Taiwan is facing huge new challenges. Tension is high in the Taiwan Strait as Beijing reacts angrily to the Taiwan President's historic visit to the U.S. On the island, Taiwanese are facing the worst economy in almost 30 years, as first-quarter growth falls to 1% and unemployment reaches record highs. While the government struggles to revise its policies limiting investment on the mainland and barring direct trade, transport, and communication links with China, legions of Taiwanese companies that make everything from computer scanners to semiconductors are ignoring Taipei and moving their factories to the mainland.
On May 17, Tsai Ying-wen, Chairperson of the Mainland Affairs Council, Taiwan's top policymaking body on China, met with a small group of reporters, including BusinessWeek Beijing Bureau Chief Dexter Roberts, in the Executive Yuan's 18-floor beige general-office building in Taipei's government district. In fluent English, the 44-year-old former Taiwan trade negotiator, who has a law degree from Cornell and a PhD from the London School of Economics, spoke for an hour on the challenges facing her government as it attempts to break the political deadlock with China and move toward establishing direct links, and decides how best to manage Taiwan's increasing economic integration with the mainland.
Q: What is the likelihood that the recent U.S. decision on arms sales to Taiwan and the Bush Administration's strong expression of support for Taiwan will complicate the cross-strait relationship and lead to worsening relations?
A: I think the Chinese are still surveying the U.S. and the way they shape their policy toward China. I don't think they have reached a conclusion yet. You have to understand they have a lot of things to deal with this year: They have APEC [the Asia-Pacific Economic Cooperation forum], they have their bid for the Olympics, and they have WTO [their entry into the World Trade Organization]. The last thing they want is to have an unstable external environment that would effect their ability to deal with these things.
And also the challenge they have to face is economic development. They can't afford to have anything happen that will slow down their economic growth. Once it slows down, there will be problems that will become very apparent and difficult for them to deal with -- like social unrest resulting from unemployment. And they also have a political-succession problem. They have a lot of things on their agenda, and they can't afford to have a major conflict with anyone.
In our case, they have been saying that they want to listen to what we say and observe what we do. This is a wait-and-see policy toward Taiwan. After all, this a new administration [in Taiwan], and the ruling party is someone they don't know, and for the past 50 years, this place was run by a regime they were more familiar with -- this is an entirely new regime that they have to deal with.
Q: What about the regular visits by opposition politicians to the mainland. Are they helpful to your administration?
A: I think they help to a certain extent, but we don't assume that [opposition politicians] have the same agenda as the government does, despite the fact we are in the same boat. But they have been very careful in keeping distance from Beijing's position.
I think to a certain extent they might have criticized the [Chen Shui-bian] government's policy, and that probably makes the Beijing government happy. But to the extent that they tell the Beijing administration the general expectations of the people here, we think that this is helpful.
Q: What is the status of the Chen administration's long-delayed push for direct links in trade, transport, and communications?
A: This is a very complex issue. We have never had direct links with them. It's not only been for 50 years -- before that, there were no links at all in terms of air links. So we need experience. And the administrators in different government agencies need to get a feel as to what they need to do and how they should deal with particular issues.
Most people [in Taiwan] prefer that we have the three links. But it's not unconditional. They want us to make sure that our national security is O.K. and that our economy will not be adversely effected. We are thinking of scaling up the operations by lifting some of the restrictions, including allowing transhipment from the main island here to the mainland through Jinmen.
We are making plans. The essential thing is we need to have full-scale negotiations with [Beijing] because so many of the issues involved fall within government functions. So we can't let private companies negotiate between themselves as suggested by the other side.
Q: Has the slowdown in the economy here made your government think twice about lifting the restrictions on Taiwanese companies investing on the mainland?
A: Initially, of course, we were moving faster. I am not saying we are slowing down the process. It's a matter of making a more careful assessment of the possible economic impact. The fear is that we are encountering an economic slowdown and having unemployment problems. And business confidence tends to be insufficient. Also, we are facing structural changes now.
The important thing is for us to build new industries to replace those industries that are no longer competitive and want to move to China. But while we are undergoing this change, we need to time the government's policy change so that people will not be moving out too early. But we have to equally make sure that they will not be unduly delaying their going over there. We understand that our industries need to expand their operations, but we want to make sure that they go there at the right time.
We are still considering the best time to release the package [revising the investment restrictions]. But it is not ready yet. We are going through the technical details of that at the moment. And I was specifically instructed not to give any timetable.
Q: Are you confident that Taiwanese companies are actually following your government's investment guidelines?
A: The smaller ones probably don't care that much because we can't really enforce the law to the fullest extent when dealing with the mainland. But at the next stage, most of the companies going to China are publicly listed and are doing serious business. They are very mindful of the law and are careful. If they break the law, still they wouldn't do it on a large scale.
Q: Are you worried about the recent detentions on the mainland of overseas Chinese, particularly those with Taiwan connections?
A: This is one of the many concerns we have. But what concerns us more is the way [officials on the mainland] treat our investors. There are stories about how they disrupt the operations of Taiwanese investors for political reasons. And there are stories about businesspeople who were supportive of the current administration who have encountered tax problems.
And this is the way they deal with tax problems: They put you in a five-star hotel and don't tell you what they are going to do with you and grill you. They never tell you when you are going to be released. It's a terrifying experience. There is just no protection of basic rights.
That is really their tool in terms of causing problems and difficulties for businesspeople there. The [mainland officials] make distinctions and discriminate against businesspeople for political reasons, and that is something we are not happy with. If they want to encourage the flow of money and capital, and technology and management skills from Taiwan to China, they have to reassure our businesspeople that they will be able to protect them properly. If they continue to harass our businesspeople, our room for adjustment of the "go slow, be patient" policy will be limited.
Q: How do you expect entry to the World Trade Organization to affect relations between the two sides?
A: WTO will provide a good opportunity for us to sit down and talk about WTO-related issues. And if both sides have the will, we can probably expand discussions to cover other areas. So we think that it is going to be a very important opportunity and may serve as a bridge between the two sides. Perhaps it could provide a venue for us to sit down and have talks. Subject to one condition though: that both sides have the will. What I can say is that we do have that will.