Young Taiwanese want out, The old still look to China

Since its first democratic presidential election in 1996 Taiwan, once an autocracy in which the Kuomintang (KMT) nationalists tyrannised the locals, has moved rapidly towards democracy. It enjoys free media, multiple parties, and a standard of living that has washed away the sharp economic distinctions that used to exist between those Taiwanese who had lived on the island for centuries and the domineering Chinese who arrived from the mainland after the Communists took power there in 1949.

Since its first democratic presidential election in 1996 Taiwan, once an autocracy in which the Kuomintang (KMT) nationalists tyrannised the locals, has moved rapidly towards democracy. It enjoys free media, multiple parties, and a standard of living that has washed away the sharp economic distinctions that used to exist between those Taiwanese who had lived on the island for centuries and the domineering Chinese who arrived from the mainland after the Communists took power there in 1949.

On 18 March it will hold its second democratic presidential election. And young Taiwanese, born on the island, are bored with the KMT's obsession with past history. Many would like Taiwan to move away from the ambiguous position it has adopted for the past 50 years, in which it recognised the indivisibility of China, but enjoyed most of the prerogatives of an independent state, and assume full independence.

These are the natural supporters of the opposition front-runner Chien Shui-bian, whose Democratic Progressive Party is committed to independence, subject to the agreement of the people in a referendum. By combining his pro-independence message with attacks on the corruption of the ruling KMT, Mr Chien has won over many hearts and minds. The nationalists have been in power for 50 years, and control a substantial slice of the country's strong and fast-growing economy. Many Taiwanese are more than ready for a change.

But Mr Chien's agenda has proved a dangerous one. China was upset last month when President Lee Teng-hui referred to relations with China as "special state-to-state relations". It was even more upset when the dreaded "I" word surfaced in the election campaign. On 21 February - immediately following a visit to Peking by US deputy secretary of state Strobe Talbott - the State Council declared that China would have to take drastic measures, including the use of military force, if Taiwan went on dragging its feet over unification.

China's tactics are crude but they have already had some effect. The Taiwanese stock market has dropped, and the presidential candidates are trying to calm the situation by saying that no move will be made towards independence in the near future. In addition, the Taiwan authorities have repeated they are not opposed to unification, provided China herself embraces democracy.

The outcome of the election may well reassure China. Jason Hu, former foreign minister and now campaign manager for the KMT, insisted that his party would win the election, not least because of its candidate's reputation for caution. That candidate, Lien Chan, is almost certainly China's preferred choice. The KMT is already buying votes in time-honoured fashion in the countryside.

China, however, is passing through a difficult, even critical, time. Downsizing of the huge, inefficient state enterprises has led to millions being unemployed - estimates go as high as 150 million. Tens of millions are on the move, looking for some kind of livelihood, and for most that means the big cities of the eastern seaboard, the "capitalist road" successes of Guangdong, Shanghai, Peking, and the dreamland on the edge, Hong Kong.

These cities, with their skyscraper offices, neon lights and hotels, are a Mecca for the poverty-stricken peasants of east and central China. But they may not move freely; to live in China's booming eastern cities requires a permit rarely granted. Beyond that, vast areas of western China have hardly begun to move into the last century, let alone this one.

China's leaders, themselves divided between the young modernisers and the old dinosaurs of the Communist past, face a crisis of succession. The man among them most aware of the problems of economic transition is Zhu Rongji, the present Prime Minister. He is also one of the few leaders untouched by suspicion of personal corruption. But he is retiring, at his own request, to study Chinese literature.

President Jiang Zemin is due to stand down too, but it is unlikely he wilI do so. The National People's Congress, China's one-party equivalent of parliament, meets from today for a week or more. It has no power to speak of, but it is an important platform; there the president may make his wishes plainer.

The younger men, keen to get on with modernisation, meet each other at Western-style wine and cheese parties to complain about their slow-moving elders. These people think their cause would be helped by China's early admission to the World Trade Organisation, and believe it is hindered by the opposition to admission within the US Congress. What has happened in Hong Kong in the past three years, however, encourages them.

China has refuted the doomsday prophesies about what would happen once Britain left the colony in 1997. Dr Anson Chan, the deputy chief executive there, assured me that investors were putting money into Hong Kong and that it was once again growing at a rapid pace. Equally encouraging, many of the Chinese who fled the colony in 1997 have now returned, even if some retain a toehold somewhere else.

Taiwan is not Hong Kong. But Hong Kong's influence on China is great, and Taiwan's could be greater still. It has three times as many people, far more territory, and could survive on its own. It is already the largest investor in China, does 10 per cent of its trade with the mainland, and could be a showcase of democracy as its big neighbour comes to terms with the internet age.

Many of China's leaders are reluctant to leave the familiar if rickety structure of a one-party state; hence the sudden capricious acts of repression and brutality. These leaders are superstitious and frightened of change. One business acquaintance of mine who knew him well told me that President Jiang Zemin had read about the fall of the Roman Empire, and saw in the devastating Yangtse floods of last year and in the Falun Gong demonstrations this year, terrifying analogies with that apocalyptic time.

On the other hand China's modernisers, as yet people of influence rather than power, want to grasp the opportunities globalisation offers, and do not fear the inevitable consequence of a more open and democratic society. The rhetoric of conservative nationalists in Peking - and indeed in Washington - could, however, turn an opportunity into a crisis. Bill Clinton will deserve the world's gratitude if, in the final year of his presidency, he prevents that from happening.