China-Taiwan Relations

Military honor guards lower the Taiwanese flag, at Liberty Square, in Taipei, Taiwan. (Tyrone Siu/Reuters)

Differences over Taiwan’s status fuel tensions between the island and mainland, yet cross-strait economic ties continue to deepen. 

Last updated October 4, 2019

Military honor guards lower the Taiwanese flag, at Liberty Square, in Taipei, Taiwan. (Tyrone Siu/Reuters)
Backgrounder
Current political and economic issues succinctly explained.

Taiwan, officially known as the Republic of China (ROC), is an island off the southern coast of China that has been governed independently from mainland China since 1949. The People’s Republic of China (PRC) views the island as a province, while in Taiwan—a territory with its own democratically elected government that is home to twenty-three million people—political leaders have differing views on the island’s status and relations with the mainland.

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Despite the sovereignty dispute, the economic ties between the island and the mainland have thrived in recent years. Yet political frictions still shadow the relationship, and China and Taiwan have experienced a renewal in tensions under new leadership.

‘One China’ Principle

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Beijing and Taipei sharply disagree on the island’s status. The PRC asserts that there is only “one China” and that Taiwan is an inalienable part of it. Beijing says Taiwan is bound by an understanding reached in 1992 between representatives of the Chinese Communist Party (CCP) and the Kuomintang (KMT) political party then ruling Taiwan. Referred to as the 1992 Consensus, it states that there is only “one China” but allows for differing interpretations, by which both Beijing and Taipei agree that Taiwan belongs to China, while the two still disagree on which entity is China’s legitimate governing body. The tacit agreement underlying the 1992 Consensus is that Taiwan will not seek independence.

Taiwan’s KMT still accepts the consensus as a starting point for future negotiations with the CCP. However, the island’s current president, Tsai Ing-wen, leader of the Democratic Progressive Party (DPP), has rejected the consensus. In a January 2019 speech, she declared the “one country, two systems” framework advanced by Beijing unacceptable. Her rejection of the consensus, along with that of other leading voices in the governing DPP, leaves open the possibility of future Taiwanese independence. 

In 1979, the United States established formal diplomatic relations with Beijing by concluding a joint communiqué [PDF] stating that “the United States of America acknowledges the Chinese position that there is but one China and Taiwan is part of China.” At that time, U.S. President Jimmy Carter terminated diplomatic relations with the ROC government in Taiwan. But months after, the U.S. Congress passed the Taiwan Relations Act (TRA), affirming important unofficial ties with the island. The legislation allows for arms sales to Taiwan for self-defense and does not rule out the possibility of the United States defending Taiwan from Chinese attack—a policy known as strategic ambiguity.

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Since then, U.S. arms sales to Taiwan, totaling more than $25 billion [PDF] between 2007 and 2018, have led to U.S.-China friction and an upsurge in bellicose rhetoric across the strait. Political transitions in the United States have also prompted tensions between Beijing and Washington. Taiwan’s Tsai spoke with U.S. President Donald J. Trump by telephone ahead of his inauguration, the first such high-level contact between the two sides since 1979. The Trump administration also seems to be deepening ties with Taiwan over Chinese objections, proposing multiple arms deals and unveiling a new $250 million complex for its de facto embassy in Taipei.

Rise of an Island

Ethnic Han Chinese settlers, primarily merchants, began to arrive in Taiwan in the seventeenth century. The island, now inhabited by a Han Chinese majority, many of whom identify as distinctly Taiwanese, is also home to indigenous peoples who account for around 2 percent of the population. “Taiwan has a messy history of invasion, occupation, colonization, refuge, and intermarriage,” writes University of Sydney Professor Salvatore Babones. Annexed by the Qing dynasty in the late 1600s, Taiwan was later ceded to Japan in 1895 by imperial China in accordance with a treaty that concluded the Sino-Japanese War. Japan governed it as a colony until 1945, when Japanese forces on the island were required to surrender to Chiang Kai-shek’s ROC military forces.

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The ROC, which had governed China for decades, fled to Taiwan after losing the civil war to the Communists in 1949. But Chiang and his political party, the KMT, insisted his government continued to represent all Chinese people on both the island and the mainland. Washington and most Western powers affirmed the ROC’s stance by long refusing to recognize the Communist government in Beijing, a position most countries later reversed.

Washington’s position began to shift under the Nixon administration. Back-channel diplomacy resulted in Washington’s formal recognition of the PRC in 1979. The ROC lost its seat representing China at the United Nations in 1971 to Beijing.

The KMT governed the island from 1949 to 1987 under martial law. Political dissent was harshly repressed and Taiwanese who had long inhabited the island before 1945 faced discrimination. Taiwan held its first free legislative elections in 1992 and presidential elections in 1996.

