The world held its breath today as a superpower conflict erupted in East Asia. In response to Taiwan’s formal declaration of independence, China is mar-shalling its invasion forces. The USA and Japan have countered by announcing they are ready to intercede immediately. Amidst rising tension and furious global diplomatic activity, armed forces are on full alert.

The South China Sea region, containing the Malacca Straits and the Straits of Taiwan, is the world’s second busiest inter-national sea-lane – a main super highway in the global economy. More than 50% of global supertanker traffic passes through the region.

Since 1949, the People’s Republic of China has viewed the island of Taiwan as a renegade province. A formal declaration of independence is one of three conditions under which China has stated it would reclaim the island of Taiwan by force. Under the 1979 Taiwan Relations Act, America made it clear it would be ready to defend the island.

There have been numerous verbal skirmishes between China and the USA concerning the future of Taiwan. Despite the increasing tension between the two countries, diplomatic pressure, the desire to attract inward investment and the reluctant acknowledgement of globalisation by China, had resulted in maintaining the status quo – until today.

The economic ramifications of a Chinese-controlled Taiwan are huge. Apart from its crucial role in shipping, the island continues to produce nearly 50% of the world’s microchips, despite increasing competition from South Korea. Aside from the political implications, foreign companies are watching the situation closely.

ANALYSIS >> SYNTHESIS: How this scenario came to be

Timeline

1949: Taiwan created

The National Party that rules mainland China flees to the island of Taiwan, after losing a civil war to the communists.

1971: Taiwan lacks recognition

Taiwan is formally recognized by fewer than 30 countries and is replaced by China at the United Nations.

1979: US support, Chinese hostility

The Taiwan Relations Act, enacted by the United States Congress in April, ensures the security and prosperity of Taiwan as well as the peace and stability of the Asia-Pacific region, and reaffirms US commitment to Taiwan.

The People’s Republic of China views the island of Taiwan as a renegade province. A formal declaration of independence is one of three conditions under which China has stated it would reclaim the island of Taiwan by force. Under the 1979 Taiwan Relations Act, America made it clear it would be ready to defend the island.

March 1996: Taiwan under attack

Without warning to the Taiwanese authorities China fire two M-9 nuclear-capable ballistic missiles into Taiwanese shipping lanes, nearly sparking a conflict with nearby US military and naval forces. Only hasty diplomatic negotiations avert a serious armed conflict.

2000: Hong Kong under pressure

Senior Hong Kong business leaders openly accuse China of interference in the territory’s affairs. Rising tensions between China and Taiwan put Hong Kong in a difficult position. China asks Hong Kong businesses to curtail their dealings with the Taiwanese firms that support Taiwan independence.

China’s 10% annual economic growth proves an attractive proposition for inward investment. US$7187 million has been awarded in contractual investments and China has more than 2370 overseas-funded businesses.

2003: Growing Taiwanese nationalism

Former President Lee Teng-hui is at the forefront of a movement to change the island’s official name to Taiwan. Nascent nationalism returns to the fore.

150,000 independence protestors take to the streets of the Taiwanese capital, Taipei, on September 7th. 4000 pro-China supporters simultaneously stage a march through Taipei to show support for the island’s official name, ‘People’s Republic of China’. Polls show the majority of the island’s voters prefer to maintain the status quo.

The first sales of shares in the controversial Three Gorges Dam project raise US$483million of foreign investment in China. Despite complications in the fabrication of the dam, namely structural faults, the project has continued to receive investment.

The South China Sea region (containing the Malacca Straits and the Straits of Taiwan) remains the world’s second busiest international sea-lane, with more than 50% of global supertanker traffic passing through the region.

The sea-beds in the waters of South-East Asia are estimated to be abundant sources of oil and gas. The Russian Institute of Geology estimates that six billion barrels of oil might be located within another disputed island chain in the South China Sea. With a conservative estimate of 105 billion barrels located in the whole region, the Energy Information Administration calculates a daily production rate of 1.4-1.9 million barrels of crude oil. With the increasing popularity of natural gas as a fuel source in East Asia, neighbouring states attempt to lay claims to the resources.

2004: China, Japan and Taiwan maritime dispute

China remains locked in dispute with both Taiwan and Japan over the ownership of the Senkaku Islands. The financial ramification of ownership over the islands is huge – some 20,750 square miles of marine space will be affected together with its huge fish stocks.

2006: Taiwan remains strategically important>

The strategic importance of the numerous political disputes between Taiwan and China continues to hold the attention of the US administration. The US Navy and Air Force demand rights of passage and overflight between bases in the Pacific and Indian Oceans. The increasing bluewater capability of the Chinese Navy remains a cause for concern.

Despite assurances to resolve disputes with Taiwan, Japan and the Philippines, in the ‘spirit of Asian brotherhood’, diplomacy continues to fail.

Regardless of pressures from the West, an increasingly middle class society, an ageing population and a rapidly falling birth rate, China continues to be ruled by a secretive and insular gerontocracy. Whilst it has made an outward appearance of accepting the freedoms associated with globalization, there is doubt amongst world leaders that China has changed much on the inside.

Environmental problems continue to choke China’s domestic productivity. Desertification of the country, severe flooding, and increasing problems with agriculture and the availability of productive land have driven the Chinese people Eastwards. The migration of the Chinese population reflects the global trend towards urbanisation that accelerated in the early 21st Century. The rural population has become more vociferous in its desire for education, employment and higher standards of living. These riches – and a greater freedom – have long been perceived to be in the regions of Hong Kong and Taiwan.

On the other hand, events in the region might be influenced by the following:-

– The economic integration of Taiwan and China will proceed at pace. Taiwan has no illusions about the economic advantages this holds for it to make the integration work out.
– The Taiwanese business community is putting huge pressure on the Taiwanese government to achieve integration. Business has very little political loyalty if it costs: Taiwan is producing increasingly in China.
– The United States and China are establishing strong links and will increasingly pursue a common purpose, following 9/11.
– It is not in China’s nature to do things in a hurry. It will wait patiently for the integration of Taiwan, a very different approach from the West.
– The new global alliances that start to take shape are beyond East-West, free-market vs socialist paradigms.
– There is a new generation of leadership starting in the East, which has a very different mentality.