China's ties with Taiwan thaw

Politics

by Dexter Roberts

This year's Boao Forum for Asia, China's annual Davos-like meeting held on the tropical resort island of Hainan, featured plenty of pageantry. Under the swaying coconut trees, Chinese leaders over the weekend hosted the prime ministers of Pakistan, Sri Lanka, and Australia and the presidents of Mongolia, Tanzania, Sweden, and Chile. Even the king of the Pacific island nation of Tonga was there and got the full diplomatic treatment of a military band and guard of honor in the nearby resort town of Sanya. Meanwhile, corporate chieftains from companies including Volvo, CNOOC (CEO), and Alibaba mingled over cocktails in elaborate evening banquets with Chinese opera performances.

But all of that was overshadowed by the presence of 67-year-old Vincent Siew, a Taiwanese politician who hasn't even assumed office yet. Siew, who becomes vice-president under Taiwanese President Ma Ying-Jeou on May 20, got less than half an hour of rushed talks on Apr. 12 with China's President Hu Jintao on the sidelines of the Boao Forum. Still, with those 20 minutes Siew stole the show from the many other dignitaries, with crowds of journalists and diplomatic and corporate delegates mobbing him everywhere the career politician went.

That's because the meeting between Siew and Hu (and a follow-up session a day later with China's newly appointed Commerce Minister) was truly a diplomatic breakthrough. Indeed, it was the highest-level exchange between leaders from China and Taiwan in the almost 60 years since Siew's Kuomintang (KMT) predecessors fled to Taiwan in 1949. And the contact occurred even while the two sides technically remain at war, with Beijing pointing more than 1,000 missiles at Taipei and the rest of the island. The meeting "produced great, highly satisfactory results," said a smiling Siew before leaving Hainan for Taipei on Apr. 13. "It's a great success."

Much is at stake economically

Outsiders agree. The meeting "is very good news for the region," said former U.S. Secretary of State Colin Powell, who attended the Boao Forum and met Siew while there. "The two sides now have begun down a new path."

That the hastily arranged meeting even happened was almost by chance. In 2001, Siew founded an organization promoting China-Taiwan economic links called the Cross-Straits Common Market Foundation. As head of that foundation, he has regularly participated in the Hainan Forum and even met Hu on one previous visit. But those meetings took place while the KMT was the opposition party, with Taiwan led by President Chen Shui-bian of the independence-leaning Democratic Progressive Party. This year's visit took on historic significance after the KMT swept presidential elections in March. That electoral change has raised hopes of a breakthrough in China-Taiwan relations following eight years of frostiness when Beijing and Taipei were not speaking to one another.

Economically there is much at stake. An estimated 1 million Taiwanese now live and work on the mainland. They have invested some $70 billion in factories making electronics, toys, and textiles and in real estate projects, ranging from hotels to villa compounds, in a broad coastal swath extending from Guangdong and Fujian provinces in the south to the greater Shanghai area and including cities like Kunshan, in Jiangsu province, dominated by Taiwanese business.

Stable credit rating for Taiwan

Top Taiwanese companies have tied their corporate fortunes to the mainland. For instance, Taiwan Semiconductor Manufacturing (TSM), the world's top contract-producer of chips for other companies, has a semiconductor operation in Shanghai, and founder Morris Chang joined Siew on the trip to Boao. The heads of Walsin Lihwa, a large Taiwanese maker of wires and cables with extensive China operations, and Taiwan Cement with six plants on the mainland, also joined the Siew delegation. On Apr. 11, Standard & Poor's (like BusinessWeek, a part of the McGraw-Hill Cos. (MHP) raised Taiwan's credit rating from negative to stable, citing the expectation of new political and economic stability on the island.

Why the breakthrough now? Well, of course, the new Taiwan administration in which Siew will serve as vice-president is a huge improvement from China's perspective. Beijing's leaders have long reviled outgoing President Chen and his DPP for their pro-independence stance. Beijing is much more comfortable with a KMT administration that agrees that Taiwan must remain part of the mainland. After meeting with Siew, Hu said that it was his administration's intention now "to think deeply about cross-Straits economic exchanges and cooperation under the new circumstances," adding that in the last eight years the two sides had "suffered twists and turns for reasons known to all."

Indeed, the KMT won last month's election campaigning for closer political and economic cross-Strait relations, opening the island to Chinese tourists, and opening up direct air flights, a key long-awaited goal. To date, all flights between Taiwan and mainland China must first touch down in Hong Kong or Macau before continuing to the mainland, a detour that adds hours of travel time. "Starting direct flights and normalizing cross-Strait economic and trade relations will benefit both sides and help to eliminate regional tensions," Siew said, according to a statement issued by the Taiwanese government. If all goes according to plan, direct charter flights will start as early as this summer, with direct commercial flights by sometime next year.

A distraction from Olympic protests

Equally important, Chinese officials are eager to distract world attention from the ongoing problems in Tibet and protests swirling around this summer's Beijing Olympic Games. A breakthrough with Taiwan certainly qualifies as good news for the international community, including the U.S. (which has vowed to support Taiwan if hostilities ever broke out in the Taiwan Strait). Just before Siew's visit to the mainland, U.S. Deputy Secretary of State John Negroponte called the expected meeting "a good way forward" for lessening China-Taiwan tensions.

Nevertheless, this isn't the first time Taipei and Beijing have appeared on the verge of a real diplomatic breakthrough. Throughout the 1990s the two sides held a series of promising meetings that later broke down over the crucial issue of how to define the two governments' roles (China refuses to recognize the Taiwanese authorities as heads of a state.) So while rapidly improving economic ties are expected with the KMT poised to take charge, real strengthened political ties will be much more difficult.

Also see:

New man, new mood, China Economic Review, March 2008