Facing Mainland China: Taiwans Future Challenges The topic I picked for my speech today is Facing Mainland China:

Taiwans Future Challenges. Actually, Taiwan has faced challenges stemming from the Mainland for a long time, actually for more than six decades. But the challenges today and in the future are more complex and consequential than ever before. The choices for Taiwan will be difficult, and it is important that they be made well. To avoid making choices is also a choice. Actually, its a bit presumptuous for an outsider to try to give advice to the citizens of another country, particularly a democratic country, on the challenges they face and how to face them. In a profound way, that really is their business. And I readily acknowledge that my own country is having great difficulty meeting its formidable challenges. But my ties to Taiwan were first formed almost forty years ago, and have only grown over time. I care very much what happens to this island and its people. So I hope you will permit me to make a few observations on my topic. I wont talk for too long, because I want plenty of time for questions. To begin, it is worth noting that Taiwan would face some difficult challenges even if China were not such an important factor. That is because Taiwan, like some other places in East Asia, has entered a transition in its social and economic development that requires new policy models. Even if China did not exist, these challenges would press Taiwan. In addition, Taiwans economy is increasingly post-industrial and is finding it harder to remain both competitive in the global economy and provide good jobs and good wages for all. Income inequality is trending upward. The unemployment rate was higher in this past decade than it was in the 1990s (1-3 percent). The central government budget has been basically flat over the last few years, government debt is growing, but the tax burden of Taiwan citizens is fairly light (58th among a group of 65 more advanced countries). The island has already begun to move, correctly, to a knowledge-based economy, but there a still a large number of small, inefficient, family operations. And for a knowledge-based economy, its companies will need people with the right kinds of skills, which probably requires reform of the education system. If these challenges werent enough, demography makes them much more difficult. Taiwans total population will peak relatively soon, probably in 2025. The working age population will decline from 74 percent of the total today to around 67 percent in 2025; the elderlys share of the population will increase from 11 percent today to 20 percent. That means that smaller numbers of workers will be supporting more and more old people. By 2060, half the population (workers) will be supporting 40% of the population (retirees). To make this specific, the students in this room will have to pay for the pensions and health care of your

professors after they retire. And as long as young people either dont get married or dont have children, that situation will continue. So even if China did not exist, Taiwan would face tough choices as a society: choices between economic prosperity on the one hand and social welfarefor the old and the youngon the other. But China does exist. It provides Taiwan with opportunities, to be sure. Many of you young people may work on the Mainland. But China is a source of insecurity for Taiwan, and so an added challenge. So the task for the islands leaders and citizens will be to balance their desire for security, prosperity and welfare. Let me turn now to the various challenges that Mainland China poses for Taiwan. The first and fundamental challenge is Beijings ultimate objective regarding Taiwan, what it calls peaceful unification under the one country, two systems formula. In effect, it wishes to have Taiwan become a special administrative region of the Peoples Republic of China, with a status essentially the same as Hong Kong and Macau. Now Taiwan has always said no to one country, two systems (1C2S), and t here is little public support for it. Its important, however, that Taiwan people have a substantive foundation for their opposition rather than be opposed for oppositions sake. To my mind, there are at least two reasons. The first that there are a serious conceptual differences between Beijing and Taipei over whether Taiwan is a sovereign entity in two important respects: first, the islands international role, and second, cross-Strait relations. Essentially, this is the issue of the Republic of China, and there is a broad consensus here that the ROC does exist, while Beijings formal view is that the ROC hasnt existed since the founding of the PRC. For Hong Kong and Macau, 1C2S granted a high degree of autonomy but not sovereignty. Beijing remains the exclusive sovereign. To my mind, this disagreement over sovereignty is rather fundamental. The second reason is what 1C2S would mean, hypothetically, for Taiwans democracy after unification. Hong Kong is important here as well. When crafted the Hong Kong political system over twenty years ago, through the Basic Law, it skewed the electoral process in ways that made it difficultor impossiblefor individuals and political forces it does not like to come to power. We of course dont know whether China, as part of a unification deal, would seek to change Taiwans political system so that it has the same effect as in Hong Kong. If it did, however, the DPP, which today is a significant portion of Taiwan sentiment, would be marginalized. But that is just my view. Whats important is how Taiwan citizens and leaders think about this.

