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Chen shui-bian

Update No: 026 - (28/02/06)

Giving China the finger!
Despite the clear message delivered by the electorate during the December 2005 provincial polls - the results from which were seen as a rebuff of the ruling Democratic Progressive Party and in particular the bellicosity of Taiwan's President Chen Shui-bian towards China - that the majority of Taiwan's people (at least the 12 million voters) want to retain the status quo, President Chen has once again gone on the offensive.
In his (lunar) New Year address to the people, Mr. Chen foreshadowed that the government was considering abolition of the National Unification Council. True enough by the end of February the NUC had "ceased to function" - a semantic that enabled the President to avoid the charge that he had abolished the body. Of course nobody was fooled.
The NUC was set up in 1990 by former President Lee Teng-hui of the KMT to handle the issue of eventual reunification of Taiwan with China. It has lain dormant since President Chen took over power in 2000. It was the NUC that had been responsible for drawing up the unification guidelines approved by Taiwan's Cabinet in 1991 and with the goal of achieving a "democratic, free and equitably prosperous China." While no timetable was ever spelled out (at least, not by the Taiwanese side) the guidelines recognised that both China and Taiwan are parts of Chinese territory and that unification should be achieved in phases under the principles of reason, peace, parity and reciprocity.
Not surprisingly, Mr. Chen also announced that these guidelines "will cease to apply."
Taiwan's National Security Council, the body that has oversight of the NUC, proposed to the president that the way around the problem was that rather than abolish the Unification body as had been earlier proposed, the NUC should simply no longer be provided with a budget. In accepting this proposal Mr. Chen said that his decision did not change the "status quo" in the Taiwan Strait, but instead returned sovereignty to the people of Taiwan. He cited China's ongoing military build up in the Taiwan Strait and its attempts to use "non-peaceful" means to unilaterally change the status quo as the reason for his action.
At the present time China has around 700 ballistic missiles targeted at Taiwan.
Mr. Chen's decision came in spite of US attempts at dissuading him from such a course of action. Clearly while Taiwan's president claims that he has not changed the status quo, Washington and Beijing do not share this view.
The move has been interpreted as a clear signal that Mr. Chen wants to put Taiwan on the road to formal sovereignty and that any move towards rapprochement with the mainland is dead - at least until Mr. Chen steps down in 2008. Despite this latest action, Taiwan's conservative opposition parties, which still control the legislature, will not allow any formal move towards independence to prosper and are likely to step up their criticism of the president as one who is prepared to gamble with the fate of his people.
China will no doubt be infuriated by the provocation but its freedom of action short of a declaration of war on Taiwan is somewhat circumscribed. Any belligerence shown by Beijing will only serve to show that President Chen was correct in claiming that China is hostile towards the island.
One unintended consequence could be a chilling of Taiwan's relationship with the United States. After all, Mr. Chen has effectively broken a promise he gave to Washington upon assuming office that he would not make any move towards independence but would maintain the status quo. Tearing up the unification guidelines appears to be all the evidence necessary to show that he has broken his word.
While we can write off any breakthrough in cross-Strait ties for the foreseeable future any reaction by China is likely to be confined to hostile verbal exchanges. This could cause some short-term volatility in Taiwan's currency and stock markets, but little else.

2006 growth expectations raised
Taiwan's economic growth accelerated in the fourth quarter last year on stronger-than-expected exports. This boosted whole-year GDP growth to 4.09 percent - up from the previous estimate of 3.8 percent. In the fourth quarter alone, economic growth amounted to 6.4 percent. This was the fastest growth spurt since the second quarter of 2004.
Against this positive outcome, the Directorate General of Budget, Accounting and Statistics (DGBAS) has raised its economic growth forecast for this year to 4.25 per cent, up from its previous prediction of 4.08 per cent made in November last year. The country's gross national product is expected to reach NT$11.92 trillion (US$368.7 billion), or US$16,208 per capita this year, up from NT$11.43 trillion, or US$15,676 per capita.

