PART I
CONTEXTS
1
CHAPTER 1
INTRODUCTION
We should make efforts to develop cross-Strait relations. The emphasis should be
placed on economic and other exchanges in order to “yi shang wei zheng” [exploit
business to press politics] and “yi min bi guan” [utilize the public to urge the official].
We should lead cross-Strait exchange in the direction to facilitate unification of the
motherland and the four modernizations.
- Yang Shangkun, Chinese President, December 19901
[Mainland China intentionally adopts] the statecraft of “yi shang wei zheng” and
“yi min bi guan” to press our government by intensifying anxiety in our society.
Regarding this situation, we must follow the major principle of “jie ji yong ren” [no
haste, be patient] to tackle current cross-Strait relations.
- Lee Teng-hui, Taiwanese President, September 19962
I. Research Questions and Significance
Cross-Strait economic exchange provides enormous business opportunities for
Taiwan’s enterprises, particularly in the era of globalization. Nevertheless, facing its
giant political rival who refuses to renunciate the use of force against Taiwan,
Taiwan’s leaders and public have strong concerns about the vulnerability of
over-dependence on China’s market and production factories invested in by Taiwanese.
1
2
Yang Shangkun, in Mainland Affairs Council (Taiwan) (ed.), Dalu Gongzuo Cankao Ziliao [The
Reference Document of Mainland Work], vol. 2 (Taipei: Mainland Affairs Council, 1998), p. 56.
Lee Teng-hui, in Mainland Affairs Council (Taiwan) (ed.), Dalu Gongzuo Cankao Ziliao [The
Reference Document of Mainland Work], vol. 1 (Taipei: Mainland Affairs Council, 1998), p. 568.
2
However, most politicians in Taiwan elaborate this issue without much understanding
of complex cross-Strait economic exchange in the era of globalization, while
Taiwanese economists base their perspectives on a simple fear of the China threat and
an over-dependence on China. Both groups share the conclusion that Taiwan should
greatly limit cross-Strait economic exchange.
Nevertheless, a senior government official in charge of Taiwan’s China policy
frankly told me, “We do not know whether cross-Strait economic exchange will
minimize the possibility of conflicts between Taiwan and China or aggravate Taiwan’s
national security.” In fact, he posed five paradoxes of cross-Strait economic exchange
before beginning our formal interview. 3 This generally reflects the mentality of
Taiwan’s decision-makers and public. Since the uncertainty of the effect of cross-Strait
economic exchange is too high, Taiwan is better off adopting a conservative policy to
limit the exchange, like the “jie ji yong ren” [no haste, be patient] policy.4
However, in the late 1990s, the Taiwanese government realized its inability to
control the exchange driven by overwhelming business interests across the Taiwan
Strait. In 2000-01, the Chen Shui-bian government began to adjust its policy by
adopting the “jiji kaifang youxiao guanli” [active opening, effective management]
policy 5 , which replaced the “jie ji yong ren” policy. Yet, can the Taiwanese
government alleviate its national security concerns through effective management of
the cross-Strait economic exchange? With this new policy, Taiwan will not reduce but
3
4
5
A senior official in charge of Taiwan’s China policy, interview with author, May 22, 2001.
The jie ji yong ren principle was initiated by President Lee Teng-hui on September 14, 1996. In May
1997, Taiwan government issued new regulations to ban Taiwan companies from investing more
than $50 million per project and from engaging in infrastructure and high-tech projects. These
regulations embody the jie ji yong ren principle. See Ministry of Economic Affairs, “The Principles
for Reviewing the Investment or Technical Cooperation Projects in the Mainland Area,”
http://www.idic.gov.tw/html/c3307.html, accessed November 30, 2000.
The active opening and effective management measures were consensuses formed in Taiwan’s
Economic Development Advisory Conference in August 2001. Taipei has moved expeditiously and
unilaterally to remove some of the barriers that have impeded the expansion of cross-Strait trade and
investment.
