The confrontations between China and Taiwan and between North and South Korea will continue to pose the greatest threats to security in East Asia. However, during the first half of the 1990s there were hopeful developments, as new channels of bilateral dialogue and contact were established in the political, economic, humanitarian and cultural spheres.

Fundamental political differences present the most immediate problems for reconciliation. In both cases the parties have entirely different economic, social and political systems and neither side in these two stand-offs is prepared to accept the other's form of political, social and economic organization.

Domestic political difficulties in mainland China, Taiwan, North Korea and South Korea exacerbate the problems and undermine the political processes which might lead to negotiated settlements. In mainland China the long-term stability of the 'collective leadership with Jiang Zemin at the core' remains in question. In any event, no leader in mainland China can afford to appear weak vis-à-vis Taiwan. A growing body of opinion on Taiwan, led by the Democratic Progressive Party, openly advocates independence from the mainland and presents complications for dialogue. The two Korean leaders must not appear to be 'selling out' to the other side. Uncertainties concerning leadership succession in North Korea, coupled with its apparent economic deterioration, further weaken prospects for political settlements.

On the other hand, economic ties, trade relations, and humanitarian and cultural exchanges offer the best channels for positive interaction. Such relations hold out immediate economic benefits and an serve the parties' political aims. For China, closer economic relations with Taiwan would knit the two sides together in a way that Beijing sees as favourable to its goal of reunification. For Taiwan, the development of China's standard of living and a more open and prosperous mainland is in Taiwan's interest whatever happens with reunification. South Korea sees political benefits in opening up the North to economic relations and trade. For the North, a properly managed economic opening will attract hard currency exchange and investment, strengthen the regime's influence and legitimacy, and possibly prevent an undesirable reunification scenario on the South's terms. Each side will find benefits in economic relations and will seek to use them to gain concessions in their ongoing adversarial relations.

The promises of economic ties have drawbacks, however. For South Korea, they must be managed in a way that does not bring about the rapid disintegration of the North and avoids contributing to its political and military resources. For the North, over-exposure to the South's economic dynamism would threaten the legitimacy and survival of its leadership, which explains the North's go-slow approach. For Taiwan, entrepreneurs are concerned that the mainland exercise proper protection over trade and investments. Fearing the development of over-dependency, the government on Taiwan has resisted most attempts to open direct trade links between the island and the mainland. Of the four parties, it would appear that only the mainland would benefit from a rapid opening of economic ties with its adversary.

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