TAIWAN: MIDTERM PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000701970017-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 33
• Document Creation Date: December 20, 2016
• Document Release Date: July 11, 2006
• Sequence Number: 17
• Publication Date: February 1, 1981
• Content Type: MEMO

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Director of
Central
Intelligence
Taiwan: Midterm Prospects
Interagency Intelligence Memorandum
Secret
Secret
NI IIM 81-10007
February 1981
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TAIWAN: MIDTERM PROSPECTS
Information available as of January 1981 was
used in the preparation of this Memorandum.
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CONTENTS
Page
KEY JUDGMENTS .................................................................................................... 1
DISCUSSION .............................................................................................................. 5
Surviving Normalization ........................................................................................ 5
Relations With the United States ........................................................................... 5
The Other Partner-Japan .................................................................................... 6
A More Flexible Foreign Policy ............................................................................ 6
Internal Unrest ........................................................................................................ 8
Chiang Ching-kuo, the KMT, and Reform ........................................................... 9
The Rise of a New Opposition ............................................................................... 10
The Current Scene .................................................................................................. 11
A Turning Point ...................................................................................................... 11
The China Angle ..................................................................................................... 12
Chinese Strategy and Tactics ................................................................................. 12
China and the Taiwan Succession Crisis ............................................................... 13
Taiwan's Reaction to China's Overtures ............................................................... 14
Outlook .................................................................................................................... 14
The KMT Government's Options .......................................................................... 17
An Uncertain Future .............................................................................................. 18
Annex C: The Military Situation in the Taiwan Strait Area ................................... 29
Annex D: Economic Conditions and Prospects ........................................................ 33
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KEY JUDGMENTS
Taiwan enters the 1980s with favorable odds for maintaining a
high degree of continuity with the past. The prospects for political
stability and economic prosperity three to five years from now depend
on how Taipei moves to solve the interlocking problems of:
- Sustaining economic growth despite increasing protectionism,
competition, and rising energy costs.
- Maintaining military defenses against China.
- Arranging a smooth succession to 70-year-old President Chiang
Ching-kuo.
- Meeting increasing pressure from native Taiwanese for a greater
share in effective political power.
- Maintaining domestic and investor confidence in the future of
Taiwan.
- Shaping the nature of Taiwan's relationship with China and the
United States.
Normalization of Sino-US relations has altered the framework
within which these problems will be faced. Relations with the United
States are likely to remain central to Taiwan's foreign policy. In the
midterm period of three to five years, the United States will remain the
major source of modern arms and military equipment, nuclear power
equipment, technology, and enriched fuel, and it will be the island's
leading economic partner. Still, Taiwan will attempt to reduce its
dependence on the United States in these areas by expanding its mar-
kets, seeking arms and nuclear imports elsewhere and striving for self-
sufficiency.
Taipei's satisfaction with the continuation of extensive, substantive
relations with the United States coexists uneasily with a view that US
power in international affairs has declined and with reduced confidence
that, in the long run, the United States will remain cognizant of Tai-
wan's interests. As a result, there is an increasing feeling in Taipei that
more than ever Taiwan is on its own.
Note: This Interagency Intelligence Memorandum was produced under the auspices of the National
Intelligence Officer for East Asia. It was drafted by the East Asia-Pacific Division of the
Office of Political Analysis, National Foreign Assessment Center, Central Intelligence Agency. The Memo-
randum was coordinated with the intelligence components of the Departments of State and Defense and
within the National Foreign Assessment Center. Information available through January 1981 was used.
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This concern is unlikely, however, to lead to a major opening to-
ward the USSR in the midterm, despite Taiwan's efforts to broaden
economic contacts with Eastern Europe. Chiang Ching-kuo opposes
turning toward Moscow-a move which might damage relations with
Washington, outrage Beijing, and alarm Taiwan's neighbors in South-
east Asia and the Western Pacific.
Increased stress on self-reliance is likely to have a mixed effect on
Taiwan's largely inactive nuclear weapons development program. Some
military and civilian officials hope eventually to reactivate the program,
but concern over the adverse effect this would have on Taiwan-US
relations will continue to act as a powerful deterrent.
The leadership in Taipei also appears to be reexamining the is-
land's future vis-a-vis China. In the past year or two Taiwan has
adopted more flexible, pragmatic policies, for example, permitting a
dramatic increase in indirect trade with China. But there has been no
softening in Taipei's refusal to engage in negotiations with China.
Movement toward some kind of accommodation with Beijing may
be possible in the midterm. Governments in Taipei and Beijing share
certain interests: both assert Taiwan is part of China, thus precluding an
independent Taiwan; both promote the island's economic prosperity,
desire political stability, and indicate wariness over Taiwanese demands
for a greater share of political power; and neither wants Soviet med-
dling in the "Taiwan question."
Beijing has outlined a position on reunification that offers substan-
tial autonomy for Taiwan under Chinese sovereignty, but not under
Chinese administration.
Beijing is unlikely in the midterm to abandon a policy of peaceful
reunification, but there is a growing sense of urgency over the need to
make some progress. China fears that the death of Chiang Ching-kuo
could leave a successor Kuomintang (KMT) regime that might fragment
or that might have a limited popular base. A weakened, insecure succes-
sor might feel unable or unwilling to bargain with Beijing.
President Chiang has not groomed a successor, relying instead on
institutional arrangements. So far the locus of political power in the
post-Chiang period appears uncertain and may shift, becoming frag-
mented among institutions and individuals. There are signs, however,
that maneuvering for position among potential successors has begun.
Deterioration in relations between China and the United States
might result in a tougher Chinese stance toward Taiwan, particularly if
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Washington unilaterally abrogated agreements on Taiwan reached in
late 1978 or if Taiwan became a contentious issue in Chinese politics.
Developments that reinforce the KMT view that moves toward
accommodation with the mainland are not required could also result in
a hardened Chinese position on reunification as well as serious Sino-US
bilateral problems.
A KMT move toward political association with China could easily
provoke an uprising among Taiwanese. When combined with Tai-
wanese pressure for political reform, their perception that the KMT was
preserving its political future by selling out to Beijing could be politi-
cally explosive.
Although Taiwan's economic future appears relatively secure in
the midterm, problems of inflation due to soaring energy costs, increas-
ing protectionism in foreign markets, increasing competition, and un-
certainty in traditional export markets could further slow the economic
growth that has been so important in limiting political unrest.
The most likely goal, because it would be the least destabilizing,
probably would be maintenance by the KMT of the status quo along
with cosmetic changes to meet Taiwanese pressure for political reform
and with a glacially slow increase in contacts with the mainland. Taipei
would do its utmost to maintain its identity as a de facto independent
entity, but could tacitly acknowledge a special relationship with the
mainland. This might avoid provoking a militant reaction on Taiwan,
receive acquiescence from middle class people and businessmen of the
island-who seek economic security and political stability-and isolate
the more militant advocates of Taiwan independence.
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DISCUSSION
Surviving Normalization
1. Nearly two years after the reestablishment of
Sino-US relations, Taiwan has survived with its eco-
nomic prosperity intact and the island's political stabil-
ity and security unshaken. The long-awaited shock
wore off quickly, causing only minor and temporary
economic perturbations and no widespread popular
loss of confidence in the island's future as an interna-
tional entity. There has been no unusual population or
capital exodus from Taiwan. The island has retained
its appeal for foreign investment, which was as strong
as ever in 1979-the first full year after normalization
in Sino-US relations.
2. Contributing to public confidence on the island
were the Taipei government's handling of the crisis,
the prospect of continued substantive ties to the
United States, and the absence of military tension with
China. The early passage of the US-Taiwan Relations
Act-although no substitute in Taipei's eyes for full
diplomatic relations-was reassuring by providing un-
official continuation of relations, by indicating contin-
ued US interest in the island's security and a peaceful
resolution of Taiwan's relationship with Beijing, and
by providing continued access to US military equip-
ment. The resumption of new sales of defensive weap-
ons in January 1980 and the later announcement that
the United States will consider sales of the FX fighter
further reassured Taiwan's leadership.
3. The successful transition to a new relationship
with Washington was accompanied, however, by evi-
dence that Taiwan will be more on its own than be-
fore. Many on Taiwan are skeptical about the durabil-
ity of Washington's interest in preserving Taiwan's
international status. There is concern on Taiwan that
the US interest in improving relations with China to
counter Soviet expansionism will make Washington
susceptible to Chinese suggestions that the United
States press Taipei into negotiations with Beijing.
4. Taipei appears to be attempting to steer a course
that will:
- Preserve what remains of Taiwan's diplomatic
relations with other governments.
- Maintain foreign interest and presence in Taiwan
by developing substantive, unofficial relations-
particularly economic-with those nations that
have no diplomatic ties with Taiwan.
- Expand Taiwan's foreign trade markets to main-
tain rapid economic growth by spreading trade
and investment opportunities and risks.
- Maintain major economic ties with the United
States and Japan but limit as much as possible the
effects on Taiwan of the economic troubles of
either partner.
- Continue Taiwan's access to up-to-date US mili-
tary equipment, while working to limit depend-
ence on the United States by developing Tai-
wan's defense industries and seeking other
sources of military equipment and technology.
- Maintain access to US nuclear power technology,
equipment, and fuel while again attempting to
reduce the political-economic risk by seeking
other suppliers.
- Re-examine Taiwan's future relationship with
China to preserve both Taiwan's sense of identity
and its ability to deal with a possible evolution
toward an accommodation with China from as
strong a position as possible.
Relations With the United States
5. In the midterm, relations with Washington are
likely to remain the keystone of Taiwan's foreign
policy. New markets and new sources of military and
nuclear equipment and fuel are unlikely to limit the
crucial role of the United States in these areas. Exten-
sive substantive ties with the United States play a
major role in maintaining the government's self-
confidence and popular confidence in the govern-
ment. The KMT government will exploit the relation-
ship to the utmost, using longstanding relations in the
US Congress and the Executive Branch to buttress
other activities. Conversely, it is unlikely that many in
Taipei envisage any future US administration revert-
ing to the prenormalization framework of US-Taiwan
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unlikely event that a government on Taiwan turns to-
ward the USSR, Japan probably would have a mutual
interest with China and the United States in forestall-
ing or reversing such a development. In any case,
Japanese leverage over Taiwan is limited. While US
investment usually takes the form of capital invest-
ment, Japanese money usually finances trade, or is
aimed at earning a quick return, thus limiting risk and
leverage.
10. If Japan is likely to be satisfied with the status
quo on Taiwan and with Taiwan's current position vis-
a-vis China and the United States, Tokyo also rec-
ognizes that friction could grow in Tokyo's relations
with Taipei. A major source of friction would be the
conflicting claims of Taiwan, China, and Japan to the
Senkaku Islands. In the midterm, however, all three
parties may find it more useful to concentrate their
search for oil in other places, rather than complicate
their relations by raising this contentious issue.