3
accelerate its dependence on China. Then, will Taiwan in turn become more
vulnerable to China’s economic leverage? My goal here is to evaluate the risk of
cross-Strait economic exchange on Taiwan’s national security in terms of economic
leverage and vulnerability, and hopefully to answer the questions just posed.
Economic relations between Taiwan (Republic of China) and China (People’s
Republic of China)6 have developed very rapidly in the 1990s due to strong business
motivation in both societies. According to Taiwan’s official statistics (which tend to
underestimate Taiwan’s investment in China), by the end of 2000 China had become
the largest recipient of Taiwan’s outward foreign direct investment (FDI) with the
accumulated total reaching $17.1 billion, 38.8 percent of Taiwan’s total FDI.
According to an estimate by Taiwan’s Mainland Affairs Council (MAC), in 2000
two-way trade across the Taiwan Strait totaled $31.2 billion (which is also an
underestimate because it excludes smuggling and other unacknowledged trade flow),
with Taiwan enjoying an $18.8 billion trade surplus -- making China Taiwan’s third
largest trading partner. If trade between Taiwan and Hong Kong was added to China’s
share, China would become Taiwan’s largest export market.
Taiwan’s government feels ill at ease having such a close economic relationship
with its powerful political rival, in part because it fears the flood of investment and
trade will make Taiwan economically dependent on China, undermining its de facto
political independence. In fact, Taiwan’s fear has been triggered and reinforced by the
fact that Beijing explicitly considers cross-Strait economic relations an important
source of political leverage against Taiwan, as the quote from Yang Shangkun at the
beginning of this chapter suggests.
In May 1979, China promulgated the “Temporary Regulations Regarding
6
I will use the terms Republic of China, Taiwan, and Taipei interchangeably. In addition, I will use the
terms People’s Republic of China (PRC), China, the Mainland, and Beijing interchangeably.
4
Opening Trade with Taiwan.” The first article of the regulation states: “Trade with
Taiwan is a special form of trade in the transitional period before Taiwan returns to the
motherland, to promote the economic linkage between the Mainland and Taiwan, to
obtain the support of Taiwan’s entrepreneurs, and to create conditions for unification
of the motherland.” A 1990 Chinese internal document points out, “[E]xpanding
cross-Strait economic exchange will create four effects: first, it will break through the
three noes policy 7 of the Taiwan authorities; second, it will contain Taiwan’s
separatist trend; third, it will advance the four modernizations8; and fourth, it will
break through Western sanctions.” The document also emphasizes that “interest
groups involved closely with the Mainland will emerge in Taiwan’s politics in the
future and facilitate peaceful unification.”9
In December 1990, during the National Conference on Taiwan Work, Chinese
President Yang Shangkun pointed out, “We should make efforts to develop cross-Strait
relations. The point should be put on economic and other exchanges in order to “yi
shang wei zheng” [exploit business to press politics] and “yi min bi guan” [utilize the
public to urge the official]. We should lead cross-Strait exchange in the direction to
facilitate unification of the motherland and the four modernizations.” During a 1992
conference, Yang repeated that China should “develop [cross-Strait] economic
relations to influence politics and exploit the public to urge the official.” He also asked
the cadres to understand economic work on Taiwan through the strategic significance
of peaceful unification with China.10
7
The three noes policy refers to no contact, no negotiation, and no compromise between Taiwan and
China.
8
The four modernizations refer to the modernizations of agriculture, industry, science and technology,
and national defense.
9
Charng Kao, Dalu Jinggai yu Liangan Jingmao Guanxi [Mainland Economic Reforms and
Cross-Strait Economic Relations] (Taipei: Wu-Nan, 1994), p. 115.
10
Yang Shangkun, in Mainland Affairs Council (Taiwan) (ed.), Dalu Gongzuo Cankao Ziliao [The
Reference Document of Mainland Work], vol. 2 (Taipei: Mainland Affairs Council, 1998), pp. 56,
58.
