PROSPECTS FOR STABILITY ON TAIWAN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001100130029-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 25
• Document Creation Date: December 22, 2016
• Document Release Date: May 13, 2010
• Sequence Number: 29
• Publication Date: February 10, 1972
• Content Type: IM

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Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum.
Prospects for Stability on Taiwan
A
ALE1 COPY
DO NOT OF""' 0""i
S3.cret
10 February 1972
No. 0830/72
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WARNING
This document contains information affecting the national
defense of the United Statics, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
its transmission or revelation of its contents to or re-
ccipt by an unauthorized person is prohibited by law.
aaour I
xxel.M.F.11 rNOM AITOMATI(
tW)U N(III AIII N(1 ANt1
OII'I.A14N1P ICATIOA
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
10 February 1972
Prospects for Stability on Taiwan
The Nationalist government on Taiwan has enjoyed
remarkable domestic tranquillity for more than 20
years despite persistent domestic divisions and in-
ternational challenges to its claim to represent all
of China. This claim is a factor in legitimizing
continued rule by the Mainlander minority on the
island. Faced over the past two years with a more
adverse international climate, the Nationalists have
adopted a flexible approach which they hope will
avoid serious domestic repercussions. -Such politi-
cal sleigh-of-hand, however, has not alleviated the
problems of a society riven by communal, generational,
and economic differences. The Taiwanese majority
apparently acquiesces in Mainlander dominance of the
island for the present, but is likely to press more
strongly for a greater political role as moderniza-
tion of the society progresses. Indeed, some Tai-
wanese, as well as some Mainlanders, are already
talking about altering government structure to bring
it more in line with demographic reality.
The Mainlanders are likely to continue to re-
spond pragmatically to the changing situation, re-
flecting their growing, though not openly acknowl-
edged, identification with the island. Because
there are too few Mainlanders to fill all positions
in the government, the Taiwanese are gradually occu-
pying more posts. But the leadership has not really
come to grips with the problem of the future rela-
tionship between the two communities. Government
Note: This memorandum was prepared by the Office of
Current InteZZigence and was coordinated within CIA.
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over-reaction to a minor incident or to popular de-
mands for change could stimulate open dissidence,
but no real threat to the government is likely, at
least until after the death of the 84-year-old Chiang
Kai-shek. Chiang's son and heir, Chiang Ching-kuo,
already has tight control of the government, espe-
cially the security forces, and should have little
difficulty establishing his succession, provided he
remains in good health. Any Mainlander successor
government must mitigate the effects of interna-
tional developments on the political and economic
structure if it is to maintain internal stability.
The loss of either US or Japanese diplomatic support
would be a serious blow to these prospects.
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Republic of China
HONG KONG
MACAO (U.K.)
(PORT.)
(;llitrr!
0 150 300
Nautical Mlles
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Threat to the Raison d'Etre
1. For over 20 years the Chinese Nationalist
Government has been recognized by most naiionc as
representing all of China. This international rec-
ognition has reinforced the government's claim that
it should eventually reassume power on the mainland.
In the meantime, recognition gives substance to the
Mainlanders' rationalization that they must maintain
their minority rule on Taiwan. in the eyes of the
Taiwanese majority, the international acceptance of
Taipei's legitimacy clearly indicated that the Main-
landers were there to stay and that protests against
their monopolization of power would be unavailing.
The expulsion of the Nationalists from the United
Nations on 25 October was a dramatic blow to Main-
lander prestige, capping a series of international
setbacks and domestic incidents over the past two
years. Although none of these developments in it-
self threatened either the existence of the govern-
ment ot basic domestic stability, together they
jarred the Mainlanders' confidence in the security
of their only toe-hold on Chinese soil. Much of the
island's population is concerned over how the regime
will react. Some Mainlanders and Taiwanese fear a
domestic crackdown.
2. Chiang Kai-shek apparently believes that
his government can accommodate the new realities as
long as it shows no sign of weakness. Insofar as
possible, the regime had prepared its citizens for
these diplomatic setbacks and assured them that the
losses would not damage the island's well-being.
