China-Taiwan Weekly Update, January 25, 2024

Editors: Dan Blumenthal and Frederick W. Kagan of the American Enterprise Institute 

Data Cutoff: January 25 at 10 am ET 

The China–Taiwan Weekly Update focuses on the Chinese Communist Party’s paths to controlling Taiwan and relevant cross–Taiwan Strait developments. 

Key Takeaways

• The Democratic Progressive Party (DPP) and Kuomintang (KMT) are preparing for the election of the speaker and deputy speaker of the Legislative Yuan. The party that secures the role will steer legislative processes in a divided legislature.
• PRC Premier Li Qiang appealed to foreign business leaders to invest in China at the World Economic Forum (WEF) summit in Davos, Switzerland. The PRC is increasingly emphasizing economic cooperation with Europe as fraying relations with the US threaten to dampen the PRC’s growth.
• The Philippines and PRC began bilateral negotiations over South China Sea disputes on January 17. The CCP's track record of engaging in dialogue while driving crises in the region to achieve its political objective indicates that the Philippine-PRC dialogue will not change the party’s behavior in the region.
• A loss of Compacts of Free Association (COFA) funding for Palau, Micronesia, and the Marshall Islands would enable the CCP to expand its leverage points over these countries.
• Tuvalu is considering switching its diplomatic recognition from the ROC to the

Taiwan

The Democratic Progressive Party (DPP) and Kuomintang (KMT) are preparing for the election of the speaker and deputy speaker of the Legislative Yuan. The party that secures the role will steer legislative processes in a divided legislature. The legislative candidates who won seats in the January 13 elections will take office at the beginning of the new legislative session on February 1. The members will vote on a new speaker and deputy speaker.[1] The speaker is responsible for guiding legislative processes, such as setting the legislative agenda, voting on laws, and presiding over sessions. Control over legislative proceedings means the speaker can prioritize or delay legislation based on political alignment and steer debates on policies proposed by the executive branch.[2]

Han Kuo-yu and Johnny Chiang Chi-chen announced their candidacies for speaker and deputy speaker, respectively, on January 18 and received the KMT’s nomination on January 24 after a short-lived internal challenge to Han for the speakership.[3] Han is a divisive figure in Taiwanese politics. He rose to prominence in the KMT after a surprise 2018 victory in the mayoral race in Kaohsiung, a DPP stronghold, and ran an unsuccessful presidential campaign in 2020 against President Tsai Ing-wen of the DPP. Han’s PRC-friendly platform contributed to popular dissatisfaction in Kaohsiung and his subsequent recall from the mayor’s office.[4] Chiang is a former chairman of the KMT who worked to review the party’s cross-strait policy after Han lost the 2020 presidential election. He represents a younger and more moderate wing of the party and advised the KMT’s 2024 presidential candidate Hou Yu-ih in formulating his cross-strait policy.[5]

The DPP legislative caucus said that it would support You Si-kun and Tsai Chi-chang, who are the incumbent speaker and deputy speaker. The caucus has not completed the nomination process as of January 25, however.[6]

A KMT speaker would exacerbate the obstacles that the divided legislature will pose to incoming president Lai Ching-te’s agenda. The legislature is divided, with the KMT holding the largest number of seats but without a majority party. This alone will challenge the incoming DPP administration’s ability to pass legislation. The DPP last led a minority government under President Chen Shui-bian from 2000 to 2008, during which the KMT-led opposition frequently blocked arms procurement from the United States and other policies favored by the DPP.[7] Han Kuo-yu would likely facilitate similar obstructionism if he becomes the speaker. DPP legislative caucus leader Ker Chien-ming claimed that if Han becomes speaker of the LY, “there is a high possibility he will be controlled by the CCP.”[8]

The Taiwan People’s Party (TPP) will be the crucial “swing vote” between the two major parties in the selection of the next speaker and deputy speaker. The KMT’s 52 seats (plus two KMT-aligned independents) and DPP’s 51 seats do not grant either a majority in the 113-member body. The TPP’s 8 seats will make its votes the deciding factor.[9]

