The Republic of China
The Republic of China
Taiwan is, by every measure, an independent country. Why is the mainland so obsessed with Taiwanese reunification?
Welcome to the Global Capitalist — A free newsletter on international developed, emerging and frontier markets viewed through the lens of history and culture.
Sorry for the sporadic posting of late. Over the last month, I visited some friends in Miami, celebrated my 24th birthday, and endured a treacherous Dallas snowstorm. Safe to say we’re off to a blistering start here in 2021.
This is a long one so feel free to skip around or come back to it later.
Thanks again for all your continued support!
— Tom
The Republic of China
At this point, you might’ve noticed a lot of recent discussion about Taiwan, officially known as the Republic of China (and not to be confused with the People’s Republic of China). We spoke about some of the events unfolding around Taiwan last fall but surely, the recent tone surrounding Taiwan’s geopolitical role has grown noticeably harsher:
I could continue to pull examples but you get the point: Taiwan is important and will continue to be important in a diplomatic lens.
Then again, some of our readers might find this a bit random. Taiwan is just a little larger than the state of Maryland by square mileage and is home to a population equivalent of New York and New Jersey combined. Taiwan’s economy, which isn’t tracked by the World Bank nor the United Nations, is estimated to be the 21st largest in the world, per the IMF. Still, however, the IMF does not recognize Taiwan as its own country. Rather, it is considered a province of China, akin to Guangxi, Hubei or Beijing. What’s more, despite the country’s rousing success in curbing COVID-19, the country is excluded from membership in the World Health Organization.
This is extremely peculiar! The country is not Santa Claus, nor an astrology reading. Taiwan is a thriving liberal democracy, distinct from jurisdiction of the People’s Republic. The country, which ranks 11th on the Heritage Economic Freedom Index, has held democratic elections since the early 1990’s. Taiwanese people, by extension, barely consider themselves Chinese. Yet, in the eyes of the Chinese Mainland, Taiwan has mutated into a “rogue province” — unfettered by the reign of Xi Jinping and the People’s Republic. Furthermore, the People’s Republic has asserted their desire for a “One Country, Two Systems” relationship with the island, attesting that Taiwanese reunification is “an inevitable requirement for the great rejuvenation of the Chinese people”. Given the diminishing sovereignty of Hong Kong over the last decade, Taiwan has remained skeptical of this promise.
Put another way: Taiwan’s independence is not recognized by most, if not all, sovereign nations1 (In fact, there are only fourteen countries that officially recognize Taiwan — the largest being Guatemala.) Most countries, by contrast, officially recognize one Chinese state, the People’s Republic of China.
The collective blind eye thrown towards the Island of Taiwan dates all the way back to China’s self-proclaimed Century of Humiliation and underscores a fragile foundation of international diplomacy.
Beeps & Boops: Taiwan was one of a few countries that held what music festival in 2020? Answer at the bottom.
Century of Humiliation
The 1910’s would kick off with the first Chinese Revolution (also known as the Xinhai Revolution) and the collapse of the Qing Dynasty. Chinese leaders, prior to the Qing’s collapse, were blinded by their vision of Chinese superiority. They viewed European merchants as “barbarians” and would demand tribute from visiting nations seeking to trade.
Not to mention, neighboring Asian countries like Korea were viewed as inferior satellites of Chinese culture. It was understood that visiting countries came to China to marvel at Chinese ingenuity and learn from their society, not to benefit for their own good. This elitist ideology was rooted in the ancient belief in the “Mandate of Heaven”, which endowed Chinese rulers with divine approval. Nevertheless, the zeitgeist of traditional Chinese culture was clearly incompatible with their new industrial adversaries.
“The present situation is one in which, externally, it is necessary for us to be harmonious with the barbarians, and internally, it is necessary for us to reform our institutions. If we remain conservative, without making any change, the nation will be daily reduced and weakened... Now all of the foreign countries are having one reform after another, and progressing every day like the ascending of steam. Only China continues to preserve her traditional institutions so cautiously that even though she is ruined and extinguished, the conservatives will not regret it.” — Li Hongzhang, 1873
Li Hongzhang, a prominent Qing statesmen, is often cited as the architect behind China’s dismemberment. Li, however, asserted these concessions were necessary for the longevity of Chinese society. His role in Chinese history remains extremely contentious to this day.
