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Tuesday, August 3, 1999 Published at 15:05 GMT 16:05 UK

World: Asia-Pacific

Missile test sparks Taiwanese jitters

Tensions with China have shaken Taiwanese investors

Taiwanese investors have reacted nervously to news of China's muscle-flexing missile test on Monday and reports of Chinese military manoeuvres.

With tensions between the two sides at their highest level in three years the benchmark TAIEX stock index fell 3% before government intervention helped minimise the damage.

[ image: Chinese media have launced a bitter war of words against the Taiwanese president]
Chinese media have launced a bitter war of words against the Taiwanese president
The fall is the latest in a series of investor jitters to have battered Taiwanese markets since the war of words began last month.

At one point the index fell through the 7,000 level which analysts say the government regards as bottom-line for investor confidence.

On Monday China announced a successful test launch of a new long-range missile, believed to be the Dong Feng-31 capable of carrying a nuclear warhead.

Calming nerves

In an effort to calm nerves the Taiwanese Defence Ministry issued a statement on Tuesday saying the missile was intended for use against "a major power" and was not a threat to the island.

[ image: Taiwan says it will not be taken by surprise]
Taiwan says it will not be taken by surprise
"This has no big effect on us," a spokesman said.

The defence ministry also denied reports in Hong Kong-based media that China had put its troops in neighbouring Fujian province on a war footing.

The Deputy Governor of Taiwan's central bank, Shea Jia-dong acted to calm investor fears declaring he would "not sit idly by and let the Taiwan dollar depreciate due to false reports."

During a previous confrontation China staged a series of military exercises and missile tests in the Taiwan Straits causing the United States to despatch two aircraft carrier groups in an effort to keep a lid on tensions.

Earlier Defence Minister Tang Fei criticised China's decision to go ahead with the missile test.

"From the perspective of world peace, we don't think this is an act worthy of praise," he told reporters.

Defence analysts say the test may have been more of a warning directed at the US and other outside powers not to get involved in what China sees as an internal dispute.

Macedonia visit

On Tuesday the Taiwanese Prime Minister, Vincent Siew began a visit to the former Yugoslav Republic of Macedonia, one of only a few countries in the world to have diplomatic relations with Taiwan.

Macedonia's economy was hit hard by the crisis in neighbouring Kosovo and Mr Siew's visit, accompanied by a large business delegation, is being seen as part of a Taiwanese effort to shore-up its international presence through foreign economic aid and investment.

Speaking to the BBC Macedonian Foreign Minister Aleksandar Dimitrov said Taiwan had promised to invest hundreds-of-millions of dollars in a new tax-favoured export zone near the capital, Skopje, creating 20,000 new jobs.

Weapons sale

On Monday Beijing protested to Washington over US plans to sell $550m worth of military aircraft and other weapons to Taiwan.

[ image: Analysts say China's missile test may be a warning to other powers]
Analysts say China's missile test may be a warning to other powers
Deputy Foreign Minister Jiechi Yang said the deal threatened to "further intensify tensions across the Taiwan Strait and cause severe damage to Sino-US relations".

China has accused the Taiwanese government of moving towards a declaration of full independence after Taiwanese President Lee Teng-hui suggested bilateral relations should be conducted on a "state-to-state" basis.

It has threatened to use force to prevent the island from breaking the so-called one-China concept, which it regards as being almost sacred.

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