Taiwan's quest for diplomatic recognition and regional
economic integration has given relations with Southeast Asia
special importance. It might turn out, however, that Taiwan's
strongest card is still the riches of its investors.
In late August last year, Taiwan's outspoken vice president, Lu Hsiu-lien (Annette), paid a visit to Indonesia. In a flourish of rhetoric, Lu described her mission as "a diplomatic battle without the sound of gunfire," and claimed that her trip was a diplomatic victory for Taipei and a setback for the People's Republic of China (PRC). Unfortunately, although the vice president did meet with Indonesian officials, pressure from Beijing meant that she was unable to meet with the Indonesian president, Megawati Sukarnoputri. Lu was also stranded on the holiday island of Bali for a couple of days before leaving for Jakarta while the Indonesian authorities decided how to proceed.
Predictably, Beijing, which maintains that Taiwan is a province of China and refuses to forswear the use of force to bring about reunification, was miffed at this turn of events. As soon as Beijing got wind of Lu's travel plans, a senior Chinese leader apparently got on the phone to President Megawati and threatened to sever diplomatic relations with Indonesia if the proposed meeting took place. At the same time, the PRC made it clear to other countries in Southeast Asia that there would be consequences if they allowed visits by senior Taiwanese leaders to take place. This prompted the undersecretary at the Philippine Ministry of Foreign Affairs, Lauro Baja, to disclose that while Lu was stranded in Bali she had applied to travel to the Philippines, but had not been given permission to land.
Of course, this type of struggle for influence in Southeast Asia between Taipei and Beijing has been going on since the conclusion of the Chinese civil war in 1949. Interestingly, however, it was not always so difficult for Taiwanese politicians to pay friendly visits--known in diplomatic parlance as "holiday" or "golf" diplomacy--to the nations of Southeast Asia. One of the best examples of this was the 1994 meeting between former Republic of China President Lee Teng-hui and his then Philippine counterpart, Fidel Ramos. This took place while President Lee was on a transit stop in Subic Bay on his way to Indonesia for an unofficial visit. What, if anything, does the differing treatment handed out to former President Lee and current Vice President Lu mean? Is it indicative of a downturn in Taiwan's relations with its neighbors in Southeast Asia? And if so, what can the island's diplomats and politicians do to reverse this slide?
However you look at it, relations between Taiwan, the PRC, and the nations of Southeast Asia have always been complex. Ties are underpinned by a long and well-established pattern of historical, economic, and social interaction between the Chinese peoples and the nations of Southeast Asia. Largely because of this, there are significant Chinese populations located across the region, mainly in the major cities and urban areas.
Politically, relations are a little more complicated, reflecting the changing diplomatic fortunes of the Beijing and Taipei over the past fifty years. Up until the 1970s, the nations of Southeast Asia recognized the Kuomintang (KMT) government of the Republic of China as the legitimate government of all China. At the same time, many Southeast Asian nations viewed the Chinese government in Beijing with suspicion, largely because it gave moral, and in some cases material, support to many of the communist insurgency movements that sprang up across the region from the 1950s onwards.
Starting in the 1970s, however, perceptions of the PRC began to change. Most importantly, the nations of Southeast Asia followed the United States by recognizing the communist government in Beijing as the legitimate government of China and committing themselves to the one-China policy--the detente between Washington and Beijing was the result of a shared desire to contain the threat posed by the Soviet Union; a concern that was, incidentally, shared by most nations in Southeast Asia, excluding the communist governments of Laos and Vietnam. Just as importantly, Beijing's support for the communist insurgency movements of the region began to wane. This, understandably, made it easier for the PRC's neighbors to open discussions on resuming normal, diplomatic relations. The 1979 decision by Beijing to open up the economy, and China's subsequent, rapid economic growth, in the meantime, paved the way for closer economic ties.
Concerns nevertheless remained. Crucially, following the end of the Cold War and the consequent drawdown in the permanent US military presence in Southeast Asia, some began to speculate that the PRC would seek dominance in the region. The steady increase in the PRC's defense budget through the 1990s, and indications that Beijing was seeking to extend its influence over the Spratly Islands in the South China Sea, provided substance to these fears. (The PRC, along with Taiwan and Vietnam, claims sovereignty over all of the Spratly Islands, while Brunei, Malaysia, and the Philippines claim sovereignty over some of them.)
