Building Bridghs to China

Building Bridges to China

Just about anywhere Taiwan President Ma Ying-jeou goes these days, he ends up talking about China. On a Saturday morning in early May, Ma, casually clad in a red polo shirt and blue jeans, is marketing Taiwan as a tourist destination to foreign diplomats at a restaurant perched on a forested hillside in the county of Hualien on the island's east coast. The government, he tells them, is upgrading bike trails in the area and hopes to get World Heritage Site status for a nearby gorge, which Ma compares to the Grand Canyon. The diplomats chat about the local hotels and scenic spots for a few moments, but then quickly shift the conversation to what is really on everyone's mind: Taiwan's rapidly warming relations with China. (Read "China and Taiwan Draw Closer, Amid Protests.")

Ma, 58, seems only too happy to dive into the issue that has dominated his first year as Taiwan's leader. Tourists from the Chinese mainland were allowed to visit Taiwan for the first time last year and are arriving by the thousands each day, he notes, giving the recession-hit local economy a welcome, albeit minor, boost. He stresses that he wants Taiwan to benefit economically from better ties with China — but he won't let the island be assimilated by the rising giant. "I won't sell out Taiwan," Ma told TIME, adding that "I'll sell China Taiwan fruit … We're trying to create an atmosphere of peace." (See the world's most influential people of 2008.)

Ma has already done more to close ranks with China than anyone in Taiwan's brief history. Ever since Ma's political party, the Kuomintang, fled mainland China to Taiwan after losing a civil war to Mao's communists in 1949, relations between the two have been antagonistic at best. Beijing treats Taiwan as a runaway province and has blocked the democratic Taipei government from receiving diplomatic recognition or participating in many international forums. Both sides armed the Taiwan Strait to the teeth, turning it into one of Asia's most dangerous military flash points. Contact between them has been grossly restricted. A year ago, Taiwan residents couldn't take a scheduled flight or mail a letter directly to the mainland, and Taiwan-made goods had to be trans-shipped through Hong Kong and Japan.

This has begun to change under Ma, who shortly after taking office established what he calls the "three links": direct shipping, air travel and mail service. In late April, the two sides agreed to more than double the number of weekly direct flights to 270. Ma has also eased limitations on investment by Taiwan companies in China, and his administration recently announced that, for the first time, mainland investments would be allowed in a broad range of Taiwan manufacturing and services companies. China Mobile, the mainland's largest cellular-service provider, has already agreed to invest about $530 million in Taiwan's Far EasTone Telecommunications, although the landmark deal has not been approved by Taipei. In perhaps the most hopeful sign of change, China recently relaxed its longstanding opposition to Taiwan's inclusion in international organizations. After being rejected since 1997, Taiwan was finally invited this year to be an observer at the World Health Assembly, the governing body of the World Health Organization — the first time it has participated in a U.N.-related forum since Taiwan lost its U.N. seat to China in 1971. China-Taiwan relations "are now on the right track," Ma says. 

To an extent, Ma is simply taking the next logical steps toward normalizing relations between two governments that technically don't recognize the other's right to exist, but which have inevitably been drawn together economically. Taiwan is a global center of IT manufacturing, and in recent years, the island's companies have for competitive reasons been compelled to open factories on the mainland, taking advantage of a liberalization of Taipei's restrictions on such investments. More than a million people from Taiwan now live in China in industrial centers near Shanghai in the east and in Guangdong province in the south. Direct transport links greatly enhance efficiency and lower costs of doing business across the strait, which could help a Taiwan economy that has struggled in recent years to find new sources of growth. In addition, a warmer China-Taiwan relationship alleviates a thorny diplomatic and security problem for the U.S. Its historic support of Taipei is a point of contention between Beijing and Washington. Now, "the likelihood of war has decreased," says Li Jiaquan, a senior researcher at the Chinese Academy of Social Sciences Institute of Taiwan Studies in Beijing. "This is good not just for Taiwan and China, but for the U.S." 

