A New Taiwan Crisis?

By Scott B. MacDonald

The international political system in Asia remains unsettled and the potential for a new crisis is growing. As the United States remains pre-occupied with the Middle East and Afghanistan, relations between China and Taiwan are increasingly strained. Taiwan’s political situation is undergoing an important change, as the issue of declaring “independence” from mainland China is a growing possibility. In turn, China is deeply concerned that Taiwan would declare its independence, uprooting the fiction that the two parties will eventually be re-unified. From Beijing’s standpoint any departure from the “two Chinas” script is cause for war. If Taiwan can be allowed to “leave” the Chinese nation-state, then so to will Tibet or the Muslim dominated northwest be tempted. While much of the world’s attention is closely focused on the daily bombings and assassinations in Iraq and Saudi Arabia, the pieces are falling into place for another major international crisis in Asia.

The root of the problem is that China regards Taiwan as a breakaway province. Taiwan and the mainland have been separated since the Nationalists retreated to the island in 1949, establishing a rival regime to the Communists in Beijing. Over time, the power of the Nationalists gave way to a younger generation, many of whom place a greater significance on being Taiwanese than Chinese. Today a large number of Taiwanese increasingly see themselves as a separate country, with a working capitalist economy and democracy. China in comparison is ruled by the Communist Party, is not fully capitalist and political freedoms are few. Indeed, China’s recent efforts to suppress Hong Kong’s political freedoms does not send a positive message to the Taiwanese, who are looking for reassurances that if re-united to the mainland their political rights would be upheld. Recently re-elected President Chen Shui-bian is taking advantage of these concerns, having embraced the doctrine of independence. He has called for a referendum on whether a new constitution should be drafted in 2006, for adoption in 2008.

Anything that looks like independence for Taiwan has a poor reception in Beijing. The Chinese establishment has repeatedly indicated that if President Chen embarks upon this course of action and declares independence, it will be forced to invade. In the meantime, the Chinese military has been active with war games, practicing to invade Taiwan. At the end of July, Chinese militias staged a two-day weekend exercise off the southeastern coast, following up on drills by the People’s Liberation Army earlier in the month. With an eye to the United States, Taiwan’s major ally, China also recently revealed a new submarine class. The message is simple - if the U.S. seeks to come to Taiwan’s aid in the event of a crisis, the new submarines will be waiting.

China’s leadership is carefully weighing four things. First and foremost, Taiwan’s President Chen is seeking to change the status quo. China does not have de facto control over Taiwan. What is does have is a territorial claim that the island is part of the Chinese nation, something that is widely recognized. In reality, Taiwan runs its own affairs, but has traditionally maintained the façade that it will seek an eventual re-unification between the two lands. Chen now threatens this façade.

Second, the Bush administration has slightly shifted policy on Taiwan. In particular, President Bush signed legislation on June 14, supporting Taiwan’s efforts to gain observer status in the World Health Organization (WHO). Although such a decision is not an abandonment of the official U.S. policy of one China, any such move as what the Bush administration did in regard to the WHO is seen as having some recognition of Taiwan’s right to exist an independent state.

Third, the U.S. government earlier agreed to an $18 billion weapons upgrade package for Taiwan. Those weapons are now starting to arrive. They include Patriot anti-missile systems and P-3 anti-submarine aircraft. Such armaments could reduce the capacity of the Chinese military to launch what it calls a decapitation strike, based on missiles and paratroopers hitting Taiwan’s national leadership in the capital Taipei. We expect tensions to rise as new weapons are delivered.

On July 8, National Security Advisor Condoleezza Rice was sent to Beijing to help smooth over relations. She met with former President Jiang Zemin and Foreign Minister Li Zhaoxing. During the meeting, Jiang asserted to Rice that the “Chinese people are seriously concerned and dissatisfied about U.S. selling of advanced weapons to Taiwan.” The next day President Hu Jintao also indicated that Taiwan’s status was the key to Sino-American relations. In response, Rice was reported to have stated that the U.S. would continue selling arms to Taiwan to provide a healthy “balance” of power with China.

Fourth, a crisis over Taiwan could come at a good time for China’s leadership, itself struggling to deal with massive economic challenges. As Beijing seeks to cool the Chinese economy, there is always the danger of social unrest, something that the leadership deeply fears. Playing the nationalism card could refocus people from problems with the economy at home to an issue in which China’s honor and standing are perceived at risk. Considering Washington’s preoccupation with the Middle East and the stretched nature of the U.S. military, China’s leadership might calculate they could actually get away with “retaking” Taiwan.

At the same time, China’s leadership should not be treated as a monolith. There are differences of opinion and emphasis between former president Jiang and his successor, Hu. The former has traditionally taken a hard line on Taiwan and retains his post as Chairman of the Central Military Commission. He is also reluctant to leave the political scene and tensions have risen between Hu and Jiang.

Hu appears to be a little more cautionary, largely for concerns that an arms race with Taiwan would be costly to the Chinese economy at a time when slowing growth to a more manageable pace is critical if inflationary pressures are to be checked and a hard landing avoided. Along these lines, Hu stated in the overseas edition of the official People’s daily that China “must unwaveringly walk the path of peaceful development”. Consequently, Hu is more concerned about the impact of a new crisis over Taiwan, especially with a view to the economy.

However, even Hu is vulnerable to the Taiwan issue, as it would very difficult for him to allow an official declaration of independence to go unanswered.

There may not be a crisis in the Straits of Taiwan, but the chances are increasing. This issue should gain greater attention in Washington, but also from Tokyo. Considering China’s greater weight as a global trade partner and as a holder of large foreign exchange reserves (including dollars) and U.S. Treasuries, a Taiwan crisis could disrupt world economic growth and, of course, ripple into U.S. stock and bond markets.