The nations of Southeast Asia responded by attempting to engage the PRC both bilaterally and through regional organizations, such as the Association of Southeast Asian Nations (ASEAN), in the hope that this would moderate Beijing's behavior. ASEAN members include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. Likewise, keen not to upset the dragon on their doorstep, and bound by the doctrine of nonintervention in other countries' internal affairs, the nations of Southeast Asia rebuffed Taiwanese efforts to associate itself with the organization.
Since the severing of diplomatic ties, Taiwan has worked hard to maintain its longstanding links with the region. The island has representative offices in Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. However, because of pressure from the PRC, Taiwan does not have any official links with ASEAN. Nor, for the same reason, does it have links with the ASEAN Regional Forum (ARF), which brings together the ten ASEAN members and other dialogue partners, including the United States, China, Japan, South Korea, India, and the European Union, to look at security issues in the region.
The mainstays of the contemporary relationship between Taiwan and the nations of Southeast Asia are: the presence of strong and often sympathetic overseas Chinese communities across the region; the presence of large numbers of Southeast Asian workers in Taiwan; mutual fears about the growth in the PRC's political clout and military power; and increasingly complementary economic ties. Additionally, the fact that Taiwan is a fully functioning democracy has also played well, particularly in countries such as the Philippines.
Of these, the economic dimension has been particularly important. Consider the facts. Between 1990 and 2000 exports to ASEAN have remained constant at about 10 percent of the total. On closer inspection, however, exports to the United States grew by 22 percent between 1999 and 2000, while exports to Hong Kong increased by 23 percent. Over the same period, exports to ASEAN increased by 28.8 percent. On the other hand, between 1990 and 2000, imports from the ASEAN region increased from 7.6 percent of the total to 14.4 percent of the total. Furthermore, between 1999 and 2000, imports from ASEAN nations increased by a whopping 40 percent. By way of a comparison, imports from the United States grew by 26.5 percent, while imports from Europe grew by 8.1 percent.
Taiwan has also been a major investor in Southeast Asia. According to the United Nations World Investment Report 2000, Taiwan was the sixteenth largest foreign investor in the world. Southeast Asia has been a major recipient of Taiwanese investment, with the lion's share going to the city-state of Singapore. However, Taiwanese companies have also made major investments in the banking and finance, services, electronic and electrical appliances, wholesale and retail marketing, and transportation sectors across the region. In an effort to enhance economic ties and substantive mutual interests with the region, Taiwan has also signed agreements on the protection of mutual investment, the avoidance of double taxation, customs cooperation, agricultural cooperation, technical cooperation, and aviation rights.
The government played a significant role in the investment choices of Taiwanese companies. In the years immediately after 1949, the government prevented Taiwanese companies from investing abroad, focusing instead on gaining access to and using to its advantage foreign technology and capital. Later, once the economy was more developed, the government agreed to allow the island's companies to begin to invest overseas. This process was helped by a significant appreciation in the New Taiwan Dollar, which caused the island's labor-intensive industries to lose their competitive edge. Fearful that many of these companies were choosing to invest in China and worried about the strategic implications of the island's growing dependence on the PRC, the government came up with its "go south" policy. The main objective of this initiative was to encourage Taiwanese companies to invest in the emerging nations of Southeast Asia rather than the mainland.
Still, Taiwan's economic links with Southeast Asia are not as strong as they might be. Between 1981 and 2001, bilateral trade across the Taiwan Strait increased three-fold from US$10 billion to $30 billion. In late 2001, the PRC emerged as Taiwan's largest export market, displacing the United States. Some have speculated that trade with the mainland now accounts for about one third of Taiwan's total trade. Despite the existence of the "go south" policy, Taiwan's investments in Southeast Asia have barely increased, with the limited exception of Singapore. Rather, and despite the urgings of the government, it is an indisputable fact that more and more Taiwanese investment is pouring into the booming Chinese economy. According to the latest figures, by 2000, 45 percent of all the personal computers made by Taiwanese companies were produced on the mainland. Likewise, largely due to the relocation of Taiwanese firms to the mainland, in 2000 China displaced Taiwan to become the world's third largest producer of information-technology hardware after the United States and Japan.
