The Geopolitical Conflicts of The Asia-Pacific Region and The Globalization


Chih Kwan Chen

(April 29, 2005)

1. Overview

Currently, the United States and Japan on one side and China on the other side are locked in a geopolitical conflict that may have serious consequences for the current globalization scheme. Before we get into the details of the geopolitical conflict, its historical roots and its possible future courses, let us review the reality of the current globalization scheme in order to refresh the memories of readers.

Japan is the major capital exporter manifested in the form of its enormous trade surplus. Taiwan's trade surplus and thus its capital exports are less than Japan's, but considering its small population, its per capita capital exports are much more impressive. The capital flowing out of Japan and Taiwan goes into China, transforming China into an industrial giant. Massive amounts of consumer goods produced in China then are exported to and are sustaining the explosion of the trade deficit of the United State. In this setup the United States is the final destination of the capitals flown out of Japan and Taiwan. With the huge trade deficits that are equivalent to the borrowing from Japan and Taiwan, American consumers can spend and consume much more than their own production entitled them to. Furthermore, cheap consumer goods exported from China and other places have suppressed inflation, and thus have kept interest rates low for a very long period. As a result, stock market and real estate speculations run rampant and the net asset value of the entire United States is boosted up rapidly (see Comment 18 posted on this website for this matter). The capital exporters, Japan and Taiwan, are experiencing the opposite effect of American prosperity, that is, a persistent stagnation in domestic consumption. After all there is no free lunch in economics. The windfall in American consumption is the other side of the coin of the stagnation of consumption in Japan and Taiwan. China is the major benefactor of this process of transferring consumption power from Japan and Taiwan to the United States. As global capital flows out of Japan and Taiwan and through China, underutilized Chinese labor resources are engaged, and a vast amount of wealth is produced in the form of finished consumer goods. Though the major part of this wealth created in China must be re-exported to America so that the global capital flow can reach its final destination, a substantial part of the wealth created is retained within China. The major part of this retained wealth goes into infrastructure investments like real estate, highways, railroads, bridges, steel mills and power plants, as well as factories to make more goods for exports. This trend has substantially boosted China's demand for raw materials and is a major reason of the rapid rise of the global commodity prices. This trend also boosts the Chinese imports and holds down the overall trade surplus of China, though the Chinese trade surplus with the United States is exploding. In the meantime, the retained wealth is enabling China to modernize its military rapidly.

Let us do some simple algebra first. Assuming that China's real GDP will continue to grow like 9% a year and its inflation rate plus the rate of appreciation of Chinese Yuan is 5% a year, in 20 years China's nominal GDP will grow to $22 trillion from the current $1.6 trillion. Assuming a growth rate of 6% a year, the nominal GDP of America will be around 32 trillion dollars in 20 years. Japan must continue to transfer its own consumption power to America so that the American GDP can grow to $32 trillion in 20 years. This means that Japan must continue its perpetual stagnation and its nominal GDP will stay around $5 trillion, its current value, for the next 20 years. China has maintained the communist system in the past 20 years in the face of moving toward a certain kind of market economy. The policy makers of America, as their worst-case scenario, must assume that China will be able to maintain its current Communist system for another 20 years. Since the Communist system can divert a larger fraction of GDP to military use than the chaotic democratic system, the policy makers realize that China's military might will surpass that of America and Japan combined in 20 years.

