GrowingAmerican Foreign Cross-Strait Policy Interests, Cooperation 23: 99–107, 2001 99 Copyright © 2001 NCAFP 1080-3920/01 $12.00 + .08

Growing Cross-Strait Cooperation Despite Political Impasse

Ralph N. Clough

he Strait has been calm in recent sue of “one ,” the governments and people T months. Even though the – in- on both sides of the Strait have been finding ways teraction through the quasi-official SEF–ARATS to increase Cross-Strait cooperation. In particu- channel, which the PRC suspended in July 1999 lar, the trend toward economic cooperation has after Lee Teng-hui characterized Cross-Strait re- picked up speed. Examples of increasing coopera- lations as “state-to-state,” has not been restored, tion are described below. each government has pursued moderate policies toward the other. The PRC has turned away from harsh rhetoric and military threats in favor of a The policy, using political and economic means to influence the people of Taiwan. Chen Unlike Lee Teng-hui, who held that the time Shui-bian has sought to reassure PRC leaders was not ripe for the establishment of the three that he will avoid actions that would be inter- links (communication, travel, and shipping), preted in Beijing as moves toward independence Chen Shui-bian has favored going ahead. In Sep- for Taiwan. Both governments are making prepa- tember 2000 he said, “ It is about time to have rations for membership in the WTO, which will direct shipping links and we must seriously face require increased economic interaction between the issue. We can no longer act like an ostrich the two sides of the Strait. and use national security as an excuse.” He added Political parties in Taiwan already are pre- that ending the ban on direct links would require paring for the December 2001 elections for the negotiations with the mainland. He also in- and for mayors and county mag- structed Tsai Ying-wen, the chairwoman of the istrates. The DPP is hoping to replace the KMT , to work out plans for as the majority party in the Legislative Yuan, thus opening the “ mini-links” between the offshore ending the conflict between the executive and the islands of Jinmen and Mazu and the mainland. legislature that has hampered Chen’s ability to Despite Chen’s willingness to move ahead govern. PRC leaders probably see the sharp de- with the three links, the PRC’s insistence on his cline in Chen’s popularity, resulting from politi- clearcut acceptance of the one-China principle as cal turmoil and economic difficulties, as reduc- a precondition for Cross-Strait talks on any sub- ing the prospects for a DPP victory in December ject seemed for a time to block progress. On Sep- as well as Chen’s own chances to be reelected as tember 22, however, PRC vice premier Qian president in 2004. If so, they may be willing to Qichen told Chiang Pin-kun, a former head of continue their watch-and-wait policy at least un- the Council on Economic Planning and Develop- til the end of the year, avoiding any threatening ment in the Lee Teng-hui administration, that move that would tend to unify the people of Tai- the three links issue was not too complicated, but wan behind their elected leader. because it involved the one-China issue, the Tai- In spite of the political impasse over the is- wan– aviation rights model might be

