CRS Report for Congress
Received through the CRS Web
Taiwan: Findings of a Congressional Staff
Research Trip, December 2000
Thomas Lum
Analyst in Asian Affairs
Foreign Affairs, Defense, and Trade Division
This report summarizes findings from a congressional staff trip to Taiwan (Republic
of China), December 10-17, 2000, with supplemental material from other sources. The
staff delegation met with Taiwan government and military officials, political party
representatives, leading private citizens, and United States officials and business persons
in Taipei, the capital. The findings include major factors that have shaped relations
between Taiwan and the People’s Republic of China (PRC) since Chen Shui-bian’s
election as President of Taiwan in March 2000. Taiwan’s democratization and the
growth of cross-strait economic ties have, in some respects, helped to stabilize relations
in the short run. Taiwan’s legislative elections in December 2001 will likely focus largely
on domestic issues; its impact on cross-strait relations is uncertain. Chinese nationalism
and military modernization in the PRC will likely continue to contribute to tensions. This
report will not be updated.
Domestic Political Challenges to the Chen Administration
Background. Elected in March 2000 with 39% of the popular vote,1 Taiwan
President Chen Shui-bian has since faced an uncooperative legislature and has endeavored
to establish a firm grip on his government. Chen’s Democratic Progressive Party (DPP)
currently holds only 67 seats in Taiwan’s 225-member legislature, the Legislative Yuan.
The Nationalist Party, or Kuomintang (KMT), which lost the presidential election – the
first time it has not ruled the Republic of China (ROC) – holds a plurality of 109 seats.
Together, three opposition parties – the KMT, the New Party, and the People First Party
(PFP) – which tend to be economically and politically conservative compared to the DPP
and more inclined to consider eventual unification with China, have blocked, thwarted, and

1 James Soong of the People First Party (PFP), an offshoot of the KMT, received 37% of the vote;
Lien Chan of the Nationalist Party or Kuomintang (KMT) garnered 23% of the vote. Many
Taiwanese political analysts contend that Chen won the election because the KMT was split into
two camps, one supporting James Soong and the other backing Lien Chan.
Congressional Research Service The Library of Congress

defied many of Chen Shui-bian’s policies. Because the DPP lacks administrative
experience, many leadership posts within the government remain filled by KMT members.
Chen Shui-bian has faced several contentious issues during his first several months
as President. These include: an economic downturn; labor demonstrations; Chen’s anti-
corruption campaign aimed at KMT vote-buying and gang-related politics (“black gold”);
and Premier Chang Chun-hsiung’s announcement that work on Taiwan’s fourth nuclear
power plant, a project begun by the previous KMT government, would be halted.
Opposition members have threatened to introduce motions of no confidence in Premier
Chang and to recall President Chen. However, they have recently backed down, partly in
response to public demands to reduce political deadlock.
Research Trip Findings. Taiwan’s democracy is experiencing a period of rancor
and instability as it undergoes a process of political maturation. Some Taiwanese
government and party officials repeated the saying that “the DPP has not yet learned how
to rule while the KMT has not yet learned how not to rule.” The congressional staff
delegation observed several important features of Taiwan’s “transition politics.” One, the
political system lacks institutions for moderating partisanship and facilitating the transfer
of power. For example, few formal and informal procedures and precedents have been
established for divided government. Two, Taiwanese political parties do not have
experience forming coalitions and creating stable parliamentary majorities. Three, voter
identification tends to be unstable and unpredictable. A DPP representative explained that
political personalities, rather than party ideologies, drive Taiwanese politics. An American
observer stated that intra-party factionalism further destabilizes Taiwanese politics. Four,
the mass media, though “free,” lack traditions of objective reporting. A spokesperson for
the Government Information Office stated that most mass media in Taiwan, including
newspapers and television, are government- or party-affiliated and politically-biased.2
There are no firm indications about how Taiwan’s political parties will fare in the
December 2001 legislative elections, although no party is expected to attain a majority in
the Legislative Yuan. According to an American observer at the American Chamber of
Commerce (AmCham) in Taipei, while the KMT continues to wield economic clout and
political influence, its popularity has continued to wane for several reasons: it has not
democratized from within, expanded its party base, created a compelling alternative vision
for the country, or produced a charismatic leader.
Economic Challenges to the Chen Administration
Background. President Chen faces some troubling economic indicators. At the
end of 2000, Taiwan’s stock market had fallen by more than 50% since Chen’s election
and unemployment had reached a 15-year high.3 Taiwanese investment in the People’s
Republic of China (PRC) nearly doubled in 2000, which resulted in the transfer of many