The KMT has been trying to win TPP support before the new legislative session begins. Han and Chiang said that Chiang would step aside if the TPP nominates a deputy speaker candidate to run with Han.[10] Han said on January 24 that he agreed with some legislative reforms proposed recently, such as those pushed by the TPP.[11] Fu Kun-chi, the KMT legislator who briefly announced his candidacy for speaker on January 21 before dropping out, also reached out to the TPP and offered to cooperate on its preferred parliamentary reforms.[12] The TPP legislators-elect Huang Shan-shan and Huang Kuo-chang said the priority of the TPP caucus was to implement reforms to increase government transparency and give the Legislative Yuan more oversight over the Executive Yuan, Taiwan’s executive branch. They expressed appreciation for the KMT outreach and show of support. The incoming TPP legislators said on January 15 and 18 that they would support speaker candidates who could explain how they would implement their preferred reforms.[13] Han and Chiang can win without TPP support if the TPP abstains or fields its own candidates. The KMT outreach to the TPP shows that it is concerned about the possibility of the TPP endorsing the DPP candidates instead.

ISW has not noted reports of significant DPP efforts to win TPP support for its candidates, the incumbents. Huang Kuo-chang said on January 24 that he was unclear about the attitude of the DPP toward parliamentary reform.[14] DPP legislative caucus leader Ker Chien-ming criticized the eight TPP legislators-elect for using their decisive positions to “sow chaos.”[15] DPP incumbent speaker You Si-kun said that he had once proposed reforms similar to what the TPP wanted, but there was no consensus on them within the DPP. He also said that he was friends with TPP Chairman Ko Wen-je and would fight for TPP support, but did not know if he would get it.[16] You also said that “any combination is possible,” however, including a scenario in which a TPP candidate becomes the next speaker as a possible compromise.[17] The five TPP legislators of the previous legislative session voted for You in 2020.[18]

The PRC Ministry of State Security (MSS) said on January 17 that it will step up efforts to counter alleged Taiwanese infiltration of the PRC. The MSS claimed on its official WeChat account that Taiwan’s intelligence and defense agencies had been “infiltrating China since the DPP came to power in 2016.” It claimed to have dismantled multiple Taiwanese espionage networks in 2018 and 2020 and vowed to intensify counterintelligence and “anti-separatist” efforts related to Taiwan. The MSS accused Taiwan’s intelligence agencies of acting like “thugs for ‘Taiwan independence’ separatist forces,” “hyping up rumors” about the PRC interfering in Taiwan’s elections, suppressing people who oppose the DPP, and colluding with “external forces.” It echoed statements by the Taiwan Affairs Office that the DPP does not represent Taiwan’s “mainstream public opinion.”[19]

The MSS made the post in response to Lai Ching-te’s victory in the January 13 presidential election. The timing and framing suggest the announced espionage crackdown is partly meant to punish Taiwan for electing the CCP’s least favored candidate. It is also probable that the MSS claims about Taiwanese infiltration are related to the December 2023 leaks from Taiwanese intelligence about a secret top-level CCP meeting in which Chinese People’s Political Consultative Conference Chairman Wang Huning, who is the fourth-ranked member of the CCP Politburo Standing Committee, discussed how to increase the effectiveness and subtlety of PRC efforts to interfere in Taiwan’s election. An unnamed senior Taiwanese official leaked the information to Western media.[20]

The PRC continued to send high-altitude balloons into Taiwan’s Air Defense Identification Zone (ADIZ) after a four-day hiatus. Taiwan’s Ministry of National Defense (MND) reported PRC high-altitude balloons flying across the Taiwan Strait every day this month except January 16-19. The MND reported a record high of 6 PRC high-altitude balloons violating its Air Defense Identification Zone in one day on January 21. At least one flew directly over Taiwan’s territory.[21] This pattern of activity is consistent with the ISW assessment that the PRC is trying to normalize using balloons in tandem with other aerial and naval ADIZ violations as part of a broader effort to wear down Taiwan’s threat awareness. The break in balloon flights after an uninterrupted streak of daily incursions in the first half of January suggests the recent increase in balloon activities was related to Taiwan’s January 13 election.

China

PRC Premier Li Qiang appealed to foreign business leaders to invest in China at the World Economic Forum (WEF) summit in Davos, Switzerland. Li addressed an audience of global business executives and politicians, painting a rosy picture of the PRC’s economic health and urging the world to cast off skepticism over its challenging economic prospects. Li announced that the PRC met its 2023 growth target, remains committed to financial liberalization, and promised a responsible economic growth model.[22]

Li’s speech was tailored to resonate with an international business audience, highlighting the PRC’s economic potential on the merits of its size while ignoring the broader global political environment. European Commission President Ursula von der Leyen’s speech, by contrast, took a distinct focus on geopolitical issues. Von der Leyen hailed freedom and democracy as the drivers of innovation and highlighted challenges posed by growing disinformation and disregard for national sovereignty.[23]