American Foreign Policy Interests 100 Ralph N. Clough adopted technically to solve the matter. both sides of the Strait. Nevertheless, now that could negotiate with airlines. both governments have approved the idea in prin- Tsai Ying-wen went forward with prepara- ciple and businessmen in Taiwan will continue tions for the opening of the mini-links on Janu- to press hard for opening of the links, they may ary 2, 2001, even though local officials in be in place by the end of the year. had not been authorized by Beijing to discuss the In mid-December, a l2-member delegation of actual arrangements with their counterparts in civil aviation administrators headed by Yeh Igan, Jinmen and Mazu. At the last minute, however, director of the Huadong Civil Aviation Bureau on December 28, a Foreign Ministry spokes- under the Civil Aviation Administration of China, woman in Beijing announced that the PRC would arrived in Taiwan for a 10-day fact-finding visit not block the institution of the mini-links, al- in preparation for the establishment of direct air though she criticized the plan as a piecemeal links. The principal Taiwan air carriers already measure. Thus on January 2, 2001, boats carry- have opened liaison offices on the mainland and ing residents of Jinmen and Mazu made the first formed close ties with their mainland associates. legal crossings to the mainland since 1949. Up to Once the two governments have reached agree- 700 mainland residents per day will be allowed ment on the three links, airlines on both sides of to visit Jinmen for as long as a week, and 100 per the Strait will be prepared to move quickly to take day can visit Mazu. As of February 2001, several advantage of the potentially highly lucrative additional voyages had taken place, although the Cross-Strait routes. two sides had not yet agreed on regular sched- uled crossings. In effect, the mini-links arrange- ment will legalize the smuggling of goods and Fiber-Optic Cables people that had gone on for years between the offshore islands and the mainland. The opening of the mini-links is an impor- The least discussed of the three links is Cross- tant step toward the establishment of direct Strait communication. PRC officials have pro- travel and shipping between Taiwan and the posed setting up a fiber-optic cable across the mainland. As Qian Qichen has indicated, arrange- Strait, but the government in Taiwan has main- ments can be negotiated between government tained its position that communication must be surrogates such as shipping associations and air- indirect. Consequently, mail, telephone, and fax lines. A precedent exists in the successful nego- messages are routed through Hong Kong or other tiations for the uninterrupted continuation of places, requiring extra payments for indirect ser- shipping and air travel between Taiwan and Hong vice. Kong after Hong Kong became part of the PRC Taipei has not objected, however, to being on July 1, 1997. Another precedent was the es- connected to international cable networks that tablishment in 1997 of a transshipment center provide a link between Taiwan and the mainland. in Kaohsiung as the result of negotiations be- For example, Taiwan’s state-run Chunghwa tween shipping associations in Taiwan and on the Telecom Company invested $36 million for a mainland. This arrangement allows direct ship- 2.39 percent share in the world’s longest under- ments between Kaohsiung and the mainland sea cable network, running 40,000 kilometers ports of and Fuzhou of goods originating from Western E urope through the Mediterra- in or destined for third areas—those not passing nean, skirting the Middle East and the Asian con- through Taiwan customs. 1 tinent, and winding up in Australia. This sub- Negotiations on the full three links are likely marine cable, known as the SEA-ME-WE 3 cable to be prolonged and complicated, for they involve network, was connected to the first of two sta- customs, immigration, and other regulations on tions in Taiwan in May 1999. In June 1999,

American Foreign Policy Interests Growing Cross-Strait Cooperation 101

Chunghwa signed a memorandum of understand- Zhongliang, deputy editor-in-chief of Xinhua’s ing for developing a high-capacity fiber-optic Bureau, welcomed Taiwan’s new mea- submarine cable linking seven Asian countries sures and said that Xinhua hoped to open a and territories, the Asia–Pacific Cable Network branch in Taiwan in the not-too-distant future. 2 (APCN–2). It will connect Taiwan, mainland On February 8, 2000, the first two Xinhua re- China, Hong Kong, Korea, , , and porters arrived in Taipei for a month’s stay. . Still another submarine cable is the America–Asia Network (ANN), which will link the with , Taiwan, Cross-Strait Travel Korea, and Japan. Construction of this cable, in- corporating the most advanced technology, was agreed upon by the communications carriers con- The growing economic integration of the two cerned in October 2000 and is to be completed sides of the Strait has led to visits back and forth during 2002. by senior government officials and former offi- cials, despite the political impasse. In early De- cember, a group headed by Zhang Qi, a senior of- Media ficial of the PRC’s Ministry of Information In- dustry visited Taiwan to promote exchange and cooperation in that industry. Later that month, a For several years, the two principal privately- 39-member delegation headed by Zhang Jingan, owned newspapers in Taiwan, The director of the China Torch High Tech Develop- and The , have stationed cor- ment Center under the Ministry of Science and respondents in Beijing, rotating them every two Technology, attended a two-day seminar in Taipei. or three months; but correspondents from main- Zhang told the seminar that joint development land newspapers (all government-owned) have of technology and new products would ensure a visited Taiwan only occasionally, for not more “win-win” situation for the mainland and Tai- than a week or two at a time. wan. On September 22, 2000, in the interview with In December, Shih Yen-hsiang, director of the Chiang Pin-kun mentioned above, Qian Qichen Industrial Development Bureau of the Ministry suggested that mainland correspondents be per- of Economic Affairs, made a fact-finding tour of mitted to reside in Taiwan on the same rotating southeastern China arranged by Taiwanese in- basis as Taiwan correspondents in Beijing. Three vestors on the mainland. Also in December, John correspondents from the mainland’s Xinhua Chang, a former secretary general of the KMT News Agency promptly applied to the government and now head of a recently established associa- in Taiwan for permission to be stationed there tion to promote Taiwan business on the main- for a month. On November 10, the Government land, made an eight-day visit there. Information Office and the Mainland Affairs John Chang’s visit, while aimed at further- Commission (MAC) announced that correspon- ing Cross-Strait economic cooperation, also had dents from the mainland would be admitted for a political purpose. He exchanged views with one-month stays in Taipei. Each news bureau, , chairman of ARATS, on Cross- newspaper, TV, or radio station would be limited Strait relations. Chang was one of several former to two correspondents at a time. Vice Chairman high KMT officials whose visits were encouraged Lin Chong-pin of the MAC said, “This was only by the PRC government because, unlike Chen our first step. W e will continue to take further Shui-bian, they had declared support for the even- steps if the new policy generates positive inter- tual unification of Taiwan with mainland China. action across the .”2 The most prominent of such visitors was Wu Po-

