Books on Taiwan
New Taiwan dollar (TWD)
Update No: 030 - (31/07/06)
Mr. Chen retains power but DPP looks towards a collective leadership
Taiwan's president Chen Shui-bian has survived an opposition attempt at
recall. The June 27th recall vote, to have succeeded, would have needed the
support of 148 of the 221 legislators in Taiwan's unicameral parliament.
Fortunately, despite rumblings within the DPP, their ranks held and the vote
went largely along party lines. Since the pan-blue alliance controls only 112
seats in the legislature, the motion failed.
There was little chance of it prospering in the first place. Rather the vote
signalled an opening salvo in the campaigning that will now start in earnest for
the December 2006 mayoral races in Taipei and in Kaohsiung (Taiwan's second
largest city) and the late 2007 elections for a new parliament. Politics, always
rambunctious in Taiwan, will become even more intense in the months ahead since
much is at stake for both sides. The pan-blue alliance, led by the Kuomintang (KMT)
and generally supported by the business community, is anxious to regain the
presidency in 2008 and to change the manner in which Taiwan deals with China -
at least to the extent of being less antagonistic and thereby winning greater
favour for Taiwan's investment community on the mainland. President Chen is seen
Despite the ongoing cross-straits political tensions, Taiwan is a key component
in the Greater China economic engine, but remains unsure of the role it wants to
play. Taiwan was the earliest and remains the biggest investor in the PRC with
over US$100 billion at stake. More than 30,000 Taiwanese enterprises have
relocated to China providing employment for around 4 million Chinese nationals.
In addition, around 1 million Taiwanese live and work in China. This represents
around 4 percent of Taiwan's population. Taiwanese-owned enterprises are a major
driver behind China's own export performance and Taiwan is a major supplier of
raw materials for Chinese industry.
Mr. Chen for his part, is seeking to shed his lame duck image compounded by
recent scandals involving close family members. His reputation as a democrat and
as a human rights advocate has left him vulnerable in the world of realpolitik
and, in a sense, the rapid rise of China as a major force in the world has left
him and his model for a democratic greater China out in the cold. China in 2006
is a different animal from in 2000 when Mr. Chen first assumed the presidency.
For the DPP as a party, Mr. Chen is, increasingly, being seen as an electoral
liability despite the show of support given for their leader in the recent
standoff with the pan blues. On May 31st even ahead of the recall bid, Mr. Chen
had relinquished responsibility for all party affairs and handed over day-to-day
control to his premier Su Tseng-chang. Nevertheless, he is not ruling himself
out and will be finding ways of dealing himself back into the game.
By way of response to the crisis of leadership, the DPP has unveiled a new
platform for coordinating government and party opinions to facilitate the
"collective leadership" that the president promised when he made his
tactical retreat and handed over his powers two months ago. As a first step, the
DPP will turn its weekly Central Standing Committee meeting into a platform that
serves as a communication channel for officials from the Presidential Office.
The DPP has also announced it would also consider whether it should propose
changing Taiwan's form of government into a true parliamentary system. Whether
this will be sufficient to stem the tide and regain the high ground remains to
be seen. As is often the case in politics, much will depend on whether the
pan-blue alliance can hold together as a unified and credible alternative
government for Taiwan. And as in all tactical alliances, the pan-blue camp is
not without its tensions and its problems.
For the meantime it is a matter of waiting to see. It is considered unlikely
that Mr. Chen will be content to remain on the sidelines of local politics
especially as he has retained responsibility for policy towards China. For its
part the KMT and its alliance partner, the People First Party (PFP) can be
expected to continue to pressure the government both inside and outside
parliament. Talk has now surfaced of a possible no-confidence motion being
tabled when the legislature resumes in September. If that succeeds then Mr. Chen
will have no option but to replace his Cabinet including the popular. Mr. Su
who, as premier, is looking increasingly to be the Party's candidate in the 2008
Another small step towards normalizing transport links
The announcement made June 14th that henceforth direct passenger flights between
Taiwan and mainland China would be permitted during four holiday seasons and not
just the lunar New Year period as previously permitted, marks a further small
step towards normalization of transport links between Taiwan and the Chinese
mainland. A further step is the allowance of chartered cross-straits cargo
The latest step towards normalization of transport links not only increases the
frequency of cross-straits passenger flights but allows chartered cross-straits
cargo flights for the first time ever. A total of 168 return passenger charter
flights will now be permitted each year with the first flights under the new
scheme likely to be during the mid-Autumn festival which, this year, will be in
October. Both passenger and cargo flights will still have to transit third-party
airspace, usually Hong Kong or Macau but will not have to land. The regulations,
however, bar cargo charters from carrying finished goods manufactured in either
Taiwan or China.
