ABSTRACT
This chapter adopts a signaling game approach to examine the way in which Taipei created a ‘peace dividend’ 1 by signing the Economic Cooperation Framework Agreement (ECFA) with mainland China as a signal to reveal its conciliatory mainland policy preference to other countries. The cross-Strait relationship between mainland China and Taiwan has been fundamentally changed since the Kuomintang (Chinese Nationalist Party, KMT) was returned to power in 2008. Not only has Taipei adopted far more conciliatory policies towards Beijing, but the latter has also responded positively by reducing diplomatic tensions and offering more opportunities for economic cooperation. On the Taiwanese side, this development has given rise to many new economic opportunities that were nearly impossible when both sides were engaged in confrontations over various strategic issues ranging from Taipei’s memberships in international organizations to US arms sales to Taipei. These new opportunities come in two main forms. First, as an economic inducement to cultivate more pro-unification constituencies, Beijing has launched a series of government procurement projects to increase imports from Taiwan. Second, the reduction in cross-Strait conflicts has also had the positive effect of inducing new private investment and trade from other countries.