The Nationalists' ouster from the UN, for instance,
came as no great surprise, and, even before the
event, the press was already placing the blame for
the impending defeat on the lack of US support. In
the ensuing months Chiang's diplomatic tactics have
been quite flexible. Whether or not they succeed
in preserving Taipei's diplomatic ties, Chiang can
at least point out to the populace that the govern-
ment has tried hard to maintain these ties and pre-
serve economic well-being. Indeed, since the ouster,
the government has launched an economic offensive
abroad. It is going all out to expand trade and
investment contacts world-wide, and especially with
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states that recognize Peking. The government appar-
ently feels that such flexibility will prevent rest-
lessness both among Mainlanders, who identify their
personal security with international support for
Nationalist claims, and among the Taiwanese, who
feel Nationalist mismanagement could imperil chances
for eventual self-rule. In fact, the government
has been encouraging press demands for more flexible
policies since 1969.
3. The government's concern over domestic sta-
bility is not, of course, new, and it has been rein-
forced by a resurgence abroad of Taiwanese independ-
ence sentiment as well as violent indications of
divergent opinions within the Mainlander community
on Taiwan. In December 1969, Peng Ming-min, a lead-
ing independence-minded Taiwanese, escaped from the
island; he entered the US late the next year. Within
a month of Peng's escape, several other Taiwanese
dissidents attempted to flee. They were apprehended,
but these and subsequent events shook confidence in
the security services. Taiwanese independence groups
in the US were showi?:,g new vigor at about the same
time, and in April 1970 Taiwanese youths in New York
narrowly failed in an attempt to assassinate Vice
Premier Chiang Ching-kuo, T1 government has de-
picted these groups as a thrc:at but in reality be-
lieved them to be so well penetrated as to be only
an irritation. Now it see!. the danger as more real,
particularly since some Taiwanese may be trying to
bring violent protest to the island. In recent mor;ths
several Americans and Japanese have been deported for
being involved in Taiwanese anti-regime activities.
4. The potential for violent incidents was
demonstrated by the bombings at two US offices in
October 1970 and April 1971. Although Taipei has
tried to blame the Taiwanese, these incidents were
probably caused by Mainlander ".uper-patriots" try-
ing to show the US it cannot count on its privileged
position on Taiwan under ai,y circumstances. The
willingness of these elements to press their views
forcefully rather than to rely on private pressures
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Percentages of Mainlanders and Taiwanese
Population
(1968)
Regular Military Forces
(1969 Ministry of National Defense Figures)
National f_...._.
iinyernvtent !
above ,:Ierical level
33
MW Mainlanders Taiwanese
65
X5 j
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points up Mainlander divisions and fears. It also
adds another level of insecurity to the domestic
balance.
5. The leadership was equally disturbed by
student protests that began last April as a result
of the US decision--over Chinese protests--to in-
clude the Senkaku Islands in the Okinawan reversion
agreement with Japan. The Nationalists initially
considered encouraging the demonstrations to apply
pressure on the US and Japan but had second thoughts.
Uptight over bungling of the security cases involv-
ing Taiwanese dissidents, officials doubted their
ability to control mass gatherings. Taipei finally
persuaded the youths to write letters instead of
staging additional marches. Although the students
are aware that the government will clamp down on
further demonstrations, they have apparently sensed
that they do have some power over the regime. Senior
officials have attended student rallies, stimulated
by the UN ouster, on the campus of Taiwan's largest
and most prestigious university. The officials came
to explain Taipei's policies and blunt student de-
mands for political changes. These demands were
echoed in the press, by some of the more liberal
Mainlander officials,. and by some politically aware
Taiwanese. The governme,1it worries that this could
be the beginning of a wave of rising political ex-
pectations the government is in no position to ac-
commodate.
House Divided
6. Such developments have thrown into higher
relief fault lines in the structure of the society
itself, primarily in Mainlander-Taiwanese relation-
ships but also within the Mainlander community. The
Mainlander community on Taiwan, the survivors and
descendants of the two million who followed Chiang
Kai-shek to the island in 1949, has dominated the
far larger "indigenous" Taiwanese populace--them-
selves descendants of Chinese immigrants from as
early as the 14th century. The Taiwanese community,
feels a sense of distinctness from the rest of China,
in large part because Taiwan has, since 1895, had
only four years of political unity with the Mainland.
