Books on Taiwan
New Taiwan dollar (TWD)
Update No: 010 - (02/11/04)
With legislative elections due to be held in December (11th
December), the various political parties and groupings are preparing for battle.
Over the next two to three months, the battle for control of the legislature
promises to be intense and will define the local political scene for some time
to come. Some background may be in order. With the economy doing well this year,
the major issues confronting the electorate will be those relating to national
identity and the extent to which Taiwan can be further democratised without
provoking a military response from Beijing. Provided Taiwanese leaders stop
short of a formal declaration of independence, such a scenario is unlikely to
emerge. At this stage President Chen and his pan-green coalition appear to have
the edge and will likely gain further seats sufficient to control Taiwan's
parliament - the legislative yuan.
A tough election ahead
Taiwan has two major political parties, the ruling Democratic Progressive
Party (DPP) and the former party of martial law days, the Kuomintang (KMT).
Aligned with the DPP in the "pan-green alliance" is the Taiwan
Solidarity Union (TSU), the party of former (KMT) President Lee Teng-hui. Mr.
Lee was expelled from the KMT after his party lost the 2000 presidential
election (in which he was not a candidate). Party elders had accused former
President Lee - a native Taiwanese - of favouring the opposition candidate of
the time, now incumbent President Chen Shui-bian. In that election the
conservative vote was split between KMT Chair Lien Chan and former Taiwan
Governor, James Soong, himself a lifelong KMT member, who had also split from
the party in order to run for the presidency under a new banner, that of the
People First Party (PFP).
Perhaps, it sounds confusing, but it should be remembered that up until the year
2000, the KMT had governed Taiwan for more than 50 years and under its umbrella
was a number of disparate factions that sat together uneasily. Party members
ranged from the pro-unification (with China) faction led by Mr. Soong, to those
who were pro-Taiwanese and who wanted independence for Taiwan, including then
President Lee. Mr. Lien, who had replaced Mr. Lee as KMT party president prior
to the election, was and remains an apparatchik who had risen through the ranks
on the basis of managerial rather than political skills. After all, up until the
time of President Lee, the KMT was the only legal political party in Taiwan;
founded in China by Sun Yat-sen early in the 20th Century, organized by the
Soviets along Leninist principles and which, as in Communist countries during
that era, blurred the lines between party and state.
No wonder then that, as Taiwan democratised under the term of President Lee (who
actually served two terms: first from 1987 as an appointed president and then
from 1996 to 2000 as an elected one, being Taiwan's first ever directly elected
chief official), the KMT fragmented, not really knowing what it stood for any
As a result of the split in the ranks, in the 2000 election, Mr. Chen Shui-bian,
the DPP presidential candidate came up through the middle to secure the
presidency by a narrow margin. However, the KMT remained in control of the
legislature, and does so today.
The first Chen presidency was a difficult one for the DPP. Not only was it
inexperienced in government, it had to contend with a hostile legislature, with
more than half its members having difficulty in coming to terms with the concept
of a "loyal opposition." On the economic front too, there was a
downturn to contend with; firstly from the lingering effects of the Asian
meltdown of 1997-1998 then compounded by the global retraction that resulted
from the aftermath of the 9-11 incident in the United States. Internationally,
Beijing has remained hostile to Mr. Chen and his DPP, in the belief that they
were following "separatist" policies (i.e. opposing reunification with
China on the Hong Kong model - which is the basis of China's position for
solving the "Taiwan problem.")
The political scene in Taiwan has matured considerably over the past four years
with Taiwan moving towards a two-party European model based around a presidency
in control of the administration and a legislature that has within it 4
political parties and 2 major political groupings. The conservative camp
consists of the KMT and its ally, the Peoples First Party, while the
"liberal" camp consists of the DPP and the TSU.
In the recent (March 2004) presidential campaign, the conservatives had hoped to
reverse the DPP's gains of the past four years by running on a united ticket.
They came close but lost to the DPP by a whisker. The election eve shooting of
President Chen and Vice-President Annette Lu (now know as the 3-19 incident
because it occurred on 19 March) is believed by many to have tipped the margin
in favour of the DPP and the Opposition has cried foul - believing that this
latest election was "stolen" from them. It has used its legislative
majority to open an inquiry into the incident - backed by legislation, hoping to
be able to show that the shooting was actually a pre-election stunt orchestrated
by the DPP to gain a sympathy vote and it appealed (unsuccessfully) to the
Taiwan Electoral Court to nullify the election result.
