General Secretary Xi Jinping and President Ma Ying-jeou held the historic first Cross-Strait Leaders Meeting in Singapore, capping seven years of collaborative work to build stable and constructive cross-strait relations. On Taiwan, the Democratic Progressive Party (DPP) has conducted a well-run campaign, likely leading on Jan. 16 to Tsai Ing-wen winning a strong majority mandate in the presidential election and the KMT and its allies losing control of the Legislative Yuan (LY) for the first time. After the election, Tsai and Xi will share responsibility for avoiding a confrontation that is in neither of their interests.

Cross-strait Leaders Meeting

The Nov. 7 “Cross-Strait Leaders Meeting” between General Secretary Xi and President Ma was historic because it was the first time that the leaders of Taiwan and the mainland had met since the establishment of the People’s Republic of China. The meeting marked a new high point in the two sides’ seven-year effort to create a peaceful, stable, and constructive relationship. Abroad, it was welcomed almost universally as an historic and peaceful accomplishment.

Although both sides had been talking about such a meeting for two years, the initiative for the meeting in Singapore was taken by Xi. At the Oct. 14 meeting between Taiwan Affairs Office (TAO) Minister Zhang Zhijun and Mainland Affairs Council (MAC) Minister Hsia Li-yan, Zhang proposed holding this meeting. Ma agreed and the arrangements were worked out between the TAO and MAC. As Beijing had argued a year earlier that it was inappropriate for such a meeting to occur at an international meeting, it is significant that Beijing proposed a meeting outside China. Looking back to understand why Xi took this initiative, three factors may have been in play. Each leader of the PRC needs to show that he has moved cross-strait relations beyond what his predecessors achieved. A first leaders meeting was such a step forward, and one that would almost certainly not be possible once the DPP is in office. Second, the report of Xi’s remarks makes clear that Xi used the meeting to underline Beijing’s posture toward the coming Taiwan election and the prospect of the DPP returning to office. Finally, the meeting portrayed Xi as a statesman contributing to peace at a time when Beijing is being criticized for assertive steps elsewhere throughout East Asia.

President Ma’s motivation is more easily understood. This meeting will be seen as the capstone for his legacy as the Taiwan leader who reshaped cross-strait relations after the confrontational years under his predecessor Chen Shui-bian. Given the potential political and protocol pitfalls that might have hampered or derailed such a meeting, the two sides deserve great credit for a meeting that both sides saw as a flawless success. The meeting was designed to be between “leaders” who would address each as “mister” precisely to avoid such pitfalls. It demonstrated, as Xi said, that we Chinese have the ability and wisdom to manage cross-strait relations ourselves.

However, the arrangements were seen from another perspective in Taiwan. Although unstated, the fact that the leaders met as theoretical equals, in an international setting and that President Ma was able to voice the words “Republic of China” directly to the Chinese leader represented another step by which the PRC was acknowledging the existence of a separate government in Taiwan. To clarify its alternate view, Beijing repeatedly stated that the meeting was taking place under the one China principle.

While all went well between the two parties in Singapore, things did not go well for President Ma at home. First, a reporter from the pro-DPP Liberty Times scooped the story before the meeting was announced. Then the same journalist reported that Ma was considering dropping the “respective interpretations” part of the standard KMT description of the 1992 Consensus as “One China, respective interpretations.” Whether Beijing was urging Ma to do this is uncertain. When the meeting occurred, Ma did drop that phrase in his public statement but included it in the remarks he made in the closed-door portion of the meeting. What the Taipei media focused on was what was said in public, seeing it as another step toward the KMT accepting Beijing’s view of one China. Consequently, Ma lost control of the public narrative, despite repeatedly trying to portray the importance of the meeting as being a major step to consolidate cross-strait peace.

Tsai Ing-wen and the DPP adopted a nuanced position, criticizing Ma rather than the meeting. The DPP described its announcement as another example of Ma’s unilateral, secretive, non-transparent – and therefore suspect – dealings with Beijing. The party also expressed concern Ma might harm Taiwan’s sovereignty and dignity. However, the DPP did not urge its supporters to protest against the meeting. So the small demonstrations that did occur were led by the Taiwan Solidarity Union and other pro-independence groups. After the meeting, Tsai criticized Ma for failing to defend Taiwan democracy, for not explaining the Taiwan people’s desire to determine their own future, and for accepting Beijing’s one China pre-condition for the meeting. Some in Beijing have viewed the DPP’s muted criticism of the meeting and the decision not to encourage demonstrations as a positive sign.

