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Why is China friendly towards Taiwan in the realm of trade but hostile in the political and diplomatic arenas? Objectives. This paper is to examine the significance of TaiwanÂ’s economic development to ChinaÂ’s economy, and to explore the extent to which the economic interdependence of the two sides affects the level of tension across the Taiwan Strait. My arguments are that China does not use economic means to sanction or attack Taiwan because TaiwanÂ’s economic development, based on a large amount of trade and investment in China, has great implications for ChinaÂ’s economic growth. The increase of ChinaÂ’s economic growth because of the salient economic interactions between Taiwan and China contributes to lowering the level of tension between the two sides. Methods. Using data derived from Monthly Statistics of Exports and Imports, Ministry of Finance, Taiwan, the Republic of China (ROC), I test my hypotheses using one multivariate regression model and an ordered logistic model with twenty-five observations for each variable, which are based on a time series analysis ranging from 1979 to 2003. Results. For the regression model, the findings, based on GDP indicators, demonstrate that TaiwanÂ’s economic growth has positively significant influence on ChinaÂ’s economic growth. The findings of the ordered logistic model show that ChinaÂ’s GDP and GDP ratio are negatively significant to the tension level, meaning that the increase of ChinaÂ’s GDP and GDP ratio respectively decrease the level of tension between the two sides. However, TaiwanÂ’s regime change to democracy has positive effect on the increase of tension. The statistical results support the long-standing liberal hypothesis that trade ties facilitate interstate peace. ..PAT.-Conference Proceeding [ABSTRACT FROM AUTHOR]

Taiwan Strait is one of the few explosive spots in today's world that has the potential to trigger military confrontations between two major powers (the People's Republic of China and the United States). Since the leader of Taiwan is determined to seek Taiwan's formal independence, which cannot be accepted by the PRC, many scholars warn that a Taiwan Strait War will break out in the foreseeable future. Other observers argue that the PRC will not risk a war over Taiwan because it can hardly afford the economic cost of such a war. What are the possible consequences of a future Taiwan Strait War? This article examines the impact of war on the PRC through the history of three major Sino- wars that occurred after the establishment of the PRC. I also look back to the Tiananmen Square Incident to see the international reactions and its damage of a quasi civil war. Although history indicates that war does not necessarily impede the development of China in the long run, the consequences of a Taiwan Strait War will be more serious because of the uniqueness of the Taiwan issue as well as the highly interdependence between the PRC, Taiwan, and the rest of the world. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]