Then there are even scarier scenarios for the policy makers. As the globalization scheme runs its course, China, as an economic giant, must absorb almost all the manufacturing jobs from America and even from Japan to sustain its rapid growth. America will turn into an empty shell as sarcastically depicted in Article No.7, titled "The Globalization Utopia", posted on this website. Another big worry is Taiwan. Taiwan has climbed the economic ladder serving the role that China is playing today, that is, as the surrogate exporter of Japan. However, with a much smaller labor resource and a democratic system that allows citizens to be hypersensitive to pollution of the environment, Taiwan ceased to be a heaven for export industries a long time ago. The low-tech and medium-tech industries of Taiwan have migrated into China to take advantage of inexpensive labor costs and loose environmental controls. Now is the turn of Taiwan's high tech-industry to pound their government into letting them also migrate into the bosom of Communist China. If that happens, Taiwan will become an empty shell and will naturally be absorbed into China, and Chinese industrial and military powers will receive an enormous boost. If the Taiwan Strait is completely controlled by China after absorbing Taiwan as one of its province, Japan's lifeline, oil imports from the Middle East, the majority of which pass through the strait, will be firmly controlled by China, too. If that worst-case scenario becomes reality, then both Japan and America will be kowtowing to China in 20 years and will probably be transformed into Chinese-style Communism not long after. That is why suddenly the talk of the rearmament of Japan has heated up, and why America and Japan openly declare that Taiwan is included in the scope of Japanese-American mutual defense treaty. We should note that the saber-rattling of the America-Japan alliance with regard to Taiwan is a 180-degree turn from the American policy of the past 30 years. Past American policy was to downplay and humiliate Taiwan to appease China, as manifested in the Nixon-Kissinger and Carter-Berzinsky way of thinking. Now America and Japan want Taiwan to utilize its huge foreign currency reserve to buy massive amounts of American weapons and to turn Taiwan into a fortress against Communist China. It should be noted that the talk of Japan's rearmament is still just talk; the amendment of Japan's pacifist constitution is required for that event to occur. However, the action around Taiwan is real. That is why China lists the problem of Taiwan as one of the two major reasons of the very recent anti-Japan mass movement in Chinese cities. The anti-Japan movement should be understood with the above background kept in mind. We will detour to the historical background and the current situation of each party involved in this conflict in order to gain a better understanding about the future courses of the events.

2. Japan, then and now

Japan is a society difficult to comprehend. The media is dominated by a handful of entrenched major newspapers. The editorial offices of these major newspapers are untouchables. They are protected by court rulings so that owners of the newspapers have no say about who should be hired or fired. Thus, the editorial offices of those newspapers form their own kingdoms whose ideology can be frozen and passed down from generation to generation. Other than those major newspapers, the opportunity to view or read hardcore news is very limited. In broadcast media, if one wants to view hardcore news, he must turn to the public broadcaster, NHK, or to the English channel, CNN Japan. The major newspapers of Japan do not carry many advertisements. Their major revenues come from their large subscription bases. At that point one may think that those major Japanese newspapers represent Japanese public opinion. However, if that were the case, the Japanese populace would have elected a socialist government a long time ago. During the dominance of the old Japanese Imperial Military, most Japanese went along with militarism and sided with Japanese aggression against China and other Asian countries. Only leftists opposed such moves and were brutally suppressed. After the defeat of the Japanese military in the hands of the Allied forces, the newly freed leftists were the only ones with moral authority to denounce the past atrocities committed by the Japanese Imperial Military. However, Japanese leftists toed the line of the international Communists and considered their first duty as to turn the Japanese populace against America, the archrival of the Communists. Thus, major Japanese newspapers relentlessly painted a picture of America as the aggressor and Japan as the victim, as manifested in the Hiroshima and Nagasaki atomic bombs. Apparently, it was inconvenient to dig up and to reflect on the wartime atrocities committed by Japanese Imperial Military; otherwise, the Japanese populace would view their own military as a monster, and then by pure logic, America, who defeated that terrible military, must be the hero. The left-leaning social scientists of major universities, who have the absolute power to decide what type of problems to give in the all important entrance examinations, have rarely touched upon the history of Japan's military aggression against its Asian neighbors. The left-leaning secondary school teachers have also ignored their duty to teach students about the history of Japanese incursion into Asia, though such mentioning has been included in most history textbooks for a long time. As a result, the younger generations grow up with a blank knowledge about what the Japanese Imperial Military did before and during the last World War; we may call this trend a literal "white wash" of memory.

As there are leftists, naturally there are right wingers in Japan. The right wing reveres the "good old times," that is the time of Japan's Imperial Military era. Though the modern Japanese military, called the "Self-Defense Force," is an efficient and professional fighting force modeled after the American military system that does not aspire to dictate the country as did its Imperial counterpart, the right wing strongly supports abolishing the pacifist constitution and rearming Japan. They regard the aggression of the Imperial Military as liberation of Asian countries from the colonialism of the Western world and deny any significant atrocities committed by the Imperial Military. Their attitude towards America is complex. Many of their sympathizers in the ruling party are strong supporters of the Japan-America mutual defense treaty. On the other hand, leftists and major newspapers are against the military and the Japan-America military alliance.

