The announcement of the first talks in 66 years between China’s president and the leader of Taiwan this week was a surprise to some observers, who describe it as a further sign of Beijing’s readiness to take risks.

They also say the meeting scheduled for Saturday between Chinese President Xi Jinping Taiwanese leader Ma Ying-jeou in Singapore may have implications for Japan.

Long a factory hub for Japanese companies, Taiwan has in recent years seen its low-cost manufacturing sector move to China, and a rapprochement could raise its competitiveness.

“If China and Taiwan could further integrate their production value chain, I think that would put some pressure on South Korea and Japan,” said Chen Gang, an economics researcher at the East Asian Institute at the National University of Singapore.

“After this kind of political meeting, there will be some economic and social integration between China and Taiwan, which to some extent will give some benefit to Japan and to some extent will also pose challenges,” Chen said.

No Chinese leader in office has met with the head of a Taiwanese government since 1949.

The breakthrough is seen as a symbol of Xi’s new power following a corruption crackdown that has cowed opponents in the Chinese Communist Party.

It also reflects the fact that Taiwan’s ruling Kuomintang has been conciliatory toward Beijing in recent years and is faring poorly against a stridently anti-China opposition ahead of an election next year.

“Xi Jinping is a very realistic guy,” said Leong Liew, a professor of economics at the Griffith Asia Institute at Australia’s Griffith University. “The meeting is a way of recognizing the realities on the ground, helping the (Kuomintang), but at the same time giving greater recognition to Taiwan.”

Beijing welcomed Taiwan’s refusal Saturday to recognize an international tribunal case brought by the Philippines challenging China’s claim to nearly all of the South China Sea. That claim is based on what Beijing presents as a cartographic “nine-dash line,” an area that overlaps with one laid down by the Kuomintang’s predecessors when they held the mainland.

Asked for reaction to the upcoming talks, the Japanese government said Tokyo will watch what transpires between Beijing and Taipei.

“Japan has maintained the stance that the issues over Taiwan should be solved peacefully through direct dialogue between the two parties,” Chief Cabinet Secretary Yoshihide Suga told a news conference on Wednesday.

The United States on Tuesday said it welcomes all initiatives that involve dialogue.

“We welcome the steps both sides of the Taiwan Strait have taken in recent years to reduce tensions and improve cross-strait relations,” a State Department spokeswoman said. “We encourage the authorities in Beijing and Taipei to continue their constructive dialogue on the basis of dignity and respect.”

The meeting in Singapore could be aimed at swinging support back to the Kuomintang, at a time when the opposition Democratic Progressive Party and its anti-Beijing stance have appeal. Some analysts say a DPP win next year could bring benefits for Japan, although cross-straits relations will always remain paramount.

“The economic reality is Taiwan can’t afford to offend China,” Griffith University’s Liew said. “But politically I think there will be subtle changes, maybe a bit more military (exchanges) between Taiwan and Japan. … There will be little nuances, a little bit on the margins.”

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