Critical Issues Confronting China Summary–Cross-Strait Dilemmas

November 14, 2016
Syaru Shirly Lin and Harry Harding

For decades after 1949, both the governments of Taiwan and the People's Republic of China (PRC) were committed to eventual unification of Taiwan with the rest of China. But the conditions for this commitment have fundamentally changed over the past two decades as more and more people in Taiwan consider themselves non-Chinese, and increasingly embrace civic values largely absent in the PRC. Can this identity shift in Taiwan be reversed and the hope of eventual unification restored? Can America’s long-standing policy of dual deterrence be maintained? Or does it have to revise its policy in light of these fundamental changes? As part of the Critical Issues Confronting China seminar series, Professor Harry Harding of the University of Virginia and the Hong Kong University of Science and Technology and Professor Syaru Shirley Lin of the University of Virginia and the Chinese University of Hong Kong explained these intractable dilemmas from the viewpoints of Taiwan, Beijing and Washington.  

Before Taiwan's democratization in the late 1980s, cultural affinity and a common objective of "one China" made eventual unification a feasible goal. A majority of the people living in Taiwan considered themselves as exclusively Chinese. The two economies were highly complementary. On this basis, economic relations across the Strait exploded, and the U.S. could state that it would accept the eventual reunification of Taiwan and the PRC as long as the process was peaceful.

 However, Taiwan's economic policy toward the PRC oscillated. First in 1996, President Lee Teng-hui implemented a policy of "no haste, be patient" after the missile crisis across the Taiwan Strait. When Chen Shui-bian became the first president of Taiwan from the Democratic Progressive Party (DPP) in 2001, he wanted to appeal to a bigger constituency base, and revoked Lee's policy by establishing an Active Opening Effective Management policy to expand economic relations with the PRC. Both those episodes occurred when identity was polarized and led to emotional debates over extreme economic policies. Support for protectionism was associated with an expression of a Taiwanese identity and support for liberalization was associated with a Chinese identity.

 As Taiwanese identity became consolidated, the debate over cross-Strait policy became less intense, and centered on more moderate policy adjustments. But, identity can become salient again when the threat from the PRC to that identity increases, as in the intense debate over the ratification of the Cross-Strait Service Trade Agreement that culminated in the Sunflower Student Movement in 2014.

However, now the Taiwan situation has changed drastically. China's economic and political power has grown to become a leading economy, accompanied by rising nationalism domestically, while most people in Taiwan have formed a Taiwanese identity distinct from Chinese. In the early 1990s, more than a quarter of people in Taiwan considered themselves exclusively Chinese but that has dropped to only three percent, while a majority has come to identify themselves as exclusive Taiwanese since 2009. Since 2010, the percentage of Taiwanese who are either exclusively or partially Taiwanese has consistently exceeded 93 percent. The benefits from the economic integration with the PRC have been unevenly distributed. Taiwan's investment in the PRC is 60 percent of its cumulative outbound investment, while Taiwan's trade surplus with the mainland reached a 10-year low in 2015. Taiwanese want their government to put "Taiwan First" in formulating its policies vis-a-vis the mainland, even if the economic interdependence across the Strait cannot be reduced easily. Surveys also indicate that certain civic values, such as rule of law, freedom of speech, press and assembly and clean environment are important to Taiwanese. All this makes eventual unification, even under the most favorable conditions, far less attractive to Taiwanese than it once may have been. Support for immediate unification is now only at 1.5 percent in Taiwan.
 
This presents Beijing with a difficult dilemma. It can choose to stay the course, hoping that closer economic integration will lead to political spillover, but so far it has not been effective. Beijing could also increase pressure on Taiwan by forcing economic and diplomatic sanctions, including restricting tourism and further squeezing Taiwan's space in international organizations, and even issuing military threats. So far, this approach has been counterproductive. A final option, which may be the most effective, is to narrow the gap with Taiwan by taking on serious political reforms and fostering those civic values espoused by Taiwanese. But this option poses great domestic risks for the Chinese Community Party.

Washington also faces some difficult choices. The assumption in the 1970s that both sides of the Taiwan Strait were committed to eventual unification, and that the U.S. would not challenge that outcome as long as it occurred peacefully, no longer holds, and the prospect of peaceful unification has diminished; the costs and the risks of maintaining Taiwan's security have risen as China's military development continues. Washington can choose to strengthen its support of Taiwan's international space in organizations where national sovereignty is not required, upgrade its unofficial relations with Taiwan, while maintaining Taiwan's military capability for dual deterrence as before, but Beijing may become increasingly impatient with such a policy. Washington could also accommodate Beijing by explicitly endorsing peaceful unification as the preferred outcome. Or Washington could even terminate its security commitment to Taiwan in exchange for Chinese accommodation on other policy issues as part of a "grand bargain" with Beijing, although the details would be difficult to negotiate and might prove highly controversial in both countries.    

The changes in Taiwan parallel broader international trends, including the rise of local identity in Europe and Asia and a growing backlash against the unequal distributive effects of globalization. In addition, Taiwan has fallen into the “high income trap,” which affects many other advanced economies, including the United States, Hong Kong, Japan and much of Europe. The trap is characterized by high youth unemployment, inequality, stagnating growth, flat wages for lower-skilled workers, a decline in fertility, and a high level of dissatisfaction with the establishment among youths. One major difference is that young Taiwanese blame China for their problems rather than globalization. What is perhaps more important than the economic causes is the value gap between Taiwan and China, which will be much harder to resolve. Taiwan’s China dilemma continues as President Tsai Ing-wen has to decide whether to reaffirm or avoid the 1992 Consensus, and whether to deepen or restrict economic integration with the PRC in order for Taiwan to escape its high-income trap.