In this column we argue that the 1 trillion euro (US$1.415 trillion) bailout plan has significant implications for Taiwan. At a time of electioneering it is good to be reminded that much of what happens in Taiwan is beyond the direct control of its political leaders. When we separate the things that politicians can do from the things that they cannot do, but tend to fulminate about, then many millions of votes might actually be put do good democratic use.
Do not be fooled by the recovery of markets as a result of the financial machinations of the last few days; the buying opportunity for speculators could create fortunes for some, but the long-term prospects for the 17 eurozone nations are not affected. Whatever the immediate effectiveness of the new European Financial Stability Facility, several European nations are still debt-ridden and inefficient, their elitist institutions epitomized by the stupidity of bank lending over the last few years. Bond buying activities have effectively involved lending to individual European governments as if they were all more or less equal financial entities with equal risks attached in a grand old euro-club.
However, Greece is simply not the same as Germany, and to lend money to its government as if it was has now been shown to be silly and naive. Grossly inefficient financial management caused the problem Europe now finds itself in, and further euro-funding has done nothing to address that failure.
Although of great importance this is not our main concern. Far more significant in global terms is that China is now positioned to invest heavily in the 1 trillion euros seemingly required (the figure could become much larger, the higher range now standing at between 2 trillion euros and 6 trillion euros) as back-up to the euro-system as a guarantor for debt-stricken European countries in danger of defaulting.
Greece has been the focus of the crisis so far, but Portugal and Spain, Italy and even Belgium lie in waiting. The financial plan is roughly analogous to the IMF’s back-up fund in the 1950s and 1960s, the difference being that the IMF used to back only fixed exchange rates against fluctuations in the balance of payments, it did not cover trade and investment debts.
It currently appears that about 250 billion euros of the bailout fund could be used as leverage to raise the required 750 billion euros.
In desperation, bankers and political leaders have been forced to look in novel directions for the funding of the bailout, including China, where 1 trillion euros is considered an opportunity for an instant and lucrative expansion of soft power through financial diplomacy.
In this context, we could well be witnessing the -beginnings of a new formulation of Chinese and global diplomacy because the bailout will not even come close to offering a final solution.
Interestingly, this approach could also become a vehicle of convergence for the BRIC (Brazil, Russia, India and China) countries as well. Negotiations led by China could serve to integrate Brazil and India — Russia being far less likely — into a broader soft-power grouping, which contains three of the ingredients needed for any real diplomacy — a long-term outlook, the reconciliation of conflicting interests among borrowers and the enhancement of the common interests of the lending group. It is here particularly that there is much room for an expanding Chinese diplomatic role.
The problem will not be restricted to Europe, because its difficulties are a pale reflection of the massive US debt problem, and the US itself could reach out to China for funding in the not too distant future.
The question is whether what China does now or over the next few weeks will serve as the foundation for further global initiatives and alignments.
The temptation will be to demand political and strategic reciprocities that somehow justify the buying of bonds.
After French President Nicolas Sarkozy telephoned Chinese President Hu Jintao (胡錦濤) to ask for financial support, the reported immediate response was that China resented being viewed as “just a source of dumb money.” It then went on to insist that European criticism of Beijing’s economic policy should stop in exchange for such financial assistance.
Others in China offer the stock Chinese Communist Party response, which is that dealing with capitalists must be squared with a deepening of communist ideology in the hearts of the Chinese people, an increasingly specious argument.
Li Daokui (李稻葵), an influential member of China’s central bank monetary policy committee, was reported to have said: “It is in China’s long-term and intrinsic interest to help Europe because they are our biggest trading partner, but the chief concern of the Chinese government is how to explain this decision to our own people.”
We can not know what position Beijing will settle on. The first reports claimed that China was “in,” but that its fellow BRIC nations, as well as more loosely South Africa, had failed to respond. More will become clear during the G20 summit to be held on Thursday and Friday, which will also demonstrate the global lobbying strength of the new club of giants.
If this analysis makes some sort of sense, then for Taiwan there are three possible scenarios of longer-term impact.
