The Magazine

Tear Gas and Running Dogs

The scandal-rocked government of Taiwan.

Dec 4, 2006, Vol. 12, No. 12 • By DAVID DEVOSS
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From an investment point of view, Taiwan could do much better if it were willing to embrace China and leave independence to future generations. At present, Taiwanese companies can't invest more than 40 percent of their capital in China. As a result, billions of dollars flow untraced and untaxed through shell companies established in Hong Kong and the British Virgin Islands. Even more frustrating is the lack of direct flights. It would take 30 minutes to fly across the Taiwan Strait from Taipei to the Special Economic Zone of Xiamen on the mainland. Instead, businessmen must take the better part of a day and fly to Xiamen via Hong Kong or Macau.

"Taiwan is the perfect place for research and development because of its patent protections, but R&D centers need to be close to factories," says Richard Vuylsteke, executive director of the American Chamber of Commerce in Taipei. "Moving people and goods through a third city adds expense."

With Chen Shui-bian's popularity hovering around 18 percent and the DPP in disarray, Kuomintang leaders sense that events may start turning their way. The party can't regain the presidency until 2008, but if enough DPP legislators defect or become independents, the KMT may become a decisive force instead of an irritating impediment.

"Restrictive policies that keep China at arm's length are at odds with the trend toward globalization," says Ho Szu-yin, director of the KMT's Department of Overseas Affairs. "We can't achieve security without wealth, and for Taiwan wealth depends on having a harmonious relationship with China."

That, at least, is the KMT's view--and the KMT may well be running Taiwan in less than two years.

East-West News Service editor David DeVoss writes often about Asia.