James Lilley, the US ambassador to China at the time of the Tiananmen Square tragedy, gave a lecture on Taiwan-China relations at the University of Pennsylvania in April 2000 in which he dis-counted the likelihood of a military conflict in the Taiwan Strait. He said Taipei would seek an accommodation with Beijing because "while the Taiwanese love freedom and democracy, they love money even more." From the China fever that has gripped Taiwan, and the way the DPP administration has engineered the Economic Development Advisory Conference, one is tempted to agree with Lilley's assessment.
There is no question that Taiwan's economy is in a state of acute distress. In the seven months to July, exports were down 13.6 percent year-on-year in US dollars and 16.8 percent in the second quarter. Almost all electronic exports have suffered sharp falls. Taiwan's second quarter GDP contracted by 2.35 percent. This contraction is Taiwan's first in 26 years.
The unemployment rate has risen for 10 consecutive months, reaching 4.92 percent at the end of July. The jobless rate may exceed 5 percent in August. The non-performing loan ratio of Taiwan's financial institutions reached 7.44 percent at the end of June, according to the Ministry of Finance, or US$30 billion. Both figures represent historic highs. Stock prices have tumbled 52 percent since May 2000.
The economic hardship is in part caused by the downturn in the global economy and especially the decline in US demand for Taiwan's information technology hardware. Taiwan's economic troubles have also been exacerbated by the exodus of its manufacturing base to China and the accompanying massive outflow of capital and management talent.
Since 1987, Taiwanese investment in China has grown to US$70 billion. In 2000, government-approved investment in China soared by 108 percent over the preceding year. In the first half of this year, investment in China grew by 24 percent over the same period last year, with half of the funds going into high-tech industries. It is reported that less than 1 percent of this capital outflow has ever been repatriated to Taiwan in the form of profit.
After a quarter century of economic growth and prosperity, Taiwan's economy has reached a crossroads where basic structural changes are needed. Taiwan needs to shift from manufacturing to service industries, and raise the level of its manufacturing base to higher, value-added products. It needs to invest in research and development for new industries.
To prevent a further exodus of businesses to China, the government needs to improve the investment environment to retain domestic industries and entice foreign (other than Chinese) investments. The proper solutions will take time and hard work.
The advisory conference's five panels reached agreement on 322 proposals. The most important proposals appear to be the following: to discard the "no haste, be patient" policy on investment in China in favor of a new "proactive opening and effective management" stance; to implement direct trade, transportation and communications links with China as soon as feasible; to facilitate Chinese investment in Taiwan's business and real estate.
Taiwanese businesspeople have been clamoring for removal of the "no haste, be patient" policy, claiming they need China's cheap land and labor to remain globally competitive. So the US$50 million ceiling on single investment projects will be lifted.
Removing the ban on investment in Chinese infrastructure, however, will have a negative impact on Taiwan's national security. Why should Taiwan help China build roads and airbases which may be used to attack it?
Encouraging Taiwan's high-tech industry to move to China will simply create a business competitor and increase unemployment in Taiwan. Some Tai-wanese businesses may benefit from the policy change, but the nation's economy as a whole will be weakened and become increasingly dependent on China.
Direct links with China cannot be implemented without negotiation with Beijing, which has consistently refused dialogue with Taipei, unless the DPP government first accedes to Beijing's "one China" principle -- surrender Taiwan's sovereignty. Direct links will definitely imperil Taiwan's security.
A US sinologist has estimated that China has already smuggled 6,000 special forces into Taiwan. Once direct trade and transportation are in place and Taiwan's door is opened to 500,000 Chinese tourists a year, the number of such Chinese troops can be expected to grow massively. Taiwan can then be brought to its knees through a combination of missile attack and internal subversion.
As for encouraging Chinese investment in Taiwan, this is also a foolhardy idea. All Chinese capital is public capital. Once China is allowed to buy Taiwanese businesses and real estate at will, it could soon end up controlling Taiwan's economy.
The three proposals signify a drastic departure from the National Unification Guidelines (國統 綱領). The guidelines stipulate three stages in relations with China. In the first stage, China must become a democracy and achieve a standard of living comparable to that of Taiwan. Direct links with China will be considered only after these preconditions are met. The DPP administration, with the support of the advisory conference, has apparently abandoned these preconditions.
Has the DPP government placed itself on the path of giving up Taiwan's democracy and
freedoms for the doubtful prospects of economic recovery and peace?
Economic development cannot be considered separately from national security. China is actively developing the military capability to invade and occupy Taiwan with a blitzkrieg before outside help can arrive.
Taipei should be preparing the people psychologically for the looming military conflict. The government should be actively bolstering national defense, preparing for information warfare and conducting frequent military exercises to improve readiness. Without a commitment to national security, economic development is superfluous.
Another point worth pondering is the fragility of the Chinese Communist Party and the potential for instability and chaos in China. In his recently published book -- The Coming Collapse of China -- Gordon Chang argues the Communist Party's monopoly on power will cease within five years unless political reform is implemented in time. He also predicts a Chinese invasion of Taiwan in the same time.
Taiwan's economy is basically sound. The global economy will fluctuate between boom and bust. This economic cycle is normal in a free, capitalist economy. There is no reason to panic and rush into short-sighted, counterproductive policies which would irreparably damage Taiwan's international standing and its economy.
Opinion surveys have repeatedly shown that a great majority of the Taiwanese people prefer either outright independence or maintenance of the status quo. Now is the time for the silent majority to rise above partisan politics, oppose the misguided, harmful China policy proposals of the advisory conference and voice their support for freedom and sane economic remedies.
Li Thian-hok is a commentator based in Pennsylvania.
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