the host of Think Tech Hawaii's Law Across the Sea program. Today we're going across the sea to China and Taiwan. There's been lots of media attention on that relationship in light of the Russian invasion of Ukraine and whether the Russian invasion of Ukraine would encourage China to do the same thing to invade Taiwan. My guest today is Bill Sharp. Bill is a very experienced and knowledgeable Asia-Pacific scholar, professor, and author. He has lived and worked in both mainland China and Taiwan, including as a visiting scholar at the National Taiwan University in Taipei, Taiwan, and as a Fudan fellow at the Fudan University in Shanghai, China. Bill is fluent in Mandarin Chinese, and this summer at the University of Hawaii will be teaching a course titled China and Taiwan, Old Questions Escalating Tensions. I've asked Bill to share his knowledge and expertise with us, especially in light of these recent developments that have somehow equated Russia and China and Taiwan and Ukraine. Bill, welcome. It's good to see you. How are you? Thank you very much for inviting me. It's a pleasure to be with you. Good, good.  We're hearing a lot in the media about these different but similar relationships, and I want you to first give us an idea about how China views Taiwan and vice versa, and is China's goal to ultimately take over Taiwan? Well, China's ultimate goal is to take over Taiwan. I think actually I think the historic evolution of Taiwan is quite different from that of China, whereas the Ukraine, if we make this comparison, was an integral part of the Soviet Union and Russia for a long, long period of time. The relationship between China and Taiwan has always been very tenuous, no matter if it was a Chinese dynasty or a Manchu dynasty. Taiwan was always considered a kind of a pain in the neck, this little clump of island out there floating around in the western Pacific, and those regimes that ran China, be it Chinese or Manchu, some people will call that Qing, had more pressing problems in China proper. So the tension, the relationship between China and Taiwan has always been very tenuous. There are some three basic distinctions between what makes Taiwan different than China. One is it's a maritime society. One is its history has been colored by wave after wave of immigration, and also colonization. The third factor is that it has absorbed a lot of Japanese influence given that it was a Japanese colony from 1895 to 1945, but you can still see the Japanese influence in play in Taiwan today. Okay, I want to now focus on what's been in the news, and what's really prompted my curiosity to ask, now has the Russian invasion of Ukraine encouraged China to consider invading Taiwan soon? You know, you indicated that their ultimate goal was to take control of Taiwan, that China's ultimate goal was to take control of Taiwan despite the differences, but do you see what's happening between Russia and Ukraine as affecting China and Taiwan? I think the Chinese strategy is quite different. Yes, they do want to incorporate Taiwan. It is the goal of Xi Jinping, just like the conquering of the Ukraine is a goal of Vladimir Putin, but the Chinese strategy is quite different. The Chinese strategy is very indirect. It's very gray zone. They use a psychological cognitive warfare. They want to wear the Taiwanese people down. That's why you see all kinds of incursions almost on a daily basis into China's ADIC aircraft identification zone, and that really doesn't have any military purpose. It says to wear the Taiwanese down, to make them weary of this potential conflict with China. Moreover, I think the Russian invasion of the Ukraine is not doing very well, according to all accounts, and I religiously watch CNN coverage of the Ukraine situation because it's highly interesting to me. The Russian military is not doing very well. Theoretically, they said that it would be a three-day operation and they would conquer the Ukraine if not the Ukraine, then at least keep. However, that has not taken place, as you well know. They might be rubbling the society, but they're not conquering it. There are many military problems, too, with the Russian military. I'm surprising how many tanks are breaking down. They're running out of fuel. They're running out of food. A lot of the MREs that they have were dated, were seven years out of date, according to one report. This is something we never have to do in the American military. I have to say that American military logistics are excellent. I'm sure that China is studying the situation, the Russian incursion into the Ukraine very, very closely. I think it probably will dissuade them from physically launching an invasion of Taiwan. Actually, to launch an invasion of Taiwan, an amphibious assault on Taiwan, is really a daunting military task. Just a few days ago, I was looking at some statistics for the invasion of Okinawa. It took 500,000 U.S. troops. There were 1,600 Allied ships involved in that incursion. It took nearly three months to conquer Okinawa. China doesn't... The Chinese Navy might be building up, but it doesn't have 1,600 ships, at least not yet. I don't think that they want to commit 500,000 troops to the invasion of Taiwan. Their strategy is actually very sophisticated. It's very indirect. It's very patient. Xi Jinping does not want to take chances. If he tried to invade Taiwan and the invasion, amphibious invasion, and if that invasion was a failure, he would be out. He would be pushed out of power. He doesn't want that. He wants