ChinaWatch Vol. 1 No. 3

A regular feature of Taiwan Sentinel, ChinaWatch examines developments in China in the areas of internal politics, economics and trade, geopolitics and Taiwan engagement and analyzes their advantages or disadvantages for Taiwan’s standing in the region and the world. This feature is based on the premise that what happens in China has direct relevance for the durability of Taiwan’s de facto independence. ChinaWatch is updated monthly.

Internal Politics

Xiao Jianhua Case Underscores Fragility of ‘One Country, Two Systems’

The mysterious disappearance of a well-known Chinese tycoon from his luxurious Hong Kong residence on Lunar New Year’s Eve is another reminder of the extreme fragility of China’s oft-repeated commitment to respecting Hong Kong law.

Xiao Jianhua, who ranks 32^nd on the 2016 Hurun China Rich List with assets of about US$6 billion, is only the latest Hong Kong resident to be snatched away from the territory and spirited to China by Beijing’s phantom law enforcement machine. Previous victims include a number of Hong Kong publishers whose racy titles on senior Chinese leaders deeply embarrassed the regime.

The Hong Kong disappearances are important for Taiwan because they underscore the vapidity of Chinese promises to abide by signed agreements, including those relating to legal structures on territories previously not under Chinese sovereignty. Under the provisions of the “one-country, two systems” model that China and Britain employed to pave the way for the return of Hong Kong to Chinese control nearly 20 years ago, China committed itself to honoring Hong Kong’s semi-democratic system until 2047. This included an outright ban on Chinese law enforcement officials operating within the former British colony.

肖建華 (public domain)

In the case of Xiao Jianhua, all such undertakings appear to have been ignored. According to multiple reports in Hong Kong media, Xiao was taken from his residence at the Four Seasons Hotel by Chinese law enforcement officials on the evening of January 27, and removed to China, apparently to help with inquiries into his business empire.

The 46-year-old Xiao is the founder of Tomorrow Group, a mainland holding company with major interests in finance, IT and energy. He is said to control at least nine listed companies as well as 30 financial institutions that are still under private ownership.

Perhaps most significantly of all, a New York Times report from 2014 alleged that Xiao played a major role in helping the relatives of supreme Chinese leader Xi Jinping divest a portion of their assets after Xi came to power the previous year. It is not clear whether Xiao’s abduction is related to those transactions, though some reports suggest that Xi may be concerned that embarrassing information might be leaked to his rivals in the run-up to the 19^th Congress of the Chinese Communist Party (CCP) later this year.

Geopolitics

Taiwan and the Trump-Xi Call

The telephone conversation between American President Donald Trump and Chinese leader Xi Jinping on Feb. 9 is the clearest indication to date that Trump may be reverting to the mean and adopting longstanding American positions on crucial foreign policy issues.

During their carefully scripted conversation, Trump unambiguously climbed down from his dramatic December statement that he might be willing to reconsider the “one China” policy, under which the United States acknowledges China’s position that Taiwan is part of Chinese territory. The “one China” policy has been the bedrock of Sino-American relations since the early 1970s. By accepting the policy in full Trump is now signaling that he wants good relations with China, despite his previous anti-China rhetoric.

Trump’s climb down has important implications for Taiwan, which saw in his anti-China posture, including his precedent-setting telephone conversation with Taiwanese President Tsai Ing-wen on Dec. 2, somewhat of a two-edged sword. On the one hand some elements in Taiwan Taiwan were cheered by the possibility that rising American tensions with Beijing might have paved the way for closer ties with Taipei, even extending to the dispatch of some American military assets there, in line with the recommendations bruited by former U.S. ambassador to the United Nations John Bolton. At the same time, others worried that Beijing might have used the tensions as a pretext to ratchet up its military pressure against the island, further undermining its economy and constricting its already truncated international space.

The Trump climb down on the “one China” policy came hard on the heels of similar moderate moves on other important foreign policy issues for the United States. One involved South Korea and Japan, where Trump retreated from previous demands that both Seoul and Tokyo assume a greater burden of their own defenses. The recently concluded visit of Defense Secretary James Mattis to the two Asian capitals made it clear that Washington stands ready to defend them without any quid pro quo.

Trump has also retreated from a much-publicized campaign promise that he intends to move the United States embassy in Israel from Tel Aviv to Jerusalem, move that would almost certainly have provoked widespread opposition in the Arab world. At the time he has stated that continuing Israeli settlement building in the West Bank is inimical to peace, reversing his previous position on the issue.

