Books on Taiwan
New Taiwan dollar (TWD)
Update No: 029 - (06/06/06)
Politics-Scandals rock first family and President Chen
surrenders his power
Taiwan's controversial President, Chen Shui-bian, may be controversial no
more. As a result of ongoing difficulties over corruption scandals involving
Taiwan's First Family, President Chen has handed over day-to-day control of the
island's government to the premier Su Tseng-cheng. The move signals the
effective end of the president's control over national policy. The decision was
taken on 31 May and announced the following day.
Mr. Chen has been in trouble for some time and the ruling Democratic Progressive
Party saw much of its traditional support base eroded in last December's local
elections due to scandals within the party that eventually cost premier Frank
Hsieh his job. Since that time further scandal has surfaced closer to home.
On May 24, police arrested Chao Chien-mien, President Chen's son-in-law over
allegations of insider trading through which he benefited on the purchase of
shares from the partly state-controlled property company, the Taiwan Development
Corporation. Mr. Chen's finance minister is also under investigation in the same
Earlier, the First Lady, Wu Shu-chen, had been accused of influence peddling in
a number of cases involving the merger of several Taiwanese banks and in the
takeover of a prominent local retailing group. She has also been accused of
protecting a corrupt executive within the Taiwan Fertilizer Corporation-another
state controlled company-thereby protecting him from disciplinary action.
Despite criticism from the opposition KMT party that Mr. Chen has not gone far
enough to atone for his family's alleged ethical lapses and that he should
resign or be recalled by the national legislature (a move that would require a
two thirds majority and the support of at least half of Taiwan's eligible
voters) Mr. Chen will likely remain as Taiwan's Head of State until 2008
Over the weekend following his resignation thousands of protesters under the
lead of the People First Party (PFP) took to the street calling on the president
to step down and assume responsibility for the recent string of allegations of
corruption involving government officials and the president's in-laws. Taking a
shot at the alleged "failure" of the KMT to lead on the issue, the PFP
appeared to be taking advantage of the moment to win greater public support for
its own cause.
But while there is widespread dissatisfaction with Mr. Chen, it appears the
tipping point has not yet been reached. In the absence of any fresh revelations
of corruption, the rank and file of the DPP has indicated that it would close
ranks with the Cabinet and would not back any opposition-backed motion seeking
recall of the President. The opposition enjoys a slight majority in Taiwan's
225-seat unicameral legislature and the support of 30 DPP legislatures would
have been needed for the recall to prosper. The alternative would be a recall
referendum which would require the participation of at least one half of
Taiwan's eligible voters and simple majority to vote in favour.
The most likely scenario at this stage is that Mr. Chen will serve out his term
as a figurehead president but with real power now concentrated within the
premier and his cabinet. In terms of political accountability this may be no bad
thing since President Chen has increasingly become an embarrassment and an
electoral liability because of his continued China baiting. While acknowledged
as an outstanding democrat who has played a major role in the democratization of
Taiwan, he appears to display little understanding of (or interest in) the
realpolitik of survival and most people - including his own supporters - may be
relieved at his decision as the president will be less of a liability for the
DPP in the run up to the mayoral elections for Taipei and Kaohsiung cities due
to be held in December next. The results of these elections are important as
they will set the tone for the 2007 campaigning for the new legislative election
due at the end of that year and then to be followed almost immediately by the
2008 elections for a new president to replace Mr. Chen who comes to the end of
his second term and who therefore by law must stand aside.
The legislative elections are significant in that this will be the first fought
on the basis of a new legislature with a reduced number of parliamentary seats
from 225 to 113. As a result competition for nominations will be intense and the
unity of both the ruling and the opposition coalitions will be tested to the
In coming months it will be interesting to watch as to whether the shift in the
locus of political power has any effect on Cross-Straits relations and whether
the DPP will finally be able to move forward on China issues and especially that
of direct linkages which has long been sought by the local and the international
Sadly Mr. Chen has probably been damaged permanently by these scandals despite
the fact that he has not been implicated personally. He has disappointed many
who have supported and applauded Taiwan's move to full democratization and he
has left many of his supporters disillusioned and pessimistic about Taiwan's
democratic future. As such, he has inadvertently played into the hands of
The economy-pleasing numbers for 1Q2006
Taiwan's rate of economic growth slowed in the first quarter of 2006 rising
by 4.9 percent year-on-year as compared to a 6.4 percent rise in the preceding
quarter. Nevertheless the result shows a credible performance since for 2005 as
a whole average GDP growth came in at only 4.1 percent. Expectations for this
year are similar. Given that the rate of growth of the global economy is
slowing, this will represent a good outcome if achieved.
According to the latest figures from the Directorate General of Budget,
Accounting and Statistics, private consumption during the first quarter slowed
to 2.1 percent after rising to 2.8 percent in the previous quarter. Largely,
this reflects the present high levels of household debt. There was also a
significant slowdown in public spending which rose by only 0.1 percent as
compared to 1.5 percent in the final three months of last year.
Investment appears to be the key area impacting on overall performance.
Investment dragged down the growth figure for the second consecutive quarter
dropping year-on-year by 4 percent. In part the investment decline may be
temporary and influenced by a high base-year comparison which will eventually
flow-through the numbers.
On the positive side, trade growth remains robust. Exports slowed slightly from
a 15.4 percent growth rate in the previous quarter to 14.5 percent in 1Q06. This
was still a pleasing figure in light of the overall state of the global economy.
Imports picked up by 9.4 percent-a significant rise over the 0.8 percent
recorded in the final quarter of 2005.
The industry sector has shown a sharp slowdown in its rate of expansion
moderated by a slowdown in manufacturing but with a slight improvement in mining
and in construction activity Overall, industry grew by 7.5 percent in 1Q06 as
compared to a rate of growth of 11.4 percent in 4A05. Manufacturing moderated to
8.2 percent from 12.7 percent.
In line with general expectations, Taiwan's rate of economic growth continues to
slow. According to figures released by another government agency, the Council
for Economic Planning and Development (CEPD), April economic figures suggest a
looming economic slowdown ending eight months of healthy growth. The negative
impact of customs-cleared exports is said to be to blame.
According to CEPD after 8 months of "green light" monitoring figures
indicating healthy economic growth, the light has been changed to
"yellow-blue" indicating a slowdown in the economy. The monitoring
indicators consist of seven indicators including the stock markets, wholesale
prices, monetary supply, export orders and construction orders and are intended
to measure Taiwan's economic activity over the next three months.
Customs-cleared exports posted a smaller year-on-year index in Aril as compared
to March and that was sufficient to change the indicator despite the fact that
all other indices showed an upward trend.
Of note is the fact that April's export orders showed a strong increase - rising
by more than 18 percent over the same period last year and fed by strong demand
from the United States, China, Hong Kong and Europe. Demand was especially
strong in consumer electronics items. The value of export orders in April was
the second-highest monthly total on record. In the first four months of the year
export orders amounted to US$92 billion-a 19.33 percent increase from the same
period last year.