No. 16 — April 21, 2000

Feature Article

TAIWANESE ELECTION CREATES NEW CHALLENGES FOR JAPAN ON CROSS-STRAITS RELATIONS

Barbara Wanner

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Summary

The victory of Democratic Progressive Party leader Chen Shui-bian in Taiwan's mid-March presidential election was hailed in the international press as a "democratic breakthrough" and a "peaceful revolution" since it overturned more than a half-century of rule by the once-dictatorial Kuomintang, or Nationalist Party. Tokyo might have been expected to look favorably on the transformation of Taiwan's political system into one that more closely resembles its own, yet officials responded cautiously to the power shift. Foreign Minister Yohei Kono reiterated the government's commitment to the one-China policy embodied in the 1972 friendship treaty with the People's Republic of China and urged a peaceful settlement of the "issue relating to Taiwan" through a direct dialogue between Taipei and Beijing.

On the acutely sensitive issue of Taiwan's status — Beijing considers it a rebel province that should be reincorporated, while many Taiwanese, including Mr. Chen, have advocated independence from the mainland — Tokyo has toed a neutral line. The care taken by the government during the past 28 years to remain on good terms with both China and Taiwan is motivated as much by economic interests as by security-related concerns. Through private exchanges and what Tokyo describes as "nongovernmental working relations," Japan and Taiwan have developed extensive business ties over the years; Taiwan currently is Japan's number-two export market. At the same time, China ranks second in two-way trade with Japan. The government has committed large amounts of public funds to the economic engagement of China, the idea being that a prosperous China will be more stable and less hostile toward its neighbors. Any deviation from neutrality risks alienating either the mainland or the island and jeopardizing these not-insignificant economic stakes.

Moreover, Japan's geographic proximity to China on top of the latter country's unabashed regional leadership aspirations and often-bellicose rhetoric and provocative actions toward Taiwan has limited its options on cross-straits issues. In view of the buildup of Chinese military power, Tokyo generally has been reluctant to pursue policies that could inflame relations with its massive neighbor, fearing that China would attack Japan or cause a regional disturbance, such as military action in the Taiwan Straits. The possible risk to the safety and the security of the Japanese is alarming in and of itself. But the Taiwan Straits confrontation scenario is just as worrisome for decisionmakers because they basically would be forced to choose between the United States and China. The 1997 revised guidelines for U.S.-Japan defense cooperation oblige Tokyo to provide logistical support to American troops engaged in a nearby crisis — but, in so doing, the government inevitably would incur Beijing's ire.

It was precisely Chinese Premier Zhu Rongji's saber-rattling on the eve of the Taiwanese presidential election, which occurred barely a month after China's defense white paper included a promise to use force if Taipei refused to negotiate on Beijing's terms, and Mr. Zhu's subsequent snub of Mr. Chen's call for a peace summit that put Japanese officials on edge. The fact that Japan and China are going through a period of testy relations following two less-than-spectacular summit meetings also no doubt has influenced Tokyo's measured response to the DPP leader's victory.

At the same time, though, Taiwan's economic accomplishments and democratic transformation clearly have earned it additional friends among Japanese lawmakers. In fact, the lines have blurred between the Diet's pro-Taiwan and pro-China policy groups, as members have recognized the benefits of developing strong relations with both sides. Taipei's sympathizers could complicate Tokyo's diplomatic balancing act by, for example, pushing for a visit by retiring Taiwanese President Lee Teng-hui later this year. Experts say, however, that the pro-Taiwan camp will not bring about a change in Japan's one-China policy or compel Tokyo to try and broker a cross-straits accord. Rather, the near-term outlook for Japan's relations with the mainland and Taiwan probably will depend in large part on Mr. Chen's success in engaging Beijing in a productive, nonconfrontational dialogue.

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Japan Responds Cautiously To Chen Election

China hands in Tokyo no doubt were anxious about the outcome of Taiwan's March 18 presidential election. Only days before, People's Republic of China Premier Zhu Rongji had threatened military action if Taiwanese voters chose Chen Shui-bian, the opposition Democratic Progressive Party's candidate, who ran on a pro-independence platform. The fact that Mr. Zhu's provocative statement followed a warning in Beijing's 2000 defense white paper that China would "adopt all drastic measures possible, including the use of force," if Taiwan delayed talks on reunification indefinitely1 suggested that the premier had not have been bluffing.

When all the ballots were counted and Mr. Chen's 39 percent share of the vote in a close, three-way race made him the winner, pulses no doubt quickened in Washington and in Tokyo as well as in other Asian capitals in fear that the island was headed toward a violent confrontation with the mainland. The Japanese and the Western media hailed the election as the first-ever democratic transfer of power on Chinese soil and a sign of political maturity.2

Policymakers in Tokyo, however, presented a statement that was carefully worded to avoid offending either party. Foreign Minister Yohei Kono emphasized the importance of maintaining open lines of communication between China and Taiwan. "Japan expects that under the new circumstances, the issue relating to Taiwan will be settled peacefully through direct dialogue between parties on both sides of the Taiwan Straits and that this dialogue will be promptly resumed," Mr. Kono said.

Beijing has considered Taiwan a rebel province since the Nationalist Party — the Kuomintang or the KMT for short — fled the mainland after losing the civil war to the Communists in 1949. Beijing's oft-repeated preconditions for negotiations have been official Taiwanese recognition of the one-China principle and acceptance of a Hong Kong-type reunification formula that acknowledges "one country, [but] two systems." Although the long-ruling Kuomintang also envisioned eventual reunification, it favored a decidedly different formula than the one proposed by Beijing. The Democratic Progressive Party, however, had categorically rejected the requisite integration of Taiwan with the mainland and had included a statement to that effect in its platform.3

The climate for cross-straits negotiations has fluctuated wildly in recent years because each side has stubbornly refused to give an inch on the one-China precondition. Discussions between Chinese and Taiwanese authorities plunged into a deep freeze in the mid-1990s, but two years ago, relations appeared to warm slightly.4 With Mr. Chen's election, however, some regional observers worry that Beijing might abandon the dialogue in favor of military action. Mr. Kono's remarks apparently were aimed at defusing a potential powder keg by gently nudging both parties back to the negotiating table.