When the results of the 2012 presidential elections were announced on the evening of January 14th last year, President Ma Ying-jeou said that he would safeguard the sovereignty of the Republic of China with my life. Thats a strong statement, and I am pretty sure that President Ma knows what he means by it. But I believe that Taiwan as a whole could broaden and deepen its understanding of the sovereignty concept. In this regard, it would be particularly useful for each of the major political parties to come to their own internal consensus and then work on a cross-party consensus. So Challenge Number One is Beijings current ultimate goal, unification under 1C2S. That option and its an option only creates Challenge Number Two. That challenge is the possibility that as the ROC government negotiates with Beijing today, it may make concessions that undermine its claim of sovereignty when it comes to resolving the fundamental cross-Strait dispute. Note that Beijing has a similar challenge: as it negotiates with Taipei today, it wishes to avoid making concessions that undermine 1C2S. This challenge has been around a long time for both sides. It is one reason that cross-Strait relations were so difficult from the early 1990s until 2008, to the point that the United States occasionally feared that the two sides might slide toward a conflict that neither intended. This short term-long term problem remains today. Some in Taiwan say that the Ma Administration has damaged Taiwans sovereignty in the way it negotiated various economic agreements like ECFA without specifying exactly how. My own analysis concludes that the Ma Administration has not negotiated badly and has preserved Taiwans position on this key issue. But it will become important if and when the two sides begin discussions on political and security talks, because sovereignty is an inherently political issue. Which is one reason why those talks are so difficult to start, and may not start anytime soon. Challenge Number Three is different. It concerns not the content of cross-Strait negotiations but how Beijing seeks to promote its goals concerning Taiwan. Here we need to think abouthow China is pursuing its objectives regarding Taiwan, and I find it useful to distinguish analytically between two different ways or paradigms: the paradigm of mutual persuasion and the paradigm of power asymmetry, which is different. Essentially, the paradigm of mutual persuasion is a shared approach of negotiation, persuasion, incrementalism, and mutual adjustment. I would argue that this is the approach that the two sides have followed since Ma Ying-jeou took office. It is part of what Beijing understands by its concept of peaceful development. It is in Taiwans interest that mutual persuasion continue (also, I would argue, it is in Chinas and Americas interest).

The paradigm of power asymmetry is different. Here, China would exploit the growing power gap with Taiwan economic, diplomatic, military, and so on by pressuring Taiwan to accept a resolution of the fundamental dispute more or less on its terms, and even though many in Taiwan would be unhappy about submitting in this way. But listen to how one influential PRC scholar of crossStrait relations has put the matter: The severe asymmetrical balance of power between mainland China and Taiwan is a fact that no one can change. Moreover, this problem . . . will continue to increase, a situation that Taiwan needs to handle pragmatically and calmly. We can speculate on what the scholar means by pragmatically and calmly. Why would Beijing decide on a shift in paradigm? First of all, it might do so if it decided, based on its perceptions or misperceptions, that a future Taiwan government was moving towards de jure independence, and if it could not get Washington to restrain Taipei. But let us assume, purely for purposes of discussion, that the KMT remains in power, why then might Beijing decide to shift to a strategy of pressure and intimidation? This would happen, I speculate, if it became impatient and decided that Taiwan would never move from the status quo to unification. We have seen hints of that impatience in Chinese suspicions that President Mas true objective was peaceful separation with a two Chinas or one China, one Taiwan character. And recall that one of the circumstances specified in the 2005 antisecession law is that possibilities for a peaceful reunification should be completely exhausted. Now I actually dont think that China will lose patience in the foreseeable future for the rest of President Mas second term, perhaps. I believe that the PRC officials responsible for the conduct of cross-Strait relations are realistic about the views of the Taiwan public and the limits that places on the Taipei government. They seem to believe that time is on Beijings side. On the other hand, I dont know what new thinking Xi Jinping may have concerning Taiwan policy, and recent statements by PRC officials urge movement on political issues. So its impossible to know whether Beijings patience will last indefinitely. No-one should assume that it will. Note that when I talk about a Chinese strategy of pressure and intimidation, I dont mean the use of force or even the explicit threat of force. In a situation of power asymmetry, the stronger power need not act overtly to compel the weaker power. In the Taiwan case, Beijing might conclude the very fact that Taiwan is quite dependent on the Mainland economically and the mere existence of its increasingly robust military capabilities will be sufficient to secure Taipeis submission more or less on its terms.

Obviously, a pressure strategy would create a great challenge for Taiwan. It would. I think, create intense pressure on Taiwans leaders and turmoil among the public. The political system would be under tremendous strain. So what should Taiwan do about this situation? This is my final challenge, the challenge of self-strengthening. It is really a set of challenges. And Taiwan isnt the only country that needs to strengthen itself from within. In my view, frankly speaking, there is a lot that the United States must do to strengthen itself from within in order to rebuild the pillars of national power that have permitted it to play a dominant role in world affairs since World War II. I have already referred to the first of these self-strengthening challenges. It is to maintain and enhance Taiwans global economic competitiveness in spite of the demographic shift. This requires the continued building of a knowledge-based, innovation-driven economy, and all that this implies for education, financial markets, and the level of government regulation. It requires that the Mainland side properly protects the intellectual property owned by Taiwan companies. But economic self-strengthening also requires liberalizing its economic ties with all its major trading partners, not just China. To liberalize with China alone runs the risk of being too dependent on the Mainland. Liberalizing with all major trading partners will require eliminating some protectionist barriers, but the structural adjustment that this stimulates will work to Taiwans benefit. In fact, this is the policy of the Ma Administration. I have also suggested that n terms of fundamental policy, it is a good idea for Taiwan to foster a clearer sense of what it means to say that Taiwan or the ROC is a sovereign entity, not just for its role in the international system but also regarding cross-Strait relations and the domestic political system. This will ensure that if and when political and security talks come, Taiwans negotiators will no what aspects of sovereignty are relatively minor and can be conceded and which are so important that they must be defended at all costs. One part of this self-strengthening will be public education so voters understand along with officials. Diplomatically, Taiwan should ensure that its relationships with its most important diplomatic partners are strong and positive. This includes, of course, the United States and Japan, but also the principal countries of Western Europe. In this regard, I am pleased to report that relations with the United States have improved in recent years. Militarily, Taiwan should skillfully enhance the deterrent capabilities of Taiwans armed forces. By this I mean raising the costs and uncertainties for Beijing if it were ever to mount an intimidation campaign, which at least implies a willingness

