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No. 16 — April 21, 2000

Feature Article

TAIWANESE ELECTION CREATES NEW CHALLENGES FOR JAPAN ON CROSS-STRAITS RELATIONS

Barbara Wanner

Summary

The victory of Democratic Progressive Party leader Chen Shui-bian in Taiwan's mid-March presidential election was hailed in the international press as a "democratic breakthrough" and a "peaceful revolution" since it overturned more than a half-century of rule by the once-dictatorial Kuomintang, or Nationalist Party. Tokyo might have been expected to look favorably on the transformation of Taiwan's political system into one that more closely resembles its own, yet officials responded cautiously to the power shift. Foreign Minister Yohei Kono reiterated the government's commitment to the one-China policy embodied in the 1972 friendship treaty with the People's Republic of China and urged a peaceful settlement of the "issue relating to Taiwan" through a direct dialogue between Taipei and Beijing.

On the acutely sensitive issue of Taiwan's status — Beijing considers it a rebel province that should be reincorporated, while many Taiwanese, including Mr. Chen, have advocated independence from the mainland — Tokyo has toed a neutral line. The care taken by the government during the past 28 years to remain on good terms with both China and Taiwan is motivated as much by economic interests as by security-related concerns. Through private exchanges and what Tokyo describes as "nongovernmental working relations," Japan and Taiwan have developed extensive business ties over the years; Taiwan currently is Japan's number-two export market. At the same time, China ranks second in two-way trade with Japan. The government has committed large amounts of public funds to the economic engagement of China, the idea being that a prosperous China will be more stable and less hostile toward its neighbors. Any deviation from neutrality risks alienating either the mainland or the island and jeopardizing these not-insignificant economic stakes.

Moreover, Japan's geographic proximity to China on top of the latter country's unabashed regional leadership aspirations and often-bellicose rhetoric and provocative actions toward Taiwan has limited its options on cross-straits issues. In view of the buildup of Chinese military power, Tokyo generally has been reluctant to pursue policies that could inflame relations with its massive neighbor, fearing that China would attack Japan or cause a regional disturbance, such as military action in the Taiwan Straits. The possible risk to the safety and the security of the Japanese is alarming in and of itself. But the Taiwan Straits confrontation scenario is just as worrisome for decisionmakers because they basically would be forced to choose between the United States and China. The 1997 revised guidelines for U.S.-Japan defense cooperation oblige Tokyo to provide logistical support to American troops engaged in a nearby crisis — but, in so doing, the government inevitably would incur Beijing's ire.

It was precisely Chinese Premier Zhu Rongji's saber-rattling on the eve of the Taiwanese presidential election, which occurred barely a month after China's defense white paper included a promise to use force if Taipei refused to negotiate on Beijing's terms, and Mr. Zhu's subsequent snub of Mr. Chen's call for a peace summit that put Japanese officials on edge. The fact that Japan and China are going through a period of testy relations following two less-than-spectacular summit meetings also no doubt has influenced Tokyo's measured response to the DPP leader's victory.

At the same time, though, Taiwan's economic accomplishments and democratic transformation clearly have earned it additional friends among Japanese lawmakers. In fact, the lines have blurred between the Diet's pro-Taiwan and pro-China policy groups, as members have recognized the benefits of developing strong relations with both sides. Taipei's sympathizers could complicate Tokyo's diplomatic balancing act by, for example, pushing for a visit by retiring Taiwanese President Lee Teng-hui later this year. Experts say, however, that the pro-Taiwan camp will not bring about a change in Japan's one-China policy or compel Tokyo to try and broker a cross-straits accord. Rather, the near-term outlook for Japan's relations with the mainland and Taiwan probably will depend in large part on Mr. Chen's success in engaging Beijing in a productive, nonconfrontational dialogue.

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Weekly Review

BOJ POLICY PROPOSALS DRAW FIRE IN TOKYO, WASHINGTON
--- by Arthur J. Alexander

Bank of Japan Governor Masaru Hayami caught the attention of global financial leaders assembled in Washington April 16 and April 17 for the spring meetings of the International Monetary Fund and the World Bank — not to mention that of Tokyo — by suggesting April 12 that the central bank's 15-month-old policy of zero interest rates could be abandoned within the year. At a regularly scheduled press briefing, he echoed BOJ's latest assessment of current economic conditions, released that day, which pointed to several positive signs, most notably, a rise in corporate investment. When asked by a reporter if this view might be interpreted as an indication that BOJ plans to raise interest rates, Mr. Hayami's response was oblique: "There are likely to be many who make such an interpretation and I don't think that would be wrong."

 

BANKS RETHINK LOAN POLICIES
--- by Jon Choy

Despite the many fund-raising options created over the past 15 years by a steady stream of changes in financial market rules and structures, bank loans continue to play a leading role in financing corporate operations in Japan. This enduring reality explains why the nonperforming-loan crisis of the 1990s posed such a threat to the entire economy and why new factors that affect bank lending policies are analyzed exhaustively.

 

JAPAN TO FORGIVE ADDITIONAL POOR COUNTRY DEBT
--- by Marc Castellano

Just days before massive protests in Washington elevated the issue of global poverty to world prominence, Tokyo announced that it would forgive up to 100 percent of nonofficial development assistance loans to 40 nations classified as heavily indebted poor countries by the International Monetary Fund. The April 10 decision will bring Japan into line with other Group of Seven industrial nations that already have made such a commitment in an effort to advance the so-called enhanced HIPC Initiative, an international framework launched in 1996 by the IMF and the World Bank to reduce the debt burdens of the world's most destitute nations.

 

NOTES

Washington should not have the last word on conditions of competition in Japan, a fed-up Tokyo finally decided after the March 31 release of the 2000 National Trade Estimate Report on Foreign Trade Barriers. Attempting once and for all to set the record straight, an interagency task force coordinated by the Ministry of Foreign Affairs issued a virtually point-by-point analysis April 13 of the lengthy Japan section of the White House's annual inventory of country-specific obstacles, past and present, to the global expansion of U.S. business. The rebuttal cites innumerable instances of misinterpreted facts or even mistakes in the Clinton administration report. "One-sided" consequently is a frequent description of the write-ups of old and new bilateral market access issues. The government also clearly believes that U.S. trade strategists have not given Tokyo the credit it deserves for deregulating the economy in the 1990s and otherwise improving the competitive environment for outsiders. As a result, the tone of the commentary often is defensive.

 

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