Dealing with Sanctions from China

Chances are good that China will impose some form of sanctions to protest the election of Tsai Ing-wen as Taiwan’s new president. But the sanctions’ political bark may turn out to be far worse than their bite — as long as Taiwan responds to them intelligently
Photo: J. Michael Cole / Thinking Taiwan
Photo: J. Michael Cole / Thinking Taiwan
Peter Enav
By

It may be possible to argue that China has moderated its stance toward the Democratic Progressive Party (DPP) over the past year or so, amid growing indications that the party will come to power following Taiwan’s presidential and legislative elections on Jan. 16, 2016. The fact nevertheless remains that Beijing’s attitude toward the DPP is still pretty hostile. The clearest indication of this came earlier this year when no less a light than Chinese leader Xi Jinping (習近平) excoriated the “separatist forces of Taiwan independence,” saying they threatened “national sovereignty and territorial integrity.” Moreover, Xi said, Taiwan’s independence forces “are the biggest hindrance for the peaceful development of the cross-Strait ties, the biggest threat of the cross-strait stability and therefore should be resolutely opposed.” This was an obvious reference both to the DPP and the woman at its head.

Among other things, Xi’s comments seem to suggest that China might well impose anti-Taiwanese sanctions in the increasingly likely event that Tsai Ing-wen (蔡英文) is elected Taiwanese president in two and a half months’ time. To be sure, it could still decide to do otherwise. Given its apparent desire not to alienate the people of Taiwan any further (the KMT’s overwhelming defeat in the 2014 local elections was a real wake up call for Taiwan decision makers in Beijing), it might easily decide to give Tsai an extended grace period before it starts getting tough — perhaps as long as 18 months.

But don’t bet the farm on that. Based on China’s strong disinclination to compromise on issues involving its periphery — think the Umbrella Movement in Hong Kong, for example, or Uighur “separatists” in Xinjiang — the chances are good that such sanctions will indeed be imposed. The only thing that could stop this is Tsai’s readiness to accept the 1992 Consensus — the supposed agreement between the Chinese Communist Party (CPP) and the Chinese Nationalist Party that Taiwan is part of China, and not coincidentally, the effective basis for all the considerable progress that was achieved between the sides during the soon to be terminated administration of President Ma Ying-jeou (馬英九). But the chances of Tsai actually doing this are virtually nil — notwithstanding her studied refusal to publicly reject the consensus since winning the presidential nomination. Not only is the consensus in and of itself anathema to DPP doctrine, it also goes against the prevailing sentiments of the majority of Taiwanese, to say nothing of Tsai’s own beliefs, at least as she expressed them during Lee Teng-hui’s (李登輝) presidency, when she helped author the “state-to-state” doctrine for China-Taiwan relations.

So assuming that Tsai does stick to her guns, and that sanctions are indeed imposed, what are they likely to consist of? The short answer is: anything that makes Tsai and the DPP look bad in the eyes of the Taiwanese electorate. This is because China would still like to see the KMT pull itself back together after the difficult reverses it has encountered over the past 24 months. This may now seem a bit fanciful, but in the absence of another strategy, it is basically what China has going for it. All the alternatives (including the use of military force) are far worse, and will only be applied in truly dire circumstances.

Accordingly, not long after Tsai is sworn in, look for China to initiate the following specific measures:

1. Poaching Taiwan’s diplomatic allies: In China’s eyes Taiwanese sovereignty is hanging by a thread. One important part of the thread is the diplomatic recognition Taiwan still receives from 22 countries around the world. Limit that recognition, it believes, and you go a long way to undermining its sovereignty. Putative targets here include first and foremost Paraguay and Nicaragua — not only are they arguably the most important states still recognizing Taiwan, but they showed a strong interest in shifting that recognition to Beijing during the Ma presidency, and were only dissuaded from doing so by China itself, this as part of its limited diplomatic truce with the Ma government. Beyond stealing diplomatic allies, China could also move to further limit Taiwan’s already nearly non-existent participation in international organizations (that participation is currently restricted to observer status in the World Health Assembly and the International Civil Aviation Organization) and to prevent a further expansion of its free trade agreements, which are extremely circumscribed anyway. Finally, if China really wanted to damage Taiwan, it could choose to get off the dime and finally recognize the Vatican. In one fell swoop, this would create strong disincentives for the 12 heavily Catholic countries now maintaining relations with Taipei (they are all in Latin America and the Caribbean) to continue doing so. That could leave Taiwan with as few as only ten diplomatic allies, which would not be an easy blow to recover from.

