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China and Taiwan: The Economic Issues

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Can Mao or the inheritors of Mao's authority entertain the possibility of some "separateness" for any Chinese within his egalitarian One China world? The answer to this question will influence Peking's attitudes toward peaceful coexistence with Taipei, intellectual and cultural diversities at home, and possibilities for future organization of China's economic system.

After a 20-year tradition of relentless mutual hostility, the "recognition" by the United States of the People's Republic of China, implicit in Dr. Henry Kissinger's July 8-11 visit to Peking, produced a sudden and great need for diplomatic recalculation throughout the world. It was inevitable, thereafter, that the People's Republic of China be taken into the Security Council and the General Assembly of the United Nations. And now President Nixon's February conversations with Chinese authorities have focused attention upon what Washington and Peking can agree to do about Taiwan-with Taipei, Seoul and Tokyo, not to mention Moscow, New Delhi and Southeast Asian capitals, likely to perceive transcendent strategic implications in that transaction.

At a press conference last November 30 Dr. Kissinger said: "Our position is that the ultimate disposition, the ultimate relationship of Taiwan to the People's Republic of China, should be settled by direct negotiations between Taiwan and the People's Republic of China....This is our policy, but it is without prejudice, as I have pointed out, to existing commitments." Last spring the White House had scoffed at the possibility that Taipei and Peking could engage in useful dialogue on such a subject. Which expression of White House attitude is a better reflection of reality depends upon how Peking comes to judge the acceptability of allowing Taiwan some separateness, and under what arrangement.

The United Nations has settled the issue of representation: Peking represents China. The international community now turns to consideration of security in the Taiwan Strait. As seen from Peking, that issue relates to U.S. commitments to and military presence on Taiwan, and to Japan's military potential which since the 1969 Nixon-Sato Communiqué on the Reversion of Okinawa, could be seen to be looming over the Taiwan Strait. However, another pressing issue has been largely ignored: the accommodation of the divergent economic purposes and systems which Peking and Taipei have pursued within their goal of One China.


Peking and Taipei are alike in their readiness to support large and costly military systems to cope with their differing defense requirements. Otherwise, however, Peking and Taipei have embraced radically different conceptions of how to cope with the needs of their situations. The success of their methods has been measured in terms of growth of gross national product and trade, social development, popular welfare and political democracy. Leaving aside judgment on their comparative devotion to democracy, what we know suggests that Peking and Taipei can be seen to have been committed to two generally different methods of organizing development which greatly interest economists and planners throughout the world.

Taiwan's commitment to sustained economic growth is outward-looking and depends on trade, and its performance has attracted respect. Peking's method of development has been self-reliant and "culture-permeated" full employment, and its willingness to sacrifice growth of gross national product in that endeavor will attract increasing attention, and not just from poorer countries. Dr. Sabuto Okita, Japan's representative on the Pearson Committee, suggests that all countries concerned with pathological urbanization, with high rates of unemployment and under-employment, and with the frightening environmental costs of overcommitment to growth, can study usefully Peking's employment practices. Chinese manage both systems- not to mention those in Hong Kong, Macao and Singapore. Chiness commitments to one or another definition of social and economic purpose in these places reflect different Chinese responses to different necessities: Chinese capability is what all have in common.

Taiwan's gross national product (GNP) rose from $2 billion in 1960, at an annual rate of almost ten percent, to $5.4 billion in 1970. Per capita annual income rose from $180 to $360 during the same period. The rise of Taiwan's exports was even more impressive-$164 million in 1960 to $1.248 billion in 1970, an annual rate of about 25 percent. To the United States alone, Taiwan's exports rose from $19 million to $563 million, while imports from the United States rose from $113 million to $364 million.

Population rose during the decade of the 1960s to make Taiwan one of the most densely populated areas of the world. But Taiwan's achievements in the field of family planning, reflecting concern for the quality of life in individual family units, have been perhaps the most carefully documented in the world. They are studied by other developing countries such as Korea, Hong Kong, Singapore, Malaysia-and, doubtless, by the People's Republic of China as well. Substantial investment has been made in education, and one percent of GNP goes to research and development. Graduates of Taiwan's universities excel in the universities of North America, Japan and Western Europe.

