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  2002 2001 2000 Ranking(2002)
Millions of US $ 406,000      
GNI per capita
 US $ 18,000
Ranking is given out of 208 nations - (data from the World Bank)

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Taiwan today is one of Asia's powerhouses and a centre for high-tech exports. The economic crisis that engulfed much of Asia in the late 1990's scarcely caused a ripple in the boardrooms of Taipei. The Taiwanese people enjoy one of Asia's highest living standards. Taiwan is a net exporter of capital to the region and Taiwanese companies are themselves seen with increasing frequency on the regional and global business stage. Taiwan's foreign exchange reserves are the third highest of any country in the world.
In the last ten years Taiwan has embraced both a democratic multiparty government system and an outward looking economy that meets WTO standards of transparency and competition. Taiwan has entered the new millennium with well-deserved confidence. Yet, Taiwan has not yet come of age entirely. Diplomatically Taipei remains isolated and is recognised by fewer than 30 countries. While judged by objective criteria Taiwan would not only qualify for membership of the United Nations but would be one of its major regional players, the world is not yet a rational place and, like it or not, the looming presence of mainland China is sufficient to guarantee that this will not happen, any time soon. 

Taiwan's History - The "Other China"
The original inhabitants of Taiwan (or "Formosa as it was known to Europeans), its aboriginal people, are of Malay descent although how and when they arrived in Taiwan is unknown. They have much in common with the people of the Northern Philippines. It was these aboriginals that the early Portuguese and Dutch traders seeking to establish a base on the China coast had to contend with and not the Chinese. However Chinese seafaring merchants had the advantage of proximity and they were the ones who first sought to establish permanent settlements along the Formosan coast. In the fifteenth and sixteenth centuries the Chinese came in increasing numbers forcing the natives from the narrow fertile plain that runs the length of the western seaboard and into the harsh mountainous areas of the interior.
In 1682, the Island of Formosa was formally incorporated into the Chinese Empire as part of Fujien province and it was not until 1885 that Taiwan became a separate province of China. The truth of the matter was that Chinese sovereignty in Taiwan was never absolute and extended only to those areas of population under Chinese control. Taiwan was, in the words of one contemporary writer, "a crude and lawless place". Control over the aboriginal tribes was non-existent and acts of savagery against Japanese traders (and others) provided the pretext for Japan to seek to incorporate Taiwan into the Japanese Empire.
At the dawn of the 20th century Taiwan was a colony of Japan having been ceded by China in 1895 during the final days of the Manchu regime. Yet, Taiwan prospered. The early trade in camphor which had been an economic mainstay of the island during the 19th century had already withered because of over-harvesting although trade in tea and sugar flourished and formed the basis of Taiwan's early industrial development. Railway lines were built or extended and new harbour facilities established. Importantly, whereas traditionally the centre of power and wealth under the Chinese had been in the south of Taiwan, during the Japanese colonial period the focus shifted irrevocably to the north of the island. Taipei developed as a city and capital of the island and Keelung became the major port for trade with Japan - the port of Tamshui which had traditionally carried the trade in the 19th century had already silted up and could not accommodate the larger draught vessels of the time.
In the closing days of the Second World War, the allied powers agreed at their Cairo meeting that Taiwan would be returned to China with the defeat of Japan. However, China at the time, while one of the allied powers, was locked in a bitter civil war. Unsure as to whom Taiwan should be ceded, it became for a while a UN Trust Territory.
General Chiang Kai-shek, the Nationalist leader eventually accepted Taiwan back from Japan to be administered on behalf of the allies pending a final settlement. From 1945-1949, Chiang paid little attention to the Island province as increasingly the nationalist armies fighting on the mainland were being overwhelmed by the Communist forces.
However, in 1949 the war on the mainland was coming to its conclusion with the Peoples Liberation Army triumphing over its Nationalist counterpart. Chiang, his army and his administration fled to Taiwan.
On the Chinese mainland, a new "Mandate of Heaven" prevailed. The old Republic of China was replaced by the Peoples Republic of China. On the island of Taiwan however it was a different story. Taipei at once, became the temporary capital of the "Republic of China" established by Sun Yat-sen in 1911 and Taiwan became the "unsinkable aircraft carrier" To the Nationalists that came with Chiang, Taiwan was no more than a temporary base from which to regroup, rearm and retake the mainland. Things did not work out that way.
To the local Taiwanese, the arrival of the Mandarin-speaking mainlanders and a large army amounted to a new invasion and new colonisation especially as Taiwan was immediately placed under a harsh martial law regime that existed well into the nineteen-eighties. Rebellion and dissent were brutally repressed in the early years in what came to be known locally as the period of "white terror".
Had it not been for the outbreak of the Korean War, Taiwan's story of the past fifty years may have been differently written. Korea bought valuable time for the Nationalists and shifted Beijing's focus to its northern border rather than to the far south. The Nationalist (Kuomintang or "KMT") administration may have been inept at fighting a war but they proved highly effective in restoring and then transforming Taiwan's economy. Taiwan was the first of the Asian tigers to develop on the basis of an export led path to economic prosperity.