American Foreign Policy Interests 102 Ralph N. Clough hsiung, a vice president of the KMT and a former secretary general of the president’s office and Cross-Strait Trade and minister of the interior. In November 2000, Wu Investment met with Qian Qichen, CCP Politburo member , and Wang Daohan. Another Novem- The continued growth of the Chinese ber visitor was Liang Su-yung, a KMT member economy, the probability that both the PRC and and former speaker of the Legislative Yuan. Taiwan will join the WTO during 200l, and the In January 2001, the vice mayor of Shang- prospective opening of the three links have caused hai, Feng Guoqin, visited Taipei. The mayor of Taiwan’s entrepreneurs to step up their invest- Taipei, Ma Ying-jeou, proposed that the two cit- ments on the mainland. Official Taiwan statis- ies hold regular meetings between officials to tics show mainland investment during the first expand exchanges. He expressed the hope that 10 months of 2000 of nearly $2 billion, a 98 per- the Taipei city government would set up a repre- cent increase over the same period of 1999. Two- sentative office in Shanghai. Feng said that the way trade reached $27 billion, an increase of 29 PRC authorities would study these proposals, and percent over the same period of 1999. he invited Ma to visit Shanghai. Demands by businessmen that the Chen ad- In January 2001, Vice President ministration ease restrictions on Cross-Strait announced that beginning on July 1, 500,000 trade and investment became more insistent as tourists from the mainland would be allowed to the months passed. On November 2, Wang Yung- visit Taiwan. ching, chairman of the Formosa Plastics Group, invited 10 of Taiwan’s top business leaders to din- ner to discuss the state of the economy and Cross- Academic Cooperation Strait relations. The next day, Wang said that the group had agreed to hold a series of meetings with In 1997, the Ministry of Education proposed economic officials to convince them and President recognizing the degrees earned by students from Chen of the need to ease Cross-Strait trade and Taiwan at selected mainland universities. At that investment restrictions in order to stimulate time the Executive Y uan shelved the proposal. Taiwan’s economy. Now, with more than 10,000 students from Tai- Taiwan’s restrictions on Cross-Strait invest- wan in mainland universities, demands for rec- ment are only partially effective. Small- and me- ognition of mainland degrees have grown louder. dium-sized firms, whose proposed investments Many Taiwan students believe that their chances might not be approved by the government in for a job with a Taiwan company investing on Taipei, can usually draw on funds from abroad the mainland will be better if they have a main- rather than from Taiwan, thus evading official land degree. The current minister of education, restrictions. One analyst estimates that two- Ovid Tzeng, agreeing that the time is ripe for thirds of Taiwan’ s mainland-bound investment change, has revived the proposal and set in mo- is not submitted to the government for screen- tion the preparation of detailed regulations. ing.3 It is primarily Taiwan’s large corporations In another move to increase Cross-Strait aca- that want the lifting of the $50 million cap on demic cooperation, the Legislative Yuan has au- single investment projects and easing of the ban thorized mainlanders to accept teaching positions on high-technology investments. It was this in Taiwan. In October 2000, the MAC relaxed group—the chairmen of large corporations—that restrictions on mainland educational, cultural, Wang Yung-ching mobilized to put pressure on and other visitors, except in high-tech matters, the government. allowing them to reside in Taiwan for as long as The Chen administration has undertaken a three years. review of Lee Teng-hui’s “go slow, be patient”