During these ten years, Taiwan saw the end of U.S. economic aid, which had totaled over $1.6 billion, and Taiwan itself commenced foreign assistance programs. Taiwan consolidated all manner of economic links with Japan and the United States. It clung fast to its position in international organizations. And, among Taiwan's leaders, economic purpose gained precedence, quietly and gradually, over big-power political and military pretension.

By 1960 government authorities, after a faltering start, had established a well-managed, well-led economic system for Taiwan's 13 million Formosans and two million mainlanders. Chiang-inspired military, internal security and police expenditures sometimes amounted to over 50 percent of the national budget and 12 percent or more of GNP, but formerly cannibalizing exactions for defense requirements were finally incorporated into a realistic national budget. Industrialization, notwithstanding low capital ratio to output, has brought still unsolved problems of urban underemployment, slums, traffic congestion, air and water pollution and scarce social services. Still, Taiwan, throbbing with activity, had come to offer to private investors, the World Bank and multinational corporations one of the most attractive areas for foreign investment anywhere in the world.

Taiwan's labor force showed itself to be willing and skilled, and wage rates, though rising, were much lower than in Japan, incomparably lower than in the United States, and were matched by rising productivity. (In 1968 average daily manufacturing wages were $1.61 in Taiwan, $6.00 in Japan.)

Economic stability encouraged Chinese to save. By 1970 Taiwan's investment rate reached 26 percent of GNP, with the domestic saving rate just behind. Industrial investment took place not only in large cities, but also throughout the countryside, with output by private enterprise rising from 43 percent in 1952 to 70 percent in 1970. The rural population commuted on Italian and Japanese scooters from high productivity farms to widely dispersed rural factories. Between 1964 and 1969 purchases of TV sets rose 18 times in rural areas compared to seven times in cities.

Government bureaucracy and the Taiwanese and Mainland management classes created new export-oriented lines of production, and then found new foreign markets for output. Once trading mainly with Japan and the United States, Taiwan has widened its commercial horizons and is trading now with 50 or 60 countries around the world. It is making a conspicuous export push into Western Europe. And, perhaps foreshadowing new attitudes toward trade with communist China, it is considering trade possibilities with East European countries. Taiwan's business community is delighted to hear cabinet members declare that Taiwan will trade with any country, whether or not that country shifts political ties to the People's Republic of China. Cabinet members are also now saying that Taiwan will depend more on economic strength, trade and technology than on military power: Taiwan will learn from the Japanese model.

Those who have become acquainted with the managers of this remarkable success story observe that they have gained enormous self-confidence. Despite numerous irritations and some serious commercial setbacks-recently, the U.S. demands for textile restraint-they have learned to coexist, to their economic advantage, with Japan and the United States. They look boldly for economic opportunity everywhere, and many of the architects of this system display conspicuous indifference toward the "politics" of President Nixon's visit to Peking. Rightly or wrongly, they consider Taiwan's destiny to lie, almost regardless of politics, in the successful economic management of Taiwan itself. Successful pursuit of this destiny would cause Taiwan to achieve $1,000 per capita GNP-the threshold for passing from a developing to an advanced economy-by 1980. Taiwan's leaders believe that this achievement can resolve strains between Taiwanese and Mainlanders and even make possible the future accommodation of the province of Taiwan with the other provinces of China. A worldwide retreat to the protectionism of the 1930s would likely reverse trends and shatter this confidence. War, or serious fear of it, would certainly do so.

This, then, suggests something about the Taiwan growth model. But to envisage Taiwan as a functioning province of One China, it is necessary to cross the Taiwan Strait.


