Democratic Progressive Party (DPP) Chairperson Tsai Ing-wen was inaugurated as president on May 20. In her inaugural address, she did not accept “one China” but did reach out further toward Beijing. Beijing gave her address an “incomplete” grade and has continued to press her to accept the 1992 Consensus. Despite this fundamental divide and deep mutual mistrust, the two sides have been able to handle some issues in a pragmatic manner. Although the formal communications channels have been suspended by Beijing, contacts at other levels continue under the network of cross-strait agreements. Many issues will continue to complicate the management of relations. However, Tsai remains committed to maintaining stable relations and Xi Jinping, preoccupied with other challenges, prefers to avoid a confrontation with Taiwan.

Democratic Progressive Party (DPP) Chairperson Tsai Ing-wen was elected president on Jan. 16 by a decisive margin, and for the first time the DPP won a majority in the Legislative Yuan (LY) election. This outcome has set Taiwan on a new course. Since then, Tsai has adhered to her pledge to maintain the status quo and peace in the Taiwan Strait and has taken steps to continue reaching out to Beijing. Beijing reacted calmly to the election and has repeatedly said the election will not change the basic framework of its peaceful development policy toward Taiwan. However, Beijing is waging a focused campaign to press Tsai to accept the 1992 Consensus in her inaugural address on May 20. Even if she does not fully meet Beijing’s demands, as is expected, it will be in the interest of both sides to avoid confrontation after May 20 in what is likely to be a strained relationship.

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.

The Kuomintang (KMT) Party’s mismanagement of the selection of its presidential candidate has left the party in disarray and increased the prospect that Democratic Progressive Party (DPP) candidate Tsai Ing-wen will win the presidency along with a majority in the Legislative Yuan (LY) elections. Faced with the prospect of DPP victories, Beijing has sent mixed messages to Taiwan, while voicing its confidence in preserving the accomplishments of the peaceful development policy for the long-term. Against this background, the Ma administration and Beijing have struggled to keep cross-strait relations moving forward.

Taipei’s relations with Beijing have been adrift with the Ma administration in a reactive mode. The main interactions have been on unexpected issues – China’s M503 air route and Taiwan’s effort to join the Asian Infrastructure Investment Bank (AIIB) – and results were mixed. Meanwhile all players are preparing for a different future. The KMT is trying to reform itself; new chairman Eric Chu Li-lun visited China and met General Secretary Xi Jinping in early May. Beijing is focused on working with the new KMT and on deterring the DPP from returning to office in 2016. The DPP and Chairperson Tsai Ing-wen have begun defining its policy toward Beijing before Tsai visits Washington in June.

Campaigning for local elections in Taiwan delayed any progress toward resolving the deadlock in the Legislative Yuan over cross-strait issues. While emphasizing continuity in its peaceful development policy, Beijing is concerned over the Democratic Progressive Party’s increasing prospects and consequently has laid down markers aimed at the party. Student protests in Hong Kong underlined the fundamental political differences between Taiwan and the mainland and occasioned some sharp exchanges between the Ma administration and the Chinese Communist Party leadership. The Kuomintang’s large defeat in the local elections surprised everyone and creates new challenges for Beijing in the lead-up to Taiwan’s presidential and legislative elections in early 2016.

In early May, General Secretary Xi Jinping made clear that Beijing would adhere to its peaceful development policy toward Taiwan in the wake of the student-led Sunflower Movement. In June, TAO Minister Zhang Zhijun made a first official visit to Taiwan reaching out to broader segments of Taiwan society and meeting Kaohsiung Mayor Chen Chu.  DPP obstructionism has continued to prevent the LY from action on cross-strait issues. Tsai Ing-wen was elected Chair of the DPP in July and indicated there will be no change in basic DPP policy toward the mainland.

In February, officials from Beijing and Taiwan met publicly in their official capacities for the first time since 1949.   Both sides characterized this breakthrough as a step forward in cross-strait relations. However in Taipei, partisan maneuvering in committee and an unprecedented occupation of the Legislative Yuan by students created a deadlock blocking approval of the Cross-Strait Service Trade Agreement concluded last June. While Beijing and Taipei have tried to maintain progress, these domestic developments in Taiwan represent a serious challenge both for President Ma and Beijing.

Beijing is increasingly exploring ways to address cross-strait political issues and is promoting agreement on a “one China framework” as the way to build mutual trust.   However, differences remain very apparent, at least for the present.  The first formal exchange of visits by officials is being planned, raising important policy implications. Taipei’s participation in the International Civil Aviation Organization Assembly as a guest was a positive step while Beijing’s unilateral announcement of an East China Sea ADIZ overlapping in part Taiwan’s ADIZ has set back efforts to build trust.

The slow steady improvement of cross-strait relations hit some not unexpected bumps in recent months. Domestic politics in Taiwan, particularly partisan actions by the opposition DPP, have delayed Legislative Yuan action on important cross-strait matters. Despite these domestic troubles, Beijing is maintaining a steady course and seems confident about the long-term direction of President Ma’s policy. Track II political dialogues are growing, including those involving the DPP, which launched a series of meetings on its policy toward Beijing. Taiwan has been invited to attend the triennial Assembly of the International Civil Aviation Organization (ICAO) as a special guest of the ICAO Council.