One-China Policy

Mr. Kono also made a point of clarifying that Tokyo's policy toward China would not be influenced by the outcome of the Taiwanese election. "Japan, based on the Joint Communique of the Government of Japan and the Government of the People's Republic of China of 1972, will maintain its exchanges of private and regional nature with Taiwan as nongovernmental working relations, [while pursuing] further stable and cooperative relations with China," according to the Foreign minister.

Since 1945, Japanese diplomacy toward the mainland generally has followed the U.S. lead. In the early postwar years, this meant supporting Taiwan. However, with the Shanghai Communique of February 1972, Washington formally acknowledged Beijing's claim to be the sole legitimate government of both mainland China and Taiwan. Tokyo followed suit seven months later, concluding a normalization agreement of its own with China. The terms of this accord were in line with those of the U.S.-China statement in that Japan agreed to recognize Taiwan as part of China, but Tokyo also urged Beijing and Taipei to settle peacefully the question of the island's sovereignty.

With official ties broken, Tokyo and Taipei in December 1972 set up parallel semigovernmental organizations — the Chinese-Japanese Interchange Association on the Japanese side and the Association of East Asian Relations on the Taiwanese side — as channels for informal relations and to take over some services no longer provided by the two governments, for example, visas.5 Reflecting the unofficial nature of Japan's relations with Taiwan as well as the continued need for competent management of the flow of goods, services and people between the two entities, retired ambassadors typically have been tapped to head the Taipei office of the Chinese-Japanese Interchange Association. Similarly, the Taiwanese government usually has assigned a high-ranking official or a political leader as the chief representative at the Tokyo office of the Association of East Asian Relations.

Indicative of the Chinese government's acute sensitivity to the one-China policy, for the past 28 years, Beijing actively — or relentlessly, as some Japanese might say — has monitored Tokyo's attention toward Taipei to ensure compliance with the spirit as well as the letter of the 1972 communique. It has not been uncommon for Beijing to resort to saber-rattling rhetoric in response to any initiative on Tokyo's part that might be construed as favoring Taiwan. In particular, the Chinese government has vehemently opposed visits to Japan by Taiwan's president, even if he is invited by a private-sector or nongovernmental group. Beijing has argued that an unofficial invitation still would indicate that Tokyo had adopted a policy that favored two Chinas or backed a position that supported one China, one Taiwan.

China's history of knee-jerk hostility on the subject of Taiwanese sovereignty also may help to explain Tokyo's low-key response to the victory of democracy on the island. As will be examined later, the government no doubt was pleased with the transformation of Taiwan's political system into one that more closely resembles its own. But a formal expression of that approval would invite a harsh reproach from China and, in a worst-case scenario, trigger aggressive actions toward Japan or Taiwan, or both.

Engagement Strategy

Experts suggest that Japan's measured reaction to the Taiwanese election and its generally neutral position on cross-straits issues are best viewed within the context of a broader strategy. This approach, influenced strongly by simple geography, emphasizes engagement rather than isolation. Analysts point out that China's proximity to Japan, its huge population and its growing economic and military power have been strong incentives for Japan to seek accommodation instead of confrontation with its neighbor.6

Particularly since the end of the Cold War, Japan has focused on promoting stability, both in its relations with China and on the mainland itself. Some observers contend that the inevitable chaos resulting from the disintegration of the Chinese political order — and the attendant refugee flows such a breakdown would produce — is as worrisome to policymakers in Tokyo as a direct attack on Japan or a military conflict in the Taiwan Straits.7

Given this geopolitical imperative, Japanese policy has been aimed at cultivating friendly relations with China and incorporating its neighbor into the Asian economic system. Foreign policy professionals in Tokyo believe that by developing a comprehensive package of programs that support Chinese economic development and that promote interdependence between the two Asian nations, Japan can encourage China to become a stabilizing force in the region.8 Then-Prime Minister Ryutaro Hashimoto articulated this view in a 1997 speech, stressing that, "[a]s the Chinese economy develops, there will be greater stability in China, resulting in further stability in Asia and the world."9

Washington shares Tokyo's philosophy of engaging rather than isolating China. However, while the United States has relied primarily on private-sector activity to develop economic ties, Japan has devoted billions of dollars from government coffers to support a broad range of economic development, energy exploration and environmental protection initiatives.

Christopher Johnstone of the Asia-Pacific Center for Security Studies attributes the differences in American and Japanese implementation of economic engagement with China in part to contrasting philosophies of government. In Japan, policymakers traditionally have subscribed to the view that the state has a role to play in economic life; therefore, they have advocated initiatives that involve substantial public funds to guide market forces. The United States, in contrast, has preferred a laissez-faire approach, believing that the market rather than the government is better at allocating trade and investment resources.10

In Mr. Johnstone's view, however, the primary reason for Tokyo's willingness to expend enormous sums of money to foster economic ties with Beijing relates to Japan's strategic realities, which differ markedly from those of the United States. Again, the key issue is geographic proximity. Japan would be directly affected by the energy shortages that some analysts foresee for the Asian Pacific region given China's need for vast quantities of oil and gas to fuel industrial development, hence Tokyo's focus on supporting energy development projects there. Similarly, Japan's policy of tying development assistance to environmental programs has been shaped by its problems in dealing with acid rain and other forms of degradation that are by-products of Chinese economic activity.

