BEIJING - China's invitation to Taiwan's Democratic Progressive Party (DPP) to go to Beijing for talks creates a brand-new situation that, despite whatever actual progress might take place in such bilateral talks, could trigger a complex realignment in the region. This could also be the backdrop to boost market confidence in an area that is largely still recovering from the 1997 financial crisis.

The offer of talks is certainly major progress in China, where for years the DPP was the very embodiment of fears for Taiwan's independence. Now China feels more certain that the island can no longer drift away from the mainland. Added to this certainty there are the many economic factors that are far more important to Beijing's communist leaders than slogans shouted in the streets.

Taiwanese contractual investment (a fair assessment of future trends) in the mainland almost doubled in 2000 after China announced special treatment for its compatriots across the Taiwan Strait, and it increased 73 percent in 2001. Besides, China has been running a huge trade deficit with Taiwan, some US$18 billion last year. Even the largest and most conservative tycoons of the island, the masters of the almighty Formosa Plastics, are praising the mainland and signing hefty contracts with local powerhouses allowing the transfer to Shanghai of the strategically sensitive production of memory chips, the main Taiwanese export.

All of this convinces Chinese leaders that the destiny of the island is now more than ever linked with the mainland. This psychological security allows Beijing to be conciliatory with Taipei, and the conciliatory attitude brings Beijing to weigh differently the results of the December elections in Taiwan and thus its policy with the DPP. If Taiwan can't really drift away, and even pro-DPP businessmen invest in China, then the Taiwan elections are certainly not simply a vote for or against reunification; protest against the corruption of the Kuomintang (KMT) and support for better management by the DPP were very important elements. In a way, then, the ongoing anti-corruption drive in the mainland can be considered paralleled by the ongoing DPP effort in Taiwan. In this light the adversary is not the DPP but the old KMT. In fact many people in China now remember that the movement that gave birth to the DPP was at first also sponsored by Beijing against the then ruling KMT. It is thus possible to do business with the DPP and President Chen Shui-bian.

The timing is no accident, and it is not simply the seventh anniversary of Jiang Zemin's "Eight Points" speech or the Chinese New Year. The upcoming visit in February to Beijing by US President George W Bush is no mystery. Taiwan is the major thorn in Sino-US relations, which have been recovering steadily with the anti-terrorist collaboration after September 11. Beijing's progress in handling the Taiwan issue, and opening talks with the DPP, can prove to Washington Beijing's determination to shed its alleged threatening appearance. Beijing can now say that it is repaying US trust by extending a peaceful hand to Taiwan, by admitting that the Taiwan issue is different from that of Hong Kong and that the Taiwanese can be masters in their own house.

Just hours after the opening to Taiwan, the Hong Kong iMail reported on democratization plans for the southern city of Shenzhen, calling them China's "boldest experiment with democracy since the 1980s". The reforms will be headed by Zeng Qinghong, a trusted aide of President Jiang Zemin, and are being called the "second stage of reform", the first stage having been Deng Xiaoping's establishment in the 1980s of Special Economic Zones in Shenzhen, Zhuhai, Shantou, Xiamen and Hainan.

The reforms would bring to Shenzhen "three divisions of power", separating policy-making from policy implementation and supervision. The rule of law would be promoted in nine areas of government work and an economic and political model established similar to that of Hong Kong, which enjoys economic and judicial freedom under the principle of "one country, two systems". Although the leak announced that there would be no "Western-style democracy" it is clear to the West, and Taiwan, that China wants to become like Hong Kong and not transform Hong Kong into China. Furthermore, if there are Stage 1 and 2 of the reforms there can be also a Stage 3, something that, whatever we decide to call it, will certainly look a lot like "Western-style democracy".

China would like, in fact, to return to the entente cordiale with the United States that existed before the Tiananmen incident in 1989, and the February summit could be the occasion to rekindle the old partnership. However, the Chinese effort to reach out to the US can no longer rely solely on soft gestures.

In 1999 Premier Zhu Rongji went to the US trying to hammer out an agreement on China's accession to the World Trade Organization (WTO) by offering America unprecedented concessions. The US misunderstood the message, and took the concession as a bargaining position, something that the Chinese were offering not as goodwill, but something from which the Americans could hope to gain even more. It was a disaster, as Zhu went back home without the agreement, thus losing face, because it proved to the anti-American faction in the Chinese administration that the US could not be appeased, that if you gave them what they wanted they'd always ask for more. If this assessment of the Americans were correct then there would be no way to come to terms with them, they were a true threat. These feelings, once vented, toughened anti-Chinese feelings in some areas of the US administration, and the process spiraled up, each side's distrust fueling the other's. In a way the spy-plane incident last year was a result of that climate of growing mutual suspicion.

This time China can't afford to let anything go wrong, and this is where the bugging of the Chinese presidential plane comes in handy. China is offering the US progress on Taiwan, and is handling of blatant spy case carefully. However, if the US doesn't accept the Chinese offer, Beijing has a fallback position, which is leaking more stories of American espionage in China, and it could give a little squeeze to Taiwan, whose wobbling economy is so dependent on the mainland.

On a positive note, progress between China and the US on Taiwan could heighten general confidence in the island, as Friday's stock exchange results showed. An improved economic climate between the two sides of the Strait could boost the Asian economic recovery and thus also have a positive impact Japan, which is feeling isolated and frustrated because of its present economic difficulties.

The new situation of appeasement in East Asia is in stark contrast with the situation in South Asia, where the armies of India and Pakistan are facing each other. The resources wasted so far are large and will be much larger if the military deployment continues for months or years. This will be true for India, as well as for Pakistan. Besides, tension is bad for business, especially on a global scale, especially if India were to succeed in bleeding Pakistan white. This would destabilize Pakistan, and this destabilization would result in a much bigger problem for the whole world, including India, than the black hole of Afghanistan. (2002-01-29 Asia Times)