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Explained: Why did Taiwan set up a $200 million Lithuania fund?

Taiwan is trying to ease Chinese diplomatic and trade pressure on the Baltic state

January 06, 2022 / 04:26 PM IST
In 2016, a second pro-independence president Tsai Ing-wen came to power and she even established an independent channel with the Trump-ruled USA. (Photo by 李昂軒 from Pexels)

In 2016, a second pro-independence president Tsai Ing-wen came to power and she even established an independent channel with the Trump-ruled USA. (Photo by 李昂軒 from Pexels)

Taiwan has announced the setting up of a $200 million fund to invest in Lithuania, which will help the Baltic nation develop its own semi-conductor industry, and infuse money into other sectors such as biotechnology and research.  The announcement comes after Taiwan bought 20,000 bottles of Lithuanian rum headed for China. Taiwan Tobacco and Liquor Corporation reportedly purchased the rum after learning that it could be blocked from entering China.

On the other hand, China has denied blocking trade from Lithuania - which would violate the rules of global trading.

Why did the fund become necessary?

Last year, Lithuania fell afoul of the one-China principle that Taiwan is a part of China by allowing Taiwan to open a representative office under its own name, instead of Chinese Taipei. On January 4, the European country’s president Gitanas Nauseda said that they had made a mistake in allowing that name. 

What is the history of Taiwan-China relations?

Relations between China and Taiwan started improving in the 1980s that saw a truce under which China agreed to “one country, two systems” that gave Taiwan a level of autonomy provided it accepted reunification at a later date. But, in 2000, Taiwan elected a pro-independence president Chen Shui-bian and elected him again in 2004. China was worried but the next two elections went to a more reconciliatory president. In 2016, another pro-independence president Tsai Ing-wen won and she even established an independent channel with the Trump-ruled US, even for military support. By 2018, China was aggressively asking countries and companies to recognise Taiwan as an integral part of itself, and Beijing said that any country that tried to do otherwise would get the diplomatic cold shoulder.


What has been China’s reaction to Lithuania’s move?

Almost immediately, Beijing responded, with a slightly dramatic: it will “pay for what it did”. Then, it imposed sanctions on the European country. It has banned all imports from Lithuania and recalled its ambassador. China told MNCs to cut ties with the Baltic nation or be ready to be shut out of one of the world’s biggest markets. Lithuania is export-dependent with many companies manufacturing for MNCs, which then sell the products to China. "They (China) have been sending messages to multinationals that if they use parts and supplies from Lithuania, they will no longer be allowed to sell to the Chinese market or get supplies there," Mantas Adomenas, Lithuania's vice-minister for foreign affairs, told Reuters.

 What has been the rest of the world’s reaction to this conflict?

Many countries have been pursuing independent diplomatic relations with Taiwan, infuriating China. Europe has been pushing for better political and economic ties with Taiwan since last November. In December 2021, US President Joe Biden signed the National Defense Authorization Act which allocates $7.1 billion for the Pacific Deterrence Initiative, which identifies China as the most significant threat to US’ military defence, and records Congressional support for the defence of Taiwan. A political risk analyst named the Sino-US stand-off over Taiwan as the biggest risk in 2022. India’s talks with the island nation picked up pace in December 2021, and both have been discussing the signing of a free-trade agreement and the setting up of a semiconductor manufacturing hub in India.

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Asha Menon
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