Market expectations for Taiwan are deceptively mixed. Standard & Poor's lowered the outlook on Taiwan's debt to negative in December, citing the island's record budget deficit and its troubled relations with China. Taiwan still enjoys a debt rating of AA-, however, the fourth highest of S&P's 10 investment grades.

But President Chen Shui-bian's willingness to test Beijing's patience with aggressive steps regarding Taiwanese independence is creating substantial political and economic risk. He is losing the backing of allies in the US and Asia and the confidence of much of Taiwan's business community. In short, Chen may be leading Taiwan into a dangerous corner.