Some may ask about the middle political spectrum between the right and the left. The group with a tilt towards the right consists of political power brokers who have controlled the ruling party for many decades. Many of these political power brokers come from rural areas that have been overrepresented in the Japanese political system due to the steady shift of population from rural areas to urban cities like Tokyo. The Japanese constitution only mandates the conduction of general censuses to reflect population change and the redrawing of election districts but does not mandate how frequently the censuses should be taken. Therefore, the overrepresentation of rural areas and the severe under representation of the urban regions can continue for many decades, essentially from the 1950's until today. Those power brokers hang on to power by channeling a disproportional national wealth to rural areas in exchange for their political support. Then there are other power brokers with the support of various factions of bureaucrats, like the faction of the Postal System (Japan's largest financial institute), the faction of the powerful Ministry of Finance, and so on. These power brokers have ruled Japan for decades and nurtured Japan into an economic giant. However, they are very timid in their political ideology and mostly hide under the military umbrella of America to do nothing. They are afraid to fight for the revision of the pacifist constitution, though many of them apparently sympathize with right wing ideology to a certain degree and want to build up more military power. They are afraid of angering China for fear that Japanese business circles will blame them for spoiling their business opportunities in China. Though many of the power brokers are friendly to Taiwan, they do not hesitate to downplay Taiwan in order to curry favor with China. It was during the long reign of those political power brokers Japan earned the renowned nickname, "an economic animal." The mildly left-leaning social democrats are few in numbers and do not play a significant role. Then there is a party that derives its support from a religious sect called "Sokaigakkai." As support for the ruling party wanes after its near half-century reign, it is hanging on to power by forming a coalition with that religion-based party.

The Japanese have sustained their support for the pacifist constitution not from regret about the aggression of militarism and the suffering inflicted on their neighbors but from their own terrible wartime sufferings. As time passes and the Japanese economic power increases, the wartime sufferings have faded away into the distant history. The younger generations with "white-washed" memory only see the fact that Japan contributes large sums of money to international causes but always defers any significant decision making to America or just tries to appease China while giving China a substantial amount of economic aid every year. Public dissatisfaction with the power broker's timid approach has mounted. In conjunction with the retreating esteem of the leftists accompanied by the collapse of the Soviet Union, Japan's public mood has swung considerably toward the right wing ideology. This mood change is eminently reflected in the election of an author turned politician as the governor of Tokyo, supposedly in the heart of a liberal urban area. The governor's ideology is strongly synchronized with that of the right wing. Under the same public mood change, a maverick has succeeded in pushing aside all the political power brokers in the ruling party to become prime minister. The prime minister advocates an activist diplomatic role, an enhanced military force that will participate in international peacekeeping missions, and revision of the pacifist constitution. He also pays an annual pilgrimage to the Yasukuni shrine. This Shinto shrine is the resting place of the ashes of millions of Japanese soldiers killed in past wars, including the ashes of high leaders of the Imperial Military that were prosecuted as war criminals by the Allies. Visits to the shrine by high-ranking officials have always touched the nerve of neighboring countries that have suffered from the past aggressions of Japan but been hailed by the right wing of Japan. Also, under the watch of this prime minister, a textbook synchronized with the ideology of the right wing, accused of whitewashing the wartime atrocities committed by the Imperial Military, was approved as an optional choice in the Japanese secondary education system. The view of the prime minister with regard to Taiwan is synchronized with the right wing ideology that does not see Taiwan as a part of China. It is logical to conclude that the prime minister really does not want to see Taiwan absorbed by China, whether by force or by peaceful means, as long as China poses a substantial military threat to the Japan-America alliance. The issue of North Korea's nuclear weapons is clearly pushing Japanese public opinion further towards the modification of its pacifist constitution and towards the rearmament of Japan. That is how the situation stands in Japan today.