This is not a recent trend in Japan's aid policy. Four years ago, the Overseas Economic Cooperation Fund, the Japanese agency that extends official development assistance loans on concessional terms, sounded an alarm about the potential impact on Japan of China's economic development in a report projecting the agency's future lending activities: "For China, with its gigantic population of 1.2 billion, issues concerning energy, food supply and the environment pose extremely serious problems for development. … Japan cannot ignore the potentially great impact of such problems," the OECF concluded.11

Trade and Investment

It goes without saying that the lure of the profits possible in a market that is predicted to grow to 1.3 billion consumers by 200512 has been a driving force behind Tokyo's engagement strategy with Beijing. Spurred by the Asian giant's rapid growth — China's economy grew at an average annual rate of about 10 percent for much of the 1990s — Japan's sales to the mainland soared 87.1 percent in yen terms between 1990 and 1999 (see Table 1). Growth on the import side was even more pronounced during the last decade, resulting in a ¥2.2 trillion ($20.2 billion at ¥110=$1.00) trade deficit in 1999. However, some experts say that the surge in imports is not necessarily a worrisome trend because many made-in-China goods are produced in Japanese-affiliated factories.13

Table 1: Japan's Trade with the People's Republic of China, 1980-99

(in billions of yen; exports f.o.b., imports c.i.f.)

1980

1985

1990

1995

1996

1997

1998

1999

Exports

¥1,141

¥2,991

¥1,420

¥2,062

¥2,382

¥2,631

¥2,621

¥2,657

Imports

978

1,552

2,440

3,381

4,400

5,062

4,844

4,875

Balance

163

1,439

-1,020

-1,319

-2,018

-2,431

-2,223

-2,218

Source: Japan Tariff Association

The character of trade between Japan and China also has changed significantly as the latter country's economy has grown and modernized. In the 1970s, Chinese exports to Japan largely consisted of such industrial raw materials as coal and oil. As the Asian giant progressed up the industrial-development learning curve during the 1980s, textiles and other labor-intensive manufactured products became more prominent in shipments. By the 1990s, China was exporting low value-added but increasingly sophisticated manufactured goods in exchange for Japanese financing and high technology equipment.14

Japanese direct investment on the mainland has followed the same pattern (see Table 2). China's gradual loosening of state economic controls and the introduction of other measures to promote inward foreign direct investment have spurred corporate Japan's activities there. Moreover, as the value of the yen jumped in the second part of the 1980s and production costs rose in many Southeast Asian countries where Japanese companies had factories, China became an attractive location for manufacturers looking for inexpensive sources of labor-intensive products.

Table 2: Foreign Direct Investment by Japan, FY 1994-FY 1998

(in millions of dollars; notification basis)

FY 1994

FY 1995*

FY 1996

FY 1997

FY 1998

Total
March 31, 1999

United States

$17,331

$22,651

$22,788

$21,065

$10,316

$270,468

China

2,565

4,478

2,600

2,015

1,065

18,798

Taiwan

278

455

540

456

224

5,342

Total

41,051

51,398

49,728

54,739

40,747

658,514

Note: Beginning with FY 1995, the flow and stock figures are not comparable to those for earlier years since the data were published in yen rather than in dollars as previously and no cumulative numbers were released. The yen figures were converted into dollars at the following average exchange rates: FY 1995, ¥96.44; FY 1996, ¥112.64; FY 1997, ¥120.99; and FY 1998, ¥128.03. The resulting numbers were then added to the dollar-based stock figures for

Source: Ministry of Finance

The Japanese government backstopped these trends by providing substantial direct and indirect assistance to domestic companies with interests in China. For instance, the Export-Import Bank of Japan provided a not-insignificant ¥243 billion ($2.2 billion) in financing on "semicommercial" terms to support trade and investment there during the 1990s. Much of this lending was in connection with Japanese participation in lucrative, large-scale public works projects.15

Corporate Japan invested only $438 million in China in FY 1989, but within six years, that figure had ballooned to $4.5 billion. Japanese direct investment in China subsequently tapered off, totaling just $1.1 billion in FY 1998, as the economy became mired in recession and the business community grew wary about the future of Chinese economic reforms. Nevertheless, in surveys, China continues to rank among the most likely destinations for future Japanese offshore equity investment.16

Foreign Aid

Japan's aid program for China provides even more impressive evidence of Tokyo's commitment to the economic engagement of its neighbor. Through 1998, Tokyo's ODA disbursements to China totaled $13.2 billion, making that country second only to Indonesia as a recipient of Japanese aid. Conversely, Japan by far is China's largest aid donor.17 To a significant extent, this money, mostly in the form of loans, has been earmarked for infrastructure needs, such as ports, roads, airports and railroads. These public works projects have helped to underpin China's development, but they also have provided innumerable benefits to Japanese companies manufacturing in-country.

A Softer Line

While the many advantages of Japan's foreign aid program presumably would motivate Beijing to maintain stable relations with its number-one source of development assistance, Chinese authorities have proven time and again that they can be impervious to arguments of economic logic when the subject of Taiwan is on the table. The readiness of top officials to rhetorically beat the war drum seems to suggest that they are willing to risk the future prosperity that broader economic interaction with Japan would bring for a point of principle.

Tokyo, in contrast, generally has not responded to Beijing's aggressive behavior in a manner that might jeopardize corporate Japan's financial stake in China. In fact, the economic angle combined with security-related fears about being so close to a ticking time bomb frequently has compelled Tokyo to take a softer line than Washington.