The contrast between Li and von der Leyen’s speeches captures the challenges of EU-PRC relations, which are subject to the push and pull of ideological confrontation and economic opportunities. The EU adopted an economic security package on January 24 in response to “growing geopolitical tensions and profound technological shifts.”[24] The initiatives in the package align with von der Leyen’s calls to “de-risk” the EU’s relationship with the PRC, especially in high-tech areas, a strategy she first proposed in March 2023.[25] The measure includes plans to increase screening of foreign investment into the EU, strengthen export controls, manage risks associated with outward investment in certain technologies, support research and development of dual-use technologies, and enhance research security.

The PRC, however, is increasingly emphasizing economic cooperation with Europe as fraying relations with the US threaten to dampen the PRC’s growth. Li advocated for economic cooperation with French and German officials in June 2023 during a visit to France and Germany.[26] CCP General Secretary Xi Jinping and French President Emmanuel Macron stressed the importance of strong economic ties during a meeting in April 2023.[27] Li told von der Leyen that the PRC wanted to import more EU products and urged the EU to ease high-tech export restrictions on the PRC during a meeting between the two on the sidelines of the summit in Davos.[28] Von der Leyen previously announced an investigation into electric vehicle subsidies in the PRC as part of the EU’s de-risking efforts during her September 15 State of the Union speech.[29]

A reporter from CCP-operated China Daily highlighted the contrasting sentiments expressed by Li and von der Leyen in a request for comment by the PRC Ministry of Foreign Affairs (MFA), referencing von der Leyen’s de-risking strategy without mentioning her by name. MFA spokesperson Mao Ning responded that fragmentation would only weaken the global economy. Mao extolled the potential of the PRC economy and appealed to foreign companies to heed Premier Li’s calls to invest. [30]Li’s attendance at the WEF summit provided the PRC with an opportunity to directly lobby the business community where diplomatic efforts have yielded limited progress in strengthening inward investment. Li participated in a luncheon with the heads of 14 multinational companies, including Siemens, Volkswagen, and JPMorgan Chase. The PRC MFA described the meeting as a productive discussion about the benefits of investing in China, noting Li’s promises of strong returns.[31]

The Philippines and PRC began bilateral negotiations over South China Sea disputes on January 17. PRC Assistant Foreign Minister Nong Rong and Philippine Foreign Ministry Undersecretary Theresa Lazaro co-chaired the eighth meeting of the China-Philippines Bilateral Consultation Mechanism (BCM) on the South China Sea.[32] The PRC MFA stated that the two sides agreed to “continue to properly manage sea-related conflicts and differences through friendly consultations.”[33] The CCP-controlled English language outlet Global Times reported on January 18 that the Philippines has not sent vessels near Second Thomas Shoal in over a month, the longest period without “provocations” since August 2023.[34]

The Philippine-PRC dialogue will not change the party’s behavior in the region, based on the CCP's track record of engaging in dialogue while driving crises to achieve its political objectives. In 2012 the party engaged in negotiations with the Philippines to end a standoff at the Scarborough Shoal, which Manilla administered at the time, while steadily increasing the number of Chinese Coast Guard ships near the shoal.[35] This resulted in the Philippines withdrawing its ships from the shoal in mid-June 2012 under a now-disputed agreement that the PRC would do the same.[36] The CCP subsequently kept its ships near the shoal and achieved its political objective of gaining de facto control of the Scarborough Shoal by July 2012.[37] In 2016 the UN Convention on the Law of the Sea (UNCLOS) Arbitration Tribunal unanimously ruled in favor of the Philippines by rejecting the legitimacy of PRC claims to territory inside of the nine-dash line and land reclamation activities.[38] The CCP has ignored the ruling by continuing land reclamation efforts and maritime coercion in the South China Sea over the last eight years.

The Philippines and Vietnam are expected to sign a memorandum of understanding between their coast guards when President Ferdinand Marcos Jr. visits the country in late January.[39] This would provide one mechanism for the Philippines to leverage in attempts to prevent CCP coercion in the South China Sea from increasing.