to stay in power. I don't think it would be the end of the Chinese Communist Party. But also, it would lead to two other things, a couple of other things that China certainly doesn't want. A uniform call in Taiwan for Taiwan independence. And that is the last thing that China wants. And the next, the last thing that they want is that an amphibious assault invasion into Taiwan by China would force other countries in Asia, into the arms of the United States. China wants the U.S. out of Asia. It doesn't want to do anything that will increase the, how should I say, the profitability, if there's such a word, of the U.S. to other countries in the region. What I hear you saying is that actually what China is learning from the recent developments of Russia's invasion in Ukraine is, hey, that may not be the best choice for us to take. We would like Taiwan back or we would like Taiwan to be part of China. Let me put it like that. But the way that China is thinking about doing it is a psychological or even a more diplomatic way, if I could say that. Is that correct? That's correct. That's correct. And there's another element too. China would like to take over Taiwan and govern Taiwan in pretty much the form that it's in now. Of course, they would get rid of the legislature and they would clamp down grossly on the free media, the free-wheeling media in Taiwan. All that would be gone. But if you think about Hong Kong, they're running Hong Kong in more or less the same fashion that it was ran before. And that's what they would like to do in Taiwan. And certainly they do not want to do anything that might damage the semiconductor industry because Taiwan makes the best semiconductors in the world. And China is way behind on semiconductors. Okay. Now, seeing how China has maybe learned something from the Russian invasion of Ukraine as to how to proceed, what have they said about it? Has there been anything coming out of China about what's happening in Ukraine and also in Taiwan? How is Taiwan reacting to the recent events in Ukraine? Well, I think China is put in a very difficult position by the Russian invasion of the Ukraine. China has at least had diplomatic relations with the Ukraine. They recognize the Ukrainian sovereignty. They have excuse me, they have investments in the Ukraine. They certainly don't approve of the Russian invasion in that it's solidified NATO. And which means that all those countries have gained in support for the United States. And China is very fearful of any kind of NATO organization coming to East Asia, to the Indo-Pacific. So they would like to see a weak NATO. And also, China has its own strategy, its own diplomacy for Europe. They want to break European countries away from the United States, so as to weaken U.S. global power. And this, the Russian incursion into the Ukraine is only boosting American influence and power in Europe. You know, so what I am hearing is that these events have actually benefited Taiwan in a way, as to saying, hey, let's stand back. Although China, because of its relationship with Russia, is unwilling to come out and say anything. Well, China actually I think has been put in a very difficult position apparently from things that I've read. The Polyporal Standing Committee, the highest level of decision-making body in China consists of seven members headed up by Xi Jinping. Of course, they have discussed this issue. And there seems to be a split in the Polyporal Standing Committee. Some people advocate a stronger support for Russia. Some say, well, look, let's back away from this. Russia, I mean, China did not support, excuse me, the Security Council resolution on Russia, it abstained, which is very typical for China. And when it gets in a very difficult position, it does not want to take sides one way or the other and it often abstain. Now, yesterday, Russia reached out to China and said, hey, we need some financial help. We had a lot of tanks that had been destroyed. We need some tanks. And China, I think, is trying to play both ends of the game here. And they said, well, maybe we'll come forth with some support. Well, given China's position and a so-called relationship with Russia, they can't totally say, well, forget it. They have got to do something. But there's reputational damage to China, too, as far as I can see. I mean, China is always a tenant of Chinese foreign policy. It's always been to uphold the sovereignty of other countries. Also, in the 1940s on World War II, there was the Nanjing Tusha, the rape of Nanjing. And China suffered greatly on that. Now, there is essentially the rape of the Ukraine. And China is put in a difficult position because I'm sure it evokes memories of the Nanjing Tusha, but they can't go too hard against their buddies, the Russians. So China is really caught in the middle. And a lot of it, you mentioned the leaders. You got Putin in Russia and Xi in China. What's the same or different about those two people? Well, Xi Jinping is not a risk taker. It seems to me he wants to turn the clock back in China to the days of Mao. He really holds Mao as a hero. He sees himself as a second coming of Mao. Yet he's whereas Mao launched the Cultural Revolution, which was through China and to have it for some years. I don't think that Xi Jinping would do that. He wants to establish Chinese hegemony in Asia, just like Vladimir Putin wants to reestablish the Russian, the Soviet Empire. But I think that he's very risk averse. And so he will only take opportunities when he sees him. The