The easing of tensions has come about in part because Ma, a Harvard Law School graduate and former Taipei mayor, is a far more palatable politician to Beijing than his more confrontational predecessor, Chen Shui-bian. China's leaders ultimately want the island and the mainland to reunite. During his eight years as President, Chen irked Beijing by flirting with ways of making Taiwan more formally independent, such as scheduling a referendum on applying for U.N. membership under the name Taiwan. Ma, on the other hand, has promised not to declare Taiwan an independent state, a position that has made it easier for Beijing to cooperate with Taipei. During China's National People's Congress in March, Chinese Premier Wen Jiabao dangled an olive branch, saying that Beijing stands ready to "create conditions for ending the state of hostility and concluding a peace agreement between the two sides of the Taiwan Strait." (Read "Taiwan's Leader Keeps Low Profile Abroad.")

Strides toward détente carry a political price for Ma. Many in Taiwan don't consider the island to be part of China, and they fear closer ties will eventually lead to a loss of identity, even sovereignty. Last October, hundreds of thousands protested against Ma's China policy in a Taipei rally organized by the opposition Democratic Progressive Party (DPP). Another large protest is planned for May 17. Ma "sees the closer ties [with China] as an opportunity," says Cheng Wen-tsang, the DPP's spokesman. "But we see them as a threat."

Ma counters that everything he has done is in Taiwan's best interests, especially concerning the economy. The global financial crisis hit trade-dependent Taiwan especially hard. Exports in April plunged a staggering 34% from the same month in 2008 — the sixth consecutive monthly double-digit decline — as demand for the island's computer and electronic equipment shriveled in the U.S. and Europe. The government expects GDP to contract 3% in 2009; some private estimates predict worse. The severity of the crisis brought new urgency to the effort to improve ties with China in order to capitalize on one of the world's few remaining sources of growth. "If we had not opened up to the mainland, we would suffer more," Ma says. 

Indeed, direct links appear to be boosting profits. Eric Kuei, general manager of Fruit Taiwan Corp., says the time to transport his pineapples and other produce to Shanghai from Taiwan has been cut from seven days to three, which means more time on Chinese store shelves and a 20% increase in profits. "After Ma got elected, everything's more convenient for businessmen," says Kuei. In a recent survey conducted by Taiwan's CommonWealth magazine, 60% of the CEOs questioned said that liberalized cross-strait relations were improving Taiwan's economic competitiveness. This positive outlook has helped fuel a 40% surge in Taiwan's stock market this year, making it one of the best-performing in Asia. "A positive relationship across the strait can help recover some of the competitive advantages we have lost in the past 10 years," says J.T. Wang, chief executive of computer maker Acer.


Still, many restrictions on cross-strait business remain. Taiwan banks, for example, can't operate on the mainland because the necessary agreements aren't in place to allow regulators from the two sides to cooperate, cutting off a key source of growth. Victor Kung, president of Fubon Financial Holding Co., says Taiwan's isolation from a burgeoning China has stunted the development of the entire economy. As costs at home have risen and the island's manufacturing has moved offshore, Taiwan has needed to foster new industries, especially in the service sector, to generate growth and jobs, but a lack of access to China has hindered those efforts. "The transformation from a manufacturing base to more of a services base is still experiencing labor pains, and it still has a lot to do with cross-strait difficulties," Kung laments. (Read "Taiwan's New Head Seeks Change.")

Ma is promising more reform. In April, China and Taiwan inked an agreement that will start the process of liberalizing cross-strait financial services. More broadly, Ma intends to forge a comprehensive economic-cooperation agreement with Beijing that would reduce tariffs on Taiwan exports to China as well as provide investment guarantees and protect intellectual property. There is a reason to hurry. In 2010, China is slated to slash tariffs on goods from nations in Southeast Asia, potentially putting Taiwan's products at a greater disadvantage in the China market. Through a bilateral trade agreement, Ma says, "We hope we can avoid the marginalization of Taiwan as a result of regional economic integration in East Asia."

But this seems about as far as Ma is prepared to go. He is holding off on China's offer to negotiate a peace treaty, insisting that Beijing must remove missiles pointed at his island as a precondition to talks. Relations between the two have improved so much, he believes, that the security threat has been significantly alleviated. "Taiwan is no longer a flash point in East Asia, and that's what we want," Ma says.

Even more importantly, Ma rejects the possibility of negotiations with Beijing that touch upon Taiwan's political status or raise the issue of unification. People in Taiwan "still have a lot of doubts about China," Ma says. "They fear [the mainland Chinese] way of life is not something they can accept." Though Ma may be bridging the gap with China faster than anyone could have expected, one year — even one of great progress — can't erase 60 years of animosity.

— with reporting by Austin Ramzy / Beijing and Natalie Tso / Taipei



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