2 “Experts Blast Media Appointments,” Taipei Times Online Edition
[http://www.taipeitimes.com], June 25, 2000.
3 Some economists link Taiwan’s stock market plunge to NASDAQ’s poor performance after
March 2000. Taiwan’s 2000 unemployment rate, at 3%, was low by international standards.

skilled and high tech jobs to the mainland. According to some estimates, non-performing
loans have reached 12-17 percent of all Taiwan bank loans.4
Research Trip Findings. An expert at the American Institute in Taiwan (AIT),
which conducts U.S.-ROC relations, stated that the notion of a “troubled” Taiwanese
economy is more a perception than a reality. Nonetheless, AIT officials envisioned several
long-term trends that would challenge the Taiwanese economy. These include declining
exports to the United States, increasing imports from abroad if Taiwan joins the WTO,5
greater economic competition from China, the loss of global competitive advantage of
some Taiwanese export items, and falling consumer demand at home. Some American and
Taiwanese economic analysts viewed China as the key to Taiwan’s continued
development. They told the delegation that the PRC’s accession to the WTO and direct
trade, transportation, and communication between the mainland and Taiwan would further
open China to Taiwanese investment and exports. Because of a common language and
culture, Taiwanese investors and traders on the mainland already have an edge over their
American, Japanese, and European counterparts. However, ROC government officials
stated that some restrictions on investment in mainland China were necessary in order to
help preserve Taiwanese technological superiority, economic autonomy, and political
The “One-China” Issue6
DPP Policy. The platform of the DPP has long advocated independence for
Taiwan.7 However, in his inauguration speech of May 20, 2000, Chen Shui-bian promised
that, as long as the PRC did not use military force against Taiwan, he would not declare
independence.8 Analysts have posited several factors and considerations that may explain

4 Philip P. Pan, “Uncertainty Roils Taiwan’s Stock Market,” Washington Post, November 21,
2000; Mure Dickie, “Taiwan’s Bad Assets ‘Higher Than Estimated’,” Financial Times, December

13, 2000; Tom Holland, “Taiwan: Crisis? What Crisis?” Far Eastern Economic Review,

December 21, 2000. These estimates do not include defaults on farm cooperative loans.
5 See CRS Report RS20683, Taiwan and the World Trade Organization, by Wayne M. Morrison.
6 See CRS Report RL30341, China/Taiwan: Evolution of the One-China Policy, by Shirley A.
7 Taiwanese are often politically divided among “native Taiwanese” who migrated from the
mainland but have lived in Taiwan for several generations, including during the Japanese colonial
period (1895-1945), and “mainlanders” who came to Taiwan after the Communist takeover of the
mainland in 1949. The DPP and Taiwan independence movements have generally drawn most of
their support from native Taiwanese. The KMT is divided among native Taiwanese and
mainlander factions.
8 Chen also promised that, as long as the PRC had no intention of using military force against
Taiwan, he would not change the national title, change the Constitution to enshrine the “state-to-
state” principle, nor promote a referendum to change the “status quo” in regards to the question of
independence or unification. Beijing has asserted that although the PRC would strive for “peaceful
reunification” through “negotiations to be held on an equal footing,” it may use force if Taiwan
were attacked by another country, if Taiwan declared independence, or if Taiwanese authorities
“refuse, sine die, the peaceful settlement of cross-Straits reunification through negotiations.” See