While this divergence in policy periodically causes frictions in U.S.-Japan relations, Tokyo's accommodative approach toward Beijing nevertheless has facilitated its delicate cross-straits diplomacy. A few years ago, a Ministry of Foreign Affairs official articulated Japan's dilemma: "Because we cannot move our archipelago from this area, we have to be on good terms with China and Taiwan for a long time. This is a situation where we cannot put ourselves at risk. … [O]ur position is much more vulnerable than that of the United States, so what we can do and say is very limited."18

In particular, Tokyo has been less willing than Washington to censure or punish Beijing over its poor human rights record. Japanese policymakers apparently believe that the nation's broader engagement strategy is not served by confronting their Asian neighbor over comparatively narrow concerns.19 Reflecting that mind-set, Tokyo was relatively quick to resume aid to China after the violent crackdown on pro-democracy demonstrators in Tiananmen Square in 1989, leaving it open to criticism from the United States and other allies that it was too soft on Beijing. Tokyo was concerned that even threatening economic sanctions as a means of forcing China to change its behavior in the area of human rights ultimately would hurt Japan's economic and strategic interests.

Geopolitical concerns also seemed to shape Japan's response to another episode of provocative behavior. In March 1996, Chinese military forces conducted three ballistic missile tests in the waters off the coast of Taiwan. Within a day of the first firing, Beijing said that it would follow up with eight days of live-fire naval and air exercises in the Taiwan Straits. Less than a week later, yet another weeklong round of military training was announced. Not unlike Mr. Zhu's threatening remarks on the eve of Taiwan's March 2000 polls, these military activities clearly were aimed at influencing the outcome of the island's first democratic presidential election and putting a damper on the possible pro-independence policies of the winner, Lee Teng-hui.20

Washington's response was to denounce Beijing's conduct as "unnecessarily risky" and "unnecessarily reckless." The U.S. government then issued a no-nonsense warning that China should "cease its bellicose" actions against Taiwan immediately. Backing up its words with actions, Washington deployed two aircraft carriers to the straits. Japanese officials, in contrast, described the missile tests as "an unfortunate direction." They also refused to openly support the flexing of American naval muscle, saying only that Tokyo understood the actions of its most important ally.

The government's extreme caution in commenting on the implications of Mr. Chen's victory is consistent with its behavior during the 1996 Taiwan Straits episode. Even if it means parting ways with Washington, Tokyo will opt for neutrality rather than take a stand that jeopardizes its relations with the parties on either side of the straits.

This is not to suggest, however, that the government never has challenged the powers-that-be in China or otherwise provoked Beijing. Five years ago, when China ignored Japanese protests and conducted a second round of underground nuclear tests, Tokyo figuratively shot back by suspending a portion of a huge, multiyear aid package. Significantly, Tokyo held off for two years before releasing the remaining aid, even after Chinese officials tried to play on Japanese guilt over the nation's brutal wartime treatment of the Chinese people.

Troubled Summits

Tokyo, in fact, has stood its ground on what has come to be known as the "history issue." As a consequence, the two summits between former Prime Minister Keizo Obuchi and Chinese President Jiang Zemin ended on rather sour notes. In a November 1998 meeting in Tokyo, Mr. Jiang demanded a written apology for Japan's pre-1945 behavior in China along the lines of that offered by Mr. Obuchi to South Korean President Kim Dae Jung at an October 1998 summit also in the Japanese capital (see JEI Report No. 39B, October 16, 1998).

The most that Mr. Obuchi was willing to offer Mr. Jiang on paper, however, was an expression of "deep remorse" for "inflicting grave suffering and damage on the people of China by invading China at one period of history." While the Japanese leader extended a verbal apology during one-on-one discussions with his Chinese counterpart, the fact that the meeting produced a communique that not only was nonbinding legally but less weighty politically injected new tensions into bilateral relations (see JEI Report No. 46B, December 11, 1998).

The atmosphere had improved only slightly by July 1999 when the two leaders met in Beijing (see JEI Report No. 27B, July 16, 1999). Mr. Obuchi endorsed China's controversial bid to join the World Trade Organization. Moreover, the two men reaffirmed their intention to build "a partnership toward the 21st century" that would entail expanded cooperation in 32 areas. However, Mr. Jiang would not let the history issue slide, reportedly telling Mr. Obuchi that "it is important to pave the way for the future [of Japan-China relations] while learning from history" — a statement to which the prime minister did not react formally.

The two men also had some tense moments concerning the status of Taiwan. Mr. Jiang not only asked his Japanese visitor to agree to language that formally recognized Beijing's desire to reincorporate the island but also further proposed that Tokyo withhold support for Taiwan's membership in international organizations. Mr. Obuchi dodged both demands, saying only that he would make the "utmost efforts to develop Japan-China ties."

As if the impasses over how Japan should apologize for its wartime behavior and the status of Taiwan were not enough to inject tensions in Japan-China relations, Beijing's concerns about the implications of the September 1997 U.S.-Japan defense operational guidelines ensured that both the November 1998 and the July 1999 summits could not end on upbeat notes.

Officials in Beijing are convinced that the revised transpacific defense cooperation plan — which obliges the Self-Defense Forces to provide logistical and other nonmilitary support to U.S. forces involved in military or other emergencies in "areas surrounding Japan" (see JEI Report No. 37B, October 3, 1997) — is aimed at containing China's regional diplomacy. Notwithstanding frequent assurances by both Japanese and American policymakers that the accord is not targeted at any specific Asian nation but is "situational" in nature, the Chinese leadership continues to raise this matter at every high-level meeting, much the way that it harps on the history issue.

To be sure, the words of certain conservative Japanese politicians have not helped to assuage Chinese concerns. On the eve of the September 1997 summit in Beijing between then-Prime Minister Ryutaro Hashimoto and Mr. Jiang, Seiroku Kajiyama, a hawkish, right-wing member of the ruling Liberal Democratic Party who at the time was chief cabinet secretary, added fuel to the fire when he told reporters that the revised U.S.-Japan defense guidelines "should naturally cover" a military conflict in the Taiwan Straits (see JEI Report No. 34B, September 12, 1997). Chinese officials responded angrily, branding the remarks "unwise and unacceptable." Mr. Hashimoto was forced to spend the remainder of his trip reaffirming Japan's commitment to a one-China policy and the peaceful reunification of Taiwan and the mainland.

