Chinese Prime Minister Wen Jiabao's visit to Washington in early December, his first official visit to a foreign country, was intended to address a number of critical issues facing the two countries, including their trade balance and North Korea's nuclear weapons programme.

However, Taiwan's recent proposed referendum opposing China's ballistic missile buildup across the Taiwan Strait overshadowed the talks, and Beijing placed special emphasis on enlisting American support.

It banked on two factors to enlist Washington's support. It planned to use China's leverage with North Korea over its nuclear programme as a tool to influence US policy on Taiwan, and the belief that Washington had no stomach for a showdown with China at a time when its energies were focused on events in the Middle East.

In the eyes of many, Beijing secured an important diplomatic victory after President George W Bush gave Taipei a smart rap on the knuckles, warning it against taking any unilateral steps that may lead to Taiwan's eventual independence.

Significant shift

This may have signaled a subtle, but perhaps significant shift in US policy.

The latest crisis highlights the challenge Washington faces in maintaining support for the democracy in Taiwan while continuing to build relations with Beijing and in promoting a peaceful settlement of their dispute. These demands will only challenge Washington's diplomatic acumen in the years to come, as the triangular relationship, with all its tortured complexity, becomes increasingly difficult to manage.

Taiwan's President Chen Shui-Bian's call for a March "defensive referendum" demanding that Beijing withdraw the roughly 500 ballistic missiles China has deployed across the Taiwan Strait and to renounce the use of military force against the island was a calculated move designed largely for domestic consumption.

Chen is above all a shrewd politician and will go to great lengths, short of calling for outright independence, to ensure his election in March.

The referendum is, in essence, an election cycle gambit designed to boost Chen's sagging poll numbers by provoking Beijing and appealing to powerful pro-independence sentiments. He probably hopes that the issue will disappear after the election and not rear its head again until the next presidential election, four years down the road. Chen has also advocated reforming Taiwan's 1947 constitution, viewed in Beijing as a preliminary step towards independence. This too was intended to antagonize China and galvanize domestic support.

Beijing faced an interesting dilemma. Until recently, Beijing had been relatively passive in the face of Chen's grandstanding, recognising that a strong response would play right into the hands of Taiwan's independence movement. It realised that aggressive displays during the past two elections, including ballistic missile "tests" that bracketed the island in 1996, were counterproductive steps that strengthened the movement and helped elect pro-independence politicians.

On the other hand, Chinese inaction would only encourage Chen to test Beijing's patience even more, possibly leading to a dangerous confrontation that would force China into bolder action, which it would prefer not to do at this time.

From Beijing's perspective, Washington's rebuke takes much of the pressure off China and shifts the burden to the pro-independence forces in Taiwan. Beijing has succeeded in creating the impression that Taiwan, not China, is the principal threat to peace in the region by threatening to rock the boat. Chen's reaction will be interesting. If he backs off, he loses face because he has lobbied hard for the referendum and risks looking weak to pro-independence forces. If he doesn't, he risks US support and dangerously isolates Taiwan.

Bush's warning to Taipei was precisely what Beijing was seeking, and may have signaled a subtle yet important shift in US policy towards Taiwan. The US has historically used deliberately vague diplomatic language to define its position, stating, rather ambiguously, that it "does not support" Taiwan's independence. But now the administration has outlined specific actions it would like Taipei to avoid, including referenda or constitutional reform.

This creates the impression that Washington is appeasing the Chinese communists, who may be gaining a greater voice in determining what constitutes a "provocation" from Taiwan, in order to achieve other policy objectives. The fact that Bush said nothing while Wen stated that the US president reiterated his "opposition to Taiwan's independence" during talks only solidified the impression. It will certainly be perceived in Beijing as a diplomatic victory.

Clear sign

According to Xu Bodong, a Taiwan researcher at Union University in Beijing, "This is a clear sign that the United States is rethinking its attitude toward the Taiwan problem," adding that the statement would be seen as a "big victory for Wen Jiabao ( right )." Lost in most of this is the fact that Bush also warned Beijing against taking unilateral action, but this was easily overshadowed by his message to Taipei.

Preoccupied with Iraq and eager to enlist Beijing's support vis--vis North Korea, the administration has apparently determined that maintaining the status quo is simply too important at this time to be placed in jeopardy by election year gimmickry in Taipei. This contrasts rather starkly with Bush's previous comments shortly after his election, pledging to do "whatever it takes" to defend Taiwan. But the geopolitical winds have shifted since those halcyon days before Sept 11, 2001, and China has potentially much more to offer in the "war on terrorism."

The fact is, however, that Beijing needs American support as much as Washington needs Chinese support. Beijing has too much at stake to risk a military conflict with Taiwan at this time and hopes that Washington can moderate Taipei's behavior. China's economic health and ability to attract foreign investment is highly dependent on stability in the region, which will suffer accordingly if tensions threaten to escalate to dangerous levels.

In addition, China's military modernisation programme is not sufficiently advanced at this time to mount a significant operation against Taiwan, especially with the US 7th Fleet poised to intervene in a potential conflict. Beijing would therefore prefer to bide its time and use its economic leverage to make Taiwan so dependent on the Chinese market that it will have no choice but to eventually accept Beijing's demands for reunification under the "one country, two systems" format. Harsher measures can wait, barring an outright declaration of independence by Taiwan.

Dangerous dispute

Much has also been made of the US reliance on China to bring North Korea to heel, but it is also true that Beijing has just as much incentive to halt Pyongyang's nuclear ambitions. A nuclear North Korea would have far-reaching repercussions throughout East Asia that would be highly detrimental to Chinese strategic interests.

The effect that such a development would have on South Korea, Japan and, quite likely, Taiwan, could be immeasurable. It is therefore in China's interests to check North Korea's nuclear development, even in the absence of pressure from Washington. Beijing will try to maximize its apparent leverage with the U.S. over the North Korea issue and Washington would do well to realize that China is also eager to defang Pyongyang's nuclear programme.

Aside from the "war on terrorism," the conflict over Taiwan's political future perhaps represents Washington's greatest foreign policy challenge, which will likely deepen in coming years. The US must balance key interests and promote the peaceful resolution of the cross-strait dispute while carrying out its global campaign against Islamic fundamentalist groups.

Only time will reveal the ramifications, if any, of the administration's recent comments regarding Taiwan's political developments, but this will probably not be the last time that Washington finds itself in the middle of this ongoing and increasingly dangerous dispute. How it handles future developments may well determine the future of this strategically vital region.

Report drafted by: Brian Maher

The Power and Interest News Report (PINR) is an analysis-based publication that seeks to, as objectively as possible, provide insight into various conflicts, regions and points of interest around the globe.