Book Review

A Riddle Wrapped in a Mystery

• Byline:ROBERT GREEN
• Publication Date:12/01/2009

DPP supporters hold a “Taiwan Stands Up” banner during a September 2006 demonstration in Kaohsiung supporting Taiwan’s right to operate internationally as a “normal country.” Trade with mainland China continued to grow despite such political currents in Taiwan. (Photo by Central News Agency)

A political science scholar attempts to solve the conundrum of growing cross-strait trade in a hostile political environment.

While historians are chiefly concerned with the what, when and where of events, political scientists concentrate on the why. And to get at the why, a political scientist will begin with a puzzle—a counterintuitive trend, an apparent aberration in the interaction of states, or the illogical behavior of a particular government. When done well, the solving of this puzzle can rejigger the conceptual framework used to understand a particular phenomenon and at times provide a retelling of events in a manner so thought provoking as to make a historian envious.

In Political Conflict and Economic Interdependence Across the Taiwan Strait and Beyond, Scott L. Kastner, a professor in the Department of Government and Politics at the University of Maryland, College Park in the United States, provides an intriguing reading of the recent history of cross-strait relations in his attempt to address the puzzling aspects of a trend at the heart of political debates in Taiwan today—the growing levels of trade across the Taiwan Strait. He asks why economic ties with mainland China have continued to grow despite the intense political rivalry over Taiwan’s sovereignty. By focusing on trade, which has been increasing for two decades, he sheds some light on the domestic influences in both Taiwan and the mainland that have resulted in policies generally favorable to economic interaction.

A study of this nature must begin with a caveat: It is considerably easier to conduct research in Taiwan, with its democratic politics and open society, than in mainland China. Understanding decision-making in a closed authoritarian regime that operates in secrecy is a much more daunting task. Winston Churchill colorfully described this problem when asked about the intentions of Soviet Russia. “I cannot forecast to you the action of Russia,” he remarked. “It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key.”

Finding the Key

Churchill, being Churchill, answered his own riddle. “The key,” he said, “is Russian national interest.” Churchill believed that Russia’s self-interest, more than any other factor, explained the decision-making of its leadership. But just how does one approach the question of national interest? Which actors are influencing policymaking at the highest levels? In mainland China’s opaque political environment there are various interests competing to direct national policy, just as they do more openly in democratic Taiwan.

The key for Kastner lies in the ascendance of a particular group in both Taiwan and mainland China—a group that advocates “internationalist economic interests.” These are the voices, from both business and government, that believe that expanding trade advances national interests, and it is their influence, he concludes, that has resulted in increased economic activity despite the hostility between the two sides of the Taiwan Strait. Along the way, what he reveals is not so much the decoupling of economic and political interests, but the importance of domestic political considerations in the formation of cross-strait economic policy.

Kastner is at his best when illustrating this process by recounting changes in cross-strait policy under former President Chen Shui-bian. In 2000, the election of a leader from a political party, the Democratic Progressive Party (DPP), which advocated a permanent political separation from mainland China, would certainly have led one to expect that slowly increasing levels of trade across the Taiwan Strait would be brought to a halt.

Yet, on taking office, Chen initiated a relaxation of the “Go Slow, Be Patient” policy of his predecessor, former President Lee Teng-hui. His messages to Beijing were conciliatory and reassuring to the public in Taiwan. Trade moreover took center stage because of the weak economy, and Chen advocated the opening of direct shipping and communications links across the Taiwan Strait. “He also desired to give high-tech companies more leeway regarding investments on the Mainland,” writes Kastner, “and made a point of emphasizing that the normalization of cross-Strait relations must begin with the normalization of economic relations.”

Chen moved forward with liberalization despite discontent from members of his own party, who saw clear security risks for Taiwan and considered closer economic ties to be anathema to the independence struggle. He also lacked a friendly partner in Beijing, which was highly suspicious of Chen’s intentions. “Chen Shui-bian’s decision to relax the Go Slow, Be Patient policy was made despite the absence of any significant détente in the relationship between Beijing and Taipei,” Kastner notes.

In the run-up to the 2004 presidential election, however, Chen tacked sharply toward a more ideological course on the question of relations with mainland China. He campaigned on the emotional issue of Taiwanese sovereignty and attempted to drum up support for a revision of the Constitution and the use of “Taiwan” as the official name for the Republic of China. And after reelection, the Chen administration continued to place sovereignty issues over economic considerations in its approach to the mainland.

