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5 STEPS INTO THE ASIAN MILENNIUM
PAGE 3 OF 7

Taiwan's people have little to lose and much to gain from leaving their current diplomatic Twilight Zone to become the economic lighthouse of the world's biggest nation.
     Reunification will produce immense and immediate dividends. First, it will allow a huge cut in military spending. Currently about 7.5% of the South's GNP and over 20% of the North's goes to maintaining armed forces. Even a 50% cut would divert $50 billion a year toward economically productive activities. Ending a half century of being on constant hair-trigger alert status and returning to a peace mode would dramatically stimulate consumer confidence and spending, infrastructure improvements, R&D investments, and improved education and training. The need to bring North Corea quickly up to modern standards would produce a boom of its own for both domestic and foreign businesses.
     A benefit that's difficult to quantify but will prove very real is the effect of opening of a overland link between a highly industrialized South Corea on one side and China and Siberia on the other. In economic terms the effect would be akin to the rail opening of the American West in 1867. The free flow of natural economic exchanges would accelerate the development of a fully-integrated East Asian economy.


STEP 3: Reunification of China

     The Kuomingtang victory in Taiwan's early-December mayoral election suggests that the people of Taiwan are moving toward accepting the inevitability of reunfication. Having seen China more or less keep its hands-off promise toward Hong Kong, Taiwan's people seem to be feeling that becoming another Chinese Special Administrative Region may be the lesser of two evils if the alternative is war with support from only a highly ambivalent ally. After World War II the U.S. recognized Taiwan as China's sole legitimate goverment. It did almost a complete about-face in 1972 when President Nixon normalized relations with China and recognized Beijing as China's legitiate government and the ROC as a quasi-legitimate state with claim to Taiwan as its domain. Since then the U.S. has backed away from even the one-China, one-Taiwan policy by cutting ambassador-level diplomatic ties with Taiwan. All that remains is a promise to defend Taiwan against an effort to reunify by force. Even that slender thread may have frayed during President Clinton's recent meeting with Chinese President Jiang Zemin. On Capitol Hill Taiwan's staunchest backers have been Republicans. After that party's setback in the recent mid-term elections, the ROC government is no doubt even more convinced of the need to find an early accommodation with the mainland government.
     Whether in two years or four, it seems a foregone conclusion that Taiwan will end up agreeing to some reunification formula, probably one similar to Hong Kong's -- despite China's repeated insistence that reunification with Taiwan is a purely domestic matter and, therefore, subject to unilateral action without diplomatic niceties. Regardless of the formula, Taiwan's people have little to lose and much to gain from leaving their current diplomatic Twilight Zone to become the economic lighthouse of the world's biggest nation. Both sides of the Taiwan Strait will see an economic boon comparable to the one that will follow the reunification of the Coreas. In fact, Jiang Zemin has strongly implied in his meeting with Corea's President Kim that China and Corea are now traveling parallel paths toward reunification. In fact, the party-level pact in progress between the Chinese Communist Party Corea's ruling party is based largely on the desire of both leaders to telegraph this understanding to both North Corea and Taiwan.
     Already Taiwan is China's third most important foreign investor (since Hong Kong is no longer a foreign country) while continuing to devote 8% of its GNP -- ten times what it invests each year in China -- to maintaining a well-equipped 450,000-man military against the possibility of a war of reunification. That's like swimming the Taiwan Strait carrying a ten-pound weight. Some of the economic energies that will be freed up from the need to defend against an invasion across the Strait will no doubt be diverted toward Beijing's ambition of building a navy that can project power into the South China Sea, the Indian Ocean and the Yellow Sea, but much of it will find its way toward upgrading China's primitive industries. Despite its tiny population of only 25 million -- one-fiftieth of China's 1,250 million -- Taiwan boasts a GDP that's half of China's $900 billion. The benefits will be far greater than a mere watering down of Taiwan's prosperity. Its highly efficient economic model comprising tens of thousands of small, dynamic hi-tech businesses is exactly what China must incorporate to make the monumentally difficult transition from a centrally-controlled economy to a market-oriented one -- one which Russia, for example, is unable to make.
     For the past decade Taiwanese entrepreneurs been seeding Chinese industries with money and modern business practices. But after reunification the conveniences of working domestically rather than internationally will make Taiwanese influence many times greater, and will accelerate the rise of Chinese living standards from its current per capita GNP of $600 to something closer to Taiwan's $16,000. Assuming reunification by 2000, the combined Chinese per capita GNP would reach the $7,500 level by 2015. At that point China would surpass the U.S. as the world's biggest economy -- that is, if it manages to keep from breaking apart from various centripetal forces already at work. PAGE 4

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