Election campaign

As the elections approach, Taiwan’s economy is stagnating. Through November, exports in 2015 had contracted 10.3 percent from 2014, year-on-year GDP growth was 0.52 percent in the second quarter with negative growth of 1.01 percent in the third, and in December annual GDP growth forecasts were revised downward to as low as 0.6 percent. Partly because of the poor economic indicators, the KMT, especially President Ma and former nominee Hung Hsiu-chu, have tried to focus elections on cross-strait issues, claiming that only the KMT can maintain stable relations with China; Eric Chu has also highlighted economic issues. Cross-strait relations and Taiwan’s economic strategy intersect in many places.

Following months of public and private dissatisfaction with Hung Hsiu-chu and her wildly unpopular proposals for political talks and eventual unification with the mainland, on Oct. 7 the KMT’s Central Standing Committee voted to hold a special party congress to “salvage the party and its legislative election prospects.” The wording implied that the party’s leadership had already written off the presidential election. KMT Chairman Eric Chu apologized to Hung, but on Oct. 17 her nomination was revoked and Chu was installed as candidate. Chu said that the party would continue to uphold the 1992 Consensus, which Beijing insists is the political basis for cross-strait stability, and that President Ma’s three noes – no independence, no unification, and no use of force – are proper guidelines. He noted that “pure political talks” with China are not yet supported by many in Taiwan.

In mid-November, Chu made a low-key visit to the US. In Washington he met with non-governmental organizations and spoke to reporters but did not give a public speech, as Tsai Ing-wen had on her visit in June. The US government carefully granted him meetings with the same offices Tsai had visited; senior officials proclaimed their “deep respect” for Taiwan’s democracy and said that the meetings had been productive.

Chu told the Washington Post that some of Ma’s domestic policies, especially economic measures, would be revised, “[b]ut not cross-strait relations. On cross-straits, we did the right thing, and we should insist on that.” The trajectory would remain the same but Chu told reporters that if elected he would “make up for what [Ma] left out – cultivating a domestic base for a grand strategy that can secure peace.” Back in Taipei on Nov. 24, he said the Cross-Strait Services Trade Agreement (STA) “was marred by a lack of communication and the government’s ambiguous planning” and that its companion Merchandise Trade Agreement (MTA) is less controversial and should have been signed first. Chu said in early December that the economic fruits of cross-strait relations could be distributed more equitably in Taiwan’s society.

The KMT and Beijing have continued to push Tsai Ing-wen to accept the 1992 Consensus and clarify her definition of the cross-strait “status quo” and how she will maintain it if she is elected. But she has not deviated from the balanced and nuanced remarks she made in Washington in June. These ideas and her subsequent rhetoric and actions contain some elements that appeal to DPP voters, and some designed to appeal to Beijing. For example, she has reiterated that Taiwan’s democracy and the right of Taiwan’s people to decide their future form an inviolable element of the status quo. On the other hand, on Dec. 22 she repeated her pledge that she will pursue cross-strait relations based on “more than 20 years of [cross-strait] negotiations and exchanges” – which some take to include the 1992 Consensus – and noted that she will “maintain” the existing ROC constitutional order. In a televised debate on Dec. 27, Tsai offered new thoughts on the 1992 Consensus, saying that at talks in Hong Kong in 1992 Taipei and Beijing had a “mutual understanding” and agreed that “both sides should try to seek common ground and set aside their differences,” adding “everyone has a different view on how to interpret that part of history or how to term it.” Tsai said she believes that on this basis “China will be willing to interact with the DPP sensibly.” However, many noted that she had avoided using the term “1992 consensus.” On Dec. 30 a TAO spokesman repeated that without the 1992 Consensus, the core of which is that the mainland and Taiwan belong to “one China” and do not engage in “country-to-country” relations, communication across the Taiwan Strait may collapse. How Beijing will approach a Tsai administration after the election, if her rhetoric and policies continue in this conciliatory vein, is key.

