President Lee's Slow Dance With Beijing

The two sides may be edging toward economic accommodation

For a moment, the bright orange pyramid was truly impressive--a stack of plastic blocks piled more than 23 meters high to celebrate the inauguration of Lee Teng-hui, Taiwan's first democratically elected President. But the pyramid accidently went up in flames as workers readied a fireworks display on the eve of Lee's May 20 inauguration, destroying the monument in a matter of minutes.

Lee must be hoping that his China policy proves more enduring. Early signs suggest that he has bought some time from Beijing. Trying to sound conciliatory without kowtowing, Lee offered for the first time to make a "journey of peace" to China and derided the notion of Taiwanese independence as "impossible." That's the sort of language Beijing hoped to hear, even though Lee's offer of a trip to China was wrapped in so many conditions that he isn't likely to go anytime soon.

LETDOWN. Missing were concessions on key issues, such as easing Taipei's ban on direct trade and transportation with China. That didn't please the business community: After Lee's speech, the Taiwan stock index plunged 4%. "Investors speculated that Lee would use the speech to communicate a conciliatory message," says research analyst Jennifer Tsai of Asia Securities in Taipei. Instead, the President said nothing about direct links and hinted that he would continue to travel abroad. Predictably, Beijing officials said that they were not impressed.

Despite the rhetoric, there are signs that economic forces will keep the two sides on a path toward eventual accommodation. The most likely outcome is a guarantee that China won't attack Taiwan in exchange for Taipei's acceptance that Beijing will someday rule the island. The day after Lee's inauguration, for example, an official from Taiwan's Mainland Affairs Council proposed that one of two top Lee advisers, Koo Chen-fu or Vincent C. Siew, make a groundbreaking trip to Beijing to reassure the Chinese leadership that Taiwan isn't after independence.

That could lead to discussions on telecom, air, and shipping ties. "The debate will get down to issues like fiber-optic links and where airlines can land," says Robert Broadfoot, managing director of Hong Kong's Political & Economic Risk Consultancy Ltd. Already, the head of China's telecom ministry has proposed setting up direct telephone service between the two sides.

Although Taiwan is holding off on establishing formal links for fear of making its economy too vulnerable to mainland pressure, it is encouraging cooperation in key industries such as aviation. On May 22-23, Taiwan hosted a 14-member delegation of prominent mainland aviation executives and scholars. In another sign that Taipei wants to increase cooperation, government-backed Taiwan Aerospace Corp. recently announced that it would like to take a 10% stake in Beijing's troubled project to build a 100-seat jet with Asian and European partners.

MARKETING PLAN. Taiwanese delegations are heading to China, too. In early June, four Taiwan government agriculture officials will make a 10-day trip to Beijing to discuss marketing mainland products. Taipei continues to approve mainland investments, which now total some $25 billion, and Chinese authorities ensured that mainland companies with Taiwan investment on the mainland weren't disrupted during military exercises earlier this year.

While economic ties deepen, little progress is likely at the political level at least until July. That's when Lee plans an unprecedented meeting of all Taiwan's political parties to hammer out a consensus on China policy. Lee must balance business' interest in expanding ties with the go-slow attitude of the independence-leaning Democratic Progressive Party, the largest opposition group. Lee is therefore reluctant to play Taiwan's trump card of direct links without assurances that Beijing won't make an early grab for the island.

If China doesn't like what it sees, the stage could be set for more military rumblings. That would most likely mean the People's Liberation Army dressing up its regular autumn military exercises in political garb. But the two sides, having edged closer to direct confrontation than either wanted earlier this year, look set to try to put politics aside and get down to the business of business.

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