This is the background against which the upcoming election is to be fought: the
conservatives seeking to retain control of the legislature in order to stifle
further reform measures not to their liking (especially those that would seek to
give a greater "national" identity to Taiwan separate from that of
China) and the liberal camp seeking to strengthen Taiwan's "de facto"
Mr. Chen and his party are going into the election race in a much stronger
position now than previously. The economy has recovered remarkably over the past
two years and the conservative camp has yet to articulate clearly its own vision
for the future of Taiwan society. Rather, it has often resorted to
scare-mongering and personal attacks, claiming that Mr. Chen is provoking China
into invading the island. Few people really buy this line but it has constrained
the DPP from moving towards a formal declaration of independence from the
mainland. Instead the DPP is seeking to push the limits of the status quo.
So what are the issues in the coming election? For its part the DPP has
announced that its own campaign will focus on three issues: the stolen state
assets now owned by the KMT (it did not become the world's richest political
party by accident), Taiwan's defence against potential mainland aggression and
in particular arms procurement from the United States, and thirdly the lack of
constitutionality of the March 19 Truth Investigation Special Committee set up
by the (Opposition controlled) legislature. This particular issue is now before
the Council of Grand Justices.
By contrast the conservative camp appears to be focusing on cross-straits
issues. The pan-blue alliance has yet to announce its campaign platform formally
but spokespersons for the coalition have said that a pan-blue victory in the
December elections is the only failsafe path for a peaceful future. In this
regard the PFP has put forward a proposal for a "Taiwan Peace Law"
calling for the establishment of a cross-party council to negotiate with China
regarding specific economic and cultural goals.
Clearly the election is shaping up to focus on "national" rather than
local issues and specifically that relating to national identity. Mr. Chen has
been at pains to refurbish the image of the DPP as that of a party ready to
engage constructively with China - but without compromising Taiwan's fundamental
position. This is that the "one-country, two-systems" approach,
applied by China in Hong Kong and Mocao and put forward by Beijing as a model
for reunification with Taiwan, has no attraction for the Taiwanese people since
the situations are fundamentally different.
The DPP believes that the influence of the pan-green camp is steadily expanding
while that of the pan-blue camp is shrinking. At present the pan-greens control
100 seats in the legislature: the DPP has 87 seats while the TSU has a further
13. President Chen believes that the DPP can win 100 seats in its own right this
time around - 78 elected seats and a further 22 legislators-at-large (appointed
on the basis of a proportionate vote). The TSU is hoping for 20 seats.
Taiwan's latest overtures to China rebuffed
China has rebuffed Taiwan's latest conciliatory overture made by President
Chen Shui-bian on the occasion of Taiwan's national day celebration (10
October). After several days of silence on the matter, the official Chinese
media issued an unyielding statement calling Mr. Chen a "liar" and a
In his speech, Mr. Chen made it clear that the "Republic of China"
refers to Taiwan and that Taiwan is the Republic of China. He also made it clear
that sovereignty of the Republic of China is vested with the 23 million people
of Taiwan and cannot be negotiated away by Taiwan's leaders without the consent
of the people.
Having stated Taiwan's fundamental position, Mr. Chen took the opportunity
presented by the final retirement of former Chinese President Jiang Zemin to
test the waters and to suggest that under President Hu's leadership, China might
prove to be more flexible in its dealings with Taiwan. Mr. Chen called for a
"new code of conduct" with mainland China. He said both sides should
seriously consider arms control proposals, take steps to reduce tensions, and
proposed that talks recommence on the basis of the 1992 understanding that there
is only one China but that Beijing and Taipei have different interpretations as
to the meaning of "one China." Since Mr. Chen's Democratic Progressive
Party has traditionally been "pro-independence" many observers saw
this as a major concession by Taiwan towards China.
