Recent legislative elections in Taiwan went surprisingly well for the KMT. The pro-independence DPP and its allies only picked up a single seat. This leaves them far short of the 75% majority needed to call a referendum to modify the constitution and declare independence. It also suggests that the electorate is becoming less supportive of President Chen Shui-bian's aggressively pro-independence posture.
War between China and Taiwan, most likely resulting from a declaration of independence by Taiwan, is in my mind the single largest threat to development and growing prosperity in east Asia. The PRC government has made reunification with Taiwan a patriotic issue, and would have no choice but to react militarily to a unilateral declaration by Taiwan. The US would very likely be drawn into the conflict - which is why Washington has been bluntly warning Chen's government against any hasty action.
In a best case scenario, the status quo can continue for another decade or two, by which time China may be democratic enough that peaceful reunification can occur, embraced by both sides. In the worst case, Chinese civilization could be set back a hundred years in a conflict involving nuclear adversaries.
The last time tensions were high between Taiwan and China (during the 1996 Taiwan Presidential election), the US sailed a carrier group through the Taiwan strait with impunity. That would be a risky move now, given China's purchase of kilo-class quiet submarines from Russia, and advances in PLA missile technology.
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