The recently held Taiwan Legislative Council elections on 11 December 2004 are being witnessed as a beginning of a redefinition of troubled China-Taiwan relations. Taiwan's opposition parties led by the Kuomintang (KMT) defeated the pro-independence coalition led by Taiwan's President Chen Shui-bian's Democratic Progressive Party (DPP) by cornering 114 seats in Parliament's 225-seat chamber. The KMT stands for conciliatory approach with mainland China while the DPP advocates independence of Taiwan. Without a clear mandate in the Legislative Yuan, President Chen Shui-bian would find it difficult to push through his plan to write a new constitution. The writing of a new constitution under the DPP is being seen as a step toward declaration of Taiwan's independence from China. For China this is an easing of tension and an inch forward to reunification of Taiwan. As for the Taiwanese people the election results demonstrated that they have voted for status quo rather than for independence of Taiwan. The failure of the DPP raises significant questions about the economic and political strategies of the Taiwanese government and the prospect of independence from China.

The Legislative Council elections in some ways echo the fate of the Hong Kong Legislative Council elections of September 2004 where the fear of mainland China led to the victory of the pro-Beijing groups. In Hong Kong, China linked patriotism with business and warned the democratic sympathizers about doing business in mainland China. The same scenario exists in Taiwan where China uses its economic clout to sway political developments in its favour. It is interesting to note that China no longer uses direct military tactics to pressurize the Taiwanese voters akin to that of 1996 missile crisis, though it has now 600 missiles targeted at Taiwan. China uses the more potent economic tool to blunt the democratic aspirations of the people. After the victory of the DPP in the Presidential elections of September 2004, the Beijing government warned some Taiwan business groups that their business interests would be affected if they supported Taiwan independence. It is little wonder that the Taiwanese voters were swayed in parts by this approach.

Taiwan's largest investment goes to the mainland. It has become the fourth largest source of foreign investment of mainland China. The mainland's relatively low production costs have attracted large amounts of foreign investment from Taipei, particularly to the coastal provinces of Jiangsu, Guangdong and Fujian. Taiwan enterprises have gradually made the Chinese mainland a major base in global logistics. Also a large number of Taiwan's labour intensive industries have been set up on the Chinese mainland. All these have, resulted in an increasing economic dependence on the Chinese mainland and "hollowing-out" of the Taiwan economy has become a major concern to Taipei today. As Taipei Times pointed out large amount of Taiwanese investments on the mainland has left the economic development of Taiwan in China's hands. There is apprehension that if Taiwanese investments in China and the replacement of products made in Taiwan with Chinese products occur rapidly, Taiwan will suffer serious unemployment and uneven income distribution. This would affect societal stability. More importantly, if China is able to control Taiwan's economic life, Taiwanese would not be in a position to antagonize China and this would spell doom to the dream of Taiwanese independence. Therefore, instead of putting all eggs in one basket Taiwan should diversify its industries and investment policies.

This is not to accept the much-hyped Deng Xiaoping's belief that deeper economic relations would automatically promote political integration of Taiwan to China. In fact, Taiwan's democratic elections have caused the growth of a distinct Taiwanese identity, separate from Chinese identity. The Taiwanization process has fuelled the demand for independence from China and the clock cannot be turned back. The elections however, indicate the Taiwanese urge for maintenance of status quo. If Taiwan builds up a strong economy not reliant on China mainland, there is a better chance to build up an electorate in favour of a clear mandate for independence without intimidation from China.

Politically, complete reliance on the US also has raised concerns among some Taiwanese, particularly the academicians. They have called for increased ties with Japan, India, Southeast Asia and Australia. In the last decade there has been a growth of pro-Taiwan sentiment in Japan which is translating into Japanese nationalism centered around anti-China feelings. In fact, Taiwan should take advantage of this growing pro-Taiwanese sentiment and gain a diplomatic edge over China. In fact, Taiwan's democratic system is an asset which could be used to build-up strong diplomatic ties.