Today, the Qing Dynasty carries the unfortunate moniker of “China’s last imperial dynasty”. By the conclusion of the 19th century, the Qing Dynasty had weathered multiple invasions from Western nations (read: the Opium Wars), several natural disasters, multiple coups, and countless revolts (read: the Boxer Rebellion). The waning strength of China’s central authority, coupled with the swelling fortitude of industrialized Western nations, ushered in an era of colonialism across the Chinese subcontinent. For starters, Hong Kong, Guangzhou, amongst other critical trade ports had been relinquished to the British Empire while segments of Manchuria and Mongolia had been ceded to the Russians.
Most controversially, however, the island of Taiwan had been ceded to the Japanese Empire following the Chinese defeat in the first Japanese-Sino War. The Japanese, in addition, were infamous for their Twenty-One Demands, which effectively rendered China a protectorate of the Japanese Empire. Taiwan would not return under Chinese jurisdiction until the conclusion of World War II.
In other words, the Middle Kingdom under Qing leadership had become a shell of its former glory, capitulating its sprawling empire to a gaggle of new, more industrialized adversaries. Supplanting their rule would be none other than the Chinese nationalist party, also known as the Kuomintang of China or simply, the KMT. The KMT, led by Sun Yat-sen, were incensed by China’s economic and cultural erosion and sought to implement a government that would adhere to the Three Principles of the People. Fundamentally, the Three Principles of the People articulated a unified Chinese Republic, guided by nationalism, democracy, and the livelihood of the people. Interestingly enough, the Three Principles of the People is also the name of Taiwan’s national anthem today.
By the beginning of 1912, the first Chinese Revolution had concluded and the Republic of China (sound familiar?) had been established. However, as with most political regime changes, their transition was anything but smooth. The Chinese people remained polarized as ever on their vision for the future of their country.
Understandably, Chinese nationals weren’t thrilled about their country’s cultural and economic disintegration. Following the collapse of the Qing, foreign adversaries continued their extraction of the Middle Kingdom, occupying vital trade ports and collecting economic privileges. What’s more, the conclusion of World War I and the issuance of the Open Door Policy had only accelerated the nationalist shift in Chinese identity. As detailed in Japan’s Twenty-One Demands, the Japanese Empire would absorb Germany’s territory in Shandong, while increasing their stake in China’s economy and governance. The Imperial Japanese were exceptionally unpopular in Chinese society, as they historically rejected the cultural hegemony of the Chinese empire.
All of the detriments to Chinese society aside, the Twenty-One Demands were in direct violation of the Open Door Policy, a multilateral agreement signed at the conclusion of the first World War which aimed to protect Chinese sovereignty. Admittedly, the Open Door Policy was also an incredibly potent method in which the U.S. protected their interests in the Chinese textile market.
As China’s imperial occupants continued to fret over the threats from the European Central Powers, the Republic of China struggled with their newfound “republic”. Sun Yat-sen, the new leader of the Republic of China, was forced to cede the power of the presidency to Yuan Shikai, an experienced military leader under the Qing Dynasty. Yuan’s power was buttressed by his military backing, which was vital for fending off foreign interests and protecting Chinese sovereignty. However, Yuan was deeply rooted in Qing-era governance and frequently acted outside the bounds of Chinese parliament, infuriating the opponents of his Beiyang Government.
You see, Yuan sought to reinstate a Chinese monarchy, opposed to the constitutional parliament implemented and supported by the Sun and the Kuomintang. Not to mention, Yuan had borrowed millions (25 million British pounds, to be exact) in “reorganization loans” from the British and Japanese, defying the country’s budgetary goals and vehemently betraying the interests of the KMT. Finally, in 1913, Song Jioaren, a higher-up in the KMT known for his critiques of Yuan’s government, was assassinated in Shanghai. The conspiracy surrounding Song’s assassination had suspicious ties to Yuan’s inner-circle, further exacerbating the hostilities within the Middle Kingdom.