American Foreign Policy Interests Growing Cross-Strait Cooperation 103 policy on economic relations with the mainland. mainland operations in 1999, predicts that by Some relaxation is probable, although key gov- 2005 its mainland earnings will exceed those from ernment officials are divided as to how far to go. Taiwan. Ambitious to use mainland China as Tsai Ying-wen, head of the MAC, sees Taiwan a base from which to become the principal food entering a new phase of outward investment, with supplier to Chinese throughout the world, Uni- a large increase in the number of investment President has invested in , Vietnam, cases and investment amounts. Economic Minis- , and the Philippines. 7 ter Lin Hsin-i has said that some local businesses need to seek opportunities on the mainland to revitalize themselves, and the government should Information Industry adopt measures to help those companies carve niches in the mainland market. Expressing no During the last half of 2000, the integration fear that such companies would uproot them- of manufacturi ng for the information industry selves from Taiwan, he stated, they “are merely between Taiwan and mainland China proceeded shifting their investment projects from Taiwan apace. According to Taiwan’s Institute of Infor- to the mainland under a strategy to increase com- mation Industry, during 2000, 38.6 percent of petitiveness in the global market.” He pointed information technology hardware produced by out that the mainland’s “overall investment en- Taiwanese companies was manufactured in main- vironment—market, land, natural resources, and land China. The institute predicted that the ra- power supply—is better than Taiwan’s at tio would rise to 5l percent in 2001. The institute present.”4 also noted that in the year 2000 mainland China At a seminar in December, the deputy gover- edged out Taiwan for the first time as a global nor of the Central Bank of China proposed lift- producer of information industry hardware ($25.5 ing the ban on mainland investment in Taiwan. billion versus $23.2 billion), but 72 percent of that He maintained that allowing the entry of main- total came from Taiwan companies’ manufactur- land capital under well-designed regulations ing bases on the mainland. 8 would provide useful stimuli to certain local in- The heads of Taiwan’ s leading information dustries.5 industry companies acknowledged the govern- Chen Po-chih, chairman of the Council on ment’s concern that the excessive transfer of Economic Planning and Development, took a manufacturing to mainland China would endan- more cautious view: “We have utilized the oppor- ger Taiwan’s economy. They declared, however, tunities in China enough,” he said. “We have to that in order to be successful in the fiercely limit, if possible, the unlimited increase of eco- competitative global market, some of them had nomic ties with China.”6 to shift the manufacturing of increasingly ad- Two Taiwan food companies have been lead- vanced technology to the mainland. For example, ing the charge to take advantage of mainland although the government banned production of China’s market. Ting Hsin, with 90 instant notebook computers on the mainland by Taiwan- noodle factories in eight production complexes on ese companies, all of the leading producers of the mainland manufacturing its widely known notebook computers have invested in mainland “Master Kang” brand, holds 26 percent of the factories to turn out computer components. They mainland instant noodle market. It is branching have urged the government to lift the ban on out into a line of bakery items and beverages. notebook production on the mainland; some of Uni-President, with 30 factories and 50 distribu- them already are expanding their facilities there tion centers on the mainland, holds an estimated in the expectation that the ban will be lifted. In- 18 percent of the instant noodle market. Uni- creasing worldwide demand for notebook comput- President, which first earned a profit from its ers has put heavy pressure on the Taiwanese sup-