Compacts of Free Association

A loss of Compacts of Free Association (COFA) funding for Palau, Micronesia, and the Marshall Islands would enable the CCP to expand its leverage points over these countries. These COFAs govern the United States’ relationship with Palau, Micronesia, and the Marshall Islands while also granting the United States extensive military access throughout their territories. The United States renewed COFAs with Palau and Micronesia in May.[40] It then did so with the Marshall Islands in October.[41] The signed agreements are now before Congress for funding consideration. Congress previously funded the COFAs for a twenty-year period in 2003.[42] The total cost for all three of the twenty-year agreements would be roughly $7 billion spread over the period 2024 to 2043, according to the Congressional Research Service.[43] Deputy Secretary of State nominee Kurt Campbell stated during his Senate confirmation hearing on December 7 that “if we don’t get it [COFA funding] you can expect that literally the next day Chinese diplomats — military and other folks — will be on the plane…trying to secure a better deal for China.”[44] The US House of Representatives Select Committee on the Strategic Competition between the United States and the Chinese Communist Party also called for renewing the COFAs in a mid-December report.[45] President Biden signed the 2024 National Defense Authorization Act into law on December 22, but it did not include COFA funding.[46] Funding the COFAs is a key part of the US Pacific Partnership Strategy to “fulfill our [United States] historical commitments and strengthen our enduring relationships with the full Pacific Islands region, including our special relationship with the Republic of Palau, the Republic of the Marshall Islands, and the Federated States of Micronesia.”[47] Palau’s President Surangel Whipps Jr expressed concern in a December 27 interview with ABC Australia over the lack of Congressional-approved funding for the COFA agreement, in part because the 2010 Palau Compact Review Agreement was not funded by the US Congress until 2018.[48]

These three island countries control key sea lanes that provide a secure route connecting American allies and partners, such as the Philippines and Taiwan, to the US territory of Guam and Hawaii. Palau and the Marshall Islands are 2 of the 12 countries that maintain official diplomatic relations with Taiwan.[49]

The loss of COFA funding would present an opportunity for the CCP to expand its economic influence with these vital Pacific Island countries. For example, this funding loss would cause severe financial pressure in Palau because COFA funding accounts for $36.9 million of the national government’s annual $124.2 million revenue as of fiscal year 2023.[50] This is an economic vulnerability that the CCP could partially fill by encouraging PRC nationals to vacation in Palau. The CCP cut tourism to Palau over the last decade to nearly zero as punishment for maintaining full diplomatic relations with Taiwan.[51] The reversal of this CCP policy would provide the party with economic leverage to wield over Palau in the event of future policy disagreements. The expansion of the CCP’s economic influence in Palau would also provide the party a leverage point to coerce the countries into switching diplomatic recognition from Taiwan to the People's Republic of China (PRC). The PRC aims to coerce countries into switching diplomatic recognition to falsely argue that Taiwan is a province of the People’s Republic of China rather than a legitimate country named the Republic of China.

The loss of COFA funding would also exacerbate the CCP narrative put forth by the propaganda outlet Global Times that the United States only cares about Palau for security reasons rather than mutually beneficial cooperation. [52] The Palau Senate passed a resolution in November rejecting the permanent deployment of a US Patriot missile defense battery.[53] This was the first instance of lawmakers challenging President Surangel Whipps Jr’s request for the United States to construct an over-the-horizon radar system in Palau.[54] In a December 27 interview with ABC Australia, Whipps tied this Palau Senate resolution to a narrative among unspecified portions of Palau that the United States actions were not in the best interests of Palau, as seen by the repeated delay in COFA funding.[55] The associated fiscal challenges that Palau faces without COFA funding buttresses the CCP’s narrative, which in turn creates hurdles for deploying mutually beneficial United States defense resources to the country.

The loss of COFA funding would also provide the CCP an opportunity to expand influence efforts targeting Micronesian political elites. The CCP has completed infrastructure projects throughout the country, such as houses for the country’s president, vice president, speakers of congress, and chief justice.[56] Axios reported that former Micronesian officials confirmed receiving gifts from the PRC, such as money, while on official state visits to the country.[57] The lack of COFA funding would exacerbate the appeal of CCP monetary gifts or infrastructure projects that target the Micronesian political elite. Micronesian President Wesley Simina also stated in late November that his country would be at a “fiscal cliff” without US Congressional approval of COFA funding. This would mean that “we [Micronesia] will have to find different sources of funding… and that’s not out there available immediately.”[58] The loss of COFA funding would also provide opportunities for external powers such as the CCP to enhance their economic influence in the country by filling these funding gaps.

