To put it in Dickensian terms, the recent period has seen both the best of times and the worst of times for Taiwan. Significant progress has been made on many aspects of cross-Strait relations, primarily in the economic realm but in some respects extending beyond that. However, the extent to which enhanced economic links will provide relief for the increasingly troubled Taiwan economy is not at all clear. Moreover, how far the non-economic gestures and signaling will go in terms of satisfying Taiwan’s quest for "international space" also remains a question mark. But, at year’s end, PRC President Hu Jintao seemed to reflect flexibility in responding to the strong desire in Taiwan for "international space" and also presented other ideas for progress. At the same time, the advances in cross-Strait relations have also occasioned considerable domestic political turmoil in Taiwan, sharpening the divide between the government and the opposition Democratic Progressive Party and exacerbating a struggle within the DPP over how closely it should tie itself to the fate of former president Chen Shui-bian.
Meanwhile, the Bush administration’s decision in early October to approve a reduced package of arms sales to Taiwan was generally well received on the island, but it led to a sharp rhetorical response from Beijing and a suspension of military-to-military exchanges with Washington. The suspension was expected to be short-lived, however—and probably will end with the inauguration of President Barack Obama on 20 January 2009. In general, both Beijing and Taipei made efforts to consolidate relations with the Bush administration in its waning days as well as with the incoming Obama administration. But even as this period closed, the PRC felt constrained to caution the United States that it is determined to protect its "core interests" and that Taiwan—along with Tibet—remains China’s core interest.