Bloomberg: China’s Next Crisis Brews in Taiwan’s Upcoming Election

Yet as Taiwan prepares for elections on Jan. 11 that will pit the pro-independence incumbent, Tsai Ing-wen of the Democratic Progressive Party (DPP), against Han Kuo-yu, a China-friendly populist representing the KMT (which, improbably, has aligned itself with China in recent years), this model is under unprecedented strain. In Beijing, President Xi Jinping has signaled impatience with Taiwan’s unwillingness to accept Chinese rule, stepping up efforts to isolate the island from international institutions and suggesting it could be forcibly integrated. In Washington, meanwhile, the Trump administration has been working to sever China’s technology industry from the rest of the world, with a set of policies that represents an enormous challenge to Taiwan and could upend the business model that underpins its economy.

The campaign was unusually bitter even before the violence surrounding pro-democracy protests in Hong Kong escalated in the fall, riveting many Taiwanese and becoming a central election issue. The Chinese government openly reviles Tsai, who’s been targeted by online trolling and disinformation campaigns her government blames largely on Beijing. Her supporters accuse Han of harboring dangerous sympathies for China and being willing to sacrifice Taiwan’s de facto independence in exchange for economic gains. In November, Han’s campaign had to deny allegations, made by a Chinese defector to Australia who claims to be a former spy, that Han had received millions of dollars from the Communist government for a previous political campaign.

Voters now have an unusually stark choice to make—one reflecting the broader national dilemma as Chinese pressure intensifies. “I think many people in Taiwan realize the situation has changed,” says Jou Yi-cheng, a Taipei businessman and founder of a pro-independence political party. Eventually, he says, “Taiwan has to choose a side.”

Even the most passionate DPP leaders act cautiously in their dealings with China, however, and Tsai has sought to avoid outright confrontation. Beijing has nonetheless refused official communications with her government and condemned her policies, which also include diversifying Taiwan’s economic relationships and building up its military. Last January, Xi took the podium at the Great Hall of the People, in Beijing, to signal a hard line on Taiwan, declaring that “China must and will be united” and that the task “cannot be passed from generation to generation.” As to how this might occur, he said that while “Chinese will not fight Chinese,” the government would “make no promise to abandon the use of force” to stop what it deems separatism. A few months later, People’s Liberation Army fighter jets crossed the midpoint of the Taiwan Strait for the first time in years, an especially provocative move in a series of military maneuvers there. Next, China placed restrictions on tourism from the mainland, drastically curtailing an important flow of visitors.

Tsai refused to change course, writing in Foreign Policy that “the people of Taiwan have not given in to the fearmongering of authoritarian regimes and never will.” She soon made a high-profile trip to the U.S.—technically a long layover on the way to see formal allies in the Caribbean, since Washington tightly restricts official visits by Taiwanese leaders. Not long after, the Trump administration signed off on one of her main defense initiatives, an $8 billion deal for advanced F-16 jets, over furious Chinese objections.

The KMT’s relationship with China is more complex. At the core of its philosophy is an informal compromise with Beijing that it calls the 1992 Consensus, which, unhelpfully, is neither from 1992—the name first came into use much later—nor really a consensus. It stipulates that Taiwan is part of China but doesn’t specify what “China” means, allowing each side to retain its own definition. This ambiguity is critical to the internal semiotics of the KMT, which has never renounced its claim to being the legitimate government of China even as its prospects of assuming power have grown remote, to say the least.

In practice, the party long ago made peace with its erstwhile Communist enemies.

For now, Tsai’s argument that Taiwan can thrive while distancing itself from China is being borne out. During a recent visit to Taoyuan, a city that’s home to many electronics manufacturers, a pair of bright-yellow excavators chipped away at an asphalt parking lot while workers directed a cement truck between stacks of foundation piles. They were building something Taoyuan hasn’t seen many of in the past few decades: a new factory, to be operated by Quanta Computer Inc., a Taiwanese company that makes hardware for Apple Inc. and others. After decades of rapid expansion in China, Quanta is reshoring production of some servers, pricey laptops, and additional premium products.

Although Tsai has sought to develop tourism, green energy, and other less established industries, the heart of her economic strategy is persuading Taiwanese tech companies to bring back production, especially of complex items for which China’s cost advantage is less of a factor. Her administration is helping manufacturers find space and providing cheap financing for advanced production facilities, promising, for example, to cover bank fees on more than $22 billion in loans. So far the effort seems to be paying off. The government says companies with overseas operations have promised almost $24 billion in domestic investment; in one recent example, Innolux Corp., a Foxconn affiliate, announced a $2.3 billion expansion of its Taiwanese production.

Some manufacturers haven’t needed much convincing, and not just because goods made in Taiwan aren’t subject to Trump administration tariffs targeting China. On Nov. 26 the U.S. Department of Commerce unveiled proposed rules that would allow it to block the import of any technology it deems a security risk, one of several measures designed to shrink China’s role in the technology supply chain. Although the agency said it planned to evaluate products on a case-by-case basis, it’s a safe bet that goods produced on the mainland will be subject to intense scrutiny. Nor have many Taiwanese companies’ experiences in China been unequivocally positive, particularly when it comes to protecting intellectual property. At home, says Taoyuan Mayor Cheng Wen-tsan, “they don’t have to worry that their technology will be stolen or pirated.” Other reasons for China’s declining appeal are more conventional. Rising wages and real estate prices have made it a much more expensive place to operate than in the past, and foreign producers now compete for workers with a large number of innovative local companies.

Tsai’s government holds that Taiwan’s manufacturing expertise could let it become the hub of a restructured global technology industry, keeping advanced electronics flowing to the U.S. and Europe without much, if any, input from the traditional workshop to the world. “Before the trade war, the world had a centralized supply chain based in China,” says Kung Ming-hsin, a government minister responsible for future economic strategy. “But now it’s breaking up.” Taiwan, he argues, “can absorb these resources” if it moves fast. “We will only have three to four years to reshape our industries, and the outcome will decide our future for the next decade or two.”

No one would accuse Tsai of possessing excessive charisma. She’s unassuming to a degree that can seem startling in a high-level politician, with a neat bob, ovoid glasses, and a strict uniform of black or gray blazers over light blouses. She delivers speeches in a near-monotone, as though delivering a trade-law lecture. But she sparks surprising ardor in her fans, some of whom mobbed her in search of selfies as she made the rounds of the food stalls. The reaction to her address, which began shortly after darkness fell, was similarly rapturous.

“Faced with pressure, our economy has to be strong, people have to feel confident in their ability to maintain their livelihoods, and our defense and diplomatic relations have to be maintained,” she said from the podium, waving her right hand up and down for emphasis. “We don’t aim to conquer the universe. Taiwanese people just want to use their own power to protect sovereignty and safeguard democracy.” The danger to both, she argued, is evident in Hong Kong. “China is promoting a Taiwan version of the ‘one country, two systems’ policy. But now in Hong Kong, universities have become battlefields, some people have suddenly gone missing, some people have died.” She continued: “That’s ‘one country, two systems’ for you. Can you accept that? Can you accept that? We will state very clearly: We will never, ever accept that.”

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