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Taiwanese President Chen Shui-bian has claimed the leadership of his Democratic Progressive Party, proposing party-to-party talks with China but warning Beijing that if relations don’t improve, Taipei could "go its own way." Chen’s move was overshadowed by the surprise announcement that the Pacific island nation Nauru was establishing diplomatic ties with Beijing, leaving Taipei with just 27 nations still recognizing it as the legitimate government of China. The weekend’s events exemplify a shifting dynamic in cross-strait relations.

Analysis

Taiwanese President Chen Shui-bian assumed the chairmanship of his Democratic Progressive Party (DPP) July 21 and proposed party-to-party exchanges with Beijing as a way to jumpstart dialogue between the two Chinas. Yet while Chen was in effect suggesting that, as DPP chairman, he could engage in talks with Chinese Communist Party Chairman Jiang Zemin, his pitch was overshadowed by the surprise announcement that the Pacific island nation of Nauru is establishing ties with Beijing, reducing Taiwan’s official diplomatic relations to just 27 countries.

In unscripted comments apparently triggered by the Nauru news, Chen warned Beijing that it if leaders ignore Taipei’s efforts to open dialogue and work together, Taipei will "have to seriously consider whether to walk down [its] own road to strive for Taiwan’s future," according to Taiwanese media reports. Faced with domestic political pressure and the steady flow of Taiwanese capital and business to China, Chen is being forced into a reactive stance regarding China.

The weekend events are just the most recent examples of a larger trend in the cross-strait dynamic, where a role reversal is under way: It is now Beijing that feels time is on its side and Taipei that senses the balance of power slipping. For Taiwan, the growing sense of panic will lead to intensified internal struggles, leaving no clear long-term policy on China relations. But for Beijing, putting Taiwan on the defensive provides a welcome break, particularly as Beijing is about to undergo a significant change in leadership. So long as Taipei refrains from doing something rash -- like declaring independence -- Beijing can continue its economic conquest of the island republic, forgoing military action until China’s armed forces are technologically and operationally better off.

The balance of relations across the Taiwan Strait has fluctuated several times since the Chinese Communists drove the Nationalist government from the mainland in 1949. Beijing scored a major diplomatic coup three decades later, when the United States reversed its official policy and established formal diplomatic relations with mainland China, forgoing official ties with Taipei. Yet as Taiwan’s economic power grew, Beijing became increasingly concerned that it would declare independence, ending the longstanding fiction of "one China."

China tested short-range missiles in the Taiwan Strait prior to Taiwan’s 1996 presidential elections, prompting the United States to dispatch two carrier battle groups to the area. For Chinese officials, Washington’s strong show of military support for Taiwan -- coupled with then-Taiwanese President Lee Teng-hui’s evolving doctrine of "special state-to-state" relations across the strait, a small step shy of declaring independence -- seemed to point toward Taiwan’s inevitable separation from the mainland.

But the 1997 Asian economic crisis proved an unexpected blessing to Beijing, as Taiwan’s economic situation began deteriorating along with that of the rest of the region. This contributed to Taiwan’s shift away from the long-ruling Kuomintang (KMT) and brought Chen and the DPP to power. In contrast to the DPP’s traditional pro-independence stance, Chen toed a more moderate line, allowing the gradual opening of economic ties with China. From China’s side, this evolved into the current policy of slow economic conquest: Beijing is taking advantage of the emerging sentiment among Taiwanese business leaders that, in order to remain globally competitive, Taipei should loosen restrictions on investments in China.

It is now Taipei’s turn to worry. Beijing can afford to sit back and wait for economic integration to reach a point where Taiwan has little choice but to accede to Beijing’s demands for reunification under the "one country, two systems" scheme. Chinese officials have carefully assessed the balance of power across the strait and know that, should the United States intervene, China would have little chance of conquering Taiwan through military action. Further, were Beijing to attempt such a move, it surely would lose all of the incoming investment and global goodwill the regime has worked so hard over the past decade to attract.

Beijing sees little need to act militarily against Taipei any time before the 2008 Summer Olympics, and probably not for several years after that. In the meantime, the People’s Liberation Army can improve its technological assets and operational capabilities, just in case Taiwan finds some way out of the economic web Beijing is weaving. If Taiwan has not come to a peaceful solution on cohabitation with mainland China a decade or two down the road, or if Taipei takes the drastic step of declaring independence, leaders in Beijing will feel little choice but to respond with force.

Taipei does not feel the same luxury of time as Beijing. Investment into Taiwan keeps falling, dropping nearly 47 percent year-on-year for the first half of 2002 to just $1.5 billion. Over the same period, foreign investment into China grew 18.7 percent, and officials expect a record $50 billion in incoming investment for the year. Taiwanese businesses, meanwhile, are looking to relocate some of their operations to China to take advantage of cheap labor costs and to remain competitive in the global race for a stake in China’s huge market and labor pool.

As a result, Taiwanese leaders face a conundrum. To remain economically competitive and vibrant, Taipei needs to approve Taiwanese business investments in China, and in fact has approved 611 such requests amounting to $1.5 billion in the first six months of this year, according to the Taiwan Investment Commission. Yet the more tightly Taiwan’s economy becomes tied to that of mainland China, the more exposed Taipei is to the whims of Beijing.

Chen is left walking a narrow line between the economic desires of the business lobbies and the pro-independence stance of his own party, upon whose support he relies for political security. By taking on the role of party chairman, Chen hoped to set the stage for a breakthrough in talks with Beijing, answering China’s calls for talks with party members who do not take a strong pro-independence stance. But China’s answer -- stealing Nauru away from Taipei -- left him humiliated and subject to opposition criticism for breaking his campaign pledge to stay out of party politics.

Taiwan is now on the defensive where relations with China are concerned, and the mixed domestic views -- from independence to status quo to integration -- continue to feed political rivalries. With no clear victor in site, Taipei’s China policy likely will remain a piecemeal collection of feints and starts: sometimes warning of the evils of Beijing and buying new submarines and military equipment, other times calling for dialogue and a mutually shaped future. This is just fine for Beijing, which is content to see the island’s government racked with internal squabbles while Taiwanese businesses keep sending investment dollars to China.