This tumultuous era under the Beiyang government would ultimately become known as the “Warlord Era”. Provincial leaders (AKA: “warlords”) across China either declared independence from Yuan’s reign or pledged loyalty to the new Chinese Empire. Yuan’s military prowess, however, proved to be too impressive for the decentralized revolutionary movement. Sun, alongside other members of the KMT (specifically his protege, Chiang Kai-shek), fled to Japan to recuperate from their defeat. The Empire of China, nominally speaking, was restored once again.
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The Enemy of My Enemy is My Friend (Pt. 1)
Yuan Shikai would pass away in 1915, further vexing the tumult of Chinese Empire amidst the first World War. Sun, once again, sought to capitalize upon the disarray within the Beiyang, as he returned to the Chinese mainland with hopes of reinstating the Chinese Republic. This time, however, Sun and the Chinese nationalists were much more tactical in their pursuit of reunification.
While the rest of the allied powers officially supported and recognized Yuan (and subsequently, his Beiyang government) the Soviets threw their support behind the Kuomintang, admiring their revolutionary nature (read: the Bolshevik Revolution). More importantly, however, the Soviets acknowledged the potential of a unified communist coalition in East Asia — especially given the encroachment of the Japanese Empire. In turn, ideologues of Soviet principles were able to disseminate principles of communism across China while appealing to the anti-foreign sentiment held by younger Chinese citizens. In fact, it’s often said that the formation of the Chinese Communist Party stems from the May Fourth Movement, a day in which thousands of Chinese college students poured into the streets to protest the concessions granted by the Treaty of Versailles.
However, it was obvious that the communist movement was not big, nor established enough to survive on its own. By 1921, there were approximately 50 members of the CCP spread across East Asia — the most notable of whom being Chen Duxiu, Li Dazhou, and Mao Zedong.
In turn, the Soviets advised that the Kuomintang absorb the nascent, yet burgeoning assemblage of the CCP, articulating the viability of their syndicate while also allowing the communists to retain their CCP membership. The amalgam of the KMT and CCP would create what was known as the United Front. It was the strength of the United Front which enabled Chiang Kai-shek, Son Yat-sen’s successor and eventual Nationalist President, to lead the National Revolutionary Army (NRA) into the Northern Expedition in the late 1920’s. Finally, on October 10th, 1928, the Republic of China was reinstated in the capital city of Nanjing.
Chiang’s Republic, however, would be anything but peaceful, much less unified. Following the death of Sun Yat-sen in 1925, the United Front began to fissure — prying the right (Kuomintang) from the left (CCP) amidst Chiang’s Northern Expedition. Chiang was a traditionalist and distrusted the Western influences (recall that Karl Marx was German and thus, a Western ideologue) driving Communist policy. Purging the communists from his party and country became a priority2, despite the intensifying threat from the Japanese Empire.
No, Not The Drink: The island of Taiwan went by what name prior to the Sino-Japanese War in 1895?
The Enemy of My Enemy is My Friend (Pt. 2)
Chiang’s Nationalist Party (known as the Nanjing Government), was hardly an improvement over Yuan’s tenure. Corruption plagued his administration and warlordism remained ubiquitous in the rural parts of China. Chiang himself had been rumored to have said:
I have observed that many other the staff members do not seem to know what they are supposed to do while others do not know how to work at all. That is why our organization becomes worse and worse. I have often observed that many staff members just sit at their desks and gaze into space, others read newspapers and still others sleep.
Furthermore, Chiang’s unabated obsession with the communists diverted his focus away from Imperial Japan, who had continued to engross economic privileges and territory in Manchuria. Nevertheless, Chiang’s remained committed to expelling the communists.
Chiang’s irruption towards Communist headquarters in Southeast China sparked a mass exodus amongst members of the Communist party. Thousands of CCP members retreated north to avoid the bludgeoning of the KMT. This perilous trek, known as the Long March, resulted in an avalanche of casualties — the elements of the march were simply too dire for most members to survive. Coincidentally, the Communist perseverance within the Long March is also commonly referenced alongside the rise of Mao Zedong.