Taiwan is not the only country having to come to terms with China's emergence as a major economic force--the nations of Southeast Asia are doing so as well, although for them the problem is somewhat different. To cut a long story short, Chinese companies are increasingly competing with their Southeast Asian counterparts for a share of global export markets. In many cases, they are winning. This is because more often than not Chinese companies can produce the same goods at lower prices. Jobs are being lost as a result--the Malaysian island of Penang lost an estimated 16,000 jobs to the PRC in 2001. The PRC is also drawing foreign direct investment away from the region. Singapore's senior minister and elder statesman Lee Kuan-yew summed up the situation eloquently recently when he observed that: "you look at the economic scales--it's going to be an elephant on one side and a mouse on the other."
Evidently, the rise to economic preeminence of the PRC is starting to complicate the island's efforts to build better relations with its friends and neighbors in Southeast Asia. Crucially, Beijing is arguably seeking to turn the growing sense of unease across the region to its advantage. The traditionally heavy-handed and condescending approach adopted by PRC diplomatic forums and public meetings has been discarded. Instead, it is now going out of its way to assure its Southeast Asian counterparts that the PRC has no expansionist aims in the region; and that the PRC's growth can be an opportunity rather than a threat to its neighbors.
The spin is working. Take the example of the recently concluded ASEAN+3 Summit in Phnom Penh, Cambodia, which brought together the leaders of the ten ASEAN nations and the leaders of China, Japan, and South Korea. Here, Beijing and ASEAN signed a commitment to forge a massive free-trade area, with China at its core; many analysts saw the conclusion of the agreement as an offer from Beijing to its neighbors for them to share in its growth. Taiwan has been left out of this arrangement. The PRC also reached a deal with the ASEAN nations to prevent clashes occurring over the Spratly Islands, which should go some way to calming regional fears about the PRC's expansionist plans. More broadly, cooperation between Beijing and Washington on the war against terror, North Korea, and most recently on the United Nations' resolution to return weapons inspectors to Iraq has helped to calm the region's nerves about the PRC's intentions.
The question for Taiwan now is how to respond to the growing economic and institutional links between the PRC and the nations of Southeast Asia. Traditionally, Taiwan's headline diplomatic objective in the region has been to build on its existing bilateral links, with a view to eventually becoming an ASEAN dialogue partner and a member of the ARF. Taipei always realized this goal was going to be difficult, and under current circumstances, it looks likely to be even harder. Some revision in approach, which takes into account the increasingly important role played by the PRC's economy in the region and the diplomatic benefits that Beijing is beginning to derive from this, is therefore needed.
Fortunately, some repositioning is already beginning to take place. Following the ASEAN+3 Summit, Taiwan's Minister of Foreign Affairs, Eugene Chien, announced that Taiwan intended to focus its attention on signing individual free-trade agreements with ASEAN member states, rather than on signing a lump-sum pact with all ten members. If successful, this should go some (although not all) of the way to addressing Taiwan's exclusion from the new ASEAN-China free-trade zone. Taiwanese diplomats have also been told to adopt a more offensive strategy in their dealings with their Southeast Asian neighbors. The island's representative offices across the region, moreover, have been ordered to enhance exchanges and to increase the number of bilateral visits of political figures.
However, in order to get the most out of this new offensive approach, the island's diplomats must use these contacts to get some new and improved messages across. Telling their counterparts that Taiwan has a "go south" policy may no longer be enough. Instead, the focus needs to be on the fact that Taiwan is still an important trading partner, export market, and in certain cases a source of investment. This is exactly what Lu did when she dangled the prospect of Taiwan buying US$10 billion in gas from Indonesia over the next ten years. Likewise, the government may also find it worthwhile reminding Taiwanese businessmen that, while China has many advantages, the nations of Southeast Asia are increasingly economically developed and are developing useful expertise in niche areas such as biotechnology and information and communications technology.
Whatever the diplomatic climate Taiwan has a good story to tell--and provided it does so effectively, the island should be able to hold its own on the diplomatic battlefield.
Damon Bristow is an associate fellow at the Royal United Services Institute for Defence Studies in Whitehall, London.
Copyright (c) 2003 by Damon Bristow.