CAPP Events: 2003

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Former Premier of Taiwan Discusses Taiwan's Economy and Cross-Strait Relations

On March 12, 2003, CAPP hosted a discussion chaired by Bill Overholt, CAPP's Asia Policy Chair, and attended by several RAND analysts on Taiwan’s economy and cross-strait relations with the former Premier of Taiwan, Vincent Siew, and Ambassador Steven Chi-Shean Chan, former Minister of Health and current National Policy Adviser to the President of Taiwan. Siew is currently Director of the Chung Hua Institute for Economic Research, a non-profit research foundation established to promote a cross-straits common market modeled after the European example and intended to promote economic integration to “ensure sustainable peace in the region.”

Mr. Siew explained that Taiwan’s fundamental challenge is continuing its commitment to the values of democracy and human rights while fostering economic growth. Meanwhile, China is confronting the dilemma of keeping its monopoly party in power while continuing the process of economic reform that could lead to democratization. “The more the Chinese Communist Party evolves in terms of pluralism inside and outside the party, the more the pattern, structure and operation of the mainland will look like Taiwan,” RAND analyst Charles Wolf commented.

Overholt pointed out that fears of a “hollowing out” caused by the migration of Taiwanese businesses and skilled human capital to the mainland may be erroneous. Taiwan still has an advantage over China in terms of technical superiority and resources, he said. The common lesson from past history, according to Overholt, is that “if you want a strong economy, you need to let the markets work.” Fear of Taiwan’s dependence upon China may be misplaced; Taiwan and China are mutually dependent at this point, he opined. This interdependence provides an incentive for China to avoid conflict with Taiwan, since a war could deal a catastrophic blow to China’s own economic development.

While there may be a great deal of mistrust across the straits, he said, there is room for deals to be struck based on “mutual admiration.” He added that Taiwan possesses maximum leverage right now and urged Taiwan to consider its grand strategy now about Taiwan’s long-term goals. “This is the time and the group in Beijing to cut a deal with,” he said.

Premier Siew cited new Chinese President Hu’s recent reaffirmation of the “One China” policy. “The KMT (Taiwan’s opposition party) did not rule out acceptance of this policy in the future; however, the DPP (Taiwan’s ruling party) rejects it. What is the way out?” He asked. Overholt warned that movements towards independence carry great risks for Taiwan. Although the United States has pledged to guarantee the status quo, Overholt said that “if Taiwan’s freedom, democracy, prosperity and autonomy are not threatened, a U.S. president will find it difficult to send soldiers to fight over the color of [Taiwan’s] flag.” PAF Strategy and Doctrine Program Director Ted Harshberger speculated that if China’s liberalization and democratization continue, Taiwan could make a choice to abide by the One China policy with no need for a war to maintain its political and economic structure.

Taiwan is also dealing with problems with its universal health care system, which Siew labeled politically popular but said has become “a financial burden.” Government reform is required to make it sustainable, but Taiwan is uncertain how to carry out such reform. Wolf recommended that Taiwan consider “a right-wing solution to a left-wing idea” – adding structured incentives whereby users of the system pay for its use while still providing wide, equitable access to health care.

The group also discussed implications for potential scenarios regarding U.S. conflict with Iraq for Taiwan. Overholt posited hypothetically that if the Iraq conflict becomes more complicated –- for example, if wider regional problems impose high costs and diplomatic isolation on the U.S.-- and if the United States subsequently reacts with isolationism, this would affect Taiwan. He recommended that policy analysts craft strategies for adapting to alternative scenarios and be alert and aware of these scenarios as they emerge.