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In 1945, when control of the island reverted to
China after 50 years of Japanese rule, the Taiwanese
expected to be accorded "self-governing" status. In
fact, political power immediately gravitated to Main-
lander representatives of the central government,
who tended to view the Taiwanese as intellectually
and culturally inferior. There was an outburst of,
Taiwanese resistance in 1947, which was ruthlessly
suppressed. The bulk of the Mainlanders landed in
1949, and the balance of power settled into its
present mold.
7. Most Taiwanese have since been politically
passive or, acknowledging the present futility of
active resistance, willing to concentrate on eco-
nomic advancement. A considerable proportion of
the larger firms and almost all small business and
private land are in their hands; most feel they have
too much at stake to risk political adventures.
Though there are disaffected intellectuals and pol-
iticians who have consistently spoken out against
the Nationalists as interlopers, Taiwanese remain
generally unaffected by the dissident agitation of
their compatriots abroad.
8. The Mainlanders, nevertheless, clearly are
not sanguine. Their continual references to the
possibility of large-scale dissidence indicate a
basic fear that the Taiwanese masses are merely
awaiting a propitious mcment to rebel. Security
officers know that their large internal forces--
the largest military police agency alone has 30,000
men--are not large enough to control a full-scale
upheaval. And they suspect that Taiwanese regular
troops--over three fourths of the enlisted men and
one third of the NCOs--might not be reliuhle against
their own communal group. As a consequence, the
military and civilian police carefully avoid over-
reaction to minor problems.
9. The political divisions among the Mainland-
ers may be as important as those between Mainlanders
and Taiwanese. Many Mainlanders, including some in-
fluential officials, have become accustomed to life
on the island and hope to preserve it even at the
expense of Nationalist claims to the mainland or
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Mainlander control of Taiwan. The aging conserva-
tives dominating the bureaucracy and inner party
circles, however, are for uncompromising adherence
to Nationalist principles no matter what the cost.
They are concerned that any erosion of Nationalist
claims would soon prejudice their authority on
Taiwan. Even many of the more liberal Nationalists
tend to equate domestic criticism with treason, and
dissidence of any scale with a threat to their dom-
inance. While the system is not now weak, many feel
if it is bent it will break.
10. The changes in central government bodies
suggested in early November represent an effort to
compromise between Mainlander concerns and Taiwanese
expectations. These changes include enlargement of
the legislature and national assembly through popular
elections and "rejuvenation"--a euphemism for recruit-
ment of Taiwanese--of the bureaucracy. There is a
wide gap, however, between Mainlanders and Taiwanese
who hope for significant change in response to "post-
UN" realities and officials who do not wish to go
beyond largely cosmetic reforms. The leadership
clearly feels that some palliatives are necessary
to deflect criticism before it leads to outright
dissidence. Reforms, even superficial ones, would
indicate that the government does not plan repressive
measures and would therefore come as a welcome relief
to those in both zommunities who have feared that
widespread repression would result from the inter-
national setbacks. But it is also clear that the
government's planned "rejuvenation" is, in fact,
already raising the expectations of politically
aware citizens. These could, if they rise far enough,
complicate the process of adjusting to Taipei's new
international status.
11. For as long as Chiang Kai-shek, wields power,
a stern Taipei reaction to challenges to Mainlander
authority can be anticipated with assurance; but in
the absence of his authority, the divisions among the
Mainlander community would make its responses less
predictable. Allegiance to Chiang remains the focus
of the system. Chiang Ching-kuo is not an equivalent
figure, regardless of the powerful role he plays.
The leadership and political acumen of the elder
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Chiang) together with the security-in-depth imposed
on the island, have prevented the development of
any viable organized Taiwanese opposition or inde-
pendent Mainlander power base. Still, even under
the Generalissimo, the road will not be so smooth
as in the past.
