ChinaWatch Vol. 1 No. 6

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.

Economics and Trade

‘One-Belt One-Road’ Event in Beijing Highlights Rising China Economic Clout

Twenty-eight leaders from Asia, Africa, Latin America and Europe came to Beijing on May 14 and 15 to hear Chinese President Xi Jinping extol the virtues of the “One-Belt One-Road” initiative, a massive Chinese trade and development plan aimed at cementing China’s rising economic clout worldwide.

Among the leaders who attended the Beijing event were Russian President Vladimir Putin, Philippines President Rodrigo Duterte and Burmese State Counselor Aung San Su Kyi.

“One-Belt One-Road” earmarks hundreds of billions of dollars for the building of ports and railways, pipelines and power plants all around the world. The project received a major boost earlier this year when U.S. President Donald Trump made it clear that the United States would not be joining the Trans-Pacific Partnership (TPP), a wide-ranging economic arrangement aimed at solidifying American economic and political leadership in Asia and beyond. The Obama administration had made launching the TPP a major geo-political priority, largely because it seemed to offer a credible alternative to rising Chinese economic and political power.

The significance of “One-Belt One-Road” for Taiwan is that it will further underscore the country’s isolation in the face of rising Chinese clout. Had Trump not decided to pull the plug on the TPP, there is reason to believe that Taiwan might eventually have been able to join that grouping, particularly if Washington had decided that its participation would have been helpful within the context of its overall effort to build a wide-ranging anti-China economic coalition in the western Pacific.

Trump’s objection to the TPP is grounded in his deep-seated enmity to globalization, which he sees as a massive con game that has diverted huge resources from the United States and the West in general to both China and other rapidly growing economies in Asia.

In stark contrast to Trump, Xi Jinping has cast himself as the new pied piper of the globalization project, a role he articulated with particular fervor at the World Economic Summit in Davos, Switzerland in January. In Xi’s view, “One-Belt One-Road” is the perfect expression of globalization in action.

So far at least, “One-Belt One-Road” has been heavier on rhetoric than it has on actual results, largely because it has generated a fair amount of suspicion among its proposed beneficiaries. India, for example, it not at all happy that a $50 billion corridor to the Arabian Sea — one of the principal projects in the overall “One-Belt One-Road” conception — is passing thought the territory of arch-rival Pakistan. Reflecting this unhappiness, Indian Prime Minister Narendra Modi did not attend the Beijing event.

Also conspicuous by their absences were the leaders of France and Germany, who resent Beijing’s attempts to provide large amounts of cash to poorer European nations, and so undermine European unity.

“One-Belt One-Road” skeptics point to the objective difficulties in getting large infrastructure projects off the ground, including securing land rights, and neutralizing local environmental and political opponents. In the cases of countries like Burma, Sri Lanka and Cambodia, these opponents have already been at least marginally successful in their anti- “One-Belt One-Road” efforts.

Statistically at least the “One-Belt One-Road” skeptics may have something in their favor. According to China’s Commerce Ministry, Chinese foreign direct investment in countries associated with the “One-Belt One-Road” initiative fell two percent in 2016 from the previous year and a further 18 percent on a pro-rated basis in 2017. Overall, Chinese investment in 53 “One-Belt One-Road” countries in 2016 reached US$14.5 billion, about 8 percent of the global direct investment total.

Geopolitics

Report: U.S. Relegates Taiwan Arms Sale to Back Burner

A report in the Washington Post says the Trump administration has relegated a proposed US$1 billion arms sale to Taiwan to the back burner, due to fears that pushing the deal forward could incur China’s anger and possibly scuttle Sino-American efforts to neutralize North Korea’s nuclear development program.

The report said the deal was supposed to have been finalized in the dying days of the Obama administration, but never received final approval. Now, it said, it is facing new headwinds generated by Trump’s sudden fondness for the authoritarian regime of Xi Jinping in Beijing, and his belief that nothing should be done to risk Chinese support in confronting Pyongyang’s efforts to expand its nuclear arsenal and develop ballistic missiles capable of hitting the United States.

The proposed US$1 billion arms package for Taiwan was never regarded as a particularly significant deal within the context of regular U.S. arms sales to Taipei. These are mandated by the Taiwan Relations Act of 1979, the congressional measure designed to mitigate the worst effects of President Jimmy Carter’s decision to transfer U.S. diplomatic recognition from Taiwan to mainland China. Analysts say that it major importance lies in the clear signal it would send to Beijing that Washington remains committed to Taiwan’s political and strategic well-being.

