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Key Economic Data 
  2003 2002 2001 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)

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.

Read on.

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 corruption charges.

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 presidency.

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 neutral?

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 burning plane.

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 the airline. 

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 safety procedures.

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.

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