On Asia-Pacific trip, Hillary Clinton downplays U.S.-China friction

The Washington Post
By John Pomfret

TRAVIS AIR FORCE BASE, CALIF. -- Secretary of State Hillary Rodham Clinton on Monday played down friction between the United States and China, saying she thinks the countries have a "mature" enough relationship to be able to handle differences of opinion.

Speaking on the first day of her first trip of the new year -- a nine-day, three-nation Asia-Pacific journey -- Clinton said that China's rise in the region has made U.S. engagement all the more crucial.

"Everyone's aware that China is a rising power of the 21st century," she said on her plane. "But people want to see the United States fully engaged in Asia, so that as China rises the United States is there as a force for peace."

China has reacted strongly to a U.S. decision last week to sell almost $1 billion in anti-missile batteries and missiles to Taiwan. So far, six senior Chinese officials have publicly criticized the deal. China claims Taiwan as its territory and has said the United States is interfering in its internal affairs by selling arms to the island of 20 million. The U.S. government is mandated under the Taiwan Relations Act to provide for Taiwan's defense.

"What I'm expecting is that we actually are having a mature relationship," Clinton said when asked about China. "That means that it doesn't go off the rails when we have differences of opinion."
Clinton acknowledged that more friction is likely when President Obama meets with the Dalai Lama. In an effort to get off to a good start with China, Obama last year postponed a meeting with the exiled Tibetan spiritual leader until after a summit with Chinese President Hu Jintao. Obama's meeting with the Dalai Lama is expected to take place soon.

While Clinton said the United States recognizes China's sovereignty over Tibet, she said U.S. officials differ with China over the region. "We support the legitimate desire for cultural, religious respect and autonomy," she said.

Questions to Ponder:

1. How does the change of US policy to one which engages "hot spots" in China (e.g: Tibet & Taiwan) affect China's partnership with US?
2. From the US perspective, what are the advantages of the alliances with Taiwan and support for Tiber? What are the odds of of US isolating China through their actions?
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Article - Exuberance in Taiwan as Ties With China Warm

A woman looked at monitors displaying securities information at a brokerage in Taipei, at the end of April, as Taiwan's stock index rose the most since 1991 and the currency rallied after the island allowed Chinese investments for the first time since a civil war ended six decades ago.

May 14, 2009 By JONATHAN ADAMS (NY times)

TAIPEI — The bulls are running hard in Taiwan as the island prepares to open its doors to mainland Chinese investment for the first time since breaking from Beijing in 1949.

After the two sides announced plans late last month to sign accords on banking, insurance and access to financial markets, mainland fever has set in on the island: its benchmark stock index, the Taiex, climbed 13 percent in the two weeks to Friday, and some analysts are predicting an additional gain of 25 percent to 50 percent by year-end. The Taiwan dollar has strengthened 2.5 percent.

Optimists see decades of bitter rivalry across the Taiwan Strait fading. The British bank Standard Chartered has dubbed the opening a “great leap across the strait,” and Goldman Sachs has called it a “paradigm shift.”

But others here are cautioning that the opening to mainland money could take longer than expected — and that in the near future at least, mainland investors will face a daunting maze of regulatory approvals and political concerns.

“People are overoptimistic,” said Norman Yin, a finance expert and informal economic adviser to Taiwan’s president. “They don’t understand that there are many constraints in the first stage. And in sensitive sectors, such as high-tech, military-related or mobile phones, there will be even more restrictions.”

Beijing officials have viewed Taiwan as a renegade province ever since the Nationalists retreated to the island when they lost the Chinese Civil War to the Communists 60 years ago. Though not formally independent, the island has had its own government, economy and currency. For most of this decade, Taiwan was led by a pro-independence government that increased some cross-strait ties, although not nearly as quickly or broadly as business interests and investors would have liked.

But since Ma Ying-jeou was inaugurated as president nearly a year ago, Taiwan has moved rapidly to forge closer commercial links with China to lift its sagging economy. In the past year, it signed deals with China on tourism, airline flights and shipping.

