Two United States Navy F-18s made an emergency landing in Tainan, a city in south Taiwan, Wednesday afternoon after declaring an in-flight emergency due to a mechanical issue.

The two aircraft transmitted a 7700 “squawk” code which is recognized by the International Civil Aviation Organization as meaning general emergency. The two aircraft landed safely at Tainan Air Force Base shortly after 1:00 pm.

An American diplomatic official is quoted by local media as saying the two aircraft were on a “routine” flight when they encountered a mechanical emergency and required to land. The official thanked Taiwan for its assistance in getting the planes safely to the ground.

As Taiwan’s Air Force does not have F-18s in its fleet, the aircraft and pilots will remain in Taiwan until technicians and spare parts can be sent in from the closest US base in Okinawa, Japan.

A sensitive landing

Landing two US military aircraft in Taiwan has the potential to create further complications due to the island’s unique relationship with China and most of the world.

Taiwan, officially known as the Republic of China, does not have formal diplomatic relations with most countries. Following the Chinese Civil War, Chiang Kai-shek, leader of the Republic of China’s ruling Kuomintang (KMT) party retreated from China to Taiwan in 1949. That same year, Mao Zedong established the People’s Republic of China. Until the late 1970s most of the world considered the Republic of China (Taiwan) to be “China”. In 1979 that recognition shifted to China, with China taking the ROC’s former seat at the UN and the US and most countries of the world opening up full diplomatic relations.

Relations between most countries and Taiwan are conducted through non-official “Trade Institutes” that act as de-facto embassies without the official title.

To this day Taiwan and China see each other as the legitimate “China”, with the other being considered a rogue province. Relations between the two improved in 1992, when both ROC and PRC officials met to sign the 1992 Consensus which states that both sides agree there is “One China” but that definition is subject to interpretation. In 2005 the two sides agreed to have daily cross-strait flights.

While the United States does not have official relations with Taiwan, it provides defensive weapons to Taiwan under the Taiwan Relations Act. The act does state that the US will come to the defense of Taiwan should the PRC attack it, provided that Taiwan does not declare independence first. While the US does not provide top-tier weapons to Taiwan for fear of angering China, it has provided the nation (under protest from China) with F-16s, Black Hawk helicopters, and Apache attack helicopters amongst other kit.

A ‘routine’ flight?

While diplomatic officials in Taiwan maintain that the flight was “routine”, it was likely anything but.

The area the jets flew through is heavily contested, and to get there they no doubt had to traverse through Chinese Air Defense Identification Zones.

In the last few years China has taken an aggressive posturing in the South China Sea, to the protest of neighbouring states. Many states in the area, such as the Philippines, have expressed concern about China’s expansion in the area. China has recently been carrying out military drills in the South China Sea’s Bashi Channel, near Philippines’ territorial waters, which is notable because of the distance from China’s coastlines.

It is likely that the US jets were in the region to shadow or monitor the drill to symbolize to China that the US has interests in the area as well. The emergency landing in Taiwan was no doubt noticed by China — but perhaps that was the point.

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Taiwan remains a powerhouse of innovation, but struggles to properly commercialize this innovation in the highly competitive technology sector was the topic of a speech made by Taiwan’s Minister of Science and Technology at an American Chamber of Commerce luncheon in Taipei Tuesday.

Comfortably navigating his speech in English, the Cornell-educated Chang San-cheng, who was appointed to lead the Ministry of Science and Technology after it was renamed from the National Science Council earlier this year, contrasted during his speech Taiwan’s sweep at global innovation exhibitions such as iENA and INPEX with its failure to produce a homegrown commercially successful Microsoft (NASDAQ: MSFT) or Facebook (NASDAQ: FB).

“The United States has its Microsoft, Apple, and Google but none of those companies are from Taiwan,” he said. “Business models are one ingredient of innovation. Taiwan is good at coming up with new inventions, but very few of them are commercialized.”

The homegrown giants that Taiwan has grown to be world class, namely Acer (TPE: 2353) and Asus (TPE: 2357), have failed to adequately adapt to market changes making the two companies much less important players than they were in their prime.

He also gave the example of the inability PTT’s owners — a hyper-popular local web forum that’s roughly analogous to Reddit — to develop a business model for the forum. Instead the forum, a household word amongst the under-40 set in Taiwan, has continued to rely on support from National Taiwan University in order to survive.