Notwithstanding Mr. Kajiyama's comments, most Japanese policymakers worry almost as much about an outbreak of hostilities in the Taiwan Straits as they do about a direct attack on their country. Such a development effectively would force Tokyo to chose between Washington and Beijing. Under the 1979 Taiwan Relations Act — a security document just as ambiguously worded as certain elements of the U.S.-Japan defense guidelines — the United States suggested that it would come to Taiwan's defense in the event of an attack from the mainland. The extent of the U.S. security guarantee is far less clear-cut, however, if the island takes action that incites China.21

Thus, an unprovoked attack on Taiwan by China presumably would involve the United States in a military conflict with the Asian giant. And, given the geographic proximity of the hostilities, the new defense guidelines would require the SDF to provide American forces with rear-area support. Japan's provision of backup for U.S. troops defending Taiwan, in turn, would be construed in Beijing as a sign of Tokyo's support for the island's aspirations for independence; that undoubtedly would cause a serious breach in Japan-China relations. However, by failing to honor its commitments under the guidelines accord, Japan could cause irreparable damage to its relationship with its most important ally.

Given the potential losses that all sides would incur in a U.S.-China military confrontation in the Taiwan Straits, American and Japanese defense officials doggedly have refused for the past three years to be pinned down on the geographical scope of the guidelines. Their deliberate vagueness has helped keep the lid on a potential powder keg, but this ambiguity undeniably irks Chinese policymakers and compels them to keep the Taiwan issue on the front burner in their dealings with Washington and Tokyo alike.

With the Chinese premier scheduled to visit Japan in October 2000, Japanese officials are loath to inflame the atmosphere further by applauding the new Taiwanese president's election or otherwise making any positive gestures toward the island. Given the disappointing outcomes of the last two Japan-China summits, the priority in Tokyo will be to ensure that Mr. Zhu's visit results in some semblance of a thaw in relations between the two Asian nations.

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Taiwan Wins More Friends In Tokyo

At the same time, though, Japanese diplomats do not necessarily want progress in Japan-China relations to come at the expense of damaging the nation's informal ties with Taiwan. Admittedly, the absence of a government-to-government structure generally has impeded financial transactions and air services between Japan and Taiwan and sometimes has complicated the resolution of disagreements related to trade, investment and intellectual property. Nonetheless, in the nearly 30 years since diplomatic ties were severed, business and other economic interactions between Japan and Taiwan have flourished.

Just as Tokyo has been careful not to jeopardize economic relations with the mainland patiently cultivated through foreign aid, trade and investment, so, too, are policymakers mindful of what the private sector has at stake on the island. In addition, the gradual reform and democratization of the previously authoritarian Kuomintang-led government and its pending transfer of power to the Democratic Progressive Party have won Taiwan more supporters among Japanese lawmakers and foreign policy professionals. While Tokyo officially never deviates from its one-China policy line, insiders say that in terms of informal, day-to-day contact between Japan and Taiwan, the atmosphere never has been better.

Economic Stakes

For more than a decade, Japan has been Taiwan's second-largest trading partner, behind the United States. Conversely, in 1999, Taiwan ranked third in Japan's two-way trade, although it was far behind number-two China. Moreover, with the transition of the Taiwanese economy from a system dominated by labor-intensive manufacturing to a new model driven by the high technology sector, Japan has emerged as a primary importer of Taiwanese-made semiconductors and other electronic components.22 Indicative of the evolution in its partner's economy, Japanese exports to the island grew by almost two-and-a-half times in the past two decades, climbing from just under ¥1.2 trillion ($10 billion) in 1980 to ¥3.3 trillion ($30 billion) last year (see Table 3).

Table 3: Japan's Trade with Taiwan, 1980-99

(in billions of yen; exports f.o.b., imports c.i.f.)

1980

1985

1990

1995

1996

1997

1998

1999

Exports

¥1,169

¥1,205

¥2,234

¥2,710

¥2,825

¥3,335

¥3,340

¥3,276

Imports

522

811

1,232

1,347

1,628

1,511

1,336

1,456

Balance

647

394

1,002

1,363

1,197

1,824

2,004

1,820

Source: Japan Tariff Association

Taiwan's increasing attractiveness to Japan as an economic partner also can be seen in the foreign direct investment data. In response to the high technology boom on the island, corporate Japan's equity investments increased sharply in the mid-1990s (Table 2). Experts attribute the drop-off in the last part of the decade to the recession in Japan rather than to changes in Taiwan's investment climate or to pressures from China.

Table 2: Foreign Direct Investment by Japan, FY 1994-FY 1998

(in millions of dollars; notification basis)

FY 1994

FY 1995*

FY 1996

FY 1997

FY 1998

Total
March 31, 1999

United States

$17,331

$22,651

$22,788

$21,065

$10,316

$270,468

China

2,565

4,478

2,600

2,015

1,065

18,798

Taiwan

278

455

540

456

224

5,342

Total

41,051

51,398

49,728

54,739

40,747

658,514

Note: Beginning with FY 1995, the flow and stock figures are not comparable to those for earlier years since the data were published in yen rather than in dollars as previously and no cumulative numbers were released. The yen figures were converted into dollars at the following average exchange rates: FY 1995, ¥96.44; FY 1996, ¥112.64; FY 1997, ¥120.99; and FY 1998, ¥128.03. The resulting numbers were then added to the dollar-based stock figures for

Source: Ministry of Finance

The most significant aspect of the upsurge in bilateral economic activity is that it was realized without the benefit of foreign aid or trade and investment promotional assistance. The severance of diplomatic ties in 1972 effectively halted Japan's ODA program for Taiwan as well as other types of government-supplied development help.

