Books on Taiwan
New Taiwan dollar (TWD)
Update No: 023 - (01/12/05)
Taiwan's 13 million voters go to the polls on Saturday
December 3 to elect local government officials. On that day there will be
simultaneous elections for city and county government chiefs, city and county
councilors and township and village chiefs.
This will be the first real test for the new majority opposition leader (and
Taipei mayor) Ma Ying-jeou who assumed the chairmanship of the Kuomintang party
back in August and who has vowed to run a clean campaign. Despite this wish,
candidates from both parties often appear to be more interested in discrediting
their opponents rather than debating the issues.
DPP image tarnished by corruption scandal
The image of the ruling Democratic Progressive Party - which won the 2000
presidential election by portraying a clean image in contrast to that of a
tarnished KMT - has deteriorated sharply recently with revelations of a major
corruption scandal associated with the Kaohsiung Rapid Transit Corp (KRTC). A
former director of Kaohsiung's Bureau of Rapid Transit Systems and vice minister
of transportation and communications, Chou Li-liang, both card carrying DPP
members , together with commissioners from a committee that conducted six public
bids for Kaohsiung MRT construction projects in August 2002 were summoned for
questioning by the Kaohsiung District Prosecutors' Office. Later Mr. Chou was
released on bail of NT$1 million.
According to the prosecutor, the five commissioners of the committee are
suspected of violating the Government Procurement Law which regulates how public
biddings are conducted, when they hosted the six public bids for major Kaohsiung
MRT construction projects in 2002. The committee was suspected of illegally
favouring Hwang Chang Building Co (HCBC) because HCBC won an NT$8 billion
contract, the largest awarded among the six auctions, even though another
company, RSEA Engineering Co, had offered a bid that was NT$2.7 billion lower.
The commissioners would be charged with corruption, Chung said.
The prosecutor said the committee had stipulated that any company that won two
of the six auctions could not take part in the rest of the bidding. Chung said
the committee is suspected of manipulating the bidding process by holding
auctions for the smaller projects first. "When the major contender RSEA
Engineering Co won the first two smaller bids, it was forced out of the
game," he said.
Taiwan's premier, Frank Hsieh was Kaohsiung City Mayor at the time of the
scandal and said he was willing to step down if former KRTC officials were
convicted of corruption. The KMT has already demanded he resign.
Political support for DPP dips as a result
The revelations of alleged improper conduct could not have come at a worse
time for the DPP - barely three weeks ahead of a hotly contested election. As a
result, the DPP is suffering from record low levels of support, which has hurt
the campaigns of every DPP candidate, incumbents included. According to the
DPP's own survey centre, party support has slipped considerably throughout
Taiwan, even in pan-green strongholds now controlled by the DPP.
To reverse those poll trends, President Chen Shui-bian took to the hustings in
order to make a direct appeal to voters at the grassroots level. At every stop,
Chen explained the government's policies and apologized to voters for the recent
scandals. Although Chen's truck speeches attracted sparser audiences than in the
past, and the initial response was tepid, by the time the tour wrapped up, the
party was claiming Chen had re-energized the party's base.
Yet, for good measure, it has returned to the politics of "negative
campaigning." In the closing stages of the campaign, the DPP has again
sought to turn the tables on the pan-blue camp by harshly attacking the Chinese
Nationalist Party (KMT) and its candidates for themselves being corrupt. The
negative campaign strategy is tied in with DPP heavyweights' support on the
campaign trail, with the overall goal of reversing the party's flagging fortunes
and ensuring that the DPP secures between eight to 11 local government seats,
according to party officials and political observers.
Mr. Ma eschews a smear campaign
Despite the attacks by the DPP seeking to win back the high moral ground, it
is the KMT leadership that wants to give the impression it's running a
"high-class election." That effort is being led by newly-elected KMT
Chairman Ma Ying-jeou who had his party candidates sign a "clean-election
pledge" and urged the party to win these elections by offering concrete
policies rather than through vote-buying and smear campaigns. He has also urged
KMT candidates to show a "cold response" to all accusations of
impropriety from the DPP. Not all KMT members agree with the strategy, and some
have openly challenged their own party for failing to fire back immediately at
the DPP's allegations of corruption. This internal bickering has not helped the
A number of political commentators have decried the return to mud-slinging in
preference to rational debate of policy issues but appear to be divided as to
which party is really to blame for this state of affairs. The fact is that
neither party has entirely clean hands but attempts to lift the tone of the
campaign debate appears often to be dragged back to the lowest common
denominator - personal animosity and fitness to govern.
Most are of the opinion that even if the DPP achieves its goal of winning an
additional 11 seats in the local elections, the real test will come in Taipei
County. Traditionally, Taipei City voters have always favoured the KMT while the
surrounding Taipei County has been more evenly divided. Here the contest is
expected to be tough. The DPP will need to secure Taipei County if it is to have
any real claim to have won the election according to many observers.
The result will be known by the first weekend in December.
Focus again on cross-straits flights for lunar new year
With the Lunar New Year looming on the horizon (January 29, 2006 is the
first day of the new "year of the dog"), Taiwan and China have agreed
to expand the exchange of direct air flights, which have been banned officially
since 1949 but which resumed on a charter basis in 2003 during the Lunar New
Year period. From January 20 to February 13 2006, 72 special charters will carry
both Taiwanese and Chinese family members between both territories. The deal
could provide a significant boost to economic sentiment in Taiwan, as the
business community has long agitated for closer relations with the mainland. In
addition, the charters originating in Taiwan will be open to all residents with
proper identification, rather than just businessmen, as was the case in 2005.
