Will China invade Taiwan?

Peking's military threats could be the first rumbles of a greater earthquake, say Steve Crawshaw and Stephen Vines
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It sounds like a scenario from an over-excitable Hollywood screenwriter pining for old, Cold War-style scenes of apocalypse with Communist soldiers rushing from landing craft to invade a tiny capitalist island. Except that this is not Hollywood. The drama is real. The chances of an armed conflict between the People's Republic of China and the "Republic of China" - in other words, the island of Taiwan - are greater than at any time for decades. That, in turn, would be much more than just a regional fracas. If such a conflict breaks out, then the United Stateswould find it hard to stand by and watch Taiwan attacked.

Taiwan has existed in a diplomatic limbo - not quite recognised, not quite ignored - since 1979, when the US transferred its official recognition from Taipei to Peking, in the wake of President Nixon's visit to China a few years earlier. What is at stake now is whether Taiwan can continue in that limbo. One way or another the outcome will be a defining moment, not just for Taiwan but for mainland China, too. China is changing dramatically and is certain to change further in the next few years. In the early part of the next century it could emerge as one of the most powerful economies in the world. Taiwan, for its part, is already a world-class economy.

Taiwan wants to distance itself from mainland China; mainland China, increasingly self-confident, is determined to lock Taiwan in. At stake is the future political map of the world's most dynamic economic region. Something will have to give - China's ambitions to bring its renegade province to heel or Taiwan's ambitions for greater independence - before that new order will emerge.

The trading halls of Taiwan's broking houses are usually crammed full of people playing the market as if it were the only game in town. Nowadays, the halls are emptier. Trading volumes on the Taiwan stock exchange have slumped.

Even more than elsewhere in the world, the stock market in Taiwan is a bellwether of opinion. When investors start selling, it is a sure sign that uncertainty is gripping the nation. The stock market index has lost 34 per cent since the beginning of last year, including 8 per cent in the past six weeks. Everyone is waiting to see if China is serious.

Chinese military exercises on a mass scale (involving 400,000 troops, according to some reports) are planned, possibly as early as tomorrow, in the Taiwan Strait, in an attempt to intimidate the Taiwanese, ahead of key presidential elections next month - the first free presidential elections that Taiwan has ever held. Peking, happy to up the ante, has not denied reports of a possible invasion. The exercises seem part of a worrying escalation of the Chinese arms race: Taiwan has signed contracts for 150 F-16 fighters and 60 French Mirage warplanes. China has reportedly signed for 72 Russian Sukhoi-27 fighters.

This arms build-up is simply the most alarming expression of a tension that has been building up for decades. After the Communists drove Chiang Kai-Shek's Kuomintang army out of mainland China in 1949, the Republic of China began its life as a kind of government-in-exile.

For many years, the People's Republic of China and the Taipei-ruled "Republic of China" shared a common agenda, in one respect at least. Both sides argued that Taiwan was not a country, merely a Chinese province. Peking believed that Taiwan was rightfully part of the People's Republic; Taipei believed the rest of China should be ruled by the Taiwan's Kuomintang. China regarded the island as rightfully its own. Only five years ago, Taiwanese citizens were still being arrested for advocating Taiwanese independence, because such views abandoned the idea that Taiwan's government was the national Chinese government.

This is not the first time that Peking has used force to press its case: in 1958, for example, mainland China fired almost half a million shells on the little Taiwanese-held island of Quemoy. Only the military backing of the US Seventh Fleet for Taiwan helped to persuade the Chinese to back off from a full-scale invasion.

Gradually, however, as the rest of the world began to recognise the regime in Peking, Taiwan's claim to represent all China became increasingly forlorn. At the same time, Taiwan's outstanding economic success helped it to stand more on its own. There was less interest in reuniting with the mainland, just 90 miles across the straits. Out of this new economic self-confidence a sense of Taiwanese identity slowly started to grow.

The rigidly authoritarian regime of the post-war years began to crumble at the edges, as Taiwan - Formosa, "the beautiful island", as the first Portuguese settlers called it - learnt to stand on its own feet.