During the ten years from 1960 to 1970 the gross national product of the People's Republic of China-at almost $80 billion-may not have grown at all. Exports may have slightly declined. Per capita GNP fell. Early in the decade, Peking felt the impact of the precipitate withdrawal of Soviet participation in China's industrial growth. It attempted an amateurish Great Leap Forward, then beat an unruly retreat. It sought quick perfection, then allowed erosion of its commune system. From 1966 to 1969 the Cultural Revolution brought dislocations of China's entire production and institutional structure. Schools closed down. Colossal transfers of population took place. Transportation was unreliable. There continued, nevertheless, production related to national defense: nuclear technology, some missile delivery capabilities, and for the world's third largest air force.

But until quite recently, Peking presented the impression of an introspective, slogan-obsessed, xenophobic society, grossly mismanaging its affairs, with politics always master over economics. Serious anxiety over threats to its borders-lent justification by blood spilled on the banks of the Amur and Ussuri in the spring of 1969, by U.S. bombing raids on Laos and North Vietnam, and by occasional Republic of China commando forays on the Chinese east coast-caused uncertainty in Peking as to the allocation of priorities. It was a question how much emphasis should be placed on production for national defense and how much for egalitarian distribution of national resources to meet welfare needs. A high level of saving was maintained. There was steady capital formation. However, there appeared to be great disparities in the efficiency of industrial laborers engaged in both essential and "make-work" production processes. Throughout the decade, however, China did arrange to avoid famine.

The reporting of American newspapermen who visited China last spring, and recent observations of many other careful China watchers, now raise doubt that the economy of the People's Republic of China was in as deep a state of general stagnation and disorientation during the decade of the 1960s as earlier reports suggested. Despite the strong tides of distracting and often contradictory Maoist exhortation, some ideas about national growth may have been evolving that were essentially pragmatic, and often innovative-particularly for a very large country.

With a population of over 750 million that is growing at more than two percent annually, Peking has had to cope with the nightmarish necessity of feeding 15 million additional mouths every year. Authorities all over the country are now administering what may be the most comprehensive and effective national family planning strategy in the world. There has been ambivalence. There were some setbacks during the Cultural Revolution. And Mao Tse-tung, noting the force of tradition in the countryside, warned Edgar Snow not to exaggerate China's achievements. However, there is good evidence that all forms of contraception, abortion and sterilization are legalized. The pill is widely and freely available. A once-a-month pill is being used. Social pressures are exerted to postpone the age of marriage-to 25 years for women, and 28 for men. In some parts of the country, ration cards for families are not issued to cover family requirements beyond those of father, mother and two children.

China's scourge has been famine. And Peking's literate leaders doubtless have pondered the way dynastic historians have associated famine with loss of the Mandate of Heaven. In any case, communist Chinese authorities have avoided famine. For a large part of the decade of the 1960s one-third of all of China's foreign-exchange earnings was used for the import of food and fertilizers. Often severe malnutrition could not be avoided. But in bad years undernourishment was distributed evenly. In 1970, Chou En-lai could tell Edgar Snow that China's rice production had reached a higher level than ever before in its history and that China had laid aside a stockpile of more than 40 million tons.

Meanwhile, current estimates of China's industrial activity suggest that during 1970-71 there has been an overall 15 percent surge in output, attributable in part to under-utilization of plant for many years, and in part to creation of new investment capital in rural areas. And, although investment in heavy industry had been cut back from what it was in the 1950s, China's steel production reached 18 million tons, or about two times prewar Japan's. With the matrix of heavy industrial plant and engineering talent which has been considered essential for security purposes, China produces all of its essential military hardware, and supports a nuclear establishment.

Meanwhile, the work ethic, in a sheer primitive sense, has been glorified. City populations are mobilized for work in the country. Professors are taken from classrooms to work on farms and then brought back, often claiming to have gained a new and ennobling consciousness of the needs of the total society of which they were a part. Professor Yang, of New York University, a Nobel Prize winner for physics, reports that Chinese scientists find that exposure to mundane "experimental" situations enhances the fertility of their theoretical disciplines.

