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September 24, 2007


Michael Turton

Wow~! It looks like the writer's knowledge consists largely of Establishment shibboleths. Let's see....

It is time for Taiwan, China and America to stop kicking the can down the road a few feet each day. Let’s kick the can way down the road by agreeing to a twenty year period of guaranteed autonomy for Taiwan thereby deferring and defusing the combustible independence issue.

It would be nice, but time is not on China's side. Every year people drift further and further from any idea of "being Chinese." The Taiwan identity is now the mainstream here.

Mr. Hu was referring to Taiwanese President Chen Shui-bian's plans to conduct a referendum in March on seeking U.N. membership for Taiwan. This could trigger an emotional response but despite its fury at this latest development, Beijing is very reluctant to take military action against Taiwan for five reasons.

Nations do not have "emotional responses" -- they have policies. For Beijing, "being provoked" is a policy, just as it was for Hitler. In both cases "being provoked" enabled them to gain leverage over the foreign policies of other nations.

First, any military conflict with Taiwan would surely cancel the Beijing’s showcase 2008 Olympics. This would be a devastating setback for China’s leadership and people

Right now, yes. But after the Olympics this won't apply.

Second, Beijing’s approach of working quietly to support more friendly political factions within Taiwan seems to be working.

Actually, it has simply made them look like tools of Beijing, and alienated them from the mainstream. In fact because the pro-democracy forces can point to this cooperation between the pro-China parties and the Chinese government, it discredits the parties China supports. Bad move.

In addition, Taiwanese President Chen Shui-bian’s term will end in 2008 and Beijing is betting on a less strident and independent successor.

It's comical to think that Chen was "pragmatic" and a "moderate" 7 years ago. Same man, but suddenly he is now "strident." Actually, Chen is responding to structural shifts in the local political scene. Beijing blames Chen because focusing on Chen allows them to pretend Taiwanese nationalism -- and Taiwanese democracy -- don't exist.

Third, although China is rapidly modernizing its military forces, U.S. treaty obligations to Taiwan in the event of an invasion cannot be discounted.

The US has NO treaty obligations to Taiwan. None. It is a common error to imagine that the Taiwan Relations Act is an obligation. It contains no language that compels the US to do anything.

My view is that while calls for independence are not practical near term, the desire for a high degree of autonomy from China by Taiwanese citizens is still very strong. There may be one greater China but there are three systems – China, Hong Kong and Taiwan. A period of Taiwanese autonomy will allow its citizens to observe if China’s system evolves into a more open, transparent system with rule of law and democratic institutions. This cooling off period would help China, Taiwan and America defuse rising tensions that could lead to open conflict if conventional thinking continues to dominate the debate.

Actually, this proposal itself is "conventional thinking" first proposed as a thirty year peace by candidate James Soong in the 2000 election and later picked up by the pro-China parties. It is unworkable, because no one can trust China to obey it.


In addition, right now politics rather than economics is unfortunately the prime concern for most investors considering investing in Taiwan. For the next couple of years, both could lead to a window of opportunity for investors with nerve and foresight. The same goes for American diplomats if they shift the focus from Taiwanese independence to autonomy.

Taiwan with a population of 23 million and an area of 14,000 square miles (half the size of Ireland) is a remarkable success story. However, but Taiwanese companies will need to constantly innovate, make Taiwan a major R&D center and build strong consumer brands to avoid the it’s economy from being swallowed by the mainland.

If you can get over the political risk, Taiwan’s stock market, which is up 17% so far this year, represents good value though you should expect some volatility. Take a look at the iShares Taiwan (EWT) exchange- traded fund. It has a 23% exposure to the semiconductor industry and Taiwan Semiconductor accounts for 14% of its holdings but it includes significant exposure to technology hardware, materials and banks.

For global investors, an autonomous Taiwan could be the purest China play of all. Learn more about the best way to play Chinese economic growth by joining the Chartwell ETF Advisor.

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