building of the manmade islands in the South China Sea, I think is a point that bears that out. He realized that the United States wanted him to support the Iranian nuclear deal and that the U.S. was really helping for another on achieving that. So he saw an opportunity to build those islands in the South China Sea without any great American interference. And that's exactly what happened. This is the kind of thing that he's known for. He's known for, and the Chinese are known for, looking for opportunities where there's not much risk or much cost involved. Okay. Now looking towards the future, what has Taiwan learned from all of this? What is your opinion about what they should do because China's still looking to take over Taiwan apparently? Well, yeah, that's a good point. And I think there are several lessons that the Taiwan government should draw from the Russian incursion into the Ukraine. One is just like President Zelensky was saying, oh, the Russians will never invade, will never invade. And a lot of Ukrainians believe that. And the U.S. intelligence, which was quite good in the Ukrainian incident, was warning them. It's the Russian invasion is coming. Beware, beware, beware. And Zelensky, despite his fantastic leadership, kept disputing that. He was saying things like, well, I'm the president of the Ukraine and I'm here. And what do you guys in Washington know that I don't know? Well, they knew a lot. Initially, he wouldn't listen to them. There is a false sense of security that prevails in Taiwan. It's like, well, we kind of know that this big monster called the People's Republic of China is not that far away and they have a huge military, but we don't see any problem. There is a false sense of security in Taiwan. So I think my first suggestion for Taiwan would be to get over that false sense of security. Due to the military's previous history and being the boot of dictatorship during the era of a white term, the public has a very poor image of the military in Taiwan. And there's very little respect for the military. I've talked to several military officers. They say, hey, you know, there's society. Women the show a common woman, which means but our society looks upon us and a very from a very low position and a very low position. And so you need to Taiwan society needs to develop respect for the military and appreciation for the military. Also, the Taiwan military is really conflicted by troubled by deeply troubled by, if I can go a step further, a lack of human resources. The recruitment figures are very, very low. Now there is theoretically, there is no conscription in Taiwan. However, this kind of a game on semantics, there is a military mandatory service period, but it's not called conscription. However, it's sort of a joke. And all of Taiwan society realizes it's a joke, especially in professional military people. You males have to serve in the military for four months. And then they're discharged, and then they're supposed to attend reserve meetings when they're called. But I've talked to a lot of people, they never got called. And when they do get called, the reserve meetings are kind of contentless, you know, not much meaningful goes on. So I think that they now they're beginning to ramp up the the content or the intensity of reserve training. And that's good. They should carry that tool on and really proceed down that path. But moreover, I think that they really seriously need to restore the two year period of conscription, universal conscription. And this time it should include women, as well as men. And up until the 1990s, Taiwan did have universal conscription. And then Chan Shui Bin began to unravel it. And politicians jumped on the bandwagon and they figured, well, if we weaken the conscription law, then we'll get more votes. And so they really watered it down.  Yeah, that's right. And think seriously about this. Now, let's take a look. I have one more point I'd like to make, though, in this room. In the Ministry of National Defense, there's this great dispute that's going on. There is no solidified national defense strategy. There's a conflict between what you might call a traditional type defense and an asymmetric defense system. The US is pushing the Taiwan government to adopt an asymmetric defense system. But there's a lot of people in the Taiwan defense world who want to go for the big weapons systems and the big army, the big navy, the big air force, and base their defense system on that. So there is no coherent strategy. Okay. Now, you're saying people in Taiwan, they got to talk a little bit more to each other. And focus a little bit more and be prepared. What about the United States? What should the United States be doing at this point? Okay. I think the United States point, as per the TRA, the Taiwan Relations Act, will definitely come to the assistance of Taiwan if it should be invaded by China. Yes, the US government has no official diplomatic relationship with Taiwan, but it has a very deep, unofficial relationship. Moreover, the defense of Taiwan is crucial to the defense of Japan. And without Japan, we have no position. We have no position in Asia. That is our anchor relationship in Asia. Everything kind of revolves around the US-Japanese relationship. I think the US should support Taiwan as much as they possibly can. But here's the thing. How should I put this? Sometimes, I saw this in Vietnam. I'm a Vietnam veteran. The US really wanted the Vietnamese to run the war American style. And as such, the Vietnamese