A Dangerous Time for Taiwan

Taiwan faces a stark choice in its upcoming presidential elections. Will the country choose closer relations with the mainland or greater independence?

On September 20, the UN General Assembly decided not to include the issue of Taiwan in its agenda. As Washington focuses on the war in Iraq and the presidential election in 2008, Taiwan is moving toward turbulence.

"We have survived very difficult situations, but now our people are divided", said the taxi driver when I visited Taipei a few months ago. "Things won't get better until they get a lot worse", he concluded as he rushed by the large Chiang Kai-shek Memorial Hall in downtown Taipei. "Don't come back next spring."

The presidential election will be in March 2008. Taiwan's current problems started last year.


A "Highly Dangerous Period"

Last March, President Chen Shui-bian said that Taiwan's sovereignty was none of China's business. Taiwan, he said, "should be independent." The next day Chinese Foreign Minister Li Zhaoxing responded with tough language, and Taiwan's stock market slumped.

In July, the UN rejected Taiwan's application to join the world body, citing Beijing's "one China" policy. The application has been rejected 15 consecutive times. But now as China is focused on the 2008 Beijing Olympics, Taiwan's pro-independence forces are trying to seize the opportunity.

"This year and next year are going to be a highly dangerous period for the situation in the Taiwan Straits", President Hu Jintao told George W. Bush during the recent meeting of the Asia-Pacific Economic Cooperation (APEC) forum. "We must issue harsher warnings to the Taiwan authorities that any secessionist attempt aimed at 'Taiwan independence' in any form will be doomed."

President Bush said that Washington fully understands China's concerns, firmly adheres to the one-China policy and opposes any unilateral act to change the status quo across the Taiwan Straits. Just a week later, the Pentagon announced tentative plans to sell surplus P-3C Orion submarine-hunting aircraft and air-defense missiles to Taiwan in deals potentially worth more than $2.2 billion.

While Chinese protests were ignored, more than 100,000 Taiwanese rallied in Kaohsiung, the island's second largest city, in support of President Chen's pro-independence policies. China issued a stern warning to Taipei, saying that it has made "necessary preparations" for dealing with any "serious situation".

As far as the Bush Administration was concerned, it was fulfilling the security and arms sales provisions of the Taiwan Relations Act. In China, the demonstration was perceived as the most significant step yet in the effort to separate Taiwan from the mainland. 


Friction in Politics, Integration in the Economy

Asian tiger economies share a history of rapid economic growth, but have unique geopolitical legacies. The laissez-faire Hong Kong remains highly entrepreneurial, while Singapore's garden city-state cultivates a global mindset. In Taiwan, the mood is anxious, like the calm before storm.

Last year, Taiwan was 13th in global competitiveness. In international patenting, it ranks fourth worldwide. Taiwanese electronics export giants have achieved world leadership in such products as notebook computers, microchips and flat-panel displays. For a nation of 23 million people, this is an extraordinary achievement.

Measured by purchasing power parity, Taiwan's GDP per capita was almost $31,400. Economic forecasts estimate growth at 4-4.5 percent in the next few years, but only if political stability endures. Moreover, real income has stagnated. As redundant factory workers have moved to lower-paying jobs, inequality has grown. Direct investment outflows dwarf inflows, and massive private wealth has fled offshore.

Like Hong Kong and Singapore, Taiwan should move fast toward higher value-added. But unlike other tigers, it cannot take the necessary economic leaps. It was able to join the WTO in 2002, but due to the slow progress of economic multilateralism, bilateral free-trade agreements are vital to prosperity in the region.

Due to its insulation, Taiwan is excluded from these deals.


Stark Choices

As Taiwan is preparing for the turbulent presidential election, President Chen will continue to push for independence.

Last May, Frank Hsieh, a former prime minister, won the nomination of the ruling Democratic Progressive Party (DPP). Hehas called for "coexistence and reconciliation" with China, but also for constitutional revisions aimed at making Taiwan a "normal country."

Hsieh's main rival is Ma Ying-jeou, Taipei's former mayor and the charismatic nominee of the main opposition party, the Kuomintang (KMT). Appealing to female voters and business people, Mahas pushed for deeper economic ties with China and has not ruled out unification eventually.

Taiwan's presidential elections present two very different choices for the future: reconciliation through economic integration and political stability-or independence through economic isolation and political instability.


Dan Steinbock serves in the India, China and America Institute. Focusing on issues of international business and international relations, he resides in the United States, China and Europe.