The KMT and coalition partners have historically viewed Taiwan as a part of “one China” and do not support the island’s independence. After 2000, the KMT often found itself in opposition to parties representing Taiwanese who had been on the island before 1949 and their descendants. Although riven with its own factionalism, the KMT retains deep ties to the island’s business leaders and consistently calls for closer ties with Beijing. The party lost its majority in Taiwan’s legislative body for the first time in the 2016 elections.

The KMT’s chief rival, the DPP, was founded in 1986 and became legal in 1989 after a ban on opposition parties was dropped. The DPP has traditionally called for a de jure independent Taiwan as a separate political entity from China, and has become an outlet for the expression of Taiwanese identity. Chen Shui-bian was the first non-KMT politician to serve as president (2000–2008) and pushed for Taiwanese sovereignty. Shortly after his term, Chen was convicted and imprisoned on charges of embezzlement and accepting bribes. (He was later sentenced to four months in prison for leaking classified information.)

Beijing closely observes the island’s elections. It has favored a steady deepening of ties with Taiwan, forging economic linkages that could ultimately become too costly for the island to sever, thus nudging it closer to unification. However, since the PRC’s own leadership transition in 2012, President Xi Jinping has embraced a tougher, nationalistic stance toward all of the special regions it claims, including Hong Kong, Tibet, Xinjiang, and Taiwan. Taiwan’s election of Tsai in 2016 brought even closer scrutiny of cross-strait ties from Beijing, and Xi has shown a willingness to use pressure to try to limit Tsai’s ability to reset the island’s relations with the mainland. For example, Beijing suspended a cross-strait communication mechanism with the main Taiwan liaison office in June 2016 because of Tsai’s reluctance to adhere to the 1992 Consensus. Beijing has also restricted tourism to Taiwan, excluded the island from international entities addressing civil aviation and global health issues, and pressured global corporations to list Taiwan as a Chinese province.

Meanwhile, Taiwanese leaders consider formal diplomatic relations with major powers and international organizations essential if Taiwan is to survive separately from the Communist mainland. However, only fifteen states maintain official diplomatic ties with the island.

Military Situation

China, as part of its continued military expansion, has deployed missiles along the Taiwan Strait and periodically conducts drills near the island. It has sent bombers, fighter jets, and its aircraft carrier over and around the strait as shows of force. According to a 2018 U.S. Department of Defense report [PDF], China’s military, the People’s Liberation Army, has “continued to develop and deploy increasingly advanced military capabilities intended to coerce Taiwan, signal Chinese resolve, and gradually improve capabilities for an invasion.”

Beijing has refused to renounce the use of force to resolve disputes over the island’s status. The PRC’s introduction of the 2005 Anti-Secession Law, intended to strengthen Beijing’s approach to “peaceful national reunification,” included language stating that in the event secessionist forces seek independence, Beijing would “employ non-peaceful means” to protect its national sovereignty. In a 2019 speech, Xi reiterated this and added that Beijing would consider the use of force to prevent “intervention by external forces” on the island.

In response, Taiwan continues to purchase weapons, primarily from the United States. Between 1979 and 2018, Taiwan ranked as the ninth largest recipient of arms globally. During the same period, the United States supplied more than three-quarters of Taiwan’s imported weapons, according to the Stockholm International Peace Research Institute’s arms transfers database

Taiwan’s strategic security rests heavily on guarantees offered by the United States under the Taiwan Relations Act. Yet in recent years, security analysts have cited concern over the emerging military imbalance between Beijing and Taipei. “Given the pace of PLA(N) [People’s Liberation Army Navy] modernization, the gap in military capability [PDF] between the mainland and Taiwan will continue to widen in China’s favor over the coming years,” writes the Congressional Research Services’ naval affairs specialist Ronald O’Rourke.

In 2019, Taiwan’s defense budget stood at $11.3 billion and accounted for 2.16 percent of its gross domestic product (GDP). President Tsai and the DPP have emphasized plans to raise annual defense spending incrementally, with the aim of an increase of 20 percent, or $2.1 billion, by 2025. Part of this expanded military budget will be dedicated to investment in advanced weapons systems, training, and new equipment, including missiles, electronic warfare technology, and missile defense systems.

Economic Rapprochement

Taiwan began investing in China after reform policies were implemented by PRC leader Deng Xiaoping in the late 1970s. Despite intermittent friction, the cross-strait economic relationship has blossomed. China entered the World Trade Organization in 2001 and, within a month, Taiwan entered as “Chinese Taipei.” The island holds member, observer, or other status in more than fifty organizations [PDF], such as the Asian Development Bank, APEC, OECD committees, and regional fishery organizations.

China is Taiwan’s largest trading partner, accounting for nearly 30 percent of the island’s total trade, and trade between the two reached $150.5 billion in 2018 (up from $35 billion in 1999). China and Taiwan have also agreed to allow banks, insurers, and other financial service providers to work in both markets. In 2015, the number of direct flights between them hit just under 900 per week, up from 270 in 2009. Nevertheless, the economic relationship has experienced some hiccups in recent years. Taiwanese investment in the mainland declined for its fourth consecutive year in 2018, and mainland investment in Taiwan has increased at a slower rate than before.