New means of spreading technology have been devised. Workers from small towns and villages, deep in the country, are brought to serve brief apprenticeships in large, modern city factories. Thus, they get short periods of exposure to machinery not yet available in their home towns. Stimulated by visual observation and first-hand experience with new techniques of production, they undertake improvisation and modest invention of crude but improved productive processes upon their return to their villages. One reporter visited a shop where burned-out electric light bulbs could be brought to have filaments replaced.

Prior to 1959, Peking had abandoned the Soviet growth model with its bias toward creating large centers of industrial production which required heavy investment in transportation. Chinese authorities reduced the need for investment in transportation by investing steadily over the years in small- scale electrical generating capacity which they installed near local markets, in rural areas throughout every province of China. During periods of the year when farms needed artificial irrigation, generators pumped water. In off seasons, electric power illuminated previously dark huts and homes, and contributed to the gradual mechanization of an increasingly diversified home industry. Writing about these trends, Tillman Durdin of The New York Times reported that: Communes feature different and varying kinds of industry. Many make trucks and chemical fertilizer. Most generate their own electricity by means of elementary-up-to-sophisticated installations. Commune industrial operations are naturally less efficient than big mass-production establishments, but they make maximum use of rural manpower, diversify the rural economy, educate the rural populace in modern industrial practices, give rural youth satisfying opportunities to move from monotonous farm tasks into more challenging industrial-type work, facilitate distribution in a country short of most means of transport, and promote the self-reliance and the decentralization of the economy and of economic authority that are major present-day objectives of the regime. (Problems of Communism,, September-October 1971.)

Last September the world press reported a mystifying spectacle of power rearrangement within Chinese communist leadership circles. Tensions were suspected among service chiefs and between them and party and administrative authorities. And? inasmuch as the Chinese army had had a very large civic action responsibility and seemed to many observers to have been the administrative matrix upon which much national planning recently depended, the stability of government seemed to be at stake. John Stewart Service, returning in mid-autumn from Szechuan and other more frequently visited parts of China, reported that he saw or heard nothing to suggest unusual political or military activity, and that what he observed in Szechuan refuted suspicions that Durdin and other foreign correspondents had been shown "Potemkin villages" in East China. China's nuclear achievements have been the work of an ideologically and functionally protected-a separate-community of sophisticated Chinese scientists and engineers.[i] However, if otherwise China's present economic system is the result of basic "crawling" responses to practical necessity-as it seems to be-rather than the product of obedience to rigid development blueprints, it is unlikely that its operation has been much affected even by the disappearance from the political scene of Mao's heir and his three top service chiefs.


One clue to how planners in Peking and Taipei may be assessing differently the consequences of Peking's new membership in the United Nations and President Nixon's visit to Peking may lie in trade statistics. The present value of foreign trade for Taiwan and the People's Republic of China stands about equal at some $4 billion. Thus, exports as a percentage of gross national product are about 25 percent for Taiwan's 14 million people and about two percent for the People's Republic of China's 750 million. The contrast in trade dependence is a revealing index of the degree to which one is outward-looking and the other inward-looking. Taiwan, oriented toward trade and growth, will survive its departure from the United Nations as a significant participant in the commercial and financial life of the international community, not even very dependent upon foreign investment to sustain its growing economic powers. Accession to the United Nations will not much affect the way the People's Republic of China tries to attain self- support for its huge population-preserving national safety and sacrificing growth, if necessary, in order to further the cause of high morale and "cultural" development.

