NATIONAL INTELLIGENCE ESTIMATE CHINA-TAIWAN: PROSPECTS FOR CROSS-STRAIT RELATIONS

• Document Type: FOIA
• Keywords: CHINA-TAIWAN
• Keywords: CHINA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 0005526243
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 22
• Document Creation Date: June 24, 2015
• Document Release Date: February 22, 2011
• Case Number: F-2010-00738
• Publication Date: September 13, 1999

(b)(1)
(b)(3)
L fret
APPROVED FOR RELEASE^ DATE:
02-07-2011
National Intelligence Estimate
China-Taiwan: Prospects for Cross-Strait
Relations
NIE 99- 13, September 1999
This Estimate was approved for publication by the National Foreign Intelligence Board
under the authority of the Director of Central Intelligence.
Prepared l.fnder the direction of Robert Sutter, National Intelligence Officer for East Asia.
Inquiries may be directed to the NIO
Contents
`~c~~~e Note
Key judgments
Discussion
Annex
Scope Note
This National Intelligence Estimate (NIE) was requested by the Department of State and Pacific
command. It discusses how relations between China and Taiwan will develop in the next three
years--toward greater tension and hostility or toward cooperation and accommodation? We
selected this time frame because it encompasses the presidential election in taiwan in March
2000, the US change of administration in January 2001, and a new Party Congress in China that
should he held in 2002.
The key assumption;, which we will hold constant throughout the period of this Estimate,
 ? Neither side experiences fundamental change in its political system or major domestic
upheaval.
4 The US global superpower role and the US alliance structure in the region will not
change radically.
The cross-Strait military balance has been examined in other Intelligence Community studies,
particularly NIE 98-05,China's Conventional Military Forces: Current Status and
1-'ulure Capabilities (1998-2008), June 1998. Consequently, we will focus primarily on the
strategic political and economic factors of cross-Strait relations, noting the military factors when
relevant to this analysis. Later this year we will publish a National Intelligence Estimate on
China's Strategic Priorities and Behavior.
In the text when we use the term "China," we are referring specifically to the People's Republic
of China (PRC). When we use the term "Taiwan." we are referring to the authorities on Taiwan,
who prefer the term "Republic of China."
In assessing the objectives and perceptions of both Beijing and Taipei, we have used a variety of
I reporting. The available information provides a strop
evidentiary base for our conclusions.
t.'hl?onolo y of Cross-Strait Develo2mentsL_J
Key Judgments
The most likely outcome in cross-Strait relations over the next three years is a dynamic and tense
environincnt. Tension is likely to remain high or rise, and rising tension increases the chances of
 Inilitary incidents.[j
We judge that, over the period of this Estimate, chances are better than even that China will
conduct a major military exercise near Taiwan as it did in January-March 1996. Also, chances
are better than even that there will be small-scale incidents between the military forces of China
and Taiwan ranging from an accidental air incident to the seizure by Beijing of a lightly manned
offshore island. We judge chances are very low, however, that Beijing will actually follow
through with large-scale combat operations, such as invading Taiwan or a heavily defended
offshore island, conducting missile attacks against targets on Taiwan, or blockading Taiwan with
air or naval forces.
We assess chances of major sustained conflict are low because:
A full-scale military assault presents formidable materiel and human costs with a large
risk of failure for China.
? l)olnestic factors on both sides will contribute to a tense atmosphere but also will bound
the risk each side is willing to take to gain its objectives. Taiwan's new leaders will try to
avoid antagonizing China to the point it would disrupt Taiwan's economy and stability.
To avoid arousing criticism within the Politburo, Chinese leaders will appear firm in
dealing with Taiwan, but they will be wary of bold moves that could backfire and play
into the hands of political opponents.F1
a China's perceptions of international actors-notably the power and influence of the United
States-will constrain China's behavior.
We see prospects as likely for generally increasing tension because:
China sees trends on Taiwan as unfavorable and is concerned that time will run out on its
reunification objectives. China will be inclined to continually weigh coercion as well as
military power as principal means of dealing with separatist sentiment in Taiwan.
Taiwan will continue to press its desire for increased international status and freedom of
action from China. The controversy that erupted over Lee Teng-hui's assertion of a
"special state to state relationship" with the mainland illustrates Taiwan's approach.fl
Key Drivers
We assess key drivers that will determine relations across the Strait will include:
Internal Politics
Taiwan is a hot-hutton issue within the Chinese leadership and leaders cannot afford to appear
"soft" on Taiwan. Leaders on Taiwan would risk loss of popular support if they were perceived
as jeopardizing Taiwan's security.
