Dancing with the red dragon

In recent months, New Delhi and Islamabad have finally been talking trade as opposed to trading insults. Steps have been announced to expedi...

In recent months, New Delhi and Islamabad have finally been talking trade as opposed to trading insults. Steps have been announced to expedite shipping and aviation agreements, ease visa restrictions and open banks in each other8217;s countries. Bilateral trade in 2004 zoomed by 76 per cent to 600 million.

But this is still only a piffling 0.5 per cent of the value of trade that India and Pakistan carry out with the rest of the world annually. Thus, despite some progress, significant cross-border economic linkages remain notable only in their absence.

In stark contrast, India8217;s northern neighbour China has been playing the economic card with felicity in its relations with countries that it has had a troubled history with. Beijing has increasingly developed a sophisticated diplomacy focussed on creating economic linkages, playing down the role of ideology and using its soft power to make friends of former foes.

The success of this strategy is evident from China8217;s effective engagement of Southeast Asia over the last decade. But nowhere has this tactic been more cleverly implemented than in Beijing8217;s most troubled relationship of all: Taiwan.

Although Taiwan has enjoyed de facto independence for decades, the mainland persists in regarding the island as part of its territory awaiting reunification. Yet, alongside shrill warnings of a military response to any moves towards formal independence by Taiwan and the 500-odd missiles that the mainland keeps pointed at the island, Beijing has systematically pursued policies to ensure that its economy has become so entwined with Taiwan8217;s, that the likelihood of war is greatly reduced.

8216;8216;It8217;s what in Chinese we call a 8216;yang mao8217; or an open secret that the mainland has encouraged economic ties with Taiwan, hoping that in the long run this will help to solve problems peacefully,8217;8217; says Professor Jia Qingguo, Associate Dean of Beijing University8217;s School of International Relations.

Professor Jia explains that, over the years, Beijing has given Taiwanese businesspeople an array of incentives to invest in and trade with the mainland, including tax breaks, tariff concessions and the setting up of special Taiwan Affairs offices. As a result, the mainland is today Taiwan8217;s largest trading partner and receives around 40 per cent of the island8217;s outward investment.

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In 2004, bilateral trade touched 61.6 billion, with Taiwan enjoying a substantial trade surplus. Almost 60,000 Taiwanese firms have invested in the mainland to the tune of about 40 billion. Some one million Taiwanese live in China, 300,000 in Shanghai alone.

These cross-strait economic linkages have created a win-win situation. For Taiwan, the rise of the mainland as an economic power has proved a lifeline. Since 2000, nearly all the island8217;s economic growth has come from trade and investment with the PRC People8217;s Republic of China. In fact 80 per cent of Taiwan8217;s trade surplus accrues from trade with the mainland.

On the other hand, manufacturers from Taiwan operating in the PRC have played a pivotal role in China8217;s economic miracle. They have provided key technologies for budding Chinese industries like semi conductors and electronics.

As a result there are now weighty pro-peace constituencies on either side of the straits. For businesspeople any political action that may harm their bank balances is anathema. Taiwanese who do business with China, 8216;8216;Are aware that we should focus on economic growth, not talk too much about independence and use our economic clout to convince the mainland that we should all grow rich together,8217;8217; says Linda Lee, President of a Taiwanese telecom technology company with operations in the mainland.

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Indeed, in 2004, in the run-up to the March presidential elections in Taiwan, The Taiwan Chamber of Commerce in China, which has over 200,000 members, openly endorsed the Kuomintang8217;s pro-business candidate, Lien Chen rather than the pro-independence Chen Shui Bien.

Chen was eventually elected, but only by a narrow margin of 30,000 votes. Aware of the need to broaden his support base, Chen has since toned down his independence oriented rhetoric and eased some of the restrictions on Taiwanese doing business with the mainland.

The India and Pakistan relationship is historically different from that of Taiwan and China. Nonetheless, New Delhi and Islamabad would do well to learn from the cross-straits experience, the importance of developing economic breaks to political conflict.