Beijing's Olive Branch Offer

 March 6, 2009

Even as Western economists disagree as to the depth and duration of the current economic crisis, one thing is certain : it fosters closer economic cooperation between China and its Asian neighbours. The crisis might also generate unexpected peace dividends for the region.

Speaking before the National People’s Congress yesterday, the Chinese premier claimed his country was ready “to hold talks on cross-strait political and military issues and create conditions for ending the state of hostility and the conclusion of a peace agreement between the two sides of the Taiwan Strait.” (source: China Post) In a bid to placate Taiwanese critics, premier Wen also hinted that China would consider ways of allowing Taiwan to participate in the activities of international organisations.

The Chinese premier was even more generous with the economic aid package. He promised financial assistance for Taiwanese businesses operating on the mainland and an acceleration of efforts to normalise cross-strait economic relations, culminating with the signing of a comprehensive trade agreement. To be sure, this was welcome news for the Taipei stock exchange, which was up 2.11 per cent following the announcement, whilst the New Taiwan dollar exchange rate rose by 12 cents. This contrasted sharply with the Dow Jones’s 4.1 per cent drop the same day, following news about the troubles affecting US icons General Motors and Citicorp.(source: WSJ)

The fresh peace overtures from Beijing come as the Chinese budget mandates another 15 per cent increase in defence spending for 2009. For Western military analysts, the rise is disquieting. Rightly or wrongly, most intelligence officials see it as leading to a heightening of military tensions in Asia-Pacific. Some also claim that the ultimate aim of increased spending is Asian hegemonism, a charge that Chinese officials reject. The latter cite US sales of sophisticated weapons to Taiwan as justification for the continued rise in the military budget.

Less hawkish analysts, however, consider that the reasons behind the repeated rises in China’s defence budget are Chinese paranoia about NATO’s presence in Afghanistan and its army’s need to modernise antiquated weapons systems.

Ultimately, it may just be that Beijing’s recent peace initiative is simply good old-fashioned Chinese pragmatism at work. As the crisis starts to bite, establishing closer economic ties with Taiwan could prove much more fruitful than continuing with the military or diplomatic confrontations of yesteryear. Time will tell.