Although charter cargo flights will be approved on a case by case basis,
"for emergency and humanitarian purposes only" it appears that this
may be given a liberal interpretation. The first cargo flight, by Taiwan
carrier, China Airlines departed Taipei on July 19 with further flights on July
25 and July 30. So far two flights have been scheduled for August 8 and August
While the latest moves fall a long way short of full normalization of
cross-straits aviation links, they do represent a further step in the right
direction - bearing in mind that the first such flights took place only in 2003.
Furthermore, as some analysts have pointed out, the new arrangements further
institutionalise the framework that already exists. By increasing the occurrence
of passenger flights, the lengthy negotiating process that preceded previous
accords is reduced and could, in time, be eliminated entirely. After all, from
four times a year, the next step could be 365 times a year.
Equally important though in going beyond the symbolic to make cross-straits
aviation links a tool for improved business contact is the need to eliminate the
transit of third party airspace which adds both time and expense to a journey
for no other purpose than symbolism. Both the KMT and the DPP recognize the
benefits of opening up aviation and transport links with China although the
ruling party is generally more cautious in its approach. Whether the latest move
by the government will remove the issue from the political debate over coming
months or whether the KMT will use the latest cautious opening as reason to
lambaste the government for its timidity towards ties with China remains to be
Economic development conference fails to address hard core issues
It was meant to forge a new consensus on Taiwan's economic future instead it
became a focus of disillusion and division.
In 2001 during the early days of his presidency, Chen Shui-bian managed to forge
a consensus on economic policy by hosting an Economic Development Advisory
Conference. At that meeting he was able to revise the cross-strait policy
position of "go slow, be patient" formulated by former president Lee
Teng-hui's to one of "active opening, effective management". In so
doing, he was able at the time to create a conciliatory mood between the ruling
and opposition parties and gain a measure of support from the business
Five years later, Premier Su Tseng-chang , keen to rid himself of the image of a
lame duck premier serving a lame duck president hosted a two-day Conference on
Sustaining Taiwan's Economic Development. But instead of finding a new ground
for his governance, Su found himself stuck between the distrust of the
industrial sector for not opening to China sufficiently fast and a boycott from
the Taiwan Solidarity Union (who took the opposite view) and environmental
groups (who claimed that the government was advocating unsustainable
environmental policies). Evidently, that mood of optimism evident in 2001 no
According to reports, industry representatives attending the meeting made little
effort to hide their dissatisfaction and disappointment with the DPP
administration, claiming the government had turned a deaf ear to their concerns.
They entered the meeting venue with glum faces and admitted that they did not
pin any hopes on the conference. In the two to three minutes that participants
were allowed to express their opinions, most of them vented anger, frustration
or remained silent. The common complaint of industry was that government had
"talked the talk but had failed to walk the walk."
The only apparent consensus achieved at the meeting was on issues of the
"motherhood variety": building a green value-added island, creating
world-class brands, encouraging the exploitation of renewable energy, ensuring
employment, and "others that are either cliche, or common sense".
The more compelling issues that failed to achieve a consensus and which will go
back to Cabinet for further discussion included relaxing the China-bound
investment cap of 40 percent of a company's net value, further direct
cross-strait air transportation links, lifting the ban on Taiwanese banks
setting up subsidiaries in China, expediting the implementation of regular
cross-strait air and sea cargo links, and asking the Chinese government to
recognize Taiwanese professional licenses. In essence, these were all placed in
the "too hard" basket.
