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Chen shui-bian


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 more.
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" independence status.
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 "separatist." 
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 Taiwan.
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 "creative." 
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 state-to-state basis.
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.

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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 already own.

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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 September 2003. 
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.

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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 last decade. 
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.

Business indicators

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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