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Political relations between the two nations are still frozen, but could thaw. Meanwhile trade is red hot!

Agreements signed in Taiwan by representatives of the Chinese Government controlled Association for Relations Across the Taiwan Straits (ARATS) and the Taiwan-based Straits Exchange Foundation (SEF) have been greeted in the press as a historic breakthrough between the two nations. This comes after 60 years of hostility and a decade after the last attempted trade talks were abandoned.

The Chinese government still officially regards Taiwan as its sovereign territory and the specter of escalating hostilities between the mainland and the island republic have remain a continuing threat to Asian security.

The new agreements open the door for more efficient trade through direct shipping and postal service as well as increased cooperation on tourism. These are regarded as first step towards closer economic ties.

A simple run through the math suggests that this economic summit is a recognition of a “New Reality” (our 2009 Investment Theme) that has emerged over the past decade. Data released by the Taiwanese government shows that the mainland market already accounted for over 25% of total exports prior to the slowdown despite the lack of direct shipping routes. As Taiwan becomes increasingly dependent on Chinese demand, and as China becomes increasingly pragmatic in its embrace of free trade, this type of corporation is, in the near term, in interest of each.

There is no suggestion that this meeting necessarily heralds a diplomatic breakthrough. During the visit Chinese representatives are expected to not only refer to the Taiwanese president as only “Mr.”, but to avoid even mentioning the name of the country itself. The Taiwanese government is still spending billions on US missiles and fighter planes and the Chinese government is still committed to securing the submission of its rogue province –they have merely made the pragmatic decision to seek mutually beneficial economic policies in the meantime.

What could be more capitalistic than that?

Andrew Barber