5
In July 1993, during the Eighth Conference of Chinese Ambassadors and
Consular Officials, Chinese President Jiang Zemin asserted: “The most important
approach to realize the unification of the motherland is to expand cross-Strait
exchanges, particularly by reinforcing economic linkages. We have to do more work
on Taiwan’s large enterprises and attract more of Taiwan’s capital to the Mainland,
especially large-scale Taiwan capital. Therefore, the Mainland and Taiwan economies
will integrate with each other, that is, exploit economics to drag Taiwan and promote
unification.”11
Thus, it is true that China’s economic policy toward Taiwan explicitly contains
political goals. In addition to advancing its economic development, China wants to
exploit economics as an instrument to promote peaceful unification and deter Taiwan
independence. Taiwan’s leaders further confirm PRC intentions by the fact that China
provided preferential treatment toward Taiwan investment and tolerated a huge trade
deficit with Taiwan -- around $19 billion in 2000. Concisely, Taiwan describes China’s
strategy of cross-Strait economic exchange as “yi shang wei zheng” and “yi min bi
guan.”12
Essentially, there are two instruments of economic leverage for one actor to use
economic factors/capabilities as a means to achieve policy objective(s): disruption and
provision of economic benefits from trade and financial ties. 13 With respect to
cross-Strait economic relations, China's economic leverage could come from two
11
12
13
Kong-Lien Kao, Liangan Jingmao Xiankuang yu Zhanwang [The Current Situation and Prospect of
Cross-Strait Economic Relations] (Taipei: Mainland Affairs Council, 1994), p. 8.
Yu-Shan Wu, “Mainland China’s Economic Policy Toward Taiwan: Economic Needs or Unification
Scheme?,” Issues & Studies, vol. 30, no. 9 (September 1994), pp. 29-49. Kong-Lien Kao, Liangan
Jingmao Xiankuang yu Zhanwang [The Current Situation and Prospect of Cross-Strait Economic
Relations] (Taipei: Mainland Affairs Council, 1994), p. 8. Charng Kao, Dalu Jinggai yu Liangan
Jingmao Guanxi [Mainland Economic Reforms and Cross-Strait Economic Relations] (Taipei:
Wu-Nan, 1994), pp. 130-131.
Klaus Knorr, “International Economic Leverage and Its Uses,” in Klaus Knorr and Frank Trager
(eds.), Economic Issues and National Security (Lawrence, Kans.: University Press of Kansas, 1977),
pp. 99-101.
6
sources: (1) asymmetric economic interdependence across the Strait; and (2) China's
ability to provide economic benefits (opportunities) to Taiwan's government, groups,
and individuals. Asymmetric interdependence would give China leverage by imposing
economic sanctions (disrupting economic exchange) against Taiwan while providing
economic inducements to Taiwan would also give Beijing some degree of influence
over policy makers in Taipei.
Chinese leaders believe that closer economic relations across the Taiwan Strait
(with Taiwan more dependent on China) will provide Beijing leverage to influence
Taipei’s policy in the future. Therefore, Beijing provides preferential treatment for
Taiwan businesspeople as compared to domestic investors to invest in China and
opens its market unilaterally for Taiwan enterprises. Indeed, Beijing’s goal has been
dramatically successful in the sense that China has become the largest recipient of
Taiwan’s accumulative outward investment and Taiwan’s third largest trading partner.
Taiwan businesspeople have lobbied their government hard in Taipei to adopt a more
open cross-Strait economic policy. Many well-known entrepreneurs have pressured
Taiwan government to give up the “jie ji yong ren” policy and open the “three links”
(direct trade, postal, and transportation links between Taiwan and China), including
Wang Yung-ching, Kao Ching-yuan, Wu Si-chung, Chang Yung-fa, Shi Wen-long,
Stan Shi, and Morris Chang.14 According to an investigation report by Taiwan’s
Economic Ministry in mid-1998, more than 70 percent of enterprises with investment
in China and more than 50 percent of all enterprises on the island hope that the Taiwan
government relaxes the limitation on investment in China.15
14
15
Wang Yung-ching is chairman of Formosa Plastics Group, Kao Ching-yuan chairman of President
Enterprises Group, Wu Si-chung (Richard Wu) chairman of KingTel Company, Stan Shih chairman
of Acer Group, and Chang Yung-fa chairman of Evergreen Group, Shi Wen-long chairman of the Chi
Mei Group, Morris Chang chairman of Taiwan Semiconductor Manufacturing Company.
