It is one of the ironies of contemporary diplomacy that the two Ts that so trouble and exercise the Communist regime in China - Tibet and Taiwan - have been in the news for entirely different readings of Beijing and its terms of engagement.

Tibet has made headlines because of the brutal crackdown by Beijing's troops. The Dalai Lama has been declared public enemy number one, the monks and restive youth in Lhasa seen as "splittists", the hard fist of the Communist Party of China has had its impact.

Yet, almost simultaneously, China has been keen to project a kinder, gentler image in Taiwan - its velvet glove. Eventually, which China will prevail: the one as seen in Tibet or the one as interpreted in Taiwan?

The answer is a crucial one for it will tell us how easily - if at all - China can evolve into a "normal" country, and live with contradictions and angularities without firing rockets at them.

On Saturday, March 22, Taiwan voted in a presidential election that positioned the Democratic Progressive Party (DPP) - ruling for the past two terms, since 2000 - against a resurgent Kuomintang (KMT). All genuine and free elections are important and send a message, but this one was truly a watershed.

Taiwan was offered a choice. The DPP was a party of lower middle class folk, of farmers and small manufacturers, of Sinic people who had been living on the island now called Taiwan since before 1949. The DPP was suspicious of Beijing, keen to declare its independence as the "Republic of Taiwan" and limit economic engagement with China.

On the other side was the KMT, which advocated a "one market" mechanism with China, and promised a close relationship with the world's fastest growing major economy. What caused the KMT to take this track? For anyone cursorily familiar with its history, it must have seemed a strange move.

Perhaps a bit of background would help here. The KMT is the party of Chiang Kai-shek, who ruled Taiwan as a military dictator till his death in 1975. In 1949, Chiang had lost the civil war on the Chinese mainland to Mao Zedong and the Communists. He had fled, along with the anti-Communist military and civilian elite, to the formerly Japanese-occupied island of Taiwan (Formosa to the Portuguese, who once colonised it).

The KMT apparatus that Chiang brought along represented a state in search of territory. It had military generals, experienced civil servants, sophisticated academics and intellectuals - but it had just been turfed out of China. In Taiwan, it became the big city aristocracy, concentrated around the capital city of Taipei, in the northern part of the country.

In the 1980s, as the Asian Tiger economies began to grow, Taiwan flourished. It became a manufacturing hub, making components and emerging as a sourcing base for electronic goods and, later, computing machines. It grew prosperous, even as China was still a backwater.

The benefits of Taiwan's economic rise were felt by the KMT's urban, educated supporters. The divergence between the "mainlanders" and the "native Taiwanese", with the latter seeing the former as rich outsiders who had grabbed political power and ruled through the KMT and a patronage network that extended from the military to big business to academia, was sharp.

By 1986, the DPP was flowering as a self-described "underground, illegal movement". By 1996, when Taiwan held its first real presidential election, the DPP was a proper party. Four years later, the nativist protest movement had won the presidency.

Yet, between 2000 and 2008, Taiwan had changed. Politically, the DPP had moved from the idealistic, even naïve collective of the underclass to just another party machine. Charges of corruption and, in 2004, a bogus assassination attempt that helped its candidate win a very tight re-election meant it could no longer present itself as a cleaner alternative to the KMT.

Having made its point against the cult of Chiang, and renaming the memorial built in his memory in the heart of Taipei as the National Taiwan Democracy Memorial, the DPP had exorcised the past. Even so, it seemed to have run out of ideas for Taiwan's future. Its handling of diplomatic wrinkles with key allies such as Singapore and the United States was not always optimal. All in all, it left the impression of not quite maturing into a natural party of governance.

More significantly, the economy had slumped. The booming factories and manufacturing units that made Taiwan a major exporter in the 1970s and 1980s had by now relocated to China. Land was more plentiful there, labour was more abundant and cheaper.

In the new millennium, Taiwan was beginning to resemble Switzerland: rich - in 2004, its per capita GNP was $14,032, making its people among the wealthiest on earth - but increasingly losing relevance. With each step China took away from the Bamboo Curtain, as it joined the World Trade Organisation and the international community, Taiwan lost more appeal as the "Chinese other".

Even in the mid-1990s, Taipei was a state-of-the-art city. Today, Singapore, Shanghai, Beijing have left it behind. As a New Zealand MP visiting Taipei for the election remarked, "There are no cranes here, no construction. That's what's missing, the city is looking tired."

Indeed, this was the compelling campaign theme of the KMT. Taiwanese money was being invested in hotels and factories in China, but Taiwan itself was not gaining.

For those used to seeing the India-Pakistan equation as a template, the China-Taiwan business relationship must appear confounding. In Taipei, public servants privately admit that Taiwan has invested $100 billion in China over the past 15-20 years. Officially, 70 per cent of Taiwan's overseas investment goes to China.

This number is likely to be an underestimation. As per Taiwanese law, a company can invest no more than 40 per cent of its net worth in China. This is a country-specific rule that restricts Taiwanese participation in the 800 pound gorilla of an economy across the strait.

Szu-yin Ho, a professor of political science and member of the KMT's Department of International Affairs, explained how business corporations circumvented this restrictive law: "Many of our companies are now investing in the Virgin Islands ..." Offshore investments in the Virgin Islands and Singapore are being re-routed to China.

Protectionism born of political legacies was keeping Taiwan bottled up. The KMT threw the figures thick and fast. In 2007, Taiwan saw the second slowest income growth among all east Asian economies. In the early 1990s Taiwan (23 million people) had a GDP 45 per cent the size of China's (1.3 billion people); today it is 19.5 per cent.

Most important, Taiwan is ageing. Its birth rate, as the KMT spokesman pointed out, was 0.89 per cent, "lower than France". In the coming decades, Taiwanese society would age and waste away. As an alternative, the KMT suggested working towards a common market with China, lowering investment barriers, introducing direct transport and getting a slice of the mega-economy next door.

The DPP saw it otherwise. Its spokeswoman felt an "open one China market" would have cheap Chinese agri-products and labour swamping Taiwan, and leave it in danger of demographic takeover, in the manner of Tibet. It would amount to, as the DPP's Bi-khim Hsiao saw it, "de facto unification".

On voting day, people put their faith in the KMT's economic projections and gave it 58.5 per cent of the vote. They formally buried "old Taiwan" and bought into the idea of Ma Ying-jeou, the KMT's nominee for president, that China and Taiwan could strengthen economic ties even if they didn't talk Government to Government.

All negotiations will take place through state-backed foundations, a sort of officially-blessed track II. It's a unique proposition but offers an honourable route out of an impasse.

Sentiment is already positive. In the past fortnight, in expectation of a KMT victory, Taiwanese stock indices rose as other Asian markets fell. In 1949, direct postal and air-travel links between the mainland and Taiwan were banned. Ma has promised to ease them. In 2007, 270,000 Chinese tourists visited Taiwan, travelling through third countries. It is estimated that direct flights and freer access could see this figure rise to 3.6 million as early as 2009.

What Taiwan wants in return - and what Ma has insisted upon - is for China to recognise its sovereignty. Essentially, Beijing is being asked to accept "a one market, two countries" or a "one (Chinese) people, two countries" model. Hong Kong's merger in 1997 offered one challenge to China in working with an autonomous entity it saw as its own. Taiwan offers the next test, and could become a benchmark for Chinese evolution.

There is, of course, a conundrum at the centre of it all. If China can live with another Government across the Taiwan Straits, why can't it offer Tibetans cultural and political space in their traditional habitat?

China's destiny depends on how quickly - if at all - it can resolve that contradiction.

Courtesy: www.dailypioneer.com, March 30, 2008