Even before this latest development, Taiwan partisans on Capitol Hill were expressing chagrin over Trump’s China policies, which they say unnecessarily endanger Taiwan at no substantial cost to Beijing. Always assuming a new freeze in Taiwan weapons sales, these complaints will almost certainly escalate, though given the power of Washington’s well-ensconced realpolitik crowd, the impact of the complaints will almost certainly be limited.

According to the Washington Post report, one longer range possibility for Taiwan is for the administration to bundle the relatively modest US$1 billion arms package with a much more expansive Taiwanese request for the U.S.-made F-35 Joint Strike Fighter. Taiwan has long coveted the fighter, which would provide it with a substantial boost in closing the rapidly escalating gap between Chinese and Taiwanese aerial capabilities. But China could be expected to fight any F-35 deal tooth and nail, making its consummation extremely unlikely.

Taiwan is expected to spend about US$12 billion on national defense in 2017, less than one-tenth of China’s estimated defense outlay, not including China’s substantial expenditures on internal policing. According to the Pentagon’s 2016 report on the Chinese military, the “primary emphasis” of China’s defense posture is to prepare for conflict with Taiwan. An earlier Pentagon report suggested that China would be able to successfully carry out an amphibious invasion of Taiwan by 2020.

Questions Multiply Over Kushner China Role and Preferential Visas

In another compelling example of the close commercial ties between the Trump administration in Washington and the Chinese government in Beijing, new questions are being raised about a possible conflict of interest involving China and senior White House counselor Jared Kushner, who is also Trump’s son-in-law. The questions emerged in the wake of new revelations that the family real estate company that Kushner ran until moving to the White House in January was urging wealthy Chinese to invest $500,000 each in an upscale Jersey City, New Jersey housing development in exchange for the provision of visas granting them permanent residence in the United States.

The visa offer was made possible by a law signed by Trump on May 5, which renewed a longstanding program offering U.S. residence to wealthy foreigners investing in American real estate. Only hours after the renewal went into effect Kushner’s sister Nicole Meyer appeared at a glitzy Beijing marketing event soliciting investments in the Jersey City project. She later made an identical pitch in Shanghai, though at least for the time being, further China appearances by Meyer appear to have been put on hold, this in the face of the growing questions about Kushner’s White House connections.

Meyer now has a central role in the Kushner family business, which Kushner himself vacated when he took up his White House position following Trump’s inauguration in January.

The bad news for Taiwan in all of this is that Kushner continues to play an outsized role in the development of U.S. policy toward China. He first came under scrutiny for his China business connections when the New York Times reported earlier this year that he was soliciting hundreds of millions of dollars in loans from a well-connected Chinese financial group to help redevelop the family business’s signature property in midtown Manhattan. While that deal eventually fell through, questions about Kushner’s financial ties to China have persisted ever since. They were underscored in April when Kushner’s wife Ivanka — Trump’s daughter — was granted valuable trademarks for her jewelry, bags and spa services brands in China. Perhaps not coincidentally, this happened on the same day that Chinese leader Xi Jinping was meeting with Trump at Trump’s Mar-a-Largo resort in Florida.

The visa program that Trump renewed on May 5 — the so-called EB-5 program — has been the subject of frequent criticism from both Republicans and Democrats in Congress. While it was originally intended to help funnel foreign investment into relatively modest real estate developments in low and middle income areas throughout the United States, it has long since morphed into a magnet for high end real estate speculation. In making her pitch in China, Kushner sister Nicole Meyer did not hesitate to point out the high average incomes of the prospective residents in the Jersey City project, and the keen interest that her brother and sister-in-law had in its success. The project “means a lot to me and my entire family” she said, seamlessly underscoring the close connection between prospective Chinese investors on the one hand and the Trump White House on the other.

South Korean Presidential Elections Throw Monkey Wrench Into U.S. China Policy

For the past two months the Trump administration has made no secret of its desire to use the authoritarian regime of Xi Jinping in China in to help pressure North Korea to delay the development of Pyongyang’s controversial nuclear program. Arguably the biggest loser in all of this has been Taiwan, which has seen its once promising Washington access effectively short-circuited amid progressively closer Sino-American ties. This was underscored in February when Trump abruptly proclaimed his fealty to the one-China policy, under which Washington acknowledges China’s claim that Taiwan is part of its territory, without necessarily endorsing it. Trump had earlier suggested that the policy needed to be reviewed before he could accept it without reservation.