A success story
As the economy prospered, the military-backed dictatorship became more benign. Land reform brought with it economic emancipation and the beginnings of industrialization based on family-owned companies. Martial law was lifted in the mid-nineteen eighties and dissident political groups that had been around for some time were transformed into genuine political parties. Restrictions on press freedom were lifted and censorship largely abolished. Democracy has flourished on Taiwan.
The last decade has been one of dynamic and at times frenetic change both economically and politically. A government program of industrial restructuring and incentives has been largely successful in shifting Taiwan from being a low-cost manufacturing centre to that of a regional centre for high-tech manufactured goods.
Divisions between "mainlanders" and "Taiwanese" have largely been healed - certainly for the younger generation and the Government has done much to atone and set to rest some of the worst excesses of the martial law period. Nowadays it is more fashionable to be called one of the "New Taiwanese" rather than a "mainlander". 

Taiwan and the PRC
Taiwan, or to give it its full title "The Republic of China" is a fully independent country. Its population enjoys universal suffrage; it maintains a free press and a democratic electoral system. The President of the country is elected directly by the people. Yet as noted already Taiwan is a country that is isolated diplomatically.
The anomalous position in which Taiwan finds itself is yet one more consequence of the Chinese Civil War. Taiwan, long ago gave away any claim to the mainland of China and has recognised the PRC as the legitimate government of the Chinese mainland. The gesture has not been reciprocated. Instead China maintains steadfast to a policy that Taiwan must be reunited with the Chinese mainland. Ominously, China claims the right, if necessary, to use force to "liberate Taiwan". In Beijing's eyes, Taiwan's only option is to negotiate the terms of its surrender.
The Chinese claim rests on tenuous grounds. Throughout its history Taiwan was only a province of China for a mere ten years during the nineteenth century and even then Chinese administrative control did not extend throughout the Island. While China has advocated the "one country - two systems" formula applied to Hong Kong and Macao as the basis for reunification; commentators are quick to point out that the situation in Taiwan is entirely different. There is no colonial administration present in Taiwan that could hand sovereignty back to China, nor can the government here negotiate a surrender of sovereignty not sanctioned by the people of Taiwan. These are points that many Taiwanese - "new" and "old" alike feel are not understood in Beijing. Certainly popular sentiment in favour of reunification of Taiwan with the Chinese mainland at the present time is close to zero. Nevertheless, it did not stop the emergence of one candidate in the Year 2000 Presidential election running on the platform of reunification under the Deng Xiaoping formula. He scored less than 1% of the vote.
Talks between Taipei and Beijing have been going on for almost a decade now without any real sign of progress on the substantive political question. Two fundamental issues divide the two sides. While China seeks to negotiate the return of Taiwan to China on the basis of treating Taipei as the seat of a renegade provincial government, Taiwan insists that the two sides negotiate as equals. Taiwan also sees any reunification question as being a matter for the distant future and after China has itself democratised. For the time being, Taiwan wants confidence building measures at the top of the agenda.
Despite conciliatory statements by the incoming government of Taiwan, China has refused to adopt a more conciliatory position and has remained hostile to Chen and the DPP. This has led in turn to a more robust assertion of Taiwan's intention to take its own course and not to toe a PRC dictated line.
All of this means little for foreign business. Despite the grandstanding that takes place on the political stage, international companies are free to do business on either side of the Taiwan Strait without hindrance. Taiwan is collectively itself one of the largest investors in the mainland. 