The contrast between tensions elsewhere in the region and the relative calm in the Taiwan Strait was clearly in focus.  In an event commemorating the 20^th anniversary of cross-strait exchanges, President Ma said progress is “an example for East Asia and the world by demonstrating peaceful resolution of disputes.” Taipei and Beijing continue to make slow but steady progress in expanding and institutionalizing ties.  Health and crime issues, which provoked controversy in the past, have been addressed and talks on an exchange of unofficial representative offices have begun.  Nevertheless, fundamental policy divergences and differences over the pace and scope of interaction will likely place real limits on future integration. Taipei and Tokyo successfully concluded a landmark fisheries agreement that constructively focuses on resource cooperation.

Leadership changes have occurred on both sides of the strait. As predicted, the 18^th Party Congress saw Xi Jinping appointed as general secretary in Beijing. In Taipei, President Ma announced in September a complete reshuffle of his cross-strait and foreign policy team. In both cases, the personnel changes do not foreshadow any policy changes in the coming months. While Ma remains unwilling to address political issues in direct negotiations, some interesting Track 2 dialogues occurred. In October, Beijing gave visiting DPP politician Hsieh Chang-ting unusual high-level attention, and following his return Hsieh has tried, thus far unsuccessfully, to promote change in DPP policy. Against the backdrop of increasing tensions over the Diaoyu Islands, Ma is focused on asserting Taiwan’s interests primarily through his East China Sea Peace Initiative.

President Ma’s inaugural mentioned no new initiatives, confirming that this would be a year for consolidating relations rather than making breakthroughs in cross-strait relations.  While Beijing understands Ma’s domestic position, it continues nudging Ma and Taiwan to move beyond economic issues. The 8^th ARATS-SEF meeting in August finally concluded the long-stalled investment agreement – a significant step – but only by finessing key contentious issues.   Debates within the DPP over its policy toward Beijing continue.  However, initial decisions by new DPP chairman Su Tseng-chang indicate that the party is not yet willing to adjust its policy.   President Ma has taken steps to underline the ROC claims to the Diaoyutai Islands.

In January, President Ma Ying-jeou won re-election and the KMT retained its majority in the legislature. Voters endorsed Ma’s gradual approach to developing constructive relations with the Mainland. In Beijing, the outcome validated President Hu’s “peaceful development” policies. Both sides have indicated there will be continuity in cross-strait relations with a focus on a busy economic agenda. While understanding the domestic factors constraining Ma’s willingness to discuss political issues, Beijing has emphasized the importance of building political trust and strengthening a common Chinese heritage.  Meanwhile, the DPP defeat provoked an internal debate on the party’s policy toward Beijing, but no clear picture has emerged on whether or how party policy might change.

The campaign leading to the Taiwan’s Jan. 14 presidential election has dominated cross-strait developments.  Opposition candidate Tsai Ing-wen has continued her rejection of the “1992 consensus” and criticized President Ma Ying-jeou for suggesting he might consider negotiating a peace accord with Beijing.  Meanwhile, Beijing has emphasized its wish to further develop relations on the basis of the “1992 consensus,” without which relations will regress. Therefore, the outcome of the upcoming elections will have a decisive impact. Ma’s re-election would permit further gradual progress; Tsai’s election will likely lead Beijing to suspend dialogue and domestic pressures would probably produce a tougher policy toward Tsai’s administration.

There has been some progress in implementing the Economic Cooperation Framework Agreement (ECFA) and other existing pacts, but differences continue to prevent finalization of the long-pending investment protection agreement.  Beijing has criticized opposition candidate Tsai Ing-wen’s cross-strait policy platform saying it would lead to a breakdown in dialogue and cooperation. Sea trials of Beijing’s first aircraft carrier were symbolic of the PLA capabilities that increasingly threaten Taiwan. Reports indicate that Taipei and Washington have agreed on the program to upgrade Taiwan’s existing F-16A/B fighters with congressional notification expected in September.

The Cross-Strait Economic Cooperation Committee held its first meeting in February, which represents an important step in implementing the Economic Cooperation Framework Agreement.  Both Beijing and Taipei believe this year will see a steady consolidation of cross-strait relations, with only a few new agreements. The backdrops of this modest prospect are the leadership transitions underway on both sides of the Taiwan Strait.  Evidence of PLA modernization confirms that military capabilities threatening Taiwan continue to increase, confronting Washington with difficult decisions on future arms sales to Taiwan.

The pace of progress in cross-strait relations has slowed as agreement continues to take longer than anticipated. A medical and healthcare agreement was signed in December, but consensus on an investment protection agreement was not reached and establishment of the Cross-strait Economic Cooperation Committee (CECC) has been delayed. The mayoral elections in November saw the opposition Democratic Progressive Party (DPP) receiving more votes than the ruling Kuomintang (KMT).  Both parties are now gearing up for the presidential election in March 2012.   Consequently, campaign politics in Taiwan and jockeying in preparation for the 18^th Party Congress in Beijing will dominate the way Beijing, President Ma Ying-jeou, and the opposition in Taiwan approach cross-strait issues in the year ahead.