3. China, a partial account

On the eve of the all-out Japanese invasion in 1937, China was engulfed in a civil war between the Nationalists and the Communists. Chinese Communists led by Chairman Mao were held up in a remote area called Yen-An and were surrounded by Nationalist troops under the command of General Chiang Kai-Shek. According to the documents of the Imperial Japanese Military released after the war, the Japanese military was worried about the imminent victory of Chiang Kai-Shek over the Communists and the loss of the chance for Japan to conquer China after Chiang's unification of China. Chiang Kai Sheik at first refused to release the communists from the siege to form a united front against the Japanese invasion. He only did that under the threat of his life when kidnapped by the commander of the northern front against the Japanese during his inspection of that front line. The commander was later hailed by Communist China as the savior of Chinese Communists.

It was the Nationalists who suffered the severest casualties from the full-fledged attack of the Japanese army. The infamous Rape of Nanjing was aimed at the capital of the Nationalists, the city of Nanjing. Chang Kai-Shek did not give up under the heavy attack of the Japanese army and the heavy loss of lives of both soldiers and civilians. He withdrew deeper and deeper into the Chinese interior and continued fighting the advancing Japanese army. The Japanese army was forced to occupy a huge portion of China with their soldiers spread thinly and soon lost the momentum of their lightening assault. Since the Japanese army was only able to occupy cities and major towns of the vast China, rural areas were abandoned to the Communists. Thus, after the war, the invigorated Communists were able to easily defeat the exhausted Nationalists and take over all of China except for Taiwan.

Since the formation of Red China, Chinese Communists have not allowed the Chinese populace to openly display their anger against the Japanese invasion in the form of spontaneous mass demonstrations until the current anti-Japan mass movement. There also has been no systematic effort to research and tabulate actual Chinese casualties from the Japanese invasion. Chinese textbooks emphasize the role of the Red Army in defeating the Japanese invasion but downplay the part the Nationalists played. Even the territorial dispute with Japan about a group of uninhabited islands north of Taiwan and east of Zhejiang province was first brought to attention by a group of activist Hong Kong students in America in the early 1970's. These activist students tried to pressure Taiwan to dispute with Japan at a time when Japanese capital had started to flow into Taiwan, but they never asked China to lift a finger to confront Japan over the disputed islands. Thus, the movement quickly fizzled out, and the overwhelming majority of the Chinese populace was kept in the dark about the dispute. Years later, some activists tried to revive the movement by launching ships from the northern port of democratized Taiwan or even farther away from Hong Kong to stage symbolic landings, carrying the flag of Red China, but China never allowed the activists to use the sea ports on the east coast of China. It is only because of the discovery of natural gas around the seabed of the general area that the sovereignty of the islands has become a big issue again. From the above analyses, we believe that the current permissiveness towards the public airing of anti-Japan sentiment probably has much to do with the talk of the rearmament of Japan and the open disclosure of the Japan-America military alliance to include Taiwan in its scope than anything else.

4. Taiwan, from the past to the present reality

The massive emigration from China to Taiwan started at the end of the Ming Dynasty some 400 years ago. The immigrants to Taiwan before the Japanese takeover are called the "people from the native province" or just "native Taiwanese", as distinguished from the aboriginals who have lived in Taiwan for much longer and have been overwhelmed by wave after wave of Chinese immigrants. When imperial China lost a war with Japan near the end of 19th century, Taiwan was officially given to Japan as a colony. After the defeat of Japan in World War II, the sovereignty of Taiwan reverted to China. Shocked and dismayed by the ragtag and undisciplined Nationalist troops sent to Taiwan to replace the occupying Japanese troops and the high-handed way of governance of the Nationalists' military commander, native Taiwanese staged a mass demonstration that was brutally suppressed. Since then, the aspiration to an independent Taiwan has become the goal of many native Taiwan activists and the movement is called the Taiwan Independence Movement.