sort of outsourced the whole war effort to the Americans. So I think if you become too involved in a country's defense, then they outsource it to you. And that really doesn't work. So Taiwan has to protect Taiwan. It doesn't mean that there should not be US defense support. It doesn't mean there should not be the supplying of defensive weapons to Taiwan. Perhaps in some cases, there should be naval and air force air power, US naval and US air power extended to Taiwan in the event of an incursion by China. But basically, Taiwan has to run its own war. I appreciate your historical comparison with Vietnam and it also strikes me that Afghanistan might be similar. I'm not familiar with the Afghanistan situation, but I think that's probably true. We designed, for what I understand, we designed a strategy and trained the Afghan army to fight in an American way. Just like we did in Vietnam, our battle lessons were all based on World War II lessons of basically gleaned from the European theater. And we tried to transplant those to Vietnam and they really didn't work. All of what you've been saying kind of reminds me of a famous quote Benjamin Franklin, failing to prepare is preparing to fail. That's true. We have about a minute left in our program. Let me ask you to predict the future. Is a peaceful, neutral relationship between China and Taiwan possible or is conflict inevitable? I understand it's an opinion, but what are your thoughts? Well, actually, there's a lot of possible mutuality that could be derived from that. It's interesting. Everybody talks about the great economic development of China and that's true. But where did that economic development start from? It started from Taiwan management practices, Taiwan investment, the transfer of Taiwan technology, and also the incorporation of these kinds of benefits from other countries. So there is a lot of mutual benefit that can be derived from a peaceful relationship between China and Taiwan. And I wish people could hear that. In other words, work together instead of killing each other. It might be the way for everybody to do better, everybody to be successful. That's what I hear you saying. Whether that'll happen, we never know. Well, I think with Xi Jinping at the helm of the PRC, I don't think it's going to happen. But maybe after he assesses the Ukrainian situation, maybe he'll take a different tact. And also, he has a lot of growing consternation in China about his leadership. China is not doing very well with the COVID. They just closed down a city in the Northeast, which I think you're familiar with, Chongqing. It was the capital of the old Manchuria. And it's a population of 9 million. The Chinese economy is not doing very well. The growth rate was set at 5.5%, which most people think most economists think will be somewhere over 4%. There have been seven assassination attempts on Xi Jinping. Google it. And he's stepped on a lot of toes. And there's a lot of the so-called friends and the elites of China, if you want to call them, they are getting a little bit tired of them because they see him overstepping his power. And moreover, he's come down on a lot of private business lately. And he really wants the economy to be based on state-owned enterprises. Right. And I've seen a lot of change myself. I have lots of friends in both China and Taiwan, but I've seen a lot of change in China that has been concerning. Bill, I want to thank you very much for sharing your knowledge and expertise and your opinions about what's happened and where we're going and what could and should be done. So I want to thank you for your expertise. Aloha. Thank you for inviting me.


It is a great honor to present to you today about Japan's strategy for economic growth. Last December, we have a new government led by Prime Minister Abe, and this government has put the top priority on the economic policy to overcome the long-lasting deflation shown in this chart. So I believe this is the very best timing to introduce what changes are taking place in economic policies in Japan. The main topic of my presentation is the economic policy by a big government, so-called Abenomics, and the position of growth strategy in it. Prior to these main topics, I'd like to touch briefly on Japan's economic situation as a background to Abenomics. So what is the cause of the deflation in Japan? Many specialists believe that the insufficient monetary loosening by Bank of Japan and excess appreciation of the end are the main causes. Others emphasize structural or external environmental changes, such as a decline in population fears, international competition, and an inflow of low-priced products from emerging countries. I think deflation in Japan is very complicated in nature, so it is difficult to identify the specific cause. However, it is clear that private demand has been de-placed since the dead bubble burst in Japan, and there have been no effective measures implemented so far. So please look at the page 4. As shown in this chart, I would like to talk briefly about the impact of the deflation in Japan. I think the deflation in Japan is very complicated in nature, so it is difficult to identify the specific cause. Look at the page 4. As shown in this chart, the income distribution to the health sector indicated in blue line has been declining. On the contrary, corporate income indicated in green line has increased. Actually, until early 2000, corporate sector had been over-debt, so they were asked to postpone investment to repay debt. However, by