In Peking's order of strategic priorities the protection of frontiers and the recovery of lost territories have always come first. After that, Peking has sought de facto and dejure recognition of its big-power status, Only thereafter, and then only as a means to achieve larger strategic ends, Peking has cared about belonging to and operating within international organizations. Its admission to the United Nations on October 25, 1971, came as a great and unsought surprise. Curiously, Taipei's priorities may not have been much different, even if its tactics were. On such matters as Tibet, Mongolia and the claim to certain islands of the Ryukyu chain, Peking and Taipei have always talked alike. Their positions are Chinese. And Peking's purpose during the noisy and frightening 1958 Taiwan Strait confrontation was more to separate Taipei from Washington than to separate Quemoy from Taiwan. (Ironically, a result of the clamor was to separate Peking and Moscow as nuclear allies.) Before, during and after the Quemoy crisis, Mao and Chiang looked upon that island alike: the linchpin that made Quemoy and Taiwan parts of One China. An exposed garrison of 65,000 Nationalist troops on Quemoy, extremely vulnerable to blockade or air envelopment, has been offered as hostage to that concept. A change in Quemoy's present status would strengthen the possibility of a permanently separate and independent Taiwan, which neither Chiang nor Mao desires. But, allowing for the history of their common aim, what practical system, short of one imposed by military conquest, might bring in sight either Chiang's or Mao's idea of One China?

Professor J. K. Fairbank has often referred to a tradition of Chinese suzerain authority over semi-autonomous territories. He can envisage arrangements between Peking and Taipei which would permit Taiwan to administer a social and economic system very different from that found elsewhere within the People's Republic of China, while general authority for the defense and foreign policy of China, including Taiwan, would be exercised by Peking.

It may have been toward such a political goal that Dr. Kissinger said on November 30 that Chinese authorities in Peking and Taipei should now work out arrangements. He may have been encouraged to consider this practical on the strength of Chou En-lai's observation to Seymour Topping that: "Chiang Kai-shek is opposed to the so-called Two Chinas and is also opposed to One China and one independent entity of Taiwan. In the past we have been allied with Chiang Kai-shek, and we became hostile to him, but on this question we have our common point-there can be only One China. So a way could be found."

He may also have been encouraged by what Ross Terrill had reported to be the Chinese view of the Taiwan problem: remove the American military presence and the "political gulf between Peking and Taipei . . . will be closed by give and take between the two sets of Chinese, in a process of reabsorption that could stretch out over decades."[ii] However, it would be a mistake to pass lightly over the practical difficulties of any such modus operandi, in economic, let alone ideological terms. Taipei and Peking-both assuming Washington's sure support of Taipei in most situations-have been warring and skirmishing with each other for over 20 years. They have no economic relations. And many will say that it makes little sense to expect economic relations between them to become interesting or practical at any early date.

It may be useful, however, to recall how Peking has come to regard Hong Kong, and nearby Macao. These British and Portuguese colonies are egregious symbols of everything that Maoist doctrine condemns. They were seized by Westerners under shameful circumstances that remain profoundly humiliating to all Chinese, not just the ideologues of Maoist China. And today both colonies accommodate Chinese renegades, deviationists and out-and-out enemies of Peking. Nowhere else in the world does classical laissez-faire capitalism, with all its "wealth, wickedness, and predatory competition," operate in a more pure form. Almost all travelers are stunned by the contrast between frenetic Macao and Hong Kong, and the austere, egalitarian and morally obsessed populace living on the Kwantung plains just across the colonial borders.

Hong Kong and Macao are vulnerable, and were Peking inclined to seize them, it could do so in a matter of hours. Upon at least two occasions during the 1960s Peking could have gained effective control over the administration of Hong Kong with little risk, if any, that the international community could or would have retaliated. In 1962, when food shortages in southwest China caused large-scale migration of undernourished Chinese into these territories, and in 1967 when excesses of the Cultural Revolution brought about reckless resort to violence within Chinese communist organizations everywhere, Hong Kong nearly found it impossible to cope with these threats to its administrative capability. If the Chinese authorities had then cut off Hong Kong's mainland water supplies, the local authorities could not have furnished a basis for survival, not to mention civic order, for its four million inhabitants. Still, Peking permitted the anachronism of colonial Hong Kong to survive on "Chinese" territory. In 1967, Lisbon asked Peking to devise a dignified way for Portugal to be divested of responsibility for Macao, and Peking refused. Thus, Peking has spurned an opportunity to correct the "unequal treaties" upon which Hong Kong and Macao depend. Could it be because, regardless of history and ideology, Hong Kong and Macao are too valuable, left just as they are?

