Study: China's Attempts At Economic Coercion Have Limited Success

China has had only limited success in using economic pressure to win political concessions from Taiwan, although Taiwan's increasing ties with China leave it vulnerable to economic coercion, according to a recent RAND Corporation study.

China's limited success is not necessarily good for Taiwan or U.S. interests in the region, says Murray Scot Tanner, a RAND senior political scientist and author of the study, “Chinese Economic Coercion Against Taiwan: A Tricky Weapon to Use.”

“China has moved to a much more conciliatory and seductive policy toward Taiwan in the last 18 months or so,” Tanner says. “But if China comes to feel that economic and other non-violent levers aren't going to be effective, then it might use greater force in the future.”

The study by RAND, a nonprofit research organization, finds that China and Taiwan are currently in a state of “asymmetric interdependence.” For the past two decades, Taiwan has tried to balance two goals: avoiding excessive dependence on mainland China while trying to take advantage of China's booming economy to rescue Taiwan's own competitive position.
Both Taiwan's current president, Chen Shui-bian, and his predecessor, Lee Teng-hui, have struggled to limit Taiwan's dependency on China even in the face of exploding cross-strait economic ties.
“Although Taiwan is, overall, more economically dependent upon mainland China than China is on Taiwan, there are key regions and sectors of China's economy that are enormously dependent upon Taiwan investment — most notably China's information technology sector — and these would suffer very badly in the event of a serious cutoff of trade and investment,” the study notes.
Officially, the People's Republic of China (PRC) maintains that it is the legitimate government of all Chinese territories, including Taiwan, and believes that Taiwan and China will eventually be reunified.
Taiwan, however, officially considers itself the “Republic of China,” but for the most part operates as though it were a de facto independent state. Beijing fears ethnic Taiwanese will try to establish a legally independent Republic of Taiwan, and both presidents Lee and Chen have repeatedly asserted that Taiwan is a state separate from the PRC.
Beijing has repeatedly employed or threatened economic coercion to prevent any formal declarations of independence. Taiwan's economy is more vulnerable to some forms of economic pressure than others, including:

• Selective harassment or intimidation of Taiwanese businesspeople who are heavily invested in the mainland (called Taishang).
• Mainland sanctions against Taiwan's imports.
• Mainland sanctions against Taiwan's investments.
• Economic disruption, damage and sabotage of Taiwan's stock and financial markets or its information networks.

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