Present Political Environment
The presidential election of March 2000 saw a shift of power from the Nationalist Kuomintang (KMT) Party that had ruled Taiwan for almost fifty years to that of the Opposition Democratic Progressive Party (DPP). A human rights lawyer who had been imprisoned in the nineteen-eighties for his political activism, Chen Shui-bian, became President although within Taiwan's unicameral legislature, the KMT has still maintained a majority of seats. 
Chen's own administration has been helped by the fact that following its defeat at the presidential polls, the KMT fractured. One faction (the Taiwan Solidarity Union) led by former (KMT) president Lee Teng-hui aligned itself with the DPP while another faction led by former Taiwan Governor, James Sung, formed a breakaway right-wing splinter group known as the "People First Party" (PFP). 
Despite the political realignments of the past few years, Taiwan maintains to all intents and purposes a bi-party political system. Both the KMT and the PFP have formed the "Pan Blue Alliance" and will run with a common slate at the 2004 presidential polls. By contrast the combination of the DPP and the TSU is commonly referred to as the "Pan Green Faction."
On economic policy both major parties are centrist and there is little to chose between them. Rather it is on the issue of the relationship with China where opinions divide. On other issues, the most defining issue for the present government is its commitment to human rights (with women's issues and those related to other minorities being prioritised) and to democratic reform. Of course, there is a political edge to this too in that it seeks to differentiate its own track record with the historic record of the KMT which for many years was solely a party of authoritarianism.
The Opposition KMT and PFP are dominated - at least in leadership positions - by people who can trace their recent inheritance back to the mainland of China and those families who came over to Taiwan with Chiang Kai-shek at the closure of the Chinese Civil War. These people are still inclined to see the relationship with Beijing as a familial squabble and that, in the fullness of time will allow Taiwan and the Chinese mainland to reunite (although not under a Communist government). 
By contrast the Democratic Progress Party and the Taiwan Solidarity Union are dominated by ethnic Taiwanese (85% of the population) who while acknowledging their Chinese ancestry have no kinfolk on the mainland of China and have no desire to reunite Taiwan with it.
With presidential elections approaching again in March 2004, President Chen Shui-bian is again standing for re-election with his outspoken Vice-President Annette Lu again as his running mate. The opposition alliance has KMT Chair Lien Chan as its standard bearer with the PFP's James Soong eying the vice presidential slot. 

Political Outlook
Between now and the elections of March 2004 both major political groups will be seeking to play the "China card" in their attempts to garner support of the voters. The DPP often presents the Pan Blue alliance as the group that would sell-out Taiwan's interests to Beijing, while the Pan Blue camp seeks to portray Chen as a dangerous pro-independence advocate and one who is heading a party whose stance might provoke Chinese military action against the Island.
In fact the two groupings are not so far apart and it is unlikely that either side would take extreme measures to destabilize the situation across the Taiwan Straits. Nevertheless the DPP is keen to show the world that the present impasse is caused by a belligerent and recalcitrant China that not only refuses to renounce force to reunite Taiwan with the "Motherland" but also has more than 400 armed missiles pointed at the Island.
In fact whichever party assumes office following the election, the situation is unlikely to change dramatically. Both major groupings are committed to the democratic process (and indeed it was the KMT that introduced and fostered democratic reforms) and both see the unofficial alliance with the United States (as stated in the US-Taiwan Relations Act) as the cornerstone of Taiwan's foreign policy.
While the people of Taiwan overwhelmingly reject reunification with China this presumption has never been tested directly at the polls, which is why the DPP wants a referendum on the issue (and why Beijing for its part remains adamantly opposed). No matter the outcome, neither group really intends to change the status quo. What they are seeking to do is to demonstrate the absurdity of the Chinese hegemonistic position.
For the most part, Taiwan will continue to evolve much as it has done in recent years but with a DPP government there will be less of an international perspective both to its decision-making and in the manner in which it internationalizes its own economy. Under the DPP the hire of foreign labor is being discouraged, there is much less emphasis on English as a second language in government and in business (although the teaching of English in schools is widely fostered) and a much greater fostering of "Taiwanese nationalism." The KMT by contrast is generally credited with a better weltanschauung. 
Both groups accept that there is a need for constitutional reform although the manner in which this is to be introduced differs between them. The DPP want to scrap the present constitution (which really has served Taiwan remarkably well) and replace it with a new one that de-emphasizes the "Republic of China" as Taiwan is officially called. By contrast the Pan Blue alliance see a need to amend the constitution without seeking to throw it away entirely. This issue is likely one that will be given greater prominence in the months to come.