American Foreign Policy Interests 104 Ralph N. Clough pliers of OEM notebooks to companies such as billion, 12-inch chip foundry in Singapore in a Dell, Sharp, and Compaq to increase production joint venture with a European chipmaker. TSMC and reduce costs. has also built a foundry in Singapore in a joint Even the producers of semiconductors, who venture with Philips Semiconductor. have no present plans to shift their capital- intensive, high-techology production to the main- land, foresee a time when that will be necessary. Cross-Strait Common Market Morris Chang, chairman of the Taiwan Semicon- ductor Manufacturing Company (TSMC), told a Vincent Siew, a former premier of the ROC seminar in November that the global marketing and current vice chairman of the KMT, has ad- strategies of Taiwan’ s semiconductor manufac- vanced a striking new proposal: the establishment turers make inevitable their eventual investment of a Cross-Strait Common Market that would lead in the mainland. If they do not extend their busi- in time to the political integration of Taiwan and ness network into the mainland, Chang said, they mainland China. He made this proposal in an will gradually lose their international competi- article in the Asian Wall Street Journal in No- tiveness.9 vember 2000, and he elaborated on it in a speech The involvement of Taiwanese businessmen at the American Enterprise Institute in Wash- in integrated circuit manufacturing on the main- ington, D.C., on January 22, 2001. land has already begun. This project, involving Siew believes that by setting the goal of a the building of a $l.6 billion computer chip plant Cross-Strait Common Market, the two sides could in Shanghai, has attracted much attention be- take full advantage of the complementarity of the cause it is a joint venture. Its vice chairman is two economies and move step by step toward that Jiang Mianheng, the son of , and the goal, which would also pave the way for political president and CEO is Winston Wang, the son of integration. He called attention to the similarity Wang Yung-ching, head of Taiwan’s Formosa between his proposal and President Chen Shui- Plastic Group. Winston Wang has declared that bian’s New Year’s speech in which Chen referred no Taiwan money is going into this plant and that to the integration of the two economies as a basis he has no personal financial stake in it. The plant for “a new framework of permanent peace and will produce 8-inch silicon wafers with 0.25-mi- political integration.” Siew called on Americans cron circuitry, technologically well behind the 12- to support this endeavor strongly. Asked whether inch, 0.13-micron circuitry, the standard for the the PRC had responded to his proposal, Siew said latest wafer fab plants being built by TSMC and that so far there had been no negative response. United Microelectronics Corp (UMC). 10 Taiwan’s business leaders recognize that in order to exploit the advantages of operating in Conclusions mainland China but avoid being absorbed by that giant economy, they must keep their most tech- Will the relatively moderate policies of the two nologically advanced production and their design governments and the trend toward greater Cross- and marketing centers in Taiwan. They also can Strait cooperation continue during the remain- maintain their global leadership in certain der of 2001, even though the political impasse branches of the information industry by collabo- remains unresolved? rating with technologically advanced companies Vice Premier Qian Qichen, in his speech of elsewhere. For example, UMC is not only build- January 22, 2001, on the sixth anniversary of ing new 12-inch wafer fab plants in Taiwan, it Jiang Zemin’s “eight-point” proposal on reunifi- also has two joint-venture wafer fab plants in cation, adopted a moderate tone, indicating that Japan and has just announced plans to build a $2 the PRC would press ahead with its united-front

American Foreign Policy Interests Growing Cross-Strait Cooperation 105 policy, even offering to work with former pro- make the adjustments required by membership independence individuals to improve Cross-Strait in the WTO. relations if they abandon their separatist stance. The stress on economic cooperation by Qian Nowhere in the speech did Qian repeat the man- Qichen, Chen Shui-bian, and Vincent Siew sug- tra that the PRC reserved the right to use force gests a growing Cross-Strait consensus on this to accomplish reunification. He did, however, de- trend. As Qian put it, mand that Chen Shui-bian specifically acknowl- edge the one-China principle and the 1992 con- As we enter the new century, faced with sensus on that principle between SEF and the trend of economic globalization and ARATS. He also said that in Taiwan since March fierce competition, and faced with the 2000, “the struggle between separatism and anti- progress of science and technology separatism has become sharper and more com- which is changing with each passing plex,” and he called for a “sense of urgency” in day, the compatriots on both sides of the order to accomplish reunification at an early date. strait should all the more link hands in The PRC’s Defense White Paper of October cooperation to meet the challenges to- 2000 took a harder line on the Taiwan issue, as- gether and make both of them winners serting that “the Taiwan Straits situation is com- in mutual benefit in the economy and plicated and grim.” The White Paper concluded in science and technology. that because “hegemonism and power politics still exist and are further developing, and in particu- Vincent Siew’s Common Market proposal also lar the basis for the country’s peaceful reunifica- cites economic globalization as creating a strong tion is seriously imperiled, China will have to incentive for both sides of the Strait to cooperate enhance its capability to defend its sovereignty in the progressive integration of their economies, and security by military means.” which in turn could lead to a step-by-step inte- Although Chen Shui-bian tried in his inau- gration of politics. Chen Shui-bian’s New Year’s gural address to assure the PRC that he would speech refers to the integration of the two econo- not make any move toward independence and his mies, trade, and culture as a starting point for administration had taken various steps to im- creating the basis for a new framework of per- prove Cross-Strait interaction, a specific accep- manent peace and political integration. tance by him of the one-China principle, as de- Despite the apparent consensus on the inevi- manded by the PRC, seems unlikely. In his effort tability of a trend toward economic integration, to win a maximum number of Legislative Yuan leading to eventual political integration, the two seats in December, Chen cannot afford to alien- sides differ on the pace of that process. Qian calls ate irretrievably the significant segment of the for reunification at an early date, while Chen and DPP that is firmly proindependence. Siew clearly envisage a prolonged, step-by-step Thus it seems probable that the political im- process. It seems probable, however, that as long passe will not be resolved this year. The PRC will as the PRC perceives the general trend moving maintain pressure on Chen while waiting to see toward eventual unification and Taiwan’s lead- whether changes in Taiwan politics and the re- ers make no move toward independence, the PRC sults of its united-front policy will improve pros- will not try to impose a solution by resorting to pects for reunification. military force. Meanwhile, Cross-Strait economic integration An important external factor is the policy of and other forms of cooperation will continue. The the United States. As Qian declared, “We reso- two governments will be compelled to find ways lutely oppose all intervention by foreign forces of dealing with each other in order to make in China’s settlement of the Taiwan problem.” It progress toward opening the three links and to would be highly desirable for the new U.S. ad-

