The man most likely to?

The polarized nature of Taiwan politics has been laid bare for all to see in recent weeks. President Chen Shui-bian engaged in a propaganda war, irritating both Beijing and Washington through the headline-grabbing disbandment of the largely ceremonial National Reunification Commission. Meanwhile, Kuomintang leader Ma Ying-jeou, who is widely tipped to succeed Chen in 2008, took to the road in Europe and the US, promoting himself as the man most likely to preserve peace across the Taiwan Strait.

The protagonists may be tailoring their roles slightly but the plot of this particular drama remains exactly the same: how to slowly usher the two sides to common ground without encroaching upon the rights of the Taiwan people, failing to meet Beijing’s demands for a movement towards reunification or allowing the current d?tente to descend into all-out war.

So far efforts have been remarkably successful – no blood has been spilled, and billions of dollars of business has been created by two increasingly interdependent economies. "In the past couple of years, cross-strait business has got even stronger," said Professor Philip Yang of National Taiwan University’s politics department. "Bilateral trade can create the force required to make the major breakthrough in the cross-strait political stalemate."

Taiwan enjoyed a trade surplus with the Mainland of US$58.13 billion in 2005 as US$74.68 billion of its total US$198.43 billion in exports ended up on the other side of the strait. The island’s Mainland surplus was up 13.5% on 2004 and has risen 160.1% on the US$22.34 billion recorded in 2001. Set against the total trade surplus figure – US$16 billion in 2001 and US$15.81 billion in 2005 – Taiwan’s growing interdependence with the Mainland is clear.

Increased unrest
However, there are signs that the threat Chen poses to the status quo is undermining business confidence on the island. The government’s forecast for 2006 private investment growth has been revised down from 3% to 2.4% following a slump in capital spending during the last three months of 2005. Banks responded by trimming their predictions for 2006 economic growth, having already tied the fall in business confidence to Chen’s original announcement of plans to scrap the NRC.

"This is only a precursor of what is to come, and we believe the political environment and cross-strait tensions could be more volatile this coming year," Goldman Sachs said in a recent investment report. "We believe this would translate into weaker capital flows, and would remain as a key impediment to sentiment and the capex cycle going forward."

The response from Taiwan’s business community has, as always, been muted. "No businessman wants to be out there in open opposition to Chen, as doing this makes them look unpatriotic," said Dr. Bates Gill, Freeman Chair in China Studies at the Center for Strategic and International Studies in Washington. "But in private, the business community is not happy, and they are making efforts behind the scenes to reassure their Mainland counterparts about the cross-strait relationship."

While Yang argues that Chen has successfully "bounced back" from the local election defeat, others view his tactics as those of a lame duck leader trying to score big with his last few rolls of the dice.

"Obviously, he is a lame duck because he can’t run again and he’s only got two more years to go," said Gill. "But he’s also a lame duck in a broader sense as he is being pushed more and more into a corner and finds himself thwarted at every turn."

Ignored by the Mainland authorities, publicly admonished by a US government fast losing patience with his attitude, outflanked by a KMT that has successfully established dialogue with Beijing, Chen’s options are clearly limited.

"As long as Chen is in power there is no chance of an agreement with the Mainland," said Dr. Richard Hu of the University of Hong Kong’s politics and public administration department. "People just don’t trust him, even in Taiwan."

This raises the obvious question as to whether Ma can indeed deliver the goods should he continue on his current trajectory and assume the presidency in 2008. One measure that has been earmarked for fast implementation is the restoration of the three direct links – trade, transport and mail – between Taiwan and the Mainland.

Direct cargo and passenger flights are the missing piece to the puzzle, something which would save companies the cost and trouble of re-routing through third destinations. A KMT administration may, in the longer term, also see fit to remove the remaining restrictions on the flow of capital to the Mainland and encourage the development of cross-strait tourism trade.

Cloudy waters
Beyond that, though, things become unclear. Beijing may see Ma as a leader it could do business with, but this does not mean he can be pushed around. He has made a commitment to preserving the status quo and nothing more. Indeed, he has made it quite clear that any reunification model would have to accommodate a democratic Taiwan and implied that a fair amount of socio-political reform is required on the Mainland for this to be realized.

"China should not have overly high expectations about what Ma can do," said Gill. "If the Mainland thinks it can work with Ma and gain reunification by 2010 then it is mistaken. Around 80% of the Taiwan people don’t want to change the status quo and the politicians must respect this."

While the status quo has served the island well since the late 1980s, it cannot last forever – Taiwan’s future needs to hinge on a less precarious mandate. As it stands there are at least three different definitions of status quo: the Beijing model, under which any move to shift Taiwan’s current status from de facto to de jure independent is grounds for military action; Washington’s belief that it is an issue of sovereignty to be resolved peacefully between the two sides; and then the view of Taiwan itself, which, for those in the Chen camp, means the island is already an independent state and should behave as such.

"Eventually we have to come up with a political domain and deal with the identity and democracy issues," said Yang. Should Ma emerge victorious, he is also likely to face questions from the business community amid fears that Taiwan’s economy is being locked into the political stasis.

The island is under pressure to cope with the hollowing out effect that comes with maturity and the shift to a service-oriented economy. But at the same time, if Taiwan is to maintain its edge in cross-strait trade it has to continue moving up the high-tech scale. Innovation in flat-screen televisions and semiconductors has to evolve toward biotech and nanotech solutions – and a suitable R&D environment is necessary to achieve this.

"The general concern is that there has not been enough focus on mid-term expectations and how the economy should evolve," said Richard Vuylsteke, executive director of the American Chamber of Commerce in Taipei. "They need a Mainland policy that the government articulates clearly. But most of the debate so far has been on political issues and the businessmen have been left to work around this."