Books on Taiwan
Update No: 042 - (31/08/07)
August is traditionally ghost month in the Chinese calendar
and fortuitously one ghost at least appears to have been put to rest: the KMT
presidential front-runner has been cleared of corruption charges. He may not be
home and scot free just yet but like the athlete he is in real life (in spite of
advancing years) he has at least cleared one hurdle.
While Mr. Ma can sleep a tad more easily (as we explain below) he may still have
some headaches emerging. His party is ridden with factional infighting and his
running mate-former Premier Vincent Siew-has come up with an economic policy
platform that would turn the entire island into one giant free-trade zone. That
has left more than a few scratched heads around Taipei.
But Mr. Ma's biggest hurdle to the presidency may be the state of the economy
itself. While he is doing all in his power to convince the electorate that his
policy of greater economic engagement with China would allow economic growth to
accelerate-the economy is doing that anyway. The government has just raised the
growth forecast for 2007 and has issued its first-and rather rosy-forecast for
2008. If the sub-prime crisis in the US persists that could create an
opportunity that Mr. Ma could exploit but at this stage that remains in the
realm of conjecture.
Ma Ying-jeou can sleep more easily
Ma Ying-jeou must be heaving a sigh of relief-probably several of them. Mr.
Ma is the opposition presidential candidate and he has just been acquitted of
Mr. Ma is somewhat of an iconic figure in Taiwan. Harvard educated and
clean-cut, he was justice minister for a time under the former KMT government
which lost power in 2000. After leaving government ,and ahead of the KMT
electoral defeat in the 2000 presidential election, he had already unseated
incumbent president, Chen Shui-bian as mayor of Taipei City, Mr. Ma served the
city as mayor from 1998 to 2006. For a while in 2006 he was chair of the
Kuomintang and was considered by many as a "shoe-in" for the
But to many he is best known for his many "photo ops". The lanky Mr.
Ma would be seen jogging around Taipei in sweatshirt and running shorts. No
wonder he bested Mr. Chen when it came to the women's vote.
Seen as the "golden boy" of the opposition, his good fortune appeared
to unravel for a while earlier this year, when he was indicted on charges that
he had diverted some 11 million new Taiwan dollars of public money (around
US$332,000, £166,000), ostensibly his "allowance", to his private
account while serving as mayor.
Ma did not appear to be helping himself by using (in part) the defence that he
did no more than others in similar positions had done before him (and probably
since as well). His supporters saw the verdict of the Taipei District Court as a
personal vindication for Mr. Ma who, in his run for the presidency next year,
has been campaigning on a slate of clean government.
But while the Democratic Progressive Party (DPP) has been blunted in its attempt
to damage the credibility of Mr. Ma and thereby crush his popularity,
prosecutors could yet appeal the decision if for no other reason than to harass
Mr. Ma and divert his attention and resources away from the campaign trail.
Indeed set against those who see vindication in the verdict, some sections of
the local press have claimed that the three judges hearing the case were biased
and much of their written verdict could be seen as vindicating Mr. Ma. The
written decision gives two main reasons for Ma's acquittal: That the special
mayoral allowance which he transferred to his private bank account was in fact
an income subsidy; and that Ma had no criminal intent.
The principal charge under which the prosecutor had indicted Ma was that of
"using the opportunities afforded by one's office to embezzle funds."
As local commentators pointed out "one important criteria for establishing
if Ma was guilty of embezzlement was whether he had criminal intent while
attempting to defraud public funds. Of course, Ma's defense tried to demonstrate
that this was not the case."
Such sentiment, expressed publicly appears to signal a belief that under
different justices the outcome could be different. That might be too much of a
temptation for the DPP to pass up. After all, whoever said that prosecutors were
Mr. Ma is running for the presidency on an economic campaign platform that links
the health of Taiwan's economy to ever-closer links with China. He has hit out
at restrictions on direct links with China-travel, transport and postal-that
have been maintained by the DPP and in spite of the fact that Taiwan remains the
largest foreign investor in China's economy.
In contrast, DPP candidate and former mayor of Kaohsiung, Frank Hsieh, is
campaigning on a platform that seeks to identify Taiwan's separateness from
China and its de-facto independence from the mainland.
Taiwan as a free-trade zone?
That at least is the concept unveiled by former premier and now, KMT
vice-presidential candidate Vincent Siew. In a policy announcement that appears
to hark back to the concept of Taiwan as a "regional operations centre"
espoused by Mr. Siew in the late nineties, he would have Mr. Ma declare the
entire island of Taiwan a free-trade zone in order to get around the thorny
problem of the unwillingness of governments around the world to negotiate
bilateral trade agreements with Taipei.
Such a redistributive policy appears to be based on the notion that if Taiwan
were to become a free-trade zone others would reciprocate. The DPP has not so
far responded to this proposal but private sector commentators do not see this
trial balloon flying very far at all.