Ralph N. Clough, Cooperation or Conflict in the Taiwan Strait ? (Lanham, Maryland: Rowman &
Littlefield Publishers, Inc., 1999), pp. 93-95. Mei-yung Shang, “More Than 50 percent of
Enterprises Call for the Relaxation of the ‘No Haste, Be Patient’ Policy,” Gongshang Shibao
[Commerce Times], September 7, 1998. Huei-ying Wang and Ling-fei Lin, “High-tech Industry: No
7
However, China’s policy is not a strategy of economic inducement toward
Taiwan, although closer cross-Strait economic exchange might provide Beijing
potential leverage by imposing economic sanctions against Taipei in the future. There
is no linkage between China’s preferential treatment for Taiwan’s business and
China’s political demand. China has never articulated that if Taiwan would not make
political concessions (such as a more open cross-Strait economic policy or even
adopting the one China principle) then China would cancel or suspend the economic
benefits to Taiwan enterprises. It is not Beijing’s strategy but market forces that
pressure Taipei to adopt a more open cross-Strait economic policy.
By contrast, Taipei tries to exploit cross-Strait economic relations as economic
inducement for political purposes against Beijing, in part because Taiwan perceives
potential risks of economic over-dependence on China. Basically, Taipei hopes to gain
security assurances from Beijing in exchange for relaxing restrictions on cross-Strait
economic exchange (providing economic benefits to China). According to the
National Unification Guidelines, the Lee Teng-hui government maintained three
conditions for Taiwan to open the “three links” with China. These conditions are:
China must not deny Taiwan as an equal political entity, not contain Taiwan’s
international space, and renounce the use of force against Taiwan. 16 Nevertheless,
Taipei failed to persuade Beijing to make significant concessions as we see with Chen
Shui-bian’s adoption of the “mini three links”17 on January 1, 2001 and the “jiji
16
17
Restriction on Investment in China,” Gongshang Shibao [Commerce Times], October 7, 2000.
Xiou-mei Xu, “No Change in Cross-Strait Policy, the Industry Strongly Criticize the New
Government,” Gongshang Shibao [Commerce Times], October 13, 2000. Shao-qiang Yang,
“Leaders in the High-Tech Industry Call for Opening Investment in China,” Zhongguo Shibao
[China Times], November 29, 2000. Man-wei Ren, “Shi Wen-long Calls for Opening Three Links As
Soon As Possible,” Gongshang Shibao [Commerce Times], January 3, 2001.
“Guidelines for National Unification,” in Mainland Affairs Council (ROC) (ed.), Consensus Formed
at the National Development Conference on Cross-Strait Relations (Taipei: Mainland Affairs
Council, 1997), pp. 19-20.
The “mini three links” legalize trade and travel between Taiwan’s offshore islands, Quemoy and
Matzu, and adjacent ports in China. On January 2, 2001, ferries from Quemoy and Matzu made
round trips to Xiamen and Fuzhou – the first legal transits since 1949.
8
kaifang, youxiao guanli” policy, which replaced the “jie ji yong ren” policy, in
late-2001.
However, Taipei’s primary concern is that Beijing will exploit its economic
leverage through imposing economic sanctions to achieve political goals if
asymmetric interdependence emerges between Taiwan and China.18 Taipei worries
that Beijing will “use economic interaction to force political concessions.”19 The
traditional wisdom of economic statecraft holds that economic dependence may
increase the chance of economic sanctions from hostile nations and thus endanger
national security. Klaus Knorr asserts, “Power arises from an asymmetrical
interdependence.”20 Taipei worries that Beijing would use this power of economic
leverage against Taipei – indeed Beijing sought to do so in mid-2000, as well as on
other occasions to be discussed later.
