Dancers perform during the National Day celebrations in Taipei. Credit:AP Since the May inauguration of the new president Tsai Ing-wen from the anti-mainland side of Taiwanese politics, China has turned off the tap. Chinese group tours are down 40 per cent, hitting the central and southern regions of the island hard. Coming on top of an already sluggish economy, the tourism downturn is already putting a dent in the new president's popularity. "Yes it's happening every day," says Dr Szu-chien Hsu, the president of the Taiwan Foundation for Democracy, a taxpayer-funded, independent think tank. "There are economic sectors which have very strong vested interests in their ties with Chinese business … I wouldn't be surprised if a similar phenomenon takes place in your country."

Taiwanese President Tsai Ing-wen, right, and Legislative Speaker Su Jia-chyuan, during National Day celebrations in October. Credit:AP With countries all over the world wrestling with the complicated spectre of Chinese power, opportunity and influence, none is in a more challenging spot than Taiwan. Beijing's fundamental aim is reunification with the island it views as a wayward province. Sooner or later, as China grows more powerful, Beijing expects Taiwan will have no choice but to return to the motherland. But the Taiwanese have other ideas. Taiwan military march during the National Day celebrations. Credit:AP 'Taiwan can only solve this problem with patience'

Unlike in Australia, where Chinese investment and influence is received with both fear and greed, and the threat of outright takeover is not a present reality, in Taiwan there is a pragmatic attitude to the neighbourhood superpower. "No administration in Taiwan is able to make any decision that goes against the opinions of the people," says Dr Chiu Chui-Cheng, the deputy minister of the Mainland Affairs Council, the government ministry charged with managing the China relationship. "At present we have to maintain the status quo, this remains unchanged. Our goodwill remains unchanged." This attitude is in some part cultural: with shared history, language and traditions, older generations still identify as Chinese, not Taiwanese. And it's partly economic: the Taiwanese economy is deeply intertwined with the Chinese economy, with two-way trade worth about $120 billion last year. Decades of complementarity have helped make both sides of the Taiwan Strait richer. But that is changing. Just as China is emerging as a more territorially aggressive neighbour in the South China Sea, it's also emerging as an economic competitor – rather than a partner – to Taiwan as labour costs increase. Taiwan has seen a succession of industries effectively lost to China in the past two decades. Against this backdrop, Tsai's Democratic Progressive Party was elected in a landslide, taking 60 per cent of the seats in the legislature, reducing the previous ruling party, the pro-China Kuomintang, to just 31 per cent.

The DPP's key economic policy is to shift away from "over-reliance" on the Chinese market by engaging with countries in the Association of Southeast Asian Nations (ASEAN) and other South Asian nations. Difficult as it is to unpick the politics from the economics of cross-strait relations, Taiwanese political science professor Eric Yu says that election polls done by the Election Study Centre at National Chengchi University indicated a majority of voters considered the economy the most important issue (35 per cent) rather than the relationship with China (16 per cent). "Taiwan is in a period without consensus on cross-strait relations," he says. The polls show support for maintaining the status quo "indefinitely" has steadily increased in the past two decades, while those who say the status quo should be maintained with a decision made about unification at a later date retain a slim majority, he says. (Support for immediate unification is very low, and flat for decades, around 2 per cent.) But Maysing Yang from the Taiwan Foundation for Democracy says the election of the DPP – the party's second stint in office since democratisation – was a clear anti-mainland signal from voters, and one that pointedly came just months after former President Ma Ying-jeou met with Chinese President Xi Jinping in Singapore late last year – the first leadership level meeting in six decades.

"The DPP has always emphasised Taiwan should be a sovereign state, and it should become a normal country," she says. "That means we should have the right to participate in the international community. We should have our own right to choose our own name. And the people also understand the DPP didn't accept the 1992 consensus," she says. It's this 1992 consensus, a feat of magical thinking and diplomatic two-step in which both sides agreed there was one China but with different interpretations, that is at the heart of the new chill in the relationship. Piqued by the new president's refusal to endorse the 1992 formula, Beijing has suspended the official institutionalised talks with Taiwan, cut off tourists, and blocked it from international meetings it had previously let Taiwan participate in. President Tsai has not been moved. This week in a key speech at the country's National Day celebrations she repeated her call for preservation of the status quo, saying Taiwan would "not bow to pressure" and asked Beijing to reopen talks. The status quo has meant relatively peaceful relations for over 20 years, since Taiwan's transition to democracy, and it is usually seen as a rational, non-provocative formulation. But the two sides now seem at an impasse.

"Beijing's tone is that they insist on the 1992 consensus, because it shows the One China principle under their interpretation," says Dr Chiu Chui-Cheng from of the Mainland Affairs Council. "Their ultimate goal is for unification. They are trying to lock Taiwan into a certain framework, however we are not going to accept this precondition. "Taiwan can only solve this problem with patience." Veteran China watcher Frank Ching from The South China Morning Post points out that Beijing and Taipei apparently have different definitions of the status quo now: for Taipei, it means maintaining its democracy, autonomy and peaceful cross-strait relations; for China it means ever-closer ties "which will over time lead to the political union of Taiwan and the mainland". As he puts it, "if relations stop improving, in Beijing's mind, the status quo has changed."

"Under Hu Jintao, there seemed to be some hope of the ultimate goal being not absorption of Taiwan into the mainland but of the two sides signing a peace treaty and putting the civil war behind them, after which there would be peace," he says. "I think Xi needs to provide a much clearer idea of how he sees an ultimate resolution. Taiwan won't go into talks unless it sees the possibility of an acceptable agreement." Taiwan has a good story to tell: it's an open, pluralist, Chinese democracy, rare as a black swan. It's a living rebuttal to the Chinese Communist Party line that Chinese people aren't suited to democracy. But there's a reason Taiwan spends a small fortune sponsoring visits for foreign media (Taiwan, and Israel, are reportedly the biggest spenders on trips for Australian politicians and journalists). It has a hard time getting its message out. The arc of history is not bending its way, but China's. It's plain to see at the National Day parade on October 10 where the sole visiting head of state is Ralph Gonsalves, the Prime Minister of Saint Vincent, a micro-nation of 100,000 people in the Caribbean. Saint Vincent's flag lines the promenade alongside Taiwan's. An array of uniformed brass from obscure Latin American countries and a bank of foreign media make up the balance of the international VIPs. The status quo might be a diplomatic netherworld, but it's Taiwan's best option.

"Independence is impossible. Unification is not accepted, so it's just status quo for a while," says senior diplomat Paul Chiang, the director-general of the Ministry of Foreign Affairs. He pauses. "We wait until China becomes democratic some day." The journalist visited Taiwan as a guest of the Taiwanese government.