A More Flexible Foreign Policy
11. The continued cultivation of a special relation-
ship with the United States is aimed at maintaining
Taiwan's economic development and enhancing its
economic strength and military self-sufficiency. The
experience of the past decade has taught Taipei the
importance of substance in foreign relations over the
embellishments of diplomatic form. Only 21 govern-
ments-most of them in Central America and the
Caribbean-now have diplomatic relations with Tai-
pei, and a further reduction of diplomatic ties in the
1980s is likely. The Taiwan authorities hope to pre-
serve what diplomatic ties they can, substituting sub-
stantive economic relations where they must.
12. This emphasis on economic contacts helps Tai-
wan keep its identity as an international entity and
retain the prosperity that helps dampen potential
domestic political problems. Diplomatic relations with
Saudi Arabia remain important because Saudi Arabia,
along with Kuwait, provides a major share of resource-
poor Taiwan's imported petroleum. The authorities in
Taipei cultivate the Saudis by sending high-level dele-
gations, assisting the Saudi armed forces
Relations with South Arica center
on shared interests in the development of military
production and technology and of their respective nu-
clear power industries, as well as a mutual interest in
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relations. Even so, the leaders in Taipei probably will
continue to invest US-Taiwan relations with as much
tangible content and degree of 11 officiality" as Wash-
ington will allow.
6. A reversal in current US willingness to supply
Taiwan with selected, defensive armaments would not
only affect prospects for maintaining a credible deter-
rent, but would be taken by many on Taiwan as a sign
that the United States was no longer interested in the
island's long-range security against China. To those on
Taiwan, the corollary would be that the United States
favored the island's reunification with the mainland.
(For an evaluation of the military balance between
Taiwan and China, see annex C.)
The Other Partner-Japan
7. Although Japan is Taiwan's second largest trade
partner, largest exporter, and an important source of
capital, Tokyo currently cannot occupy the key po-
sition held by the United States in Taiwan's foreign
affairs. Continued extensive economic ties between
Taiwan and Japan do not extend into the military and
security spheres as do relations with the United States.
Japan does not supply defensive arms to Taiwan. Al-
though undoubtedly interested in Taiwan's future as it
might apply to the security of Japan, officials in Tokyo
have not expressed their views publicly.
8. From Taiwan's point of view, political ties with
Japan have been diminishing since normalization of
Sino-Japanese relations in 1972. Taipei's ability to in-
fluence Japanese official points of view has steadily
diminished as its supporters in Japan grow old or come
to place greater importance on Sino-Japanese relations.
9. Aside from taking diplomatic or economic action
to preserve its economic interests in Taiwan, it is un-
likely that Japan in the midterm wishes to or is in a
position to decisively influence the island's future,
particularly from a security point of view. It is un-
likely that Japan would encourage Taiwan's independ-
ence or jeopardize Sino-Japanese relations by support-
ing Taiwan's resistance to reunification with the
mainland. On the other hand, China's use of force to
effect reunification would harm Sino-Japanese bi-
lateral relations, as Tokyo evaluated the effect on re-
gional stability and the impact on US-Japanese se-
curity relations. Should Taiwan become politically
unstable, Japan might attempt to use what economic
leverage it has to facilitate a return to stability. In the
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avoiding international political isolation. Earlier this
year Taiwan added to earlier procurement a six-year
purchase, starting in 1984, of 4,000 tons of natural ura-
nium. Taiwan has also indicated interest in South Af-
rica as a potential source of enriched uranium fuel for
Taiwan's nuclear power program. Despite Taiwan's
prodding, however, the South Africans apparently
have not shared nuclear technology with Taiwan.
The
natural uranium purchases are important to Taiwan's
plans to ease its heavy dependence on foreign oil by
eventually deriving 40 percent of its electric power
from nuclear sources. South Africa has only limited
enrichment capacity, however, so that in any event
Taipei will continue to. depend on the United States or
Europe for this service.
13. Whereas Taiwan's deepening relationship with
the Saudis and South Africans represents an inten-
sification of prenormalization trends, its increased
trade and expanding unofficial relations with Western
Europe are new. Since normalization, total trade with
Western Europe has increased from $4 billion in 1979
to a predicted $5 billion in 1980, with Taiwan enjoy-
ing a projected $1 billion surplus. Unofficial rep-
resentation on Taiwan from West European nations
has been increasing. Most European nations either
have unofficial representation in Taipei or are actively
interested in obtaining it. Five West European banks
representing three countries also have offices there.
14. Western Europe is attractive to Taiwan as an
additional export market and as a source of technol-
ogy, such as transport aircraft (the airbus from
France), nuclear power equipment, and modern mili-
tary weapons and technology. There are built-in lim-
its, however, to rapid growth in trade and to Western
Europe's usefulness as a source of sensitive industrial
and military equipment and technology. Taiwan's
large trade surplus and world economic conditions
may prompt West European nations to raise protec-
tionist barriers, and most West European governments
have been cautious about selling Taiwan nuclear or
military equipment and technology. Efforts by Tai-
wan to purchase such items have been only partially
successful, although Taipei is inviting two West Eu-
ropean firms to bid on two future nuclear power re-
actors. Over the past two years, Taipei has procured a
small number of antiaircraft guns from Sweden and
Switzerland. Efforts to obtain sonars, torpedo boats,
combat aircraft, tanks, and submarines from other
West European nations have been largely unsuccess-
ful. Recently, however, the Netherlands, despite
strong protests from Beijing, have agreed to build two
submarines for Taiwan. Expanded economic ties with
Western Europe might provide a conduit for the im-
portation of some dual-use technology serving Tai-
wan's efforts to expand and modernize its military
industries.
15. Israel has proved a more fruitful source of
equipment and technology by supplying the Gabriel
antiship missile.
16. Taiwan's efforts to reduce nearly total depend-
ence on the United States by acquiring nuclear tech-
nology, fuel, and power-generation equipment from
Britain, France, Italy, West Germany, or Belgium
have been fruitless. A high-level nuclear delegation
from Taiwan returned home emptyhanded after a
swing through Western Europe in May 1979. In
November 1979 the West German firm of Kraftwerk
Union (KWU) offered to provide Taiwan a complete
nuclear cycle, similar to one promised earlier to Brazil.
Negotiations on this basis are likely to founder because
of caution on both sides. Since its Brazilian deal, KWU
has refrained from selling sensitive technology, such as
nuclear fuel reprocessing. KWU does, however, use
the prospect of acquiring such technology as bait to
arouse interest among prospective foreign purchasers.
In line with its interest in expanding its sources of nu-
clear equipment and technology, Taiwan has invited
West German and French firms to bid on construction
of reactor units seven and eight in its nuclear power
program along with the provision of associated fuel.
US firms may still have an edge in this competition
and are probably favored by the program's civilian
managers.
17. One of the major inhibitions on Taiwan's efforts
to reduce nuclear dependence on the United States is
that the bilateral nuclear cooperation agreement with
Taiwan now provides the only suitable mechanism for
safeguarding nuclear facilities on Taiwan. France and
West Germany thus far have shown no interest in a
separate bilateral agreement with Taiwan for fear of
alienating China.
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18. Even if Taiwan were successful in limiting its
dependence on the United States in these two key
areas, using other sources to expand the island's still-
limited industrial technological base would take years,
particularly in the nuclear power industry. Taiwan
may have greater success in developing a more self-
sufficient military industry capable of producing anti-
tank and shipboard cruise missiles, patrol boats, light
fighter planes, tanks, and artillery. Even here, how-
ever, progress is likely to be slow, and long-term reli-
ance on key imported components-mainly from the
United States-is likely to continue.
19. Continued heavy reliance on the United States
as a partner in developing the island's nuclear energy
program will remain the main stumblingblock to the
reactivation of nuclear weapons research on Taiwan.
Taipei's weapons research program has been largely in
abeyance since 1977. Although some military officers
and officials-particularly those associated with the
Chungshan Institute of Science and Technology, and
the Institute for Nuclear Energy Research-wish to
revive nuclear weapons research, they have been un-
able to persuade President Chiang that a reactivated
effort would enhance Taiwan's security enough to off-
set the severe damage likely to accrue to relations with
the United States. Nevertheless, there is no sign that
the authorities in Taipei have completely abandoned
the nuclear weapons option. Rather, the program re-
mains in limbo, with emphasis on contingency
planning.
20. It is unlikely that the relaxation of restrictions
on trade with several East European countries will
profoundly affect Taiwan's international orientation.
Poland, Hungary, East Germany, and Czechoslovakia
have shown tentative interest in greater trade, but
trade with Eastern Europe, although likely to grow, is
also likely to remain a minuscule part of Taiwan's
overall foreign trade.
21. Still less likely in the midterm is a major open-
ing toward the Soviet Union. President Chiang Ching-
kuo has consistently refused to consider entering into a
dialogue with Moscow, partly from personal antipa-
thy, partly because such a move would complicate his
policies toward the United States and China. Deng
Xiaoping has repeatedly avowed that a turn by Tai-
wan toward the Soviet Union would cause Beijing to
reconsider its peaceful approach toward reunification.
22. There are signs of Soviet interest in opening
trade with Taiwan. Any positive response from Taipei
is likely to be carefully limited. Although hints of
improving ties with Moscow might be used to remind
Beijing and Washington that Taiwan has options other
than reunification or continued heavy reliance on the
United States, Taiwan's foreign policy is unlikely to
move in that direction.
23. Taiwan's more pragmatic foreign trade policy
will help expand Taipei's markets but is unlikely to be
translated into diplomatic support for independence
from China. It is unlikely that any major foreign gov-
ernment would recognize a self-proclaimed independ-
ent Taiwan. What the more pragmatic policies do
serve is continued acceptance of Taiwan's de facto in-
dependence as well as enhanced possibilities for
continued economic prosperity. These efforts would
help maintain confidence and stability on the island,
as well as strengthen Taipei's position if it eventually
were to probe for a new relationship with the
mainland.
Internal Unrest
24. The major threat to Taiwan's stability comes
from potential domestic political unrest that could af-
fect the KMT's ability to govern. The potential for
political instability comes primarily from the split in
Taiwan's society between the mainlanders who re-
treated to the island with Chiang Kai-skek and those
native to the island. Although linked by Chinese cul-
ture, both groups retain a strong sense of self-identity.
This self-consciousness is reinforced by language
differences-despite 30 years of compulsory Mandarin
training in the schools-and by differing historical
experiences. Taiwanese have little reason to feel
closely tied to the mainland. A largely neglected prov-
ince of the old Qing Empire, the island was under
Japanese rule from 1895 to 1945. Within two years of
the restoration of Chinese rule by the KMT, mis-
government, corruption, and a faltering economy pro-
voked a spontaneous uprising in February 1947. The
ensuing suppression, still vividly remembered by
many Taiwanese, wiped out almost a whole generation
of local leadership. An estimated 10,000 to 20,000 peo-
ple lost their lives, or disappeared. About 3,000 Tai-
wanese went into exile to carry on a sporadic, ineffec-
tual opposition.
