Taiwan Eyes E. European Market

FOUR decades after fleeing from China's Communists, Nationalists from Taiwan are advancing on the crumbling communist states of Eastern Europe in search of profit and diplomatic clout. Taiwan's gambit is its latest effort to use its business finesse and massive foreign currency reserves to escape diplomatic isolation.

Taiwan has been making contacts with officials in Eastern Europe since the region began dismantling communism and seeking economic renewal, says Foreign Minister Lien Chan.

With a recent surge in two-way trade with the region, Taiwan ``is looking to establish trade representative offices in some of the countries in Eastern Europe,'' says Mr. Lien. Just months ago such contacts were unthinkable as most East bloc officials considered the islanders enemies of communism.

Pursuing ``flexible diplomacy,'' Taiwan no longer insists countries recognize it as the sole government of China and snub Beijing. Instead, it seeks contacts that don't undermine its claim as rightful ruler of the mainland.

In diplomacy, the reach of the Nationalists has often exceeded their grasp since they retreated to Taiwan in 1949. Taiwan has relations under the title Republic of China with only 26 countries that are mostly poor states in Central America and islands in the Caribbean and Pacific. And it is a full member of only a few international organizations.

However, Taiwan's new pragmatism in foreign affairs is giving it modest clout against Beijing.

Mainland leaders view Taiwan as a growing diplomatic nuisance as they face isolation following their suppression of pro-democracy activists in June. Democratic reforms on Taiwan contrast with the repression on the mainland and have lifted the island's prestige, Western diplomats say.

The communist leadership has condemned Taiwan's diplomacy as an unseemly effort to buy influence and permanently split Taiwan from the rest of China.

Indeed, Taiwan has used aid and private investment as the tip of a diplomatic wedge to open up official contacts. With a population of just 20 million, the island has foreign-exchange reserves that exceed $75 billion, second only to those of Japan.

Taiwan's riches and business know-how helped it to open embassies this year in Liberia, Belize, and Grenada.

Taipei has received requests from countries ranging from Malawi to Panama for loans from a $1 billion foreign development fund. Taiwan plans to expand the fund five-fold by 1992, officials say.

Also, foreign countries are increasingly seeking investment from Taiwan executives. The executives have channeled millions of dollars abroad in recent years to bypass rising labor costs at home and exploit a more than 40 percent jump in the value of the Taiwan dollar since 1987.

Although it has focused its diplomacy on Asian states, Taiwan is eager to spread its capitalist growth in Eastern Europe.

Official contacts with Eastern Europe would give Taiwan greater leverage in international affairs. And closer business ties would open cheap, skilled labor and vast potential markets in the region for the electronics industry, the hallmark of Taiwan's export-led economy, diplomats say.

Taipei last month allowed ``tourist'' travel by islanders to Eastern Europe, legitimizing frequent trips by Taiwan executives. Trade with the region grew by 33 percent in the first nine months of this year to $402 million and is expected to increase quickly in coming years, says Taiwan diplomat Wei Wu-lien.

Eastern European countries have steadily warmed to Taiwan executives and bankers. Every country in the region has sent trade representatives to Taiwan. Hungary has dispatched four missions since 1988 to investigate trade and banking links, says Mr. Wei, deputy director at the Foreign Ministry's department of European affairs.

But Taiwan officials say that the mainland is trying to foil their designs in Eastern Europe.

South Korea, Taiwan's leading commercial rival, has established diplomatic relations with Hungary and Poland despite the protests of communist North Korea. Until now, however, Taiwan has found Eastern European countries reluctant to offend China.

Despite its massive internal and foreign debt, China has launched its own ``dollar diplomacy'' in an effort to ensure impoverished states aren't wooed away by Taipei.

Politburo member Li Tieying offered an interest-free loan to the Central African Republic and discussed aid projects with Cameroon, Chad, and the Congo during a tour of Africa last month.

Also, Prime Minister Li Peng pledged to help Bangladesh, Nepal, and Pakistan with development projects in a visit to the three countries last month.

Beijing is likely to oppose the entry of Taiwan into the World Bank and International Monetary Fund, diplomats say. Taiwan was forced out of both organizations when it was expelled from the United Nations in 1971.

Moreover, China and Taiwan are simultaneously seeking membership in GATT (General Agreement on Tariffs and Trade). Taiwan, the world's 13th largest trading power, plans soon to make a bid for a seat in the trade body, diplomats say. It ultimately aims to reenter the UN, Foreign Minister Lien says.

``We know that the mainland is trying to block us - we are Chinese and we know the Chinese well - but how long they can do this is a different question, and we'll just try harder and harder,'' Wei says.