The new, more conventional American take on foreign policy issues seems to indicate that foreign policy moderates in the Trump administration — people like Mattis and Secretary of State Rex Tillerson — may be gaining the upper hand, as controversial flame throwers like self-declared Leninist Steve Bannon and China hawk Peter Navarro are gradually forced into the background. Son-in-law Jared Kushner, another presumptive moderate, may also be coming to the fore, particularly on matters relating to China and the Middle East.

Nevertheless, it remains unclear just how long the Trump administration moderates will be able to dominate decision making on crucial foreign policy issues. Trump remains an extremely unpredictable leader, both on China and on other key policy questions. Some future crisis — on North Korean missiles for example, or perhaps even Chinese trade policies — could easily change his mind, and provoke another reversal on the burning issues of the day.

Mattis on Damage Control Mission to Japan, South Korea

United States Secretary of Defense James Mattis has completed a critical fence-mending mission to Japan and South Korea, the U.S.’ two closest Asian allies, which have been badly spooked by President Donald Trump’s erratic policies in the region.

The purpose of the mission was to reassure Tokyo and Seoul that Washington maintains a strong commitment to their defense and their economic well-being, despite some troubling signals to the contrary. One of the most important of these was Trump’s late January declaration that the United States would not participate in the Trans-Pacific Partnership, a 12-member regional grouping designed to push back against the rapid spread of Chinese political and military influence in East and Southeast Asia.

While Taiwan itself was not on the Mattis itinerary, it still had a major stake in the success of his mission. This reflects its near total dependence on a robust American military presence in the western Pacific, without which the open-ended continuation of its de facto independence cannot be guarantied.

Mattis gathered generally favorable reviews in South Korea, where the United States has been pushing hard to install a cutting edge Terminal High Altitude Area Defense (THAAD) anti-missile system, which would be used to intercept North Korea’s medium range missiles. The system is strongly opposed by China, which sees it not only as a threat to its North Korean ally, but also to its own military and industrial assets in Manchuria and in several adjacent areas.

Mattis was also a big hit in Japan, where his assertion that the United States would back up Tokyo in any confrontation with China over the disposition of the disputed Senkaku (or Diaoyutai) Islands in the East China Sea went over well with the conservative government of Prime Minister Shinzo Abe. In a subsequent visit to the United States, Abe received a similar undertaking from Trump himself, who conspicuously avoided any mention of his much bruited campaign promise to compel Japan to pay more for the defense shield it receives from the United States.

Both Japan and South Korea remain extremely wary of spreading Chinese influence in the region, but in the face of Trump’s unsteady regional policies, are questioning whether they can count on continuing American support over the long term.

The same concerns are also present in Taiwan, which has more to worry about from Chinese aggression than any other country in the region. Taiwanese President Tsai appears to recognize this situation, having steered herself away from the anti-China rhetoric that a preternaturally combustible President Trump is sometimes prone to using.

Nor, for that matter, does she seem to have been overly impressed by the precedent-setting telephone conversation she had with Trump in early December and his subsequent statements regarding a possible re-think of the U.S.’ fealty to the “one China” policy, which consigns Taiwan to an ancillary place in U.S. strategic thinking. This appears to reflect her understanding that Trump’s transactional approach to conducting foreign policy means that he cannot be fully trusted to deliver on his promises.

Taiwan Engagement

China-Taiwan Trade Figures Underscore Continuing Mainland Leverage

New figures released by China’s Ministry of Commerce show continuing high levels of trade between China and Taiwan, underscoring Taiwan’s deep-seated economic dependence on the mainland.

The figures show that bilateral trade between the sides in 2016 totaled US$179.6 billion, down only 4.5 percent on the previous year. Chinese exports to Taiwan for the year amounted to US$40.4 billion, while Taiwan’s exports to China came in at U.S.$139.2 billion.

A key part of her economic platform called for diversifying Taiwan’s trade away from China, which during the presidency of Ma Ying-jeou accounted for about to about 40 percent of the total. President Tsai and other members of her Democratic Progressive Party (DPP) have long believed that high levels of Taiwanese economic dependence on the mainland seriously reduce Taiwan’s wiggle room in the event of any political confrontation with Beijing.