Chiang Kai-Shek and his followers fled to Taiwan in 1949. They are called the "people from foreign provinces", or simply as the "mainlanders". The mainlanders compose 15% of the total population of Taiwan. Abandoned by the Truman administration, dispirited from the defeat in the civil war with the Communists and constantly in fear of imminent cross-strait attack by the Communists, the mood in Taiwan for the first few years was desperate. Only after the breakout of the Korean War and after the Truman administration ordered the Seventh Fleet to patrol the Taiwan Strait did the situation in Taiwan stabilize. Possessed with fear of Communist spies are lurking on every street corner, haunted by the experience from the civil war with the Communists, and worried about the Taiwan Independence Movement, the Nationalist government resorted to military law and authoritarian crackdown. This era lasted essentially until the democratization of Taiwan at the end of the 1980's, though the degree of authoritarian crackdown was eased somewhat at the latter half of the period. That whole period is now called the era of the White Terror. During the first half of the age of the White Terror when the old-timers ruled, Taiwan pushed through the land reform that has helped to stabilize the society of Taiwan enormously. However, industrial developments were not on the agenda, since the old timers firmly believed that they would counter-attack and victoriously return to mainland China soon; thus, they regarded Taiwan just as a temporary resting place. After the old timers faded away and the son of Chiang Kai Sheik took over, the dream of counter-attack was gone and the industrialization of Taiwan became the top priority. Taiwan invited Japanese companies to come in to set up factories in order to produce goods to be exported to America. Many Taiwanese at that time still spoke Japanese and had a nostalgic feeling towards the Japanese people, probably from repulsion against the authoritarian rule of the Chiang family. Japanese businessmen found a welcoming environment in Taiwan, and economic cooperation with Japan became a smashing hit. Thus, Taiwan climbed the economic ladder rapidly and "made in Taiwan" goods flooded the American market for quite a while. We call this mode of development, that is, to serve as a surrogate exporter of external capital, as the "Taiwan model" that has been imitated by many other countries, including China, later on.

It is precisely due to this economic miracle derived from the Taiwan Model that Taiwan was able to weather two gigantic storms (for Taiwan). The first one was the replacement of Taiwan with Red China as a UN member that initiated the road of diplomatic isolation of Taiwan, and the second one was American recognition of Red China and the cutoff of diplomatic relations with Taiwan. It was a big surprise for many external observers that Taiwan managed survive that stormy period and prosper, and probably especially so for the American diplomats of the Nixon-Kissinger and Carter-Berzinsky eras.

During the eras of White Terror, Taiwanese businessmen could only invest in mainland China covertly. Near the end of the White Terror, Taiwan's wages had risen to a level that made labor-intensive export industries obsolete, so many businessmen longed to move their factories to China. In 1989, when President Lee, a native Taiwanese, took over and started the process of democratization, he openly declared that Taiwan businesses should aggressively invest in China, probably without deep understanding of what he was talking about. This opened the floodgate for Taiwan industries to move their factories wholesale to China, and thus the name "Taiwan merchants" was born. It is due to the combination of the capital and the know-how of Taiwan merchants with the low cost labor of China that China has suddenly become an industrial power that can flood American markets with inexpensive consumer goods and drive many American factories into oblivion. Taiwan merchants have also enhanced the military capability of China enormously by rapidly industrializing China. Faced with the menace from China that is created by his own folly, President Lee tried to close the door on the Taiwan merchants' migration, but it was like closing the barn door after the horses have already fled. Taiwan's economic fate was temporarily saved by the return of computer-related high tech talent from America in the mid-1990's that has transformed Taiwan into a high tech hub (see Comment 19 on this web site for the related matter). Currently Taiwan is sustaining itself by exporting parts and know-how to the Chinese export engine. Bluntly speaking, among all those parts suppliers and all the remaining industries in Taiwan, there is probably not a single one that cannot be relocated to China to take advantage of the lower labor cost and looser environmental controls. Thus, as long as globalization continues its course, it is just a matter of time before Taiwan is absorbed economically into China, and the political absorption of Taiwan as an integral province of China will inevitably follow.

Currently, about one third of Taiwan's population is staunchly pro-Taiwan Independence Movement. Only a handful, including many Taiwan merchants and some high-tech businesses still strangled in Taiwan, wants to be unified with China immediately and become a second Hong Kong. The majority, though they do not want to give up their newly won freedom to be subjected to the authoritarian rule of Communists, are mortally afraid of fighting with China. They are also extremely skeptical about America's promise to defend Taiwan in the event of China's all-out military advance after experiencing so many American betrayals and letdowns. This attitude of the Taiwan majority is already manifest in the defeat of the ruling party, that is the pro-Taiwan Independence Movement party, in the most recent election of the legislative body. The defeat of the ruling party means that the plan to purchase a large amount of American weapons cannot be put into action, thus handing the Japan-America military coalition a serious setback.