Military Loyalties
12. Chiang Kai-shek has felt that Mainlander
rivals are most likely to rise from the military,
and the primary security concern within the armed
forces consequently has been with potentially dis-
affected Mainlander officers rather than with Tai-
wanese or possible Commux:ist sympathizers. His ?:.n-
terest, and that of Chiang Ching-kuo, in preventing
the development of rivals has reduced the military
leadership to a collection of nonentities in com-
parison with the prominent figures of the days when
the Nationalists ruled the mainland. Senior gen-
erals have routinely been shuttled off to ambassa-
dorships or rotated into ceremonial posts. Chiang
Kai-shek has for years been the sole national leader
in uniform. Even Chiang Ching-kuo has chosen not
to exploit his own high rank.
13. Although the military as a whole and its
interests are still an extremely important factor on
Taiwan, the armed forces no longer exert their former
influence. The society has grown more complex and
prosperous in two decades of peace, and the military
has had neither the talent nor the time to oversee
everything. Moreover, the semi-private armies of
the, years on the mainland no longer exist under the
universal draft system and in the cramped island
domain. An overwhelming percentage of troops are
Taiwanese, and their Mainlander officers do not de-
velop close ties with them during their two- or
three-year period of service. As another precau-
tion, division commanders are regularly rotated,
and no transferred officer is allowed to take with
him more than two subordinates.
14. The personal selection of commanders by
Chiang and his son provides insurance against at-
tempts by the military to pressure the government
25X1
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or to stage a coup. Chiang Ching-kuo exercises
virtually complete control over the military, re-
strained only by his father's limited involvement.
The elder Chiang has relied upon hie son's recom-
mendations for command positions with the result
that all who hold a position of authority in the Na-
tionalist forces can be considered responsive to the
vice premier. Ching-kuo's control of the armed forces
is reinforced by his 20-year associati.or with mili-
tary-political control agencies.
15. A sudden move against the government by
an unknown major or colonel is highly improbable,
and almost certainly would fail to rally sufficient
support to threaten either Chiang. Not only would
such an officer lack a national reputation and pres-
tige but he would also be unable to offer a viable
alternative to the current leaders. There is sig-
nificant dissatisfaction at the middle and lower
levels of the officer corps; this, however, is di-
rected against deplorably low pay-scales and slow
promotion rates.
16. While the reliability of the preponderantly
Taiwanese troops would be questionable if they were
called upon to deal forcefully with fellow Taiwanese,
these men are not likely to initiate anti-government
activities. Taiwanese rarely choose a military ca-
reer, and almost all of those in the services are
merely serving out their obligations as draftees or
ROTC cadets. Because they have a relatively bright
civilian life to look forward to in a short time,
their outlook is far different from that of older
Mainlander servicemen, many of whom have a lifetime
commitment to the military.
17. Since mid-1969, Chiang Ching-kuo has also
exerted strong personal control over the economic
structure, another, albeit lesser, area from which
Chiang Kai-shek apparently has felt potential rivals
might arise as the society modernizes. Privately,
economic technocrats have indicated their anger and
concern over the vice premier's moves to reduce their
responsibilities and to replace them with men more
closely associated with himseii. But they have lit-
tle influence outside their own offices. Comi,;Ints
-9-
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by some of the most senior of these men indicate that
they now view the vice premier as the only political
figure with the flexibility to deal with the new
problems facing the nation and the stature to en-
force needed changes.
18. This tight control on Taiwan by Chiang Kai-
shek and his son has led to what might be called ger-
iatric rule. The extraordinary continuity in govern-
ment and party has resulted in the concentration of
responsible positions in elderly Mainlander hands.
The prospects for rejuvenation are not good. The
small Mainlander elite is being decre:,,sed by dis-
proportionate emigration and overshadowed by the
more prolific Taiwanese. This has already compelled
the government to fill less sensitive jobs once
solidly Mainlander with Taiwanese. This process
has produced a glacially slow, unacknowledged, but
nonetheless noticeable, Taiwanization at the lower
levels of the establishment.
Toward the End of an Era
Everyone must closely
watch the enemy and the
breath-taking changes tak-
ing place and heighten his
adaptability to change.