In order to avoid potentially risky dependence on China, Taipei is reluctant to
adopt a cooperative cross-Strait economic policy despite pressure from Taiwan’s own
business leaders. Under the leadership of President Lee Teng-hui, the Taiwanese
government attempted to slow down cross-Strait economic exchange by refusing to
open the “three links” with China and by following the “jie ji yong ren” policy aimed
at limiting the scope of Taiwan FDI in China. Moreover, Taiwan sought to diversify its
economic relations from China to Southeast Asia (the so-called “go south” policy) yet
with only limited success, particularly in the wake of the 1997-99 Asian financial
crisis.
18
19
20
Heather Smith and Stuart Harris, “Economic Relations Across the Taiwan Strait: Interdependence or
Dependence?,” Greg Austin (ed.), Missile Diplomacy and Taiwan’s Future: Innovations in Politics
and Military Power (Canberra, Australia: Strategic and Defense Studies Centre, 1997), pp. 171-211.
Tse-Kang Leng, “A Political Analysis of Taiwan’s Economic Dependence on Mainland China,”
Issues & Studies, vol. 34, no. 8, August 1998, pp. 132-154.
Lien Chan, “Government Work Report to the Legislative Yuan” (September 6, 1996).
Klaus Knorr, “International Economic Leverage and Its Uses,” in Klaus Knorr and Frank Trager
(eds.), Economic Issues and National Security (Lawrence, Kans.: University Press of Kansas, 1977),
p. 102.
9
Despite its efforts, Taipei has been unable to slow the pace of cross-Strait
economic exchange even as Beijing’s policy has grown more antagonistic as of 2000.
The expanding economic links between Taiwan and China over the last decade have
been driven by the tremendous commercial interests of the Taiwan businesspeople.
Even as Asian investment in China slowed down during the deepening regional
economic crisis in late 1990s, Taiwan’s investment in China has maintained
momentum.21 Therefore, cross-Strait economic dependence has become a serious
national security concern for Taipei with the combination of powerful business
pressure on Taipei, potential security risks of Beijing’s economic sanctions, and
Taipei’s inability to effectively limit the pace of cross-Strait economic exchange.
Nonetheless, despite Taipei’s fears, Beijing has proven reluctant in exploiting its
economic leverage through economic sanctions against Taiwan, even during the
1995-96 and 1999-2000 Taiwan Strait tensions. During the 1995-96 missile crisis22,
Beijing made significant efforts to reassure Taiwan businesspeople that their
investments in China were safe. Beijing also demonstrated restraint in the aftermath of
President Lee Teng-hui’s “special state-to-state” declaration of July 9, 1999. 23
However, on March 16, 2000, two days before Taiwan’s presidential election, Tang
Shubei, vice chairman of the Association for Relations Across the Taiwan Strait
(ARATS), said that if the force of Taiwan independence won the presidential election,
cross-Strait economic relations and exchange would be seriously impaired and Taiwan
21
22
23
Xiangming Chen, “Business Over Politics”, China Business Review, March-April 1999, pp.8-14.
This crisis was triggered by President Lee Teng-hui’s visit to his alma mater, Cornell University, his
speech in Cornell University, and Taiwan’s subsequent effort to advance its diplomatic strategy.
Interviewed by the Deutsche Welle Radio on July 9, 1999, President Lee Teng-hui publicly
characterized Taiwan-China relations as a “special state-to-state relationship.” President Lee says
that since 1991, when the ROC Constitution was amended, cross-strait relations have been defined
as "state-to-state," or at least "a special state-to-state relationship." Cross-strait relations shall not be
an internal relationship of "one China," in which it is a legal government vs. a rebel regime, or a
central government vs. a local one. This was taken by Beijing as a deliberate attempt to strengthen
both domestic and international acceptance of Taiwan as a sovereign nation entirely separate from
and equal to Beijing and to prevent President Lee’s successor from pursuing a more accommodating
policy toward China.
