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NOVEMBER 29, 2004
Taiwan: Falling Into China's Embrace Beijing has toned down the rhetoric, but its economy's pull is irresistible Taipei's fabled traffic jams are back, exports of everything from computer monitors to chips are growing at a sizzling 25% year-over-year pace, and the Taiwanese economy is expected to clock 6% growth by yearend, about double 2003's level. Taiwanese President Chen Shui-Bian oversees a thriving, if raucous, multiparty democratic system. He zealously guards Taiwan's tenuous grip on independence from mainland China. His ruling Democratic Progressive Party and coalition partner, the Taiwan Solidarity Union, are expected to gain a majority in parliamentary elections set for Dec. 11. Yet if Chen is on top of his game, so are his adversaries in Beijing. The Chinese, in fact, are playing their hand brilliantly. Gone are the high-decibel, constant fulminations of communist generals against the "splittists" in Taiwan. Yes, the Chinese protest when Chen makes one of his rhetorical blasts about independence. And they are making their views felt about Chen's plan to buy $18 billion in advanced weaponry from the U.S. if he wins legislative approval. But the hair-raising days of serious saber-rattling and missile launches by Beijing seem over. Instead the strategy is: Try to act more like model world citizens -- and never let up on the military and economic pressure. The strategy is working. China's $1.4 trillion economy is now roughly five times that of Taiwan's. The number of missiles targeted at Taiwan, now at 600, has risen dramatically. Taiwan can still defend itself, but unless Chen buys that new weaponry by 2006, says Taiwan Premier Yu Shyi-kun, "the military balance will gradually lean toward China." Yet with China adding about 75 missiles a year to its offensive capacity, Taiwan probably needs Aegis-class ballistic defense systems, something it has requested and the U.S. so far has declined. Then there is the relentless pull from the white-hot Chinese economy on Taiwanese trade and investment. Last year, China blew past the U.S. as the island's biggest trading partner. The mainland's cumulative stock of fixed investment from Taiwanese companies is about $100 billion, or about one-third Taiwan's gross domestic product. A decade ago, Taiwanese companies set up plants in China mostly to reexport shoes and computer monitors to third countries. Now, about 50% of the Taiwanese investment going into China is feeding mainland domestic demand. The day is fast approaching when Taiwan is so economically tethered to the mainland that a de facto unification will have taken place. Premier Yu won't admit to this, nor will any of Chen's party. But Yu also makes it clear that the fire-breathing independence activists of Taiwan are now looking for some sort of détente. "If leaders on both sides can express the highest goodwill and creativity, we will be able to build a win-win situation," he says. "We don't have any preconditions." On Nov. 10, Chen called for a peaceful dialogue with policymakers in Beijing on a host of issues. What about the gravitational pull of China's economy? "We don't want to put all our eggs in one basket," says Yu. But a moment later he admits: "China and Taiwan are growing more dependent on each other." Taiwan wants to diversify into Southeast Asia, but China is clearly its destiny. Chen is also feeling intense heat from Washington. True, the U.S. would not stand by idly if Taiwan were to be attacked by China. But policymakers in the region say the U.S. also regularly and quietly reins in Taiwan. President George W. Bush is likely to remind the world once more, when he meets Chinese President Hu Jintao at the Asia-Pacific Economic Cooperation summit in Santiago, Chile on Nov. 17, that the U.S. is dead set against any separatist stunts by Taipei. What can Taiwan do? Build its own base of prosperity, and play for time -- the longer it can avoid China's embrace, the longer China has to become more democratic and prosperous itself. But an independent Taiwan? The game is not going that way.  By Brian Bremner Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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