Now however, a serious monkey wrench has been thrown into Trump’s evolving China policy. It came to light on May 9 when liberal candidate Moon Jae-in won a convincing victory in South Korea’s presidential elections. Throughout his campaign Moon had emphasized his willingness to do his utmost to try to improve relations with Pyongyang, amid his strong condemnations of the installation of an U.S.-developed anti-missile system aimed at safeguarding South Korea against possible North Korean attack. While it remains highly unlikely that Moon will now order the THAAD anti-missile system to be mothballed (it was only recently installed), his dovish attitude toward the communist north opens the door for China to substantially relax pressure on its erstwhile North Korean ally, despite continuing American entreaties to keep it up.

None of this of course suggests that any appreciable change in U.S. China policy is now imminent. The Trump administration remains convinced that China is its best hope of pressuring North Korea to rein in its nuclear arsenal and delay or even stop the development of ballistic missiles capable of hitting the United States. Beyond that, Trump’s abandonment of the TPP and his failure to confront China’s aggressive stance in the South China Sea are clear indications that Trump and Xi see eye to eye on a broad range of issues.

That having been said, Moon’s victory clearly underscores the stark divergence in priorities between China and the United States in Northeast Asia. For its part, the U.S. is extremely concerned that in the absence of Chinese pressure, North Korea will be able to hit targets in the U.S.’ northwest quadrant with nuclear armed ballistic missiles by 2020 or shortly thereafter. This is a scenario that the Trump administration has said it is not prepared to accept.

On the other end of the spectrum, China remains worried that by pressuring Pyongyang, it could pull the rug out from under the Kim family regime, resulting in an unwanted flood of Korean refugees on China’s northeastern border and the rapid installation of a pro-American government throughout the Korean peninsula. This is a nightmare scenario for Beijing.

The next move would appear to be Washington’s. As long as it remains convinced that China is at least going through the motions on North Korea, it will probably be content to keep things as they are with respect to its overall policy in Asia. But any indication that Moon’s election has somehow induced Beijing to relax pressure on Pyongyang will not be well received in the American capital. Whatever happens between Beijing and Washington should obviously be of interest to Taiwan, which unfortunately, can only watch passively from the sidelines and hope for the best.

Taiwan Engagement

China Nixes Taiwan World Health Assembly Appearance Amid Continuing anti-Tsai Pressure

Taiwanese officials have conceded that they will not be receiving invitations to attend the annual meeting of the World Health Assembly in Geneva in late May because of continuing Chinese moves to constrict Taiwan’s international space. Under former president Ma Ying-jeou, Taiwan had been attending the meetings as an observer since 2009, this under the name “Chinese Taipei,” which suggests an undefined political link between Taiwan and the mainland. But current leader Tsai Ing-wen has rejected China’s demand that Taiwan accept this link, specifically by refusing to embrace the so-called “1992 consensus,” which is predicated on the notion that Taiwan and China belong to the same country.

The World Health Assembly move is only the latest in a long line of measures that China has taken since Tsai’s inauguration to underscore its displeasure with Tsai’s policies. These include cutting off all formal communication with Taipei in June of 2016, poaching or otherwise pressuring Taiwanese diplomatic allies to keep their distance from Taipei, pressuring Taiwan economically, stepping up military surveillance missions around Taiwan and deploying DF-16 missiles against it.

Reacting to the Chinese decision to exclude Taiwan from attending the WHA meeting in Geneva, Mainland Affairs Council spokesman Chiu Chui-cheng warned that the move could create serious anti-China blowback among large numbers of Taiwanese citizens.

“If the other side overlooks our appeals and grave reminders, that is sure to severely hurt people’s feelings and spark a backlash in Taiwan public opinion, even causing cross-Strait relations to drift further,” Chiu said.

Chiu’s warning aside, there seems little of substance that Taiwan can now do to begin mollifying opinion in Beijing, short of reversing its position on the “1992 consensus,” and accepting unification with the mainland. It goes without saying that Tsai will never accept this, not least because such a move would be fundamentally at odds with her own position, that of her party, and a majority of people in Taiwan. As long as she doesn’t abandon these long-held principles, it is extremely likely that Beijing will continue to exert pressure on Taipei, particularly in the diplomatic sphere. Efforts to eat away at Taiwan’s economic well-being — for example, by further constricting the imports of Taiwanese agriculture products — are also possible within the overall context of Chinese pressure tactics against Taiwan.

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