10
would not earn $15 billion to $16 billion annually from China.24 In addition, after the
victory of Chen Shui-bian (a one-time pro-independence opposition leader) in
Taiwan’s March 2000 presidential race, Beijing overtly warned some Taiwan business
figures25 that their interests in China could be affected if they supported Taiwan
independence.26 Notwithstanding, China has yet to follow up on these threats with
concrete action.
Given this background, this research intends to address two categories of
questions. First, how large is China’s economic leverage over Taiwan through
economic sanctions and what factors would contribute to China’s decision to exploit
this economic leverage? And, second, how vulnerable is Taiwan to China’s
exploitation of economic leverage through imposing economic sanctions and what
factors would contribute to the success or failure of these sanctions?
This study focuses on China's potential to use economic sanctions against Taiwan
because Taiwan’s government has grave concerns about asymmetric economic
interdependence between Taiwan and China. It defines economic sanctions as the
threat or act by a state or coalition of states, “the sender,” to disrupt customary
economic exchange with another state, “the target,” in order to punish the target, or
force change in the target’s policies, or demonstrate to a domestic or international
audience the sender’s position on the target’s policies. The disrupted exchange could
include trade sanctions (embargoes and boycotts), aid suspension, freezing of financial
assets, and blacklisting of companies or individuals. By “economic sanctions,” I do
not mean to include “economic warfare,” “economic inducements,” and “trade
24
25
26
Cuo-zhong Wang, “Tang Shubei: If Taiwan Independence Happens, There Is No Way for
Cross-Strait Dialogue,” Zhongguo Shibao [China Times], March 17, 2000.
It was reported that Beijing would punish Shi Wen-long, Stan Shih, Chang Yung-fa, and Ying Qi,
President of the Continental Engineering Corporation, because of their support for Chen Shui-bian.
“On the Current Development of Cross-Strait Economic Relations: Questions Answered by the
Leader of the Central Taiwan Affairs Office and the State Council Taiwan Affairs Office,” Renmin
Ribao [People’s Daily], April 10, 2000, p.1.
11
wars.” 27 More details on the definition of economic sanctions are discussed in
Chapter 3.
Finally, both China’s economic leverage and Taiwan’s vulnerability will be
examined through a two-stage test: the initiation and outcome of economic sanctions.
This test will have four scenarios. First, if conditions across Taiwan Strait are
favorable for China to impose economic sanctions and for Taiwan to make
concessions, then China has leverage over Taiwan and Taiwan is vulnerable to China’s
leverage. Second, if conditions are unfavorable for China to impose economic
sanctions and for Taiwan to make concessions, then China has no leverage over
Taiwan and Taiwan is not vulnerable to China’s leverage. Third, if conditions are
favorable for China to impose economic sanctions but unfavorable for Taiwan to make
concessions, China has only symbolic leverage over Taiwan and Taiwan has
symbolical vulnerability to China’s leverage. Fourth, if conditions are unfavorable for
China to impose economic sanctions but favorable for Taiwan to make concessions,
China has only quasi-leverage over Taiwan and Taiwan has quasi-vulnerability to
China’s leverage.
II. Research Methodology and Hypotheses
From an economic perspective, Chapter 2 provides the context of cross-Strait
economic relations. First, it discusses the evolution of cross-Strait economic relations,
including trade and financial relations. In addition, it elaborates on the cross-Strait
27
Economic warfare seeks to weaken an adversary’s aggregate economic potential in order to weaken
its military capabilities, either in a peacetime arms race or in an ongoing war. Economic inducements
involve commercial concessions, technology transfers, and other economic carrots that are extended
by a sender in exchange for political compliance on the part of a target. “Economic inducements” are
also called “positive sanctions.” Trade wars are disputes over economic policy and behavior instead
of political/security goals. Donna Rich Kaplowitz, Anatomy of a Failed Embargo: The Case of the
U.S. Sanctions against Cuba, vol. I, Ph.D. dissertation, Johns Hopkins University, 1995, p. 32.
David Baldwin, Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985), pp. 8-40.
