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Chen shui-bian

Update No: 020 - (13/09/05)

August was "Ghost Month," traditionally regarded as an inauspicious period for major undertakings. Nevertheless, the main opposition Kuomintang snubbed its collective nose at superstition and went ahead with its party congress. In the process, the new paramount leader, Taipei mayor Ma ying-jou showed that he is indeed going to be a formidable opponent for the 2008 presidential election.
On the economic front, Taiwan is still feeling the pinch from the global slowdown, especially in its electronics sector but is pinning hopes on an upsurge of orders ahead of the Christmas season so as to end the year on an upbeat note.

The new broom is sweeping clean
The new Chairman of Taiwan's main opposition Chinese Nationalist Party (KMT), Chairman Ma Ying-jeou, has reiterated his determination to clear up problems regarding the party's assets by 2008. He made this pledge during the first meeting of the party's Central Advisory Committee prior to its national convention.
The KMT is rumoured to be the world's wealthiest political party, much of it coming originally from the Burmese opium trade (and what was taken out of China when the nationalist fled in 1949) but which over the past half-century has been invested into what is commonly referred to as Taiwan Inc. Under former martial law, when the KMT was the sole legal political party on Taiwan, the party owned the banks, TV broadcast stations, utility companies and even the local salt monopoly.
"Party assets are not filthy money, but it is time to deal with it. I will clean up the asset problem in accordance with the law by 2008 and turn our party back into a clean and efficient organisation," Mr. Ma said.
Addressing the party's reform plans at the (rather chaotic) 17th national convention, he said that the KMT, which is still seen by many as the party of "mainlanders" should establish its own Taiwan dialogue. While Ma also stressed the importance of passing on the party's wealth of experience to the next generation as part of its reform plan, the KMT's asset problem is seen as the most critical issue the party needs to address in its reform.
The pan-green camp challenged Ma's pledge to reform the party after taking over the party leadership. Both Democratic Progressive Party (DPP) Chairman Su Tseng-chang and Cheng Chen-lung, secretary-general of the Taiwan Solidarity Union, said that if Ma wants the pan-blue alliance to take power in 2008, he must deal with the baggage of the party's ill-gotten assets, return the party to the middle ground and respect the people's right to choose between unification and independence.
Mr. Su called on Ma not to sell the KMT's "stolen party assets" at low prices and then claim to have solved the party's most thorny problem. "The KMT cannot claim that it has dealt with the party's assets that it stole from the national treasury by selling them off and then racking up those spoils," Su said.

Some are backing down in their support for democracy
Obviously fearing a backlash from Beijing if they are seen to be supporting a pro-democracy line too ardently some of Taiwan's leading industrialists and commercial taipans are adopting the traditional kowtow in order to gain favour with China. Douglas Tong Hsu, Chairman and CEO of the Far Eastern Group, went on record saying that Taiwan's democratic governance is a hindrance to further investment. Hsu praised China's system as more favourable to industry given its clearly defined and staunchly adhered to system of rule. Mr. Hsu was critical of the high number of opinions voiced in response to government decision-making. In particular, he appears to have been annoyed by the decision by President Chen Shui-bian to enforce more stringent emission standards. This new standard has caused a delay in construction of a planned US$11.6bn petrochemical complex in Southern Taiwan, to be constructed by the Far Eastern Group. The more stringent environmental safeguards have also led to the reversal of a project to de-bottlekneck the No. 5 naphtha cracker of state-run Chinese Petroleum Corp, which has also affected Hsu's plan for a new downstream ethylene glycol plant. 
The lower costs, massive market and centralised decision-making apparatus characteristic of China appeal to Hsu. His concerns bode ill for Taiwan, which has suffered from the rise of China over the past decade. Where democratic principles stand in the way of commercial decision-making, it is not difficult to guess which will be the loser. Mr. Hus is skilfully playing a Chine card against the government. Taiwan businesses are thought to have invested over US$100bn in China since the late 1980s. The business community largely supports the opposition Kuomintang party, owing to its support for closer ties with China and its more accommodating stand towards big business. 