What then explains this pendulum swing in attitudes toward cross-strait relations during Chen’s presidency? It is not surprising that Chen, as the head of a pro-independence party, would risk the benefits of economic engagement to pursue delicate sovereignty issues. But what explains his initial conciliatory approach toward mainland China and his willingness to increase economic links?

President Ma Ying-jeou was elected with a strong mandate to boost Taiwan’s economy by liberalizing cross-strait trade. (Photo by Central News Agency)

Kastner convincingly weaves together the answer to this question by connecting various strands of political life in Taiwan. Chen came to office in a three-way presidential election that gave him, with only 39 percent of the vote, a weak mandate. Moreover, he sought to reassure the population by stepping gingerly in his approach to cross-strait relations. But there was another factor, according to Kastner, that helps explain Chen’s approach.

In the last years of Lee Teng-hui’s administration, business interests were becoming increasingly adamant about liberalizing trade with the mainland, and Chen faced an opposition-controlled legislature largely sympathetic to their concerns. What “made Chen particularly attentive to business concerns was that the DPP had for years had an ‘antibusiness’ image,” Kastner writes. “Again, their desire to improve this image arose in large part from Chen’s tenuous political position and a belief that being tainted as antibusiness would not be conducive to attaining the support of the median voter in future elections.”

In Kastner’s view, domestic political calculations, therefore, drove Chen’s initial approach to cross-strait economic links. Yet over the course of the next couple of years, DPP politics shifted. “By the end of 2001, Chen’s own position was less tenuous,” Kastner writes. “The relative political leverage of internationalist business interests thus declined somewhat, and liberalization likewise stalled after 2002.”

Coalition Cobbling

Most importantly, by the 2004 reelection campaign, Chen had cobbled together a different domestic coalition, combining independence activists, whose primary concern was the sovereignty issue, and those whose economic interests would be harmed by further liberalization of trade with mainland China. This last group included farmers and unskilled laborers from Taiwan’s less-developed south, a stronghold of DPP support, who would benefit from more protectionist trade policies. This new coalition allowed Chen to pay less attention to the business lobby and pursue sovereignty issues.

Chen’s sovereignty initiatives—referendums, name “rectification” and so on—were ultimately blocked by an opposition-controlled legislature and growing public unease over the possibility of war with mainland China. Meanwhile, trade continued to expand with the mainland despite the increase in tensions in the Taiwan Strait during Chen’s time in office.

Kastner’s reading of the domestic political forces in mainland China is no less revealing. He points out that when it comes to understanding the mainland’s interest in increasing economic exchanges with Taiwan, no such tension exists between nationalist forces and economic interests. While the process of researching decision-making in mainland China is considerably more difficult, Kastner does a good job at identifying some of the actors influencing cross-strait policy. For example, local officials in the mainland, especially those in coastal provinces, face considerable political pressure to keep economic growth rates high. Inbound Taiwanese investment provides a strong incentive for local mainland officials to cooperate with Taiwanese investors and to pressure Beijing for policies favorable to cross-strait investment, which represents an important part of the mainland’s manufacturing success.

Favorable to Leverage

Moreover, influential groups within mainland China, such as the People’s Liberation Army (PLA), are less likely to oppose friendly cross-strait trade policies, since they consider closer economic integration to be favorable to Beijing’s leverage over Taiwan. “The ruling coalition in Beijing,” he writes, “is thus able to incorporate both those who are most deeply committed to the Taiwan issue (the PLA) and those who benefit from economic ties with Taiwan (such as coastal provincial officials) without being torn by internal contradictions.”

Even without the internal contradictions, however, Beijing is faced with some very pressing policy dilemmas when it comes to its Taiwan policy. On the one hand, it wants to reassure Taiwanese investors that the Chinese market is a safe place for their capital. On the other, it wants to prevent any movement toward a permanent political separation.

This dilemma was on display during the presidencies of both Lee and Chen. When Lee traveled to the United States in 1995 and delivered a speech that brought attention to Taiwan, Beijing considered its options to signal its disapproval. Tensions were particularly acute because Taiwan was about to hold its first direct presidential election, a development that Beijing considered highly threatening. Ultimately, the PLA conducted missile tests, firing missiles in the sea just north of Taiwan, and conducted subsequent large-scale military exercises designed to show PLA capabilities for seizing Taiwan.