Put another way, the expansion of economic activity between Japan and Taiwan has been due primarily to private-sector initiative. All Japan's electronics giants, including Matsushita Electric Industrial Co., Ltd. and NEC Corp., operate numerous subsidiaries in Taiwan, separate and apart from their plants and joint ventures on the mainland. Like the government, these companies evidently treat their Chinese hosts with kid gloves, deliberately withholding information about their Taiwanese interests for fear of provoking a backlash. A NEC spokesperson recently articulated the desire of corporate Japan to have its cake and eat it too, remarking that "[Japanese companies] perceive politics and business as separate issues."23

Political Changes

The transformation of Taiwanese politics over the past decade or so also has created an audience in Japan that is more sympathetic to the island's desire for autonomy. When Japan normalized relations with China in 1972, support for Taiwan's Kuomintang government still was strong, particularly among older lawmakers and bureaucrats, due in part to their attachment to the party's leader, Chiang Kai-shek. The late Taiwanese president was revered by Japan's wartime generation, primarily because he never had demanded that Tokyo pay reparations to Taipei.

The Japan-Taiwan Legislators Association, as the Diet's pro-Kuomintang group was known, eventually lost ground to younger, more liberal lawmakers who were turned off by the Kuomintang's near-dictatorial rule of the island. The latter group argued that Japan's longer-term interests were best served by following the U.S. lead and establishing diplomatic relations with Beijing. For a time, such views prevailed.

By the late 1980s, however, the situation on Taiwan had changed dramatically. Taipei basically had begun a program of reform, undertaking various initiatives aimed both at creating a more responsive government as well as propelling economic activity. Japan began to see the emergence of an economic and political entity not unlike itself. Mr. Lee, who had assumed the presidency in 1988, proved to be quite different from his Kuomintang predecessors in introducing direct elections for the head of government, among other democratic reforms and economic liberalization measures.

After the Tiananmen Square incident in 1989, the Diet pendulum seemed to swing back in favor of Taiwan, when yet another group of young, forward-looking legislators swelled the ranks of the pro-Taiwan JTLA. These lawmakers hailed economic and political developments on Taiwan on the one hand while hammering Beijing for its human rights violations and authoritarian government on the other. As one policy expert explained, it was not a case of the JTLA coming out on top again. Rather, the composition of the pro-Taiwan and pro-China groups in the Diet had reversed completely: those supportive of Taiwan's interests tended to be younger politicians, while the pro-Beijing group consisted of the former Young Turks of the 1970s, who had become senior lawmakers.

Given the development of prosperous Japanese economic ties with both sides of the Taiwan Straits in the 1990s, however, having a foot in each camp is advantageous. Lawmakers who a decade ago may have been averse to supporting Taipei's Kuomintang government now are anxious to build informal bridges to Mr. Chen's incoming administration. At the same time, they want to keep official as well as unofficial lines of communication open to contacts in Beijing.24

While the various reforms begun under Mr. Lee helped reshape Japanese views toward Taiwan, insiders also credit savvy Taiwanese lobbying. In the United States, Taipei has been tremendously successful in creating a sizable and vocal pro-Taiwan lobby in Congress. The government has not been quite as successful in Japan, but knowledgeable sources nevertheless attribute the favorable change in legislators' views toward Taiwan to the skill of Taipei's representatives in highlighting the important changes that have been made on the island.

Lee Visit

Experts say that the expanding group of Taiwan sympathizers, while providing a more favorable backdrop for business and other informal interactions between Japan and the island, will not alter Tokyo's one-China policy. Japanese officials will continue to express Tokyo's hope that the issue of Taiwan's status can be resolved peacefully through a direct dialogue between Beijing and Taipei. As mentioned, the government has too much to lose, both in terms of economic and security-related interests, to risk alienating Beijing over this matter.

But Taipei's supporters in Tokyo very well could complicate Japan's balancing act — for example, by pushing for a visit by Mr. Lee later this year. Last December, Mr. Lee said that he hoped to visit Japan after he retired from the Taiwanese presidency in May 2000. Recognizing that his visit could cause problems between Tokyo and Beijing, the lame duck leader indicated that he understood "the issue of my visit is a headache for the Japanese government … [so] it's best for both parties to consider each other's positions, and let everything take its natural course."25 Although Mr. Lee technically would be visiting Japan as a private citizen, Beijing remains adamantly opposed to his setting foot on Japanese soil, arguing that it would represent "in whatever form and whatever capacity" Japan's tacit recognition of Taiwan's independence.26

Tokyo apparently is taking Beijing's words quite seriously. Japanese officials remember all too well how Mr. Lee's June 1995 visit to his alma mater, Cornell University in Ithaca, New York, plunged U.S.-China relations into a deep freeze and prompted Beijing's provocative actions in the Taiwan Straits the following year. Chen Jian, China's ambassador to Japan, further emphasized that Tokyo allows Mr. Lee to visit at its own peril, telling a Japanese television audience in mid-March that "[i]f Lee comes to Japan, it would damage the foundation of the Sino-Japanese relationship."27 These warnings, however, seem to have had little impact on some members of the pro-Taiwan lobby in the Diet and elsewhere.

Japanese officials indicated in late March that Mr. Lee's planned visit to Japan, in fact, would be canceled because the Kuomintang had lost the presidency to Mr. Chen's DPP. Mr. Lee apparently felt that it would be inappropriate for him to visit Japan in any capacity given the devastating nature of his party's electoral defeat. Undeterred by these reports, Tokyo Gov. Shintaro Ishihara, a former conservative Diet member and an outspoken proponent of Taiwanese interests, and other prominent LDP members announced their intention to host Mr. Lee following his transfer of power to Mr. Chen in late May. Mr. Ishihara also indicated that he would cooperate in arranging a visit to Japan by the president-elect before his formal installation. The outspoken politician added that he wanted to attend Mr. Chen's inauguration if invited.