This also means to 'undergo
a spiritual trial of
strength white avoiding
acting on impulse.' Chiang
Kai-shek: 60th National
Day Speech, 9 October 1971
19. Observers have
speculated that loss of UN
membership and external
support could break the will
of the Nationalists to resist absorption by the Com-
munists, precipitate domestic instability, or inspire
aggressive Communist actions against the island. This
has nut happened. Taipei's measured reaction to its
losses and to the prospect of future blows--including
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the possibility of Tokyo's recognition of Peking--
indicates that Chiang Kai-shek will be able to adjust,
much as he has to past setbacks. Moreover, it is
unlikely that his government will face attack from
the mainland. To invade Taiwan--even if the 1954
Defense Treaty with the US were not invoked--Peking
would need dominance both on the sea and in the air.
If they could achieve this, they would face a pitched
battle on the island. The Nationalist ground forces
look more than adequate to defend Taiwan and are be-
ing constantly, though slowly, improved in terms of
mobility, flexibility and firepower. in these cir-
cumstances, the threat of force is not very credible
and Peking has, in fact, carefully downplayed this
option for a decade.
20. The key factor, of course, is the attitude
of the US. Chiang Kai-shek and most of the Nation-
alist leadership do not expect immediate dramatic
developments in US relations with the Communist Chi-
nese as a result of the President's visit. But they
obviously are concerned about the longer term evolu-
tion of the triangular relationship between Washing-
ton and the two Chinese governments. Many Nation-
alists not only question the long-term prospects for
the US commitment to the Nationalist government but
are also convinced that Japan will soon abandon
Taipei. Thus, further moves in the direction of
Peking by either the US or Japan would not now come
as a complete surprise to the politically aware on
Taiwan. They do, however, find it impossible to
judge precisely how far and how fast either Tokyo
or Washington are likely to go. They therefore find
it difficult to predict the interaction of such
moves on the political, economic, military, and
social forces on the island. There are officials
who fear that support for the Nationalists, both
international and internal, will evaporate unless
Taipei makes major diplomatic and domestic adjust-
ments to the "new realities." Such fears are still
confined to a relatively small minority of officials--
and one that does not appear to be very influential--
but "heretical" thoughts of this sort are themselves
a measure of new ferment.
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21. One example has been the whispering about
a "separate identity" in the months since the ad-
verse international trend became evident. Several
Nationalist officials have argued that the only way
to proceed is to modify Taipei's territorial claims
to reflect the areas actually controlled. Some add
that corresponding domestic rearrangements must also
be made. Mainlander cabinet-level technocrats, as
well as some lesser officials, recently have cau-
tiously discussed with US officials the advantages
of a clear expressioii of Taiwan's separate identity
anc' greater Taiwanese political participation.
22. Taiwanese also have been taking political
soundings. Some have suggested reforms such as a
Taiwanese vice president, or elections for governor
of Taiwan, mayor of Taipei, as well as a single
representative body to replace the present parlia-
mentary structure. In early December associates
of a Taiwanese politician passed the US Embassy a
document calling for a greater Taiwanese role in
a reorganized government, a reduction in the armed
forces, and "political neutrality"--in effect, a
separate Taiwan. This seems to have been a crude
attempt to involve US officials in a campaign favor-
ing "Taiwanese aspirations." Indeed, most specu-
lative comments along these lines, whether from
Mainlander or Taiwanese sources, appear to be at-
tempts to elicit comment from US representatives
rather ';:han indications that these men believe their
proposals could be pushed to fruition. There in no
sign that such ideas, whether generated inside or
outside the government, have struck a responsive
chord with Chiang Kai-shek or his son.
23. Indeed, the Nationalist course for the
immediate future and middle term is evident, and
the cautious moves the Chiang:, plan fall short of
a declaration of Taiwan's "separate identity."
They are likely to combine largely superficial
domestic structural changes and social welfare pro-
grams--as gestures mainly toward the Taiwanese--
with efforts toward greater military self-reliance
and a determined world-wide economic offensive.
Stricter vigilance over known Taiwanese dissidents
for more than a year indicates that there may be
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temporary cautious strengthening of internal secu-
rity while the government satisfies itself as to the
reactions its international losses will. produce on
Taiwan. The Generalissimo has a vested interest
in preserving the facade of an "open society;" Con-
sequently, his present pattern of rule can be ex-
pected to continue, with smooth and quiet implemen-
tation of martial law and other regulations; rela-
tively free expression in local elections, the press
and legislature; two minor rival parties discreetly
subsidized by the authorities; and a free hand for
the Taiwanese in the economy.
