China economist says trade war can break Taiwan

Beijing, Mar 8: Without firing a bullet, China can force Taiwan to its knees in a week with a massive trade war in the event the self-ruled island formally declares statehood, a prominent Chinese economist said.

Many analysts say China would shoot itself in the foot by launching an economic war against a major trading partner and investor. But the scenario painted by economist Hu An'gang was a grim reminder of the island's ever increasing economic reliance on its giant neighbour.

Hu, director of the Centre for China Studies at Beijing's prestigious Tsinghua University, likened Taiwan to a diabetic who needs a daily dose of insulin, trade, to survive.

''Taiwan has daily intakes of trade surplus with the mainland.

Stopping it for five to six days would do the job,'' Hu told Reuters.

''We have simulated a trade war. It will be fatal to Taiwan,'' said Hu, who advises the Government but insisted the scenario was his personal view. He did not specify measures.

Taiwan posted a trade surplus of .56 billion with China last year, dwarfing its total trade surplus of .82 billion and up from .56 billion in 2004, according to figures compiled by Taiwan's Finance Ministry.

The island amassed a surplus of 4.12 billion with China from 1995 to 2004, Taiwan's Economics Ministry figures show.

But from Berlin to South Africa to Cuba, sanctions have failed in the past to cripple economies.

A trade war between China and Taiwan could badly disrupt Asia's production chain in the short run as components made in Taiwan and elsewhere for computers and other high-tech goods are typically assembled in China before they are shipped overseas.

But the flexibility of multinational manufacturers with factories around the globe should enable them, after a time, to make new arrangements, just as they did last year by shifting textile production elsewhere in Asia after the United States and the European Union imposed export quotas on China.

FLASHPOINT

Still, tensions have been simmering in the Taiwan Strait, one of Asia's most dangerous flashpoints, since Taiwan President Chen Shui-bian scrapped official guidelines and a dormant but symbolic body on unification.

Chinese leaders condemned the move but did not repeat ong-standing threats to attack if Taiwan went independent.

An anti-secession law passed by parliament last year would authorise non-peaceful measures, war, if Taiwan did so.

Hu believes military conflict may not be needed.

''We are very confident Taiwan will pay a high cost if you become independent,'' Hu said. ''We don't need to attack you. We just suspend trade for one week.'' ''Going to war is our last card ... Trade is the biggest war in this period of economic globalisation.'' China and Taiwan split at the end of the civil war in 1949, but trade, investment and tourism have flourished since the late 1980s, albeit routed mostly through Hong Kong.

Thousands of Taiwan investors have poured up to 0 billion into China, lured by a common language and culture as well as low labour costs and the mainland's proximity.

Despite decades-old trade and travel curbs imposed by a Taiwan worried about its security, the island's exports to China hit a record .65 billion last year, accounting for 22 percent of its total exports and up 20 percent from 2004.

Taiwan's Mainland Affairs Council declined to comment. Lin Chong-Pin, a former council Vice-Chairman, saw it as an indication China is searching for extra-military options.

''Technically, it is increasingly feasible, but I don't think Beijing will do it because it is counter-productive,'' Lin said.

''The overall long-term strategic goal is to win the hearts and minds of Taiwanese people. The military option is the worst (case scenario),'' he said.

REUTERS