IMD International

Good start but long road ahead for China and Taiwan

IMD Professor Reacts: Jean-Pierre Lehmann on historic China and Taiwan meeting

17 November 2015

The Presidents of Taiwan and China have just met for the first time in over 60 years.

The talks between China’s President Xi Jinping and Taiwan’s President Ma Ying-jeou took place in Singapore and were highly symbolic. They indicate a certain amount of good faith but whether a solution can be found to the longstanding political rift between Beijing and Taipei remains to be seen.

Taiwan started to become one of the world’s most dynamic societies in the early 1970s around the time when diplomatic relations between the US and China were thawing, following President Nixon’s historic visit to China in 1972. Taiwan was one of the four Asian newly industrialized economies, also known as the “Four Little Dragons,” which included Hong Kong, Singapore and South Korea.

Beginning at the low end of manufacturing, in textiles, garments and other labour-intensive goods, the four rapidly moved up the value-added chain. They also have the distinction of being virtually the only societies formerly from the Third World to have succeeded in escaping the “middle-income trap” and becoming high-income societies.

Taiwan, in particular, became a technological powerhouse, in sectors ranging from electronics to information technology, to aquaculture.

One Country, Two Systems

While many factors are responsible for the post-reform superlative economic ascent of China – though it still remains to be seen whether it will escape the middle-income trap – it is very difficult to imagine how it would have succeeded without the immense contributions of Taiwan. These include investments, technology transfer, management, finance and exports.

Foxconn is one of the better-known Taiwanese companies that have played a gigantic role in fostering Chinese growth, especially in exports, from which Beijing has been able to accumulate its massive piles of foreign exchange.

While economic ties are strong, creating a solid interdependence between the two economies, political ties have continued to be fraught. In 1995 and 1996, the “Taiwan Strait Crisis” occurred when China sent missiles into Taiwanese waters. While economic relations have considerably improved since then, not much has moved politically until now.

Beijing has always made it abundantly clear that Taiwan is an integral part of China and under no circumstances will its independence be contemplated. Matters are further complicated in that Taiwan has become a vibrant democracy. Among its political parties is the Democratic Progressive Party, which is likely to win the forthcoming elections and is committed to eventual independence.

How the political relationship will develop in the context of what Financial Times correspondent Mure Dickie has labelled “one of the most treacherous fault lines in international politics” remains to be seen. The US, for example, feels it has a moral obligation to protect Taiwan but has diplomatic relations with China. What would happen if a clash between the two arose? The scenario is not entirely impossible.

There is no precedent or parallel that can be referred to in this highly complex situation. Initially, the “one country, two systems” concept was created for Taiwan; it has been instead applied to Hong Kong, though without anything remotely approaching a roaring success.

The Xi-Ma meeting in Singapore is no doubt a historic landmark, but the journey remains long and tortuous.

This is an extract of an article originally found in the Straits Times.

Jean-Pierre Lehmann is Professor of International Political Economy and the Founding Director of The Evian Group @ IMD. Professor Lehmann teaches on the Orchestrating Winning Performance program.

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