Mao gained prominence during the peak of Chiang’s reign, highlighting his failure to unify China while calling attention to the corruption and “foreign-ism” present in the Nanjing government. While Mao advocated for a unified Chinese Front against the Japanese, (he would coin the term, “Chinese don’t fight Chinese”) Chiang was myopically focused on exterminating the Communist movement. In fact, Chiang’s desperate pursuit towards Chinese unification teetered on the side of authoritarianism, ultimately provoking two of his subordinates to hold him captive in what was known as the Sian Incident. Curiously, at the request of the Soviets and CCP, Chiang would be released shortly thereafter, demonstrating the vigor of a united Chinese Front.
The second Sino-Japanese War almost decimated the Chinese Republic: Japanese forces obliterated Chinese supply chains and railroads which, in turn, engendered hoarding and hyperinflation across the country. Historians even speculate that the Japanese wagered bio-terrorist attacks against the Chinese, going so far as to poison their water supply and airdropping fleas infected with the Bubonic Plague. Desperately trying to stay afloat, the Chinese Republic continued to “mint currency” in order to fund their (often futile) military endeavors, even as their tax base continued to diminish. Quite frankly, had it not been for the Japanese surrender in 1945, Chinese sovereignty would likely be a distant memory today.
Synonyms: The Sino-Japanese War goes by what name in Chinese culture? Answer below.
Yet, not long after the threat of the Japanese had dissipated, it was clear that the Nationalist Kuomintang was unable to unify China. The country remained stymied by disarray, which was only exacerbated from reeling hyperinflation and economic stagnation.
Mao would leverage the widespread corruption and ineptitude of the Kuomintang in his populist rhetoric, which proved to be wildly popular amongst the Chinese populace, but specifically peasants and rural farmers. As a consequence, the CCP saw explosive growth during the Sino-Japanese War. Communist satellites sprouted throughout the Chinese countryside, even trickling behind the lines of the Japanese invasion. These Communists cadres demonstrate competency and sophistication relative to the KMT— successfully assembling labor unions and marshaling militias against Japanese forces. For many Chinese peasants, the organization under Communist leadership provided an appealing alternative to the reckless rule of the KMT. By 1945, the CCP boasted over 2 million members in their militia with a population of over 90 million.
Eventually, the depleted Japanese force retreated from their Chinese enclaves, conclusively putting an end to the second Japanese-Sino war. Then again, the absence of Imperial Japan opened up another power vacuum within the United Front. This time, however, the Chinese Communist Party indubitably held the upper-hand. As the weakened Nationalists frantically tried to mediate a peace treaty, the People’s Liberation Army (PLA), led by Lin Biao handedly conquered China. By November 1948, Chiang’s Nationalist army had accrued over 400,000 casualties at the hands of Communist rebels, surrendering key territory in Beijing, Shanxi, and Shandong. Not long thereafter, Chiang and his nationalist army would be forced to retreat into Taiwan, a territory which had, until recently, been under Japanese occupation. It is from the island of Taiwan in which Chiang would seek to revive the Republic of China. He would rule the island under a stringent autocracy until his death in 1975.
Meanwhile, on the Chinese mainland, Mao Zedong and the CCP had triumphed — officially formed the People’s Republic of China on October 1st, 1949 and thus concluding the Century of Humiliation.
“Reports of lost battles swirl in like falling snow,” wrote Chiang Kai-shek at the end of 1948. “North China and the below-the-wall region are on the brink of collapse. I do not feel guilty. I tried my best”
(The Generalissimo: Chiang Kai-shek and the Struggle for Modern China, p. 397)
Nixon’s Chinese Vacation
So far, I’ve spent a great deal talking about Chinese history and how it pertains to Taiwan. That being said, I almost certainly missed a lot of information — but — to my credit, it’s hard to cover 100 years of Taiwanese-Chinese history in one newsletter. For brevity’s sake, let’s fast forward to the Presidency of Richard Nixon in the 1970’s:
On this week (2/21-2/28) forty-nine years ago, Richard Nixon embarked on his journey to the People’s Republic of China, marking the first time ever that a U.S. President would visit the newly established communist nation. Nixon had honed in on the People’s Republic as a potential ally amidst the Cold War, as the Americans sought to capitalize on China’s souring allegiance with the Soviet Union. In its own perplexing way, one can trace the beginning of the Korean War to the present-day relationship between the U.S. and China that we know currently.