China, it seems, will not have a bit of it and has said that Mr. Chen was not
serious about the proposal but was merely engaged in electioneering. There is no
doubt that the statement was, in part, made with one eye on defusing the main
claims of the pan-blue camp that Mr. Chen was not interested in coming to terms
with China. Equally though, Mr. Chen has an eye on Washington and the need to
tread a delicate line to ensure that Taiwan continues to enjoy U.S. support -
especially in its quest for advanced weaponry that would act as a deterrent to
the Chinese build up of forces on its southern flank designed to intimidate
The message has had some positive effect. Despite China's latest rejection of
the olive branch, the United States has welcomed Mr. Chen's proposal calling it
In a bid to further progress the opening of the "three transportation
links", Mr. Chen announced that the government was formulating a plan to
facilitate charter flights for passenger and cargo with the mainland. The
following day, Cabinet announced that it hoped to see bilateral cross-straits
cargo and passenger charter flights by next (northern) spring provided China
sent appropriate personnel to negotiate the issue.
Mr. Chen proposed in his National Day speech to create an environment based upon
"peaceful development and freedom of choice" if both sides are
willing. In the future, both sides can seek to establish political relations in
any form whatsoever, if there is the consent of the 23 million people of Taiwan.
He also proposed that both sides establish confidence-building measures through
consultations and dialogue.
Mr. Chen's National Day message was well received locally
Mr. Chen's National Day speech was well received in Taiwan. A survey
conducted a week after the address found solid support for Mr. Chen's basic
stance with more people believing him to be sincere than those who did not.
Among the findings:
· 45 per cent of respondents thought that Mr. Chen expressed goodwill to China
in his National Day speech while 30 percent did not;
· 43 per cent think that China should be blamed for cross-straits tensions
while 20 percent thought that Mr. Chen should be blamed;
· Only 14 per cent of respondents thought that charter flights between Taiwan
and China should be considered a domestic affair (as proposed by Beijing) while
67 percent thought that they should be on the same basis as other air service
agreements (as proposed by Taiwan).
· Over 71 per cent of the respondents also said that they agreed with the
president's proposal to establish a military mechanism to establish mutual
trust, while about 17 percent of the people disagreed.
Colin Powell ruffles feathers
Remarks made in Beijing and Hong Kong by U.S. Secretary of State, Colin
Powell have ruffled local feathers. In meetings with Chinese officials in
Beijing in late October, Mr. Powell urged China to restart talks with Taipei. He
also said flatly that Taiwan was not an independent country. That raised some
eyebrows but worse was to come. This statement in Beijing was followed up by
interviews Mr. Powell gave to CNN International and to China's Phoenix TV in
Hong Kong in which he made similar remarks relating to Taiwan's sovereignty (or
lack thereof) and to the goal of "peaceful reunification."
Mr. Powell's latter remarks were of considerable concern because it had been
widely held that in his recent journeys to Beijing, primarily in order to
restart the six-way North Korean peace talks, Mr. Powell would use his good
offices to encourage the Chinese to recommence political talks with Taiwan on
the basis of the 1993 agreement which was broken in 1999 when former President
Lee changed the rules by stating that such negotiations had to be on a
Subsequent clarifications from Washington calmed the waters and showed that
there had been no change in U.S. policy and that the remark regarding
"peaceful reunification" was no more than a slip of the tongue. Mr.
Powell had meant to address the issue of "peaceful resolution."
Powell's remarks regarding the cross-strait relation were picked up by the
international media which played the event out of proportion, and the State
Department had to wade in to stress that the US government still maintains its
"one China" policy and its attitude toward the cross-straits
relationship had not changed. Putting forward the best possible gloss on the
gaff, State Department Deputy Spokesman Adam Ereli said that "the words the
secretary used accurately reflect our longstanding policy on Taiwan's status.
The policy has not changed. One element of our policy has been to favour a
peaceful resolution of the cross-strait issue through dialogue and through a
resolution that is acceptable to both sides.
Ereli then said that Powell's remarks about Taiwan not enjoying sovereignty were
"an objective statement of fact."
