When Taiwanese President Tsai Ing-wen won re-election in January, it was a very different world. At the time, markets were rattled by the fallout from a U.S. missile killing Iranian general Qasem Soleimani. Iranian forces had just mistakenly shot down Ukraine International Airlines flight PS752.
Quaint, right? Asian markets had just about shaken off those shocks, and Aussie shares had just touched an all-time high.
Tsai, who takes office for her second term today, won the presidential election on Jan. 11. I wrote my first story warning investors about a "mystery virus" breaking out in Wuhan on Jan. 21.
A China skeptic, Tsai's hand was already strengthened by the nine months of teargas-laced pro-democracy protests fought on the streets of Hong Kong. I'm sure she wouldn't wish Covid-19 on the world, but the devastating disease has inadvertently reinforced her arsenal to withstand the pressure from China that other nations appear to find impossible to resist.
Tsai said at her inauguration today that Taiwan will not tolerate the "One Country, Two Systems" charade that we mistakenly accepted here in Hong Kong. Her opposition Kuomintang Party had been keen for closer ties with China, but was forced to roll that stance back by the events in Hong Kong, even before Wuhan unleashed Covid-19 on the world.
Taiwan -- the country that's a country that we can't call a country -- has done remarkably well in combatting the disease. The island, with a population of 23.6 million, has reported 440 cases, fewer than San Marino or Malta. It has witnessed only 7 deaths. All that despite extensive business ties between Taiwan and China, and a location 100 miles east of the mainland city of Xiamen.
As a result, Taiwanese stocks have been some of Asia's best post-Covid performers. The benchmark Taiwan Stock Exchange weighted index is down "only" 9.3% in 2020, a showing that only stocks in mainland China and New Zealand can beat.
Taiwanese stocks have rallied 25.4% since their lows on March 19. That essentially redressed the 24.6% they lose in the two weeks up to that date. They closed up 0.4% on Wednesday.
Tsai is right not to accept China's offer. After she rebutted it, China responded that "reunification is a historical inevitability of the great rejuvenation of the Chinese nation," strident nationalist talk. It said it will not tolerate Taiwan's independence. Which, quite honestly, it is doing a remarkably good job of tolerating.
If you've ever been to Taiwan, you know it is an independent country. You get your passport stamped. It has different money, police, army. Its own flag. And it has a different government, the only democratically elected one in greater China.
That's what really irks China. Because the Republicans decamped to Taiwan in 1949, as they were losing the Chinese civil war to the Communists, they can claim to be the last truly elected government of China itself.
The People's Republic of China, the Communist part, has never controlled the "ROC," as locals nickname their Republic of China. That's why we need to put "reunification" in quote marks. The original aboriginal peoples of Taiwan, now virtually extirpated, bear more in common with the people of the Philippines to the south than the northern Han Chinese.
It is extremely clear that China views "One Country, Two Systems" purely as a public-relations stunt, rattling it out when criticized for interfering in the affairs of supposedly autonomous Hong Kong and Macau. But in actual fact, it believes only in One China, and is undermining the freedoms of Hong Kong and Macau every which way it can. It would have eliminated them altogether if it wasn't so desperate also to get its hands on Taiwan.
Unfortunately all too many people say "What did you expect?" and consider it no problem at all that China lied about One Country Two Systems in order to get the former British and Portuguese colonies. It should not be let off the hook for this violation of a Sino-British Joint Declaration ratified before the United Nations. That's a legally binding contract that China now describes only as a "historical document" that "no longer has any practical significance," and is "not at all binding for the central government's management over Hong Kong."
In other words, don't trust a single word that China tells you about how it will act in the future, even if you get it in writing.
I wrote last Friday that now is not the time to take China to task on trade. There is little point pushing for a better trade deal for the United States when its counterparty cannot fulfill the terms of the existing agreement.
But it is the time to push China diplomatically, particularly on Taiwan. Tsai is right that Taiwan is an independent state. It's thanks to Beijing's bucks that we all pretend it isn't. Tsai, in taking office for her final term, says she's "willing to engage in dialogue with China" even though China cut off formal talks when she was first elected in 2016. Tsai stresses four words: "peace, parity, democracy and dialogue."
Taiwan, criminally, is not allowed to be part of the World Health Organization, basically on China's orders. It applied to join as a full member in 2007 and 2008, and as a participant or observer on numerous other occasions. Its exclusion has nothing whatsoever to do with public health, and in fact runs counter to the WHO's mission. During a pandemic like this, it is downright dangerous.
But every time a WHO official is asked about this glaring omission, all they can do is change the subject. In fact, according to the Brookings Institute, the WHO signed a secret memorandum of understanding with China in 2005 that basically says that China's Ministry of Health must approve any form of participation by Taiwan. WikiLeaks revealed that the United States supported this secret deal, as a "step forward" for Taiwan in dealing with the WHO.
The WHO doesn't want to talk about Taiwan because they know Taiwan should be a member. But they are desperate to get their hands on the funding China sends its way, including the $2 billion it has just pledged to fight the virus. That's more than twice what the United States was spending on the WHO, before the United States withdrew that funding.
It is for economic reasons that the WHO and diplomats around the world continue to play China's game.
Taiwan is also not allowed to participate in the United Nations. Again, this runs counter to the aims of the body. It's not good for Taiwan to be excluded. But the roots of the issue originally date to the question of which government is the legitimate government of China.
Actually, for the longest time Taiwan also believed in a "One China" policy; one in which the Taiwanese government regained leadership of the mainland. So Taiwan also didn't want to see both China and Taiwan represented at the U.N. Gradually, China whittled away at Taiwan's allies, and it was thrown out of the United Nations in 1971. The United States, more worried about the Soviet Union at the time, was happy to let China win that round.
Now that China is being such a good world citizen, desperate to support public health so publically, it's a good time to push for Taiwan to be recognized more fully. Taiwan was hit hard by SARS in 2003, and has done a great job in combating Covid-19 that the world deserves to learn from.
In that respect, it is positive that U.S. Secretary of State Mike Pompeo offered his formal congratulations to Tsai on her inauguration. His comments, the first by such a high-ranking U.S. official at a Taiwan election, were read aloud at the event, with Pompeo praising Tsai for her "courage and vision in leading Taiwan's vibrant democracy."
Here's to that. Congratulations, President Tsai.