American Foreign Policy Interests 106 Ralph N. Clough ministration to express support for the trends Notes toward cooperation between the two sides of the Strait, aligning themselves with the powerful 1 During the first 10 months of 1999, 1,400 forces arising from the globalization of the world voyages between Kaohsiung and Xiamen and economy that are drawing mainland China and Fuzhou carried 284,000 TEUs (20-foot equiva- Taiwan together. To overemphasize the balance lent units), an increase of 37.8 percent over the of military forces in the Taiwan Strait would be same period of 1998 ( Xinhua, November 21, a losing game for Taiwan in the long run. 1999). During 2000, shipments between Xiamen Taiwan’s security is best ensured by the growing and Kaohsiung rose to 1,060,000 TEUs, with an network of economic interdependence and other average of 14 sailings daily between the two ports forms of Cross-Strait cooperation that people on (Central Daily News , February 3, 2001). both sides of the Strait perceive as mutually ben- 2 The China Post , November 11, 2000. eficial. 3 Laurie Underwood, “Go Slow No More?” Topics (a publication of the American Chamber About the Author of Commerce in Taiwan), November 2000, p. 20. 4 Taipei Journal , November 2, 2000. 5 Ralph N. Clough is a lecturer at the Paul H. Central News Agency , December 2, 2000 Nitze School of Advanced International Studies (FBIS-CHI-2000-1202). 6 of the Johns Hopkins University and a member Topics, op. cit., p. 22. 7 of the NCAFP Roundtable on U.S.–China Policy Topics, December 2000–Januar y 2001, and Cross-Strait Relations. Among his extensive pp. 42–44. 8 publications on the subject are a series of articles Taipei Journal , November 17, 2000. 9 that have appeared in American Foreign Policy The China Post , November 29, 2000. 10 Interests in the past year. The New York Times , November 29, 2000.

American Foreign Policy Interests NCAFPGrowing Roundtable Cross-Strait Members Cooperation Visiting Taipei and Shanghai 107

H.E. Chen Shui-bian , president of the Republic of China, welcoming Professor George D. Schwab, presi- dent of the NCAFP, to Taipei in December 2000

H.E. Annette Lu, vice president of the Republic of China, receiving members of the NCAFP’s sponsored Roundtable. From left to right: Professors Donald S. Zagoria, Robert A. Scalapino, the Honorable Douglas H. Paal, the Honorable Kenneth Lieberthal, Vice Presi- dent Lu, Ambassador Winston Lord, and Professor George D. Schwab

Wang Daohan, president, Association for Relations Across the Taiwan Strait (ARATS), presenting a gift to Professor George D. Schwab in Shanghai in Decem- ber 2000. Looking on are Ambassador Winston Lord (center) and Dr. Kenneth Lieberthal (extreme left), both members of the NCAFP’s Roundtable on U.S.– China Policy and Cross-Strait Relations

American Foreign Policy Interests