This has been a quiet but constructive quarter in cross-Strait relations.  Taipei and Beijing were focused on ratifying and beginning implementation of the Economic Cooperation Framework Agreement (ECFA). With Beijing’s agreement, Singapore and Taipei announced that they would consider negotiating a WTO-consistent economic cooperation agreement. This important flexibility by Beijing allows President Ma to show that ECFA has opened the door at least slightly to Taiwan’s involvement in regional trade liberalization.  Despite Washington’s approval of small commercial arms sales, Beijing indicated a willingness to resume military exchanges with Washington. Nevertheless, arms sales to Taiwan remain a threat to US-China relations.

After six months of arduous negotiations, China and Taiwan signed an Economic Cooperation Framework Agreement (ECFA), including an “early harvest” list of tariff reductions.  The agreement, which provides a basis for further integration of the two economies, is a milestone in institutionalizing cross-Strait relations. On Taiwan, opposition politicians continue to criticize the ECFA but months of discussion and debate have led to a gradual increase in public support and acceptance. The issue of US arms sales to Taiwan continues to complicate US-China relations. The Democratic Progressive Party’s consideration of a new 10-year platform has revealed an ongoing internal difference over cross-Strait policy.  The coming quarter will see the Legislative Yuan’s review of the ECFA, Taiwan’s quest for free trade agreements with trade partners and jockeying in the run-up to the November municipal elections on Taiwan.

The interaction between economic negotiations and Taiwan domestic politics will dominate cross-Strait relations this year.  Formal negotiation of an Economic Cooperation Framework Agreement (ECFA) began in January and both sides now talk hopefully of completing the negotiations by June.   On Taiwan, recent election losses make timely conclusion of the ECFA on terms welcomed by Taiwan voters important for President Ma Ying-jeou and the Kuomintang (KMT) party’s political fortunes.  The announcement of a US arms sales package in January was welcomed by Ma, but predictably created tensions in US-China relations – tensions that raise the stakes when the Obama administration considers Taiwan’s request for F-16 C/D aircraft.

Taipei and Beijing resumed progress on economic issues by completing the Memorandums of Understanding (MOUs) on cooperation in regulating the financial sector and signing three technical agreements at the fourth round of SEF-ARATS talks.   Informal talks concerning an Economic Cooperation Framework Agreement (ECFA) continued but no date for starting formal negotiation has been announced.  While the pace of progress is now slow largely because reaching compromises on substantive economic issues has proven to be time-consuming, these agreements further integrate the two economies.  Taipei has continued to resist pressure from Beijing to address political issues about which opinion in Taiwan remains deeply divided.  Cross-Strait trade has recovered quickly from the precipitous drop a year ago and should surpass its pre-recession peak in December.   Slow progress is likely to continue in the coming months.

Beijing and Taipei made little progress in cross-Strait relations this quarter. Typhoon Morakot and other extraneous factors combined to frustrate progress but did not change the positive momentum. Preparations are underway for talks on an Economic Cooperation Framework Agreement (ECFA) and the fourth round of SEF-ARATS talks later this year.  Cross-Strait trade is beginning to recover from the precipitous decline caused by the great recession and the first mainland investments in Taiwan, although small, have been approved. There were no significant developments on security issues. Progress in better relations should resume in the months ahead.

Beijing and Taipei made significant progress in improving cross-Strait relations this quarter.  In May, “Chinese Taipei” participated for the first time as an observer in the World Health Assembly.  In April, the third round of ARATS-SEF talks produced three new agreements and an understanding to open Taiwan to investors from the mainland. These developments have been well received in Taiwan.  The progress over the past year has produced increasing de facto dealings between government officials from the two sides.  The recent precipitous decline in cross-Strait trade appears to be bottoming out, and Beijing has taken steps to help Taiwan economically.  Although there is still no indication that Beijing has reduced the military forces targeted at Taiwan, Hu Jintao has called for preparations concerning a peace agreement and confidence building measures.

Beijing and Taipei have been making preparations for the third round of ARATS-SEF talks to be held in May or June at which time additional agreements on finance, flights, and crime are expected.  The global recession has precipitated a dramatic decline in cross-Strait trade and that, in turn, has contributed to accelerated plans to negotiate a comprehensive cross-Strait economic agreement.  However, the planning for such an agreement has produced a storm of opposition protest in Taiwan, which represents the most serious challenge yet to President Ma’s cross-Strait policies. Officials on both sides are speaking optimistically about finding a formula under which Taipei could be an observer at the World Health Assembly (WHA) in May.  Although defense reports from both sides acknowledge reduced tensions, there is as yet no sign that Beijing will reduce the military threat directed at Taiwan.

Beijing and Taipei continued to work cooperatively through various dialogue channels to improve cross-Strait relations.  The focus this quarter was on the first ever visit by a “designated representative” of the Chinese government to Taiwan – the visit of ARATS Chairman Chen Yunlin in November, when four agreements were signed.  This process is gradually establishing a degree of trust in this long-troubled relationship.   However, a vocal opposition minority in Taiwan disrupted the Chen visit and forced President Ma Ying-jeou to make adjustments. Despite the progress, there is still no evidence that Beijing has taken any steps to reduce its military threat directed at Taiwan. President Hu’s new six-point statement and Taipei’s initial reaction to it highlight the continuing gap between their positions. The global economic crisis is confronting the relationship with new challenges, the scope of which is not yet clear. Internationally, Taiwan’s desire for participation in the WHO will be a test of this evolving relationship next spring.

