Analysis:Cross strait direct links warming

SINGAPORE, Oct. 21 (UPI) -- What appears as a small semantic change on direct trade and transportation links between China and Taiwan is indeed a leap forward, which could allow talks to begin on establishing direct air and shipping routes between the mainland and the island. However, analysts are warning that such opening will still take a long time.

Last week, Chinese vice-premier Qian Qichen was quoted as saying that direct transport links between the two sides could be viewed as "cross strait" rather than "domestic" as China had previously insisted. Qian pointed that the so-called "three links" (direct postal, trade and transport) were economic not political issues.

Mike Moran, global markets economist at Standard Chartered Bank, said, "I think the announcement is significant as previous discussions between Taiwan and China has often been hampered by the implications of the wording. While this essentially boils down to the "one China" principle that remains a thorny topic, China's willingness to adopt the "cross-strait issue" reference arguably signifies a softer stance towards promoting economic relations with Taiwan."

"But this does not mean China has softened its stance on the political issues, which will likely remain the key obstacles going forward," Moran, who is based in Hong Kong, added.

Although China and Taiwan are economically closely intertwined, direct links have been banned since the island broke away in 1949 and goods and people have to transfer through third party, like Hong Kong. China considers the island as a renegade province and political talks have been deadlocked as the mainland insists on Taiwan recognizing the "one China" policy before the sides sit down to talks -- a condition Taiwan refuses to accept.

Daniel Chan, an analyst with Dao Heng Bank, was slightly less enthusiastic about the shift in position, pointing that China still insisted on the "one-country stance."

"I think no breakthrough between the two governments will be seen until the new Chinese leaders take the reins next year. But maybe there will be some talks via unofficial channels," Chan added.

Following Qian's comments, Taiwan President Chen Shui-bian predicted the ban on direct transport links could end "very soon," and added that Taiwan was eager to begin negotiations as long as China didn't attach any political preconditions.

The Taiwanese Mainland Affairs Council, responsible for Taiwan's China policy, is working on a study on how to establish direct transport links with mainland China and the findings should be made public in November. Over the weekend, the council denied a media report that it might allow charter flights between Taipei and Shanghai as a prelude to full-scale direct air links between Taiwan and mainland China.

Recent polls in Taiwan show that the majority of people are in favor of direct transport links with the mainland, though there are mixed feeling about the ramifications of opening direct links, as some believe it could endanger national security.

But the direct trade and transport links would certainly help the slumping Taiwanese economy. According to the Taiwan's Board of Foreign Trade, Taiwan's exports to Mainland China jumped by 30.8 percent to $7.57 billion in the first half of 2002, allowing the island to enjoy a trade surplus of $13.33 billion with the Mainland. In August, Taiwan's exports to China posted the sharpest annual expansion of 125.3 percent. Meanwhile, export orders to Hong Kong, a main trade conduit for China-bound goods, amounted to $2.86 billion in August, up 28.36 percent on the year.

"Clearly then Taiwan's economic relationship with China will be a key determinant of how well the Taiwan economy will perform. The possibility of unrestricted trade will certainly reduce transportation and administrative costs imposed by third party throughput," said Moran.

"It would also allow a greater degree of penetration for Taiwanese companies to tap into China's fast growing consumerism. However, the risk is that it may accelerate the hollowing out process that Taiwan is already experiencing, both in terms of jobs and investment," Moran added.

The latest numbers suggest foreign companies have cut investment into Taiwan by 28 percent in August year-on-year.

Chan agreed, saying "If there are direct links, the hollowing out effect will likely accelerate in the near term. On the other hand, Taiwan based on its competitive edge will export more high-tech goods to China and lure Chinese capital to its high value-added industries without restrictions. The integration will benefit Taiwan in the long term."