Federation: The Best Choice for
Taiwan & Mainland China
George Zhibin Gu
13 May 2005
The realities between Taiwan and mainland China are
"economically hot, politically cold". Their
ever-increasing economic ties demand far better political
relations. One highly feasible resolution is a "federation".
Would it work? The answer: economically, the time is
right; politically, it is only few steps away.
A federal system would mean more autonomy for Taiwan
than Hong Kong and Macau enjoy; for Beijing it would
mean the revolutionary concept of a unified China with
multiple power centers. Under a federal system, the
island would keep its own government, military, judicial
and other systems. Its political leadership would not
bow to Beijing. In short, it would be a political partnership
between equals. Both political entities would be subject
only to a "federation" law. And anything is
open for discussion under the "one China"
Taiwan's love affair with the mainland
Economically, Taiwan and mainland China are well connected.
The mainland is Taiwan's biggest trading partner as
well as its No 1 export market. In 2004, total cross-strait
trade reached US$61.6 billion, a jump of 33.1% over
2003; of which Taiwan's exports accounted for $45 billion,
by Taiwan's own accounting.
Besides ever-increasing trade, investment is another
major activity. In 2004 alone, Taiwan Inc invested $6.94
billion in the mainland. Officially, Taiwan's total
investment stood at about $40 billion by 2004. But some
people estimate it as high as over $100 billion. This
discrepancy in numbers comes from numerous government
restrictions on Taiwan investment in the mainland; as
a result, many members of Taiwan Inc may go to the mainland
from a third location. One popular way is via tax-shelter
Behind the ever-increasing trade, there is an ever-increasing
tide of investment from Taiwan Inc. The mainland is
its biggest destination already and it now has over
60,000 Taiwan enterprises. It also has more than 1 million
Taiwan residents as well. Shanghai alone has more than
300,000 Taiwan residents. Living and working opportunities
in the mainland will only increase for the Taiwan residents,
as there are more opportunities for them over there.
This cross-strait trade has made a huge difference
in the island's economic health. Lately, nearly all
the island's growth has been attributed to mainland
trade. In particular, cross-strait trade has created
1 million jobs in Taiwan. There are vast additional
benefits as well.
In reality, there is huge room for improvement, as
there are numerous restrictions in Taiwan opposing bilateral
trade and investment. For example, its largest energy
company, China Power, is allowed only to buy up to one-third
of the coal it needs from the mainland. As a result,
China Power must spend more money to buy the additional
coal from places far away. If such bans were lifted,
cross-strait trade could easily double. In reality,
better political ties are demanded for both sides to
enjoy all the benefits from their huge economic cooperation.
A big step towards a solution
Like Hong Kong and Macau, Taiwan is moving fast in
integrating its economy with that of the mainland. This
process has been accelerating year after year. Taiwan
has gained enormously and its economic benefits will
directly promote better political relations.
The current cross-strait difficulties are caused by
the unfinished business of the long-term civil war between
the Communist Party and the Kuomintang (KMT), the nationalist
party that lost the Chinese civil war and fled to Taiwan.
For now, the KMT has become more involved, officially
visiting the mainland.
Despite all the political uneasiness, the general direction
can hardly be reversed. Indeed, in the past six decades,
there have been dramatic improvements, from past exchanges
in bombshells to vast human and economic exchanges,
as is the case today.
Simply put, more rational measures will only offer
the island's political leadership more advantages. Despite
all the frictions between Beijing and Taipei, the roads
for peaceful resolutions are wide open. The recent trip
to the mainland by the Kuomintang chairman Lien Chan
is a very healthy start. It also opens a wider door
for more direct exchanges between Beijing and Taipei.
Immediately following Lien's trip, James Soong led his
People First Party for an extensive trip in the Mainland
as well. All this opens a brand new chapter for both
For both parties, being Chinese is their greatest strength
and nothing is more significant. For now, there are
also positive signs from Taipei. In particular, Taipei
is considering widening access for mainland Chinese
tourists. Also, more political groups from Taiwan are
on their way to visit the mainland. As such, widening
peaceful contacts and dialogues are emerging. All this
points to bright prospects for both sides.