Government insiders noted that Mr. Ishihara certainly is free to make friends overseas, but as a governor, he has no authority to engage in diplomacy. However, comments like these did not seem to assuage Beijing. Some observers have suggested that Chinese officials — impressed by the Tokyo governor's landslide win in 1999 (see JEI Report No. 15B, April 16, 1999), his previous cabinet experience, his personal popularity in Japan and his frequent coverage by the Japanese media — may be overestimating his influence. Beijing also was irked when Mr. Ishihara visited earthquake-hit areas of Taiwan in November 1999, becoming the first incumbent Tokyo governor to visit the island since Japan severed diplomatic ties 28 years ago.

Foreign policy professionals stress that Tokyo wants, at all costs, to avoid any action that might cause cross-straits tensions to flare as they did in 1996. A visit by Mr. Lee or any other Taiwanese official could cause just such a conflagration. Informed observers speculate that for this reason, Tokyo may decide that it simply is not worth the risk to regional stability to allow Mr. Lee to visit.

The dilemma that diplomats have yet to resolve, however, is how to discourage visits by Mr. Lee and/or Mr. Chen without offending Taipei and possibly jeopardizing the well-developed network of informal Japan-Taiwan economic and other ties. For the time being, Tokyo seems to prefer to sit tight and observe Mr. Chen's handling of his demanding new responsibilities.

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Outlook: All Parties Watch Mr. Chen

For that matter, all the major actors in East Asia appear to have adopted a wait-and-see approach on cross-straits diplomacy. Given Mr. Zhu's knee-jerk, aggressive reaction to Mr. Chen's election — "We will never hold any negotiations with any people and party that advocates Taiwan independence," he declared — officials in Washington as well as in Tokyo and other regional capitals feared that Beijing would be quick to pull the trigger.

To their relief, though, the Taiwanese president-elect quickly abandoned his fervent, preelection rhetoric calling for a separate state. He even pledged to remove the plank from the DPP platform that concerned the island's independence. Mr. Chen apparently recognized that as the political opposition, the DPP could take a hard-line stance on independence, but as the party in power, it behooved members to soften their position somewhat, particularly if they were to have any chance of engaging Beijing in productive discussions.

China Stands Down …

This conciliatory gesture, indeed, seemed to calm tempers in Beijing, according to Secretary of Defense William Cohen. On returning from a 10-day March tour of Asia (see JEI Report No. 12B, March 24, 2000), the Pentagon chief said in a television interview that while the potential for armed conflict between China and Taiwan persists, "both sides appear to have stepped back."28 Assistant Secretary of State for East Asian and Pacific Affairs Stanley Roth offered a similar assessment following his early April swing through Beijing: "We urged the Chinese leaders not to prejudge Chen Shui-bian, [and] the Chinese assured us that they would take a wait-and-see attitude."

Indicative of the region's volatility, though, DPP Chairman Lin I-hsiung may have set back progress with an early April remark urging China to understand Taiwan's position: "We have always been hoping that China will be able to understand very well our people's way of thinking. By visiting Taiwan, Chinese leaders could feel the island's political pulse and gain understanding of the Taiwan people's attitudes, [which would] enable them to design a better policy toward Taiwan," Mr. Lin told Kyodo Wire Service.29

…But Only Temporarily

Predictably, officials in Beijing reverted to their normal rhetoric. Although Mr. Zhu stopped short of declaring that China would use force to prevent Taiwan from establishing its sovereignty, he told his Singaporean counterpart, Goh Chok Tong, who was visiting Beijing in early April, that Beijing "by no means will allow Taiwan to separate from the mainland." The Chinese prime minister added that the status of Taiwan "is an issue of principle, and we will never give an inch on matters of principle."30

Noted U.S. defense experts also have refueled concerns about a worst-case scenario in the Taiwan Straits. An early April report by a group of nongovernmental analysts maintained that China had increased its arsenal of strategic missiles targeted apparently at Japan and Taiwan. The report, which was coauthored by Robert Manning of the Council on Foreign Relations, Ronald Montaperto of the National Defense University and Brad Roberts of the Institute for Defense Analysis, concluded that such modernization has been underway over the past two decades and will continue for the foreseeable future regardless of American diplomacy or military activities in the Asian Pacific. "Beijing apparently believes that advanced missile capabilities can be leveraged to secure its goals with respect to Taiwan without actual invasion," the report warned.31

This alarming analysis of Beijing's cross-straits strategy is all the more troublesome in view of a highly classified Pentagon document that identified a "host of problems" concerning the ability of the Taiwanese military to defend the island against aircraft, ballistic missiles and cruise missiles. Some experts worried that the 40-page report, leaked to The Washington Post in late March, would unfavorably sway the White House's decision about whether to sell sophisticated weapons to Taiwan.32 That fear was realized in mid-April when the Clinton administration announced that it would defer the sale of four Aegis destroyers equipped with advanced early-warning systems.

These analysts also are anxious that the high-profile focus on the serious chinks in Taiwan's military armor may invite more provocative behavior by China. As if to validate these fears, a Beijing-backed newspaper in Hong Kong reported in early April that the Chinese military had deployed additional troops, including a missile unit, for duty rotation in the coastal Fujian province opposite Taiwan.33

Experts on cross-straits diplomacy point out that domestic politics in China also may influence Beijing's behavior toward Taipei. They suggest that Mr. Jiang has relied too heavily on the Taiwan issue to bolster his prestige. His predecessor, the late Deng Xiaoping, maintained that Taiwan's reversion to the mainland was a matter for "future generations" to resolve. Mr. Jiang apparently has tried to distinguish himself by accomplishing this daunting feat on his watch. Faced with increasing discontent at home over the problems and the pitfalls of privatizing a vast, planned economy as well as growing public outrage over reports of corruption in the upper reaches of the government, the Chinese leader may find that he must resort to strong measures against Taiwan as a way of rallying nationalist sentiments and diverting attention from difficult domestic issues.34

Japan's Balancing Act Continues

Japan has been careful in the meantime to maintain a balance in its dealings with China and Taiwan. This caution may be due in part to the recent, unexpected change of government. In early April, former LDP Secretary General Yoshiro Mori was elected prime minister to succeed Keizo Obuchi, who was felled by a stroke (see JEI Report No. 15B, April 14, 2000). Although Mr. Mori has pledged to continue his predecessor's policies, the new premier, who does not have extensive diplomatic experience, may require additional time to get his bearings on a foreign policy issue of such acute sensitivity.