Nevertheless, the local press has been quick to point out that when Taiwan's
major ally internationally is forced onto the defensive, Taiwan can do little
else but look to its own defence. In the opinion of one editorial: "Taiwan
meets all the conditions for being a modern democratic nation, so Powell's
comments about Taiwan not having sovereignty are a slap in the face. Unless the
people of Taiwan are willing to face the same fate as the residents of Hong Kong
and Macao, then there is only one thing they can do. They must convince the
legislators they elected to represent them that Taiwan must equip itself with
advanced weapons. The government must accelerate the development of a society
sharing a strong sense of common identity. The people and the government must
show their determined resistance to communist rule. This is a road that Taiwan
has no choice but to follow."
Mr. Powell may have unwittingly fanned the flames.
Despite the tensions cross-strait trade continues to grow
Despite the ongoing political tensions between Taipei and Beijing -which
have existed for years now, bilateral trade across the Taiwan Straits continues
to grow. For the first eight months of this year, bilateral trade totalled
US$39.64 billion. This was up by 38.5 percent from a year ago, according to
statistics compiled by Taiwan's Bureau of Foreign Trade.
Cross-strait trade accounted for 17.9 percent of overall foreign trade for the
January-August period, the bureau said. During the eight-month period, exports
to China hit US$29.3 billion, or 25.9 percent of total outbound shipments - a
1.7 percentage point growth over the year-earlier level. Chinese exports to
Taiwan stood at US$10.3 billion, making up 9.6 percent of total inbound
shipments - a 1.3 percent increase year-on-year.
Taiwan enjoyed a surplus of US$19 billion in trade with China, up by 23.9
percent compared to the year-earlier mark.
Major items among exports to China (including Hong Kong) are electrical
engineering equipment and parts, opto-electronics, steel, chemicals and man-made
fibers, while prime imports are cement, aluminium, chemicals, electrical
engineering facilities and parts and machinery equipment.
Citing statistics from Chinese customs authorities, Japan, Taiwan and South
Korea were China's top trading partners in the January- August period. The US
was fourth, followed by Germany, Malaysia, Singapore, Russia, Hong Kong and
Thailand. Except for imports from Hong Kong, which grew by 2.2 percent, those
from other countries all had double-digit expansion.
Taiwan plans to tighten control of bond funds
Taiwan's financial regulator is trying to tighten control of the massive bond
funds industry to avoid a potential financial crisis, the Financial Times
reported on October 4th.
The Financial Supervisory Commission (FSC) is demanding that Taiwan's fund
management industry establish a self-regulatory framework that would ensure
credit ratings and proper pricing for new bond funds and restrict the types of
fixed-income instruments in which they are allowed to invest.
The regulator is asking fund managers to set aside fee income as a provision
against future losses that it expects them to incur from forced redemptions of
their bond funds.
The FSC is also encouraging weaker fund managers to search for interested buyers
and wants financial holding companies to guarantee that they will cover eventual
losses incurred by their fund management affiliates.
Over the past five years, the island's investment managers have sold bond funds
with the unwritten promise of capital guarantees and yields exceeding bank
deposit rates. This apparent combination of zero risk and high returns has
attracted both individual and corporate investors, causing domestic bond funds
to balloon from T$600bn (US$18bn) in 1999 to T$2,400bn this year - more than 20
per cent of gross domestic product.
However, the heads of two domestic investment management firms admit that the
fund houses have been hiding rather than eliminating risk. By buying while
issues of corporate bonds or convertibles through friendly brokers and then
holding these assets, fund managers have stopped them from being priced
realistically. As interest rate expectations have risen over the past few
months, however, bond fund redemptions have accelerated as investors have
switched back to bank deposits.
Most funds are now facing growing redemptions that they will find difficult to
meet, given that up to 60 per cent of their assets are illiquid, said Chris
Hunt, head of research at Macquarie Securities in Taipei.
The FSC's proposals aim gradually to improve regulatory compliance on the part
of fund houses, rather than with starting a sudden crackdown. The FSC would only
force fund houses to mark to market only new corporate bonds, not ones they
Monthly exports reach a new high
With the Christmas holiday season fast approaching and fuelling demand, Taiwan's
export growth rose by 19.2 per cent in September on a year-on-year basis to
$14.96 billion and in value terms this was the second highest level on record.
Imports during the month totalled $14.21 billion - the third highest on record
and up by 29.4 per cent on a year-on-year basis. According to analysts, strong
demand for electronics goods played a key role in the export surge.