25. The mainlander elite still dominates the island's
political affairs, commanding positions in the armed
forces, security services, government ministries, and
the KMT. Since the early 1970s, concessions have been
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made in response to Taiwanese pressure by bringing
some Taiwanese into the higher reaches of the political
structure, including ministerial positions. About one-
third of the KMT Central Standing Committee elected
last December is Taiwanese, and a Taiwanese com-
mands the Eighth Army in the southern port city of
Kaohsiung.
26. None of these concessions, however, has altered
the fact of mainlander rule. President Chiang Ching-
kuo and his closest advisers, the men who run Taiwan,
are mainlanders. Their authority is legitimized by the
myth of return to the mainland and their continued
claim to be the legitimate government of China, tem-
porarily residing in the province of Taiwan.
27. In practical terms the goal of mainland recov-
ery has been long abandoned. In recent years greater
propaganda emphasis has been placed on Taiwan as a
model province whose example will someday inspire
the people of mainland China to overthrow Com-
munist rule. The KMT cannot abandon, however, its
claim to be the legitimate government of China with-
out bringing into question the right of a small minor-
ity-15 percent of the population-to govern the
remaining 85 percent, which is Taiwanese. The impor-
tance of this claim, along with the mainlander Chinese
identity of the ruling elite, precludes the KMT govern-
ment from accepting the concept of Taiwan inde-
pendence.
28. The simple dichotomy of mainlander versus
Taiwanese, however, is not a wholly faithful image of
the complexities of Taiwan's society or politics. Even
in 1947 there were many Taiwanese who linked their
personal fortunes to the KMT and to China. Between
50 and 80 percent of the KMT membership is Tai-
wanese. Many of the Taiwanese businessmen who
dominate the large private sector of the economy have
a symbiotic relationship with the mainlander-con-
trolled regime. Three decades of KMT-directed, anti-
Communist propaganda and education in Chinese na-
tionalism probably have had some effect in shaping
the attitudes of younger generations. Certainly support
for Taiwan independence exists among a number of
Taiwanese, but its extent is impossible to measure and
becomes confused with a desire to liberalize the more
oppressive aspects of KMT rule and open up the sys-
tem to allow the rise of Taiwanese talent.
29. Thirty years of nearly unbroken economic
growth and the concentration of middle and upper
class Taiwanese on enhancing their personal prosperity
have muted communal antagonism and diverted Tai-
wanese energies from politics into business, the pro-
fessions, and education. Taiwanese concern with
maintaining and improving the standard of living-
which is far above that of mainland China-has
tended to reinforce KMT efforts to maintain the status
quo at home and to resist political and military pres-
sure from the mainland for reunification.
30. Although the majority of working and middle-
class Taiwanese do not appear to be highly politicized,
eight Taiwanese oppositionists in their thirties or early
forties were sentenced to prison in April 1980 for
fomenting the antigovernment riot in Kaohsiung in
late 1979. They are part of a growing, better-educated
Taiwanese middle class, which may feel its lack of
political influence more keenly than its elders.
31. "Taiwanization" of the legislative branch of the
government, the civil service, and the lower reaches of
the KMT will increase sharply during the 1980s as el-
derly mainlanders die or retire. If not forestalled by
second-generation mainlanders, this trend could leave
the Taiwanese in control of local government, national
parliamentary bodies, and with a larger share of KMT
membership. Such a development might temporarily
mollify moderate Taiwanese by bringing them into
greater participation in the political system, but it is
equally likely that it will whet Taiwanese appetites for
greater political power. Moreover, with creeping
Taiwanization, the validity of the concept of
mainlander control of the KMT government will come
increasingly into question. In addition, increasing
Taiwanization of the KMT would raise the possibility
of a slow takeover from within by "KMT" Taiwanese
with no interest in political reunification with the
mainland.
Chiang Ching-kuo, the KMT, and Reform
32. Starting in the early 1970s, before becoming
President, Chiang Ching-kuo-in league with the
more reformist, liberal elements in the Kuomintang-
instituted a cautious liberalization of the political sys-
tem. In part this effort represented Chiang's attempt
to carve out his own constituency and points of view
within the KMT in preparation for his succession to
power. In part, however, it also represented an at-
tempt to come to grips with an aging political elite
whose politically conservative ideas appeared ill-suited
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to meet the changes occurring in Taiwan's society and
international status. As a result of Chiang's efforts, un-
precedented numbers of Taiwanese were brought into
political office. Many moderate Taiwanese reformist
politicians, including some who later became anti-
KMT, came to regard Chiang as a moderate reformist
whose interests were compatible with those of the
Taiwanese.
33. To effect his reforms, Chiang enforced anti-
corruption laws, called on the services of technocrats
in government rather than party hacks, and stressed a
government bound by its own laws, rather than en-
tirely relying on arbitrary action.
34. Chiang attempted to reinvigorate and reform
the KMT, though with only limited success. The party
remained filled with personnel who could perform no
other jobs. It failed to attract many of the most ca-
pable younger men, who chose to enter the pro-
fessions, the government bureaucracy, or business. At
the grassroots many party members remained en-
trenched within their local political alliances. They
were suspicious of reform and enforced it half-
heartedly.
35. One aspect of the party structure that Chiang
Ching-kuo had no intention of reforming was the cen-
tralization of final decisionmaking in the hands of the
party leader. The structure of the KMT, patterned
after that of the Communist Party of the Soviet Union,
tends to concentrate authority at the top.
36. The KMT, however, is only one of several in-
stitutions, and not the most powerful, that President
Chiang uses to govern. Decisions by the KMT bureauc-
racy are often overridden by other government or-
ganizations. For example, the opposition of some party
bureaucrats to the crackdown on the non-KMT opposi-
tion after the Kaohsiung riot was outflanked by the
security services.
37. Personal rivalries are numerous, and allegiances
and factions can change kaleidoscopically. In balanc-
ing these political blocs, Chiang, in order to achieve a
specific goal, often permits one group to gain tem-
porary prominence. When the political task at hand is
accomplished, he reduces its power and restores fac-
tional balance. Since the Kaohsiung riot, Chiang has
permitted the more hardline, conservative element to
increase its influence in the party. Currently the KMT
appears divided into five factions:
- The Wang Sheng group, headed by the director
of the armed services Political Warfare Depart-
ment.
- The old line KMT conservative faction, com-
posed mainly of elderly KMT leaders.
- The Chang Pao-shu group, led by the now-re-
tired, elderly secretary-general of the KMT.
- The Hsieh Tung-min (Shieh Tung-min) faction
represents the large Taiwanese element within
the KMT.
- The Li Huan group, headed by one of President
Chiang's old political lieutenants, is the most lib-
eral and reform minded of all the factions in the
KMT.
The Rise of a New Opposition
38. The more liberal political atmosphere of the
early 1970s encouraged non-KMT Taiwanese to be-
come more politically active. Supplemental national
legislative elections in 1969 and 1972 had gone well
for the KMT in starting a carefully controlled process
of injecting new blood into the aging ranks of KMT
officeholders. The smooth evolution of this process,
however, received a jolt from symbolically important
and unforeseen opposition victories in the Taiwan lo-
cal election of November 1977. Moreover, an election-
associated riot suggested a new volatility among the
population. The Taiwanese oppositionists, encouraged
by the election, looked forward to greater victories in
the next round of supplemental national legislative
elections scheduled for December 1978. Although the
Taipei authorities' reaction was restrained, their con-
cern increased as signs multiplied that the opposi-
tionists were organizing and attempting to reach out to
the Taiwan Presbyterian Church-a longtime ad-
vocate, of Taiwan independence and expanded human
rights.
39. The KMT government took advantage of the
announcement of normalization of Sino-US diplomatic
relations to postpone the elections. The oppositionists'
reaction was mixed, but most did not resist a short
postponement as an emergency measure. The govern-
ment, however, quickly adopted a harder line toward
opposition activities. By mid-1979, a more organized
opposition group-associated with the highly critical
new magazine Formosa-began sponsoring rallies and
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attempting to coordinate oppositionist political activ-
ity. The authorities probably were particularly
alarmed by Formosa's effort to organize an embryonic
political party by setting up "service centers" around
the island. Opposition moderates, perhaps fearing that
they might be politically outbid by the "Formosans,"
were uneasy about such activity but appeared unable
or unwilling to moderate it. By November, at the or-
der of Chiang Ching-kuo, the authorities had decided
to suppress Formosa. The Formosa group's decision to
hold an unauthorized rally in Kaohsiung on 10
December 1979 (Human Rights Day) provided the op-
portunity. Either spontaneously or through the action
of government provocateurs (many Taiwanese believe
the latter) the rally quickly became a riot. This event
was followed by the suppression of Formosa, and the
imprisonment of its leadership.
The Current Scene
40. The crackdown after the riot has set back op-
position attempts to organize. Opposition moderates,
never fully in sympathy with the increasingly
confrontational tactics of the Formosa group, worry
that the Kaohsiung affair will reverse the political
gains of the 1970s. The continued suppression of op-
position publications, including one representing
young, moderate KMT intellectuals-even though
masked by the banning of some KMT rightist
journals-indicates that the limits of permissible de-
bate have been narrowed. Moderates within the KMT
have been discredited by their support for a more
open political system. Chiang Ching-kuo may even-
tually moderate the crackdown on the opposition and
curtail the growing influence of the conservatives in
the KMT. The KMT's success in the December 1980
national legislative elections redounded to the credit of
the conservatives who managed them, however, and
could give them a permanent edge in the maneuvering
to direct the party's future.
41. The elections reflected the government's at-
titude toward further liberalization of the political
process. A new electoral law, although containing a
few provisions more liberal than previous regulations,
in practice is more restrictive. In particular, the new
law restricts the conduct of campaign rallies. It also
continues to prohibit student participation in the elec-
toral process either as candidates or as campaign assist-
ants. The net effect is to enhance the electoral fortunes
of the KMT.
42. Nevertheless, the expansion of the number of
positions open for election-from 124 in late 1978 to
204 last December-allowed room for the election of
more Taiwanese candidates within the party without
threatening KMT control of the legislature. The party
leadership was able to limit the election of non-KMT
candidates to merely a handful. The authorities made
a special effort to limit public discussion of the Kaoh-
siung incident during the campaign to preclude the
election turning into a referendum on the govern-
ments handling of the affair. While this effort was
generally successful, the election of five opposition fig-
ures linked with the disturbance-including the wives
of two jailed Kaohsiung dissidents-reflected contin-
ued desire among the native Taiwanese for wider
participation in the political process at the national
level outside the KMT. The KMT victory may re-
inforce the,impression held by many Taiwanese that
the mainlander element of the KMT and its Taiwanese
allies have no intention of liberalizing the political
system.