About one-third of Peking's foreign-exchange earnings come from sales to Hong Kong. This was, incidentally, almost exactly what Peking paid for its heavy food imports through the 1960s. Once only a trade and banking center, Hong Kong amazed the world by its rapid industrialization. The present size and sophistication of its industrial banking and commercial activities and the free movement of persons and technologies which it permits, give the People's Republic of China the profit of continuing acquaintance with and exposure to the modernizing processes of a separate and nearby system. Such a system appeared to be of value to Peking, even if the principles guiding Hong Kong's political and economic life could not be administered in all of continental China-or perhaps because they could not be.

When the New Territories and Kowloon revert, under treaty, to Peking's authority in 1999, will they, and the general system which has caused them to thrive, still be too valuable to seize and stifle? And if Peking were now to ask the same kind of question about Taiwan, could it not insist that Taipei reduce or liquidate its military establishment, but then let the Taiwan economy continue to operate independently from Peking's economic controls? Could not arrangements even be made to give to Taiwan a preferred access to trade and to invest in the mainland market?[iii]

Nothing in the Chinese press-either on Taiwan or the China mainland-gives the slightest hint that Chinese planners are thinking in terms of any future economic coöperation between Taiwan and the mainland in what might be, in effect, a Taiwan Free Port Area of the People's Republic of China. In fact, most foreign observers are inclined to believe, notwithstanding the intriguing possibilities suggested by Dr. Kissinger's November press conference, that Taiwan with its growing affluence was likely to drift, with American acquiescence, toward Japan-oriented independence. Or, they believed that Peking would seize Taiwan, sooner or later, through intimidation, subversion or outright assault, and thereafter make it submit to Peking's overall authority.

But Peking's attitude toward Hong Kong justifies hesitation in jumping to either of those conclusions. Long before the "expulsion" of the Republic of China from the United Nations, thoughtful Chinese on Taiwan were ridiculing the notion of return to the mainland by military means and envisaged a return of Chinese on Taiwan to their homeland as highly sophisticated, ideologically agnostic technocrats. Implicit in that dream seems to have been the expectation of "dynastic changes" on the mainland and the emergence there of a new liberalizing leadership. It was recognized that whether guided by Mao or his successors, Peking would control the timing and terms of such an event. Were Mao himself to permit it, Peking's motive might be two-fold. First, it would end ambiguities as to military commitments and intentions in the Taiwan Strait which encourage the drift of Taiwan toward independence and the prospect of major war at a time when greater threats to China's safety bear down upon Peking from the north.

Second, it would gain China a modernizing Taiwan Free Port Area and economic system, at last under the security and foreign policy control of Peking itself. Meanwhile, in Taipei one anxiety about moving toward peaceful coexistence would overshadow others that are obvious: Can a government in Peking which has suffered repeated upheavals over the past 20 years be expected to deliver on an arrangement which present leaders might enter into with Taipei?

The United States should ponder the costs and gains for the international community were Peking induced to progress toward a One China dual economic system. With a growth-oriented foreign trade and investment sector made up, functionally, of Hong Kong's four million and Taiwan's 14 million, linked perhaps with Shanghai's 12 million, trading preferentially with a Chinese continental system-still, for strategic and ideological reasons, necessarily committed to full employment and cultural egalitarianism-this One China could constitute an economic and social force of formidable maneuverability on the international scene. Its "export-oriented" sector alone might soon match the economic powers of a Holland or a Belgium.

Under present assumptions, Japanese projections of mainland China's foreign trade forecast a value of only $8 billion by 1980; American projections are far lower. "China trade," including the trade of Hong Kong and Taiwan, and mainland China's trade through these entrepôt areas as well as directly with various foreign countries, provide dynamic possibilities which could alter dramatically previous notions of China's trade potentialities. And, no less important, movement in this direction would reassure China's neighbors that Peking is truly committed to its five principles of coexistence because it is ready to abide by their spirit even within the One China system itself.