With the fourth quarter typically posting strong export results, the government
is expecting to maintain a double-digit growth level over last year. However,
the result is not expected to be as high as achieved in the third quarter and,
according to government economic forecasters, a result of around 12˝ per cent
would be considered a pleasing result. Imports for the final quarter of the year
are expected to be around 16˝ per cent higher than last year in line with an
overall slowing of the momentum for growth.
For the first three quarters of the year, exports by Taiwan totalled $128.29
billion and were up by 24.2 per cent on the same period for 2003. Exports rose
by 34.3 per cent to $121.92 billion.
Export orders rise to record high
Export orders in September also rose to a record high, largely on the strength
of orders for the country's electronics goods. However, government officials and
industry analysts believe that the peak may have passed already and that in view
of the rising price of oil that has caught manufacturers in a cost squeeze,
profits may actually decline even if orders continue to increase.
Total export orders in September reached $19.5 billion. This is the highest
monthly total on record and 26.1 per cent higher than the level recorded in
According to the Ministry of Economic Affairs (MoEA), the better than expected
export performance is linked to ongoing strong demand for Taiwan's products in
the U.S., European and Asian markets. Orders for electronics goods increased by
32.7 per cent last month from a year earlier, while orders for information and
communications products rose by 15.1 per cent.
Industrial output was up by 8.12 per cent year-on-year in September but was
slower than the revised rate of 8.62 per cent recorded in August.
Further moves on financial reform
Taipei has announced a new round of financial reforms aimed at consolidating
the local financial sector. Up until the early part of the nineteen nineties,
the banking industry was tightly regulated with all banks owned either by
government or by the (then) ruling Kuomintang party. A lifting on the ban on
opening of new banks saw a mushrooming of the financial services sector to the
point that many of the new banks were not viable, with a number of them
over-lending in order to get market share and adding substantially to the volume
of non-performing loans in the financial sector during the latter part of the
The legislature hopes to pass a NT$220 billion (US$6.5 billion) bailout for the
banks in the form of supplementary funds as part of the Financial Structuring
Fund bill of which 20 per cent is to be allocated to deal with bad loans.
President, Chen Shui-bian, has outlined four specific targets for the latest
phase of financial reform following recent success at reducing the
non-performing loan portfolio of the banks and shifting the focus of loan
management to the financial holding companies. As a result of earlier measures
the non-performing loan ratio within the banking system has been reduced to 3.45
per cent as of August 2004, from 8.04 per cent in March 2002. Mr. Chen now wants
to lift the market share of the three largest financial institutions to at least
10 per cent each by end 2005. Because of the proliferation of financial
institutions no one institution has a 10 per cent share at the present time.
In addition the government wants at least one financial institution to be
managed by an international group, or listed overseas by end 2006.
Consumer prices increase
Taiwan's consumer prices rose by 2.78 per cent in September from a year earlier.
This figure was higher than the revised level of 2.55 per cent recorded for
August. Wholesale prices meanwhile have risen year-on-year by 11.43 per cent.
This represented the largest gain since June 1981. Higher prices for crude oil,
chemical materials and metal products have been pinpointed as causing the jump
in producer prices while oil prices and typhoon damage to crops have been blamed
for the jump in consumer prices.
For the first nine months of 2004, Taiwan's consumer price index has risen by
1.54 per cent, the wholesale price index by 6.45 per cent and the core inflation
index by 0.65 per cent. Taiwan's consumer price index is expected to rise to
2.58 per cent next year, according to the Central Bank of China forecast. It
remains to be seen whether Taiwan's manufacturers can continue to shave margins
to prevent further price hikes of their products.
In September 2004, Taiwan's business indicators displayed mixed signals on the
financial and real sides of the economy. Among the indicators compiled by the
Cabinet's Council for Economic Planning and Development (CEPD), the leading
index showed no change from the preceding month while the coincident index
decreased by 0.69 per cent.
The monitoring indicators flashed "yellow-red" for the fourth
consecutive month. The government planning body believes that with the global
economy and world trade remaining favourable, and both domestic and foreign
demand buoyant, the outlook for the economy remains bright.
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