China Names Price for Helping U.S. -- Taiwan

[bigpoppanils]

China Names Price for Helping U.S. -- Taiwan: William Pesek Jr.

Dec. 12 (Bloomberg) -- China has named its price for playing nice with Washington: Taiwan.

The Bush administration's move to grant China its wish, siding with Beijing on the Taiwan issue, marked a shift in U.S. policy. It discarded the Clinton administration's policy of ``strategic ambiguity'' on Taiwan declaring independence in favor of explicit opposition. It could have big implications for Taiwan's economy and markets.

``Every single investor will have one question: How do you manage the systemic political risks caused by all this?'' says Rex Lin, a Taipei-based economist at ING Barings Securities Ltd.

While it's hard to quantify, markets often react badly when a nation's leader runs afoul of the world's biggest economy. So far, Taiwanese stocks haven't fallen and bond yields haven't widened. Yet the risk of both outcomes is on investors' minds.

That Standard & Poor's yesterday felt the need to reaffirm Taiwan's AA credit rating says it all. While it left the island's debt outlook stable, the ratings company saw Taiwan's latest flare-up with China significant enough to reassure debt investors a downgrade wasn't imminent.

The Trade Issue

It's no mystery what informed U.S. President George W. Bush's decision. Trade, for one thing. China is the world's most dynamic economy and the U.S. doesn't want to alienate a rising trade superpower -- especially one that owns so many U.S. Treasuries. Washington also wants Beijing's help in calming tensions with North Korea and in the war on terrorism.

The irony of all this shouldn't be lost. Bush went to war to bring democracy to Iraq, yet on Taiwan he's willing to let a democratically elected leader -- Chen Shui-bian -- bow to a Communist regime. It's not what you would expect a Republican administration to do, especially one that came to office disagreeing with its predecessor's efforts to cozy up to China.

U.S. neoconservatives weren't happy. ``The president's statement is a mistake,'' Project for the New American Century directors Robert Kagan, William Kristol and Gary Schmitt said in a statement. ``Appeasement of a dictatorship simply invites further attempts at intimidation.''

But then, Taiwanese President Chen may have brought this on himself and, worse, his nation's 23 million people. Chen has overplayed his hand on the independence issue in recent weeks, provoking Beijing. More and more, it appears he's doing it not for the advancement of his nation but his own election prospects.

`Strategic Competitor'

Bush came to office more pro-Taiwan than the Clinton administration. Knowing that, and in light of the U.S. traditional pledge to defend Taiwan, Chen has pushed the limits of U.S. support and tolerance. His recent campaign to pass laws allowing referendums spooked Beijing, which has long threatened war if Taiwan formally declares independence. Bush this week signaled the limits of that support.

The episode shows China's rising importance in the eyes of a White House that came to office viewing it with suspicion and calling it a ``strategic competitor.'' Let there be no doubt the world's most populous nation is now a strategic partner for the U.S.

Bush's was a political decision based on economic realities. When Taiwan was an Asian tiger in the 1990s and the U.S. had growing trade and foreign direct investment interests there, Washington could afford a ``strategic ambiguity'' policy and tow a hard line on Beijing. Now, economic realities have shifted in China's favor.

Corporate giants like Applied Materials Inc., Boeing Co., Eastman Kodak Co., General Motors Corp., Hewlett-Packard Co. and Motorola Inc. all see China as the key market in which to be. Facing re-election in 2004, Bush is cozying up to China in ways few could've fathomed three years ago.

Taiwan's Markets

To keep the peace, Bush is paying lip service to Beijing's worries over Taiwan. The quid pro quo, it seems, is that Beijing will pay lip service to Washington's fears that China's currency is undervalued is costing U.S. jobs. And so, Taiwan finds itself on the negotiation table.

Markets have taken all this in stride. Bond yields haven't moved much and Taiwanese stocks fell just 1 percent Wednesday, following Bush's policy shift. Investors seemed to conclude that Bush's rebuke would force Chen to back down, calming tensions.

That's likely to serve investors better than a major confrontation that pits Taipei against Beijing and forces Washington to take sides militarily. After all, Taiwan's markets have far more to gain from peace and observers figure that's the most likely outcome.

Ping Chew, director of S&P's Asia-Pacific sovereign ratings, suggests as much. Chen's controversial plan to hold a referendum calling on China to remove missiles it has aimed at the island ``needs to be seen in the context of campaigning for the March 2004 presidential election,'' Ping says.

Economic interests are likely to trump political ones.

``Taiwan's economic future is tied ever more closely to a prosperous and market-oriented China,'' says Donald Straszheim, president of Straszheim Global Advisors Inc. ``Taiwan is a big direct investor in China. We know of no scaling back on businesses' China strategy. Taiwan remains a great backdoor play on China.''

Last Updated: December 11, 2003 13:06 EST

http://quote.bloomberg.com/apps/news?pid=10000039&cid=pesek&sid=aEVGvm9ECDVY

[pattbateman]

who cares. they are all talk in asia. all they want is our attention to help them out of some kind of hole they dug themselves into.

[jamiroguy1]

Originally posted by pattbateman

who cares. they are all talk in asia. all they want is our attention to help them out of some kind of hole they dug themselves into.

Ignorant.

[pattbateman]

you know its the truth example:north korea

[kramadas]

Originally posted by jamiroguy1

Ignorant.

yeah, I agree.

[bigpoppanils]

Originally posted by pattbateman

who cares. they are all talk in asia. all they want is our attention to help them out of some kind of hole they dug themselves into.

how profound