Legitimacy and Respect
Beijing perceives the Taiwan issue as an internal matter and expects the international community
to accede to its wishes on Taiwan and adhere to "one-China" policies (that most countries have
formally accepted) because it is an emerging great power that deserves status, respect, and, on
 the question of Taiwan, deference. Taiwan perceives it should have international legitimacy
because it is a democracy with economic power.
Legacy
Leaders on both sides of the Strait perceive their personal legacies will be enhanced if they can
make progress on dealing with the other side. But their key objectives are incompatible.
Perceptions and Expectations of the United States
US policies are significant to the attitudes of both sides. China sees Washington as encouraging
Taiwan's separatist stance but also calculates that it can restrain US actions in support of Taiwan.
Taiwan perceives it has strong support in the US Congress and media for its objectives. Both
sides will increase efforts to test the current or a new administration in Washington-Beijing by
pressing the United States on arms sales, Taiwan by looking for additional security guarantees.
China: Options Against Taiwan)
Concerns for the United States
In the situation of worsening tensions, we have identified potential responses to crisis by China
including restraint, saber rattling, and punishment of Taiwan
Exercise Restraint
Military pleasures range from returning to normal military deployments along the Strait to
conducting small-scale, Taiwan-focused exercises on the Strait. Diplomatic activity would range
from toning down rhetoric against Taiwan's leaders and maintaining longstanding efforts to limit
Taiwan's international activity. Economic measures would include encouraging Taiwan to
resume the "three links."
Rattle its Saber
Military measures would range from large-scale force deployments opposite Taiwan to
deploying an out-of'-area ground, airborne force to Fujian province (opposite Taiwan).
Diplomatic measures would range from canceling talks between cross-Strait negotiators to public
hints at the need for a reunification timetable. Economic measures range from warning other
countries of economic consequences of continued engagement with Taiwan to closing the Strait
to shipping with lengthy military exercises.
Punish Taiwan
Military measures range from bombarding a Taiwan-occupied island to seizing such an island.
Diplomatic measures would include demanding an immediate cessation of US arms sales to
Taiwan. Economic measures would range from spreading rumors in the Taiwan business
community that military action is impending to blockading a key Taiwan port.
China could attempt to blockade or invade Taiwan, but Beijing recognizes this would risk war
with the United States. In our judgment, such a war is highly unlikely during the period of this
Estimate because of the reasons stated above.) I
Movement Toward Reconciliation
Less likely, we assess, is a situation in which the various drivers interact to bring about an
 amelioration of tensions across the Strait. For example, economic interaction is seen by both
sides as important, and economic interdependence could create more favorable conditions for
political and military restraint. Also, the desire for legacy could cause leaders on both sides of
the Strait to resume unofficial talks, hold secret talks, or even less likely, hold a summit to make
progress on outstanding differences. In this outcome, China most likely would reduce its reliance
on the military option and seek to engage Taiwan increasingly through economic, social, and
political intcraction.fl
Discussion
Introduction I
Taiwan President Lee Teng-hui's 9 July 1999 declaration that cross-Strait ties are a "special
state-to-state relationship" and Beijing's sharp verbal reaction--combined with the thus-far small-
scale military posturing across the Strait--is the latest in a series of moves and countermoves
across the Taiwan Strait ongoing since 1991 (see inset). In our view, Lee's statement was as
much designed for Taiwan's coining presidential election as for cross-Strait or international
effect. Beijing has interpreted his statement as a further push for Taiwan's independence and has
reacted vehemently. The ensuing crisis could worsen, especially if Beijing feels compelled to
resort to greater military pressure to persuade Taiwan leaders to moderate Lee's statement and to
influence Taiwan's March 2000 presidential election.
A key issue for the United States is whether tensions can be contained in cross-Strait relations, or
whether they will move toward military conflict. US interests also would be affected favorably
by a shift toward accommodation, which we see as much less likely.
What China Wants
The PRC's long-term objective is reunification. Within the time frame of this Estimate, Beijing's
goal will be to prevent further Taiwan steps toward permanent separation. Using Deng
Xiaoping's "One Country, Two Systems" formula, Beijing states that Taipei can have a high
degree of autonomy but must recognize it is part of "one China." Beijing's vision of a unified
China, however, is not clear. China tends to identify more clearly that which it will not tolerate--
for example, a Taiwan formal declaration of independence--than precisely what Beijing wants.