Chen’s break from past positions and pro-independence members in his party, including
Chen’s pragmatic nature, pressure from the PRC, Taiwanese public opinion, and U.S.-
China relations.
Opposition Party Efforts. While President Chen and the PRC government have
made little progress in breaking the impasse on opening formal talks, many opposition
lawmakers – up to one-third of the legislature – reportedly have gone to Beijing to engage
in informal discussions on cross-strait issues. They and the PRC government have
appeared eager both to resume the dialogue that broke off in 1995 and to undermine
President Chen’s role in the process.9 Chen Shui-bian has expressed a willingness to
resume cross-strait talks, but without agreeing to the PRC’s “one-China principle” as a
starting point. By contrast, opposition leaders have been more accepting of the “one-
China” principle as a basis of negotiations.10
Research Trip Findings. Taiwanese and American political experts told the
delegation that following the March 2000 presidential election, both the DPP and the KMT
have taken more conciliatory stances toward the mainland. The KMT has downplayed
former President Lee Teng-hui’s suggested “state-to-state” framework for negotiations.
The DPP has conveyed greater acceptance of the idea that some political accommodation
with the PRC is inevitable, while the independence faction within the party has been
marginalized. Several government officials privately suggested that Vice President
Annette Lu, an ardent member of the independence faction, does not enjoy widespread
public support.
An official at the ROC Mainland Affairs Council (MAC) stated that DPP and KMT
positions on cross-strait issues have converged somewhat. Both parties support the
“status quo” – a position of neither independence nor unification – for the time being.
Both put forth democratization on the mainland as a condition for substantive moves
toward greater political ties or unification. A DPP authority on international affairs
cautioned, however, that the maintenance of Taiwan’s sovereignty is still a central goal of
the party. He suggested that sovereignty could be achieved in two ways – through
independence or a cross-strait political arrangement that is mandated by the Taiwanese
According to several ROC government officials, over two-thirds of Taiwanese
support the status quo and President Chen’s inauguration day remarks. The remaining
one-third of Taiwanese are split between those who advocate independence and those who
favor unification in the near future. Thus, President Chen’s approval ratings, which fell
from over 75% during his first few months in office to 50% in November 2000, reflected
anxiety over the island’s economy rather than his positions on cross-strait relations. The

8 (...continued)
Taiwan Affairs Office, “White Paper: The One-China Principle and the Taiwan Issue,” February

21, 2000.

9 Russell Flannery, “Asia Focus: Beijing Softens Tactics on Taiwan Relations – Island’s Politicians
Make Trips to Mainland,” Wall Street Journal, September 21, 2000.
10 The KMT recently proposed forming a “confederation of Taiwan and mainland China.” Central
News Agency (Taipei), January 4, 2001.

consensus on this “wait-and-see” attitude toward the mainland, however, masks significant
differences in self-identity among Taiwanese. Some Taiwanese commented that Taiwan
was a “separate country” from China while others, particularly those in contact with
relatives in the PRC, expressed sentimental ties to the mainland.
Cross-Strait Economic Ties
Background. Despite the uncertain and often tense political atmosphere, cross-
strait economic ties have grown considerably since the late 1980s. Bilateral trade was
worth $25.8 billion in 1999, up 14.5 percent from 1998. In the first half of 2000, cross-
strait trade increased 29%. According to PRC data, Taiwan is China’s largest source of
imports. Taiwanese firms have invested an estimated $40 billion in more than 40,000
enterprises on the mainland. Some analysts report that business interests on both sides of
the strait are pursuing greater economic cooperation in preparation for PRC and ROC
accession to the WTO.11
Research Trip Findings. Taiwanese leaders explained that growing economic
ties with the mainland have created a dilemma for the new government. On the one hand,
the mainland economy provides ample opportunities for Taiwanese businesses. Economic
interdependence may also discourage the PRC from using force against Taiwan. On the
other hand, Taiwanese officials worried, increased investment may cause Taiwan to lose
jobs and technological know-how to the mainland. Furthermore, if the Taiwanese
economy were to become too intertwined with that of the mainland, it may become
vulnerable to economic shocks on the mainland or Taiwan may become beholden to PRC
political demands. Nonetheless, the DPP has cautiously encouraged greater trade and
investment. President Chen has considered easing existing restrictions on Taiwanese
businesses, which apply to large-scale investment, construction, and high tech
manufacturing on the mainland. On January 2, 2001, the Chen administration formally
opened two ROC offshore islands to trade and travel with the mainland as a precursor to
broader direct links.12
Defense Issues
Research trip findings.13 Officials of the ROC government and military
establishment discussed military and political solutions to the cross-strait tensions.
Officials at the Ministry of National Defense raised several concerns. First, they14
articulated Taiwan’s requirements for more sophisticated U.S. armaments in general.
Second, Taiwanese military leaders discussed their inability to fully utilize some U.S.
hardware because of the need for components, military training, and joint exercises. Third,

