becomes more conceivable. If Taiwanese brush off China's war talk and elect Chen Shui-bian--a distinct possibility--Beijing will have to decide whether it will act on its threats. The alternative would be another humiliating climbdown on the order of 1996, when Taiwanese overwhelmingly returned President Lee Teng-hui to office and the U.S. faced down China's missile tests by sending two aircraft carriers to the Taiwan Strait.
Whoever becomes Taiwan's next President will face the daunting challenge of achieving rapprochement with China's leaders, while assuaging distrust of Beijing at home. For just as kowtowing to Beijing would spell political suicide in Taiwan, the island's political and business leaders know there is no viable way to secure real independence. That is the military, economic, and political reality.
The years of psychological warfare waged by Beijing are starting to take their toll. ''People are scared,'' says Charlene Chien, president of Taipei-based First International Computer Inc. ''They want security.'' Anxiety is mounting that even if China doesn't pull the trigger after this election, it may strike in the future. Unless a compromise can be found, says a prominent Taiwan media executive, ''there probably won't be another peaceful Taiwan presidential election.''
Despite years of effort, Taiwan has not been able to use its wealth to buy a safe, secure space outside of China's orbit. A diplomatic campaign to win recognition abroad has met with meager success. So have concerted attempts to make its economy less dependent on the mainland. And even though Taiwan has won loyal fans in the U.S. Congress and armed itself to the teeth, the island remains dangerously vulnerable to a rapidly modernizing military force across the Taiwan Strait. China is years away from being able to invade Taiwan. But it is acquiring the capability to cripple Taiwan's economy with missile strikes. The best Taipei can do is play for more time, build its defenses, and hope a more palatable government comes to power in Beijing.
BUYING FRIENDS? Just a few years ago, hopes were rising that Taiwan could secure much greater breathing room. President Lee Teng-hui's ambition to win more international space was based on the idea that a more benign China would not stop Taiwan from quietly going its own way so long as it did not declare independence. Lee also hoped to buy allies in Southeast Asia, Latin America, and Africa. But Taiwan's attempts to enter the United Nations and other bodies were squashed by Beijing's unrelenting opposition. And all but the smallest nations have cut formal diplomatic ties with Taipei.
The main reason Lee's grand hopes did not pan out is increasing prosperity did nothing to soften the mainland's deep hostility to Taiwan. President Jiang wants to make tangible progress on unification before his term expires in three years. Hardliners feel a growing sense of urgency to act before Taiwan drifts even further away. That sense is fueled by economic problems at home, despite massive public spending. Corruption scandals further tarnish the Communist Party's legitimacy. In a country where the loss of territory to foreign powers has toppled dynasties, the last thing the party can afford is to ''lose'' Taiwan.
It is a point that many fail to appreciate in the West--particularly in the U.S. Taiwanese have long abandoned the fantasy that their government would ever regain control of the mainland from the Communists. The vast majority are not mainland-born, and half the population is too young to remember the late Chiang Kai-shek. But a similar attitude shift hasn't occurred in China. The fact that the Communist Party continues to crush dissent 11 years after the Tiananmen Square bloodbath has dampened hope that a government the Taiwanese can live with will emerge in Beijing. Indeed, the one-country vision burns powerfully among a wide spectrum of China's population. Talk to a construction worker, a stock trader, or a taxi driver, and the sentiment is usually the same: ''I prefer to see peace, but Taiwan is China's territory,'' says Hu Huiqi, 20, a doorman at a Beijing restaurant.
China has another powerful source of leverage in its cold war with Taiwan. The island is increasingly dependent on the mainland to sustain its tiger economy. Taiwan tried for years to break its dependency on the mainland for labor-intensive, old-line factory work by encouraging its businesspeople to invest in Southeast Asia. But Lee Teng-hui's ''Go South'' policy has largely been a flop. Taiwan sent planeloads of executives and billions of dollars to Vietnam, the Philippines, and Indonesia, but the region has proved too volatile and inefficient to replace the cheap, well-run industrial parks of coastal China. ''There was no business rationale for the policy,'' says Goldman, Sachs & Co. Asia economist Fred Hu. ''The rationale was political.''
Taiwan's presence on the mainland, meanwhile, keeps growing. Since 1990, it has invested $24 billion there. There are commitments for an additional $20 billion. Despite the island's prowess in semiconductors and computer design, industries such as apparel, plastics, and appliances remain a big part of the economy, and these manufacturers need China's cheap labor. Taiwan's electronics sector is running short of engineers. ''China has manpower,'' says Gene Sheu, president of First International's personal computer group. ''It would be nice if Taiwan and China could work more closely together.''