Following Japan’s surrender, the U.S. and Soviet Union failed to come to an agreement over Korea’s sovereignty. At the minimum, the Northern part of Korea would be backstopped by the interests of the Soviet Union while the Southern part of Korea would be reinforced by the interests of the United States. Korea would remain this way until the two major powers could agree upon a more amicable solution. (Spoiler Alert: They never found a better solution and thus, the Korean War began.)
What I find particularly curious is the way in which Stalin urged the Chinese into the Korean War (framed by Mao as ‘The War to Resist America’). Stalin envisioned a robust communist coalition in the eastern hemisphere, anchored by none other than the Soviet Union. In pursuit of this coalition, Stalin and the Soviets suggested that the PLA throw their support behind Kim Il-sung and the North Koreans as a demonstration of Communist superiority. Mao, in response, requested that the Soviets follow suit, as the PLA’s forces were still nascent and would almost certainly be dwarfed by the U.S. military. Nevertheless, the Chinese plunged into war against the Americans, with negligible support from the Soviets. Mao, in turn, questioned the nature of his relationship with Stalin and the Soviets. By the end of the decade, the Soviets would be the People’s Republic’s cardinal enemy.
Quite frankly, one could argue that it was this hollow relationship between Stalin and Mao which ultimately led to the collapse of the Soviet Union. By the conclusion of the Korean War, little to nothing was accomplished for all parties involved.
Back to the ‘70s....
Understanding the nature of the Soviet-Sino dynamic (and the weight of a Sino-American alliance to combat Soviet influence), Nixon sought to reopen bilateral relations with Mao and the People’s Republic. In doing so, Nixon agreed that the U.S. would establish a “One China” policy (tangentially derived from the One China Principle), which stated that the U.S. would only officially recognize one Chinese nation. This provided a stark contrast to the diplomacy of the decades prior, where previous U.S. administrations had supported and recognized Chiang’s nationalist republic (The Republic of China). While the U.S. continued to protect Taiwan’s sovereignty through strategic positioning in the South China Sea, the One-China Policy would remain mostly in-tact up until the turn of the 21st century.
Today in Taiwan
To be clear, the One-China Policy is chiefly designed as a peacemaking pact between the two governments. Even some Taiwanese legislators adhere to this principle, yet remain steadfast in their belief of Taiwanese independence. Even as the U.S. only recognizes one official China, the American government continued to support their safety and independence through informal economic and military partnerships. Predominantly, The American Institute in Taiwan (AIT), a private, non-profit company focused on procuring diplomatic partnerships in Taiwan, acts as the medium in which U.S. influences Taiwanese policy. It’s clearly been effective!: Taiwan is America’s ninth largest trading partner.
Indeed, the most drastic shift within Taiwanese-U.S. relations has occurred just this past decade, with the Obama administration brokering a $1.8 billion arms deal with Taiwan in 2015 only to be followed up by then president-elect Donald Trump’s phone call to President Tsai Ing-wen in December of that same year3. Assuredly, this move drew ire from Chinese officials who felt that the call violated the One China Policy.
The People’s Republic has continued to assert their preeminence over the island, despite Taiwan’s three decades of prosperous democracy. The sentiment held by Chinese mainlanders can be best reflected in their unnerving military presence in the South China Sea. Nevertheless, the United States, amongst allies have remained committed to protecting the democratic island.
Asked in the ABC interview if Washington had an obligation to defend the Taiwanese in the event of attack by China, which considers the island a renegade province, Bush said: "Yes, we do ... and the Chinese must understand that. Yes, I would."
When asked whether the United States would use "the full force of the American military," Bush responded, "Whatever it took to help Taiwan defend herself."
