IN TAIWAN, President Chen Shui-bian, America's longest-tenured ally in East Asia, is suffering a seven-year slump. Indeed, Chen leads an administration that is moribund thanks to a toxic political culture that makes Washington partisanship almost seem collegial.

The immediate cause of Taipei's governmental crisis is an extended corruption investigation that two weeks ago resulted in Chen's wife, Wu Shu-jen, being indicted for misappropriating $450,000 from a secret state affairs fund. Three other members of the Presidential Office also face prosecution, as does Chen's son-in-law, who is accused of insider trading. Chen can't be charged with anything as long as he's in office.

In his defense, Chen says he has no motive for embezzlement, pointing out that since taking office in 2000, he voluntarily has relinquished half his salary, thereby saving taxpayers a cumulative $1.38 million. The point is lost on Chen's detractors, who rally every weekend to demand his resignation.

Chen's opponents in the Legislative Yuan, which is controlled by the Nationalist Chinese party or Kuomintang (KMT) and the smaller People First party (PFP), don't have enough votes for impeachment. But together they can block critical legislation and freeze or reduce appropriations. Earlier this year, the KMT cut 21 percent of Taipei's Mainland Affairs Council budget, and then froze half of what remained. This month it struck again, slicing $3.7 million from the presidential travel budget and a fund used to administer overseas diplomatic offices.

The KMT's most controversial action has been to stall the purchase of $18 billion in U.S. military equipment. The package originally included 12 P-3C Orion maritime patrol aircraft, 8 diesel-electric submarines, and 6 Patriot Advanced Capability-3 anti -missile batteries. Despite being whittled down to a fraction of its original size, the transaction has been blocked more than 60 times, to the distress of American Institute in Taiwan director Stephen Young, who functions as the de facto U.S. ambassador. Late last month, Young took his concerns public at a Taipei news conference, where he said, "Taiwan cannot continue to allow its vital security interests to be held hostage to domestic partisan concerns."

"I think [certain legislators] are acting against the best interests of Taiwan," Young continued, "and I simply hope they will reflect on this, and reflect on the importance to Taiwan's security of addressing this in a non partisan manner."

Response to Young's comments came swiftly. PFP party leader James Soong denounced Young's "ultimatum" and said he'd never approve a "fool's arms purchase." Borrowing the playbook of Mao's Red Guards, opposition demonstrators then stormed the legislature shouting, "Supporters of arms purchases are running dogs!" When Chen Shui-bian's Democratic Progressive party (DPP) finally managed to get a hearing on weapons procurement scheduled, one legislator opposed to the deal popped a canister of tear gas in the committee chamber to forestall serious discussion.

There is no doubt that Taiwan is under the gun. Beijing has close to 900 ballistic missiles, many of them on mobile launchers, targeted on Taiwan. Mainland China's military boasts a growing array of sophisticated weapons systems that range from 4 new classes of modern destroyers to multimission tactical aircraft and a fleet of 80 diesel submarines.

By comparison, the newest additions to Taiwan's fleet are two 23-year-old destroyers built for but never delivered to Iran that were decommissioned by the U.S. Navy before Taiwan plucked them from the mothballs last year.

"China's principal military modernization aims are to deter Taiwan from moving toward independence; to defeat and occupy Taiwan if it declares independence and to accomplish this before U.S. or other military assistance can arrive; and to deny U.S. forces the ability to intercede effectively in such a conflict," the U.S.-China Economic and Security Review Commission said in its 2006 report released to Congress earlier this month. "The Commission concludes that Taiwan's ability to defend itself from attack and intimidation is in doubt and that China could impede the United States' ability to intervene successfully in a crisis or conflict."

KMT officials insist they aren't soft on defense and that the party supports buying Orion patrol aircraft. "We don't like those guys any more than you do," says KMT legislator Su Chi, referring to mainland Communists. "But we have to manage the threat wisely," he says. "Our salvation does not lie in a military approach."