Leaders in Taipei and Beijing continue to pursue improved cross-Strait relations despite political pressures and domestic criticism.   The initial agreements are being implemented and behind-the-scenes negotiations are laying the ground for a second tranche of agreements when ARATS Chairman Chen Yunlin visits Taiwan in late October or early November.  The Beijing Olympics occasioned some tensions over terminology until the leadership in Beijing stepped in to craft a satisfactory solution. Taipei’s modest proposal at the UN aimed at participation in UN specialized agencies was rejected by Beijing.  However, a debate is underway in Beijing on how to address Taipei’s demand for increased international space and the Ma administration remains hopeful that Beijing will eventually devise a more forthcoming response.  On October 3, the Bush administration notified Congress of a $6.5 billion arms package for Taiwan.

Events in cross-Strait relations have unfolded rapidly since Ma Ying-jeou’s election in March.  After a nine-year hiatus, formal dialogue between Beijing’s Association for Relations Across the Taiwan Strait (ARATS) and Taipei’s Straits Exchange Foundation (SEF) resumed on June 12 in Beijing. These two nominally unofficial associations reached agreements on weekend charter flights and Chinese tourism. The atmosphere of cross-Strait relations in this honeymoon period is so relaxed and consultative that it is hard to remember the bitter tensions that poisoned relations just a few months ago.  However, political constraints on Presidents Hu Jintao and Ma Ying-jeou will make progress difficult, particularly on the international relations and security issues that are crucial to a lasting relaxation of tensions.

In January, Taiwan’s voters delivered a stunning defeat to the Democratic Progressive Party in the Legislative Yuan elections.  These results both foreshadowed and influenced the resounding victory Kuomintang candidate Ma Ying-jeou won in the March presidential election.   Most importantly for cross-Strait relations, the UN referendum promoted by Chen Shui-bian failed to pass.  Beijing’s disciplined avoidance of overt interference in this year’s elections paid off.   Beijing and Washington both breathed sighs of relief.   Beijing now faces major challenges.  First, how to avoid short-term actions that would undercut domestic support in Taiwan for Ma’s more positive attitude toward China and, over the longer term, how to seize the opportunity to promote more stable cross-Strait relations.

At the 17^th Party Congress in October, Hu Jintao authoritatively reiterated Beijing’s desire for a peace agreement on the basis of the one China principle.  Behind this positive public posture, Beijing remains deeply concerned about the referendum on joining the UN under the name “Taiwan” that Chen Shui-bian is relentlessly promoting. Yet Beijing has kept its rhetoric under control.  It has pressed the U.S. to do more to stop the referendum and has worked with some success to mobilize international criticism of it.   Washington has continued to make known to the public in Taiwan its reasons for opposing this referendum and, to underline the message, Washington has put Taiwan’s purchase of more F-16 fighter jets on hold.   That Chen is pushing ahead with the referendum despite international opposition only confirms that his purpose is primarily election mobilization.

Beijing is preparing for the 17^th Party Congress, projecting an image of orderly authoritarian politics.  In Taiwan, the volatile and unpredictable democratic politics of the presidential campaign are raising issues and prompting expressions of serious concern in Beijing and Washington.  The focal points have been President Chen Shui-bian’s quixotic appeals to join the UN as “Taiwan,” the Democratic Progressive Party’s (DPP) promotion of a referendum on UN membership under that name and DPP Chairman Yu Shyi-kun’s proposal for a new DPP resolution on making Taiwan a “normal country.”   The strong international reaction to these maneuvers has not deterred Chen or the DPP from the referendum on UN membership that is driven by their domestic political calculations.  However, the U.S. position did provoke debate and contributed to a DPP decision to reject the most provocative aspects of Yu’s proposals on the “Normal Country Resolution.”  What the Taiwan voters will do remains to be seen.  Against this background, it is hardly surprising that the few authorized cross-Strait contacts that have occurred have produced no results.

Beijing has remained concerned that President Chen Shui-bian will provoke some new cross-Strait confrontation. For his part, Chen has continued to try to create a stronger sense of Taiwan identity during his remaining months in office. These have lead Beijing to be even more implacable in insisting that Taiwan be viewed as part of China. Much of the confrontation has been in the international arena: over the Olympics, in the WHO and other international organizations, and for diplomatic recognition. There has been little movement on cross-Strait functional issues. On the military front, Taipei has been somewhat more open about its development of offensive missiles, and the Legislative Yuan has finally appropriated funds to begin procurement of some elements of the arms package.

Despite the basic stability of cross-Strait relations, Beijing has been concerned this spring that Taiwan’s President Chen Shui-bian would somehow take steps to realize his dream of a new constitution for Taiwan. In contrast, Washington has been more impressed by the domestic constraints that make constitutional reform affecting Taiwan’s sovereignty all but impossible. President Chen has not abandoned his dreams, as he made explicit in this “four wants” speech, but he has focused on the more modest and achievable goal of heightening the public’s sense of Taiwan’s separate identity – steps that appeal to the Democratic Progressive Party’s core supporters and create realities his successor will have difficulty reversing. Treatment of Taiwan at the PRC’s National People’s Congress in March reflected the continuity of President Hu Jintao’s approach to Taiwan. Talks on Chinese tourism to Taiwan and on expanding cross-Strait charter flights have continued but no agreements have been announced. China’s anti-satellite test and another major increase in its defense budget have been sources of concern in Taipei, but the Legislative Yuan has not yet passed its arms procurement legislation.