China's strategic objective stems directly from its perceived "century of humiliation," wherein
superior powers--Western countries and Japan--carved out spheres of influence and controlled
Much of China's economy, politics, and social affairs. Territorial unification became a symbol of
the Chinese revolution for both nationalists and communists. Today, the Chinese Communist
Party sees its own legitimacy as entwined with its ability to show progress toward the goal of
reunifying Taiwan with the mainland. Taiwan's status also is a deeply emotional issue for many
Chinese leaders and citizens.If
Beyond this, China perceives Taiwan as a security problem. Chinese officials fear that Taiwan
might develop closer military cooperation with a foreign military power such as the United
 States or Japan. Some Chinese officials have stated, for example, that Japan could cooperate with
Taiwan in posing a barrier to China's regional and global influence. Some Chinese leaders point
to the military alliance between Taiwan (the ROC) and the United States prior to the
normalization of US-China relations on 1 January 1979. The PRC also wants to eliminate
Taiwan as a base for subversion in case of domestic turmoil on the mainland.
We assess Beijing over the next three years will:
Try to limit EIS support for Taiwan, particularly by pressuring Washington to cease, or at
least reduce, ands sales to Taipei.
Continue to seek to undercut Taiwan's international standing by competing with Taipei
for diplomatic recognition, seeking to reduce even further the small number of states that
recognize Taiwan as a legitimate government. China's approach was clearly manifest
when in February it vetoed a UN Security Council resolution continuing UN
peacekeeping forces in Macedonia because the Macedonian Government established
diplomatic relations with Taiwan.
Beijing perceives that such US support encourages the island to assert its dejure
independence; by eroding US support, China thereby hopes to reduce the potential for
Taiwan to move toward permanent separation from the mainland.
Oppose 'l'aiwan's membership in international bodies in which statehood is required,
including the United Nations, and try to circumscribe the amount of influence Taiwan has
in organizations in which it is a nonstate member.
Continue to insist on the "three links" (direct shipping, communications, and air
transportation) with Taiwan as steps toward political reunification."- China's leaders also
will encourage rapidly growing economic ties to Taiwan as both a source of growth and
employment in China and as a means of developing a constituency in Taiwan favorable
to reunification. Beijing also insists that the reunification process begin with "political
talks to end the state of hostilities," in addition to the "technical" confidence-building
talks between unofficial representatives that have proceeded off and on since 1992.
1 Jse rhetoric, political, and military actions to seek to move Taiwan leaders and voters
away from taking steps toward greater independence.
What Taiwan Wants
Taiwan's principal objective is to determine its own future, with future options including de jure
independence, or, alternatively, some type of formal accommodation with China. Taipei wants to
make these decisions on its own without bowing to pressure from China or others. For the period
of this estimate, we assess Taiwan will continue to try to maximize its freedom of action while
benefiting economically from growing cross-Strait trade and investment. Taiwan wants to avoid
accceptance of the PRC's concept of "one China" and has offered its own framework for cross-
Strait ties.
 China-Taiwan: Divergent Views on Cross-Strait Relations
China's View El
Both sides should adhere to the principle of "one China."
Taiwan, is port of China. China's territory and sovereignty cannot be separated.
China should be unified under the formula of "one country, two systems."
Trvo sides should negotiate peaceful reunification step by step beginning with political talks on
cessation of hostilities.
Prefers peaceful ramification but will not renounce right to use force.
Taiwan's View El
There is no "one-China" now.
Taiwan and the mainland are separate and equal "states.
Unification could come gradually after political democratization and economic reform on the
mainland.
.Substantive discussions to improve cultural, trade, and economic ties are mutually beneficial.
Political talks ore acceptable if China accepts Taiwan's "state-to-state"formula.
Mainland nuist reciprocate Taiwan's 1991 renunciation of force.
Divergent Views
We assess Taiwan, in pursuit of its strategic objective will:
Continue to promote its international identity. Besides competing with Beijing for
diplomatic recognition in developing countries, Taiwan will use "pragmatic diplomacy"
to seek to enhance ties to the United States, Japan, European, and other developed
countries. Taiwan will view responsible participation in the international community as
strengthening its case.