43. Even though the Kaohsiung incident did not
spark widespread popular expressions of support for
the demonstrators or their political goals, it jolted the
KMT establishment as well as the security services and
the armed forces high command. The latter two in-
stitutions launched a sweeping security investigation of
all armed services personnel. The investigation will
encourage the military to follow the KMT position, or
to keep their political feelings to themselves. The
mostly Taiwanese rank and file do not appear to be
highly politicized or unwilling to obey their officers.
The heavily mainlander professional officer corps is
political to the extent that it tends to support the status
quo and the legitimacy of the regime.
44. In the longer run, however, the regime may
have cause for concern. One of the defendants in the
Kaohsiung riot trials touched obliquely on this sen-
sitive subject by pointing out that the Iranian revolu-
tion suggests that the army could not be used to "sup-
press the masses." This implies not only that Taiwan's
conscript army might hesitate to fire on civilians, but
also that the 90-percent-Taiwanese army might not
suppress a Taiwanese uprising.
A Turning Point
45. The Kaohsiung incident and subsequent restric-
tions on opposition political activity may mark a sym-
bolic turning point. By their handling of the incident,
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Chiang Ching-kuo and the KMT conservatives have
made clear their view that Taiwanese political aspira-
tions must be fulfilled only within the KMT frame-
work. The message received by politically conscious
Taiwanese is that Chiang and the KMT do not intend
to share power. In October 1979, Chiang remarked
that the organization of an opposition party must be
prevented because its existence would mark the begin-
ning of the end of KMT control of local politics and
ultimately of Taiwan.
46. Conversely, those politically conscious Tai-
wanese who have cast their lot with the KMT may for
the moment feel vindicated. The KMT government
has demonstrated its ability to suppress dissent. The
more militant Taiwanese-although now few in
number-may feel convinced that only greater activ-
ism, perhaps including violence, will weaken KMT
rule. The moderate middle group faces a difficult
choice. To continue moderate efforts at political re-
form risks absorption into the existing system. To turn
toward militant activism risks not only government
suppression, but also political instability that might
undermine KMT rule, damage the island's economy,
scare off foreign investors, and-in an extreme case-
invite Chinese intervention.
25X1 47. authorities have expressed concern that
the Taiwan Independence Movement (TIM) is renew-
ing its efforts to bring about political instability in Tai-
wan. They fear that the TIM is procuring arms in the
black market on Taiwan and through smuggling.
Whether or not the authorities' alarm is justified, it
indicates new concern about potential instability in the
island. The KMT also has attempted to link TIM with
opposition groups on the island. These opposition
groups, however, are quite distinct from TIM and rep-
resent diverse interests. Opposition elements range
from those who actively oppose the Taiwan authorities
as representative of all China and, like TIM, seek in-
dependence for Taiwan from both KMT and
Communist control, to those who generally support the
KMT and seek public office. There is general agree-
ment among the majority of oppositionists on issues
such as the cessation of martial law; parliamentary re-
form so that representation reflects the constituency
governed; direct election of mayors and the Taiwan
provincial governor; an independent judiciary; re-
moval of KMT control from schools, the military, and
the courts; amnesty for political prisoners; and free-
dom of speech.
The China Angle
48. The special relationship remaining between the
United States and Taiwan, including the declared US
interest in a peaceful solution to the Taiwan issue,
poses difficult problems for Beijing. Continued US
arms sales to Taiwan draw Chinese criticism as provid-
ing disincentives to Taipei to negotiate peaceful re-
unification. The Chinese are also sensitive to any signs
of US backsliding from what they regard as the terms
of the normalization agreement. At the same time,
Beijing must take into account Taiwan's expanding
economic relations with Western Europe and its trade
opening to Eastern Europe. Combined with other
links-particularly with South Africa, Israel, and
Saudi Arabia-these ties afford Taipei access to invest-
ment funds, modern industrial and defense technol-
ogy, and favorable trade balances. These factors will
help deflect pressures on Taiwan to contemplate closer
and more direct ties with China and also help
strengthen Taiwan's bargaining position.
49. Increased Taiwanese pressure on the KMT for a
more open political system also poses problems for
China. Although this pressure affords Beijing propa-
ganda opportunities to pose as a champion of political
change in Taiwan, such efforts also contribute to KMT
attempts to discredit the Taiwanese reformers and the
TIM as dupes, or even agents, of the Chinese Com-
munists. Moreover, Beijing is concerned that an in-
creasingly effective Taiwanese opposition movement
might eventually be in a position to achieve self-
determination for Taiwan. The Kaohsiung incident
thus has forced Beijing to examine Taiwanese de-
mands seriously, if only to counteract them in the
cause of reunification. Fashioning a policy to deal with
these dilemmas, however, has caused confusion and
dissent within the Chinese Communist Party (CCP).
Chinese Strategy and Tactics
50. China's official policy on reunification is con-
tained in the open letter of 1 January 1979 from the
Standing Committee of the National People's Congress
to "compatriots on Taiwan." The letter sums up policy
previously enunciated by Deng Xiaoping and other of-
ficials throughout 1978. The letter promises to respect
the status quo on Taiwan; guarantees the island will
retain its superior standard of living; and calls for the
establishment of trade, communication, transporta-
tion, and cultural links between Taiwan and the main-
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land. It also implies a major role for "Taiwan authori-
ties" (that is, the KMT) after reunification. Deng later
stated that Taiwan could retain its own armed forces.
51. The letter leaves the impression that China is
willing to allow Taiwan to retain a large measure of
autonomy after reunification. This impression was re-
inforced by a later statement by Deng recalling the
special district permitted the Chinese Communists by
the Nationalist government during the war against Ja-
pan. Deng stated that China would be willing to des-
ignate Taiwan as such a zone.
52. This approach, which emphasizes negotiation
with the Taipei authorities, prevailed throughout 1979
and 1980. The Chinese also stopped "shelling" the
Nationalist-held offshore islands and reduced their air
forces in Fujian Province opposite Taiwan. The idea of
the use of force was downgraded to be used only as a
form of psychological pressure on Taipei, or as a last
resort if:
- Taiwan sought support from the USSR.
- Taiwan declared itself independent.
- The authorities in Taipei refused for a prolonged
period to enter into negotiations with China.
53. China has removed restrictions on trade with
Taiwan, encouraged visits by Taiwan people to the
mainland and contacts in third countries between Tai-
wan people and mainlanders, and courted overseas
Chinese who might have influence to urge the Taipei
government to open talks with Beijing.
54. Increasing Taiwanese pressure for political
concessions from the KMT, evident in the activities of
the Formosa group, complicated Beijing's policy. After
first treating the Kaohsiung riot and the ensuing arrests
cautiously, the Chinese media in early 1980 became
more critical, accusing the Taiwan authorities of
suppressing legitimate Taiwanese demands for greater
political rights. The new tack was meant to turn politi-
cal tension and anti-KMT feeling on Taiwan to Chi-
na's use:
- Politburo member Deng Yingchao's public ap-
peal in early March 1980 for dialogue with
supporters of Taiwan independence, although
she carefully repeated Beijing's refusal to con-
sider such a solution.
A letter of 15 February 1980 from the Chinese
People's Political Consultative Conference (a
CCP united front organization) calling on the
people of Taiwan (not the "Taiwan authorities")
to pressure the Taipei government to seek
reunification.
55. Implicit in these appeals was the notion that the
Taiwanese after reunification would enjoy the full
political rights they did not possess before.
56. Probably most of CCP leadership preferred the
Taiwan policy set forth in Central Document Number
Ten, issued in the first five months of 1980. Viewing
with alarm the rising potential for a Taiwan independ-
ence movement, and fearing possible Soviet meddling
in the island's affairs, Document Ten asserted that
negotiations with President Chiang remained the only
viable way to reunification and that China should do
nothing to bring about his downfall. Implicit in this
policy is a rejection of support for anti-KMT Tai-
wanese, along with the idea that the KMT would re-
main in control locally after reunification.
China and the Taiwan Succession Crisis
57. Document Ten contained a note of urgency
about starting the negotiation process with Chiang
Ching-kuo. The Chinese fear that achieving reunifica-
tion with a successor regime may be even more dif-
ficult than negotiating with the 70-year-old Chiang,
who has not designated a successor. A mainlander-
dominated successor regime might be interested in
securing its political privileges through some form of
association with China, but might lack the popular
support to be a credible negotiating partner. Under
such conditions, negotiations might provoke an upris-
ing by the Taiwanese. If a mainlander regime then
called for Chinese aid to suppress the revolt, China
would be presented with the military conflict it seeks
to avoid. A Taiwanese-dominated government might,
on the other hand, choose independence and appeal
for US support or-in the worst case-intrigue with
the USSR.
58. The decision, reportedly favored by Vice Pre-
mier Deng, to concentrate on securing negotiations
with Chiang Ching-kuo is necessarily a relatively
short-run approach, dependent on an early positive re-
sponse from an elderly opponent. Such a plan does not
deal with the prospect of "creeping Taiwanization" of
the island's political institutions. Should Chiang prove
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unresponsive, other voices within the CCP-partic-
ularly the party's Taiwanese members living in exile in
China-prefer to direct China's appeals for reunifica-
tion to the Taiwanese, hoping to take advantage of the
latter's resentment of KMT rule. This approach, how-
ever, appears even less promising than Deng's. Even if
the KMT as an institution survived Chiang's death, a
"Taiwanized" KMT might not be willing to negotiate
on reunification. Alternatively, the KMT factionalism
might polarize around mainlander versus Taiwanese,
with neither able to force a clear-cut decision for re-
unification or for independence.
Taiwan's Reaction to China's Overtures
59. The government in Taipei has refused to enter
into direct negotiations with China on any issue. It has,
however, shown greater pragmatism in dealing with
China's political offensive by adopting a more flexible
approach toward the subject of reunification. Taipei
seeks to avoid being characterized as the intransigent
party while seeking to present itself as reasonable, con-
cerned with human rights and popular welfare, and
clearly the best economic and political model for Chi-
nese development. Taipei has continued the trend,
noticeable in 1978, of permitting informal meetings in
third countries between people from Taiwan and the
mainland-such as scientists, journalists, academicians,
students, and athletes.
60. Taiwan has modified its official instructions for
handling these contacts. Targets such as students from
the mainland are to be won over to support the Tai-
wan model and encouraged to propagate these views
back home. Defections, although not rejected, are not
greatly encouraged. Although Taipei does not publicly
encourage visits by businessmen and others from Tai-
wan to the mainland via Hong Kong and other third
countries, neither has it arrested and prosecuted the
increasing number of such visitors. In certain cases
Taipei has permitted its delegations at meetings of in-
conspicuous, specialized, international societies to at-
tend under names other than "Republic of China."