2. Undercutting Taiwan commercially: Thanks in large party to the policies of the Ma administration, China has a huge amount of economic leverage on Taiwan. This includes accounting for 40 percent of its foreign trade, underwriting the lion’s share of its tourist industry, and absorbing most of its foreign investment. By pulling the plug on any of these sectors China would go a long ways toward weakening Taiwan — unless of course Taiwan had alternative plans of its own to compensate for the prospective economic losses. Tourism seems a particularly alluring Chinese target. Last year about 4 million Chinese tourists visited Taiwan, spending nearly US$12 billion. A reduction in these figures would obviously constitute a big economic blow to the Taiwanese economy. So too with the limiting of Taiwanese agricultural exports to China, which help keep many farmers in southern Taiwan afloat. These are exceedingly vulnerable sectors, which China could choose to attack without very much effort.

In the aggregate, then, it appears that there is a lot China can do to undermine Taiwan’s political and economic position. But a closer look at Taiwan’s situation — and China’s capacity to influence it — strongly suggests that as painful as some of the sanctions may be, their effect could still be limited, particularly if Taiwan confronts them intelligently. Such an approach would not only safeguard Taiwan’s economic and political position, it would also mitigate the sanctions’ effect on the Taiwanese electorate, which at the end of the day appears to be their main target. But to put it in place will require some serious high-level thinking.

Nowhere more so than on questions regarding Taiwan’s diplomatic space. One of the new government’s main challenges will be to deal effectively with outsized public expectations, which have been fed by a predatory and irresponsible media. That media unreasonably expects every Taiwanese government to hold onto each and every one of the country’s diplomatic allies. One of the media’s big knocks against the Chen Shui-bian (陳水扁) government was that it lost a whole slew of countries to China during its eight years in power — countries like Senegal and Chad. It will almost certainly come down hard on Tsai if she starts losing countries too.

But almost certainly she will. To begin with, Paraguay and Nicaragua are probably already forfeit. Beyond these two, it is not out of the question that Taiwan will also lose two or three others, probably in the Caribbean and Latin America. A Vatican defection would further open the floodgates, but at least for the time being, that seems unlikely, given Beijing’s unwillingness to change its position on naming Catholic bishops within the country — the key sticking point in its establishing relations with the Holy See. Even so though, Taiwan will still probably be down to only 15-18 diplomatic allies by the time Tsai’s first term is over. The challenge for her will be to portray these losses in the best possible light. But how can she possibly do this?

Her most useful strategy (beyond the obvious exercise of trying to temper unreasonable public expectations) probably lies in emphasizing the fact that notwithstanding any diplomatic losses, Taiwan’s really important diplomatic connections not only remain in tact, but in fact, are demonstrably stronger than at any time over the past 20 years or so. These are the connections with Japan and the U.S. A newly elected President Tsai could point with pride to her pre-election trips to Tokyo and Washington and to her successful meetings with senior Japanese and American officials there. She can also say with authority that Tokyo, Washington and Taipei are on the same page regarding security arrangements in the western Pacific, which particularly in light of rising American and Japanese disquiet with Chinese maritime expansiveness in the South China Sea and elsewhere is an altogether accurate statement. In and of itself, this will go a long way toward calming local opinion and putting the loss of the diplomatic allies in the political perspective it deserves. It won’t mitigate the losses entirely, but it will have a useful effect. It is surely the way to proceed.

Regarding free-trade agreements and participation in international organizations, there is really very little for Tsai to worry about. This reflects the fact that Ma’s many stentorian boasts to the contrary, Taiwan actually accomplished very little here. While it is true that these connections may dry up further under Tsai, the fact of the matter is that they were already very dry to begin with. No one will notice much difference.