Investment, however, has remained a one-way street, flowing from the island to the mainland. Taiwan has invested $150 billion in the mainland since the 1980s, according to one Taiwan government estimate. Mainland China has until now been barred from directly investing in Taiwan.

Now, analysts are heralding the long-term financial implications of Taiwan’s opening to the mainland. The anticipation began on April 26, when officials from Taipei and Beijing met in the mainland city of Nanjing and signed a statement on financial cooperation.

Three days later, Taiwan said it would allow mainland investment in nearly 100 sectors. Taipei also said it would permit mainland investment in construction projects that are part of Mr. Ma’s economic stimulus package. The same day, the first possible deal was announced. China Mobile, which has the most subscribers of any mobile phone carrier, said it had agreed to take a 12 percent stake in Far EasTone Telecommunications of Taiwan.

On May 1, China formally approved Taiwan-bound investment by qualified domestic institutional investors. Four days later, it announced a plan to step up development of a cross-strait economic zone in Fujian Province. Taiwanese auto, banking and other companies added to the euphoria by announcing investment tie-up plans with mainland companies.

The response to all this has been a stock market frenzy, especially by foreign institutional investors. JPMorgan Chase announced a target of 8,000 for the Taiex by year-end (the Taiex closed at 6,485 on Wednesday).

Goldman Sachs upgraded Taiwan shares in general to “overweight” this month. “The rapidity and scope of recent cross-strait initiatives,” it said in a note, “are welcome signals that Taiwan may finally reap the economic benefits from a warmer relationship with China.”

But many investors seem to have glossed over or willfully ignored the fact that many essential details remain unresolved or undisclosed. For one, the details of which specific sectors will be open to mainland money have not been completed. Taiwan will most likely allow mainland investment in 98 industries during the first phase, including automobiles, textiles, rubber and retailing, with detailed rules probably coming at month-end, the Taiwan minister of economic affairs, Yiin Chii-ming told reporters this week. But flat-panel and contract-chip manufacturing will still be shut to mainland investors for now.

Then, the two sides will have to sign a memorandum of understanding, probably in June or July for stock investments, as well as separate agreements for banking and insurance.

“On the Taiwan side, the government is still keeping their cards close to their chest,” said Tony Phoo, an economist with Standard Chartered. “We still don’t have details on everything we’re hearing and reading about, so there’s a lot of market speculation.”

Kevin Yang, chief investment officer at Paradigm Asset Management, added that for now, Beijing was capping Taiwan-bound investment at about 7.2 billion Taiwan dollars, or about $219 million.

“That’s very little,” he said. “I think the market’s overreacting.”

Phil Chu of Grand Cathay Securities and other analysts say foreign investors are betting that Taiwan will be another Hong Kong, where the stock market boomed following its opening to mainland investment. “I think it’s possible Taiwan’s stock market could double by 2012,” Mr. Chu said. “But it won’t go up as much as Hong Kong’s did.”

Still, analysts see Taiwan’s opening to the mainland as helping the island’s economic recovery in the short-term, and providing a structural boost in the long-run. China has already played a part in lifting some sectors. Its rural stimulus plan has increased mainland demand for televisions and other appliances, which has increased orders for Taiwan’s high technology companies.

Investors in Taiwan’s market have been burned before on inflated mainland hopes. Last year, for example, the market rocketed in the two months before Mr. Ma’s inauguration, only to plunge steadily afterward as the reality of the global downturn set in. Still, analysts insist that the long-term picture is bright.

“For eight years, Taiwan kept limits on exchanges and investments,” Mr. Chu said. “But since last year, Ma Ying-jeou has steadily adopted opening policies.”

Question
Using this article and your own knowledge, to what extent will economic factors contribute to Sino-Taiwan ties?

Article - Pragmatism trumps ideology

By Peter Kwong (IHT)
Wednesday, July 2, 2008

During the past few weeks, while the eyes of the world were focused on the Sichuan earthquake, Asia was shaken by events of even greater magnitude: China's rapprochement with her two longtime hostile neighbors, Taiwan and Japan. This new spirit of pragmatism is promising to reshape the political dynamics in the Pacific Rim region for many years to come.