61. Parallel with the easing of restrictions on "peo-
ple-to-people" contacts, Taiwan for the most part has
turned a blind eye to a major increase in indirect trade
between Taiwan and the mainland via Hong Kong,
Japan, and other nations. Taiwan's exports to China
increased from $1 million in the first quarter of 1979
to $26 million during the same period in 1980. Imports
from China during the first quarter of 1980 were
$19.4 million. Taiwan mainly exports raw materials
(such as synthetic fiber), parts, and consumer goods
(watches, tape recorders, and television sets).
62. China welcomes this trade and pushes for fur-
ther increases. It has made goods from Taiwan duty
free and urged the exchange of Chinese petroleum
and coal for Taiwan's industrial products.
63. The potential of trade as a lubricant for easing a
move toward political relations has built-in limits.
From an economic point of view, China can afford to
spend little on imported consumer goods, although
probably more on raw materials such as synthetic fi-
bers. Conversely, Taiwan-while willing to import
specialized consumer goods and perhaps coal-is wary
of becoming overly dependent on the mainland. Al-
though the trade is likely to continue to grow, perhaps
at a more modest rate than in 1979, it is equally likely
to remain a small percentage of Taiwan's overall for-
eign trade.
64. Taiwan is careful to avoid signaling Beijing that
increased trade means a softening in Taipei's rejection
of political negotiations, or indeed of direct contacts of
any kind. The Taiwan authorities try to keep the
growth in indirect trade under control and occasion-
ally crack down on overambitious businessmen or
those who engage in direct trade. Similarly, Taiwan
attempts to keep under control the extensive trade in
gold and small consumer goods between fishermen
from Taiwan and the mainland. As object lessons, the
authorities occasionally arrest fishermen and con-
fiscate their goods. Control of the trade on the China
side appears spottier and unevenly enforced.
65. The forces making for the island's stability and
continued existence as a de facto independent entity
are strong, but it is likely that the midterm and beyond
could be a period of flux both at home and in Taiwan's
relations abroad.
66. Taiwan's greatest strengths are its well-run, still-
expanding economy, the continuation of extensive ties
with the United States, and a leadership that has dem-
onstrated the ability to maintain its own confidence,
and that of most of its citizens, in the future of Tai-
wan. The government has demonstrated its willingness
and ability to maintain public order and suppress
overt opposition.
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67. The island also has vulnerabilities. It has few
natural resources. Increased participation in the inter-
national market makes the resulting prosperity more
subject to fluctuations in the international economy.
Rapid, still-continuing urbanization will continue to
have an unsettling effect on traditional social bonds
and mores. Taiwan still must import most of its ad-
vanced industrial machinery, and its defense indus-
tries are only partially self-sufficient. The continuation
of political domination by a mainlander elite over a
much larger Taiwanese population provides the poten-
tial for friction. The legitimacy of the regime rests on
justifications which make domestic political reform
difficult.
68. In the midterm, the KMT government's most
difficult political problem is likely to be containment
of pressure by Taiwanese for more meaningful partici-
pation in the political process and for a share of politi-
cal power. To be successful, the Taiwanese opposition
needs able leaders, a central organization, money, and
consistent plans. Funds are available from Taiwanese
businessmen, from the sale of publications, and from
Taiwanese organizations in the United States. Al-
though the Formosa group has been imprisoned, other
Taiwanese leaders remain active on the island and in
the United States. Their abilities, however, have not
been fully tested. The more moderate non-KMT Tai-
wanese politicians, such as Kang Ning-hsiang, may be
more successful in the long run in gaining concessions
from President Chiang, but they run the risk of even-
tually being absorbed into the system of mainlander
rule. The Taiwanese opposition, both at home and
abroad, lacks unity, cohesive and consistent plans, and
any common ideology apart from their anti-KMT
orientation.
69. The suppression of the Formosa network ended
the only effective formal opposition organization on
the island, and the KMT is unlikely to allow a similar
organization to be formed any time soon. The various
overseas Taiwan independence groups have formed an
umbrella organization, the United Front for a Taiwan
Nation, but their chronic disunity and bickering pro-
25X1 vide little hope for effectiveness.
The government s ability to
act decisively will not change in the midterm. In
particular, increased activity by oppositionists that
might complicate movement by the authorities on re-
unification will be dealt with swiftly and effectively.
To mount a serious threat to the regime the
oppositionists must construct some sort of organization.
71. The KMT finds itself faced with the classic
problem of maintaining an effective monopoly of
political power by suppression, judicious concessions,
or a combination of both. As long as President Chiang
is active, the government probably will attempt both
approaches. Concessions, such as the inclusion of more
Taiwanese in the government and party bureaucracy,
will be accompanied by suppression of any attempt to
create a Taiwanese political party. Chiang is likely to
continue to tolerate moderate Taiwanese politicians
who work for reform within the system, while
attempting to limit their popular appeal to the Tai-
wanese by co-opting them.
72. These political tactics are likely to be accom-
panied by continued concentration on economic
growth and an equitable distribution of income to pre-
clude the development of widespread economic griev-
ances. Taiwan economic technocrats already are plan-
ning to increase the industrial sectors of the economy
while reducing the agricultural and service compo-
nents. This will entail some consolidation of landhold-
ing to encourage more efficient agricultural produc-
tion with a concomitant increase in the urban
population. To provide jobs and shift exports from
fields such as textiles, where Taiwan is slowly losing its
competitive edge, the government plans on the growth
of higher technology industries.
73. Despite a slower rate of growth in GNP over the
last three years (12.8 percent in 1978, 8 percent in
1979, and 6.7 percent in 1980), Taiwan's economic
prospects appear good. There is no difficulty in
procuring foreign loans from the United States or from
Western Europe. Taiwan's recent loss of membership
in international financial institutions is unlikely to
have major repercussions.
74. Taiwan, however, will remain wholly depend-
ent on imported oil. No commercially exploitable
sources have been discovered in or around the island,
although exploitable deposits of natural gas have been
located. Growing imports of petroleum to provide the
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energy needs for economic expansion is causing an
inflation of about 19 percent.
75. If the growth in energy costs is not reduced,
inflation will increase, slowing real economic growth,
raising the potential for popular discontent, and
diminishing Taiwan's export advantage. The govern-
ment hopes to limit dependence on imported oil by
implementing a major nuclear electric power program
and partially switching to coal. Both alternatives
would maintain Taiwan's economic dependence on
the United States, which is the island's major source of
nuclear technology and low enriched fuel as well as of
coal. This dependence can be partially offset by im-
porting coal from other sources, such as South Africa
and Australia.
76. Diversification of markets-Western Europe,
Latin America, and Africa-will help counter rising
protectionism, but in the midterm these areas are not
likely to absorb more than a small amount of Taiwan's
overall trade. The opening of trade with the European
Communist nations, with its political implications,
must be handled carefully to avoid arousing Beijing.
77. If pressure from the Taiwanese for reform is the
most important midterm political problem, the loom-
ing succession crisis probably is the most troublesome
immediate question. Estimates of the state of Chiang
Ching-kuo's health differ. Japanese observers believe it
is declining rapidly; the Chinese also evidently believe
he does not have many years left. As a 70-year-old
diabetic, Chiang has already outlived actuarial
expectations.
78. Chiang has not attempted to groom a successor.
Rather Chiang appears to be relying on the machinery
of the constitution and a reshuffle in December 1979
of the KMT Central Standing Committee to ensure a
smooth succession.'
' Under the Constitution, should Chiang die in office before the
next presidential election in 1984, he would be succeeded by Vice
President Hsieh Tung-min. Although a factional leader in his own
right, Hsieh, a Taiwanese, is unlikely to retain the presidential of-
fice. The mainlander-dominated Central Standing Committee is
more likely to choose a mainlander. Nevertheless, Chiang's reorder-
ing of the Committee raised its Taiwanese contingent to nine, one-
third of its membership. This increase, plus the precedent of having
a Taiwanese vice president (Hsieh) suggests that Taiwanese feelings
may be taken into account in the selection of the island's future
leadership, perhaps in the form of another Taiwanese in the largely
ceremonial vice president's office.
79. Chiang's reshuffle of the Central Standing
Committee raises the possibility that in the event of
Chiang's incapacitation or death the Committee will
assume a more important political role. The Com-
mittee now contains all the most likely "power bro-
kers" for a post-Chiang regime in the form of impor-
tant figures from among the technocrats, armed
forces, security services, and the KMT itself. If the
Committee does not select one of its own number to
succeed Chiang Ching-kuo, it is likely to have the ma-
jor voice in choosing an outsider. The representative
balance within the committee may be altered, how-
ever, at the 12th KMT party congress, scheduled for
March 1981.
80. Chiang's institutionalization of a succession
mechanism and adherence to constitutional processes
probably will guarantee a smooth succession in a legal
sense. Chiang's efforts, however, may not guarantee a
determination of the future locus of political power.
The succession to Chiang will present a unique politi-
cal problem. Chiang Ching-kuo was a carefully
groomed, logical successor to his father. From the time
he became Premier in 1972, it became increasingly
apparent that he was the real authority in the regime,
particularly during his father's bedridden final years.
After Chiang Kai-shek's death in 1975, Chiang re-
mained Premier for three years. When he moved on to
the presidency, he shifted the center of political
authority into his new position. However, he has no
Chiang Ching-kuo to succeed him. None of the mem-
bers of the Central Standing Committee have his pres-
tige or inherent legitimacy as the inheritor of the man-
tle of Chiang Kai-shek.
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81. The decision in May 1980 by President Chiang
to extend by one year in their present position the
Minister of National Defense; the Chief of the General
Staff; the commanders of the army, navy, and air
force;
suggests that maneuvering for the succession has a
ready begun and will continue.
82. Chiang has attempted to staff the government
and economic bureaucracy with able, bright young
technocrats, but they do not constitute a political
power base. The armed forces officer corps and the
security services appear to be a potentially more pow-
erful political base for ambitious officers, but Chiang
has carefully kept the armed forces from exercising
independent political power as an institution. The Tai-
wanese business community appears to be unlikely to
provide a political power base. It has prospered by
going along with the government and KMT, and it is
concerned that political instability would damage its
economic interests by frightening off foreign invest-
ment and disrupting commerce.
83. Under these circumstances the military and se-
curity services may play a more decisive political role
in the post-Chiang period. This would particularly be
so if a successor civilian regime ran into political trou-
bles, if public unrest generated by political and/or
economic complaints became serious, or if a civilian
regime made what the officer corps-the last bastion
of mainlander domination and conservatism-re-
garded as excessive concessions to the Taiwanese op-
position. The possibility of rule by the military with a
civilian facade is not out of the question for Taiwan's
future.
The KMT Government's Options
84. In broad terms there appear to be three options
open to the regime in the midterm: maintaining the
status quo, seeking an accommodation with China,
and declaring Taiwan independent.