“Over the years none of the students from National Taiwan University ever thought about commercializing PTT. One might say that if you commercialize PTT you will loose a forum to freely publish your ideas,” he said. “But if you look at Facebook, nobody at Facebook ever interferes with the way you publish your ideas. Commercialization and free expression of ideas are not a contradiction.”

Reorganizing the academy

Chang cited the need to reform Taiwan’s post-secondary education system as one of the building blocks to reboot Taiwan’s competitiveness. There’s a big gap between the needs of industry and what academia produces, he said, explaining that this wasn’t something unique to Taiwan but rather a first world problem.

“Taiwan is not alone in facing this issue, but Taiwan has a much bigger problem as Taiwan’s industry does not have research capability that’s as good as competitors in Europe or the United States,” he said.

While many many universities have effective research partnerships with industry, there is still work to do in better aligning the two. Too many professors have very niche impractical research fields, he said, giving an example of one political scientist at a university in Taipei whose sole research field was the electoral system of a certain state in the United States. The state in question has no major economic or cultural connection to Taiwan, but this professor would get funding to publish multiple papers per year on it.

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Chinese smartphone brands are vying for market share in neighboring Taiwan, where international brands and the island’s own HTC (TPE: 2498) have historically been dominant.

While the Taiwan market is small, its cultural similarities with China makes it a logical choice for ambitious Chinese smartphone makers like Huawei Technologies (SHE: 002502). and Xiaomi Inc., who are in the midst of international expansion. Xiaomi has an 11% share of Taiwan’s handset market and Huawei 2%, according to IDC, a market-research firm. Chinese brands are searching for new growth opportunities overseas as their home market – the world’s largest for mobile phones – becomes increasingly saturated, analysts say.

“Chinese brands can use Taiwan as a stepping stone to other global markets,” says Sophia Chen, a handset analyst with the Market Intelligence & Consulting Institute (MIC), a research firm affiliated with the Taiwanese government.

Upgrading ‘Made in China’

In the Taiwan market, where they are newcomers, Chinese smartphone vendors must build brand awareness and counter the stigma that their products are of dubious quality. To that end, they are offering both inexpensive feature-packed mobile phones and flagship high-end handsets to Taiwanese consumers.

This year, Shenzhen-based Huawei, the world’s fifth-largest smartphone manufacturer by shipments, aims to double its 2013 Taiwan sales to 200,000 units. In July, it launched the Honor 3C, a 4G LTE-enabled handset in partnership with the Taiwan carrier Chunghwa Telecom (TPE: 2412). Priced starting at $564 (NT$16,900), the device competes in Taiwan’s premium handset market.

The high-end market will be difficult for Huawei to penetrate, says Alan Chen, an analyst at TrendForce, a Taiwan-based market research firm. “Made in China means low and mid-priced products to Taiwanese consumers,” Chen says. “Taiwanese consumers are very brand conscious. They are likely to choose a comparable Samsung phone instead.”

But high-end handsets may help Huawei build brand awareness in Taiwan, says Carlos Peng, an analyst at Fubon Securities in Taipei. “Huawei wants to show Taiwanese consumers that as a Chinese brand it is capable of producing a high-end smartphone that in theory can compete with HTC, Samsung or LG,” he says. For that reason, Huawei is content to sell premium handsets in small numbers for now, he adds.

Oppo, which was founded in 2004 as a manufacturer of Blu-ray video and MP3 players, is another Chinese brand targeting Taiwan’s premium handset market. Oppo launched its flagship 4G Find 7 in the third quarter through Chunghwa Telecom at a cost of $566 (NT$16,990). The Dongguan-based firm says it expects overseas revenue to comprise more than 50% of its total sales by 2017.

Oppo is touting the Find 7’s camera, which features a Sony camera module designed for taking selfies. Oppo may have a niche market opportunity with selfie fans, as no comparable product exists on the Taiwan market now, says Joey Yen, a research manager with IDC in Taipei. But if an international or Taiwanese competitor launches a similar product, Taiwanese consumers will choose that device over Oppo’s, she says, adding: “Taiwanese consumers still have reservations about the quality of Chinese brands.”

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