The Daily Reckoning
London, England
Wednesday, July 27, 2005
The Daily Reckoning PRESENTS: Two weeks ago, a Chinese general stated that if
the U.S. intervenes in any conflict with Taiwan, they would be forced to
retaliate with nukes. Dan Denning looks at the factors surrounding the
situation and wonders if this threat could become a reality... DECAPITATION STRATEGYby Dan Denning
The biggest risk I see in China right now is not economic, but political. And
what's more, China's biggest risk is itself and how it might act if Taiwan
pushes for a two-state relationship.
Personally, I don't think the United States is willing to go to war over
Taiwan. American interests in the region are more economic than military. For
their part, though, the Chinese seem deadly serious about Taiwan. In fact,
everyone I talked to in China was unanimous that China would not and could not
allow Taiwan independence. China will go to war over Taiwan if it has to. How
might that war play out? Dr. Marc Faber sets the stage:
"Wendell Minnick, who is the Jane's Defense Weekly correspondent for Taiwan,
sets a likely scenario. According to Minnick, should China ever decide to
invade Taiwan, it would unlikely be a large-scale, Normandy-type of amphibious
assault, but be by means of a 'decapitation strategy.' Minnick explains that
'Decapitation strategies short-circuit command and control systems, wipe out
nationwide nerve centers, and leave the opponent hopelessly lost. As the old
saying goes, 'Kill the head and the body dies.' "
If this assessment is accurate, China's Taiwan strategy is not at all different
from the U.S. strategy of "shock and awe" in Iraq. It's a variation on the idea
of getting inside your adversary's decision cycle. In military terms, it means
attacking in unexpected ways and in unexpected places (not strictly military
targets). By doing so, you get your opponent off balance. By the time they
react to what you've done, you're doing another thing, eventually collapsing
their will to resist by the speed and ubiquity of your assault.
The Chinese have played their Taiwan hand beautifully. With the United States
engaged in Iraq and dependent on China and Russia to disarm North Korea, it
looks to me like a reuniting of Taiwan and the mainland may simply be a matter
of time. Whether it's by peaceful means or not remains to be seen.
It also remains to be seen whether the United States considers it more
important to support Taiwan's ambitions rather than to make nice with mainland
China and its growing economy and huge holdings of U.S. bonds. In his 2005
inaugural address, President George W. Bush said, "It is the policy of the
United States to seek and support the growth of democratic governments and
institutions in every nation and culture, with the ultimate goal of ending
tyranny in our world." An ambitious goal, to say the least, and one that must
include Taiwan.
It's hard to imagine, with $124 billion in trade between them and their
economic futures now intimately intertwined, that America and China would go to
war over Taiwan. But both appear determined to do just that if they feel they
have to. Let's hope they don't have to.
There's also the possibility - which would be even more shocking - that the
mainland Chinese communist leadership will collapse before China ever attacks
Taiwan. How could this happen? In late January 2005, Zhao Ziyang died. Zhao was
the leader of the Communist Party in 1989 during the student uprisings in
Tiananmen Square. He spent the last 15 years of his life under house arrest for
having refused to order a crackdown on the pro-democracy demonstrators. He was
mourned by thousands in Hong Kong, where it is still legal to gather in public
and support democracy.
In mainland China, nothing of the sort could happen. When I strolled through
Tiananmen Square, it was not too hard to notice the plainclothes police who
still follow Westerners, in addition to uniformed police. My guide in Beijing
made sure to remind me not to bring up the subject in public. Despite outward
appearances of prosperity, China is not democratic.
Yet there is a chance that the mainland could become more like Taiwan, and not
the other way around. It has to do with the connection between economic
prosperity and liberty, but for now, let me quote a friend of mine who
currently lives in Taiwan and describes himself as a pro-free-market
libertarian:
"Taiwan cannot be free and secure, if China is not free and democratic. And, as
China goes, so goes Asia. Whether China becomes a superpower or descends into
another period of warlordism, things will not stay as they are (although I have
not yet been to the mainland), and the rest of Asia and the world will be
impacted, to say the least. It would be difficult for anyone to convince me
that China's transition will occur in as sweet a fashion as did the Soviet
Union's...I believe that Taiwan is correct to push forward the controversial
name changes to state-run industries...Taiwan's only chance is to continually
let the world know the true nature of the Chinese beast. It is simply
inconceivable how anybody could object to Taiwan's right to self-determination.
However, there is a danger in accelerating the Taiwanization of the ROC, namely
that there are still very powerful elements within Taiwan that are attached to
the idea of a China one and indivisible. More needs to be done to make the
emerging pro-independence government broadly representative. Not only because
it is right, but because it will make Taiwan stronger internally, it will give
China fewer excuses to interfere in Taiwanese affairs, and it will set an
example not only for China, but an example to the rest of Asia, how democracy
can be reconciled with order...[T]his is perhaps overly kind to the Chinese
view, there is some reason for them to fear democracy."
Needless to say, a Chinese invasion of Taiwan would be a shock to financial
markets. But given the ways in which the Chinese might accomplish such an
invasion, and making the large assumption that the United States will offer
only diplomatic resistance, I think the shock would be short-lived and not
substantial. In the meantime, the best way to invest in China is to buy the
companies doing business with China but that have Western listings.
It's a huge paradox. China has all the artifacts of a modern capitalist
economy. And its people and entrepreneurs are a lot more opportunistic than
many Americans I know. Yet little is known of the millions Mao killed. And
while not as visible, the military is a constant reminder of the coercive
nature of the Chinese state. For all its remarkable progress toward free
markets, there has been a lot less progress toward freely expressed political
thought. Can the government maintain its grip on information? Can it privatize
nearly every other sector but keep a tight rein on what people say and publish?
I doubt it.
The Chinese I met on my trip were bright, talented, ambitious people. They are
also very proud of China. It will be their job to clean up the heinous mistakes
of the state over the last 50 years. The Chinese government's war on the family
has left hundreds of millions without a traditional support network as they get
older. There are no institutions to fill the void. Not the state, which can't
afford it. Not the church, which doesn't exist in large enough numbers. And not
the family, which was systematically eliminated by the one-child policy.
Then again, Chinese culture is 5,000 years old. Communists can ruin a lot in a
short time. Nothing is more destructive than the conceit that you can dispose
of hundreds of years of tradition and evolution and replace it with a crackpot,
egoistic, planned economy. But Buddhist, Taoist, and Confucian thought and
beliefs are still at the heart of China. Not even an all-powerful state could
eradicate that. How else to explain that Sun Yat-sen, the father of the Chinese
nation, is more popular than Mao? His mausoleum in Nanjing is a shrine of
sorts. I went there myself and discussed his legacy with several of the Chinese
I traveled with. Mao was feared, but he made China great. Sun Yat-sen is
revered, and he makes the Chinese proud.
My prediction: As China moves into center stage in the world economy, its
traditional culture and its emerging free-market culture will replace the
statist culture. It will be better for China and the world. The state may be
planning otherwise, but it can't control what it's unleashed. And for that, we
should all be grateful. China is a beautiful place with kind, hardworking
people. The real moneymaking there has just begun, and it's spreading
throughout Asia like fire in a crowded theater.
Regards,
Dan Denning
for The Daily Reckoning