Representatives from Taiwan and mainland China met in Nanjing, mainland China in April this year to discuss cross-strait economic issues. (Photo by Central News Agency)

The saber-rattling backfired, however, and the Taiwanese turned out in large numbers to signal their own resolve on Taiwan’s sovereignty. Beijing has largely refrained from conducting such overtly threatening moves toward Taiwan during elections, fearing that it could push the Taiwanese more rapidly toward seeking a permanent separation. To signal its resolve today, mainland China continues with a rapid military buildup and the planting of a forest of missiles on the mainland coastline across from Taiwan.

It is notable, however, that Beijing does not signal its displeasure by sanctioning Taiwanese interests on the mainland or by using economic warfare of any kind. Instead, Beijing has continued to flounder around for methods to signal that it is serious about preventing a permanent separation without threatening economic ties. “Signaling resolve over the Taiwan issue in a way that is detrimental to cross-Strait economic ties would prove very costly to PRC leaders,” Kastner writes. “Such behavior could undercut their development strategy (both because Taiwan is a major source of foreign investment and because signaling resolve to Taiwan in a way detrimental to commerce sends a dangerous signal to private firms from other countries).”

One implication of this phenomenon is that Taipei will know if Beijing is moving toward war if it begins to risk its own economic development by using leverage on Taiwanese investors. Using such leverage would be so costly to mainland China that it would be used only in dire circumstances.

Differing Assumptions

While the mainland’s calculations allow for domestic consensus on further cross-strait trade, the situation is notably different in Taiwan. Although Chen Shui-bian was initially willing to facilitate greater trade links for domestic political reasons, his party, the DPP, has long held that trade links give Beijing leverage on political issues, which undermines the independence movement.

Assumptions in the ruling Kuomintang (KMT) are notably different, as Kastner points out. “New president Ma Ying-jeou’s more relaxed view toward cross-Strait economic exchange,” Kastner writes, “suggests that different leaders can reach different conclusions about the security consequences of trade.” Ma was elected, moreover, with a broad mandate to improve economic and transportation links with mainland China and even the DPP acknowledges that closer links with the mainland are beneficial to Taiwan’s economy, even if the party differs on the political implications.

Yet there is a broader assumption at work as well. The Ma administration rejects the notion that closer economic ties will lead to an erosion of Taiwan’s sovereignty. Instead, peaceful economic cooperation, the president argues, will lead to a stable situation in the Taiwan Strait and the beginning of a thaw in political relations. Ultimately, Ma hopes, it will change expectations in Beijing and ease tensions over Taiwan’s sovereignty.

This is the same logic that led to the adoption of the US engagement policy toward mainland China. Economic engagement, the argument runs, will lead to a convergence of interests as Beijing gains credibility internationally by cooperating with the institutions of economic trade. And over time, the mainland will become increasingly invested in preserving the status quo.

Much of the heat of debates in Taiwan is generated by the purely domestic vantage in surveying Beijing’s intentions. This is understandable, since the risks are significant. Yet it nonetheless fails to account for some very real factors constraining, at present, Beijing’s leaders. The desire for international prestige and the desire to prevent domestic unrest by delivering high growth rates are resulting in a regime with real stakes in the international system. Already there are positive results, from the US perspective—Beijing is increasingly cooperative on clamping down on weapons proliferation, on reducing threats emanating from North Korea and on functioning within the existing international trade regime. Taiwan also hopes that the continued integration of mainland China into the world economy will limit Beijing’s options for asserting pressure on Taipei.

If the riddle at the heart of this book is why cross-strait trade is growing despite political hostility, a broader mystery remains: Will trade eventually lead to a more peaceful situation in the Taiwan Strait? Kastner takes a stab at the problem but concludes that the evidence for economic engagement decreasing the likelihood of conflict in the Taiwan Strait remains ambiguous. This is not the fault of his research; it is just that the evidence is not yet in. It is a question that will be increasingly important as cross-strait relations progress, and Kastner presents a novel analytical approach—one that could be quite useful in tackling this larger question down the road.

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Robert Green is a regular contributor to Economist Intelligence Unit publications on Taiwan.

Copyright © 2009 by Robert Green