The Economic Fallout

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TAIPEI: Taiwan's recent war of nerves with China has taken its toll on the island's economy. China's military threats have damaged public confidence, as Taiwanese have rushed to sell their stocks and change their money into U.S. dollars, causing markets to plunge. Despite a government-led $7.4 billion effort to help stabilize the markets, economic growth projections for 1996 have been downgraded from 6.52 percent to 6.36 percent. "If this drags on, Taiwan will lose its competitive edge of market stability, and in a way that is Beijing's ultimate message," FlorCruz says. "China doesn't have to invade Taiwan to disrupt its peaceful environment. Investors will be jitterish. Markets will be wobbly. No economy can absorb such a protracted beating." Taiwan had been hit by economic problems before the crisis with China began last summer. The highly speculative real estate market was hit by a string of collapses and bounced checks, affecting both the stock market and the bank sector. Taiwan's main stock index has fallen about 13 percent since June. Taiwan does however have a strong economy to help minimize the damage. The island of 21 million people is the world's 14th-largest trading partner and holds the second foreign exchange reserves. China's aim in its attacks is to intimidate the Taiwanese from reelecting pro-independence President Lee Teng-hui. While it seems unlikely that Lee will lose next week's vote, Beijing does hope to pressure the Taiwanese leader into softening his stance on independence. "To make the strategy work properly, the magnitude of the crisis should be so much that the business sector in Taiwan will apply pressure on Lee to cool it because they are hurting," FlorCruz says. "It hasn't reached that point yet, but they are approaching it."