the mid-2000s, overall corporate sector had already been released from the heavy debt repayment. However, they have been slow to invest in the domestic market, and they also have been slow to increase regular employment and to raise a regular payment. Please look at slide 5. This is a chart of saving investment balances by sector. And from this chart, you can identify the changes in saving investment balance of corporate sectors. That was blue-colored bar. The changes is from excess investment to excess savings. And on the other hand, household savings, which has indicated in the right blue bar, has been declined as a result of depressed income distribution and an aging of society. And another silent feature is consistently high level of excess investment ratio of government. Many of you might know that Japan's government debt to nominal GDP ratio reached to an extremely high level in comparison with those to the other major industrialized countries shown in the slide of page 6. This is a result that government playing a significant role in supporting economic activity and so being unable to implement comprehensive fiscal reform despite being very concerned about expansion of social security spending along with rapid aging of society. Please look at slide 7 in spite of such significant deterioration of fiscal situation. The yield of Japanese government bonds so-called JGB has been kept at low levels up to now. This is also a result of prolonged deterioration as there has been little private sector demand for money so financial institutions has had to hold government bonds. In other words, such a stable environment for financing allows the government to postpone fiscal consolidation. Please look at slide 8 as shown in this chart. Domestic investors hold more than 90% of JGB as end of March 2012. Such stable bond holding structure could be maintained because overall saving investment balance of Japan has been excess savings. In other words, Japan has been the current account surplus countries. However, Japan's current account surplus has started declining. Please look at slide 9. It will turn to negative around or before 2020 mainly due to a decline in savings of aging households. It implies that stable government bond holding structure is unsustainable in the medium term future. Japan must urgently implement a comprehensive economic reform to revert to a sustainable economic growth. That is the background to a ban on mix. And please look at the slide 10. As mentioned, Mr. Yamada, a ban on mix is a three-plong strategy, namely aggressive monetary policy, flexible fiscal policy, and growth strategy. And the degree that these three-plong have progressed up to now is different. So I will now discuss these three one by one. Please look at slide 11. In terms of an aggressive monetary policy, it has been launched. In this January, the government and the Bank of Japan released the joint statement on overcoming deflation and achieving sustainable economic growth. As concrete measures, BOJ decided to introduce 2% price stability target instead of 1% price stability goal and enhanced the asset purchase program. These aggressive monetary policies are not directly targeting at the exchange rate. However, please look at the slide 12. However, the end exchange rate depreciated so rapidly in these three months. The end depreciation reflects not only expectation of further monetary easing by BOJ, but also expansion of Japan's trade deficit, a return of confidence in the euro area, and a retreat of concern over the U.S. economy. For whichever reason, the end depreciation so far contributed to improve the profit of economic export company. And please look at slide 13. This is a chart about flexible fiscal policy. Abe government flexible fiscal policy has been initiated, but not concluded yet. This is the outline of emergency economic measures. It has been decided by the cabinet in January, and total size of measures in three priority area is 10.3 trillion yen. The government explains that its expected impact on real GDP will be approximately 2%. As far as fiscal year 2013, economic recovery will be supported by large-scale public works. However, it is impossible to maintain such a large economic stimulus package every year. All budget restraint in Japan becomes so severe. Please look at slide 14. Here is a chart of general government primary birth in Japan, including the schedule tax increased for twice consumption tax ratio increase, the medium-term fiscal target set in 2010, and aiming at primary surplus in fiscal year 2020 will not be achievable. In order to curb the risk of fiscal crisis, flexible fiscal policy must be based on reliable medium-term fiscal target and comprehensive economic reform and social security and taxation systems. However, it is unfortunate that neither will be achieved before mid-2013, so I think flexible fiscal policy has not concluded yet. And the third prong of Abenomics, the gross strategy, has not been released yet, so Abenomics is still at an early stage, but however, it has been very welcomed up to now. Please look at slide 15. This is a chart about stock prices. There are some positive signs. Most explicit signs is the remarkable surge in stock markets shown in this chart, a red line, and slight and cautious improvement of expectation among private sector are observed. As I mentioned earlier, Japanese economy is expected to recover in the short term thanks to large-scale economic stimulus packages, as well as the end depletion. There