Tokyo still has not resolved the prickly issue of whether to host Mr. Lee or any other current or former Taiwanese official. As often has been the pattern on other difficult foreign policy matters, Japanese policymakers probably will try to buy as much time as possible before making a decision. The delay would give diplomats in Tokyo the opportunity not only to evaluate Mr. Chen's leadership but also to better gauge China's propensity for military provocation. In any event, insiders insist, Japanese officials are unlikely to be swayed by Taiwan's savvy public relations efforts or pro-Taiwan legislators. Above all, Tokyo will resist efforts by Beijing, Taipei or even Washington to force it off the fence.

Andrew Hayashi provided research assistance.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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Notes
aaa

1aa Julian Baum, Dan Biers and Susan V. Lawrence, "Chen's Chance," Far Eastern Economic Review, March 30, 2000, p. 19. Return to Text

2aa "Tensions Over Taiwan Not In The Interest Of Anyone," Asahi News, March 21, 2000. Available at http://www.asahi.com/english/english.html. Return to Text

3aa Baum, Biers and Lawrence, op. cit., p. 19. Return to Text

4aa See Barbara Wanner, "'Asian Contagion' Heightens Concerns About Regional Security," JEI Report No. 15A, April 17, 1998, for an analysis of the impact of the 1997-99 East Asian financial and economic crisis on cross-straits relations and other regional security matters. Return to Text

5aa Similarly, Washington's affairs are handled through the American Institute in Taiwan, while Taipei maintains ties through the Coordinating Council for North American Affairs. Return to Text

6aa Christopher B. Johnstone, "Japan's China Policy: Implications for U.S.-Japan Relations," Asian Survey, XXXVIII, No. 11, November 1998, p. 1080. Return to Text

7aa Christopher B. Johnstone, "'Managing' China: American And Japanese Policies And Prospects For Cooperation," JEI Report No. 13A, April 5, 1996. Return to Text

8aa Mike Mochizuki, "Japan and the Strategic Quadrangle," in Michael Mandelbaum (ed.), The Strategic Quadrangle (New York, New York: Council on Foreign Relations Press, 1995), p. 134. Return to Text

9aa Johnstone (1998), op. cit., p. 1072. Return to Text

10aa Johnstone (1998), op. cit., p. 1070. Return to Text

11aa Johnstone (1998), op. cit., p. 1071. Mr. Johnstone also provides in-depth analyses of Japan's efforts to foster greater cooperation with China in securing stable energy supplies through joint exploration and development as well as Tokyo's deliberate targeting of foreign aid for environmental projects. Return to Text

12aa Department of Commerce, Bureau of the Census, International Data Base (updated March 21, 2000). Available at http://www.census.gov/ipc/www. Return to Text

13aa Eric Altbach, "Japan-China Relations: Challenges And Prospects," JEI Report No. 11A, March 20, 1998, p. 7. Return to Text

14aa Ibid. Return to Text

15aa Johnstone (1998), op. cit., p. 1073. Return to Text

16aa Johnstone (1998), op. cit., p. 1072. Return to Text

17aa Ministry of Foreign Affairs, Japan's Official Development Assistance Annual Report, 1999 (Tokyo: 2000), p. 229. Return to Text

18aa Cited in Johnstone (1998), op. cit., p. 1080. Return to Text

19aa Johnstone (1998), op. cit., p. 1083. Return to Text

20aa Johnstone (1996), op. cit., p. 2. Return to Text

21aa See Johnstone (1996), op. cit., for the specific language of the 1979 Taiwan Relations Act. Return to Text

22aa Asako Ishibashi, "Tokyo Deals Gingerly With Taiwan," The Nikkei Weekly, March 27, 2000, p. 6. Return to Text

23aa Ibid. Return to Text

24aa "The New Structure Of The Taiwan Straits," Asahi News, March 22, 2000, p. 1. Available at http://www.asahi.com/english/english.html. Return to Text

25aa Ishibashi, op. cit. Return to Text

26aa "Beijing Remains Opposed To Lee's Japan Visit," Kyodo Wire Service, March 21, 2000. Return to Text

27aa Ishibashi, op. cit. Return to Text

28aa "Cohen: China, Taiwan Stepping Back From Conflict," Reuters Wire Service, March 24, 2000. Return to Text

29aa Susanne Gan, "DPP Leader Urges China To Understand Taiwan's Stance," Kyodo Wire Service, April 6, 2000. Return to Text

30aa "China Premier Vows No Independent Taiwan, No Threat Of Force," Kyodo Wire Service, April 10, 2000. Return to Text

31aa "China Boosting Missiles Targeted At Japan, Taiwan," Kyodo Wire Service, April 7, 2000. Return to Text

32aa Thomas E. Ricks, "Taiwan Seen Vulnerable To Attack," The Washington Post, March 31, 2000, p. A1. Return to Text

33aa "China Sends More Troops To Fujian," Kyodo Wire Service, April 8, 2000. Return to Text

34aa "Fear And Hatred Typify Taiwan Presidential Vote," Asahi News, March 27, 2000. Available at http://www.asahi.com/english/english.html. Return to Text

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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