Introduction

China and Taiwan, while in practice maintaining a fragile “status quo” relationship, periodically grow impatient with the diplomatic patchwork that has kept the island separate from the Communist mainland since 1949. After losing the civil war to Communist Chinese and fleeing to Taiwan in 1949, the nationalist Kuomintang (KMT) leaders of the Republic of China regarded the Communist Chinese government as illegitimate, claiming the mainland as rightfully their own. KMT held power until the election of President Chen Shui-bian and his Democratic Progressive Party (DPP) in 2000. The DPP has engaged in policy that widely departs from the KMT. Since becoming the first non-KMT leader of the Republic of China in Taiwan, President Chen has invigorated efforts to seek Taiwan’s sovereignty. Beijing, in turn, regards Taiwan as a renegade province, and has tried repeatedly to persuade the island to negotiate a return to the fold under terms similar to those governing the former British colony in Hong Kong. While the threat of hot war appears low, and economic ties have grown steadily since the two began serious bilateral exchanges in the 1980s, periodic spasms of anti-Taiwan feeling in Beijing, and of pro-independence sentiment on the island, severely test the peace that has reigned in recent years across the Taiwan Strait.

“One China” Principle

The two sides sharply disagree on Taiwan’s de jure political status, and have differing interpretations of the “One China” principle that theoretically governs their relationship. The principle states that “China” includes the mainland, Hong Kong, Macau, and Taiwan. Diplomatically, Taiwan, the United States, and most of the world’s other nations abide by the One China principle, though Taiwan has used foreign aid to convince some small developing countries to recognize its as a separate country. Taiwan’s government, then governed by the KMT, held talks in Hong Kong with officials from Beijing in 1992. Beijing insists the meeting produced what has become known as the “1992 Consensus,” obliging Taiwan to abide by the One China principle. But Taiwan’s current president, Chen Shui-bian, rejects the very existence of the consensus. Taiwan’s current opposition, including the old KMT, accepts it.

Regardless of the controversy inside Taiwan itself, the One China principle has provided the template for foreign relations between Taiwan and other nations, including the United States, which signed a joint communiqué reaffirming the principle when it reestablished relations with Beijing in 1979. At that time, President Jimmy Carter terminated diplomatic relations with the ROC government in Taiwan. Just months later, the Taiwan Relations Act of 1979 affirmed U.S. support for the island’s democratic system. That essential conflict has been the source of intermittent friction ever since. When Beijing judges these principles have been violated or even stretched a bit—as it did in late 2007 when the United States announced the sale of advanced Patriot missile defense systems to the island—China makes its displeasure known. Soon after the Patriot sale, China denied a request for routine port access to several U.S. naval vessels, and the U.S. Navy then sent one of those ships, the carrier Kitty Hawk, through the normally avoided Taiwan Strait. Over the years, in fact, U.S. arms sales to Taiwan, detailed in this report by the Congressional Research Service, frequently have led to U.S.-China friction and an upsurge in bellicose rhetoric across the Strait. Another CRS report looks at the agreements and communiqués that have shaped the U.S.-China-Taiwan dynamic over the years.

Challenging the Status Quo

Taipei and Beijing have appeared less satisfied than ever with the status quo since President Chen’s election in 2000. Threats by Chen’s government to break away formally have led China repeatedly to warn, sometimes with words and other times with overt displays of military power, that such a move could spark a conflict. Both say talks on the issues which separate them are possible, but Beijing mandates the One China principle as a precondition, as President Hu Jintao reaffirmed during the Seventeenth Congress of the Communist Party. Taiwan’s President Chen denounces that as surrender of sovereignty. Taiwan has scheduled a national referendum for March 2008 asking whether its government should bid to join the United Nations under the name of “Taiwan” instead of “Republic of China.” Beijing already is warning of a “high-risk period” if Taiwan does not relent. In 2005, China adopted an Anti-Secession Law that legalized “non-peaceful means […] to protect China’s sovereignty and territorial integrity” in the event that “possibilities for a peaceful reunification should be completely exhausted.” The law holds clear implications for any move by Taiwan to declare independence. Analysts say a victory by the opposition KMT over the ruling, independence-leaning DPP in January 2008 legislative elections may ease tensions between China and Taiwan.

Military Situation

China has deployed ballistic missiles along the Taiwan Strait and continues to modernize both its missile forces and its amphibious assault capabilities. Taiwan continues to purchase weapons abroad, primarily from the United States, and its defense budget looks likely to begin rising again after several years of decrease. Analysts say China orients a good deal of its military focus on the cross-strait conflict.

Taiwan’s defense budget dropped 25 percent between 2001 and 2006. Chen’s government recently pledged to reinvigorate defense spending, increasing the defense budget to 3 percent of gross domestic product (GDP) by 2008, and the candidate of Chen’s DPP in Taiwan’s 2008 presidential election advocates further defense funding increases. Additionally, Taiwan is developing a native cruise missile designed to counter the Chinese missile threat.

Between 1998 and 2005, $13.9 billion of arms were sold to Taiwan, making it one of the leading recipients of armaments among developing countries. Of that, U.S. sales accounted for more than $10 billion during that period. Besides the United States, Taiwan made purchases from Canada, France, Germany, Israel, and the Netherlands. These countries have since ceased to export arms to Taiwan, in part prompted by the concern that such sales would damage valuable commercial ties with China. For instance, France has officially banned transferring arms to Taiwan after China closed the French consulate in Guangzhou in 1992, an apparent response to an agreement by France to sell Taiwan sixty Mirage 2000-5 warplanes.