Six Taiwanese airlines and six Chinese airlines have been authorised to conduct
a total of 72 non-stop flights between Shanghai, Beijing, Guangzhou and Xiamen
in China and between Taipei CKS International Airport and Kaohsiung
International Airport in Taiwan.
ECONOMY AND BUSINESS
Export orders are up but local manufacturers remain gloomy
In October, export orders rose to a third consecutive monthly record of US$24.61
billion from US$23.78 billion in September, the Ministry of Economic Affairs has
disclosed. This figure represents a 21.56 percent increase year-on-year,
compared with an 21.96 percent rise in September, the ministry said in a
statement. In the first 10 months of the year, export orders, indicative of
actual shipments in one to three months, totaled US$207.20 billion, up 18.03
percent, it added.
Demand for consumer electronics items appears to be strong. Overseas purchases
of Taiwan's electronics products, including microchips, rose 28.23 percent to
US$5.71 billion in September after climbing 25 percent the previous month, the
ministry's statement showed. Those of information technology and communications
equipment increased 25.13 percent to US$5.25 billion.
Unfortunately, because of the structure of Taiwan's up market manufacturing
sector, overseas orders do not necessarily translate into a lifting of the local
economy since these days many export orders booked in Taiwan are shipped from
factories in China. Pessimism among local manufacturers appears to be
Local manufacturers' confidence in the economy slid last month, and their
pessimism is likely to drag on for the next three to six months, according to a
report released in mid November by the Taiwan Institute of Economic Research.
Among the manufacturers polled by TIER during October, only 33.5 percent said
they thought the economy at that time was good, down from 40.2 percent in
September. Meanwhile, 25 percent said the economy was bad, up from 15.6 percent
the month before.
Excess capacity and sagging sales prices after the peak season are also issues
that worried manufacturers, according to the TIER report. The sentiment was also
seen in the service sector, as the business climate index in the sector declined
1.89 point to 112.8 last month, the report said.
New tax proposal passes first reading
Following heated exchanges in the legislature, the Ministry of Finance's
draft of the alternative minimum tax (AMT) proposal passed its first reading in
the legislature's Finance Committee on November 24. If the new tax bill passes
the second and third readings in the legislative body, the new law - due to come
into force on January 1 next year - will become the nation's first tax hike in
nearly five decades.
The latest version of the proposal passed by the legislature leaves the minimum
level for business income taxes unchanged at NT$2 million (US$59,700) per year,
with the tax rate set at between 10 and 12 percent. The Cabinet will be able to
adjust the taxation rate depending on the economic environment, according to the
revised draft. Individuals will be required to pay 20 percent tax on annual
earnings surpassing the threshold of NT$6 million, which was lowered from an
NT$8 million threshold in the earlier proposal.
The AMT proposal is aimed at plugging loopholes in the nation's taxation system,
which allows individuals and enterprises with a high income to claim excessive
tax breaks, eroding social justice and leading to unfair taxation, its
proponents say. If the new regulations take effect on Jan. 1, as is stipulated
in the draft, taxpayers will have to take it into account when they file their
taxes in 2007.
The draft bill stipulates that individual earnings made outside Taiwan should be
taxed if they exceed NT$1 million per year. This is aimed at preventing
excessive capital outflows in view of the increasing number of Taiwanese
nationals now earning an income outside the country. The draft stipulates that
the taxation of overseas income should commence on Jan. 1, 2009.
Taiwan looks to consolidate by merging state-owned banks
Taiwan's government plans to meet its ambitious banking consolidation targets
through a merger among state-owned financial institutions if its campaign to
sell government-owned banks is stymied.
Bank of Taiwan, the island's largest lender, would take over the financial
services operations of Central Trust of china if the legislature failed to
approve a planned sale of these operations to a private investor, senior
government officials told the Financial Times.
The back-up option could allow the administration to fulfil its pledge to halve
the number of state-controlled financial institutions to six by the end of the
year. But banking experts see it as a token step.
The Ministry of Finance evaluated a possible merger of Bank of Taiwan, Land Bank
and Central Trust of China four years ago, but dropped the plan because it was
thought to promise few synergies. This view has not changed, but resistance from
state bank unions and the opposition-controlled parliament to the sale of state
assets to foreign and other private investors could leave mergers as the only
option, a senior cabinet official said.
In January and March this year, the government sold its stake in Taiwan
Development & Trust Corp to Jih Sun Financial and its holdings in Bank of
Overseas Chinese to Polaris Financial Group. These small sales were followed by
a deal in July under which Taishin Financial, a Taiwanese financial group, took
control of Changhwa Bank.
Consolidation efforts hit a snag in September when an attempt to sell Taiwan
Business Bank to Taiwan's E Sun Financial broke down amid union protests.
This has emboldened unions at other state-owned institutions and prompted the
opposition, which controls parliament, to step up criticism of Taiwan's
Parliament has now demanded that the CTC sale by subject to further legislative
approval. Observers expect legislators to reject the plan.
In addition to the proposal to incorporate CTC's banking and insurance units in
Bank of Taiwan under this scenario, Taiwan Co-operative Bank and Farmers Bank
are set to close a merger deal soon which will create the island's largest