24. Abroad, however, there is cautious move-
ment. The government's reluctant willingness to
endorse--privately if not publicly--the US China
resolution in the UN last autumn was the first sign
of real change. Since the adverse vote in New York,
Taipei has indicated willingness to retain its am-
bassadors in states, such as Senegal, which have
recently recognized Peking, so long as the Nation-
alists are not compelled to accept explicitly a
status inconsistent with their claim to represent
all of China. Further drift toward an implicit
"two Chinas" policy is likely, but it probably will
stop short of any public statement defining such a
policy, much less one smacking of a "one China, one
Taiwan" formula. Taipei is also seeking expanded
trade and technical ties, even with states recog-
nizing Peking. The East European and Soviet markets
are also targets of interest. In addition, the Na-
tionalists plan to be active in ai:t,i regional, in-
ternational and specialized agenc.i.L,, that will accept
them.
25. Since 1968, at Chiang Kai-shek's direction,
propaganda emphasis on the return to the mainland
by force of arms has decreased. Slogans now call
for propaganda warfare against the Communists and
stress Nationalist accomplishments--especially eco-
nomic--on Taiwan. Also in 1968, Chiang began to
permit reduction and reorganization of the oversized
military, which had been kept at approximately the
1949 force-level as a symbol of the imminence of his
counterattack. Thus, the emphasis, even before the
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UN vote and the recent series of recognitions of
Peking, has been subtly but unmistakably on the
Taiwan side of the ledger, rather than on the more
negative--because it is unrealistic--claim to the
mainland.
26. This does not mean that Chiang Kai-shek
would move explicitly, or even consciously, toward
Taiwanization per se. Nevertheless, the moderate
steps he appears to be taking to preserve stability
and Mainlander dominance will tend to foster some
degree of Taiwanization in the longer term. These
steps do not immediately or directly compromise
Mainlander domination, but they could serve to pre-
vent moderate and relatively apolitical Taiwanese
from joining more radical elements. Indeed, they
should produce a level of stability for his govern-
ment, at least as long as he is active. Chiang's
sudden death could upset the political balance, but
preparations for that eventuality and passage of
control to the vice premier have been under way for
years. Still, recent international losses and the
internal pressures caused by these events, as well
as Chiang Kai-shek's withdrawal from day-to-day
duties, have begun a process that will lead to the
end of the era of Nationalist history that he has
dominated.
After Chiang Kai-shek
27. Because Chiang Kai-shek's son has already
assumed substantial control, many of the problems
that otherwise might have arisen at the end of the
General."Lssimo's rule may be avoided. The prospects
for domestic stability after Chiang Kai-shek depend
in large part upon whether his successor can create
a new balance between Mainlanders and Taiwanese and
between Nationalist dogma and international realities.
The diplomatic situation is likely to stabilize,
leaving Taipei recognized by fewer than two dozen
states. The Nationalist position in regional organ-
izations is probably secure for the short term, but
even there some slippage is possible.
28. Taipei's diplomatic setbacks are not likely
to have a serious impact on the economy. Under
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proper circumstances even a slowdown in inflow of
private foreign capitol, which has been vital to
Taiwan's rapid economic growth, could probably be
weathered because of the present assets on Taiwan.
The island has large foreign exchange reserves, a
productive and growing economy that can compete ef-
fectively for markets, and highly talented economic
managers. Its leaders have been at pains to main-
tain business confidence and have taken intelligent
steps to protect an economy that depends, in growing
measure, on foreign trade and investment. There is
considerable economic confiuerice despite recent
eve,ts; it has wavered, but has not collapsed. Na-
tionalist leaders fear, however, that further loss of
international contacts could adversely affect investor
confidence in Taiwan as well as foreign bank guarantees
for export credits. Taipei's chances of remaining in
international financial institutions seem reasonable
at this time, but they may be endangered by the chang-
ing attitudes of other member states. Nationalist
membership in those organizations, however, has been
for prestige reasons rather than economic necessity.