12
economic division of labor and interdependence. Furthermore, it also explores the
essence of cross-Strait economic relations in terms of the global economic division of
labor and interdependence.
Then, in two steps, this study analyzes the two categories of questions posed
above. First, it explores the implications of prior research on economic sanctions.
Chapter 3 elaborates the definition, types, goals, causal logic, costs, and effectiveness
of economic sanctions. Chapter 4 evaluates theories on the initiation of economic
sanctions by analyzing the domestic politics/symbolic approach, the signaling/
deterrence approach, and the conflict expectations model. Chapter 5 assesses theories
on the outcome of economic sanctions by exploring the Hufbauer-Schott-Elliot
approach, the domestic politics/symbolic approach, the signaling approach, and the
conflict expectations model.
Second, this study examines two case studies, the 1995-96 and 1999-2000
Taiwan Strait tensions, through empirical research. Although this study cannot
definitively answer questions regarding either China’s leverage or Taiwan’s
vulnerability, theoretical works provide an analytical structure and empirical studies
further illuminate the implications of some important variables of economic sanctions.
The 1995-96 Taiwan Strait missile tensions and the 1999-2000 Taiwan Strait
incident created significant strains between Taiwan and China. Beijing tried to coerce
Taipei to return to the status quo ante by accepting the “one China” principle and to
deter Taipei from declaring Taiwan independence. In both incidents, Beijing launched
unremitting criticisms of President Lee Teng-hui as a traitor to Chinese nationalism
and a supporter of foreign interests. As a result, Beijing canceled the second round of
talks between Koo Chen-fu and Wang Daohan, top negotiators for both sides, in the
summer of 1995 and Wang Daohan’s planned visit to Taiwan in late 1999. Moreover,
the PRC threatened to use force against Taiwan, backing up the rhetoric by moderate
13
military mobilization and by expanding the scope of the intended military exercises
near Taiwan from July 1995 to March 1996 and from July to September 1999.28
Given Beijing’s high motivation to persuade Taipei to reaffirm the “one China”
principle and to deter Taipei from declaring Taiwan independence, why did China
exercise such great restraint in not imposing economic sanctions against Taiwan in
these instances? Based on a literature review of theories concerning economic
sanctions in Chapter 4, the first set of hypotheses to be tested in the two case studies is
as follows:
1. The costs gap between Taiwan and China (the potential power of economic
leverage from asymmetric economic interdependence) was insufficiently
favorable to Beijing for it to initiate economic sanctions against Taipei.
Parenthetically, China’s costs include the reaction/retaliation of third parties to
the imposition of economic sanctions.
2. China had grave domestic concerns and could not afford to impose economic
sanctions against Taiwan because of economic, social, and political instability,
and opposition from interest groups (such as southeast coastal leaders and
Taiwan businesspeople) associated with such sanctions.
3. Chinese leaders believe that military threats directed at Taiwan were more
effective signals and deterrence tools than actual economic sanctions.
To collect information and data on China’s calculations concerning the relative
costs (including the reaction of international community), domestic concerns, and
signaling/deterrence utility, I conducted interviews with Chinese scholars in major
think tanks and universities in Xiamen, Shanghai, and Beijing, and Chinese officials
28
China’s military threat toward Taiwan was suspended in late September 1999 because of the
September 21 severe earthquake in Taiwan. Nevertheless, China issued a second white paper on
Taiwan in February 2000. This paper, in particular, stated that Beijing would consider using force if
Taipei avoided entering into meaningful talks with China indefinitely.
14
(incumbent and retired) at the central level and in the southeastern coastal provinces.
Further, I conducted interviews with Taiwan business association leaders and
businesspeople in both Taiwan and China on their reaction to Chinese military threats
and the Chinese government. Material from China’s official statements, newspaper
and journal articles are also included.
