Books on Taiwan
Update No: 053 - (30/06/08)
OFF TO A GOOD START
As might have been expected, the new KMT government led by President Ma Ying-jeou
and Premier Liu Chao-shiuan has moved quickly to improve relations with China
although agreements reached so far have been largely symbolic and have
concentrated on those areas where there is a clear win-win deal to be had.
Meanwhile on the domestic front, the deteriorating global economy has given a
hollow ring to KMT campaign promises to improve dramatically-and
quickly-Taiwan's growth performance. Nevertheless the government has hiked the
growth target for 2008 from 4.8 percent to 5.0 percent on the strength of the
benefits to be had from new and improved cross-straits links.
This past month, Taiwan and China held their first formal talks since such
exchanges were broken off in 1999. Taiwan was represented by the semi-official
Straits Exchange Foundation and China by its counterpart body the Association
for Relations Across the Taiwan Straits (ARATS). Both bodies were set up in the
early 1990s as a means of allowing the two governments to talk indirectly to one
another but broke down over differences in 1999. They had been allowed to
languish during the administration of the DPP.
After two days of talks in Beijing between the two sides, a number of new
initiatives were announced. These initiatives really amount to little more than
confidence-building measures but they are welcome nonetheless as a sign that the
sting in the relationship, that had been the hallmark of the eight years of DPP
rule under former President Chen Shui-bian, has dissipated. Taiwan's staunchest
ally, the United States has, for one, welcomed the agreements as a step in the
So what actually has been agreed?
Importantly, the first agreement announced was that China and Taiwan would set
up quasi-official offices in each other's capital cities. They have agreed to
allow a substantial increase in the number of mainland Chinese tourists able to
visit Taiwan and to a concomitant increase in the number of direct cross-straits
The growth in Chinese visitors will directly benefit Taiwan's hotel and tourism
industry and, in particular, small businesses within the rural economy which
have for a long-time been pushing for a relaxation of tourism limits. The
increase in direct flights will also benefit Taiwanese companies doing business
with the mainland (which is most of them) and is a great leap forward in the
direction of direct transportation links. More than 4 million Taiwanese visit
China every year and for the most part have to make an indirect journey via Hong
As a result of these fresh agreements, visitors from the mainland to Taiwan will
climb from 1,000 a day to 3,000 a day effective immediately and with a
foreshadowed further increase to 10,000 a day once circumstances allow; direct
charter flights will increase from four days a year (at present such direct
flights take place only during the lunar new year holiday) to 36 flights per
Taiwan has taken a number of related but unilateral measures that will underpin
the bilateral accords. Effective immediately, Taiwanese and foreign nationals
holding valid travel papers will be able to enter China through the outlying
islands of Kinmen and Matsu. Previously only residents of these islands enjoyed
that privilege. Three of Taiwan's domestic air carriers, Mandarin Airlines, Uni
Air and TransAsia have already announced plans to increase their capacity from
Taiwan airports to and from these islands to cope with expected demand.
In a second unilateral measure, Taiwan has announced the free exchange of the NT
dollar and the Yuan. This measure is also effective immediately and so far, 13
banks which operate a total of 1500 branches have applied for permission to
handle such exchanges. Taiwanese and foreign visitors will be allowed to carry
out exchanges valued up to 20,000 Yuan per person per day. Initially such
transactions will be restricted to hotels, souvenir shops and outlets and
transactions will only be one-way: from Yuan to New Taiwan Dollars.
Finally, Taiwan has relaxed restrictions on investments into Hong Kong and China
by opening the domestic market to Hong Kong exchange-traded funds and by also
allowing Taiwanese securities companies to invest as much as 20 percent of their
net worth in China. This represents a doubling of the previous ceiling and is
aimed ostensibly at rejuvenating Taiwan's capital market which has been hard hit
in recent days by global volatility and risk aversion from traditional sources.
These unilateral moves reinforce what has been agreed in the bilateral talks and
all of them represent a step towards economic normalization and, perhaps
eventually, towards political normalization.
But nobody underestimates the difficulty of moving substantially further and
beyond the freeing up of transportation and communication links. Much mutual
suspicion remains on both sides. China continues to point its ballistic missiles
at Taiwan and, for its part, Taiwan continues to seek greater freedom to
manoeuvre on the international stage-although under the LMT government it may
seek to do so with greater finesse than was the wont of the Chen Shui-bian
China may not yet have woken to the fact that Taiwan is a democratic country and
as much as the new government of the island does not have the same hostility to
China, nevertheless it is firmly part of the democratic tradition and there is
unlikely to be any winding back on that score.
These moves come at a time when the promise held out by the KMT during the
election campaign of reinvigorating the domestic Taiwan economy, is becoming
increasingly difficult to deliver.
The economy has been showing signs of slowing in recent months and in late June
the TAIEX hit a five month low-its worst performance since January-thereby
demonstrating that the new KMT expert team is finding it just as difficult to
lift domestic growth as its predecessor. Premier Liu has acknowledged that
"fixing the economy would take time," and has called on the public to
Already the Cabinet has planned an economic stimulus package with a budget of
NT$130.1 billion (US$4.28 billion) along with a supplementary budget that it is
hoped could boost economic growth by up to 0.45 percentage points in a full year
and would ease the impact of rising commodity and fuel prices. To revitalize the
stock market, domestic insurance companies-which control an estimated NT$8
trillion (US$262.7 billion) in capital will be encouraged to invest in the local
stock market and in local infrastructure development.
Clearly the incoming government is finding that the global economy is in worse
shape now than when it made its campaign promises. Already the honeymoon is over
and Mr. Ma and his team are under some pressure to deliver.
The government is placing much faith in the Chinese market, hoping that by
opening up Taiwan to Chinese tourism and deregulating Chinese investment,
Taiwan's economy will be boosted in the process. Clearly, and as one newspaper
succinctly put it, the KMT cannot deliver a "new Eden." For the moment
at least they have produced a new chapter in Taiwan's relationship with China
and a reduction (but not elimination) of cross-straits tensions.
That alone is a good start.