85. Maintaining the status quo. This would entail
continuation of mainlander KMT rule using current
tactics. Economic growth and prosperity probably
would continue even if international conditions low-
ered the growth rate. This course is likely to maintain
stability at first, but in the longer term may not be
able to deal with the "Taiwanese question."
86. Indeed, ever increasing prosperity may ulti-
mately accelerate demands by the Taiwanese for a
share of political power commensurate with their eco-
nomic and social importance. The status quo would
also mean continued close relations with the United
States-welcome for its economic and military gains,
but unlikely to reduce drastically US leverage on Tai-
wan. To meet this problem, Taiwan would continue its
efforts to enlarge substantive relations with a variety
of nations without much regard for ideology. Efforts to
increase military self-sufficiency would continue.
87. Maintenance of the political and economic sta-
tus quo on the island and in Taiwan's relation to China
is probably attractive to many in the KMT and to Tai-
wanese businessmen, but it is probably impractical in
the long run. If the KMT continues its policy of
Taiwanization, this could make possible political
participation by the Taiwanese at a level acceptable to
all but the diehards on each side.
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88. Seeking an accommodation with China. Un-
der present circumstances, there appears to be virtu-
ally no sentiment on the island among mainlanders or
Taiwanese for physical reunification. A KMT move in
that direction could easily provoke an uprising by the
Taiwanese. A moderate Taiwanese politician, when
asked what the Taiwanese might do if the KMT
reached such an agreement, replied in that case "we
would have to kill them."
89. An accommodation short of physical reunifica-
tion, however, might not provoke a Taiwanese rebel-
lion if skillfully handled over a considerable period of
time. Some moderate Taiwanese politicians have sug-
gested that Taiwan's relationship with China would
come under discussion after Taiwan had achieved self-
determination but have not ruled out all ties with the
mainland. Taiwanese businessmen have expressed to
the Taipei authorities interest in more trade with the
mainland.
90. Taiwanese businessmen may estimate that a
loose form of association with China might benefit
them economically. The 1980s are likely to be a dif-
ficult period, with Taiwan facing increasing competi-
tion for markets, and these businessmen may believe
that the mainland offers an immense market in which
Taiwan would occupy a privileged position-although
we think this is unlikely.
91. A limited move toward accommodation might
also assuage mainlanders' fears of being unable to pre-
serve their political privileges against Taiwanese en-
croachment. The Taipei authorities could draw on a
mutual interest with Beijing in preserving the concept
that Taiwan is part of China to thwart the desire of
more militant Taiwanese for an independent Taiwan.
Moreover, an article in the Communist-controlled
Hong Kong newspaper Ta Kung Pao on 23 March
suggested that the "Taiwan authorities" would con-
tinue to control appointments to office on Taiwan
after reunification. Of course it is most unlikely that
an arrangement of this sort would be reached in the
time frame we are discussing.
92. Conversely, the more moderate non-KMT Tai-
wanese politicians may hope that if independence is
not a viable solution, China in the long run might sup-
port Taiwanese demands for greater power on the is-
land in return for loyalty to Beijing as a way of keep-
ing the KMT in check.
93. Declaring Taiwan independent. Undoubt-
edly there is sentiment for independence on the island
and among Taiwanese overseas. Sentiment for in-
dependence appears strongest among the Taiwanese
but is also present to a small extent among
mainlanders, particularly the younger generation. Op-
position to independence probably is strongest among
elderly or middle-aged mainlanders. Within the top
leadership, Chiang Ching-kuo and his close advisers
adamantly oppose formal independence. Moreover,
there is fear that independence would draw a PRC
military reaction. Deng Xiaoping has stated several
times that a declaration of independence by Taipei
would cause China to consider a military solution to
the Taiwan problem.
94. For these reasons, Taiwanese politicians may
judge that Taiwan's possibilities for full self-de-
termination and independence are slim. Although Tai-
wan has managed to retain economic ties with a large
number of nations, the prospects are slim that many
nations would recognize an independent Taiwan. Eco-
nomic ties to the United States and procurement of
advanced US military equipment might be jeop-
ardized, because Taiwan's independence would be in-
consistent with Sino-US normalization and thus con-
flict with a major US foreign policy interest.
95. As long as Chiang is alive, independence is
probably out of the question. But even though there is
little sentiment under present circumstances for politi-
cal affiliation with China, the KMT leadership might
find a resurgence of Taiwanese pressure for the is-
land's full independence so intolerable that it would be
more inclined toward a form of association with
China. For the reasons indicated above, some Tai-
wanese would also take this position.
96. For the midterm (into the mid-1980s), Taiwan
probably will remain stable and prosperous, as long as
Chiang Ching-kuo remains physically capable of
governing.
97. There appears little danger in the midterm of
an attack from the mainland. Beijing understands that
an attack would be costly in men and equipment, and
that in the next few years it will continue to lack ade-
quate resources to mount such an operation with a
reasonable certainty of quick success. An attack would
damage Beijing's relations with the United States, Ja-
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pan, and the West-thus jeopardizing Chinese defense
and economic modernization. In military terms, an at-
tack would detract from China's defenses against the
Soviet Union, primarily in air defenses, and would add
an additional military burden to the current one of
sustaining heavy pressure on Vietnam. Taiwan rec-
ognizes this situation, and its desire for continued ac-
cess to modern US weapons reflects concern for main-
taining a credible military deterrent to meet future
contingencies and to inspire public confidence.
98. A deterioration in the Sino-US relationship
might lead Beijing to revert to a harder line toward
Taiwan, particularly if an internal debate over foreign
policy caused the Taiwan question to become a sen-
sitive issue in domestic Chinese politics. If Washington
unilaterally altered the "Taiwan compromise"-
which allowed the United States and China to cir-
cumvent the Taiwan issue in the interest of achieving
more important foreign policy goals-the Chinese
leadership might feel obliged to adopt a tougher stance
toward Taiwan.
99. Termination of Taiwan's access to advanced US
military equipment or a reversion by Beijing to a
harder line on Taiwan might embolden the advocates
of a nuclear weapons capability to press for reactiva-
tion of Taiwan's research program. Under these cir-
cumstances, Chiang Ching-kuo's successors might be
more sympathetic to such a move. Similarly, if Taiwan
were to declare independence, both a mainlander-
dominated or a heavily Taiwanese leadership might be
more receptive to the nuclear weapons option if they
feared a more militant China and perceived a reced-
ing US interest in the island's future.
100. In the midterm, the chances are favorable for
maintaining continuity with the past. Prospects be-
come less certain for continued political stability and
economic prosperity toward the end of the period.
101. Having demonstrated by its handling of the
Formosa group an ability to suppress organized dis-
sent, the government is unlikely to allow similar or-
ganizations to surface. In the midterm the limits of
permissible political conduct are likely to be more nar-
row than they were in the late 1970s. Although Tai-
wanese pressure for a greater role in politics is likely to
persist, the government probably can contain such
pressures for the next few years. The opposition is
likely to remain disorganized, disunited, and unable to
tap potential mass Taiwanese political discontent.
102. Continued economic growth and relatively
widespread prosperity will remain a vital lubricant for
passing political frictions. The authorities in Taipei
will remain sensitive to any development that might
shake popular confidence in Taiwan's economic fu-
ture, and thus they will maintain a close substantive
relationship with the United States even as Taiwan
seeks to broaden its international markets and sources
of foreign investment and industrial imports.
103. So far the potential for instability resides in
popular political grievances. More difficult economic
times could increase prospects for instability. Even
though government management of the economy will
remain growth oriented, economic developments over
which the authorities have no control-such as rising
foreign protectionism, increased competition in or de-
cline of overseas markets, and inflation caused by
ever-increasing costs for imported oil and industrial
goods-could severely limit the prospects for growth.
Economic discontent coupled with Taiwanese political
grievances could then become a potent combination.
104. If the 1980s are to be troubled years for the
international economy, Taiwan can hardly hope to es-
cape unscathed. In this new economic environment
the island's past performance may no longer be a com-
pletely reliable guide. Nevertheless, Taiwan probably
could weather several years of economic difficulties
without suffering major political unrest if those dif-
ficulties were not too sudden and severe and did not
immediately cause high unemployment or high infla-
tion. In the midterm Taiwan probably can adjust to
new world economic conditions by continuing its cur-
rent programs.
105. The sudden death or incapacitation of Chiang
Ching-kuo might bring Taiwan's domestic political
arrangements and its relationship with China into
question. Beijing has indicated nervousness over this
possibility, fearing that a successor regime lacking
Chiang's unifying presence and his authority might
feel too weak to bargain with China, or that it might
provoke unrest on the island by cracking down too
harshly on non-KMT Taiwanese politicians, or con-
versely be too pro-Taiwanese.
106. Beijing's preference for negotiating with
Chiang, coupled with concern about his health, lends
urgency to China's otherwise patient attitude toward
reunification. Beijing has made reunification one of
the "three great tasks" of the 1980s along with eco-
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nomic modernization and countering Soviet expan-
sionism. Although there is a heavily propagandistic
tone to this pronouncement, Beijing clings to the hope
that early, if minor, movement on establishing a new
Chinese-Taiwan relationship is possible in the next few
years. Beijing apparently believes that increasing
international isolation will prompt the KMT govern-
ment to reconsider its opposition to all direct links with
the mainland. Building on growth in indirect trade,
the next step might be unacknowledged direct ship-
ping and commercial ties, through the use of altered
documents.
107. If China is relying on the KMT's heightened
feeling of being on its own to prompt movement to-
ward reunification, any development that strengthens
the KMT belief that it need not move toward accom-
modation is unwelcome to China. For this reason the
status of Taiwan in the US-Taiwan-Chinese relation-
ship is likely to remain a sensitive issue. The publicity
given future sales of US arms to Taiwan will remain of
particular concern to Beijing as will any sign of a re-
turn to "officiality" in US-Taiwan relations.
108. Renewed confidence in Taipei might make the
KMT more willing to reach an accommodation in the
long run, but might equally assure the KMT that
itneed not do so. On the other hand, lack of confidence
would reduce the KMT leadership's willingness to bar-
gain unless the island's economy was so damaged or
increasing political strain so great that the KMT is
compelled to turn to Beijing rather than abdicate
power to the Taiwanese.
109. For the midterm, the most likely goal for the
KMT, because it is the least destabilizing, would be
maintainance of the status quo on the island and in the
island's relations with China. This trend might be
combined with cosmetic concessions by the KMT to
dampen Taiwanese political pressures and a glacially
slow increase in contacts with the mainland. Taipei
would strive to maintain its identity as a special inter
national entity, but in a tacitly acknowledged special
relationship with China. The slow evolution of such a
limited arrangement-which might seem to China to
be analogous to the current status of Hong Kong and
Macao-might avoid provoking a Taiwanese reaction,
receive support from the Taiwanese middle class and
businessmen (who seek economic security and politics
stability), and isolate the more militant advocates of
Taiwan independence.