China declined immediate comment about Bush's statements. "We have noted this point," a Foreign Ministry spokesman told Reuters. — CNN, 2001
The contest of reunification is still widely debated today. Incumbent president Tsai Ing-wen, of the Democratic Progressive Party (and the first Taiwanese woman president), has unabashedly supported Taiwanese independence, even at the ire of some of her more conservative compatriots. That’s not to say the conservatives support complete reunification. Rather, the conservative movement (which is, coincidentally, the modern day Kuomintang) is underscored by a desire for formal relations with the mainland. Tsai’s predecessor, Ma Ying-jeou, drew heightened criticism when he met with Chinese President Xi Jinping in 2015. Tsai Ing-wen, in contrast, has been accused of being an ‘Independence extremist’ by her political opponents.
He Who Controls the Spice Controls the Universe
If software is eating the world, then [semiconductor] chips are its teeth. — Ben Thompson, Stratechery
Democratic principles aside: Why is the United States so keen on protecting Taiwan? Of course, there is the moral obligation of the United States to protect democracy4 across the world. However, Taiwan also serves an incredibly pivotal role in the digital economy:
Taiwan is indubitably the world’s largest semiconductor hub. The nation’s largest semiconductor manufacturer, known by the eponym Taiwan Semiconductor Manufacturing Co. (TSMC), produces over 50% over the world’s microchips. Microchips, in our increasingly digitized economy, serve as the building blocks for all electronic hardware. These chips can be found in your phone, your car, your homes, and even your coffee maker.
Coincidentally enough, Taiwan’s semiconductor prowess stems from the tutelage of American technology giants. In the early 1970’s, the Taiwanese government, acknowledging the economic potential of the electronics industry, formed the Industrial Technology Research Institute as a means of sourcing technological employment and manufacturing for Taiwanese citizens. Not long thereafter, former employees of the Radio Corporation of America (AKA: RCA, which was ultimately acquired by GE in 1985) recommended that Taiwan start to develop their own integrated circuits. Shortly thereafter, RCA officially agreed to transfer their semiconductor technology to the ITRI, jump-starting Taiwan’s chip-making industry. Executives of Taiwan’s microchip producers have almost unanimously agreed that it was this vessel that helped buoy the nation’s semiconductor capacity. Semiconductors, quite frankly, are a bastion of human ingenuity. Stacy Rasgon, a semiconductor analyst at Bernstein, was quoted as saying, “I’m amazed any of this technology works at all!” on the Odd Lots podcast.
Pure Volume: Can you guess how many microchips were sold in 2019? Answer below.
Yet, the concentration of the world’s semiconductor supply chain poses a separate dilemma for the world’s technology industry. As shown in the headline above, shortages in semiconductor supply chains may retard the inevitable transition to electric vehicles. It is certainly no coincidence that the PRC, the United States, and the E.U. have recently prioritized chip manufacturing as an economic objective. TSMC alone has planned nearly $30 billion in capital expenditures in 2021, including multibillion dollar fabrication plants (fabs) in Austin, TX and Phoenix, AZ.
Nevertheless, the prospect of a Chinese invasion of Taiwanese rings perilous for international commerce. It is almost certainly in the best interests of the free world for Taiwan to be an independent nation, free from the direction of the People’s Republic.
Trivia:
Beeps & Boops: Taiwan was able to host Road to Ultra Taiwan in 2020. Look how many people!
No, not the drink: Taiwan was originally known as the island of Formosa.
Synonyms: The second Sino-Japanese war is known in China as the ‘War of Chinese People’s Resistance Against Japanese Aggression’.
Pure Volume: Over 300 billion microchips were sold in 2019, roughly 40 chips for every person.
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**None of this should be taken as investment advice. Do your own research or speak with an advisor before investing in emerging markets.**
Although this is changing!
This isn’t to say Chiang was pro-capitalist, either. Chiang was a vocal critic of the foreign capitalist system in China.
Tsai has expressed that there had been no major policy shift following the Trump call, demonstrating the U.S.’ continued support to Taiwan.
Whatever you’re going to say — just know, that I know.