As the year ends, cross-Strait tensions remain remarkably low. This is so despite President Chen Shui-bian’s continuing efforts to promote his Taiwanese nationalist agenda in ways that could threaten cross-Strait stability. However, as Chen is a seriously wounded lame duck, his influence is declining and his initiatives are often just rhetorical flourishes. Despite President Chen’s restrictive approach to cross-Strait economic ties, his administration finally approved some long-pending proposals for high-tech investments in China. Beijing continues to pursue President Hu Jintao’s policy of positive outreach to Taiwan. Discreet talks between designated associations have reportedly neared agreement on arrangements for Chinese tourism to Taiwan. Progress was made toward breaking the deadlock over arms procurement, with hope that some initial appropriations may be approved by the Legislative Yuan early in the new year. If any progress is to be made on functional issues next year, it will have to occur early before the sides become engaged in preparations for the 17^th Chinese Communist Party (CCP) Congress and Taiwan’s elections.

Corruption scandals and street protests calling for President Chen’s resignation have largely paralyzed policy making in Taipei. Beijing is concerned over President Chen’s playing the constitutional reform card to counter the campaign for his removal.  Nevertheless, Taipei and Beijing undertook more small steps to ease restrictions on cross-Strait contacts. Beijing also continued active exchanges with the Kuomintang (KMT) opposition. Significant changes in Taiwan Affairs Office (TAO) personnel were announced, and the changes were viewed positively in Taipei. The PRC continued to outmaneuver Taiwan in the international arena, but at home Chen pushed his campaign for a stronger Taiwanese identity. The visit to Taipei of a Japanese vice minister of agriculture symbolized the increased contacts that have been taking place between Tokyo and Taipei. With the Democratic Progressive Party (DPP) set to release its proposals on constitutional reform, that issue is likely to reemerge as a source of cross-Strait tension.

Prosecutorial investigations of President Chen Shui-bian’s family and aides continued to provide fodder for a media frenzy in Taipei. Allegations about the president’s possible role in the mishandling of the Presidential Office Allowance for State Affairs for the first time directly touched the president. In August, former DPP activist Shih Ming-teh launched a “depose Chen” campaign to force Chen from office.  This led to repeated demonstrations and counter demonstrations, and these events largely paralyzed policy-making in Taipei and raised concerns in Beijing.

In mid-September, Chen Yunlin, minister in Beijing’s TAO, made an unpublicized trip to Washington. Reportedly, he expressed concerns to U.S. officials that Chen might seek to rescue himself by provoking some incident in cross-Strait relations or by reneging on his promises concerning the constitutional reform issue to regain support from the DPP’s political base.   The constitutional concerns were prompted by DPP plans to make public its proposals concerning a new constitution for Taiwan by the end of September.   DPP Chairman Yu Shyi-kun was in Washington at the same time on a mission to reassure the U.S. that Taipei politics would remain stable and that the DPP’s constitutional proposals would not touch on sovereignty issues.

While release of the DPP constitutional draft(s) has been delayed, President Chen told a DPP seminar on constitutional reform in late September that he believed the time had come to reconsider the definition of the country’s territory in the constitution.  Chen’s purpose was clearly to deflect attention from the scandals by making a controversial proposal that would appeal to his core DPP supporters.   While there is no chance that any amendment concerning territory could actually be passed, this proposal was a clear deviation from Chen’s assurances to the U.S. on constitutional reform and an example of what Beijing fears. Politburo Standing Committee Member Jia Qinglin reacted promptly, warning of the dangers Chen is creating by promoting independence under the guise of constitutional reform.  In Washington, the State Department said that adherence to President Chen’s commitments that constitutional reform would not touch on sovereignty issues, including the territorial definition, was very important to peace and “would be a test of the President’s leadership, dependability and statesmanship.” If information that has leaked out about the content of constitutional drafts under consideration by the DPP is accurate, the constitutional reform issue will soon re-emerge as a serious source of tension in cross-Strait and U.S.-Taiwan relations.

The political gridlock in Taiwan caused by the scandals swirling around President Chen Shui-bian’s family has overshadowed cross-Strait relations in recent weeks.  Nevertheless, some small pragmatic steps have been taken by both sides. In April, despite Chen’s more restrictive policy on economic ties, Taipei finally approved investments in LCD production and computer-chip packaging and testing ventures.  In May, a weakened Chen publicly reaffirmed his “four noes,” a step that was welcomed by Washington and to a lesser extent Beijing.  In June, Taipei and Beijing announced that agreement had been reached on holiday, humanitarian, and limited cargo charter flights across the Strait, beginning later this year. In Geneva, the World Trade Organization (WTO) held its first review of Taiwan’s trade policies. PRC representatives participated, and the review was completed without the usual diplomatic histrionics.  Relative calm and such small steps are the most that can be expected for cross-Strait relations in the coming months.