In June 2007, the Taiwanese parliament approved the purchase of another $190 million in weaponry, including P-3C maritime patrol planes, PAC-2 upgrades for Patriot missile batteries, and F-16C/D fighters. Such acts, governed by the Taiwan Relations Act, are interpreted by the United States as fulfilling Washington’s pledge “to provide Taiwan with arms of a defensive character” so that Taiwan can “maintain a sufficient self-defense capability.” The contracts have faced delays, however, due to opposition domestically inside Taiwan. The so-called Pan-Blue Coalition, comprised of the KMT and an ally, the People First Party (PFP), hold a majority in Taiwan’s parliament and blocked the defense outlays, citing excessive prices and other domestic priorities. The parliament, however, did relent in December 2007 on the question of Patriot missiles, allowing part of the sale to move forward.

Taiwan’s strategic security rests heavily on the implied guarantees offered by the United States over the years—guarantees made more concrete than ever during the administration of George W. Bush, who pledged in 2002 to “do what it takes to help Taiwan defend herself, and the Chinese must understand that.” That statement, which caused some anger in China, rests on the overwhelming might of the U.S. Seventh Fleet, based in Japan, and on the recently strengthened U.S.-Japan Security Treaty.

Meanwhile, Economic Ties Thrive
Against the backdrop of diplomatic friction over the past decade, the cross-strait economic relationship has blossomed. China entered the World Trade Organization (WTO) in 2001 and, within a month, Taiwan entered as “Chinese Taipei.” Since entering the WTO, China and Taiwan have lowered or lifted tariffs, and eased restrictions on investment, direct trade, and tourism. The volume of two-way trade across the Taiwan Strait marked $115 billion in 2006, up from $8 billion in 1991. In 2005, investments in mainland China accounted for more than half of Taiwan’s overseas investment and Taiwan ranked in the top ten of foreign direct investors in China in 2005 and 2006. China also has become Taiwan’s top export partner and its second-largest import partner.

History of the Conflict

Taiwan, an island of 23 million off China’s southern coast, was occupied by Japan from 1895 to 1945. In 1949, after Chiang Kai-shek’s Nationalist Party lost its power struggle with the Communist Party in China, Chiang and his followers fled to Taiwan. Their government-in-exile in Taipei, the KMT, defined itself as the alternative to Communist rule and hoped one day to return to power in Beijing. The KMT governed Taiwan from 1949 to 2000; its often harsh rule included discriminatory laws against ethnic Taiwanese and nearly forty years of martial law, which was finally lifted in 1987. The KMT has historically seen Taiwan as a part of “One China” that would eventually be reunited under Nationalist rule.

Taiwan’s ruling party (as of early 2008), the predominantly ethnic Taiwanese Democratic Progressive Party (DPP), was founded in 1986 to counter the KMT, and only became legal in 1989 after a longtime ban on opposition parties was dropped. Taiwanese President Chen Shui-bian is a member of the DPP, which envisions Taiwan as an independent nation, separate from China. Taiwanese sovereignty is the first and most prominent issue on the party’s platform. This position has put the DPP severely at odds with China’s leadership, which views Taiwan as a renegade province that will one day be reunited with Communist China—by force, if necessary.

The Independence Movement in Taiwan
Taiwanese domestic politics and the sentiments of native Taiwanese islanders have been driving moves toward independence. After the long KMT reign, many Taiwanese are now pushing for self-determination. Independence advocates say Taiwan is a free and democratic nation with multiparty elections and a very successful economy due to export-driven economic development. They say the Taiwanese people should have the right to decide for themselves if they want to join China or become an independent nation. Since his presidential term began in 2000, Chen has steadily pushed the idea of Taiwanese independence. China is very hostile to such talk: In August 2005, the official China Daily newspaper quoted a Chinese military official saying, “Taiwan choosing independence is tantamount to choosing war.” Although many native Taiwanese back the idea of independence, polls suggest they still stop well short of wanting to risk violence. Shelley Rigger, a professor at Davidson College, examines the generational divide in Taiwanese nationalism in this publication from the East-West Center in Washington.

A Place in the Sun—and the UN

Taiwan considers its relations with the international community essential if it is to survive independent of the communist mainland. Despite Taiwan’s efforts to woo support, more than thirty countries have switched diplomatic relations to Beijing since the United States transferred its diplomatic relations from Taiwan to China in 1979. About two dozen governments still maintain full diplomatic ties with the Taiwanese government. The trend in this recognition competition is in large part a reaction to development aid promises or threats of economic sanctions—so-called pocketbook diplomacy (NYT).

The Taiwanese government has also been pushing to regain its seat at the United Nations, which it lost to China in 1971. Taiwan has unsuccessfully attempted to reenter the United Nations as the “Republic of China.” China argues that “China’s representation in the United Nations certainly includes Taiwan,” but Taiwan insists that Resolution 2758 is wrongly used to exclude Taiwan from the UN system. The latest effort to regain a seat, already publicly opposed by the United States, Russia, and others, is to be voted on during Taiwan’s national referendum in March 2008.