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Annex A
The Rise of a New Opposition on Taiwan
The Election of 1977
1. The liberalizing reforms of the early and mid-
1970s were meant by the KMT to modernize the
political system and to foster national unity by grant-
ing moderate concessions to the Taiwanese. The more
open atmosphere, which included the public airing of
views long proscribed, encouraged many reformist
Taiwanese politicians to engage in political activity in-
dependent of the KMT. The results of the elections for
local offices in November 1977 encouraged them even
more. Although the KMT easily won an overall vic-
tory, an unexpected number of independent can-
didates, all of them Taiwanese, were elected to county
and city offices.'
2. Chiang correctly blamed the setback on KMT
overconfidence, poor candidate selection by local
KMT organizations, and the party's lack of rapport
with the masses. Well-worn election devices such as
marshaling the votes of military dependents no longer
worked automatically. Even more disquieting was the
first mass political violence in many years. The riot at
Chungli over alleged election irregularities, although
quickly contained, revealed a new popular political
volatility. Moreover, the authorities' restrained han-
dling of the affair may have encouraged the belief that
the government was unsure of its ground and on the
defensive.
3. Despite his disappointment with the election re-
sults, President Chiang did not abandon his effort to
open up the political process. Although KMT conserv-
atives saw the election results and the riot as proof that
further liberalization would eventually jeopardize par-
ty control and political stability, Chiang guaranteed
that the national legislative elections scheduled for
December 1978 would be scrupulously fair. In addi-
tion, Chiang quickly opened a dialogue with the new
opposition office holders.
1 Independent candidates, some of whom were disgruntled former
KMT members, won four of the city mayoral or county magistrate
races and 21 of the 77 Taiwan provincial assembly elections.
4. The non-KMT Taiwanese victors had no com-
mon organization or ideology. This did not mean,
however, that the new oppositionists did not have
common goals or that they did not maintain informal
ties. Kang Ning-hsiang, a member of the national legis-
lature and an influential moderate Taiwanese, prob-
ably spoke for the majority of them when he remarked
in early 1978 that the KMT government should end
martial law, release all political prisoners, and re-
nounce the KMT claim to govern the mainland.
5. Although the oppositionists were buoyed by their
success and Chiang's acceptance of it, most of them
were careful not to adopt too militant a stance. Most
oppositionists, particularly the moderates, believed
early formation of a new political party (which some
had urged) would be too provocative and give the
conservative mainlanders and the security services a
prominent target.2
6. With the advent of the national-level election
campaign in November 1978, the oppositionists
adopted a slightly higher organization profile by or-
ganizing a "nonparty" campaign office in Taipei to
assist non-KMT candidates. This enterprise was under
the leadership of Huang Hsin-chieh, a member of the
national legislature who within two years was to be
caught in the crackdown following the Kaohsiung ri-
ots. The office formulated a political platform em-
phasizing human rights issues,' underlining this point
by adapting a symbol depicting a clenched fist and an
olive branch.
, Taiwan has two small opposition parties, the Democratic Social-
ists and the Young China Party. Both are small, powerless, and prob-
ably subsidized by the KMT.
' The 12-point platform called for strict observance of the con-
stitution; lifting of martial law; banning persecution, illegal arrest
and violation of homes and privacy; medical care and unemploy-
ment insurance; abolition of protectionism favoring capitalists; a ba-
sic labor law granting the right to collective bargaining; subsidies
and assistance to the fishing industry; abolition of discrimination
against local dialects; and amnesty for political prisoners.
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7. Earlier in the year, Kang Ning-hsiang attempted
to widen the informal oppositionist coalition through
an approach to the Taiwan Presbyterian Church. The
church-with perhaps 200,000 well-organized mem-
bers and access to coreligionists in the United States
and Britain-is almost wholly Taiwanese in member-
ship. Its support for Taiwan independence and greater
human rights, as well as its church connections over-
seas, make it suspect to the government and KMT and
a natural ally for anti-KMT politicians. Although
many church members and officials were sympathetic
with oppositionist goals, the church as an institution
did not formally align itself with any particular in-
dependent politician or group.'
8. As the election drew nearer, both the opposi-
tionists and the KMT foresaw important symbolic vic-
tories for non-KMT candidates. Even the election of a
few more new independent legislators, coming after
the results of the 1977 local election, would symbolize
the evolution of an increasingly effective Taiwanese
political movement. Cosmetic concessions, such as
Chiang Ching-kuo's order permitting KMT members
who failed to obtain party nomination to run as in-
dependents without fear of party discipline, would be
unlikely to change the image of a declining party that
is slowly losing its internal discipline as well as control
of the electoral process.
9. An additional cause for official alarm was the
unprecedented number of university and secondary
school students working for opposition candidates.
Except for officially approved causes, student political
unrest has been minimal on Taiwan. Compulsory mili-
tary training overseen by military officers, extensive
propaganda and political work by the KMT and the
government, plus student concentration on preparing
for lucrative careers had long combined to dampen
political activism.
10. The government and the KMT responded to
growing opposition organization and self-confidence
with a combination of petty political harassment at the
grass-roots level and restraint. Fearing a repetition of
riots, the authorities adhered to Chiang Ching-kuo's
' This caution did not later save several of its members from arrest
in, the aftermath of the Kaohsiung riot. This caution, along with
government concern about the possible reaction in the United States,
enabled the church as an organization to escape the crackdown that
followed the Kaohsiung incident, although its secretary general was
arrested.
orders forbidding election chicanery and promising
fair and free elections. When combined with the
perception held by some oppositionists that the regime
was losing confidence and was vulnerable to pressure,
the "open-election policy" was later to lead to
misjudgment by the more militant of the opposition.
The latter overestimated the government's defensive-
ness and reluctance to suppress its opponents.
After Normalization
11. The timing of the announcement of the nor-
malization of Sino-US diplomatic relations was a
political windfall for the KMT. Under the guise of
responding to the emergency, the government post-
poned the supplemental national elections. With the
election postponed, Chiang and his advisers would
gain time to strengthen the party's position, while
using the occasion to shift to a somewhat harder policy
toward the opposition. The reaction to normalization
among the oppositionists was mixed. Some believed it
would make Chiang and the KMT more amenable to
Taiwanese interests in the overriding interest of
preserving national unity. Others suspected that Wash-
ington had timed the announcement to forestall Tai-
wanese gains in the election. The more suspicious be-
lieved that the United States did not want to see the
growth of a movement that might call for Taiwan's
self-determination and complicate Washington's rela-
tions with Beijing.
12. Initially most of the opposition publicly ac-
cepted what it hoped would be a short-term postpone-
ment of the elections and used the crisis to dem-
onstrate its loyalty to the government. The govern-
ment, however, implemented its harder line. The
imprisonment of an elderly Taiwanese oppositionist in
1979 on charges of spreading Communist propaganda
and failing to report an alleged Communist agent-
who later was executed-was meant to warn the op-
position that Chiang Ching-kuo and the KMT govern-
ment had not lost the will to defend their interests.
13. Later that year, the authorities mixed suppres-
sion and concessions to reach an accommodation with
the oppositionists, the more militant of whom soon re-
sumed political activity. Over the summer and early
fall, some opposition magazines were banned and their
publishers eventually prosecuted. Some opposition ral-
lies were banned, others permitted. The rule seemed
to be that indoor rallies of moderate size were allowed.
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Mass outdoor rallies were prohibited. Some new op-
position magazines, including Formosa, published by
Huang Hsin-chieh, were permitted. The group around
Huang included those of a more militant bent, among
them Shih Ming-te, a former political prisoner and
guiding spirit of the group. The Formosa group early
on adopted tactics-including those risking violence-
designed to test government tolerance in order to
quicken the pace of liberalization by forcing further
concessions from the government.
14. The government did not harass the more mod-
erate oppositionists, such as Kang Ning-hsiang. Rather,
the authorities began a dialogue with the opposition in
an attempt to formulate a new, informal set of rules
that would permit opposition activity but avoid a di-
rect challenge to the authority of the government and
the vital interests of the KMT.
15. By fall, however, the activities of the Formosa
group had alarmed President Chiang. The most threat-
ening activity probably was not the publication of the
magazine itself, but the magazine's establishment of
"service centers" in several major cities. One of the
members of the group later admitted that the tactic
was intended to cover the formation of a new, or-
ganized opposition political party.
16. The KMT authorities, split between a hardline
conservative majority and a smaller liberal minority,
were unable to fashion a policy to meet the situation.
This stalemate led Chiang to appoint a special KMT
committee that proceeded in late November to com-
ply with Chiang's orders to thwart the formation of a
new political party by deciding to suppress Formosa.
Only the timing and method of suppression remained
in question. The Formosa group's decision to stage a
mass rally in Kaohsiung on Human Rights Day pro-
vided the opportunity. The rally, which was legally
banned, quickly degenerated into a riot. The wave of
arrests that followed started with the Formosa group
and spread to include the secretary general of the Tai-
wan Presbyterian Church, who later received a seven-
year prison sentence for aiding Shih Ming-te's futile
escape attempt. A series of trials in the first half of
1980 imprisoned eight Formosa leaders for terms
ranging from 12 years to life. The Formosa magazine
and its "service centers" were suppressed.
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Annex C
The Military Situation in the Taiwan Strait Area
Background
1. Over the past three decades the Taiwan Strait
has been an area of either actual or potential crisis.
During the 1950s there were two major flareups in the
Strait area: the Quemoy crisis of 1954 and blockade of
Jinmen in 1958. The PRC in 1962 built up a large
military force opposite Taiwan. Rising tension caused
by the buildup and China's subsequent invasion of
India, and further fueled by longstanding antagonisms
shared by both Chinese Nationalist and Communist
leaders, almost precipitated a major clash between
Taiwan and China. Although actual fighting was
averted in 1962, the remainder of the decade wit-
nessed persistent calls by the Nationalists for re-
conquest of the mainland countered by Communist
promises to liberate Taiwan. The early part of the dec-
ade of the 1970s saw the status quo continue.
2. Realization by the Nationalist leadership that re-
conquest of the mainland was an increasingly dim
prospect coupled with PRC perceptions of the growing
Soviet threat, the US commitment to assist in the de-
fense of Taiwan, and persistent Chinese domestic
political problems caused the Taiwan Strait military
situation to shift from the top of the list of priorities
for both sides. The PRC leadership began to advocate
a policy of "peaceful liberation" and Taiwan accord-
ingly adjusted its policies to a more practical modus
vivendi. Peaceful liberation of Taiwan was premised
on a strategy of political and diplomatic isolation of
Taiwan combined with a reduction of provocative
military activity in the Taiwan Strait area. Occasional
ship transits and routine single-service training ex-
ercises became the standard PRC military profile in
the Taiwan Strait area beginning in 1974.
