Taiwan's courtship with India-I
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Issue Book Excerpt: Rising India | Date : 06 Dec , 2010

Ever since the communists under the late Mao Tse-tung forced the then Chinese President Chiang Kai-shek in 1949 to flee to Taiwan, the situation across the Taiwan straits that separate Mainland China from Taiwan has remained tense. China has a strong ambition of annexing Taiwan. It has deployed 784 ballistic missiles that are targeting Taiwan.

If Taiwan’s President Chen Shui-bian is to be believed, China has aggressively expanded its military capability and is augmenting its combat readiness in a three-stage preparation for war against Taiwan – establishing contingency-response combat capabilities by 2007 and building up combat capabilities for large-scale military engagement by 2010, to ensure victory in a decisive battle by 2015.

China has a strong ambition of annexing Taiwan.

But this tense situation notwithstanding, the small-sized island of Taiwan, with 23 million people, has emerged as a formidable economic powerhouse in the Asia-Pacific region. Taiwan is an integral and vital part of the globalized world, with particular strengths in manufacturing by small and medium enterprises, which accounts for more than 90 per cent of its exports. According to a recent estimate, Taiwan’s merchandize exports were US$182 billion (2 percent of the world total, ranked 15th), while its merchandize imports were US$168 billion (1.8 percent of the world total, ranked 15th). In 2004, Taiwan ranked 24th in exports (worth US$ 26billion) and 20th in imports (worth US$30billion) in commercial services.

Taiwan is the worlds 16th largest economy and fifth largest economy in Asia (after Japan, China, India and South Korea).

Taiwan is the world’s 16th largest economy and fifth largest economy in Asia (after Japan, China, India and South Korea). It has the world’s third largest foreign exchange reserves with more than US$ 255 billion. Taiwan is the world’s fourth largest IC maker globally, and the second after the United States in IC design. Taiwan leads the world in market share output of 23 IT items, with the result that every eight out of 10 computers in the world use some Taiwanese system or the other. Above all, Taiwan is one of the largest investors all over the world. Its per capita income of 15000 US dollars is among the world’s highest.

The China Factor

However, despite such tremendous economic development, the China – question divides Taiwan vertically, with the ruling Democratic People’s Party (DPP) and opposition Kuomintang Party (KMT), known otherwise as the “Nationalists”, pursuing radically different approaches on the China – question. As a party, the DPP is in favour of establishing an independent sovereign Taiwan Republic. But as the President of the country, DPP leader Chen is pursuing what is said to be a pragmatic policy towards China. When Chen ran for President in 2000, he proposed multi-dimensional interactions between Taiwan and China and moved from active promotion of proclaiming independence to defending the status quo.

“¦for Taiwan, improving relations with China is increasingly becoming an economic imperative.

But the KMT, which nearly dethroned President Chen in the 2004 Presidential election and which, under the charismatic leadership of Ma Ying-jeou, until recently the mayor of Taipei city, swept December 2005’s local elections, disagrees with President Chen. The KMT believes in the “One China” principle, but says that the Republic of China that its founder Chiang Kai – shek was heading until 1949, not the communist-controlled People’s Republic of China, is the true representative of the Chinese people.

For bringing about this unity of the Chinese people in the mainland and Taiwan, it advocates deeper economic and cultural relations between Taiwan and the mainland. The KMT is opposed to the idea of “Taiwan independence” promoted by DPP and blames President Chen for provoking China to change the prevailing status quo that is beneficial for the democracy and economic prosperity of the Taiwanese people.

“¦these huge investments by the Taiwanese in China have made them Beijings potential hostages. There is now the clear possibility that China could absorb Taiwan economically”¦

It is of course a fact that for Taiwan, improving relations with China is increasingly becoming an economic imperative. Taiwan’s direct investments on the mainland grew by more than 40 percent in the first half of 2006 to nearly $3 billion, according to official Taiwan figures. Taiwan is the single-largest source of foreign direct investment in China. Officially, Taiwan has poured $49 billion into 34,000 investment projects in China over the past 15 years. But senior officials at Taipei’s Ministry of Economic Affairs confided to this writer during a visit to the Taiwanese capital in December 2005 that these figures only count firms who bother to apply for investment incentives.

It is said that nearly 90 per cent of Taiwanese investors channel their capital through tax havens like the Cayman Islands. Unofficial estimates of Taiwanese FDI into China are staggering, indeed. The figure is close to $ 200 billion. Add to all this the fact that there are now up to a million Taiwan citizens living on the mainland, roughly half of them permanently. Business ties across the Taiwan Strait have become so strong that any government in Taipei can hardly risk threatening them.

This particular situation, which requires the maintenance of the status quo with communist China, has been well exploited by the KMT in its fight against the DPP. A turning point in the history of Cross-Straits relations came in 2005, when Lien Chan, the Kuomintang chairman at the time, traveled to China for the first of two visits. Both visits — the second was in April 2005 — were seen as a sign that healthier relations with the mainland were possible and that the Nationalists may be able to reduce tensions that had grown since Chen took office.

“¦Taiwan has become newly aware of Indias potential as an economic partner.

In a sense, it is an unequal battle between the DPP and KMT as far as winning the support of the influential people of Taiwan is concerned. The KMT, which ruled the island until 2000 in an authoritarian matter, has a strong constituency in the nation’s bureaucracy and military, because members of these two elite services continue to receive state subsidies in the forms of paying no direct taxes and getting a fixed rate of 18 percent interests from Bank-deposits – the subsidies that the DPP have been unable to end because of its inadequate parliamentary strength in bringing about a suitable legislation. Besides, Taiwan’s leading businessmen constitute the largest source of investments in communist China, the unofficial figure amounting as much as 200 billion dollars. And these businessmen find it sensible when the KMT says that it is better not to provoke China.

Ironically, these huge investments by the Taiwanese in China have made them Beijing’s potential hostages. There is now the clear possibility that China could absorb Taiwan economically, an idea that this writer found during his visit to Taiwan in December 2005 to be gaining wide currency. Even a section of the KMT has started realising this. This realisation, along with the fact that leading nations of the world are now more inclined to use anti-dumping clauses against the flooding of cheap Chinese goods into their markets, has led to the policy of finding alternative destinations for investments. In fact, in what is called the “Look-South Policy”, President Chen and his government are encouraging diversion of the Taiwanese investments in countries in Southeast Asia and beyond. And here, India, with a huge domestic market, has become a big talking point in Taiwan.

The attractiveness of India

Taiwanese policy makers, aware that maintaining the technological and innovative edge is the key to long-term sustained growth in an age of global economic interdependence – something that Taiwan risks losing as its businessmen deepen their ties with a communist China that is weak in innovation and strong on cheap labor – want to establish strategic R&D alliances with global innovation centers. And here, the prospect of collaboration between Taiwan’s computer hardware industry and India’s world-class software industry is said to be extremely promising.

“¦many Taiwanese scholars and policy makers openly talk of courting a “democratic” India to counter the threats of a “dictatorial” China.

In fact, India’s Nascom and its Taiwanese counterpart, known as III, have recently agreed to collaborate in producing computer V whose price will be less than Rs. 6000. They are going to set up a research institute in Chennai. Tamil Nadu has emerged as the focal point of Taiwanese business in the last few years; with many Taiwanese companies establishing their offices in the southern coastal state of India.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Prakash Nanda

is a journalist and editorial consultant for Indian Defence Review. He is also the author of “Rediscovering Asia: Evolution of India’s Look-East Policy.”

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