5. American policies and more about China

A consistent theme of America's policy with regard to the Asian Pacific Rim has been to ally with Japan. However, America's policy toward China and Taiwan will make observers dizzy. In the midst of the civil war between the Nationalists and the Communists in China after the defeat of the Japanese military, the Truman administration quickly wrote off the Nationalist regime as corrupt and hopeless. Its policy makers dreamed that Chairman Mao was a moderate democrat disguised as a Communist. Of course, that wishful dream was quickly dashed when the Korean War erupted, and Truman administration ordered the Seventh Fleet to patrol the Taiwan Strait to prevent Communist China's attack against Taiwan. In the mean time the bitter argument, "Who lost China?", raged within America and eventually contributed to McCarthy's red hunt movement. After that, for nearly two decades America continued to recognize Taiwan as the representative of China, ignored the existence of Red China and was ignorant about the conditions within China. During this period of ignorance, America's liberal media romanticized Chairman Mao and Communist China. Contrary to the American media's fantasy, China had experienced wave after waves of turmoil during that period. First was the break with the Soviet Union, followed by the Great Leap Forward movement that starved millions of people. Finally, there was the disastrous Great Cultural Revolution. The Great Cultural Revolution of Chairman Mao pushed Chinese society into an enormous turmoil, and according to unofficial estimates, tens of millions of innocent lives were lost in the hands of Chairman Mao's Red Guards. No official estimate of the human casualties of the Great Cultural Revolution has ever been published by the Chinese government. Until today the liberal American media, self-proclaimed champion of human rights, has continued to serve as an apologist for Communist China in that period and has refused to reveal to American readers the true scope of the human disaster of the Great Cultural Revolution, another genuine whitewash. Consequently, unlike the killing fields of Cambodia, there has been no American voice calling for the full revelation and accountability for "The Great Human Tragedy" in China.

Following the period of the Great Ignorance was the "ping-pong diplomacy" of the Nixon-Kissinger team. This event led to the replacement of Taiwan by China as a member of the UN Security Council. Many observers have speculated that the reason for the "ping-pong diplomacy" was to consult with China to pave the way for the withdrawal of American troops from South Vietnam based on the assumption that North Vietnam was just a puppet of Communist China. The sell-out of Taiwan was the necessary carrot for China. After the withdrawal of American troops, South Vietnam quickly collapsed and Vietnamese Communists reunited their country as expected. Honestly speaking, we have never been comfortable with the arguments of observers. Why did a unilateral American withdrawal from South Vietnam require Chinese permission? More ironically, not long after the reunification of Vietnam, China and Vietnam fought a bitter war because Communist Vietnam banished the murderous Pol Pot regime of Cambodia without the permission of Communist China.

The next turning point in America's China policy was the Carter-Berzinsky team's sudden diplomatic recognition of Communist China and the break of diplomatic relations with Taiwan. Faced with mass panic and the exodus of rich people, the destruction of Taiwan was avoided only by the quick action of the American Congress, which passed the Taiwan Relations Act, guaranteeing continuous military support to Taiwan and granting Taiwan de facto diplomatic status through some mutual private organizations with strange-sounding names. Many observers attribute Soviet phobia as the reason for this move by the Carter-Berzinsky team. They thought America was inferior to Soviet Union, so the enlistment of Communist China as an American ally was essential to prevent the West from being swallowed up by the Soviet Union, and sacrificing Taiwan was an insignificant price to pay. Ironically, a decade later the Soviet Union collapsed not because it was threatened by the West on the European front and by China on the Asian front as Carter-Berzinsky's blue print had projected, but from Reagan's "show me how much you can spend on weapons" approach that brought the economy of The Soviet Union to its knees and eventually led to its disintegration.