11 David Brown, “Relaxed, but not Re-linked,” Comparative Connections (CSIS), July-September
2000; John Pomfret, “Taiwan Enticed by ‘Huge Market’ in China – Firms’ Growing Reliance on
Mainland Influences President-Elect’s Approach,” Washington Post, March 27, 2000.
12 Taiwanese made 1.3 million trips to the mainland in the first half of 2000. Brown, op. cit.
13 For background, see CRS Issue Brief IB98034, Taiwan: Recent Developments and U.S. Policy
Choices, by Kerry Dumbaugh.
14 See CRS Report RS20365, Taiwan: Annual Arms Sales Process, by Shirley A. Kan and CRS
Report RS20483, Taiwan: Major U.S. Arms Sales Since 1990, by Shirley A. Kan.

they expected the PRC-Taiwan dialogue to resume within two years and help diffuse
tensions. Fourth, they expressed the desire not to unnecessarily aggravate strains in U.S.-
PRC relations.
ROC defense officials asserted that a mainland military attack was possible but not
likely in the short-term. They stated, on the one hand, that the PRC still lacked the
capability to successfully invade the island. Furthermore, one official contended, although
the PRC carried out military exercises on a frequent basis, not all of them constituted
preparation for an attack. An ROC general maintained that although the PRC White Paper
of February 2000 added a condition for the PRC’s use of force – Taiwan’s “refusal” to
enter into negotiations – it did not indicate greater imminence than before of a mainland
attack. On the other hand, Taiwanese defense leaders argued that currently the mainland
could pressure Taiwan through conducting missile tests, shooting down Taiwanese fighters
or sinking its ships, or taking over offshore islands. An American military specialist in
Taipei concurred that although the ROC’s equipment and training were still superior to the
mainland’s, a PRC missile attack could “wreak havoc” on the island and China’s
capabilities were expected to improve substantially over the next five years.
However, AIT officials suggested that the mainland’s military buildup was not the
only factor influencing the PRC’s actions toward Taiwan. First, the PRC leadership is
likely split between hardline and liberal factions. Second, the PRC leadership is torn
between conflicting goals: the PRC government’s antipathy toward foreign interference
in China’s “domestic affairs” and frequent exploitation of Chinese nationalism may fuel
militaristic behavior; China’s emphasis on economic development and aspirations for
international prestige may discourage a military solution. Thus, considerations of coercive
actions against Taiwan may be checked by their perceived economic and political costs.
AIT officials described the critical U.S. policy objectives as encouraging liberal forces in
PRC politics and raising the economic and political as well as military costs to the PRC of
using force against Taiwan.
Implications for U.S. Policy
Two trends have helped to stabilize PRC-Taiwan relations in the short term. First,
the development of real political competition in Taiwan has encouraged the major parties
to appeal to the center of the political spectrum. Democratic politics has given strong
voice since Chen’s election to the current majority view that the status quo in cross-strait
relations should be maintained. Although Beijing, the DPP, and opposition parties may
disagree about means and objectives, the status quo at least allows for future talks on the
issue. The timing of negotiations, however, may depend upon the outcome of the
December 2001 legislative elections. Second, cross-strait economic ties, which have been
bolstered by the prospect of WTO membership for both sides, have raised the economic
and political costs of a military conflict for Beijing and Taipei.
Other factors may add to tensions in the future. PRC foreign policy mishaps or social
unrest stemming from economic reforms may trigger renewed government emphasis on
Chinese nationalism. China’s military modernization also bears watching.