Trade totals include data from mainland China, Hong Kong, and Macao. Source: Bureau of Trade, Ministry of Economic Affairs, Republic of China.

Former President Ma Ying-jeou’s KMT government (2008–2016) signed more than twenty pacts with the PRC, including the 2010 Economic Cooperation Framework Agreement (ECFA) [PDF], a cross-strait agreement to lift barriers to trade. Large Taiwanese corporations reaped most of the benefits from stronger commercial ties with the mainland, while many residents’ concerns over economic security mounted. While Taiwan’s economy grew 2.6 percent in 2018, youth unemployment stands around 12 percent, and the housing market remains weak. Many residents believed that Ma brought Taipei closer to Beijing without transparency and against the will of the Taiwanese people. Ma attended a historic meeting with China’s Xi in November 2015, the first meeting between cross-strait political leaders, but Ma’s approval ratings hovered near record lows in his last two years in power. KMT electoral losses in November 2014 and 2016 were widely interpreted as dissatisfaction with Ma’s China warming policies.

In an effort to avoid outright economic dependence on the mainland, Taiwan has sought to diversify its commercial partnerships. In addition to ECFA, Taiwan has signed a handful of other free-trade pacts, including a deal with New Zealand in 2013—Taiwan’s first with a developed economy. The government in Taipei will likely expand other economic partnerships: investments by Taiwanese firms in Southeast Asia’s six largest economies doubled between 2011 and 2015, reaching more than $13 billion.

Rise of Taiwanese Identity

The backlash against the ruling KMT in exit polls after the 2016 elections raised further questions about societal views over ties with Beijing. Scholars cite the 228 Incident, a Taiwanese uprising against the KMT-led ROC that was violently suppressed in 1947, as the root of a strong ethnic Taiwanese identity that sowed the seeds for democratization.  

Generations of democratic practices [PDF] seem to have bound together the Taiwanese people and polity. Though most people across the Taiwan Strait speak Mandarin as their first language, more than a century of separation has led a growing number of Taiwanese to feel they deserve the right to continue a separate existence. Almost 55 percent of the island’s residents regarded themselves as exclusively Taiwanese, according to a survey conducted by National Chengchi University in 2018. By comparison, 38 percent identified as both Taiwanese and Chinese, down from 43 percent in 2008, while only about 4 percent considered themselves only Chinese, a figure that has dwindled since 1994.

Credit: CFR Editorial. Source: Election Study Center, National Chengchi University.

 “The political awakening of youth in Taiwan was driven as much by practical frustrations as by political ideals,” wrote freelance writer Anna Beth Keim in a January 2016 post for the Asia Society. Frustrations over financial insecurity and economic inequality, as well as dissatisfaction with Taiwan’s political factions, have given birth to a groundswell of domestic political activity—often referred to as Taiwan’s “third force.”

Meanwhile, China’s Xi has emphasized the need for Taiwan to adhere to the One China principle. He has said that Taiwan must be unified with the mainland and that the island’s “different systems are not an obstacle to unification.” China-based experts say that the election of pro-independence leaders in Taiwan may shift Beijing’s top security concern from territorial disputes in the East and South China Seas to defending territorial integrity across the Taiwan Strait.

Issues of Taiwanese identity and independence will come to the fore when the island holds a presidential election in early 2020. Voters will choose between Tsai and one of several possible KMT candidates, who are more favorably disposed toward Beijing. “There’s no question that Beijing would prefer to see any of the KMT candidates prevail,” writes Shelley Rigger for the Foreign Policy Research Institute, but, she warns, the election could put the Taiwan Strait on a “plausible path to disaster.”

Though Taiwan’s main political parties diverge on how best to manage the island’s relationship with Beijing, experts caution that both Beijing and Taipei must take responsibility for avoiding a crisis. “The status quo is admittedly imperfect,” writes CFR President Richard N. Haass, “but it is far less imperfect than what would follow unilateral actions and attempts to resolve a situation that doesn’t lend itself to a neat solution.”

Samuel Parmer contributed to this report.

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Resources

This 2018 U.S. Department of Defense report [PDF] analyzes China’s military and security developments.

Michael S. Chase gives recommendations for averting a cross-strait crisis in this Contingency Planning Memorandum for CFR’s Center for Preventative Action.

The Washington Post explores Taiwanese identity and the One China principle.

CFR tracks the history of U.S.-China relations in this timeline.

The Los Angeles Times investigates increasing Taiwanese pride through interviews with people on the island.

Taiwanese President Tsai Ing-wen offers her perspective on the Taiwan Relations Act and the U.S.-Taiwan relationship during a discussion with the Center for Strategic and International Studies in 2019.

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