3. The PRC conducted a major amphibious joint
service exercise in the Taiwan Strait in July 1976. Be-
cause of the timing, high visibility, and location it was
assessed that there was a dominant political, as well as
military, motivation underlying the exercise. Nonethe-
less, this departure from precedent did underscore
Beijing's refusal to renounce the use of military
force in resolving the "Taiwan question." Moreover,
an improving PRC capability to conduct large-scale
joint service exercises and to provide limited amphibi-
ous training for units in the Taiwan Strait area was also
demonstrated. Although the exercise did not represent
a break with the existing PRC strategy for peaceful
liberation of Taiwan, it did signal an intention to
gradually expand use of the Taiwan Strait for military
exercises and maneuvers.
4. Military tension in the Taiwan Strait area contin-
ued to relax through the end of the 1970s. Beijing's
prudent approach to expanded use of the Strait and
Taipei's measured responses have jointly lowered the
possibilities of major military confrontation due to
miscalculation or accident. Additionally, the respec-
tive means employed by both sides for resolution of
the "Taiwan question" seem to rule out use of direct
military pressures at this time. Therefore, in the mid-
term, the possibility of a significant shift in the current
military situation remains highly unlikely.
5. In examining respective force levels over the past
15 years there is no evidence of an appreciable change
in the overall force structure on either side of the Tai-
wan Strait. Between 1965 and 1975 Taiwan ground
and naval assets changed only marginally while the
number of combat aircraft decreased from approxi-
mately 350 to 300. Taiwan ground force strength
decreased by approximately 7 percent. PRC air and
naval forces in the Taiwan Strait and surrounding area
showed a decided and sustained growth between 1965
and 1975; however, the percentage of the total air
force that was directly opposite Taiwan changed very
little. Ground forces also increased albeit in a less dra-
matic fashion. The trendline for these increases flat-
tens between 1975 and 1978 and further sizable
growth of forces in the immediate Taiwan Strait area
is unlikely.
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6. Although the qualitative aspects of forces on both
sides of the Strait continue to be upgraded on a selec-
tive basis, force levels over the past five years suggest
that the basic defensive orientation and posture of
each remains unchanged. In the immediate Taiwan
Strait area, the PRC enjoys a quantitative advantage in
the number of ground force divisions that could be
used in an assault against Taiwan. The quantitative
advantage held by the PRC Air Force is also pro-
nounced and suggests that any qualitative edge as-
cribed to the Taiwan Air Force would be largely offset
by the increased numbers of aircraft available in both
the Taiwan Strait area and from other military re-
gions. Taiwan's numerical advantage in principal sur-
face combatants could be negated by augmentation of
China's East Sea Fleet assets by units from either the
North or South Sea Fleets. Current force levels are
indicated on the chart.
7. China is not capable at present of a successful
amphibious invasion of Taiwan. The PLA has suffi-
cient ground troops in the military regions opposite
Taiwan to invade the island without weakening those
forces confronting the Soviet Union, but, to be success-
ful, China would first have to win air and sea superior-
ity around Taiwan. Such air operations would require
a drawdown of fighter-bomber and bomber aircraft
from the four northern military regions. Acquiring the
command and control capabilities, landing ships,
means for naval bombardment, and training would
probably take at least 10 years.
8. Taiwan forces are not capable of seizing the
strategic initiative and can mount only small-scale
raids against the mainland. Furthermore, Taiwan re-
mains dependent on external sources for raw materi-
als, some major military hardware, and logistics sup-
port. With continued outside support, Taiwan will be
able to maintain and improve its defensive military
capabilities. The development of a significant offen-
sive capability in the midterm is unlikely.
Trends
9. The level of tension in the Taiwan Strait area
remains low. The current level of military activity sug-
gests that routine training and air and naval patrol
operations are being emphasized. Efforts to avoid up-
setting the status quo for no appreciable political gain
have been undertaken and will likely continue. In-
cremental improvements to force capabilities will al-
low a gradual upgrading of Taiwan's current defensive
posture. Overall trends are unlikely to change in the
near term. The shift from an openly confrontational
relationship to one based on a realistic assessment of
the geopolitical environment is the key factor that has,
and will continue, to exert the major influence on the
level and structure of opposing forces in the Taiwan
Strait area.
10. A fundamental reorientation in the nature of
the present Taiwan-PRC relationship would begin to
alter the force levels and military capabilities in the
Taiwan Strait area. Military forces of each side will
probably remain defensively postured. Although grad-
ual and selective force improvements will continue to
occur, significant augmentation of China's offensive
capabilities will be unlikely in the midterm. The cur-
rent status quo will likely continue for the next five
years, barring unforeseen shifts in PRC-US-Taiwan
relationships.
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Annex D
Economic Conditions and Prospects
1. Taiwan's economic growth continues, but at a
slackening pace. Growth of real GNP was 6.7 percent
in 1980, quite respectable compared to most other na-
tional economies but registering a continuing down-
trend from 13.9 percent in 1978 to 8.1 percent in
1979. Taiwan's increasing integration into the world
economy and its industries' heavy dependence on ex-
ports (which amount to about 55 percent of
GNP)-coupled with the island's dearth of natural re-
sources and limited domestic market-render Taiwan
increasingly vulnerable to economic fluctuations and
events beyond its borders and control. Taiwan's eco-
nomic managers have proved resourceful and resilient
in overcoming numerous obstacles to economic
growth, however, and although rapid expansion may
become more difficult to maintain, the island's pros-
pects remain relatively bright, barring severe disrup-
tions in the world economy.
2. In the midterm the major economic problems
facing Taiwan probably will be:
- Increasing energy costs both at home and abroad,
which can adversely affect Taiwan's terms of
trade and are already causing increased inflation.
- Continued dependence on imported energy re-
sources, oil, coal, and nuclear fuel.
- Uncertain market conditions in Taiwan's major
trade partners, the United States and Japan.
- Increasing protectionism in traditional and
prospective markets.
- Competition for export markets from other less
developed nations.
3. During the midterm Taiwan is attempting to
deal with these problems by diversifying its trade
partners-as well as its sources, use, and types of
energy resources-and by developing technology-
intensive industries.
4. Taiwan's almost complete dependence on im-
ported energy resources (oil, coal, and nuclear fuel),
including reliance on oil for 71.3 percent of its energy
supply, has led to increasing inflation as petroleum
prices have risen. Measured by the GNP deflator,
urban consumer prices, which rose at a 4.7-percent
rate in 1977-78, were advancing at a 16.7-percent rate
in 1979-80. The increasing price of oil not only has
fueled inflation, but has introduced a higher degree of
uncertainty into the island's economy. This uncer-
tainty is especially detrimental to Taiwan's planned
economy, which depends on accurate economic fore-
casting for the success of economic planning. An
interruption of oil supplies or an unforeseen sharp in-
crease in oil prices could cripple the economy.
5. The authorities on Taiwan hope that their
energy-use diversification policy will mitigate these
dangers. Use of coal and nuclear power will reduce
dependence on the Middle East. Two nuclear power
reactors are in operation. Four more are under
construction. Twenty-four coal-fired generators and
14 more nuclear reactors will be built or under
construction by 1989. According to Taiwan's economic
planners, coal, which accounts for 12.7 percent of the
island's energy supply in 1979, will account for 28.3
percent in 1989. The amount supplied by nuclear
power is expected to increase from 5.2 percent to 13.7
percent during the same period. Conversely, petro-
leum will drop from 71.3 percent of the energy supply
to 48.8 percent by 1989.
6. Energy resource imports will remain vital to Tai-
wan's economy during the midterm and beyond. In
1979 Taiwan imported 82.1 percent of its energy sup-
ply. Under current plans this ratio will increase several
percentage points by 1989. The Taiwan authorities
hope to cope with this dependence by diversifying
their sources of oil and coal, as well as nuclear fuel and
technology. Coal will be imported from South Africa,
Canada, Australia, the United States, and even China.
Although the island will remain dependent on US nu-
clear enrichment services for the midterm and be-
yond, it is trying to obtain nuclear power equipment
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from West Germany, France, the Netherlands, and
Belgium. Kuwait and Saudi Arabia are likely to re-
main the principal sources of oil, but Taiwan is explor-
ing contacts with Mexico, Nigeria, and Indonesia.
7. Taiwan's attempt to diversify its export markets
is well under way, and will continue throughout the
midterm. Efforts to expand trade with Western Eu-
rope have already borne fruit in the form of a pro-
jected $5 million in two-way trade in 1980. This
expansion has produced the problem of dealing with
Taiwan's estimated $1 million surplus in trade with
Western Europe. Taipei has attempted to deal with
this issue by increasing its purchases from that region.
8. Taiwan also intends to expand trade with Latin
America, Africa, South Asia, and the Pacific Basin na-
tions, as well as with several nations in Eastern Europe.
Trade with these regions, however, probably will con-
stitute only a small portion of Taiwan's overall
trade-which is likely to continue to be heavily ori-
ented toward the United States, Japan, and, increas-
ingly, Western Europe. Trade with Eastern Europe is
likely to grow only slowly as it encounters political as
well as economic obstacles. Taipei most likely will
want to be paid in hard currency for its exports, while
finding little to import from the region. Taipei also
will not want its trade with Eastern Europe to be inter-
preted as presaging a major shift in the focus of Tai-
wan's foreign policy.
9. Taiwan also is attempting to foster continued
economic growth by emphasizing development of
technology-intensive industries. This effort eventually
would bring Taiwan into competition with the United
States and Japan, but probably not in the midterm.
If successful, this program will help Taiwan evade in-
creasing competition from other less developed coun-
tries, including China, in labor-intensive industries
such as textiles, which up to now have been the
foundation of the island's prosperity. Improved tech-
nology also will help labor productivity grow at a rate
faster than the growth of real wages, thus maintaining
Taiwan's export competitiveness. Additionally, devel-
opment of high-technology industries will help solve
Taiwan's only unemployment problem, the economy's
inability to absorb the growing number of skilled
workers. Overall, Taiwan has had no major unemploy-
ment or labor problems. By the standard definition of
cyclical unemployment, Taiwan's rate was 1.3 percent
in 1980.
10. Taiwan's history of good economic manage-
ment and well-conceived plans for continued growth
provide grounds for optimism. Nevertheless, adverse
developments in traditional or new major export mar-
kets, inflation, increased energy prices, and increased
international protectionism are among the factors that
could slow the rate of growth. Equally important is the
continuation of political stability on Taiwan necessary
to encourage continued foreign investment. In the
midterm, before Taiwan's energy diversification poli-
cies are more widely implemented, the island's major
economic problem is likely to be inflation fueled by
the rising cost of imported energy resources. Taipei
probably can keep inflation within socially acceptable
bounds, but a rapid growth in inflation and accom-
panying economic uncertainty could discredit the re-
gime and might lead to political unrest, particularly
among ethnic Taiwanese.
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