What it does suggest is that the KMT has failed so far to come up with a viable
economic policy direction and one that would offer a genuine alternative to the
path at present being followed.
More problems for China Airlines
China Airlines has long been accident-prone and despite its partial
privatisation some years back, problems continue to beset the carrier and
threatening its profitability. This month a China Airlines Boeing 737-800 with
165 passengers and crew aboard, was forced to make an emergency landing on the
island of Okinawa. After landing, the plane exploded into a fireball but
fortunately, after all passengers and crew had successfully evacuated from the
In a second, albeit minor, incident this past month, a China Airlines Airbus
A330 destined for Chebu in Central Japan made an emergency landing at Kansai
some 200 kilometres away from its destination after the Chebu runway was closed
temporarily due to a minor incident. The plane was reportedly running short of
fuel and did not have sufficient to wait for its destination airport to reopen.
China Airlines suffered four fatal accidents between 1994 and 2002. The worst of
these occurred in 2002 when a Boeing 747 crashed while flying from Taipei to
Hong Kong killing 225 people. Despite recent efforts to modernize, including the
hiring-in of outside experts from Cathay Pacific and Singapore Airlines and
brandishing one of the youngest fleets in Asia, the airline continues to be
bedeviled by the image of a poor safety record.
Insiders say that part of the problem is the fact that China Airlines is still
60-percent owned by the government and most of its pilots are recruited from the
air force. Within the cockpit, pilots still address each other by their military
rank and even an airline captain will defer to his co-pilot if the latter has a
higher military rank. Therein may lie something of the problem that has beset
Aviation experts from Japan, the United States and Taiwan have been
investigating the Okinawa incident but so far no reason has been given for the
crash. One possibility is that a bolt from the aircraft become dislodged and
punctured a fuel tank. Japan has reportedly asked Taiwan to review its aviation
Economic growth targets raised
On the economic front, growth targets for the year as a whole have been raised
following reports that second-quarter growth exceeded initial estimates. Gross
domestic product for the second quarter rose by 5.07 percent year-on-year. This
was faster than the 4.4 percent predicted by government and the even more
conservative estimate of 4.29 percent given by private sector think-tanks.
Private sector investment came in much higher than expected and this proved to
be a major contributor to the better than expected performance. Second quarter
private investment was by 12.5 percent from the previous year. This was faster
than the 3.25 percent growth recorded in the first quarter of the year and also
exceeded the government prediction of 2.79 percent for the second quarter. Both
were exceeded by a wide margin. Much of the second quarter increase came from
new investment b y semiconductor companies.
For the full year, the government has raised its GDP growth forecast to 4.58
percent from 4.38 percent earlier predicted. It has also forecast a 4.51 percent
expansion for 2008.
Exports remain brisk
Export orders in July rose to a record high of US$29.72 billion from the
US$28.70 billion registered in June according to government figures. This
represents a 23.49 percent increase from the same month a year earlier, compared
with a 15.19 percent year-on-year rise for the preceding month, according to the
Ministry of Economic Affairs.
In the first seven months of the year, Taiwan took in export orders worth
US$189.29 billion, up 14.32 percent from the same period a year ago. Separately,
industrial output last month was up 4.72 percent from June and up 13.0 percent
year-on-year. For the first seven months of the year, the industrial output
index rose 4.83 percent.
Industrial output rose in July by 13 percent from a year earlier. This was also
considerably higher than the forecast of 7.48 percent.
Taiwan and the sub-prime market
The good news on the economic front came late in the month after several
weeks of jitters over potential fall-out locally from the problems experienced
in the US sub-prime market.
So far the reaction from government in Taipei to US problems is that it was not
pessimistic about the subprime crisis and losses by domestic institutions have
so far been limited. This optimism will be put to the test in the fourth
quarter, as only then will Taiwan know whether the traditionally high season for
electronics and information technology products will be impacted by the slowdown
in US consumer sales.
Exports account for more than 70 percent of Taiwan's GDP and any slowdown in the
US economy will be keenly felt. Nevertheless Taiwan is more dependent on the US
market than many other Asian economies and according to one investment bank, a
one percent drop in US consumer sales would result in a 1.1 percent decline in
Taiwan's GDP growth.
While domestic consumption shows signs of accelerating, household incomes are
still growing slowly-up 1.6 percent last year and the economy remains vulnerable
to slowdowns in global demand.
Looking on the positive side, global economic growth this year has been more
robust that was forecast twelve months ago. Importantly while the US economy has
been weakening, there are indications that the economies of Europe and Japan are
picking up. Taiwan will need to watch developments closely and react quickly
with appropriate policy initiatives if government is to retain the initiative in
the build-up to the elections. Likely measures will include employment
incentives to enhance domestic consumption and looking for new export markets
outside the US. Japan and Europe are the obvious opportunities. If the economy
heads south so might go the DPP, come election time.