Schriver's comments were part of a luncheon speech to Taiwanese officials and media in a forum for Taiwan-US-Japan Strategic Talks hosted by the Taiwan Thinktank in Taipei. Among those attending were Mainland Affairs Council Chairman Joseph Wu and Vice Minister of Foreign Affairs Michael Kao.

Citing US Deputy Secretary of State Robert Zoellick's description of Sino-US economic relations as "an economic version of mutually assured destruction," Schriver said the US was increasingly losing the leverage to move China in directions that it otherwise would not do, such as making improvements in human rights.

"The success of our economy is so closely linked to China in a very fundamental way that didn't exist a decade ago," Schriver said.

This was particularly the case as "China is financing our debt because they are allowing us to do this deficit spending, allowing us to finance the world without raising taxes."

"When people talk about trying to alter or influence China's behavior, I think certain things have been taken off the table now in a way that wasn't like this a decade ago," Schriver said.

Although recognizing changes in US-China dynamics would impact on the US' decision-making in security matters, Schriver, who is now working with Armitage Assoc-iates, said how this would work would depend on the scenario and would not alter the US' overall commitment to Taiwan.

Schriver also said that the political division between the pan-blue and pan-green camps has seriously undermined the country's ability to uphold nat-ional security, in reference to the long-stalled arms-procurement bill which has been rejected 33 times by the pan-blue dominated Procedure Committee.

"I can't think of another country that has the fundamental division that results in such disputes over what is the primary security threat to the country, and the problem associated with this is the decision to not invest fully in military capability because of a political paralysis," he said.

Schriver said he was not so worried about the expressions of robust democracy and disagreement between parties, which are present everywhere, but about the fact that the resulting paralysis could lead to a tipping point where China might develop the military capability to attack Taiwan without the US being able to defend it.

The former US official also encouraged Taiwan to move beyond its traditional approach to diplomacy by securing a number of diplomatic allies or cultivating ties with US and Japan, to focusing on promoting good global citizenship and regional citizenship as a way to challenge China's growing clout.

"I am afraid the diplomacy of Taiwan has not been sufficiently reoriented given the challenge posed by [China]. The scorecard approach to who has formal diplomatic relations with who and what kind of treatment our friends in Taiwan can get from capitals around the world is the wrong kind of approach for diplomacy in Taiwan," he said.

"There are opportunities to do more of that and again this is a reorientation to deal with what I think is inevitably a losing battle considering [China's] growing clout," he said.

Expand overseas, but not to China

By Huang Tien-lin

During an Oct. 13 speech at the 2005 Taiwan Global Investment Forum organized by Euromoney Institutional Investor PLC, Kong Jaw-sheng, chairman of the Financial Supervisory Commission (FSC), said "Taiwan's financial institutions are going to expand to China, and I would ask for regulation in China to open up more to these institutions, so that Taiwan can help China to develop its financial environment."

Ever since he took up his position as chairman, Kong has been a consistent and outspoken critic of the government's cross-strait policy, and his words have on occasion raised a few eyebrows. Not long ago he remarked that "Taiwanese banks are already a bit late if they want to set up branches in China." Taiwanese businesspeople clearly share his opinion.

Many countries such as India, the Philippines, and even South Korea and New Zealand have banks from many countries. Why is it, then, when the commission claims Taiwanese banks are dragging their feet by not having branches in China, that it has never made similar noises regarding our absence in other countries?

For the nation's financial supervisory body to be so indifferent to the financial markets in other countries, but to pander to China, is an attitude and logic that gives one pause for thought.

How many times has the government told us that Taiwan must learn from the financial products and techniques of other countries in order to improve the quality of the financial services we provide? To this end it has encouraged banks to expand operations abroad.

If we are to make the financial industry here more international we should be looking to the financial centers in the US, Europe and Japan, and discovering how we can improve our own financial competence.

We should not be encouraging banks to set up in China, where the financial environment is so much less developed than it is in Taiwan. This will only lead to a dilution of the nation's financial resources.

Recent years have seen great technological strides being made in South Korea, whose annual average GDP per capita surpassed our own last year. One would suggest that the most likely reason for this is that Taiwanese companies have relied too much on cheap resources and labor in China as the answer to their problems.

They have seen this as their only real option to revive their fortunes. Their mantra has been "if we don't go now we'll be losing out on a great opportunity," and they have forced the government to allow them to invest in China. Unfortunately, cheap labor is like opium, and excessive use is definitely bad for the health. Thus our manufacturing industry has lost its drive.

According to estimates published in a report released by the US State Department, Taiwan has made cumulative investments in China of more than US$280 billion.

This is an astronomical sum. South Korea, despite increased investment in China in the wake of its recent economic upswing, still only invests one-tenth of Taiwan's investment. Instead, it invests in itself, consolidating local operations. This is the secret of South Korea's success.

Some people have said: "Where Taiwan businesspeople have gone, the banks must follow." From the bank's point of view, this is correct. But from the perspective of the overall economy, this is not necessarily the case. Putting aside the issue of China's desire to annex Taiwan, the sums involved are simply too large for Taiwan's banks to deal with.

At the end of the last financial year, the balance of deposits in ordinary Taiwanese banks stood at NT$15,550 trillion (US$462 billion), and there simply would not be the liquidity to supply the money needed.

Clearly we haven't the financial basis to bear the burden of Taiwan's investments in China. If the government makes any sudden decisions on this issue, this will be a massive blow to Taiwan's already weakened economy.

Do we want to help upgrade Taiwan's financial environment? Well, Taiwan has already provided US$280 billion in transforming China's traditional businesses into high-technology industries.

In return, China has increased pressure on Taiwan. This is simply a case of making trouble for ourselves. We don't have much capital left, so surely we should keep it for ourselves.

Our financial sector should have the courage and vision to break into the European, US and Southeast Asian market instead. In those markets, Taiwan's capital will not be dissipated, and will also give us the opportunity to improve our knowledge and competency in the financial markets.

Internationalization does not equal Sinification. China is only a part of the international market, and we should not confuse the part with the whole.

Huang Tien-lin is a national policy adviser of Presidential Office.