Take into account--while trying to shape--popular opinion in the formulation of its
objectives. As an emergent democracy, Taiwan's leaders are heavily influenced by public
attitudes, and polls suggest that Taiwan's people do not favor either unification with the
mainland or a formal declaration of independence that would bring down the wrath of
Beijing. Public opinion strongly supported Lee's assertion that Taiwan's political status
was equal to that of China, but the Taiwan public remains highly sensitive to threats to
prosperity and stability.F-l
The View From Beijing
 China on balance secs political and social trends as unfavorable to achieving its objectives as
Taiwan remains separate, and shared bonds gradually dissolve. Taiwan's democratic evolution
has strengthened Taiwan's de facto independence, particularly as Lee Teng-hui has asserted
Taiwan's status.
Beijing is particularly concerned that the United States supports Taiwan's continued separation
from the mainland, as is evidenced by political and military support, including arms sales to
Taiwan. China, for example, has vociferously decried Theater Missile Defense (TMD) for
Taiwan, especially because Beijing recognizes the political implications of TMD. Wang Daohan,
former Mayor of Shanghai and China's chief negotiator with Taiwan's representatives, told a
visiting US delegation that TMD "would completely change the strategic equation between the
United States, China, and Taiwan." Similarly, Chinese officials have observed that China could
handle the military challenge of TMD by building more missiles, but that TMD would
nevertheless weaken the deterrent that China's missile threat poses to Taiwan's international
activities. Other information indicates that China intends to mount an all-out diplomatic
offensive against TMD, specifically TMD involving Taiwan.
Despite unfavorable trends, however, Beijing does perceive that it has been able to arrest to some
degree Taiwan's path to independence.
Chinese leaders believe the 1996 missile tests discredited the platform of the Democratic
Progressive Party, which supported an independent Taiwan, and that the numbers of
those on Taiwan who advocate a declaration of de jure independence have declined.
China sees its military buildup opposite Taiwan as restraining calls for independence on
the island.
China has been able to block Taiwan's attempts to gain formal international recognition.
China was heartened by President Clinton's statement in Shanghai in June 1998 that the
United States would adhere to "three no's" (no support for Taiwan independence, no
support for one China/one Taiwan, and no support for Taiwan representation in
international bodies where state membership is required) in dealing with Taiwan. China
also reacted favorably to US statements and diplomatic efforts reaffirming a one-China
policy after I,ee's 9 July statement.
? Beijing also is pleased with the expansion of trade and investment across the Strait;
Chinese officials believe greater economic interdependence builds a sympathetic
constituency for reunification on Taiwan.
Beijing nevertheless believes its efforts are only a holding action. Such efforts have constrained
Taiwan's freedom of action, but its sense of a separate identity grows and its appeals for US
support persist. And, in this view, time is not on China's side. China's power and influence are
limited, which undermines its ability to achieve its objectives. Thus, a challenge for Beijing is to
come up with a more effective means of reaching its goals.
'rite View From Taipei
Taiwan's view, as compared to that of China, is somewhat more optimistic. Taiwan believes that
it has healthy security relations with the United States and that problems in US-China relations
 generally work to Taiwan's advantage (although Taipei also says that a sharp downturn in US-
China relations is not good for Taiwan because that leads Beijing to harden its approach to
Taiwan). Taiwan also perceives that its international standing, even in the absence of formal
recognition, is relatively good.
Taiwan has expressed interest in TMD, primarily because it provides political advantages and
would huild a closer military and intelligence relationship with the United States
Still, in Taipei's view, not all trends are favorable. Taiwan relies heavily on the United States but
perceives that on important issues, the United States will side with China against Taiwan's
interests. Taiwan also recognizes that Beijing has been able to restrict its international presence.
Taipei knows that it is vulnerable to punitive PRC missile attacks and that the long-term military
balance is unfavorable, with much of Beijing's military modernization aimed at preparing to deal
with Taiwan crisis scenarios.
Key Drivers
We assess several key drivers will interact in various ways to produce different dynamics in
cross-Strait relations over the next three years but primarily will interact to sustain or increase
lension.fl
Internal Politics
No Chinese leader can afford to appear to be "soft" on the Taiwan question. In the early 1980s,
Deng himself came under criticism for suggesting that Taiwan could be put on the back burner
while China improved relations with the United States. In the era of no paramount leader,
Chinese officials must he even more cautious about any statement that would lead to criticism
and open the door to attacks from political opponents.
nature 01 '1110 Taiwan issue, there is little divergence of opinion on the need for progress toward
reunification. (C)
On Taiwan, where leaders are democratically elected, there is little support for reunification with
the PRC. Rather, polls show strong support for maintaining Taiwan's current status in the face of
Chinese pressure. Consequently, any leader who pushed hard for reunification probably would
be defeated in an election. Nevertheless, no leader wants to aggravate Beijing to the point that
China decides to strike with military force. In sum, this key driver is likely to pull China and
Taiwan in opposite directions.