Economic Outlook
Taiwan has made great strides over the past ten years to open its domestic economy to international competition. For both commercial and strategic reasons, Taiwan has sought a role for itself as a regional hub and an alternative centre to Hong Kong and Shanghai from which to develop the China market. Lack of direct transportation links with the Chinese mainland continue to hamper efforts so far in this direction but progress has been rapid in other areas that are not dependent on direct links with the PRC.
Although not yet succeeding as a regional centre - Singapore and Hong Kong remain the favourites of international business - Taiwan is an important market in its own right although not one for the faint hearted. Taiwan's industry is becoming increasingly dependent on the export of higher value-added products and they are major purchasers of industrial plant and equipment. Major infrastructure projects underway in the telecommunications, energy and transportation sectors provide major opportunities for foreign engineering and technology-based companies. An affluent population of 22 million, fashion conscious and with a high propensity to spend provides a consumer market ready to try new trends and fashions. Increasingly the younger generation takes its cue from Japan rather than the United States. In recent times the DPP led government has placed less emphasis on the broad regional centre approach to one that is more focused on building Taiwan as a high-tech manufacturing hub.

GDP Growth and Forecasts
Taiwan's economy is driven by trade and especially exports to the markets of the United States, Japan and Europe. These are major markets for Taiwan's rapidly growing high-tech sector. For the past decade, the drivers of growth have been the semiconductor and related electronics industries although there is now a new emphasis on the emerging "sunrise opportunities" in the biosciences and in such areas as nanotechnology. Much of the required technology comes from overseas in various ways. Like Japan before it, the Taiwanese are good "adaptors" but less good at "innovation" and "research."
In 2003 the domestic economy was hard hit by the outbreak of severe acute respiratory syndrome (SARS) and the U.S.-led war in Iraq. However in the second half of 2003 it caught the wave of the worldwide economic recovery and this is expected to reap even better results for Taiwan in the next year. It is now obvious that Taiwan's growth rate needs to be compared to those achieved by other OECD economies and not the norms of the developing world. 

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Update No: 005 - (06/07/04)

DPP moves towards the centre
With the inauguration of President Chen Shui-bian now out of the way, politics in Taiwan returned this past month to some semblance of normalcy and with the ruling Democratic Progressive Party (DPP) members focusing on the upcoming party congress due to be held on July 18. With one eye on the year-end elections for a new legislature, a group of DPP legislators have chosen to take the initiative by outlining a new "theme" for the Party to adopt in an effort to bolster the party's public image. The suggested theme is that of "good governance." Explained one party official: This involves tasks such as streamlining government agencies, reducing the three-tier government system (National, provincial and local) to a two-tier one by reassigning those functions now handled by the Taiwan Provincial Government, reorganizing administrative regions and amending the legal regulations governing elected officials.
With party leader, President Chen Shui-bian eschewing any move during his presidency to formal independence for Taiwan - an undertaking he reaffirmed in his inaugural address, the chance to campaign on a pro-Taiwan independence platform is no longer an option for the DPP. Rather that particular baton has now passed to the DPP's partner in the "Pan Green" alliance - the Taiwan Solidarity Union (TSU) of former President Lee Tung-hui. Indeed Mr. Lee's TSU is now somewhat more radical than the DPP in its advocacy of a separate identity for Taiwan and is pushing both a pro-independence line as well as a change in the country's official name from the "Republic of China" to that of simply "Taiwan." The TSU platform may well find favour with many who have traditionally supplied the support base of the DPP, especially in southern Taiwan. The DPP is hopeful however that by moving towards the political centre it will find greater support among the educated urban voters of Taipei and surrounding areas who until now have tended to vote for the KMT.

