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    China Business
     Jul 3, 2010

China unification by integration
By Sreeram Chaulia

The signing this week of a controversial free-trade agreement between the People's Republic of China and Taiwan is a significant milestone in East Asian history. It brings China and the little anti-communist outpost about 150 kilometers across the Taiwan Strait from the mainland coast into tighter embrace, generating scenarios of a creeping velvet remarriage of territories divorced since 1949.

Like South and North Korea, the Taiwan-China problem is a security sore that has carried over from the early Cold War in Asia. In August 1945, there had been a brief window of opportunity when warring Chiang Kai-shek and Mao Zedong met for American-brokered peace talks in the Chinese city of Chongqing. Mutual suspicion and ideological divides closed that window and eventually produced a Taiwan politically separate from the mainland.

On Tuesday, Chinese and Taiwanese quasi-governmental associations met in this very same Chongqing to sign an Economic Cooperation Framework Agreement that progressively slashes tariffs on commodities and services flowing in both directions. Far removed from the ego clashes of Chiang and Mao and their alternative visions of class and social reengineering in post-colonial China, the Taiwan and China of today had the political and economic capital to push this pact through.

Taiwanese President Ma Ying-jeou was elected in 2008 on an ambiguous campaign slogan of "no reunification, no independence and no war" with China. His rapprochement policies towards the mainland that followed ushered in an unprecedented thaw via cross-strait tourism, cultural exchanges and investment promotion. The free-trade deal is the icing on the cake of a cumulative improvement of relations.

To his critics, Ma is serving up Taiwan's hard-preserved independence to Beijing on a platter by increasing the density of contacts between the two estranged territories. But Ma reckons that industrially advanced Taiwan's recent economic woes demand a course correction and realignment with the booming business environment in the mainland.

Pre-existing restrictions on the amounts that Taiwanese businesses could invest in the mainland manufacturing miracle, and limits on outward mainland investment in Taiwan's financial, real estate and industrial sectors had been justified by regime after regime in Taipei as necessary political protection against being reduced into a satellite of Beijing in all but name.

But once Ma took the helm, soaring unemployment, inflation and plummeting growth in a Taiwan that was one of the original Asian Tiger economies created a dire economic need to loosen controls on cross-strait economic transactions.

The severe economic downturn facing Taiwan after the global financial crash of September 2008 re-emphasized the benefit of freeing the movement of goods and capital to and from the mainland. That economics underpins Taiwan's bold step to normalize and supercharge relations with the mainland is evident from the Taipei government projections that the free-trade pact will boost national economic growth by as much as 1.7%.

For Ma, who rode to power with a promise of restoring Taiwan to a 6% economic growth trajectory, securing access to the vast mainland consumer market is a lifeline ahead of challenging local elections at the end of this year.

The unanimous verdict on the free-trade agreement is that Taiwan will be by far the bigger beneficiary from the deal. Beijing will eliminate tariffs on about 500 imports from Taiwan while Taipei is obliged to cut duties only on a select list of 267 exports from the mainland. Unlike the mainland's preferential trade accords with the 10-member Association of Southeast Asian Nations (ASEAN) and potential ones with Japan and South Korea, the package for Taiwan is extremely generous and one-sided in favor of the smaller partner.

It makes rational economic sense for Taiwan, a fact that has reverberated in Taiwanese public opinion polls, where the majority has quietly given its green signal to Ma.

The main opposition party has cried ballyhoo about how Ma is "sleeping with the enemy" and compromising Taiwan's political freedoms by yoking the island's sovereignty to the whims of exporter and investor lobbies, but unlike in the past, there was enough political cover and economic logic for the president to conclude the agreement.

Why did the mainland act so munificently and not haggle and pressurize Taipei for concessions in the trade deal? President Hu Jintao had issued a directive in 2005 that Beijing wished for "peaceful reunification" with "our flesh-and-blood brothers" in Taiwan.

However politically suicidal it is for Ma to admit that economic integration is a step on the ladder to ultimate absorption of Taiwan into China, Beijing very much sees it that way. For a trading superpower to throw open its market to Taiwanese enterprises on discount terms is a minor concession for gaining even greater leverage on the Taiwanese economy and installing a staunchly pro-China lobby in Taiwan's elite circles.

The necessity to penetrate and win more allies in Taiwan's private sector is felt acutely in Beijing because of continued US armament of Taipei as a strategic ally in the East China Sea. Taiwan is a huge pawn in US-China relations, with Washington determined to militarily equip the island for self-defense against aggression by the mainland, which officially labels Taiwan a renegade "province" of the People's Republic.

As reported by Asia Times Online, Beijing is striving through backroom channels in the US Congress to bargain for cancelation of the latest US$6.4 billion American weapons tranche to Taipei. (See Senator Feinstein's whispers Asia Times Online, June 29, 2010.)

But given the resolute bipartisan commitment in Washington to denying the mainland military a decisive advantage to occupy Taiwan and Ma's own hedging strategy of desiring more US weaponry for self-defense, Beijing has no option but to dangle softer instruments like sweetened trade deals en route to its unification dream.

True to Deng Xiaoping's maxim - "hide your strength and bide your time" - China can wait until Taiwan is ripe enough through economic interlinking to fall into the motherland's lap without firing a shot. The final outcome will depend on how skillfully Ma and his possibly like-minded successors in Taipei can maintain the fine balance of US-aided military preparedness to deter a Chinese invasion on one hand and sinking into China's economic bosom on the other.

Sreeram Chaulia is associate professor of world politics at the OP Jindal Global University in Sonipat, India.

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