Desire for Legitimacy and Respect
Beijing sees itself as an emerging great. power in and a legitimate member of the international
system. It is developing its economy, political influence, and military capabilities. A permanent
member of the UN Security Council, China deems it deserves status, respect, and, in the case of
"Taiwan, deference. Perceived attempts by Taiwan to separate itself from China are seen as
 causing a "loss of face" for China, a threat to China's sovereignty, and a possible precedent for
oilier regions of China. China's leaders will respond accordingly. For example, China insists that
Taiwan not cuter the World Trade Organization before China does.
Meanwhile, Taiwan has achieved democracy and economic prominence and believes it is equally
entitled to legitimacy in the international community. Taiwan declares that it must be treated as
an equal by China and that it will never consider reunification until China democratizes. Leaders
in "Taipei cal I attention to Beijing's lack of respect for human rights while pointing to themselves
as responsible members of world society.
China-Taiwan: Decisionnuakh for Cross-Strait Isues
Legacy
Top leaders of both China and Taiwan see "progress" in their respective views of the Taiwan
question as enhancing their personal reputations. Both incumbent presidents have offered
 proposals for dealing with the situation across the Strait. Jiang presented an eight point proposal
in 1995 and Lee responded with a six-point proposal shortly thereafter.
Jiang probably calculates that his legitimacy and stature will be best served by making progress
toward the goal of reunification while trying to avoid major conflict. Lee, however, sees his
legacy as requiring an enhancement of Taiwan's status. Both want to avoid war, but beyond that
their goals are mutually incompatible. Although Lee will step down as Taiwan's president, he
will remain head of the ruling KMT. KMT candidates probably will be reluctant to directly
challenge Lee's personal legacy; furthermore, any Taiwan leader may have difficulty taking back
some of Lec's declarations and positions as China has demanded.fl
Respective Military Priorities
Beijing has been building its military capabilities for scenarios of conflict on Taiwan. The
Intelligence Community has assessed that Beijing has begun a long-range program to develop
forces that, in a Taiwan crisis, would be able to deter or delay US military forces if US
intervention seems likely or inflict losses if US intervention actually occurs.rl In the interim,
Beijing will use its military" capabilities to intimidate Taiwan, which will maintain a state of
tension across the Strait.
Taiwan, nneanwhile,~ has been building its forces to complicate Beijing's
planning. Taiwan also will conduct modest training timed for political impact that probably will
contribute to tension.
Perceptions and Expectations of the United States
US policies are significant to the attitudes of both sides. The perceptions and expectations of the
United States by both China and Taiwan are likely to continue to contribute to tension across the
Strait. Both expend great efforts to influence opinion in the United States and are seeking
advantage in the conning US election. China, on one hand, sees Washington as supporting
Taiwan's indefinite separation, including through the supply of arms; on the other hand, China
believes it can alternatively threaten and cajole the United States on the Taiwan issue. Taiwan
knows that it has strong support in the US Congress and media and that it has been effective in
exerting influence Oil the United States to provide political and military support. Both sides will
try to get at each other through the United States. For example, Lee Teng-hui issued his "state-to-
state" comments in part because he believed that the low state of US-China relations following
the bombing of the Chinese Embassy in Belgrade offered an opportunity=
Both sides will increase efforts to test the current or a new administration in Washington.
Taiwan, for example, could press for US legislation similar to the Taiwan Security Enhancement
Act to strengthen its position vis-a-vis Beijing. Beijing could demand additional concessions by
the United States on arms sates.)
Regional Factors
Many PRC officials believe Japan secretly plans to expand its influence on Taiwan, and Beijing
will be wary of Japan's approach to the island. Beijing sees Japan's cooperation with Washington
in the defense guidelines as an element of Tokyo's designs. China repeatedly warns that such
US-Japan cooperation will produce instability in the region. The degree to which US-Japan
discussions and military exercises imply a Taiwan scenario will cause China to respond by harsh
 rhetoric and perhaps military exercises of its own.
