My topic today is the relationship across the Taiwan Strait. I can see why this issue should concern you:  Because the Taiwan Strait is one of the few remaining “hot spots” in the world and because the issue has ramifications far beyond the area in question.  I assure you, we in Taiwan have even more reasons to be concerned, and particularly the party that I had served as Chairman, the Kuomintang, has been dealing with this issue for over half a century.  In fact, I happen to be the person in charge of the very first round of bilateral negotiations between Taiwan and the Chinese Mainland in 1986.  Until then, Beijing had maintained an attitude of deep hostility toward Taipei, and Taipei had likewise adopted a policy of “no contact, no negotiations and no compromise.”  In 1986, a Taiwan cargo plane was hijacked to Guangzhou in China’s southernmost province.  I was then Minister of Transportation and Communications in the government of the Republic of China and was placed in charge of negotiating with the Mainland authorities for the return of the plane, crew and cargo. Until then, the decades-long practice had been that either side got to keep the defectors as well as the plane and everyone and everything in it.  The 1986 talks changed that practice.  The defector stayed in the mainland, but Taiwan was allowed to retrieve everything else.

The 1990s and Before

         I won’t go over the history of the past two decades in too much detail here.  In short, cross-strait relations have largely gone through three stages. The cross-strait relationship during the four decades after 1949 when the People’s Republic of China was established on the Chinese mainland was almost entirely confrontational. In the early 1990s, a period of rapprochement began to set in and the formerly one-dimensional cross-strait relationship became multi-dimensional. Out of parallel needs, Beijing and Taipei engaged in 24 rounds of the so-called “officially unofficial and unofficially official” negotiations and 27 rounds of secret negotiations.  No less importantly, people-to-people exchanges underwent rapid expansion.  The missile crisis of 1995 and l996 set the relationship back slightly, but negotiations continued with fewer rounds and exchanges in the private sector continued to widen at a slower pace. This hard-earned thaw in cross-strait relations in the 1990s was widely deemed as essential not only to Taiwan’s smooth transition from an authoritarian system to a full-fledged democracy, but also to an expansion of Taiwan’s relationship with the rest of the world, including our major ally and friend, the United States. It was during this decade that Taiwan became the second largest buyer of advanced US weaponry in the world, second only to Saudi Arabia. Taiwan’s economic miracle also continued unabated during the nineties despite rapid changes in its internal political system and external environment. Quite an achievement, if you compare Taiwan with other democratizing countries in the world. I am proud to say that I was part of the leadership team behind this multi-dimensional success as I served consecutively as Foreign Minister, Premier and then Vice President during the 1990s.

Post-2000: the Soft Dimensions

        However, since the transfer of power in 2000, cross-strait relations have completely changed in character. Confrontation has once again become the order of the day, not only between the two sides of the Taiwan Strait, but also within Taiwan society and politics. If we divide the now multi-dimensional cross-strait relationship into five dimensions: cultural and economic dimensions on the soft side, and diplomatic and military dimensions on the hard side, with a political dimension in the middle holding the balance. Post-2000 cross-strait relations can be characterized as the soft dimensions going softer and the hard dimensions going harder. This contradiction has reinforced social and political divisions within Taiwan.

       As Table 1 shows, Taiwan’s trade with the Chinese mainland more than tripled over the past ten years. Taiwan has become the mainland’s fifth largest trading partner and second largest import market.  The mainland is the second largest export market of, and the largest source of trade surplus for Taiwan. Taiwan’s trade surplus measured some 30 or 50 billion US dollars, depending on whose statistics you choose to believe. And Taiwan’s total trade surplus in 2005 was around only 7 billion US dollars. This means, without the surplus with China, Taiwan’s trade would be in deficit. If you look at other economic indicators, the implications would be even more staggering. Although Taiwan enjoyed an annual growth rate of --- in 2005, the only engine to this growth turns out to exports. All of the previous locomotives of Taiwan’s economic miracle—the domestic private investment and consumption, foreign direct investment, and government expenditures—have all lost steam. This leaves the mainland as one of the strongest pillars of Taiwan’s economic growth.

Table 1: Trade between Taiwan and the mainland

                                                                                                                       (US$ billion)

Source: big5.mofcom.gov.cn/gate/big5/zhs.mofcom.gov.cn/tongji.shtml.

However, a major portion of this trade can be attributed to Taiwan’s own investments on the mainland. Just how much and to what percentage is everyone’s guess. Table 2 shows some numbers of the total estimates: 47 billion US dollars by Taiwan and 41 billion by the mainland. As far as I know, most private analysts estimate the total to be around 100 billion US dollars. The more that Taipei tries to impede capital outflow, the more people opt to leave and not return.

