Taiwan Defence and Security Report Q4 2008

Economic rapprochement between China and Taiwan has continued apace in recent months. Following the first direct charter flights since 1945 between Taiwan and the mainland on July 4, just a few weeks after President MaYingjeou took office, there have been further discussions on loosening restrictions on Chinese tourism to Taiwan, with a daily visitor limit of 10,000 targeted in the next four years, and there are expectations that Taiwan's Straits Exchange Foundation and China's Association for Relations Across the Taiwan Strait will soon enter unprecedented talks on direct shipping and the joint exploration and the development of oil and gas fields. Furthermore, a 40% cap on the proportion of net worth Taiwan companies can invest in China is to be raised to 60%.

Before coming to power President Ma vowed to pursue peace with China on the basis of 'three nos': no unification, no independence and no use of force, citing the 'miserable failure'' of the then incumbent DPP administration's promotion of independence in response to the PRC threatening 'unification' and the 'use of force'. Despite this the likelihood of reduced defence spending was ruled out by Ma when he said this would continue to ensure Taiwan was not negotiating 'from fear'.

Taiwanese defence spending is estimated at 2.85% of GDP this year, up from 2.45% in 2006. Though Taiwan continues to be one of the most significant importers of military equipment in the world, its spending, is still only a quarter of China's official planned spend this year of US$45bn. A Pentagon report in May said that Beijing's total militaryrelated spending could be more than twice the official figure.

Away from its relations with the PRC, Taiwan's claim to Taiping Island in the South China Sea Spratly archipelago still has the potential to provoke anger from countries including the Philippines, Malaysia, Brunei and China.