Tsai has provided more specific signals of goodwill, saying she plans to maintain communication with Beijing after the election, she does not rule out high-level contacts, she will not cut the number of independent Chinese tourists allowed in Taiwan, and she supports the inclusion of Chinese students in Taiwan’s universities in the National Health Insurance program (they are currently not included, unlike other overseas students). In another significant step, she attended the ROC National Day parade on Oct. 10, the first time she has done so during Ma’s presidency. In his speech at that occasion, Ma repeated the standard claim that the 1992 Consensus must be upheld or relations with the mainland will deteriorate.

But he also said in the speech that, on the basis of the 1992 Consensus, cross-strait relations and international relations are in a “virtuous cycle.” Eric Chu picked up on this theme at a ceremony launching his campaign headquarters in early December, saying that if cross-strait relations suffer, Taiwan will become isolated from international society, “like North Korea.” At a reception on Sep. 22 marking the 29^th anniversary of the founding of the DPP, Tsai gave a speech to foreign diplomats and made no direct reference to China. She said that a DPP government would contribute to a “steady and consistent regional and international environment,” and described a “New Southbound Policy” designed to enhance relations with Southeast and South Asia. The Lee Teng-hui and Chen Shui-bian administrations pursued similar policies that were intended to divert Taiwanese investment from China. Some have argued that Tsai’s proposal is an attempt to “re-balance” and diversify Taiwan’s economic relations that the DPP sees as too focused on China.

Reports emerged in October that in order to spur growth Taiwan’s largest integrated circuit (IC) design firm, MediaTek, was seeking investment from Chinese companies, later revealed to be Tsinghua Unigroup. By December, Tsinghua Unigroup had reached agreements with Taiwan’s second, third, and fourth largest IC packaging and testing companies for a 25 percent stake in each but had not yet reached agreement with MediaTek. On Dec. 11, Eric Chu said that at this time he would not support relaxing regulations to allow the acquisitions due to the importance of the industry to Taiwan. Tsai said the deals represented a “huge threat” to Taiwan and this vital industry, citing Tsinghua Unigroup’s “government capital and influence.” At the same time, restrictions on investment by Taiwan businesses in China are being loosened. In September, the Ministry of Economic Affairs (MOEA) permitted the establishment of certain types of factories in China, and Taiwan Semiconductor (TSMC) announced in December that it had submitted an application to the MOEA to build a $3 billion factory in China. In a move that may accelerate the flow of talent and capital from Taiwan to China, on Dec.16 the TAO announced that China had increased the types of Taiwanese business that can operate in China and the geographical areas in which they can operate.

Despite the KMT’s change of candidate, early January presidential poll numbers remain mostly unchanged since the summer with Tsai in the mid-40s, Chu/Hung in the high teens to low-20s, and James Soong of the People First Party at or above 10 percent. Although protecting the KMT’s LY candidates was a major reason for replacing Hung Hsiu-chu, polling indicates that since 2012 voters have identified less and less with the KMT and “blue” parties, and increasingly with the DPP and “green” parties. Exacerbating this trend, the KMT upset some of its deep-blue base by replacing Hung, the party’s vice presidential nominee is alleged to have profited from the sale of low-cost housing intended for military veterans, and the remaining blue vote will be split in districts in which the KMT and PFP candidates are competing with each other and other Blue candidates. The DPP has done a better job deconflicting, and has endorsed some non-DPP candidates in Taipei and elsewhere, including some from the PFP. Some DPP candidates are included in the multiparty Capital Progressive Alliance, which has attracted the support of Taipei City Mayor Ko Wen-je.

Beijing’s policy response

As the extent of the KMT’s campaign disarray became apparent and as the size of Tsai’s lead grew, Chinese scholars have gradually abandoned wishful thinking that the KMT might somehow be able to prevent a DPP victory. Many scholars and officials now acknowledge that Tsai may win an impressive victory and that it is possible the DPP will emerge with an LY majority. Some also recognize that the public perception in Taiwan that the KMT has been moving too far and too fast in improving ties with the mainland is an important factor behind the KMT’s poor electoral prospects.

Beijing has done little to influence the election in recent weeks, seemingly having learned lessons from past mistakes. TAO statements have emphasized the importance of the 1992 Consensus on one China as the political basis for relations and have kept pressure on Tsai Ing-wen to accept it. When Tsai did comment on the 1992 Consensus in the presidential debate, the TAO spokesman criticized her for not clearly accepting the consensus or its core meaning that Taiwan and the mainland both belong to one China. TAO Deputy Chen Yuanfeng has lectured Taiwan businessmen on their duty to help preserve the political basis for relations. And ARATS Chairman Chen Deming expressed his fears about democracy saying that the big electoral victories Hitler won in Germany led to disaster, remarks that produced DPP warnings that he should not interfere in the campaign.