More problems for the Pan Blue Alliance 
Within Taiwan's political structure, a two party system of sorts is emerging with both the "Pan Blue" and "Pan Green" alliances. However centrifugal forces appear to be as strong as ever with every chance that these tactical alliances could still fly apart. If the DPP has problems with its Pan Green partner, the TSU, then so too does the KMT have problems with its Pan Blue alliance partner, the People First Party (PFP). KMT leaders remains hopeful that the present tactical alliance may yet lead to a merger between the two camps and which could extend to other independent legislators who are opposed to the DPP administration and therefore vote with the opposition. However this may be wishful thinking.
The two-month long protest by the opposition and prolonged resistance to the inauguration of President Chen Shui-bian may have cost the opposition precious support among key voter groups. A recent survey conducted by a major Taiwanese think tank has shown that public disenchantment over the antics of the opposition has increased from 53 percent to 68 percent in the period since the election result was announced. The survey also showed that around 60 percent of the public would vote the DPP/TSU ticket were the legislative elections to be held now while only 40 percent of voters would opt for the KMT/PFP slate. It is the KMT that appears to have seen the greatest erosion of its support base thereby further undermining its credibility and claim to lead the opposition alliance.
While Mr. Lien Chan, the chairman of the KMT and the Pan Blue presidential candidate continues to express public optimism over a possible merger between this party and the PFP, claiming a consensus had already been reached on the issue, others within the Pan Blue leadership have expressed doubts about the claim. The heart of the issue is that of vote sharing at the local level whereby the two parties' agree to field a single candidate within any constituency. This requires cooperation at the local level and throughout the country - something that might be rather more difficult to achieve than the lip service being given to the idea by the party leaderships. 
The KMT it seems has problems of its own to deal with. In a development that harkens back to the days when the party was controlled by the Chiang family (Generalissimo Chiang Kai-shek and his descendants) two members of the family, Chiang Fang Chih-yi (the daughter in law of former president Chiang Ching-kuo) and John Chang, the illegitimate son of former president Chiang Ching-kuo and grandson to the Generalissimo, appear set to compete against one another in the year-end legislative elections for the same Taipei city area. The press has speculated that a family feud is causing the two to go head to head with family members supportive of Chiang Fang claiming that Mr. Chang is trying to cash in on the family's glory. For most people in Taiwan it is a somewhat bizarre turn of events that hearkens back to an era that has long passed into history for most Taiwanese. 

Constitutional reform back on the agenda
The Northern Taiwan Society (NTS), a group that appears supportive of the Taiwan Solidarity Union has come out publicly to support the rewriting of the Constitution in an effort to put further pressure on President Chen. NTS advocates the dropping of the name "Republic of China" and is pushing for a 2006 Constitutional referendum despite pressure from the United States and from China to back away from the idea. More storm clouds are gathering on the horizon in terms of Taiwan's relations with China and with the United States though at present, the DPP government can simply claim that this is democracy in action. So it is.

2009 World Games awarded to Kaohsiung City
Kaohsiung has won the bid to host the 2009 World Games, billed as the second largest global sports fest after the Olympic Games. The Kaohsiung event, which will take place from 16th to 26th July 2009 will be the eighth world games. Kaohsiung will play host to around 3,000 athletes from 100 member countries. Taiwan sees the award of these games as a major coup and an answer to the Peoples Republic of China, which for a long time has attempted to block Taiwan's participation in international sporting events - as it has in international organizations generally. The World Games includes a number of events that are not scheduled in the Olympics.
The World Games were first held in 1981 and are held under the auspices of the International World Games Association (IWGA); the latter is made up by 33 International Sports Federations governing all those sports and disciplines of sports, which are eligible for participation in the official sports program.
According to the IWGA, the organization of The World Games is entrusted by the IWGA to an Organizing Committee formed by the host city and entities such as the National Olympic Committee, the regional government, etc. The World Games are staged over a period of 11 days.

While the International Olympic Committee grants its patronage to all editions of The World Games, and while the IWGA explicitly accepts and adheres to all principles of the Olympic Movement regarding the social values of sport, the multi-sport event differs in one important aspect from the Olympics. The host is not required to build facilities or extend available infrastructure exclusively for the sake of The World Games. The event has to be staged at existing venues, in appropriately sized facilities that have been planned regardless of the candidate host bidding for The World Games. This is a condition, which influences the composition of The World Games program. Not all IWGA sports feature necessarily on every edition of The World Games. Existing infrastructure and venues in and around the host city are the determining factors for the sports' selection to be on the official sports program. 
Taiwan will also be hosting the 2009 Deaflympics in Taipei.