29. The outlook for a comfortable future rate
of economic growth on Taiwan will remain favorable
while investors remain optimistic and the US and West
Europe continue to develop trade and business links
with the island. It also depends on Taipei's success
in expanding world-wide trade, and maintaining access
to markets unhampered by quotas or other artificial
restraints. A considerable proportion of the island's
trade--excepting that with the US and Japan--has
involved nations with which Taipei has no diplomatic
relations, such as West Germany, the United Kingdom,
and the Netherlands. Trade with the UK has increased
more than sevenfold in the last decade; that with
Canada and Italy has increased despite their recog-
nition of Peking last year, and the recent Austrian
investment in an integrated steel for Taiwan
was made after Vienna's recognition of Peking. Jap-
anese businessmen have for years profitably circumvented
the obstacles of trading with both Chinas and will
probably continue to do so while profits remain. The
Japanese have become more cautious about putting in
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new money, but are prepared to maintain their exist-
ing investments on Taiwan.
30. While Peking has not as yet mounted a con-
certed effort against Taipei's trade contacts, it
probably will after Taipei's diplomatic ties have
been reduced further. Peking probably will not be
so successful in severing trade ties as it has been
in winning diplomatic recognition as the legitimate
representative of China. Growth of trade with the
mainland is constrained by Peking's emphasis on self-
sufficiency and balanced trade as well as by its in-
ability to offer a wide range of desirable exports.
Under these circumstances, the profitable investment
and trade environment on Taiwan probably would not
lose its appeal to foreign interests.
31. Promotion of economic growth by the Na-
tionalist leadership, even if successful, will not
by itself ensure continuation of domestic stability,
but it would provide time for Taipei to make internal
political adjustments. Any government without Chiang
Kai-shek will have more difficulty keeping the Tai-
wanese out of the decision-making process when they
actively seek that role. The Taiwanese will carefully
test the post-.Chiang waters for a time, however,
especially becs >'i.e many suspect the Mainlanders will
institute a crackdown against all suspect--i.e.,
politically active--Taiwanese. Many dislike Chiang
Ching-kuo for his long association with security
agencies and anticipate that he will be unwilling,
or unable, to maintain his father's relatively low-
key approach to the implementation of controls.
32. Despite these fears, it seems likely that
the successor government might be tempted to make
some gestures toward wealthy Taiwanese industrial
and commercial interests to exploit their common in-
terest in stability to gain political support. Once
started, Taiwanese participation in the government
is apt to grow, especially as the older, conservative
hard liners die off.
33. Indeed, the social conditions which have
aided the maintenance of Mainlander domination are
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changing fairly rapidly, and this will lead to pres-
sures for more explicit political accommodation to
domestic realities. Failure to accommodate these
rising expectations could fan discontent. In 1964
the government made the office of mayor of Taipei
an appointive rather than elective position, since
the Kuomintang could not win enough votes to control
the city. There are indications that such disenfran??-
chisement may be extended to other heavily Taiwanese
urban areas. This would eliminate the local self-
government that is an important vent for Taiwanese
frustrations.
34. Continued large-scale underemployment
could also cause discontent, especially if economic
development should slow down. Discontent could also
breed if the economy fails to meet the increasing
personal desires stimulated in nearly all segments
of society by higher educational and economic levels.
Student, professional, business, and labor groups
will almost certainly press more openly and insist-
ently their often contradictory claims on the Na-
tionalist system. This could cause further violent
incidents. If there are persistent incidents of
protest, the flow of foreign capital--attracted by
the island's stability--may slow down, and local
investment could be discouraged.