Actually, the two economies are growing more intertwined by the day. Two-way trade soared 15% last year, to a record $26 billion, according to Taipei's Economic Affairs Ministry. Chinese consumers aren't yet a big market for Taiwan's companies. But China now absorbs 23% of Taiwan's exports, just shy of the U.S., and likely will become its top market once China and Taiwan enter the World Trade Organization. And that's despite a ban on direct transportation.
Taiwan knows that it opens itself up to blackmail as it ties itself too closely to the mainland. Nevertheless, a high-powered delegation of businesspeople is scheduled to visit China on March 30. It will be led by Kao Chin-yen, a member of the KMT's Central Standing Committee. In another first, Taiwanese pilgrims are planning a direct-charter ship trip to a temple in Fujian province.
As Taiwan and China grow closer economically, China's military clout grows more threatening. When China lobbed missiles into the strait in 1996, few analysts took the bluster seriously because they knew Beijing's navy and air force could not conquer Taiwan. Today, China is in a better position to cause real damage. One recent acquisition is a Russian-built guided-missile destroyer: At least one more is on the way. These will add to recently purchased Russian submarines and an Israeli-made long-range airborne radar system. Beijing has been expanding its air force with top-notch SU-27 and SU-30 fighters. And it is modernizing its arsenal of as many as 1,000 short- and medium-range missiles.
Taiwan is beefing up as well. It has added 150 F-16 fighters and wants Washington to sell it four destroyers equipped with advanced antimissile technology. But it's not the threat of invasion that Taiwan needs to worry about. The real concern is that some missiles would wipe out an airport, container terminal, or chip plant. A naval blockade of ports also is feasible. Even the threat of action could force foreign companies to rethink the island as a source of high-tech goods.
HIGHER STAKES. The U.S. clearly would not let China attack with impunity. Stanley O. Roth, U.S. Assistant Secretary of State for East Asian & Pacific Affairs, cites the Clinton Administration's dispatch of two aircraft carriers in 1996 as evidence of the U.S. commitment. ''We have a track record that shows we're serious,'' Roth says. But if the Chinese are able to sink U.S. warships, that dramatically raises the stakes of any U.S. involvement.
That is why Taiwan's election is so pivotal. Only Soong can be considered remotely pro-Beijing, even though he vows not to enter reunification talks under military threat. ''We cannot negotiate out of fear,'' he says. Soong, a KMT veteran who recently bolted from the party, has a slight edge in some polls. Yet if Soong and Lien split the pro-KMT vote, the DPP's Chen may win. The former Taipei mayor has backed away from his more radical pledges, such as calling a referendum on independence. But as recently as Mar. 8, he declared: ''Taiwan is an independent country now, and I want this to remain so forever.'' Chen supporters say he would be able to cut a deal with Beijing, but some on the mainland disagree. ''Chen is a pure independence advocate, and his softening in stance is merely a strategic cover,'' contends Li Jiquan, a Taiwan expert at the Chinese Academy of Social Sciences. ''He must not come to power.''
Both governments are keeping lines of communication open. Taiwan officials say that the number of mainlanders allegedly coming to visit relatives has doubled recently, as Beijing sends observers to analyze the campaign. Senior working-level Chinese officials, including a top aide of chief Taiwan negotiator Wang Daohan, were in Taipei in early March. The mainland Chinese have met with representatives of all three political parties. Parris Chang, a DPP legislator and a top foreign policy adviser to Chen, says the party already is working on an election victory statement reassuring the Chinese.
The question is whether any amount of diplomacy will work for long. ''They don't like our elections,'' says Chi Su, head of Taipei's Mainland Affairs Council. ''In their eyes, one more election reinforces Taiwan's legitimacy and Taiwan's claim of sovereignty.'' Deep down, many Taiwanese fear they may never make Beijing happy unless they accept Chinese sovereignty--and that's a nonstarter. The only hope is that cool heads on both sides keep this cold war from turning hot.
By Mark L. Clifford, with Stuart Young, in Taipei and Dexter Roberts in Beijing
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Taiwan's Tightrope (int'l edition)
ASIAN COVER IMAGE: Taiwan's Tightrope
TABLE: A Look at Taiwan's Top Contenders
ONLINE ORIGINAL: Candidate Soong: ``We Cannot Negotiate Out of Fear''
ONLINE ORIGINAL: Candidate Chen: "Our Platform Is Not Independence, It Is Self-Determination"
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