Commentary: Taiwan: Open The Trading Door To China, Now

For the 44,000 residents of the parched island of Kinmen, also known as Quemoy, brown tap water dirtied by silt is an unhappy fact of life. The tiny Taiwanese-controlled outpost, just 2.3 kilometers from the Chinese coast, is famous as the target of shelling for decades after the Communist takeover of the mainland in 1949. Without access to the lakes and rivers of China's Fujian province, Kinmen's citizens rely on tankers to ship in water from Taiwan, over 200 kilometers away.

If Hsu Shiang-kueen has his way, that won't be necessary much longer. Hsu, director of water resources at Taiwan's Economics Ministry, is supporting a plan drafted by the governments of Kinmen and Fujian to pipe in drinking water from China. As relations improve, the idea is not as farfetched as it might seem. "We are very interested in this plan," Hsu says.

The fact that some Taiwan officials are studying such a proposal shows how far they have come since the tensions of last March. But there's a big hitch: China and Taiwan must first agree to direct trade before the water could start flowing to Kinmen. Because of Taipei's longtime ban on direct business with the mainland, trade and investment are carried out indirectly, mostly through Hong Kong. But since the British colony reverts to Chinese rule next year, Taipei officials are under pressure from the business community to revise their laws. At the same time, politicians from both the ruling and opposition parties fear that to open up direct trade is to fall into a trap set by Beijing to ensnare Taiwan.

DEATH GRIP. Taiwan's President Lee Teng-hui should simply accept the inevitable and launch a new era of direct trade with China. Taiwanese need to start building confidence that they can trade directly with China without being swallowed by it. The best insurance against the economic death grip that Taipei fears from Beijing is an internationalized economy with strong ties to world financial markets. With so many Taiwanese industries relocated in China, Taiwan's capital, technology, and managerial talent make a perfect match for China's huge market and inexpensive land and labor. Taking greater advantage of those ties would help make Taiwan more of a global economic force.

Taiwan can't afford to delay. Its companies have committed some $25 billion to indirect investments in China, and larger investments are pouring in steadily. These ties will continue with or without direct links. Meanwhile, direct trade would help Taiwan generate the economic strength it needs to resist Beijing. Taiwan's companies would gain from closer ties with China. Moreover, direct trade and air flights would become the key selling point for Taiwan's plan to become a regional hub for multinational businesses. That would hasten Taiwan's internationalization. If Taiwan waits too long or tries to go its own way, it risks being marginalized. "An independent Taiwan may be faced with a Cuba-like economic isolation," says Peter Kurz, Taiwan branch manager of ING Baring Securities Ltd.

Before it allows direct trade, Taipei wants a guarantee that the island's sovereignty and way of life will be protected. Without it, Taiwan's leaders fear Beijing would use economic ties to pressure them to accept its idea of "one China." Local governments in Fujian, for instance, may be keen for closer economic ties with Taiwan, but Beijing sees direct links more as a political club to promote unification on its terms.

ECONOMIC ZONES. Aware of Beijing's motives, Taiwan's government has been buying time, floating creative measures to get around its own ban. Beijing has already vetoed an idea to make Taiwan's ports into "offshore" transshipment centers allowing foreign-flag vessels to ship goods directly between Taiwan and China. That hasn't stopped Taipei policymakers from discussing a similar proposal to create special economic zones in Taiwan that could trade directly with China. After next July 1, Taipei will continue to treat Hong Kong as if it weren't part of China. Given Taiwan's willingness to consider quasi-direct trade, the government should be willing to realize that it can do business with the mainland without sacrificing its de facto independence.

Taipei and Beijing are taking some steps toward improved ties. Officials are approving larger investments by Taiwanese companies in China and have even allowed Taiwan's state-owned oil company to explore for oil and gas with Beijing's state oil company. In July, Chinese shipping, telecommunications, and securities delegations held unofficial talks with Taiwan counterparts about economic cooperation. But at that pace, the people of Kinmen will have to wait far too long before they can get a clean glass of water.

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