Trade on June 27, 2004

Trade remains first `weapon' for China

DISINCENTIVES: Commentators argue that Beijing is moving away from the use of economic carrots and toward using a bit more stick to bring Taiwan into line
AFP , BEIJING
 

China's threats to place economic sanctions on Taiwan are part of a strategy to divide and conquer, but will only be realized if Taiwan moves closer to independence, analysts say.

"This is part of a traditional united-front strategy to use the business community to surround the government and to mobilize the people to exert pressure on the independence forces," said Joseph Cheng , a China expert at the City University of Hong Kong.

China employed the strategy in reverse throughout the 1990s, offering lucrative economic incentives to Taiwanese businesses in the belief that the more investment flowed from Taiwan, the greater the possibility of reunification, he said.

Similar tactics were also widely used to smooth over Hong Kong's handover to China in 1997.

But with the re-election of President Chen Shui-bian in March, China has apparently decided it must now use disincentives to attract support for reunification.

In the last week, a number of Beijing academics have been calling for economic sanctions to be put in place against Taiwanese independence forces. The government has said that investment from pro-independence businessmen is not welcome.

Wang Jianmin , a Taiwan specialist at the Chinese Academy of Social Sciences, said that if economic sanctions against Taiwan were imposed, they would involve limiting or even banning imports.

"Taiwan's overseas trade sector would be the first to suffer and see a one-third drop in its exports, then the manufacturing and production sector would be hit, causing mass shutdowns among these firms and a major economic recession," he was quoted as saying by the state-run China Daily.

When contacted by reporters, Wang refused to detail what specific legal measures Beijing could use to impose such economic sanctions, nor whether it would invoke state security laws to achieve its goal.

"It is still not clear what the mainland plans to do, but it is likely to be calibrated to the actual situation," Cheng said.

"If Chen Shui-bian moves closer toward independence, they will step up the pressure and maybe attack suspect Taiwan businessmen, but if he backs down then things will probably go on as normal," he said.

Taiwan has been a major engine of China's economic growth with over US$70 billion invested in the Chinese economy.

Indirect trade between Taiwan and China rose 23.8 percent year-on-year to US$46.32 billion last year.

After naming suspect businessmen and companies, Beijing would probably seek to influence their share prices through attacks in the media, Cheng said.

"China would also refuse to approve any investment projects on the mainland by any suspect companies," he said.

China, though, would probably avoid confiscating investment or arresting suspect Taiwanese investors under its murky state security laws, which are routinely used to jail political dissidents and suspected separatists.

"They won't use arrests or jailing under the national security laws, because that would be just too scary and the reaction in Taiwan would make such moves counter-productive," Cheng said.

China has a history of using economic sanctions in political disputes, including unannounced sanctions against French companies following the sale of Mirage fighter jets to Taiwan in the early 1990s.

In recent years, both Credit Suisse First Boston and Japan's Matsushita have been temporarily blacklisted for falling foul of Beijing's Taiwan policy.

Trading house Jardine Matheson was long out of favor with China over its support for democratic reform in Hong Kong during the lead-up to the 1997 transfer of power.