1989 was a pivotal year for Communist China. Shocked by the disintegration of the Soviet Union, rocked by the student demonstration for democracy and the subsequent crackdown at Tienanman Square, Communist China's foundation was literally shaken. The supreme leader of China, Deng Xiao Pin, realized that the only way to save Communist China was rapid economic expansion, so he devalued the yuan drastically and opened the door to invite foreign capital to come in. In other words, Communist China has adopted the Taiwan model for growth and thus has migrated towards a partial market economy. The senior Bush administration did not impose any significant trade sanctions on China for its Tienanman Square crack down. Thus, Taiwan merchants, emboldened by the lack of action from America and encouraged by Taiwanese President Lee Dung Huei, have migrated en masse into China, bringing along with them capital, know-how, and jobs from Taiwan. This influx of Taiwan merchants has not only saved Communist China from collapse but has launched China towards the path of an economic and military giant. It is proper to say that the trio of Bush, Lee, and Taiwan merchants is the second savior of Chinese Communists. Later historians probably will view this trio as the turning point in the flow of history if the nightmare of current American policy makers that China may eventually dominate and engulf both Japan and America should become reality.

Facing the bold market-opening move, many in the Chinese Communist Party have feared that China will be pushed toward a Western-style democracy. Even larger number of scholars, politicians, businessmen and policy makers in the West joyfully argued that China would be pushed toward the western style democracy by the transition to the market economy. Only Deng Shiao Pin steadfastly proclaimed that the road towards the Taiwan Model will strengthen the rule of the Communist Party and eventually help it to overwhelm America. It is proper to point out that democracy is poison for the Taiwan Model. As workers gain the freedom to organize and demand higher wages and better working conditions, and as citizens gain the freedom to demand a cleaner environment, the cost of production will inevitably rise. Consequently, the export industries will run away from the place like running from a plague. Thus, democracy will mark the end of the Taiwan Model. Due to the large population and very low living standard to begin with, it will take many years before China reaches the end of its Taiwan Model. On the road towards the end, China will already be strong enough to engulf both Japan and America and convert them into Chinese-style Communism if globalization is allowed to run its full course. American policy makers are probably starting to realize that cruel truth, and that is probably why the fever of China phobia is spreading rapidly among them.

In spite of the spreading China phobia among American policy makers, today's China is actually in a very vulnerable position. The future potential of China to become the superpower of the world rests on its continued rapid economic expansion. The rapid economic expansion of China is mainly due to its exploding export industry, following the typical prescription of the Taiwan Model. China needs capital inflow and the massive migration of manufacturing industries from Japan and Taiwan more than ever. That is why the Chinese government is already cracking down on anti-Japan mass movements and is trying to mend relations with Japan. That is also why China is inviting the opposition leaders of Taiwan to visit China and is trying to induce the ruling party of Taiwan, the supporter of the Taiwan Independence Movement, to open the gate and let Taiwan's high tech industry to migrate into China in wholesale right after its saber rattling against Taiwan.

The current American administration had been siding with extreme free traders for many years. Extreme free traders argue for expanded trade deficits and regard the outflow of American jobs as good for America. They are naturally the darlings of multinational corporations that are trying to move their operations to low-labor-cost and loose-environmental-control regions to enhance their profits. These extreme free traders oppose attempts to pressure China to let the yuan float from fear that a higher-valued yuan will reduce the chance of American big businesses moving their operations to China. It is American Congress and American labor that are persistently demanding the free float of the yuan so that America's trade deficit with China will be reduced and American jobs saved. It should be pointed out that a significant rise of the value of the yuan against the American dollar will certainly reduce Chinese exports and cut down America's trade deficit with China, but the move will not reduce the overall American trade deficit or save American jobs. As the yuan rises and the cost of production in China increases accordingly, export industries will simply migrate out of China into other developing countries. Thus, the rate of expansion of America's trade deficit and the pace of job outflow will remain more or less the same. Nevertheless, significant upward revaluation of the yuan will transfer the rapid economic growth from China to other developing countries to which export industries move, and thus the fear of a super-powerful China will be put to rest.

It is interesting to observe that very recently, almost at the same time as the saber rattling of the Japan-America military coalition, the American government has suddenly turned very hawkish about the problem of the under-valued yuan, as if ordering China to upward revaluate the yuan or else (see Comment 15 on this website for this matter), a clear break with the extreme free traders. We do not know whether the recent apparent change of direction of the American government, both military saber rattling and the sudden hawkish stand on the yuan, is a persistent long term change in its China policy or just another leg of the random walk that has been the trademark of American policy for the past fifty plus years. We can only advise readers to stay tuned for that important question.