Table 2: Taiwan’s Investment in the Mainland               

                                              (US$ billion: rounded up)   

Source: Mainland Affairs Council: www.mac.gov.tw/big5/statistic/em/index.htm

Cross-strait people-to-people visits also set new records. Taiwan visits to the mainland in 2005 reached 4 million, a jump of 25 percent over 2000 and much higher than the ten-year average of 1.5 million during the 1990s. And more people from the Chinese mainland visited Taiwan than before.  In 2005, 170,000 visitors came to Taiwan, compared with 120,000 in 2000, an increase of 40 percent.

The continued softening of the economic and cultural dimensions has been a source of intense debate inside Taiwan. President Chen Shui-bian, his government and the ruling Democratic Progressive Party (DPP) have maintained that expansion of trade and investment and cultural contacts with the Chinese mainland would inevitably lead to greater dependence of Taiwan’s economy and society on the mainland, eventually perhaps even political integration and reunification. They also argue that more exchanges would lead to a “hollowing out of Taiwan’s economy.” These beliefs have prompted the DPP administration to adopt a policy to obstruct or restrict such exchanges as establishing direct transportation links with the mainland. They have also attempted to delay the resumption of the cross-strait dialogue suspended in 1999.

By contrast, the so-called Pan-Blue Coalition which includes the KMT, People First Party and the New Party takes the view that greater economic and cultural exchanges would strengthen Taiwan’s economy as the mainland has grown to be the world’s major factory and market. They would also help moderate cross-strait tension by reducing Beijing’s suspicions that Taiwan is moving toward de jure independence. These political parties maintain that greater exchanges would not necessarily lead to political integration. They point to many examples of countries with ethnic, cultural and linguistic affinities, such as the US and Canada, and Germany and Austria, and argue that economic and cultural intimacy does not, in and of itself, lead to unification. The crucial factor is the political will of the people, which is still missing today. Therefore, the Pan-Blues argue, to presuppose a slide toward political integration and impede the interflow of goods and services can only hurt Taiwan’s economy, which has been stagnant for six straight years. And worse, it exposes a lack of confidence in the Taiwan people’s political will to maintain the status quo.

Post-2000: the Hard Dimensions

          If the soft dimensions have softened further, following the market logic rather than government preference, the hard dimensions, i.e., the military and diplomatic dimensions, which have been totally under the guidance of President Chen and the ruling party, have definitely gone harder. In the first half of the 1990s, the PRC had had few missiles pointed at Taiwan. When Beijing fired some of them during 1995 in the waters near Taiwan, some missed their targeted location and others carried only “dumb missiles.” By now, however, the intimidating posture of the PRC’s military deployment is a familiar one. There are now at least 800 short- and intermediate-range highly accurate missiles just across the Strait aimed at Taiwan. The PRC has also modernized its other armaments over the last decade to not only coerce Taiwan, but also to “deny, delay or even defeat” any US intervention on Taiwan’s behalf. This is definitely something new that cannot be taken lightly.

           At the same time, Taiwan’s international room for maneuver has shrunk considerably. In the year of 1988, the lowest point in Taiwan’s diplomatic status, the Republic of China was officially recognized by only 21 countries. I served as Foreign Minister between 1988 and 1990 and as Premier from 1992 to 1996.  By 1996, the number had increased to 31. Now, as I speak, it has dropped to 24. Another indicator of this is the amount of travel by top leaders to countries that do not have diplomatic relations with the ROC. When I was Vice President, I traveled to many countries without diplomatic ties to us. To name but a few: Mexico, Singapore, Malaysia, Thailand, Austria, the Czech Republic, Ukraine, and Jordon.  Then President Lee Teng-hui did the same. For instance, he went to the Philippines, Indonesia and Singapore. But since 2000, as tension has built up between Taipei and Beijing, many such countries feel it is only prudent to stay out of the fray. As a result, President Chen Shui-bian and Vice President Annette Lu have rarely, rarely visited any country lacking diplomatic ties with Taiwan. This has severely constrained Taiwan’s international room for maneuver and has lowered its international profile.

