Taiwan's Great Balancing Act
Threading a difficult political and business way between China and the US
Hello and welcome to What China Wants - especially to the hundreds of new subscribers I’ve had over the last few weeks. Thanks for the interest - it’s almost as if geopolitics is important again…
For those who’ve been with me for a while, you may have noticed that I’ve moved the publication date to a Thursday. This is in anticipation of a rather important change I’m going to be making to the newsletter soon, about which more to come.
In the meantime, I’m following up today on my Great Split post from last time, discussing how Taiwan is managing to balance between China and the US. It isn’t an easy task, either for government or business, but the fate of the island - and the world economy - lies on Taiwan doing just that.
Many thanks for reading, and please do consider sharing, liking, and commenting.
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Over the last few years the world has grown used to the odd angry outburst from Chinese diplomats as the “Wolf Warrior” style of diplomacy has made itself known. Beijing’s reaction to the announcement that Nancy Pelosi, the US House Speaker, was going to visit Taiwan was not therefore a surprise (despite the trip being cancelled when she caught Covid). Her visit, said a Chinese spokesman, would be “crossing a red line”, and America would face “consequences” if it went ahead. Indeed, it would “gravely violate the one-China principle… and send a seriously wrong signal to Taiwan independence separatist forces”. Chinese commentators argued that the People’s Liberation Army should even take control of Taiwan’s airspace to prevent her landing.
The outrage exhibited by Beijing is reflective of the anxiety if feels over its continued ambition to reunify with Taiwan. Although some Western commentators have said that the Russian invasion is forcing the CCP to reconsider its stance towards Taiwan, making it less likely that they would launch a reunification invasion, our research shows this is not the case. The rhetoric coming out of Beijing since the Ukraine war began has consistently re-emphasised the viewpoint that what happens with Taiwan is an internal matter that doesn’t concern the outside world: “How the Taiwan issue should be resolved remains China’s domestic affair, and no foreign country should have the right to interfere” said a Chinese foreign affairs spokesman on 7 April. Not only that, but any move towards a permanent split will be defeated. In an op-ed in the Washington Post on 15 March, entitled “Where China Stands on Ukraine”, the Chinese Ambassador to the United States, Qin Gang, reiterated that while China is “committed to peaceful reunification, we also retain all options to curb Taiwan independence”.
A declaration of independence by Taiwan is the worst case scenario for China because it would put a stick in the spokes of the CCP’s publicly stated ambitions. The thing is, it isn’t just China that feels this way about Taiwanese declarations of this sort. America has repeatedly said that it doesn’t support independence for the island, preferring instead to maintain the status quo - a position it has held since the President Nixon-Chairman Mao detente of 1972. The official US policy is one of “strategic ambiguity”, not saying if it would defend Taiwan or not.
Washington maintains this position because it is the one most likely to keep things as they are. The US knows that that a push for independence is likely to incur the wrath of Beijing, making an invasion even more likely, which in turn would have a devastating impact on the world economy.
In recent years, however, there have been calls made in Congress to ditch this strategic ambiguity. Japan, America’s closest ally in the region, has already done so, and has made it clear that it would help defend the island if attacked by China.
Washington does not, however, appear ready to follow suit. When, in October 2021, President Joe Biden stated that the US would protect Taiwan, a White House spokesperson appeared to row back on this, saying that the US was "not announcing any change in our policy and there is no change in our policy".
The problem for Taipei is that public opinion is increasingly supportive of independence. In a 2020 poll 54% of respondees wanted to separate entirely from China, with just 23% in favour of the status quo. Only 13% wanted reunification with the Mainland. Yet the government knows that it cannot achieve this so long as America keeps its strategic ambiguity. If it goes with the majority and announces independence, not only would an enraged Beijing likely do something to counter this, but there would be no guarantee that Washington would do anything to support. The only option - for now - is to keep things the way they are.
Whilst it is hard for Taiwanese politicians to maintain this balance, it is also tough for Taiwanese companies. Many have invested heavily in China, and so a change to the current situation might interrupt their business model. Foxconn, for example, first set up on the Mainland in 1988 and now makes billions from its investment: its China subsidiary floated for USD 61 billion in 2018, becoming the most valuable tech company on the Mainland. If Taiwan declared independence there is every chance that Foxconn might see its Chinese assets attacked or seized by the PRC authorities.
Some Taiwanese companies are trying to hedge their bets. TSMC, the world’s largest semiconductor manufacturer, has recently announced the opening of new plants in the US and Japan. In theory this will allow them to continue operations if their homeland is attacked, but as the most advanced chips are still to be made in Taiwan, there will still be heavy losses to endure. That said, by maintaining an advanced technology presence on the island, it gives America and Japan (both significant buyers of these chips) an interest in keeping Taiwan free from occupation.
This, in a nutshell, is the game that Taiwan needs to play. Make the island relevant to the outside world so that they can hope for some protection from Beijing, but have enough assets abroad that if the worst does happen, they haven’t lost everything. They also need to keep Beijing (which is also a major importer of Taiwanese chips) happy to keep the status quo for as long as possible; to do so they need to keep the independence movement in check.
Nancy Pelosi’s visit is therefore a conundrum. On one hand, it will be welcomed by those in Taipei who want the US to nail their defence colours to the mast, but at the same time they know that it is potentially more likely to push Beijing further down the road to invasion.
The stakes are high, not only for the people of Taiwan, but for the rest of the world too.