Looking to the future, the DPP’s return to power will confront Beijing with new challenges and has prompted internal debate on how to respond. Xi Jinping may have understood the DPP’s prospects earlier than others. In his discussion with delegates to the National People’s Congress (NPC) in March, Xi laid out what has become the framework for Beijing’s advance planning for dealing with this new situation. Xi enunciated what came to be called his “four insistences,” saying the two sides should unswervingly pursue peaceful development, unswervingly adhere to the common political basis in the 1992 Consensus, unswervingly bring benefits to the people across the Strait, and unswervingly join hands to realize national rejuvenation. Since then TAO Minister Zhang and other spokesmen for the party have taken their cue from his remarks in commenting on the election and the post-election future.

In his meeting with Ma in Singapore, Xi gave a fuller exposition of these four points. In doing so just two months before the election, Xi moved the point on adhering to the 1992 Consensus to first place in the list. He rephrased his earlier warning saying that without this political basis to stabilize relations, cross-strait ties would encounter storms and perhaps even capsize. This theme has been part of Beijing’s (unsuccessful) effort to make the ‘92 Consensus a campaign issue. The language is a warning of future problems rather than a more threatening statement that electing the DPP could lead to conflict. The language is also intentionally vague to preserve Xi’s flexibility.

The second and third points on adhering to peaceful development and expanding benefits for Taiwan people convey a different message – that many elements of the current cross-strait relationship will continue regardless of the election outcome. Xi described relations as the best since 1949 and said people want peace, exchanges, and dialogue. Whatever will contribute to prosperity and closer family sentiments across the strait should be pursued. ARATS Chairman Chen Deming spent the first week of December traveling around Taiwan doing this. The focus of his outreach was four groups (sanzhong, yiqing) whom Beijing hopes will benefit more in the future – the middle class, those in central/southern Taiwan, SMEs, and youth. In part, these points seem designed to shape domestic attitudes within China on how to deal with a future DPP government, discouraging those critics who are already talking about the need to punish the DPP. In December, Beijing announced that revised regulations would make it easier for young Taiwan entrepreneurs to open businesses in China. Here too Xi’s language is general, preserving Beijing’s flexibility. The fourth point expresses Xi’s Chinese nationalist narrative and his China dream expressing confidence that the two sides are closer than ever and capable of achieving national rejuvenation.

These points reflect the conflicting interests Beijing has in dealing with a Taiwan ruled by the DPP. On the one hand, Beijing’s one China principle requires that it treat a DPP government that does not accept that principle differently than the KMT government that does. So some more political, sovereignty-related aspects of the relationship have to change. On the other hand, Beijing does not want to dismantle the pattern of cross-strait ties built up over the past seven years and must continue to cultivate goodwill among the Taiwanese public. This means that beneficial aspects of the relationship need to be preserved and counterproductive measures against the DPP limited. Meshing these two conflicting interests presents major challenges and argues for Beijing maximizing its flexibility. Beijing’s perception of Tsai complicates the challenge. While recognizing that Tsai is pragmatic and different than Chen Shui-bian, Chinese officials and scholars characterize her as ideologically committed to Taiwan independence. Mutual trust is lacking. Ultimately, Xi Jinping will choose the path.

Minimal progress in cross-strait relations

A series of meetings and trade negotiations took place, but there were few results. Most importantly, the 11^th and 12^th rounds of negotiations on the MTA were held in late September in Beijing and late November in Taipei. The September negotiations focused on cutting tariffs for agricultural and industrial goods. No progress was reported, but both the MAC and TAO said they hoped for negotiations to be completed by the end of the year. In November, negotiators reached agreement on several issues including speeding customs procedures, but Taiwan’s negotiators refused to agree to imports of agricultural items from China that “may affect farmers’ livelihood or invoke food safety concerns” and China remained resistant to lower tariffs on some industrial goods. MOEA Minister John Deng said that Taiwan prioritized conclusion of the MTA over the Trans-Pacific Partnership (TPP) and a 13^th round of negotiations was scheduled for Dec. 25 but was postponed, though statements indicated that Taipei was seeking ways to drop tariffs on at least some Chinese agricultural products.