That is why the Taiwanese president, Lee Teng-hui, has pressed for greater international recognition of Taiwan. He insists that does not mean independence, though Peking tries to argue differently (Mr Lee says this is "standing truth upon its head"). But even without full independence, the trend is clear. As Taiwan gets more economically powerful, it will become increasingly difficult to regard it as a non-playing outsider, an embarrassing midget which the West can simply ignore. The high-profile "private" visit by President Lee to the United States last year was one acknowledgement of that obvious fact. To get a visit, the US had to issue the president with a visa, the closest it has come to a formal recognition of his status. The visit infuriated Peking and served as a catalyst for last year's renewal of military threats.

When China began stepping up the pressure last summer, opinion polls suggested that most people in Taiwan were prepared to resist a Chinese attack. But the long queues that began to form for emigration visas told a different story and many Taiwanese began shifting their money out.

Now the Taiwanese government, anxious to dampen the speculation which has already affected the markets, insists it has "no evidence" that military exercises are planned. The United States, too, insists that it does not see an "imminent threat" - but warns of possible unspecified retaliation if Peking should go too far.

In Peking and in Washington, the messages are ambiguous. A potentially lethal game of poker is under way with Taiwan as the pot.

One reason for continuing uncertainty about Peking's real game plan are the divisions within the Chinese leadership, with the military apparently taking the lead. The South China Morning Post this week reported that the Chinese president, Jiang Zemin, had failed to dampen the enthusiasm of hardline military leaders for military action.

If the military is in the ascendant, then the West's response to these military threats may set the tone for relations with an increasingly assertive China in the run-up to its takeover of Hong Kong in 1997.

Gerald Segal, of the International Institute for Strategic Studies, argues that the most likely outcome is not invasion. But he notes: "When anybody moves this many troops around, you'd be crazy to ignore it. We made that mistake with Saddam Hussein, in 1990. The Chinese are on a ladder of escalation. They don't quite know where they are - but they're moving up."

He notes, too, that the West has been reluctant to condemn China's threats and brinkmanship too loudly: "If any other country had behaved like this, it would long since have been condemned in the UN Security Council."

Richard Grant, of the Royal Institute of International Affairs, suggests there is no reason for panic since both sides know when to pull back. "We're seeing the Chinese lay down a marker, throw down a glove, saying: 'We'll go over the edge to protect the principle of one China'. But are they going to go over the edge? No. And are the Taiwanese going to declare independence? No."

Not all are so sanguine. Antonio Chiang, publisher of the influential political magazine the Journalist, believes that China is miscalculating the mood of the Taiwanese public. He argues that China's strategy is to "terrify the Taiwanese people and by doing that they hope to divide Taiwanese society". But he argues, too, that Lee Teng-hui, the main target of Chinese anger, is likely to gain strength in his new role as the people's defender.

Matters may come come to a head after the presidential election on 23 March, which is expected to give President Lee an overwhelming mandate - an even larger share of the vote, perhaps, than he could have expected without China's campaign against him. China insists that Mr Lee's talk of increasing diplomatic links is a hidden bid for independence.

In a sense, the Chinese have a point. Diplomatic links are, after all, directly related to the concept of recognising an independent state. The Taiwanese might reasonably argue that if the world can recognise Croatia, it must be willing to recognise an economy as powerful as Taiwan.

Even if there is no apocalypse - and it is important to note that Taiwan, despite the stock market jitters, is still by no means seized with panic - these problems are deep seated, intractable and could take years to resolve.

Taiwan is now a key player on the international economic stage - it is the world's 12th-biggest trader and has the world's second-largest foreign exchange reserves. How can the democratically elected president of a booming Taiwan not be received by American and European leaders? And yet, how can Peking explain away its loss of face on its single most important foreign-policy issue, if Taiwanese leaders are feted worldwide as leaders of an independent state?

Already mainland China and Taiwan are economically entwined, more than would have seemed possible until just a few years ago. Until 1987, visits to mainland China were banned by the Taiwanese government. Now the links between Peking and Taipei are huge. Taiwanese investment in mainland China rose to more than $1bn last year alone.

This is a region where everything is in flux. Next year comes the handover of Hong Kong to China, where the "one country-two systems" philosophy will be put to the test. And, some time in the not so distant future, China's ancient leader, Deng Xiaoping, will die. When that happens, all bets are off.

What we are witnessing are the first rumbles of the earthquake which may engulf the region in years to come.