In the long run, the most crucial factor determining
the ultimate outcome of the unity issue is sustained
progress in the mainland, both economically and politically.
A progressive and prosperous mainland China will change
all the dynamics in the cross-strait relations. Happily,
by now, mainland China is entering a new era of deepening
institutional and political reforms, besides possibly
new rounds of economic advancement. This will fundamentally
enhance a peaceful resolution of the unity issue. At
the same time, the choices to bring about unity are
also vast. They include the choice of a new federation
for China, for example. As a matter of fact, it is the
best choice on the table.
The central concern is that the island's government
is afraid to become a "local government" under
a central government from Beijing. Instead, it wishes
to maintain itself as an independent political center,
having all the autonomy possible. It wishes to keep
its independent government body, military, currency
and judicial systems, among other things. In short,
it does not intend to be subject to a higher central
For Beijing, the concern is more about political unity.
It has become very pragmatic in its thinking and dealings.
In its mind, anything can be and should be discussed
provided that there is one China. This position of Beijing
means that it has walked out on the traditional mentality
that a unified China must be governed under one centralized
government. This change in mentality and policy lays
down the very political foundation for a federation.
Already, Hong Kong's and Macau's returns to China are
exemplary. The situation is different from the United
States federal system, for example. In the US, the governor
of New York State is elected by the state's residents
and his actions are independent of the central government
in Washington, DC. However, federal law overrides state
and local statutes. Financially, the central government
levies a federal tax on New York residents. But in both
Hong Kong and Macau, Beijing does not have tax claims
over those residents living in those highly self-governed
cities, though politically, Beijing remains as the central
However, the good will of Beijing goes far beyond the
degree of autonomy for Hong Kong and Macau - as far
as the special case of Taiwan is concerned. Indeed,
Beijing's position is that Taiwan can gain much more
autonomy in the future. For a long time, Beijing has
been proposing that the island maintain its government
and key institutions. Its political leadership would
not be subject to Beijing. Both political entities would
be subject only to a "federation" law. Anything
could be discussed under the "one China" principle.
So, China has already moved toward a federation, though
Beijing has not used the word "federation."
This "federal" approach is revolutionary
for China, as it has never happened before. It means
that a unified China can have more than one political
center. Indeed, Taipei will become another political
center under a federation. Gaining multiple political
centers would certainly be new to all Chinese. But this
is demanded by the current realities and it is the best
possible resolution that accommodates the needs of the
various political entities.
Would this federal alterative do Taiwan any good? It
certainly would. Above all, it gets rid of all unwanted
political tensions and offers all the opportunities
for Taiwan. In short, the island's political establishment
would gain all the advantages, while keeping all its
existing positive institutions and ways in a federation.
Otherwise, continued cross-strait tensions will cause
unnecessary damages, even catastrophic damages, if they
Hostility toward mainland China with 1.3 billion Chinese
would be most irrational as well as unacceptable to
all Chinese around globe. But a change in mentality
as well as approach would open the doors to a better
Above all, they are all Chinese, separated only by
an unfinished business of a painful civil war. Now,
the Chinese people have all the opportunities to move
forward creatively and productively. It means a peaceful
unification for the Chinese people living on both sides
of the Taiwan Strait. It roots out all the elements
for political tensions and the unwanted consequences.
Both sides will benefit directly from peaceful unity.
This great prospect of a federal alternative has emerged
at this time.
The rational resolution of the cross-strait tension
will enhance global peace and progress, not just for
China. For many decades, and even centuries, the Taiwan
issue has been a key de-stabilizing factor for East
Asia and beyond. A peaceful and progressive outcome
would bring benefits to the entire world. So, therefore,
the outside world has every reason to be supportive
and constructive in promoting the federation concept.
(Copyright 2005 George Zhibin Gu.)
George Zhibin Gu is a business consultant based in China.
He is the author of a forthcoming book, China's Global
Reach: markets, multinationals, and globalization (Haworth
Press, Fall 2005). Email: email@example.com