Peking insists that it must reclaim Taiwan, but that assimilation could be a lengthy process. It is fair to ask what might be going on, economically, during that time. Taipei has had a good experience with its own Free Port Area at Kaohsiung. Perhaps that could persuade Peking to try the same model with Taiwan. Or, if the mutual gain from trade is clearly recognized, perhaps the German Zollverein of the early nineteenth century might be the model-or, a payments union under which foreign-exchange earnings could be pooled.

If Peking and Taipei were to proceed, despite great difficulties, toward understandings on arrangements for economic coexistence, this could create the precondition which might justify Taipei and Washington in terminating the 1954 mutual defense treaty. This would end the anomaly of Washington trying to relax tensions and normalize relations with the People's Republic of China, while being committed, as a matter of history, law and honor, to mutual defense arrangements with what Peking regards as one of China's provinces. It might go far toward easing Prime Minister Sato's difficulties in proceeding toward normalization of Tokyo's relations with Peking, blocked now by Peking's insistence that Japan repudiate its peace treaty with the Republic of China.

There can be, strictly speaking, no normalization of relations between Peking and Washington until the United States defense treaty of 1954 with the Republic of China is terminated. If the American intention to carry out the obligations of that treaty is seen as uncertain and ambiguous, Seoul, Tokyo and perhaps even our NATO allies would begin to suspect that the United States is entertaining the possibility of adopting new attitudes toward all treaty commitments. For this reason, if no other, the White House must believe-and Peking would probably honor the motive-that neither national interest nor world order would be served by a United States betrayal of its contract with Taiwan.

Moreover, against the history of past antagonisms, Washington must fear that even mutually advantageous economic arrangements for coexistence between the People's Republic of China and the Republic of China within a commonly understood and accepted frame of One China might require, for a while, an external guarantee that such arrangements would not serve aggressive or subversive purposes. The Mutual Defense Treaty of 1954 remains such a guarantee for Taiwan and the Pescadores, and within its terms and tradition, the United States furnishes military assistance, stations personnel on Taiwan, and has created links between Taiwan and surrounding United States base areas. Washington, Peking, Taipei and Tokyo would all gain if there were credible self-perpetuating understandings to demilitarize the Taiwan Strait because the real self-interest of all participating parties would be obvious. Having participated in such understandings, the United States could then totally remove its involvement in the military establishment on Taiwan and terminate the 1954 Mutual Defense Treaty. International participation in provisional guarantees during a period of transition would end when both Peking and Taipei desired to remove all foreign participation in their relations with each other.

If we take seriously Chou En-lai's anxieties about a Washington and Tokyo sponsorship of Taiwan independence, some eventual pattern of accommodation of this sort is very probable if only because its alternative is likelihood of a war from which all of the countries of northeast Asia would suffer deeply, and only the Soviet Union-if even it-might benefit. Meanwhile, the matrix for the refinement and elaboration of future security understandings could be the peaceful coexistence of the economic systems of Taiwan and the People's Republic of China.

[i] One student of China offers the intriguing thought that Mao Tse-tung has invested in an incipient nuclear weapons capacity because to do so was really cheaper than to invest in a vast panoply of conventional arms such as tanks, warships, submarines, etc., which might otherwise be China's equipment requirements as a major power.

[ii] The Atlantic, January 1972.

[iii] Taiwan and pre-World War II Shanghai have had similar growth experiences. Could they arrange to operate-like China's nuclear community- somewhat separately from the rest of Peking's continental system? Shanghai's present reputation for extreme "leftist" deviation from many Peking-directed policies makes this possibility now seem sheer fantasy. But for many decades Shanghai traders, bankers, industrial managers, technicians and workers, whether at work in Shanghai or finding new homes elsewhere, have been prime movers in accelerated modernization throughout continental China, and also for more than a generation in Hong Kong and Taiwan. Visitors to great cities that have suffered military assault or the invasion of radicalizing ideas-Leningrad, Warsaw, Hamburg, Yokohama, to mention a few-glimpse indestructible qualities in them. Some believe Shanghai to be such a city.

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