Cross-Strait Trade Poses a Question

The 90-mile-wide Taiwan Strait has long been a potential danger zone, a lingering divide of the Cold War era that separates Communist China from democratic Taiwan.

Now the narrow body of water is taking on an added dimension, one that could answer one of the most intriguing political questions of today’s globalized world: Can trade reduce the potential for war?

Rarely have two political adversaries embraced each other with such enthusiasm commercially against a backdrop of conceivable armed conflict.

Beijing, which views Taiwan as an inherent and historical part of China, wants the island integrated with the mainland--sooner rather than later and, if necessary, by force.

Taiwan, which over the years has evolved into a thriving democracy, wants none of it. But the island does want a piece of China’s rapid industrial growth. In fact, many now argue that Taiwan can’t survive as a player in the world economy without it.

Beijing happily takes Taiwanese investment, estimated cumulatively at between $45 billion and $70 billion, because it helps fuel the economic growth China desperately needs to continue its transformation into a modern market economy. It also dovetails with Beijing’s political agenda of integrating Taiwan into the mainland.

And so, especially over the last 18 months, commercial ties have mushroomed.

Just what this means for the future of relations between Beijing and Taipei is a hotly debated issue, especially in the Taiwanese capital. Some believe that the trade ties signal the end of Taiwan’s freedom; others are convinced that the opposite is true.

“It’s really hard to say at this stage where it’s all going,” acknowledged Arthur Ding, a scholar at the Institute of International Relations at National Chengchi University in Taipei. “Everyone’s studying it, [and] everyone draws different conclusions.”

Kenneth Lieberthal, who oversaw China policy in the Clinton White House, believes that stronger commercial links don’t imply Taiwan’s political integration with China but do make it more difficult for Taipei to make any move toward independence.

“It makes the cost of radical action higher and therefore inevitably increases caution,” he said.

There also are compelling issues for the United States. For example, some of the world’s biggest high-tech production centers are moving from Taiwan, a de facto U.S. ally, to mainland China, a country initially labeled by the Bush administration as a “strategic competitor.”

In testimony in Washington last month, the chief of the Commercial Section at the American Institute in Taiwan, which functions as a U.S. embassy in Taipei, predicted that this economic migration will accelerate once China and Taiwan enter the World Trade Organization. That move is expected early next year.

“The likely impact will be continued, fast-accelerating cross-strait interdependence in sectors such as PC [personal computer] and notebook [computer] assembly, motherboard and other PC components,” the official, Merritt T. Cooke, told the U.S.-China Security Review Commission.

Cooke also cited a February survey by the Taipei Computer Assn. projecting that 90% of the island’s 411 high-tech companies will have significant investments in mainland China by the end of this year. Taiwanese-owned companies produce more than half the world’s laptop computers and about a quarter of its desktop personal computers.

Although questions continue about the meaning of these trade and investment ties, one fact seems indisputable: Within a remarkably short time, they have emerged as a powerful element in the overall relationship across the strait.

“It is very important and very misunderstood,” said James R. Lilley, the former U.S. ambassador to China. “China watchers [in the United States] make a flat statement that security issues will always trump economic issues. That’s dead wrong.”

Last week’s about-face by Taipei appears to underscore Lilley’s point.

Pushed largely by commercial factors, Taiwan took a major step away from 50 years of trying to insulate the island from mainland China, and instead embraced the idea of an “active opening” of trade and investment across the Taiwan Strait.

The need to fight a looming recession and keep big business competitive by allowing easy access to mainland China’s low-cost production facilities and cheap labor pool suddenly became the top priority.

Analysts believe that Taipei also acted because it found itself powerless to slow the tide of investment and bright young people flooding indirectly from Taiwan into the mainland via cities such as Hong Kong.

“It became a political necessity,” said a foreign observer who declined to be identified. “No government can risk being seen as irrelevant on such a major issue. They had to be seen to be doing something.”

Taiwan’s decision quickly brought some startling cross-strait commercial developments out of the shadows--contacts involving state-owned companies in strategic industries. For example:

* The China National Offshore Oil Corp., the mainland’s third-largest oil producer, confirmed that it is working on a draft agreement with Chinese Petroleum Corp. of Taiwan to undertake joint exploratory drilling in the Taiwan Strait. The two, which had earlier quietly cooperated on seismic and geological studies of the strait, plan to form a jointly owned subsidiary registered in a third country, Chinese Petroleum Corp. Vice President Roy Chiu said in an interview.

“Both sides agree we should share costs and profits on an equal basis,” Chiu said.

* Taiwan’s state-owned China Airlines announced that it will soon buy a 25% stake in China Cargo Airlines, a subsidiary of a major mainland carrier, China Eastern. Because there are no direct air links between the mainland and Taiwan, the two would operate a Shanghai-Taipei route through Hong Kong, according to a China Eastern spokesman.

Plans for such a deal first surfaced nearly a year ago, but talks were suspended because the issue was considered too politically sensitive.

* The Taiwan Power Co., known as Taipower, confirmed that it had for the first time earlier this year contracted to buy fuel from mainland China. Spokesman Clint Chou said the company had signed one-year contracts for the delivery of 1.2 million tons of mainland coal--roughly 10% of the company’s total demand.

He said Taipower also had been in touch with mainland authorities about storing low-level waste from Taiwan’s three nuclear power plants.

“There’s a new climate,” Chou said when asked about the timing of the moves.

Although the climate may have changed, the potential for conflict remains.

The day after Taipei announced its change of heart, the pro-Beijing Hong Kong newspaper Wen Wei Po reported that major elements of the People’s Liberation Army had moved into a coastal area of China’s Guangdong province as part of a large-scale exercise described by the paper as a simulated attack against Taiwan.

Beijing also still refuses to discuss direct postal, telecommunications and transportation links until Taipei first accepts the principle that Taiwan is part of China. Taiwan maintains that the principle is open to negotiation.

Meanwhile, Taiwan’s parliament struggles with how to pay for $4 billion in new U.S. arms offered by the Bush administration this spring to bolster the island’s defenses against Beijing. Perhaps as a sign of change, Taipei has so far allocated no funds for the weapons purchase.

“There’s no money in the budget,” said Andrew Yang, head of the Chinese Council of Advanced Policy Studies, a Taipei think tank. “We’re headed for recession.”