The economy
The domestic economy continues to put in a strong performance on the back of industrial output, manufacturer's export orders and a stronger financial sector. The government is now predicting that the economy will grow by 5.41 percent this year with GNP reaching US$318.4 billion and per capita income reaching US$14,106. Domestic demand is expected to grow by 5.5 percent and the CPI is expected to be contained at 0.83 percent although wholesale prices are increasing at a greater rate of around 6 percent.
These predictions were made by the Council for Economic Planning and Development (CEPD) in its mid-year report on the Taiwan economy. According to the CEPD, export orders in the first five months of the year reached a total of US$81.5 billion - an increase of 25.61 percent over the level recorded during the same period last year. Industrial production increased by 14.44 percent. 
The overdue loans of the banking sector have declined to an overdue loan ratio of 4.4 percent during the first quarter of the year. Bank deposits grew by 9.72 percent and loans released have increased by 8.22 percent.
During June, the domestic economy showed signs of overheating with the CPED economic barometer turned up to "red" after flashing "yellow-red" for the first five months of the year. This represents the first overheating signal in more than 10 years.
Continued growth of private sector investments, aided by recovery of the global economy, has been behind the strong economic performance although the rate of growth in the second half may slow slightly according to government analysts. The possibility of rising interest rates in the United States, the uncertainty of Middle East oil supplies and the impact of China's efforts to cool its overheated economy may all impact on Taiwan's own economic expansion.
New private sector investments for 2004 are predicted to exceed US$25.29 billion while two-way foreign trade is expected to come in at an all-time high of around US$290 billion (Exports - $150 billion, Imports - $140 billion). Hong Kong and China remain Taiwan's two largest export markets accounting for around 38 percent of the total, followed by the USA (16.1 percent), Europe (12.9 percent) and Japan (7.3 percent). 

More out of work
Despite the rosy economic forecast, unemployment appears to be on the rise with the unemployment rate inching up slightly in May to 4.41 percent or 4.54 percent in seasonally adjusted terms. In absolute numbers the workforce grew by 32,000 in May to a total of 9.76 million. The number out of work increased by 6,000 people to 450,000. The labour participation rate stood at 57.59 percent an increase of 0.17 percentage points over the previous month and up 0.46 percent year on year.
Despite the increase in numbers seeking work, job agencies claim that the employment outlook for college graduates is improving with the supply of entry level job openings this year standing at around triple the number available one year ago. Demand appears to be concentrated in the financial sector including securities firms and insurance companies. Other sectors where demand is reported to be high include trading houses, the semiconductor industry and wholesaling & retailing.

Monetary Policy
The Central Bank of China at its meeting in the last week of June decided not to react to reports of a possible hike in US interest rates and decided to keep Taiwan's rates unchanged. For the present, the Monetary Board is keeping the rediscount rate charged to commercial lenders for 10-day loans unchanged at 1.375 percent. Also unchanged are the rates on accommodations with collateral at 1.75 percent and without collateral at 3.625 percent.
Industry analysts predict that the NT dollar will continue to appreciate from its current level of around NT33.75 against the USD to around NT$32.5 by the final quarter of the year.

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Taiwan calls on EU to support its WHO bid

Taiwanese president, Chen Shui-bian called on the European Union on May 28th to support Taiwan's bid to join the World Health Organisation (WTO). Addressing a dinner party hosted by the European Chamber of Commerce Taipei (ECCT) to mark "European Day," Chen said that both the United States and Japan voted for Taiwan's observer status at the World Health Assembly, the decision-making body of the WHO, at this year's WHA annual conference, CAN reported.
He appealed to the EU to set aside political considerations and to support Taiwan's WHO bid, allowing the 23m Taiwan people to enjoy their basic rights for the best medical care and disease control and prevention. Chen invited European businesses to make investments in Taiwan, which he said has long maintained close economic and trade relations with EU member nations. Chen said the EU after expansion has become the world's largest economy and provides an excellent opportunity for cooperation with Taiwan.

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