The recent and ongoing incident on Hainan Island offers the United States a unique opportunity to re-examine our policies regarding Taiwan and the People’s Republic of China. In particular, three issues need to be addressed: the status of the Taiwan Security Enhancement Act, the request for Permanent Normal Trade Relations (PNTR) for China, and matter of diplomatic recognition.

The first of these issues should be the most obvious. The TSEA ensures the American military is not caught flat-footed by a PRC attack on Taiwan. It would mandate stronger military links between the U.S. and the ROC, and force the President to make public all Taiwan requests for military purchases. In short, it strengthens America’s commitment to Taiwan’s freedom, which is wise considering Taiwan’s strengthening commitment to American values. The House passed it with a veto-proof majority last year, and President Bush supports it. Congress should pass it, and do so quickly.

The matter of PNTR seems, on the surface, more complicated. One could ask, “Do you support extending permanent low-tariff trade policies to a nation whose interests are hostile to ours, who converted civilian technology for military use, and who has stolen our vital national security secrets?” The answer is an obvious “No.” Yet one could also ask, “Do you support extending permanent low-tariff trade policies to a nation whose population is the largest in the world, whose economy is growing at 7% per year, and whose government has implemented a number of reforms?” You would be talking about the same issue, for the same country.

What isn’t fully realized in Washington is that you would reach the same answer, “No.” The PRC may be the largest nation on earth, but that doesn’t guarantee they can buy American goods. The PRC’s eastern coast is prosperous, but the vast majority of mainland Chinese live in the impoverished interior. There are some wealthy regions in China’s heartland, but the notion of one billion middle-class Chinese is foolish at best. The touted economic growth barely keeps up with the population. Thus, GDP per capita – a critical figure for determining wealth – has remained stagnant. This is hardly reassuring, especially considering that the majority of Chinese still work for lumbering, past-their-prime state-owned “enterprises,” which have avoided badly needed downsizing.

This emphasizes the real problem with the PRC. Despite a number of changes to their system, the state is still the major player in the economy. Red China allows for property rights, but not for property. Thus, the “rights” can vanish at any time. The country is rife with stories of politicians using the government to swipe projects from entrepreneurs just as they begin to show profitability. Corruption is widespread, and theft is commonplace. According to the Business Software Alliance, roughly 95% of all computer software in mainland China is “pirated,” i.e. stolen. Laws that are designed to protect foreign investment have been known to change at any time, for any reason. In the Chinese “market,” few, if any, foreigners have managed to make a profit. The Communist Party, and the state it controls, also manages to ensure an iron grip on information in the country. They recently attempted to force businesses to turn over all encryption codes to Beijing, supposedly to “prevent criminal acts.”

Of course, the WTO, which Communist China is desperate to join, is supposed to stop this sort of thing. Bill Clinton trumpeted Red China’s pledge to open key markets, such as telecommunications and banking. President Bush, sadly, shares this view. However, the actual agreement between the U.S. and the PRC is something else again. No telecommunications company can be majority-owned by foreigners, which means – in a state where the biggest de facto and only de jure owner of anything is the government – that the PRC will maintain veto power over all corporate decisions. Banking is only open at the consumer level; all major capital lending is still under domestic – i.e., government – control.

The PRC once threatened that if PNTR is denied, they’d simply muscle their way into the WTO, and win a ruling to shut the US out of their market for a generation. We should be so lucky. A scenario like that would remove the largest source of capital the Chinese Communists would have to exploit, while European and Japanese businesses get taken to the cleaners. We would learn from others’ mistakes without making any ourselves.

The only argument for PNTR that makes any sense is the damage that rejecting it could do to Taiwan. This, however, can be quickly resolved by switching recognition back to the ROC. Then we could approve PNTR in a heartbeat, knowing only Taiwan-controlled areas would benefit. Taiwan’s economy is one-third the size of the mainland’s, despite being outnumbered by more than 55-to-1. The “Asian flu” – which is what they called the financial crisis of 1997 – was just a common cold on Taiwan. Economic growth slowed, but remained healthy. They have achieved these results by ensuring property rights, the rule of law, and minimal interference in the private sector. Returning recognition to Taiwan would also make a powerful statement to the rest of the world that the United States will defend both its interests and the cause of liberty throughout the world. Such a gesture is sorely needed in light of the events and policies of the 1990s.

These actions would enable the United States to finally establish a clear China policy that establishes liberty as our chief objective without jeopardizing commercial prosperity. In fact, we can ensure our economy will not get hooked on the new Chinese opium of “one billion consumers.” Let others sell their souls to feed their habits. Instead, we will prosper in concert with a free Taiwan, and remind the world – including the 1.3 billion residents of mainland China – what liberty-loving people can achieve.