Moreover, the situation on the Korean Peninsula will affect cross-Strait relations. North Korea's
policies are likely to continue to cause the United States and Japan to worry about instability in
the region and heighten defense cooperation, including over a regional TMD. This situation will
heighten China's anxieties about the implications for Taiwan.
China hopes to use Hong Kong as a model of success in its one country, two systems" formula.
"Taipei will point to problems in Hong Kong as reasons why it should not accept Beijing's
enticements.
The Potential for Conflict
Chinese CSS-6 and CSS-7 Mobile Missile Series Launchsite Coverate of Taiwan
The most likely outcome in cross-Strait relations over the next three years is a dynamic and tense
environment. Tension is likely to remain high or rise, and rising tension increases the chances of
military incidents. Also, Beijing could posture for large-scale military operations in an attempt to
Intimidate Talwan1
We judge that, over the period of this Estimate, chances are better than even that China will
conduct a major military exercise near Taiwan as Beijing did in March 1996. Also, chances are
better than even that there will be small-scale incidents between the military forces of China and
Taiwan. We judge chances are very low, however, that Beijing will actually follow through with
large-scale combat operations, such as invading Taiwan or a heavily defended offshore island,
conducting missile attacks against targets on Taiwan, or blockading the island with air or naval
forces.
China has the capability to conduct large scale combat operations, but we think the
chances are very low because Beijing knows such operations would not necessarily be
successful in achieving its objectives. Such operations probably would be
counterproductive because they would be costly in casualties, could destroy Beijing's
regional economic interests, and could invite third-party intervention.
Certain circumstances will cause the key drivers to increase tensions leading to incidents of
armed clashes short ofwar.F-I
Shifts in Internal Politics. TO counter domestic instability in China, especially if caused by
economic deterioration, Beijing could provoke a wave of nationalism leading to an even harder
line toward Taiwan. Or, in the case of Taiwan, friction among rival political parties could cause a
leader to calculate that he can gain popular support by emphasizing Taiwan's separate status.0
Escalating the Desire for Legitimacy and Respect. Following the reversion of Macao, China
could decide to press more vigorously on Taiwan by tightening the diplomatic noose. China
could warn small countries that have relations with Taiwan that they will suffer consequences in
the future, such as loss of trade or political retribution in the UN. Or, Taiwan could issue new
statements that infuriate China.F-I
 Misconstruing US Intentions. China could misconstrue US statements criticizing Taiwan's
policies as a lack of will to defend Taiwan from attack. Conversely, Taiwan could misconstrue
pro--'Taiwan/anti-Beijing statements of US officials or legislators as tacit support for moves
toward de jure independence.E1
Regional Problems. Several situations would exacerbate tensions across the Strait, including
deterioration on the Korean Peninsula that raises prospects for US intervention in contravention
of China s interests or a decision by Japan to upgrade ties to Taiwan.
`Red Lines r
( iron has e stablixlied certain "red lines, " that if Taiwan crosses, will cause a significant change
in policy from peaceful reunification to use of force. These red lines are general in nature and
Beijing's use olforce is likely to vary depending upon the situation. Among the "red lines" cited
by Beijing include:
A Taiwan formal declaration of independence, or Taiwan's holding a referendum or
moth/ring its Constitution to establish independence.
l'orei,~n support for proindependence forces in Taiwan.
Taiwan's development of nuclear weapons together with a delivery system capable of
threatening the mainland.
a Widespread social instability or unrest on the island.
We believe that at some point Chinese leaders would perceive Taiwan participation in a US-
Spoii.sored TMD program as "foreign intervention in China's internal affairs. " This could
become a "red line" issue that would elicit a military reaction, but we do not know what level of
US participation in a Taiwan TMD program would bring about such a PRC response.
Beijing's Options
In tense cross-Strait relations, Beijing has several options (see China: Options Against Taiwan
fora full range of options), many of which would be worrisome for the United States:
Exercise Restraint. Military measures range from returning to normal military
deployments along the Strait to conducting small-scale Taiwan-focused exercises on the
Strait. Diplomatic activity would range from toning down rhetoric against Taiwan's
leaders and maintaining longstanding efforts to limit Taiwan's international activity.
Economic measure:; would include encouraging Taiwan to negotiate the "three-links."