The issue of easing the 40 per cent cap on investment in China was the focus of
heated debate at the session, with 19 participants speaking in favour of easing
the ban, and 18 opposing the measure. The Taiwan Solidarity Union (TSU)
lawmakers, who opposed easing the investment ceiling, also opposed listing the
measure for further discussion after the failure to reach consensus and walked
out of the meeting.
If the conference achieved anything at all it was to bring to the surface the
conflicting pressures facing the administration as it attempts to come to grips
with the problem of China's rise to pre-eminence and the role of Taiwan in the
Greater China region. The government is truly between a rock and a hard place.
While seemingly keen to court business and wanting to appear to be adopting a
pro-business stance, to do so the DPP will have to make further - and
significant - concessions on the way Taiwanese companies are allowed to do
business with China. And, by courting the business community in this manner, the
government seems certain to provoke the ire of the Taiwan Solidarity Union - its
erstwhile partner in the pan-green alliance.
Economic growth forecasts revised downwards
The Chung-hua Institution for Economic Research (CIER) has revised downward
its economic growth forecast for the country this year, citing softening private
consumption and investment. The government-funded think tank cut its GDP
forecast to 4.11 per cent, down from the 4.17 per cent prediction it made in
April. It also revised its growth forecast for next year to 4.15 per cent from
the previous 4.18 per cent.
Citing the lingering effects of credit abuse and further political instability
arising from the upcoming election campaigns, the CEIR believes private
consumption will be less robust than earlier hoped. CIER trimmed the growth rate
of private consumption by 0.85 percentage points to 2.27 per cent. CIER also
said that political factors would influence private investment, and slashed its
growth prediction from 4.06 per cent to 2.14 per cent.
With higher oil prices and utility rates, along with soaring vegetable prices
during the typhoon season, it would appear difficult for the government to keep
inflation under 2 percent this year. The full-year consumer price index (CPI) is
estimated to reach 2.19 per cent, and if oil prices continue to surge, the CPI
may even exceed 3 per cent," according to the Institute.
Higher consumer prices are likely to trigger inflation, and the central bank
might have to raise interest rates to counter the price rise. The central bank
raised its benchmark interest rate for the eighth straight quarter by 0.125
percentage points on June 29. The discount rate (the rate charged on loans to
commercial banks) now stands at 2.5%, the "accommodation" rate for
collateralised loans to 2.85% and the accommodation rate for uncollateralised
loans to 4.75%.
Jobless rate rises in June
Taiwan's unemployment rate rose for the second month in a row to 3.98 per
cent in June, lifted by new college graduates entering the job market and an
increase in first-time job seekers, according to the Directorate-General of
Budget, Accounting and Statistics. The number of people unemployed rose to
418,000 in June from 402,000 in May, the statistics agency said.
According to the agency, the rate was 3.84 percent in May, 3.78 per cent in
April, and averaged 3.87 percent in the first half of the year. A year earlier,
the figure stood at 4.22 per cent. On a seasonally adjusted basis, the nation's
jobless rate was 3.94 per cent in June, up from 3.92 per cent in May, the agency
The agency remains optimistic the unemployment rate would come in below 4 per
cent for the full year. "If the unemployment rate reaches 4.13 per cent in
every single month in the second half of the year, the rate for the full year
will exceed 4 per cent. But the likelihood for that is very small,'' a
spokesperson said. Taiwan's jobless rate was 4.13 per cent last year.
June export orders slow
Export orders rose at a slower pace in June than May as higher global energy
costs damped overseas demand for the nation's electronic products. Export
orders, indicative of actual shipments in one-to-three months, gained 20.61
percent from a year earlier to US$24.92 billion after surging 26.01 per cent in
May, according to the Ministry of Economic Affairs.
Industrial production increased 5.54 per cent last month from a year earlier
after climbing a revised 8.6 per cent in May, the ministry also said.
The nation's dependence on exports, which account for about half of the economy,
makes it vulnerable to swings in overseas demand. A smaller expansion in the
trade sector makes it more difficult for President Chen Shui-bian's government
to achieve its forecast of 4.31 per cent economic growth this year. Indeed,
private think tanks, including the CIER (see above) are already revising
downwards their full year growth forecasts.