China's Retaliation of a 6.4 Billion Missile Defense Shield in Taiwan - Wake Up Call

Mainland China has been quite aggressive in the Straits of Taiwan towards the United States Navy and military, they feel those are their waters, and if a US military ship goes there it is encroaching on their territory. But why would they care? We are supposedly an ally and trading partner of China, and if China for some reason got into a war or with a rogue nation, the United States would obviously back them up in a heartbeat. Not only do we have business and banking relationships with China, they are our largest trading partner.

Nevertheless, they got very hostile when we sold a missile defense shield to Taiwan, but why shouldn't we, as North Korea has nuclear weapons, and they are building multi-stage long-range missiles. If Taiwan decides in the future it wishes to re-unite with the mainland China, that's up to them. But if China thinks it is going to bully Taiwan into reunification or force them through a hostile takeover, then of course that's unacceptable, and the world cannot allow that. If the world did allow it, it would be akin to the appeasement of the NAZI regime when they took over their first neighbor. I hope you see the correlation.

Now then, it's too bad that China was so upset that the US is selling a $6.4 billion missile defense shield to Taiwan, but even more disconcerting is the reasoning behind why they were so upset. Are they planning something off in the future we don't know about? Of course, and therefore, I propose a new weapons sale to Taiwan, namely a 12.8 Billion Dollar Missile Offense system to Taiwan. Why you ask - simple, if China is that angry, then obviously it plans to attack Taiwan sometime in the future, and if so, Taiwan must have offensive weapons to pre-empt at will, as per Karl von Clausewitz Theory. Just in case things get crazy in the future.

ABC news reported; "The U.S. will pay a price for this. Starting now, China will make some substantial retaliation, such as reducing cooperation on the North Korea and Iran nuclear issues and anti-terrorism work," Jin added.

That is interesting considering China has been selling weapons to the Taliban, originally helped North Korea get their nuclear weapons set up and has sold ICBM intermediate range missiles to Iran. And, if you want to get technical, sold Pakistan nuclear weapon capabilities, who then turned around and sold this technology to Iran, and Libya? So, how is it that China can retaliate, they've already pre-retaliated for some 30-years now?

China needs to shut up, and not act like hypocrites. China should turn around and work on their own economic bubble and world power grab, not point fingers at that USA, especially in the year of the Tiger, how soon they forget! Namely, in 1986 the Chinese Red Army put 28 along the Vietnam border remember? And let's not forget the prelude of student protests that that 1986 year of the Tiger that eventually led to the 1989 Tiananmen Square fiasco.

Simple stuff, and taking a hard line to China's Red Army is wise. We need an apology and we need it yesterday, and that would be today by my calendar, so, they need to make that 2 am phone call and repent immediately. No more games, no more BS, and China had better fix those dams before next rainy season, and let some extra water to flow along the Mekong River as well. Please consider all these inter-related events and issues.

Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank. Lance Winslow believes it's hard to write 20,000 articles; http://www.bloggingcontent.net.

Note: All of Lance Winslow's articles are written by him, not by Automated Software, any Computer Program, or Artificially Intelligent Software. None of his articles are outsourced, PLR Content or written by ghost writers.

Calling China's Taiwan Bluff

Politics not economics is usually the first concern for most investors considering investing in Taiwan. For the next couple of years, both lead to a window of opportunity for investors with nerve and foresight.

There is little doubt that for the leadership of the Chinese Communist Party, Taiwan is a bone in their throat - a constant irritant - and most likely an obsession for some hard-line factions determined to bring Taiwan back into the fold of the motherland. So sensitive is the issue that an uproar ensued when Google deleted the words "Taiwan, a province of the People's Republic of China" during a recent routine update of its online map of Taiwan

Even so, any noise that Beijing will take near term military action against Taiwan is likely a bluff for five reasons.

First, any military conflict with Taiwan would surely cancel the Beijing's showcase 2008 Olympics. This would be a devastating setback for China's leadership and people

Second, Beijing's approach of working quietly to support more friendly political factions within Taiwan seems to be working. In the municipal elections held on December 3rd, the so called "Pan Blue" coalition, composed of parties more flexible regarding reunification with China than the ruling party, captured 17 out of 27 seats building on the coalition's success in the 2004 legislative election. In addition, Taiwanese President Chen Shui-bian's term will end in 2008 and Beijing is betting on a less strident and independent successor.

Third, although China is rapidly modernizing its military forces, U.S. treaty obligations to Taiwan in the event of an invasion cannot be discounted. In addition, President Chen, citing China's expanded missile program in his annual New Year's Day address, called for the legislature to approve plans to purchase more weapons from the U.S. to offset the buildup.

Fourth, a 2005 joint statement by the Japanese and U.S. governments that both countries had a "common strategic objective" to "encourage the peaceful resolution of issues concerning the Taiwan Strait through dialogue," raises the possibility of Japanese intervention making the military option even more risky and improbable.

Lastly, the economic integration of Taiwan into China is moving ahead at a breathtaking rate. Cross-Straits trade has doubled since 2000 to reach $62 billion in 2004, about 1 million Taiwanese have re-located to work in China, and Taiwanese companies now account for about 65% of hardware output from the mainland.

My view is that while calls for independence have at least temporarily been muted, the desire for a high degree of autonomy from China is still strong. There may be one China but there are three systems - China, Hong Kong and Taiwan. Perhaps the best solution is for China and Taiwan to formally agree to a long period of Taiwanese autonomy to see if China's system evolves into a more open, transparent system with rule of law and democratic institutions.

Taiwan with a population of 23 million and an area of 14,000 square miles (half the size of Ireland) is a remarkable success story. However, but Taiwanese companies will need to constantly innovate, make Taiwan a major R&D center and build strong consumer brands to avoid the it's economy from being swallowed by the mainland.

If you can get over the political risk and are ready to call China's bluff, Taiwan's stock market represents good value though you should expect some volatility. In his New Year's Day address, President Chen also called for Taiwan to maintain and nurture a separate identity and renewed his pledge to have a new constitution in place before he leaves office in 2008. Concerns about the remarks impact on China relations led the next day to Taiwan stocks day falling 1.3% but the next day the market promptly bounced back 2% to reach a twenty month high as investors focused on economic fundamentals. The laptop maker Wistron alone rose the daily 7% limit to an all time high.

Taiwan's stock market was up only 6% in 2005 lagging Asian markets such as Japan, up 42% and South Korea, up 54%. One company that had a great year is Taiwan Semiconductor (NYSE: TSM) which was up over 35% and still looks like a buy. It has a return on equity of 16%, a strong balance sheet and a low level of institutional ownership.

If you want more diversification, you should invest in the iShares Taiwan (EWT) exchange- traded fund. It has a 23% exposure to the semiconductor industry and Taiwan Semiconductor accounts for 14% of its holdings but it includes significant exposure to technology hardware, materials and banks.

In 2005, Japan, Australia and South Korea were the most successful China plays. In 2006, why not take some profits and place a bet on Taiwan, also known legally as the Republic of China.

Delfeld has 20 years of global investment experience including stints in Hong Kong, Sydney and Tokyo and served on the Executive Board of the Asian Development Bank in Manila. He was also a consultant to the U.S. Treasury and the U.S. Congress on international investing and is a columnist on global investing for Forbes Asia magazine.

For more information about Chartwell’s ETF investor advisory services, please go to [http://chartwelladvisor.com/etf_investing.html] or call Carl Delfeld direct at (719) 264-1503.