The agreement to conduct an expanded round of direct cross-Strait charter flights during the 2006 Lunar New Year could have marked the resumption of progress on practical cross-Strait ties. However, reacting to his party’s defeat in the recent county elections, President Chen announced Jan. 1 his intention to more “actively manage” – meaning to tighten restrictions on – cross-Strait economic ties.  Nevertheless, President Hu Jintao and other Chinese officials continued to signal their interest in expanding cross-Strait transportation, economic, tourism, and cultural ties. In late January, President Chen announced his intention to abolish the National Unification Council (NUC). His motives were primarily domestic, but the implications of this proposal sparked a sharp response from Washington and Beijing. In the end, Chen stopped short of abolishing the Council.  Cross-Strait rhetoric has been heated, but tensions have not escalated. In late March, Chen began announcing steps to implement further restrictions on investment in China.  The most serious result of these developments has been that opportunities for expanding mutually beneficial economic ties and for making progress on practical cross-Strait issues have once again fallen victim to President Chen’s domestic political maneuvering.

While 2005 has seen a fundamental shift toward more stable cross-Strait relations, developments were largely on hold for much of this quarter. Beijing continued to pursue cooperation with the opposition parties and to minimize dealings with the Chen Shui-bian administration. Beijing did not implement any further unilateral steps to expand cross-Strait exchanges. Economic ties continued to grow but at a slower pace. Then in November, working though private associations, Beijing and Taipei agreed to renew and expand the arrangements for charter flights at the coming Chinese New Year. With Taiwan’s local elections over, Taipei and Beijing will each need to decide whether to build on that base, as was not done in 2005, to tackle the other charter and tourism issues on the table. At present, it seems Beijing may be more willing to do so than President Chen. Progress on these and other economic decisions long pending in Taipei would serve Taiwan’s interests.

The summer saw Beijing extending friendly gestures toward Taiwan – a welcome change. Beijing has worked to build on the visits by opposition party leaders in the spring, while seeking to marginalize President Chen Shui-bian’s administration. Initiatives that China could implement on its own have gone ahead, while those requiring cooperation from the Taiwan government have languished. China conducted its first joint military exercise with Russia in August, and structured the exercise so that people in Taiwan would see it as threatening. Nevertheless, partisan wrangling in Taipei continued to delay a decision on adoption of the supplemental arms budget. Cross-Strait trade continued to grow, but at a relatively slow pace. Beijing’s strategy to marginalize Chen will limit progress on cross-Strait functional issues and not necessarily rebound to Beijing’s long-term benefit.

The visits of Kuomintang (KMT) chairman Lien Chan and People’s First Party (PFP) Chairman James Soong Chu-yu to China have ameliorated cross-Strait relations. Cross-Strait tensions and the fears of potential conflict so evident throughout 2004 have eased, and the controversy over Beijing’s Anti-Secession Law has faded into the past. The visits illustrated the potential for dialogue if a different government were in office in Taipei, and produced a new verbal formula that could bridge differences over preconditions for talks with a future government. However, the visits have poisoned the atmosphere between Beijing and the administration of Taiwanese President Chen Shui-bian. Despite speculation in Taipei, there is no prospect for political dialogue between the two. Furthermore, domestic politics is complicating the possibility for progress on functional issues such as transportation, agricultural exports, and tourism, which would be beneficial to both sides, particularly Taiwan.

After burnishing its hardline credentials by announcing its intention to enact an anti-secession law (ASL) in December, Beijing took some significant steps toward improving cross-Strait relations in January by cooperating in New Year charter flights, stopping propaganda criticism of Taiwan President Chen Shui-bian, and sending Association for Relations Across the Taiwan Strait (ARATS) officials to Koo Chen-fu’s funeral in Taipei. For his part, Chen also took conciliatory steps by reaffirming his inaugural pledges concerning constitutional reform and appointing as new premier Hsieh Chang-ting, who quickly set a more moderate tone on contentious domestic and cross-Strait issues. Nevertheless, despite widespread criticism from Taiwan and the U.S., Beijing’s National People’s Congress adopted in March the anti-secession law (ASL), which emphasizes China’s pursuit of peaceful reunification but mandates that unspecified “non-peaceful means” be used if Taiwan seeks to secede from China. When the dust from the ASL controversy settles, the question will be whether Beijing and Taipei are able to follow up on the successful New Year charter flights by arranging further steps toward direct cross-Strait cargo and/or passenger flights.

During the Legislative Yuan (LY) election campaign, President Chen Shui-bian again used Taiwanese identity issues to mobilize Democratic Progressive Party (DPP) supporters and reverted to talking fervently about his mission to give his people a new constitution in his second term. Such developments only confirmed Beijing’s distrust and criticism of Chen. The Bush administration also notched up public criticism, reflecting Washington’s growing frustration with and lack of trust in Chen.  In October, Chen made some specific proposals on cross-Strait dialogue and charter flights.  Beijing dismissed Chen’s dialogue proposal as insincere because it did not directly address the “one China” issue but deferred responding on the question of charter flights. The LY election in December unexpectedly renewed the pan-blue majority in the Legislative Yuan.  Beijing and Washington breathed sighs of relief.  Nevertheless, a week after the election, Beijing announced it would proceed to adopt an “Anti-Secession Law” in the Spring. While some believe 2005 will present a window of opportunity for progress on cross-Strait relations, it remains to be seen whether Beijing and Taipei will choose to adopt flexible approaches on the “three links,” the one area were some progress may be possible.

