A turbulent year ahead in cross-strait relations

Can Taiwan navigate political and economic instability in a sea of uncertainty?

Stephen R Nagy

Economics and finance, Government and governance, International relations, Arts, culture & society | Asia, East Asia, The World

11 April 2019

With several anniversaries coming up this year that could spur social unrest, on top of the economic turbulence of a trade war with the US, China finds itself in a complicated position. Taiwan must work to diversify its portfolio should it wish to maintain its economic independence, Stephen Nagy writes.

East Asian security and trade discussions have been dominated by certain issues over the past few years. China’s militarised islands in the South China Sea, regular incursions into Japan’s exclusive economic zones by Chinese naval and merchant vessels, North Korean denuclearisation diplomacy, and the US-China trade war are only some examples of these.

Consequently, cross-strait relations have been deprioritised in diplomacy, the media, and as a plausible security threat. With growing calls to accelerate Taiwan’s reunification with the Mainland, this is especially unsettling.

On top of increasing domestic criticism over President Xi Jinping’s perceived regional and global assertiveness, other factors have also given power to such demands.

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To begin, several sensitive anniversaries lie ahead this year. Each act as an inconvenient historical fact that highlights the incongruity between how the Communist Party of China (CCP) understands and propagates Chinese history and how it is understood outside of Mainland China.

For example, this year marks the 60th anniversary of the Tibet Uprising and the 30th anniversary of the Tiananmen Square Massacre – both vivid illustrations of the less-than-peaceful reality of modern China.

The Tibetan Uprising may have been defeated, but, to this day, the Tibetan region is marked by a heavy security footprint to prevent a resurgence in Tibetan pro-independent supporters. Concerns over domestic instability in restive ethnic regions including Tibet and Xinjiang are manifested in significant investments in enhancing domestic security spending under Xi.

The Tiananmen Incident, on the other hand, has deeply shaped the mindset of leaders in Beijing with many of the issues being fought for in 1989 – for example, the stamping out of corruption, greater government transparency, and more socioeconomic equality – being even more pronounced today.

Leaders fear that Chinese citizens will be reminded of lingering and deepening issues of corruption, the lack of transparency, and social inequality and that this might lead to spontaneous and uncontrolled movements against the CCP.

Other inconvenient, coinciding anniversaries like the 70th anniversary of the founding of the People’s Republic of China and the 100th anniversary of the May Fourth Movement further complicate how Mainland China understands itself.

The CCP claims that it single-handedly ejected the foreign evaders to end the ‘Century of Humiliation’. The continued existence of movements in Tibet, Xinjiang, and parts of what the CCP unsuccessfully claims as Chinese sovereign territory puts a deep dent Beijing’s historical narrative with irksome facts on the ground acting as counter-narratives.

This draws concern in Zhongnanhai as the May Fourth Movement was an anti-imperialist, cultural, and political movement which grew from student participants in Beijing. Taiwan’s continued separation from the Mainland and unresolved territorial issues encourage nationalistic sentiment within political stakeholders including the People’s Liberation Army, Xi’s political adversaries, and ordinary citizens.

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Holding these nationalistic sentiments in check will be a difficult task for Xi in 2019, as he and the Party have placed Taiwanese-Mainland reunification as part of China’s core interests outlined in its white paper published in 2011.

Secondly, worsening economic concerns due to domestic economic deceleration, which have been further exacerbated by the trade war, also amplify demands for unification.

As the trade war continues, its central belligerents are negatively impacted. The increase in the price of US goods has resulted in a decrease both in US imports to China and in Chinese exports to the US. Any decrease in exports to the US – China’s largest purchaser of goods – has negative ramifications on the Chinese economy. These negative trends will be further aggravated as US growth slows this year to an estimated 2.4 per cent.

The US has been hit as well with an estimated loss in exports of $40 billion a year, increased costs for small- and medium-sized businesses, and crucial sectors like the agricultural sector being hit particularly hard.

With Taiwan’s economy so closely intertwined with that of the Mainland, it stands to lose much from any prolongation in the trade war. Taiwan will need to accelerate its portfolio diversification in the region with its ‘New Southbound Policy’ (NSP) as fast as possible to avoid any ricochet effects from the trade war. This should not only include Southeast Asia but South Asia and beyond.

Any further erosion of economic dynamism in Taiwan, in conjunction with growing pressure from within Mainland China, may only accelerate Beijing’s strategic calculus in its reunification plans.

To avoid reunification on Beijing’s terms, Taiwan should regard the US-China trade war as a strategic opportunity to double down on its NSP. It must firm-up and deepen its non-governmental relations with businesses in Japan, South Korea, the US, and the European Union to ensure that its portfolio diversification is omnidirectional and not just southbound.

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The ‘iPhone Model’ is something Taiwan should build on. Taiwanese companies already have a major role in iPhone manufacturing with 52 suppliers involved in the process. This is a much higher number than represented by other suppliers involved in manufacturing Apple’s iconic devices. Taiwan should proactively continue to build and expand on these cooperative relationships with other suppliers to further diversify its trading portfolio.

Moreover, by emulating businesses in other countries that have already begun their portfolio diversification, Taiwan can limit the impact of Sino-US trade friction going forward and strengthen its economy. Southeast Asia and South Asia would welcome Taiwan.

Lastly, Taiwan will have to delicately cultivate relationships in the region and with the US to repel Beijing from forcefully reunifying the island during this sensitive year of symbolic anniversaries such as the 100th anniversary of the CCP in 2021. Threading this geopolitical needle will be a challenging task for Taiwanese leaders as well as being a litmus test to the future degree of geopolitical turbulence in the region.

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