The economy, however, is a very different kettle of fish. Here China appears to have the capacity to do Taiwan some real harm. This is particularly true in the areas of Taiwanese agricultural exports to China, and Chinese tourism to Taiwan. To mitigate the effect of possible Chinese sanctions here, the new Taiwanese government should move decisively to develop alternative markets both for tourist inflows and produce outflows. In the case of agriculture, this means going hard after Japan, and other countries in the region as well, and at the same time, doing its best to wean Taiwan off of its general economic over-dependence on China, which in retrospect, will probably be seen as one of the more unhealthy aspects of Ma’s entire China outreach program — particularly now, as strong signs emerge of an accelerating Chinese economic slowdown. In the case of tourism, it means developing a far-reaching marketing campaign to leverage Taiwan’s many historical assets. If Malaysia can be successful with “Malaysia, Truly Asia,” then Taiwan can certainly be successful with “Taiwan: Where It All Comes Together,” or some similar formula that manages to capture the rich essence of Taiwan’s exceptionally variegated past. It needs some imagination but it isn’t really that hard. It just requires some work.

 

Peter Enav was head of The Associated Press bureau in Taiwan from April 2005 to April 2014.

One Response to “Dealing with Sanctions from China”

October 27, 2015 at 10:05 pm, Fuankio So said:

In terms of diplomacy and geopolitics, economic sanctions should be adequate to trigger Taiwan Relations Act Section 2.2.6., giving US administration the opportunity to take actions. Gradual sanctions result in gradual US and Taiwan actions. Swift sanctions result in swift US and Taiwan actions. Either way, sanctions will backfire. The worst case for China is to create a “West Berlin” across the strait.

If one is to claim that more cross-strait exchange means more Chinese influence over Taiwan, then one cannot deny that less exchange means reduced Chinese influence. You just can’t have it both ways. Another key concept to grasp is that, if one believes that money can buy power and influence, then by the same token, one looses power and influence immediately when he stops paying money.

Similarly for Taiwan, if over-dependence on China is risky, then under-dependence is less risky. You just can’t have it both ways.

You see, economic sanctions simply redirect supplies from Taiwanese vendors to non-Chinese buyers. (Non-Chinese buyers include Taiwanese buyers.) It makes these non-Chinese buyers more competitive, and it makes those Chinese buyers (or whoever is buying from locations within China) less competitive, by the principle of supply and demand.

Thus the responsibilities of the new government are all of the following:
1. to facilitate Taiwanese vendors in their pursuit of new accounts and new markets elsewhere;
2. to facilitate Taiwanese vendors to build up domestic production capacity to compensate for their loss of production capacity in China. (assuming if they currently fulfill some of their orders from their locations in China)
3. to facilitate domestic buyers and domestic supply chains to build up capacity, with the goal of outperforming their competitors in China.
– Building up capacity entails bringing in labour from countries other than China, and making such import beneficial to both parties.
4. as a rule of thumb, facilitate the competitiveness of supply chains located outside China.

Don’t forget to impose export control to neutralize China’s selecting targeting one Taiwanese vendor in favour of another. This measure is to make sure such Chinese sanctions will “hit their own guy” equally and fairly. Similarly, don’t forget to impose import control to punish Chinese exporters and mailers into Taiwan. Yes, don’t forget those mailers.

While the New Government dishes out carrots to reward those Taiwanese businesses who bypass China, the New Government should land the stick harder on those Chinese-owned assets in Taiwan. The New Government should follow the stick and carrot approach by the book. To name a few sticks, the New Government can employ measures that amount to effectively a seizure of Chinese assets. The New Government can compensate existing domestic producers/vendors at the expense of those Chinese assets. Let us simply assume China is fully aware of the certainty of collateral damage.

Retaliation at the expense of existing Chinese interests and assets on Taiwan should be synchronized with China’s sanctions, so that there is no misunderstanding of who is the trouble-maker. How skillfully this is done is ultimately a factor of how organized and efficient the New Government is.

Dwindling Chinese influence on Taiwan provides a window of opportunities to China’s competitors (again, those include domestic Taiwanese businesses and non-Chinese investors in Taiwan) to move in a grab bargains, including cheap loans, vacated market share, and vacated asset. It is an opportunity for upstarts to feast on the carcasses of dinosaurs, and drive the next wave of growth.

The prospective government should start working on building a “tool kit” already.

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