This quarter much attention was focused on unproductive military posturing. While some saw an increase in military tension, it is more accurate to say that both sides were using military exercises to signal the political resolve behind their declared policies.  One real issue – whether Taiwan will invest more in its own defense – was hotly debated in Taipei, but the Legislative Yuan (LY) took no action on the proposal. The months leading up to Beijing’s Central Committee Plenum in September saw considerable speculation about policy differences between Jiang Zemin and Hu Jintao, including over Taiwan.  Although Jiang completed his retirement at the Plenum, it remains to be seen whether Hu will make significant adjustments in Taiwan policy next year.  In Taipei, the LY passed proposed constitutional amendments including provisions to use referendums to ratify future amendments. Despite its past allergy to Taiwan referendums, Beijing reacted calmly. With the December LY elections in the offing, the standard dichotomy between rapidly expanding cross-Strait economic ties and deadlocked political dialogue continued to hold true this quarter.

In his second inaugural address, President Chen Shui-bian explained revised plans for constitutional reform and his desire for cross-Strait dialogue without preconditions.   Beijing, which had predictably reiterated its “one China” precondition for talks, criticized Chen’s speech as disguised separatism and threatened to crush Taiwan independence whatever the price.  Cross-Strait political relations thus will remain deadlocked, but stable, for the rest of the year as Chen’s Democratic Progressive Party (DPP) focuses on winning a majority in the December Legislative Yuan (LY) election and Beijing delays difficult decisions on how to deal with Chen until it can assess that election outcome.

The presidential campaign and referendum issue dominated cross-Strait relations this quarter. Taiwan President Chen Shui-bian’s narrow reelection victory gives him a weak mandate to lead a society deeply divided over the issue of Taiwan’s national identity and future relationship with China. The election outcome reflects the extent to which opinion on Taiwan has moved away from the “one China” concept in the eight years since Taiwan’s first direct presidential election in 1996. With the campaign over, President Chen now faces concrete choices about how to pursue cross-Strait relations, and Beijing is confronted with difficult choices and the need to review its policies toward Taiwan.  Washington can expect to be caught in the middle and to be challenged to find effective ways to deter President Chen from changing the cross-Strait status quo.

Taiwan President Chen Shui-bian continued to press his proposals for referenda and plans for a new Taiwan constitution in the campaign for the presidential election next March.   Beijing tried to respond to his moves at a low level, but the prospect of Legislative Yuan (LY) adoption of a law permitting referenda on sovereignty issues forced Beijing to heighten its rhetoric and appeal to Washington to counter Chen’s plans. Chen’s decision not to keep Washington informed in advance of his moves heightened the Bush administration’s concerns about Chen’s long-term intentions. Washington’s quiet diplomatic communications had little effect on Chen.  So, when Chinese Premier Wen Jiabao visited, President Bush addressed the issue and made clear his concerns about possible steps by Chen to unilaterally change the cross-Strait status quo.  Nevertheless, Chen announced he would proceed with his plan for a referendum next March. The campaign will continue to determine the temperature of cross-Strait relations and the outcome will have a major impact as the two candidates’ approaches to China differ markedly.

The initiative on cross-Strait issues this quarter has been centered in Taiwan.  Preoccupied with other issues, Beijing has taken no initiatives and concentrated on countering Taipei’s moves.  Chen Shui-bian’s efforts to arrange referendums, to heighten Taiwan’s national consciousness, and to manipulate the cross-Strait transportation issue have all been shaped with an eye to the coming presidential election campaign.   In these circumstances, there has been no breakthrough on either the political or economic aspects of cross-Strait relations and none is likely in the foreseeable future. While Beijing has been very restrained, Chen’s electioneering could well heighten tensions in the Strait.

Throughout this quarter, Beijing and Taipei struggled to contain the spread of severe acute respiratory syndrome (SARS).  SARS dramatically reduced cross-Strait travel; its effects on cross-Strait economic ties appear less severe but remain to be fully assessed.   SARS intensified the battle over Taiwan’s request for observer status at the World Health Organization (WHO). Although the World Health Assembly (WHA) again rejected Taiwan, the real problems of a global health emergency led to the first contacts between the WHO and Taiwan.  Beijing’s handling of SARS embittered the atmosphere of cross-Strait relations and created a political issue in Taiwan that President Chen Shui-bian is moving to exploit in next year’s elections.

The first flight of a Taiwan aircraft to China in over 50 years at the time of the Lunar New Year highlighted the growing need for direct travel and the continuing political constraints on accomplishing it. Absorbed in the transition to its fourth generation leadership, Beijing has adhered to the Taiwan policy parameters set forth at the 16^th Party Congress, including the active encouragement of closer economic links with Taiwan. Within Chen Shui-bian’s administration, opinion has now shifted noticeably from the slogan “active opening, effective management” adopted in 2001 to a more cautious approach to policy on economic ties and direct travel to the mainland. Economic concerns and electoral positioning have played a role in this shift.  Meanwhile, Taiwan’s delay of major arms purchases from the U.S. is creating strains in U.S.-Taiwan relations, and these strains have become more public this quarter.