? Rattle its Saber. Military measures would range from large-scale force deployments
 opposite Taiwan to deploying an out-of-area ground, airborne force to Fujian province
(adjacent to Taiwan). Diplomatic measures would range from canceling talks between
cross-Strait negotiators to public hints at the need for a reunification timetable. Economic
measures range from warning other countries of economic consequences of continued
engagement with Taiwan to closing the Strait to shipping with lengthy military exercises.
s Punish Taiwan. Military measures range from bombarding a Taiwan-occupied island to
seizing such an island. Diplomatic measures would include demanding an immediate
cessation of US arms sales to Taiwan. Economic measures would range from spreading
rumors in the Taiwan business community that military action is impending to
blockading a key Taiwan port.
China could attempt to blockade or invade Taiwan, which Beijing recognizes would risk war
with the United States. In our judgment, such a war is highly unlikely during the period of this
Estimate because of the reasons stated above.l
Factors That Could Ease Tensions
Although less likely in our view, several drivers could interact to bring about an amelioration of
tensions across the Strait.fl
Economic Interaction
Economic interaction between China and Taiwan has been impressive (see chart). According to
Chinese statistics, total trade has grown to $20 billion annually. More than 40,000 Taiwan
businessmen have invested in the mainland, amounting to about 20 percent of outside
investment. Taiwan data indicate that the PRC is Taiwan's third-largest trading partner and 42
percent of Taiwan's overseas investment is in China. fl
China sees the investment not only as important for developing its economy but also for
facilitating integration between the two entities and building a constituency for reunification on
the island. Taiwan's view is more mixed. Taiwan officials stated that, if the PRC share of total
Taiwan overseas investment rises above 60 percent, the PRC would use this dependence to
squeeze Taiwan at the negotiating table. At the same time, many Taiwan officials see the island's
prosperity resting heavily on closer economic interchange with the mainland.
Although we recognize the possibility of economic friction, on balance we judge economic
factors will be a force for moderation. Taiwan will continue to place restrictions on cross-Strait
economic flows, but Taiwan businesses probably will continue to channel money indirectly to
the mainland through offshore banks. Meanwhile, China will try to promote greater trade and
investment from Taiwan.
Shifts in Other Key Drivers
We assess changes could occur in other key drivers that would move China and Taiwan toward
greater accommodation:
Following Taiwan's presidential election in March 2000, domestic politics on both sides
could shift. A new 'Taiwan leader could soften Taiwan's approach by agreeing to
negotiate the three Iinks. Beijing could calculate that a softer line toward Taiwan was in
 its interests. Leaders on both sides could conclude that resuming ARATS-SEF contacts
would improve communications, confidence, and predictability between China and
Taiwan. Although we think it unlikely, leaders could hold secret talks, or, even less
likely, agree to a summit meeting to try to ease tensions.
? The two sides could conclude that economic interests warrant a reduction of military
tensions.
Greater stability in t1S-China relations could improve cross-Strait ties as well. Beijing's
fear that Washington was secretly fostering an independent Taiwan probably would ease.
Bottom Line
On balance, we assess that the key drivers are more likely to combine to sustain and exacerbate a
tense atmosphere across the Strait. Important constraints--notably US and international support
for regional stability--will act against a major conflict, but provocative tactics and greater use of
military signaling will heighten the prospects for accidental or intentional armed clashes.
Timelines
We doubt that the PRC has set a deadline for achieving reunification. Nor has it devised a
timetable with specific accomplishments along the way. Nevertheless, a variety of reporting
indicates that Beijing has become more anxious about achieving concrete progress toward
reuni ica11o11.
We assess that Beijing's sense of urgency will be influenced by China's broader strategic
perception of how well it is faring in other key objectives. Economic growth, greater stability in
US-China relations, international reputation, and political stability are of importance to China's
leaders, and progress on Taiwan will be viewed in this context. Chinese gains in these other areas
may cause Beijing to decide that it has more time to deal with the Taiwan issue.
Taiwan has no timeline, but intends to preserve its options. Nevertheless, the Presidential
election next year could produce a departure from Taiwan's present approach. Although Lee's
preferred successor, Vice President Lien Chan, is unlikely to deviate significantly from Taiwan's
present course, other potential successors, notably former Taiwan governor James Soong, have
raised other options. Soong, for example, reportedly has discussed the possibility of moving
more directly to negotiate with China on the three Iinks.fl
Outlook Beyond Three Years
The dloanlie situation across the Strait over the next three years, including presidential change
in Taiwan, China, and the United States, precludes effective estimating about likely outcomes
beyond ibis time fi-anae. Nevertheless, the Intelligence Community agrees that some of the trends
 discussed in this Estimate are likely to persist well beyond the three years covered by his
Estirnate.F-1
Srrch.factors as nationalism, demographics, face, and the personalities of leaders will continue to
influence developments across the Strait, as will the perceptions of both sides that they are
entitled to international recognition and support.7
We agree that economic links will continue well beyond three years. We note that even during
past periods of crisis these links have not diminished. We are uncertain that such links would
lead to political integration in greater China. F1
We think China's power in the region will grow, but the power of others in the region, including
Taiwan, probably also will grow.