MAC Minister Hsia met TAO Minister Zhang in Guangzhou on Oct. 14. Two years ago such a meeting was unprecedented, but now it seems important but not extraordinary; this one was quickly overshadowed by the Ma-Xi meeting the following month. The agenda items disclosed by the MAC represent the range of unfinished business for the Ma administration: discussions of the MTA, the establishment of reciprocal SEF-ARATS representative offices, environmental protection, a revised travel pass for Taiwan citizens in China (a new item), onward travel to third countries for PRC visitors in Taiwan, and potential future discussion items. No progress was reported on any of these issues. On Dec. 30, Minister Hsia and Minister Zhao inaugurated a telephone hotline between their offices.

US arms sale

Rumors of a long-awaited US arms sale to Taiwan surfaced in October and gained steam in November, with members of the US Congress from both parties pushing the Obama administration. On Dec. 16, the Department of State notified Congress that it had authorized the sale of a package worth a reported $1.8 billion, including two excess guided missile frigates, a variety of short-range tactical missiles, amphibious assault vehicles, ship defense systems, and communications systems. The package did not include F-16C/Ds or diesel-electric submarine plans, which have long been on Taiwan’s wish list. Nevertheless, President Ma, Eric Chu, Tsai Ing-wen, and government agencies expressed appreciation. DPP Secretary General Joseph Wu said in a statement that arms sales “have never impeded the development of cross-strait relations” while a Xinhua editorial argued that it “emboldened separatists” in Taiwan. China did not directly criticize Taiwan, but made strong formal protests to the United States and indicated it would pursue sanctions against the US companies involved.

South China Sea

On Oct. 29, the Permanent Court of Arbitration (PCA) ruled that it has jurisdiction and will consider the case brought by the Philippines in January 2013 seeking  a ruling on China’s claims in the South China Sea, symbolized by the nine-dash line, and its exploitation of resources within the Philippine 200-mile exclusive economic zone (EEZ), among other issues. In response to the award of jurisdiction, the foreign ministries in both Beijing and Taipei reiterated their claims and said they would not accept the PCA’s ruling, Taipei specifying that its views were not solicited by the Philippines and that it was not invited to participate. The Chinese Foreign Ministry applauded Taiwan’s rejection of the decision but publicly ignored the different rationale; a spokesman repeated Beijing’s claim that people on both sides of the strait have the “responsibility and obligation” to uphold the sovereignty of “the country.”

In PCA hearings on November 25 and 30, the Philippines’ attorneys carefully distinguished Taiwan’s claims and actions from the PRC’s and presented extended arguments that Taiwan-occupied Taiping Island (or Itu Aba), the largest natural feature in the Spratlys, should be considered a rock rather than an island; under UNCLOS an island is entitled to a 200-mile EEZ while rocks are entitled to territorial seas of not more than 12 miles. In what the Foreign Ministry termed an “exercise in sovereignty,” on Dec. 12 the ROC interior minister and coast guard minister visited Taiping for the opening of a new lighthouse and an upgraded wharf and runway. President Ma was expected to make the trip but did not, though his office has not ruled out a future visit. The Interior Ministry touted Taiping’s credentials as an island, describing the ways it is self-sustaining and explaining that it will be an ecological preserve. The latter notion contrasts with the environmental destruction of which China has been accused as it builds reefs into man-made islands in other parts of the South China Sea.

Looking ahead

Tsai Ing-wen is likely to win a clear majority in the Jan. 16 presidential election, possibly with a margin of victory over her combined opponents approaching the 16-percentage point victory Ma achieved in 2008. Whether the DPP will win a majority in the LY election remains uncertain. Lacking a majority, the DPP should be able to gain support from other parties to implement its domestic programs.

After the election, Tsai and Xi will share responsibility for minimizing tensions in their relations. Many predict dire consequences from a DPP victory. While some trouble will occur given the lack of trust, it is in neither side’s interest to see serious tensions develop. The period between the election and Tsai’s inauguration on May 20 will be particularly important. Tsai will wish to focus on her domestic agenda of political, social and economic reform. She also knows that Beijing and Washington will be watching closely what she says and does. Discreet unacknowledged contacts between the two sides will likely occur. As noted above, Beijing faces difficult choices, and Xi’s policy statements leave him considerable flexibility.