In mid-May, Ma Ying-jeou was elected president of Taiwan in a landslide, on a platform of improving ties with China. His first act as president was to dispatch Wu Poh-hsiung, chairman of the Nationalist Party, to meet with the Chinese Communist Party chairman, Hu Jintao. It was a historic encounter between the top officials from two parties that were bitter rivals for most of the 20th century.

The two leaders agreed to begin commercial flights between Taiwan and the Chinese mainland, so that tourists and businessmen can travel without having to go through third countries. The real purpose of the rapprochement is to release the direct economic exchange across the Taiwan Straits from the high pressure-cooker environment of military confrontation.

This breakthrough was remarkable considering that just a month earlier Taiwan's ex-president Chen Shui-bian, leader of the pro-independence Democratic Progressive Party, was pushing for the passage of a constitution that would legitimize Taiwan's independence, and petitioning for a referendum on the island's entry into the United Nations under the name "Taiwan." Chen's stance provoked threats from the People's Republic of China to use force to invade the island. And Chen's rhetoric has been blamed by many for the island's economic slowdown.

President Ma Ying-jeou's approach is to set politics aside and focus on trade and investment. He has proposed measures to ease the limits on Taiwan's industrial investment in China and open Taiwan to Chinese investment and real-estate development. The island's regulatory authorities are planning to enable currency convertibility between Taiwan and China, and allow Taiwan's brokerage firm clients to invest in the China's stock market.

There is much at stake. China is Taiwan's biggest trading partner and favorite destination. Taiwan is already deeply enmeshed in China's trade networks and supply chains. An estimated 1 million Taiwanese now live and work on the mainland. Taiwanese companies have tied their fortunes to China and invested some $150 billion in factories making electronics, toys, and textiles and real estate projects, ranging from hotels to apartment complexes, extending across the coastline from Guangdong to Shanghai. Many believe that a détente would accelerate economic growth even more as long as there is an understanding of maintaining the status quo - Taiwan won't raise the issue of "independence" and mainland China won't push for "unification."

For 60 years, the United States has played the role of protector of Taiwan as a separate entity from mainland China. Since the Cold War, Taiwan has been a critical security partner of the United States - and her close allies Japan, South Korea, Canada and Australia - in containing China. Taiwan's current bilateral approach with China threatens the stability of this alliance. But, as Taiwan's top China negotiator points out, it neither threatens the United States nor stability in the region.

Japan has evidently come to the same conclusion, reaching an agreement with China over exploration of offshore gas fields located in the East China Sea - an area that Japan until now considered its exclusive economic zone, which led to numerous naval confrontations between the two countries. Now they have decided to ignore matters of sovereignty and pursue cooperation and mutual benefit.

In today's Asia, economic pragmatism trumps ideological divisions. Globalization, long championed by the United States, has pushed the Cold War mentality of military alliances into obsolescence. Even the United States, with its litany of complaints over domestic human right abuses, Tibet and Darfur, keeps its economic ties with China developing unabated. Since 2000, U.S. exports to China have risen 400 percent and Chinese exports to the United States have tripled.

Even if it wants to carry on dictating the Cold War strategic agenda in the Pacific, Washington is so bogged down in the Middle East that it is hardly in the position to do so. Ideologically, Abu Ghraib and domestic surveillance have pretty much disqualified the United States from lecturing the China on democracy. But ironically, Taiwan can teach China a thing or two.

Starting in 1949 as a one-party dictatorship under Chiang Kai-shek, Taiwan has transformed itself over half a century to a multiparty democracy. According to a Freedom House report, in the two main categories of political rights and civil liberties, Taiwan is a "free country" on par with the United States and Japan, and in the subcategory of freedom of speech and religion, it receives the highest possible score.

Closer ties between China and Taiwan could expose the Chinese people to multiparty democratic ideas, and certainly to a tolerance of political diversity.

Who knows? This may lead to a future federation of China as "one country, several systems" with Hong Kong and Taiwan, and even Tibet involved.

Peter Kwong, a professor of Asian American studies at Hunter College, is co-author of "Chinese America: The Untold Story of America's Oldest New Community." Distributed by Agence Global.