            The differences between the pan-Blue and pan-Green camps (which includes the DPP and its sister party, the Taiwan Solidarity Union) regarding the hard dimensions are more in degree than in kind. They both agree that Taiwan needs more international room for maneuver, but they disagree about what purposes the international connections should serve. The ruling Greens wish to galvanize the international connections into a grand coalition against the PRC, while the Blues prefer to pursue a foreign policy based on mutual respect and need. The Greens and Blues do agree that Taiwan should resist the PRC’s military threat. But while the Greens focus solely and exclusively on the “China threat,” the Blues prefer to strike a proper balance between resisting the “Communist threat” and seizing the “mainland opportunity.” In the communist jargon, the Blue strategy is a “two-handed policy,” in current US jargon it is the policy of being a “responsible stakeholder.”

The Most Controversial Political Dimension

            The political dimension is most controversial because the two issues involved are highly polemical between Taipei and Beijing, and disputed inside Taiwan. The first issue is what I call “rising nationalisms.” Any casual visitor to the area may sense that nationalist sentiment seems to be growing on both sides of the Strait.  With communist ideology on the wane in the PRC, nationalism has emerged in recent years a genuine belief among the populace and as an instrument for mobilization by the authorities.  In fact, many observers have pointed out that, as the mainland economy grows quickly, as its society increasingly pluralizes, as the income gap and the developmental gap in urban versus rural and coastal versus inland areas continues to widen, and as the government and party bureaucracies continue to be corrupt, nationalism remains the most powerful glue that holds the country together. No leader can afford to brook any challenge to sovereignty, territorial integrity or any other concept related to nationalism.

          Unfortunately, the rise of nationalism on the mainland coincides with a surge of nativist sentiment among some sectors in Taiwan.  As mentioned earlier, there is currently a line of thinking in Taiwan that embraces only Taiwanese identity and abhors anything affiliated with China or Chinese.  Though still a minority, this thinking is condoned, and even promoted by the DPP administration. If such nationalist trends continue unabated on both sides, it will be increasingly difficult on either side to identify pragmatic solutions to cross-strait issues.

           The second issue is the so-called “One China” issue, which has distinct policy implications. For a long time, Beijing insists on the One China principle articulated with the triplet: “there is only one China; Taiwan is part of China; and China’s sovereignty and territorial integrity are indivisible.”  Since 2000, Beijing has modified the second part to be “Taiwan and the mainland both belong to one China.”  This is a major concession by the PRC as it signifies greater equality in the relationship.  Taipei’s position is different, and between the KMT and the DPP there are crucial differences. Let’s assume Beijing’s position is tantamount to “yes to one China.” Then, the KMT’s position which has remained consistent until now is “yes, but.” YES, Taiwan is part of China, BUT it is only part of the historical, geographical and cultural China, not part of the legal and political China. YES, Taiwan is part of China. BUT the mainland is also part of China. Hence Taiwan, though much smaller than the mainland in size, is equal with the mainland legally and should deserve some international room for maneuver. The DPP’s position, on the other hand, is a flat “No.” As such, the “yes” and “no” positions have no common ground between them and are bound to clash head-on, whereas the “yes” and “yes, but” positions have some common ground and some differences. They could clash as in the four decades prior to the 1990s; and they could find common ground and shelve the differences as in the entire 1990s. Within Taiwan, the “yes, but” and “no” positions have clashed relentlessly through each election (and alas, our electoral system is such that we have an election practically at the end of each year!). Combined with the identity issue, mentioned earlier, you can see why Taiwan’s society and politics have become divided, and remain divided today.

The Critical US Role

           In the 1990s when the KMT was in power, Taipei’s policy toward Beijing reflected the “yes, but” position wherein “yes” allowed us to attain rapprochement with Beijing in general and “but” gave us room for security and dignity. Since 2000, however, the “no” position has prevailed in government thinking and policy. Beginning in mid-2002, President Chen Shui-bian and his party were bold enough to attempt a series of policy departures, such as holding a referendum, changing the name of the country, writing a new constitution, etc. These policy changes not only deepened the divisions within Taiwan’s society where a large majority favored maintenance of status quo, but alarmed the US and angered the PRC. Before the March 2004 presidential election in Taiwan, Chen Shui-bian and some in the US argued that his new moves were nothing more than “campaign rhetoric,” hence tolerable. But after the election which he won with a razor-thin margin (0.228 percentage of the votes, or 29,000 out of 13 million votes cast), plus a mysterious shooting incident on the eve of the election (which today only 19 % of the Taiwan people believe to be genuine), Chen shui-bian continued this pro-independence policy.