35. Problems such as these are not easily sus-
ceptible to manipulation based on the minor conces-
sions which appear to be the hallmark of the govern-
ment-'s present political style. These tactics,
however, may succeed in keeping the island's more
intractable social and political problems from
reaching the flash-point. They seem designed to
give Taiwan additional time and breathing space--
conditions which the regime is unlikely to use for
planning a major assault "from the top" on the po-
litical status quo, but which probably will be uti-
lized merely to buy still more time. Given enough
time, this very gradual and piecemeal bending-with-
the-wind could produce significant evolutionary
? changes, even if such changes are not consciously
willed by the leaders of the regime. An evolution
of this sort would necessarily be extremely slow
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and would presuppose that
the Generalissimo's heir,
Chiang Ching-kuo, will re-
main in relatively good
25X6 healt : .
he should experience
li.tt e difficulty in pick-
ing up the reins. He lacks
some of his father's author-
ity and may therefore have
greater difficulty in restraining rival Mainlander
bickerings, but he already has in his hands most of
the levers of power--now subject only to the Gen-
eralissimo's veto--and he faces no serious or
credible rival.
36. The prospect that the regime's dilatory
but ultimately evolutionary strategy can ccntain
the domestic problems and cope with present trends
in the international sphere presupposes that Taipei
will not be subjected to major external shocks in
the next several years. The Nationalist government
expects a further erosion of its formal international
position and is prepared to deal with the consequences
of the present trend of events--so long as both
Washington and Tokyo remain diplomatically tied to
it. Taipei is almost certainly resigned to a fur-
ther warming in relations between Peking and both
Japan and the United States; it does not like this
trend, but is seems ready to live with it. Should
either of Taiwan's diplomatic anchors be lost in the
next two or three years, before Taipei's manipulative
policies have had much "evolutionary" effect on the
domestic or international situation, the limits within
which Nationalist leaders are now working would
clearly change.
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37. if, for example, Japan were to recognize
Peking, it would have to be on terms that would
acknowledge mainland sovereignty over the island.
Nationalist leaders would then be forced to examine
carefully whether the United States would--or could--
for long remain the only major country in the world
denying Peking's claims and backing that denial with
the ultimate threat of force implied in the mutual
defense treaty. Circumstances such as this might
well cause the government to consider moving much
faster--perhaps even precipitously--toward an "in-
dependent Taiwan." But it is likely that Nationalist
leaders would see considerable danger in this action
and might even believe it to be too late. Rapid move-
ment toward political transformation at home in an
atmosphere of considerable uncertainty abroad could
well release those very domestic forces the govern-
ment has been at such pains to control--with incal-
culable consequences. Moreover, a "one China, one
Taiwan" solution at such a juncture probably could
do little to retrieve Taipei's international fortunes.
.Few nations already ensconced diploraati:ally in Peking
would be willing to break with the Communists in
order to support the principles of independence and
self-determination as applied to Taiwan. At the
same time, Peking would almost certainly undertake
an even broader campaign to weaken the island's econ-
omy. If successful--and under the circumstances
such a campaign would be likely to have some effect--
economic problems would impinge on and complicate
political problems at a most delicate period for the
island.
38. A different solution would be a regime at-
tempt to reach some kind of accommodation with the
mainland. A move in this diz:ection would run very
serious risks. Some influential and important Main-
landers would unquestionably resist any movement to-
ward Peking whatever the circumstances. While the
Nationalist leaders would almost certainly hope to
explore Peking's offers in secrecy, the risk of pre-
mature disclosure would be considerable and this would
unquestionably create shock waves through the island.
The terms of an agreement with Peking, if one were
reached, could be equally unsettling, but in this
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case some of the shock might be cushioned by the na-
ture of the agreement itself. If an agreement were
sufficiently flexible and called for only gradual
and long-range absorption of the island into the
mainland political and economic system, the initial
shock might give way to a gradual accommodation with
the "inevitable." Terms such as these are in any
event the only ones Nationalist leaders would be
likely to consider, and while Peking has been care-
ful not to close the door on a settlement of this
nature, Taipei could hardly be certain that in fact
such an offer would be made.
39. In short, from Taipei's point of view,
drastic solutions are to be avoided if possible.
The government has shown considerable courage and
coolness in responding to the challenges of the past
year and has displayed just enough flexibility ':o
keep things on a rela~ively even keel at home end,
to some e:ttent, abroad. Although the era of tran-
quillity ended over a year ago, a combination of
luck, Mainlander pragmatism, and Taiwa::ese patience
could ensure a relatively stable domestic situation
for some time to come. But not all the elements of
this prescription are in the hands of those on the
island; in the final analysis much will depend on
larger developI