The COFA funding also makes up $35.2 million of the Marshall Islands national government's annual $173.9 million revenue as of fiscal year 2023.[59] The loss of COFA funding would expose the country to similar severe fiscal challenges as Palau and Micronesia.

COFA Funding as Share of Government Revenue in Freely Associated States[60]

Percentage of total government revenue, FY2023*

 \

The CCP may use these revenue shortfalls to incentivize Palau and the Marshall Islands to switch diplomatic recognition from Taiwan to the PRC. Australia evacuating refugees it paid Nauru to host led to a budget shortfall.[61] The CCP then reportedly offered Nauru USD 100 million per year in 2024 to successfully switch recognition from the PRC to the ROC, according to a Reuters report that cited an unspecified senior Taiwanese official.[62] This follows a regional trend of the PRC offering incentives such as a commercial aircraft to Kiribati or USD 8.5 million to the Solomon Islands, both in 2019, to successfully incentivize them to switch diplomatic recognition from the ROC to the PRC.[63]

Tuvalu

Tuvalu is considering switching its diplomatic recognition from the ROC to the PRC. The Tuvalu Ambassador to the Republic of China Bikenibeu Paeniu stated in a January 19 interview with The Australian that there were rumors Tuvalu would go down the same path as Nauru and switch recognition at some point after Tuvalu’s January 26 election.[64] Tuvalu’s Finance Minister Seve Paeniu also stated that Tuvalu expects to review diplomatic ties with Taiwan after the election as his country seeks additional financial support for development.[65] The Tuvalu government said Bikenibeu Paeniu’s comments did not represent its official stance and reaffirmed its ties to Taiwan.[66] Tuvalu is the only one in the Asia-Pacific region that maintains relations with the ROC and does not have a COFA with the United States.

Israel-Hamas War

The PRC has chosen not to engage with Iran to stop Houthi maritime shipping attacks. The Financial Times reported that US National Security Adviser Jake Sullivan and Secretary of State Antony Blinken asked the PRC to pressure Iran to stop Houthi attacks on commercial shipping in the Red Sea. The report also stated that unspecified US officials had seen little evidence of China acting upon these requests.[67] The PRC has only explicitly condemned the Houthis one time since the shipping attacks began. The PRC abstained on January 10 from UN Resolution 2722 which condemned Houthi attacks in the Red Sea.[68] In explanatory remarks, Permanent Representative of China to the United Nations Zhang Jun did however “call on the Houthi armed forces to immediately stop harassing civilian ships and respect the freedom of navigation of all countries.”[69]

The CCP has maintained rhetoric calling for regional calm instead of acting to resolve the Houthi shipping attacks. PRC Minister of Foreign Affairs Spokesman Wang Wenbin called on January 4 for all parties to “play a constructive and responsible role” in keeping the Red Sea safe.[70] The PRC Ministry of Foreign Affairs Spokeswoman Mao Ning also expressed concern on January 12 about the alleged ”escalation of tensions in the Red Sea” after United States-led strikes on Houthi positions on January 11.[71] A joint PRC MFA and Arab League statement on January 16 called on “all parties to cool down the situation…and effectively maintain regional peace and stability.”[72] Wang also called on January 24 for “a stop of causing disturbance [sic] to civilian ships” in the Red Sea while also implying American-led strikes against Houthi positions in Yemen were illegitimate because “the [UN] Security Council has never authorized the use of force by any country on Yemen.”[73] The bigger problem from the CCP’s perspective is not the hostilities instigated by the Houthis, but rather the United States-led counterstrikes. The party views the willingness of the United States and allies to strike Houthi positions as risking wider regional escalation, which would threaten PRC economic interests, such as increasing shipping costs and disrupting oil supplies from the region.  

North Korea

The PRC MFA has messaged since mid-December that “trying to solve the problem [on the Korean Peninsula] through military deterrence and pressure will not work…[and] dialogue and consultation” are how to resolve the issue.[74] Head of the CCP International Liaison Department Liu Jianchao reiterated these points during a January 19 meeting with the North Korean Ambassador to the PRC Ri Ryong-nam. The officials also agreed to deepen the PRC and North Korea’s “mutually beneficial cooperation” this year, which will be the 75^th anniversary of diplomatic relations between the two countries.[75] The PRC MFA repeated its call on January 25 for “meaningful dialogue” over “legitimate concerns” in response to the North Korean ballistic missile test on January 24.[76] The CCP has not criticized North Korea for launching ballistic missiles, alleged underwater nuclear drones, or labeling South Korea as its “primary foe.”