In recent months, Beijing has taken a number of steps that show greater flexibility on issues related to Taiwan.  Beijing has said that cross-Strait transportation does not have to be called “domestic”; it has agreed to a proposal from opposition members in Taipei to permit charter flights and given up its initial request that some of the charter flights be flown by PRC airlines; and, in his meeting with President George W. Bush in Crawford, President Jiang Zemin indicated that China might reduce missile deployments opposite Taiwan if U.S. arms sales were reduced. A key question is whether these and other moves are just tactical maneuvers or a significant adjustment in Beijing’s approach to cross-Strait relations. Beijing’s moves represent a challenge for the Chen Shui-bian administration in Taiwan but present opportunities that Taipei and Washington should consider seriously.

On Aug. 3, President Chen Shui-bian told a video conference with independence supporters in Tokyo that there was “one country on each side” of the Taiwan Strait. Taiwan government officials, Washington, and Beijing were caught by surprise and concerned.  Taipei quickly sent out assurances that policy has not changed, Washington reiterated that it did not support independence, and President Chen refrained from repeating this remark publicly. While no crisis occurred, the remarks appear in part to reflect Chen’s conclusion that Beijing’s cool response to Taipei’s goodwill offers means there is little near-term prospect for progress on cross-Strait issues. Taipei has pressed ahead with efforts to strengthen ties with the U.S., but its efforts to increase Taiwan’s international standing have suffered setbacks. Minor steps continue to be taken to ease restrictions on cross-Strait economic ties, which are again expanding rapidly.

Despite the absence of formal dialogue, Beijing and Taipei have been signaling interest in achieving direct trade and travel and probing possibilities for new mechanisms for negotiations. Taiwan President Chen Shui-bian took an important step in moving this process forward when he indicated that the private sector could play a role in negotiating the “three links.” Beijing responded saying it was ready to negotiate with business representatives from Taipei. The challenge is whether mutually acceptable roles for the private and government elements in a new negotiating process can be defined to both sides’ satisfaction.  It is not clear whether this can be done. Economic ties continue to expand; the long-awaited oil exploration joint venture deal has been signed. Even while these and other positive developments occur, Beijing and Taipei continue to confront each other internationally and strengthen their military preparations.

The effects of Taiwan’s legislative elections and China and Taiwan’s accessions to the World Trade Organization (WTO) rippled through cross-Strait relations this quarter, but did not produce any breakthrough in political dialogue. In January, PRC Vice Premier Qian Qichen made an important statement indicating flexibility in Beijing’s attitude toward Taiwan’s Democratic Progressive Party (DPP). In Taipei, government leaders further loosened restrictions on cross-Strait trade and investment and emphasized their desire for talks on economic issues, which Beijing continued to rebuff. The strong support for Taiwan, which U.S. President George Bush expressed during his Asia trip, whetted Taipei’s appetite for improvements in U.S.-Taiwan relations.  One result was the visit to the U.S. by Taiwan Defense Minister Tang Yiau-ming that, together with other U.S. actions, has sparked new concerns in Beijing about the direction of U.S. policy toward Taiwan. While Beijing’s handling of President Bush’s visit to China indicated the importance that the PRC leadership places on relations with the U.S., Beijing’s concerns over the Tang visit have raised clouds over the planned visit of PRC Vice President Hu Jintao to the U.S. this spring.

Taiwan’s Dec. 1 legislative elections have brought dramatic changes in Taiwan politics, but their implications for cross-Strait relations are not yet clear.   Both China and Taiwan have said the elections do not change their basic policies, but whether a coalition will be built with Taiwan President Chen Shui-bian, who may participate in it, and Beijing’s reassessment of Chen’s longer term prospects remain uncertain. Meanwhile, despite the absence of institutional dialogue, Taipei has gradually implemented a range of measures to expand cross-Strait economic relations, and both Taipei and Beijing have been admitted to the World Trade Organization (WTO). Economic interdependence’s potential to shape cross-Strait relations is symbolized by the pending, but not yet approved, joint venture between Chinese Petroleum Corporation and China National Offshore Oil Corporation for exploratory drilling in the Taiwan Strait.

The stalemate in cross-Strait political dialogue has continued in large part because Beijing has no incentive to make progress with Taiwan President Chen Shui-bian that would benefit the Democratic Progressive Party (DPP) in Taiwan’s December elections.  Rather, Beijing has continued to indicate its preference for dealing with the opposition – a tactic that may again prove counterproductive. Taiwan’s economy has slid into recession.  Economic problems and pending World Trade Organization (WTO) accession have focused Taipei’s attention on cross-Strait economic relations. In these circumstances, Chen overcame resistance within his own party to closer economic ties with China. The Economic Development Advisory Conference (EDAC), convened by Chen, produced a new political consensus that should mark a watershed in the development of cross-Strait economic relations.  Separately, the prospect of Sino-U.S. cooperation against international terrorism is creating some anxiety in Taiwan.