A key part of President Tsai’s program has been to try to increase trade volumes with the countries of Southeast Asia, which presently account for some 18 percent of Taiwan’s total trade. But in the absence of formal diplomatic relations with those countries, Taiwan has its back up against the wall in trying to reach this goal. This is reflected in Taiwanese companies being largely disqualified from the bilateral trade agreements and other tax and investment treaties that give their multinational rivals a big boost in pursuing lucrative international deals.

While some large Taiwanese companies have tried to maneuver their way around this by incorporating in countries like Singapore, they are still constrained by Taiwan’s exclusion from a number of formidable multinational trade groupings. One such grouping is the Regional Comprehensive Economic Partnership (RCEP), which links the 10 states of the Association of Southeast Asian Nations to the six countries with which ASEAN enjoys free trade agreements: New Zealand, Australia, China, South Korea, Japan and India. In 2016 the countries in the grouping accounted for 30 percent of the world’s GDP.

One small area in which Taiwan did appear to successfully reduce its China economic dependence in 2016 was international tourism. According to Taiwanese figures, total arrivals during the year showed a rise of 2.4 percent to 10.69 million. The increase came despite a 16 percent decline in traffic from China, which analysts have blamed on a deliberate decision by Beijing to try to punish Tsai for her refusal to adopt the language that Beijing insists on that acknowledges that Taiwan and China are part of the same country, as well as the so-called “1992 consensus.” Most of the China shortfall, the figures show, was made up by increased arrivals from neighboring Asian countries — Thailand, Vietnam, South Korea, and the Philippines in particular. Another important contributor was Canada, where many Taiwanese maintain residences.

New Indications of Emerging China Policy on Taiwan

It is no secret that the stunning defeat sustained by Taiwan’s once dominant Kuomintang (KMT) in the January 2016 parliamentary and presidential elections represented a major setback for China’s Taiwan policy, which at least since the 1990s had been based on the premise that the Nationalists would help pave the way for Taiwan’s eventual political integration into China.

Now, hard on the heels of the election of Donald Trump as U.S. president, some important clues are emerging about how China means to cope with this important policy challenge. Coincidentally or otherwise, all of the clues have developed in the immediate wake of an annual meeting on the mainland of senior officials concerned with the Taiwan issue.

This year’s “Taiwan Affairs Conference” was held several days before the onset of the lunar New Year, in late January. The leading attendee was Yu Zhengsheng, the fourth ranking member in the CCP hierarchy, who told the meeting that the cross-Strait environment would grow “more complex and grim” in 2017. This appeared to be a reference to Trump’s controversial statement about a possible jettisoning of the U.S.’ longstanding “one China” policy (which has since been reversed), and Taiwanese President Tsai’s continuing refusal to accept Beijing’s core position that Taiwan is part of China.

The first of the China policy clues involved a new Chinese outreach to Taiwan, focusing on China’s supposed recognition of the importance of the 228 Massacre in Taiwan’s history. At the very least this step represented a Chinese acknowledgement that Taiwan’s China-friendly KMT can no longer be counted on to deliver the goods on Taiwan’s transfer to China’s sovereignty, and that more attention should now be paid to the native Taiwanese population, which represents the base of Tsai’s ruling DPP. Beyond that, it might also be a signal to the mainland population that the Communist leadership is doing everything possible to extend an olive branch to the people of Taiwan. The unspoken implication here is that should that olive branch be rejected, any untoward consequences will devolve exclusively on the Taiwanese side.

The second of the Chinese policy clues was contained in a report published by Japan’s Yomiuri newspaper in early February. It suggested that Chinese authorities were considering an amendment to their 2005 “Anti-Secession” Law, which mandates the use of force against Taiwan should the government there declare independence, or otherwise act to delay unification with the mainland indefinitely. According to the Yomiuri, an outright Taiwanese refusal to accept that Taiwan is part of China could also trigger the use of force by Beijing. Although President Tsai has so far been careful not to do this, she has also made it clear she has no intention to follow the KMT line and accept the “1992 consensus” and “one China” framework.

The Yomiuri report is obviously speculative, though its appearance around the time of the Taiwan Affairs conference in China may afford it a measure of credibility. Particularly in the face of the perceived challenge from Tsai, it seems to signal a much harder line on Taiwan — a line that might become harder still if Beijing believes that the Taiwan issue is getting away from it.

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