are some movements among large export companies to reflect their profit increase in bonuses. However, economic growth and wage increases based on one-time effect is unsustainable. Household income increase based on more employment or higher productivity is required for sustainable economic growth. That is the aim of Japan's gross strategy. Please look at slide 16. This is the economic policy-making bodies of Abenomics. In Japan, people's attention has been focused on what issues are discussed in these economic policy-making bodies of Abenomics. Concerning the gross strategy, headquarters for Japan's economic revitalization is scheduled to present the master plan in the middle of this year. Its decisions are expected to reflect the strategic goal set by the Industrial Competitive Council, a council of prime ministers. And please look at page 17. This is the list of urgent policy issues made by headquarters up to now. One of the salient features is that regulatory reform is a top priority. I take a positive stand on the development of discussion so far because I believe that the basic foundation of Japan's gross strategies should be based on the regulatory reforms to promote the private sector activity. And there is some hope that the new gross strategy will be different from Japan's traditional approach of allocating public money to a government-selected priority sector and protecting it by regulation, which is no longer effective in increasing competitiveness. Creating a more business-friendly environment is the only way to enhance the competitiveness of companies based in Japan. In other words, it is the only way to sustainable gross. In spite of such an importance, regulatory reforms are more difficult to implement and need more time in comparison with the monetary easing or fiscal stimulus package because as there is a conflict of interest, regulatory reforms have been brought by strong lobby groups. Especially for this year, the election of House of Councillors is scheduled in Japan, so there is a risk of deterioration of regulatory reforms. It is indeed true that Japan needs a stable government. However, victory without sustainable gross strategy is unsustainable and meaningless. So I hope that the government should explain the necessity of reforms to voters and express their strong commitment to achieving it before the election. There is a significant possibility that such a stance will be welcomed by non-vested interests which shem to outnumber the vested interests. Instead of final remarks, I would like to mention two policy areas where I have most interest among the urgent issues. The first is economic partnership. Please look at slide 18, here is the EPA-FTA in Japan. Unfortunately, Japan is faring behind the development of networking high-level EPA and FTA so far. However, it is explicit that promoting high-level economic partnership is crucial not only for improving trade and investment environment, but also accelerate inevitable but politically unprepared reforms. So I hope for the successful negotiation of Japan-EUEPA. And please look at slide 19, this is a framework of multinational economic partnership in Japan. In Asia-Pacific region, joining TPP would be one of the key to success of Abenomics because Asia-Pacific is such an important region for Japan for both business and security. It seems more and more likely that Japan will join the TPP negotiation after U.S.-Japan summit last weekend. Successful TPP will have a positive effect on the other regional economic partnerships such as the SIF, which is an economic partnership among 10 countries and plus 6 countries, or FTA among Japan, China and Korea. Along with the decisions on the TPP, the government should accelerate the agricultural policy based on regulatory reforms. I believe transforming the agricultural industry from industry protected by high tariff to export-oriented industry is a very effective solution. I also believe a positive stance for economic partnership for Japanese government will be welcomed internationally and alleviate the external concern about Japan's economic policy such as currency or something like that. And second area is the youth and women's policy. Please look at the slide 20. In Japan, lifetime employment is still preparing for the middle-aged workers, but the younger generation faces severe obstacles to find a regular full-time employment. An employment rate for the younger generation is relatively high in comparison with the other age groups shown in this chart. People without full-time jobs are less likely to marry. An unstable living condition of the younger generation is one of the causes of low fertility rate in Japan. On the other hand, an M-shaped curve still observed in the labor participation rate of female. Please look at the chart 21. An M-shaped curve in Japan is because many women are still urged to abandon their career as a result of insufficient support for raising children. So there is a significant room for Japan to mitigate decline in the labor force by boosting the participation of women. Actually, policy measures for the youth and women tend to be lagged behind because the senior is far more politically influential in an aging society. However, improving the environment for the youth and women will be effective not only to enhance the domestic demand, but also to help sustain Japan's population. Thank you very much for your kind attention and very much looking forward to an active discussion with you. Thank you very much.