Chapter 6 explores China’s broad national agendas based on Chinese perceptions
and actual behavior, which provides a roadmap to assess the rationale and priorities of
Chinese foreign and Taiwan policies. In particular, this map helps us to understand
both internal and external stakes of China’s imposition of economic sanctions against
Taiwan. Chapter 7 compares military threats with economic sanctions in terms of the
utility of signaling and deterrence perceived by the Chinese government in the two
incidents. Chapter 8 assesses the costs for both Taiwan and China. In particular, the
assessment relies on both my calculation based on the discussion in Chapter 2 and
Chinese perceptions under the circumstance of globalization.
Chapter 9 analyzes China’s internal stakes, including major economic, social, and
political issues. Because this study discusses two case studies (the 1995-96 and
1999-2000 tensions), data is updated until 2000. Chapter 10 discusses the roles of
interests groups -- Taiwan-invested enterprises (TIEs) and Chinese localities -- in
China’s policy-making process during the two incidents.
Furthermore, this study explores implications for how vulnerable Taiwan is to
China’s economic sanctions by analyzing how vulnerable Taiwan was to military
threats in the 1995-96 and 1999-2000 tensions. This analysis is conducted with the
understanding that both military threats and economic sanctions could be used to
signal Beijing’s resolve of using force against Taiwan and thus to extract political
15
concessions from Taipei.29 In addition, both military threats and economic sanctions
will impose economic pain on Taiwan. The similar logic for both military threat and
economic sanctions is that, all other things being equal, the more value-deprivation to
which the target is subject, the more likely is political disintegration and thus
concession from the target.30
Thus, how Taiwan’s leaders, political elite, interest groups, and electorate
responded to China’s military maneuvers in 1995-96 and 1999-2000 could offer clues
as to how the island might respond to China’s economic sanctions. Essentially, the
reaction of Taiwan’s public and TIEs to the Taiwanese government in the context of
Chinese military threats are like the key elements of Beijing’s strategy of “yi shang
wei zheng” and “yi min bi guan” in the context of Chinese economic sanctions against
Taiwan.
Based on the literature review on the theories of economic sanctions in Chapter 5,
the second set of hypotheses to be tested in the two case studies is as follows:
1. As China’s military threats increased, Taiwan experienced rising nationalism
and a strong “rally-around-the-flag” effect, with a moderate fifth-column
effect, in terms of the reaction of Taiwan’s public, elites, and interest groups.
2. Taiwan’s
decision-makers
emphasized
relative
gains
and
reputation
(credibility) in the cross-Strait conflict.
Chapter 11 explores trends in public opinion polls of Taiwan on cross-Strait
29
30
U.S. deterrence might play the same role of deterring China from launching a military attack against
Taiwan in both cases of China’s economic sanctions and military threats against Taiwan. Therefore,
we can treat the factor of U.S. deterrence as a control or condition variable since it is a constant
factor in both cases.
A. Cooper Drury, “How and Whom the US President Sanctions: A Time-series Cross-section
Analysis of US sanction Decisions and Characteristics,” in Steve Chan and A. Cooper Drury (eds.),
Sanctions as Economic Statecraft: Theory and Practice (New York: St. Martin’s, 2000), p. 20. Ivan
Eland, “Economic Sanctions as Tools of Foreign Policy,” in David Cortright and George A. Lopez
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issues in the late 1990s and analyzes the response of Taiwan’s presidential candidates
to China’s military threats in 1995-96 and 1999-2000. In addition, it discusses the role
of interest groups – TIEs – in Taiwan’s policy-making process during the two
incidents. Finally, it also explores the perception of Taiwanese decision-makers in
terms of relative gains and reputation in the 1995-96 and 1999-2000 tensions.
In addition to drawing on material from Taipei’s official policy statements,
newspaper and journal articles, opinion polls, and election results in the presidential
elections, I conducted interviews with Taiwanese officials then in charge of the
cross-Strait policy in 1995-96 and 1999-2000. Furthermore, I conducted interviews
with Taiwan business association leaders and businesspeople in both Taiwan and
China regarding their reaction to the Taiwanese government.
Based on both theoretical and empirical studies, Chapter 12 draws conclusions
concerning China’s leverage and Taiwan’s vulnerability with respect to cross-Strait
economic relations.
388, 414.
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