Although ire believe unification between China and Taiwan is not likely over the next ten years,
we think the possibility of progress on China's request for three links is good and perhaps some
progress on CBMs, including military CBMs across the Strait, as well. All of these can be
achieved, however, without concrete progress toward political unity. The main issue, in our
view, will be whether Chinese nationalism or Taiwan assertiveness and manipulation leads to
confrontation, or whether enl,i 'htened statesmanship on both sides decides to capitalize on the
benefits of peace and stability.
What if We Are Wrong?
Our overall view is based on two assumptions: no fundamental political upheaval in China or
Taiwan and no change in US global superpower status or alliance structure in the region. Major
political upheaval in China is the more probable of the assumptions to come under challenge.
Although highly unlikely, China's twentieth century history suggests significant political change
cannot he ruled out. Over the next three years, serious economic problems, combined with a
leadership succession crisis in Beijing, could lead to a popular uprising or a change in regime. A
new, more nationalistic regime could define Taiwan's liberation as the cornerstone of its
legitimacy. Such a regime almost certainly would increase the pressure to resolve the Taiwan
situation. Alternatively, a more democratic government in China could adopt a more
accommodating approach to Taiwan.
Political radicalism in Taiwan leading to a formal declaration of independence or, less likely, a
decision to reunify with China also are plausible. In either event, the US reaction would be
critical. Such countries as South Korea and Japan would~m sure the US response in assessing
the strength of their alliances with the United States.
Disruption of the US alliance structure could occur if the Korean peninsula was suddenly
reunified. A reunified Korea would involve complex interaction between the United States and
China, as well as Japan, that would influence developments with respect to Taiwan. Similarly,
situations that undermined the US-Japan security relationship could affect Taiwan's security. For
example, Japan, concluding the United States is withdrawing militarily from Asia, could decide
to create an independent nuclear arsenal. Such a decision almost certainly would bring about an
 unfavorable Chinese reaction, perhaps including increased military pressure on Taiwan. Though
highly unlikely, such developments almost certainly would cause both China and Taiwan to
reevaluate their tics to the United States.
 The National Intelligence Council
The National Intelligence Council (NIC) manages the Intelligence Community's estimative
process, incorporating the best available expertise inside and outside the government. It reports
to the Director of Central Intelligence in his capacity as head of the US Intelligence Community
and speaks authorita tively on substantive issues for the Community as a whole.
Chairman (concurrently Assistant Director of Central Intelligence for
Analysis and Production)
John Gannon
Vice Chairman
Ellen Laipson
Director, Evaluation Staff
Dolores
Greene
Director, Senior Review, Production,
and Analysis
Stuart A.
Cohen
Director, Outreach and Strategic
Planning
William Nolte
National Intelli -encc Officers
Africa
Robert
Houdek
At-Large
Stuart A.
Cohen
East Asia
Robert Sutter
 Economics & Global Issues
David Gordon
Europe
Barry F.
owenkron
General Purpose Forces
John Landry
Latin America
Randy
Pherson
Near East and South Asia
Ben Bonk
Russia and Eurasia
George Kolt
Science & Technology
S
Lawrence
Gershwin
Strategic & Nuclear Pro
Robert D
Walpole
Robert
Vickers
Footnotes
-~' As part of normalizing relations with China, the United States not only ended its official
diplomatic relations with Taiwan, hut also gave the one-year notice required that it was canceling
the 1954 Mutual Defense Treaty and ending the official US military presence on Taiwan.=
i'I Taiwan has formal diplomatic relations with 28 countries, mostly small countries in Central
America, Africa, the Caribbean, and South Pacific. Taiwan's most significant formal relations are
with Panama. Taiwan has representative offices in 63 countries with which it does not have
formal diplomatic relations=
t~. The "three links" were originall roposed by China in 1979 after its normalization of
relations with the united States.
NIL 98-05, China's Conventional Military Forces: Current Status and Future Capabilities
 (1998-2008) o1' June 1998