to use force. Here, I associate myself with the Obama Administration which, in the words of one official, believes that Lasting security cannot be achieved simply by purchasing limited numbers of advanced weapons systems. Taiwan must also devote greater attention to asymmetric concepts and technologies to maximize Taiwans enduring strengths and advantages. Finally, there is the question of the political system. Frankly, I believe that Taiwans political system tends to focus on relatively superficial issues such as the security of President Mas daughter rather than on the fundamental challenges that face the island. Politicians are aided in this tendency by this mass media. Now, I understand that this is a structural problem, created not by individual politicians or media companies but by the nature of competition within both the political and media world. I also believe that Taiwan is better off having a democratic system than something else, in part because it creates a challenge for Beijing that if it wishes to achieve its political goals concerning Taiwan, it will have to satisfy a broad spectrum of public opinion. And I realize that reforming a political system is very hard to do. Just look at the similar problems that exist in the United States. But it is Taiwans political system that will be the mechanism by which self-strengthening occurs in the other areas I have mentioned. So if that mechanism is not strong and effective itself, everything else will be difficult. The fundamental question is, are the people of Taiwan being well served by their political system. None of these forms of self-strengthening will be easy, particularly in a divided polity. But they are areas where a broader and deeper Taiwan consensus will buoy Taiwans psychological confidence and reduce the chances of PRC pressure in the first place. In this regard, young people have a special role to play, for the simple reason that over the long term, you have the most at stake. On the other hand, for Taiwan to remain divided and forego the opportunity for self-strengthening only increases the islands vulnerability. And it will be young people who have the most to lose. My final question, Question 8, is what are the implications of all of this for the United States?You may have seen the policy brief of mine that Brookings issued recently, so I will just summarize its conclusions. First of all, the fact that stabilization has only gone part way and could stall should allay any American fears that, in effect, Taiwan will abandon America for the sake of its relationship with China. Second, it would be unwise for the United States to abandon Taiwan for the sake of its relationship with China. I and other scholars have offered several

compelling reasons why this is so (as long, of course, as Taiwan desires American support):

First of all, Although Taiwan has at times been the most important source of U.S.-China differences, it is not the only one. Frictions over maritime East Asia and North Korea are examples. So conceding to Beijing on our security relationship with Taiwan would not necessarily foster a more friendly China. Second, U.S. allies and partnersJapan, the Republic Korea, and others not necessarily in the Asian regionhave much at stake in Washingtons future approach to Taiwan. Simply put, a United States that would abandon Taiwan could abandon them too. Third, whatever China says, U.S. arms are actually not the reason that Beijing has been unable to bring Taiwan into the embrace of the Motherland. More to the point, China has not been able to persuade Taiwans government and public to accept its one country, two systems formula. If China were to make an offer that was actually to Taiwans liking, Taipei would not refuse that offer because of U.S. arms sales. Fourth, there have been points in the past when the United States has acted in ways that placed Taiwan in a vulnerable position. Most or all of those occurred before the people of Taiwan had any say in their future, as they clearly do now. I hope that we dont repeat this unfortunate history. Finally, how a status quo United States and a reviving China cope with each other will be played out over the next few decades in a series of test cases. North Korea, maritime East Asia, and Iran are a few of them. Taiwan is another. Should the United States concede to China on Taiwan, the lessons that Beijing would learn about the intentions of the United States would likely discourage its moderation and accommodation on other issues like North Korea or maritime East Asia; in that respect, Americas friends and allies are right. Continuity of U.S. policy toward Taiwan will not guarantee that Chinas actions in other areas will support the status quo, but it increases the likelihood that it will. Conversely, a China that addresses its Taiwan problem with creativity and due regard to the views on the island says something positive about what kind of great power the PRC will be. A more aggressive approach, one that relies on pressure and intimidation, signals reason for concern about its broader intentions. In this regard, Taiwan is the canary in the East Asian coal mine.