           One can see the US, a longtime security guarantor of security in the Taiwan Strait, taking on the role of a manager. Its style of management has become increasingly direct and preventive since 2004. In April 2004, for instance, the State Department laid out the US position on a number of contentious issues, some more clearly than others. On the afore-mentioned soft dimensions, the US was clearly in favor of greater exchanges between Taiwan and the mainland. The DPP’s arguments about “excessive dependence on the mainland” and a potential “hollowing-out of Taiwan’s economy” were unambiguously rejected by the new U.S. statement. Direct links were called for which, in the US view, would lead to a “win-win-win” situation (for Taiwan, the mainland, and the world). The new statement also called for resumption of cross-strait dialogue and even went to great length to describe how the “yes, but” position had made it possible. On other occasions, the US made clear its opposition to any “unilateral change of status quo.” This means, for Taiwan, no support of Taiwan independence and, for the PRC, opposition to the use of force.

            This “strategic clarity,” I believe, is beneficial to the preservation of the current precarious balance across the Taiwan Strait.  The message seems clear enough that one side will not underestimate US resolve to help in Taiwan’s self-defense, and the other will not overestimate US support of any pro-independence moves. Chances for miscalculation will thus be reduced.  The two sides may not warm up to each other anytime soon.  But neither will there be a dangerous slide into greater confrontation. 

             This and other direct intervention by the US, plus the growing distrust of President Chen at home decidedly altered the mood in Taiwan in 2005. When I made the ground-breaking visit to four major cities in April 2005, public opinion in Taiwan favored my visit by a ratio of two to one. Various polls have shown growing support for more moderation in cross-strait relations. During my meeting with PRC president Hu Jintao, we agreed on a five-point “common vision”: To resume dialogue on the basis of “seeking common ground and shelving the differences;” to sign a peace agreement; to establish direct transportation links; to reduce chances of miscalculation and accidents in the military realm by working out a “confidence-building measures (CBM)” mechanism and to discuss the issue of “international room for maneuver.” These five points were later ratified and adopted into the KMT’s party program.

The Current Morass

            The years of 2005 and 2006 are marked by continued deadlock in cross-strait relations and deepening political stalemate in Taiwan. Greater flexibility in Beijing’s approach to Taiwan, direct US management, and a strong desire for cross-strait moderation on the part of Taiwan people have been undermined over and over again by President Chen’s attempts to move Taiwan toward de jure independence. The DPP administration has again and again ignored the desires of the opposition party as well as nearly 70 percent of the Taiwan population to establish direct links with the mainland. Hence, a deadlock in cross-strait ties, although deadlock at a lower level of tension.

Political and social morale in Taiwan is at an all-time low. President Chen’s approval ratings hovered around 30% throughout 2005. But in 2006, they dropped to 20 percent and are still falling with the emergence of a series of corruption scandals involving first his closest confidants in the President’s Office, his in-laws and his family. Ministers or vice ministers of at least five ministries (finance, transportation, interior, financial regulatory, and economic planning) have been either indicted or are strongly suspected of corruption. A recall motion was proposed in the legislature in June, but failed to attain the two thirds majority as required by the Constitution.  A former Chairman of the DPP, Mr. Shih Ming-te who was been jailed by the KMT for 25 years in authoritarian times and thus hailed as “Taiwan’s Mandela,” has demanded Chen’s resignation. Mr. Shih managed to collect 100 million New Taiwan Dollars (3 million US dollars) in just over a week by asking one million people to contribute 100 NT dollars per person to hold rallies calling for the President’s resignation. As I speak now, the drama is still unfolding and no one can predict how and when it will end.

             This is a sad situation for Taiwan. Until 2000, we enjoyed a record of non-stop economic growth at an average rate of 8.1 percent annually for five decades. All that changed in 2000. Per capita income in 2005 for Taiwan remains at the same level as that in 1998. Many of my countrymen remember 1998 very well. That was when South Korea was hit hard by the Asian financial crisis. South Korea’s per capita income dropped to only one half of Taiwan’s and that country also experienced a change of power from one party to another. But by 2005, its per capita income had surpassed Taiwan’s.

            Taiwan’s young democratic system is another victim. According to a regional survey taken in six Asian countries plus Hong Kong (see Table 3), support for democracy is the lowest in Taiwan, lower by a wide margin than Korea, Thailand, Mongolia, Japan, the Philippines and Hong Kong. Another survey also found that within Taiwan the support for democracy is declining from 55 percent in 1998 to 42 percent in 2003 (Table 4). The mysterious shooting incident of March 2004 dealt another serious blow to faith in Taiwan politics. As Table 5 shows, 82 percent of Taiwan people believed the presidential election of 1996 to be fair. The percentage remained high at 80 percent in 2000, the year of transfer of power. But in 2004, it dropped to 46 percent.