The best is that present desperation, combined with more considered negotiations between the BRIC nations, might direct China’s leaders toward the potential of soft power through financial diplomacy. In this first scenario, the principal intention of Chinese leaders would be to leverage their financial heft for desired diplomatic outcomes, to utilize the global debt crisis to cast China as a key negotiator, first with the BRIC countries and then internationally, and to do this with an eye on the US.
Europe could thereby be seen as a testing ground for dealing with US debt at a later stage.
This would be optimal for Taiwan because the result would be continued Chinese trade and investment, while generating a flow of goodwill that could result in more political and cultural exchanges and greater understanding, within which Taiwan could play a small but important role.
Good relations between Taiwan and China would bolster the global image of both nations — China demonstrating its increased global awareness, Taiwan its edge as a key liberal component in East Asian economic prosperity.
A second scenario offers a variation on this theme, where the 1 trillion euros does not trigger the rise of a new diplomatic, soft-power China, but an opportunity for Taiwan to be more proactive in leading or joining the leadership of an East Asian cultural surge.
If China gives and bargains, but retains its present position as a recalcitrant giant, then other smaller countries in East Asia could play more of a role. It must be remembered that though political economists see “communist” China as very different from the “capitalist” nations of East Asia, especially the so-called Newly Industrialized County (NIC) economies, the general public in most Western countries lump East Asian nations together as a single a cultural entity.
Both views are utterly simplistic — China trades, transfers technologies and invests as an increasingly market-led system, while retaining strong communist institutions in place at home — but they hold water for millions of people. If Western nations believe in a single cultural identity for all East Asia, then the new global financial system might be turned to the benefit of Taiwan and the other NICs, as well as smaller emerging systems.
The third scenario is far more concerning and potentially disastrous. In this instance, the vastly indebted US could seek its own Chinese bailout. Here the figures are even more astronomical. If China’s focus is on the other side of the Atlantic, then Taiwan could easily become a bargaining chip in a game of power politics in which the soft-power of financial diplomacy is transformed into the close-to-hard-power of financial blackmail.
This would be the juncture at which the nature of the cross-strait relationship moves beyond the pale of Taiwanese politics.
I am sufficiently optimistic to believe that the US would not accede to any direct military threat. US nationalists would have great problems with this notion of equivalence and even middle-American liberal opinion fears the huge growth of the Chinese economy.
However, I can visualize an extended scene of confusion and doubt in which China acts to eliminate Taiwanese independence in one form or another. In such a situation the Pentagon could turn a blind eye to a Chinese military threat, particularly in the absence of any meaningful statements from the US’ political leaders.
Others will conjure up different scenarios, but the main point here is that the European and US financial mess need not undermine economic development in East Asia and could even turn out to be an era of great opportunities, the exploitation of which will require the formulation of soft power strategies and activities throughout the region.
If China is a part of that resurgence then it could be seen as a very good thing globally. If China continues to remain standoffish ideologically and culturally, then there could be a more limited window of cultural opportunity for Taiwan. However, in both cases, Taiwan must get smart.
In conclusion, the emergence of a globally more sensitive China prompted by a liberating role in Europe could be good for Taiwan, because this provides a role for the globalization of the progressive features of East Asian culture, in which Taiwan would be able to play a leading role.
However, within a global framework, which must incorporate the future requirements of US debt, any dependency on China could well embrace the need to renegotiate the cross-strait relationship.
Taiwan has been a bargaining chip on many occasions — including ones long before the arrival of the Chinese Nationalist Party, in the 1920s and 1940s, and dominated more by the now long-forgotten arbitrage of imperial China. At one point in the 1880s, a panic-stricken China asked the invading French to leave the Pescadores and offered Taiwan as an alternative prize. Less than a decade later, China offered to mortgage Taiwan to the British (and eventually five other Western nations) in exchange for their last-minute military or financial assistance against the Japanese during the first Sino- Japanese war from 1894 to 1895.
The irony of the current global situation is far greater than anything even a professional satirist could conjure up.
Ian Inkster is professor of international history at Nottingham Trent University in the UK, professor of global history at Wenzao Ursuline College, Kao-hsiung and since 2000 has been editor of History of Technology.
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