Ghost month takes its toll on the economy
The seventh month of the lunar year, known as Ghost Month, fell between Aug. 5 and Sept. 3 this year. This is the Chinese equivalent of "all souls day" but which lasts for much longer. It is a month in which many Chinese will bow to superstition and refrain from making any major business or personal decisions. 
One consequence of Ghost Month is that local automobile vendors reported a decline of over 40 per cent in car sales in the first half of August because of the so-called "Ghost Month effect." The decline in sales was reported to be industry wide. However, local car officials believe that economic sentiment remains positive and that sales will pick up in the remaining months of the year.
More importantly, weak economic fundamentals have been exacerbated by the "Ghost Month" effect contributing to a marked depreciation of the currency over the past two months. According to the Ministry of Economic Affairs July's industrial output was down 1.13 per cent year-on-year, against a 1.95 per cent year-on-year gain in June. Although manufacturing slipped by 1.34 per cent year-on-year, electronics and information technology output rose by 4.88 per cent. Export orders grew by 8.7 per cent year-on-year in July, down sharply from 16.7 per cent growth level recorded in June. Manufacturers are now pinning their hopes on an upsurge ahead of the Christmas buying season.
Taiwan's unemployment rate in July rose to 4.32 per cent from 4.22 per cent in June because of a rise in first-time job seekers. Nevertheless, the July jobless rate was lower than the 4.62 per cent a year earlier, according to the Directorate General of Budget, Accounting and Statistics.
On a seasonally adjusted basis, however, unemployment in the month fell to a four-year low at 4.15 per cent, down 0.05 percentage points from the preceding month and down 0.28 percentage points from a year earlier, as expansion by companies including Taiwan Semiconductor Manufacturing Corporation (TSMC) created new jobs. Falling unemployment could serve to boost consumer confidence, helping the government achieve its 4.5 per cent economic-growth goal for this year. Growth accelerated to 3 per cent in the second quarter from 2.5 per cent in the first three months of the year as consumer spending increased 3.2 per cent. According to government statisticians, unemployment in the first seven months to July averaged 4.17 per cent, down 0.33 percentage points from a year earlier. A total of 449,000 people were out of work in July, an increase of 12,000 from June, largely because of the rise in first-time job seekers. The eligible workforce in July was 10.39 million.

Key economic targets not met in 2nd quarter
In the second quarter, Taiwan's trade surplus narrowed to US$146m from US$301.9m in the first quarter. For the whole year the surplus could fall to as low as US$2.1bn, which would be the smallest amount in 24 years (since US$1.41bn recorded in 1981) according to the Bureau of Foreign Trade. 
Although July export growth accelerated to 5.3 per cent year-on-year from 3.1 per cent year-on-year in June, imports continue to rise at a faster pace, up 9.7 per cent year-on-year in July, against 2.5 per cent year-on-year a month earlier. Rising interest rates in the United States has dampened demand in that key market causing a slowdown in export growth while high oil prices are largely responsible for the rising import bill and narrowing trade gap. Overall, the government forecasts export growth of 6.7 per cent this year, which would be far below the 21 per cent achieved in 2004.
In order to boost exports - a key driver of the economy - Taiwan needs to tap into growing demand in non traditional markets - from Britain, France, South Africa, and Malaysia in particular according to a government spokesperson who also stated that small and medium-sized enterprises needed more capital to expand their reach into foreign markets.
Overall second quarter GDP growth has come in at 3.03 per cent. This was much better than the 2.54 per cent rise achieved in the first quarter but was still well short of the government forecast of 3.6 per cent.

Government sells more shares in Chunghwa Telecom
Meanwhile, the government efforts at privatisation of state assets continues. Last month the government sold a 3.0 per cent stake in Chunghwa Telecom for NT$16.3m ($511m), having sold 289.4m shares at a 7.7 per cent discount on its closing price of NT$61.00. A further 13.0 per cent stake will be sold in the form of American Depository Receipts (ADRs) in the near future, which would take state ownership of Chunghwa to below 50 per cent. The government is keen to speed up its privatisation programme in order to generate revenues to plug the fiscal deficit, which is officially projected at NT$277bn this year. The divestiture of Chunghwa Telecom had been delayed by opposition from legislators and labour unions.

S&P believes asset quality of banking sector is improving
Standard & Poor's said last month that the Taiwanese banking sector asset quality has improved significantly, following four years of concerted reforms, but that plenty of room for improvement still exists. Stronger risk controls and continuing write-offs have acted to restrict the development of additional problem assets and clean up pre-existing non-performing loans. Notably, a new regulatory definition that defines bad loans as those being 90 days overdue rather than the 180 days previously, has effected positive change. 
However, the ratings agency is wary of potential credit losses stemming from still inadequate provisions to safeguard against bad loans. Risk management must improve to keep pace with a series of current and planned banking expansions into new products and markets. 
Overall, heightened competition, privatisation, and reform of insolvent banks are leading toward a healthier sector going forward.

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