Mayoral elections in Taipei and the southern port city of Kaohsiung next month are seen as referenda on which party will be better at managing mainland China. The DPP, Taiwan's version of Europe's Social Democrats, has its roots in the agricultural south and reflects the desires of native Taiwanese for a country that exists independent of China. Since becoming president of the Republic of China six years ago, Chen has proposed rewriting the constitution, tried to negotiate with China only on a state-to-state basis, and suggested changing the name of his country from the Republic of China to Taiwan--all moves that enraged Beijing and alarmed Washington, which is pledged to defend the island under the Taiwan Relations Act.

Based in the industrial north, the KMT, whose roots trace back to Sun Yat-sen, subscribes to the mainland's One China philosophy and believes an unspoken pledge never to seek de jure independence is a fair price to pay for permanent peace and a much larger slice of China's booming economy. Says KMT chairman Ma Ying-jeou: "Instead of pursuing a pragmatic path over the past few years, Taiwan has been too 'idealistic' for its own good."

The Kuomintang's main problem, explains George Shuang, president of the Min Sheng Daily newspaper, is that "30 percent of the electorate wants independence." Taking independence off the table, Shuang and others caution, is difficult in a democracy where people control their future. "You can't meet a military threat by giving up the democratic principle of self-determination," says Lai I-chung, director of the DPP's Department of Chinese Affairs.

China may have the capability to crush Taiwan, but there is no evidence it poses an immediate threat. In March 2005, the Tenth National People's Congress in Beijing passed an Anti-Secession Law mandating military force if Taiwan ever declares independence. Ironically, the law backfired. Pro-independence sentiment actually increased following the threat, and China once again emerged as the region's bully.

"Beijing no longer uses harsh words," says Joseph Wu, an Ohio State Ph.D. who heads Taiwan's Mainland Affairs Council. "Today, China's preferred tactic is to suffocate us internationally."

Taiwan is losing the battle for recognition. In recent years, the number of countries with which it has diplomatic relations has fallen from 31 to 24. Last year, Senegal cut ties with Taipei after China promised $600 million in development assistance. The most recent defection occurred this past August 4 when Chad switched alliances just as Taiwan premier Su Tseng-chang was boarding a plane bound for N'Djamena for a state visit. "China wanted the announcement made after the plane was in the air so Su would have to scramble to find a place to land," Wu scowls. "We averted the embarrassment, but it could have been dangerous since Chad was the only country in North Africa that recognized us."

For China, turning Chad around was a twofer: a chance to embarrass Taiwan and an opportunity to secure yet another source of natural resources. It is a pattern Taipei knows well.

China is the main supplier of arms to the Janjaweed fighters in Darfur and, not coincidentally, the prime importer of Sudanese oil. Recently, Beijing began arming rebels in Chad.

"The president of Chad asked us for weapons so its soldiers could fight the rebels armed by China, but we had to say no," recalls a senior official in Taiwan's Ministry of Foreign Affairs. China promised to stop supplying the rebels if Chad agreed to lock Taiwan out, but so far Beijing has not honored the agreement.

Within weeks of expelling Taiwan and establishing diplomatic relations with Beijing, Chad asked Chevron to leave the country. The concession to explore for oil in Chad today is held by the China National Petroleum Corporation.

Diplomatic isolation combined with the mainland's booming economy is causing Taiwan to fall behind its neighbors. Six years ago, Taiwan's GDP was 30 percent of China's. Last year, it equaled only 18 percent of the mainland's. In 1997, the year of Asia's economic collapse, per capita income in South Korea was two-thirds of Taiwan's. Today, Korea's per capita income exceeds that in Taiwan. Indeed, Taiwan's per capita income of $15,291 has barely moved at all since 2000. Six years ago, Kaohsiung was the second busiest port in Asia. Today it ranks No. 7 thanks to double-digit economic growth in China.

Compared with most Western economies, Taiwan's appears robust. Economic growth will top 4 percent this year and unemployment is relatively low. Eighty-two percent of the world's laptop computers, 40 percent of its digital cameras, and 70 percent of LCD screens come stamped Made in Taiwan. Not only does bilateral trade between Taiwan and China exceed $70 billion, but Taiwan also enjoys an annual trade surplus with China close to $30 billion.

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.

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