Exports robust
The DGBAS predicts that exports will grow 7.6 per cent this year from last year, with imports expanding by 5.4 per cent from the previous year and with Taiwan's trade surplus (including all goods and services generated) widening to US$17.1 billion from US$13.7 billion last year.
Export orders, a good indicator of actual shipments in one to three months, last month fell 11.2 per cent to US$22.11 billion from December, according to the Ministry of Economic Affairs. 
However, on a year-on-year comparison basis, the figure in January 2006 was up 20 per cent. While a good outcome this was slightly lower than December's year-on-year rise of 24.2 per cent. This was largely due to the extended lunar New Year holiday of late January and early February. A better picture will have to await the March figures when the effects of the holiday break have coursed through the system.
Encouraging to note was that export orders from the US were up 22.7 per cent year-on-year in January to US$6.11 billion, while orders from Europe were up 29.6 per cent during the same period to US$3.89 billion. Orders from Hong Kong rose 9.7 per cent year-on-year to US$4.97 billion, while orders from Japan increased 33.9 per cent to US$2.64 billion. 
Domestic manufacturers remain cautious about their outlook, however. According to a poll taken in January by the Taiwan Institute of Economic Research, only 14.8 per cent of respondents thought the economy at the time was in good shape. This was down from 20.5 per cent in the previous month, while 38.9 per cent said the economy was bad, up from 26.7 per cent from December last year.

Unemployment continues to fall
The unemployment rate fell to a five-year low in January. The jobless rate dropped to 3.8 per cent last month, down from 3.86 per cent in December, according to a statement released by the Directorate DGBAS. This is the first time the unemployment rate has fallen below 4 per cent since February 2001, when it was 3.76 per cent.
In terms of numbers, actual people unemployed fell to 397,000 last month from 403,000 the previous month, the report showed.

Problems remain in the financial sector
Taiwan's domestic banks continue to tighten their consumer lending because of snowballing bad loans in the sector. Nevertheless, because of the brighter employment prospects, consumption is expected to continue robust growth - increasing by around 3 per cent this year.
The sector is in urgent need of some fundamental structural reform and consolidation but prospects of this occurring any time soon appear to remain dim. Taiwan's banking sector remains overcrowded with too many banks chasing too few customers to sustain their viability. One major inhibitor to early rationalisation is the general lack of attractive take-over targets according to financial sector analysts. The government has vowed to halve the number of financial holding firms to seven by the year's end and have at least one bank run by a foreign operator.
The falling approval rate of the ruling Democratic Progress Party (DPP) will reduce the government's willingness to privatise the state-owned and state-controlled banks. This rationalization is seen by many as the precursor to private sector bank consolidation. However, resistance from the labour unions is strong and if pursued could send the DPP's ratings even lower. In the present climate and with continued gridlock between the ruling and the opposition parties no early movement is expected.

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Two Taiwan bank groups will link up

Chinatrust financial Holding Co said it plans to buy as much as 10% of government-controlled Mega Financial Holding Co to take advantage of the company's dividend, the Wall Street Journal reported on 10th February.
The plan links two of Taiwan's biggest banking groups. Mega is the second largest of the island's 14 financial holding companies by market capitalisation, after Cathay Financial Holding Co. Chinatrust, the fourth-largest financial group by market value, controls Taiwan's largest privately owned lender in terms of assets.
Chinatrust didn't disclose what it intends to spend in the stake, which Chief Financial Officer, Perry Chang, said Chinatrust would accumulate by buying Mega's shares on the open market. A 10% stake in Mega is currently valued at about US$479m, based on the company's market capitalisation of NT$242.66bn (US$7.5bn).
The plan comes amid a flurry of mergers and acquisitions by Taiwanese lenders as they seek to improve their competitiveness by bulking up.
Chang said Chinatrust is buying the Mega stake as a long term investment for financial reasons. "Mega Financial's profitability has been stable and its cash dividend payout was over NT$1.50 a share in the past two years," he said. Chang said Chinatrust's board approved the plan recently.
Chang said Chinatrust already owns some Mega shares, but he declined to say how many. Chinatrust isn't listed among Mega's 20 largest shareholders, with stakes of at least 0.23%, according to Thomson Financial.
The Taiwan government, with a stake of more than 22%, will remain Mega's largest shareholder.

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