Books on Taiwan
Update No: 040 - (02/07/07)
Taiwan's main opposition party, the Kuomintang (KMT) has
finally selected its presidential candidate for next year and is hoping to take
the government on over its economic management and relations with China' but the
latest numbers suggest that overall Taiwan is not doing too badly under the
present team. Can the opposition do any better?
June confirmed what had already become evident in May-that the upcoming
presidential election, scheduled for March of next year will be a two-way race
between Frank Hsieh of the DPP and former Taipei Mayor and KMT chair, Ma Ying-jeou.
Ma was the only nominee of the KMT and was endorsed formally as the candidate at
the Chinese nationalist Party (KMT) Congress this month.
Addressing the assembled delegates, Ma stressed the importance of winning both
the legislative and the presidential elections as well as the importance of
abiding by the Constitution and respecting the dual executive system. In a move
designed to differentiate his approach from that of President Chen and the DPP
He vowed to nominate a premier who would be acceptable to the majority in the
legislature and added that should the DPP win a majority in the Executive Yuan
(Taiwan's unicameral parliament) he would pick a DPP affiliated premier.
Critical of the economic performance of incumbent president Chen Shui-bian, Ma
has declared that he would transform Taiwan into a regional airline hub to serve
both the Northeast and Southeast Asian regions. How exactly his policy would
differ from that of the present government remained unanswered.
Mr. Ma announced that former premier and respected economic technocrat, Vincent
Siew would be his running mate. Mr. Siew made a run for the vice-presidency in
the 2000 election and was trounced but Ma shrugged this off as irrelevant. While
explaining his choice in terms of the need "to find a moderate pilot to
save the economy" many commentators saw the choice of a veteran KMT
stalwart as indicative of the dearth of new talent in the party from which to
choose. Certainly, Mr. Ma has taken the side of caution by choosing a known
strategist and problem solver ahead of an inexperienced contender and one that
has widespread respect across the political spectrum. Clearly though this was
not his first choice; he had earlier offered the position of running mate to
Legislative Speaker Wang jin-pyng but the latter spurned the offer amid
speculation of a serious rift between the two.
With both camps now having chosen their standard bearers the stage is set for a
period of serious political rivalry and debate although at the same time both
sides will want to appear as moderates who are serious about taking Taiwan
forward while avoiding the type of brinkmanship displayed so often in the past
where the KMT has held up important government programmes through sheer
Important legislation finally makes it through
Such a case in point has been the government budget which was finally
approved on June 15 amid mounting public indignation over funding shortages for
government programmes held up because of legislative intransigence. The KMT,
which has a majority in the legislature had delayed the budget legislation for
several months in an attempt to force the government to reconstitute the
electoral commission. Its intransigence backfired when public criticism mounted.
Approved spending totals NT$1.629 trillion (US$49.15 billion) including NT$6.3
billion (US$190 million) for the acquisition of 12 US-made P3 Orion
submarine-hunting aircraft and a feasibility study on the purchase of new US
diesel submarines. Also approved was NT$16 billion for the purchase of 66
advanced F-16 fighter jets. The U.S. government still has to approve finally
this particular deal.
These weapons are part of a US$18 billion package of military spending proposed
by the US of which the first tranche is included in the Self-Defence bill that
was also finally passed on the same day as the budget after no less than six
years of political wrangling. Opposition lawmakers had argued vehemently against
the bill claiming that parts of the weapons package were overpriced and that the
proposed military spending plans would lead Taiwan into a no-win arms race with
China. The KMT and its coalition partner, the People First Party (PFP) had
rejected the bill no less than 60 times before finally allowing a much
watered-down version to go through.
Supporters had countered that it was not Taiwan that was responsible for the
military tensions across the Taiwan Straits and asked rhetorically as to how
Taiwan could expect Washington to come to its aid should there be a clear and
present threat from China if Taiwan was not prepared to acquire the resources
needed to defend itself?
The initial bill has been described in the press as no more than a "baby
step" in the right direction. It authorizes some US$296 million in initial
arms purchases from the US this year but falls far short of the US$18 billion
that was proposed by the Bush Administration back in 2001 as being necessary for
In fact, Taiwan's military budget is around US$9.5 billion annually so the US
package would represent about two years of defence spending. By contrast China
spends around US$100 billion.
Undoubtedly the upcoming presidential election was the determining factor in
getting both the budget and the self-defence bill finally passed. Just five days
before the legislature was due to consider these bills, Mr. Ma called on his
party to give its support to the legislation. As a result these bills passed.
Mr. Ma is seeking to portray himself as a reasonable man who maintains a
centrist view and who is not as pro-China as his opponents make out. But the
fact remains that had he and his party supported the legislation much earlier
Taiwan would now be much better prepared militarily to face any threat and, as a
result, might have gained better access and a sympathetic ear in Washington.
And it is to Washington that the focus of attention now turns since the next
procurement battle will include the controversial F16 fighters designed to
replace vintage F5 aircraft that date back to the 1950s. Certainly this was part
of the original deal but then Washington wanted Taiwan to take the entire
package not just part of it. More diplomacy will be required. It is just as well
that the DPP has a new man in Washington.
Export orders continue their robust growth
Export orders were again up last month rising 11.92 percent from a year
earlier to US$27.53 billion on strong demand for communication and information
products. This was the second highest on record following a record high of
US$28.03 billion posted in March. In April Taiwan recorded US$27.46 billion in
export orders, representing an increase of 11.27 percent from April 2006. For
the first five months of the year, export orders were worth a total of US$130.87
billion an increase of 12.25 percent from the same period a year ago.
But signs of a possible slowdown in the wind
Despite a seemingly vibrant economy-far more vibrant than many might have
dared hope for at the start of the year-there are signs that some slowing may be
underway. This is in spite of a further slight rise in the leading economic
indicators over the past month.
Taiwan's economic planners set great store by their economic monitoring as a
means of predicting where the economy is heading and the latest leading
indicators suggest a slowdown is coming. The total score of monitoring
indicators for May was 20 points, compared with 18 points in April. According to
the Council for Economic Planning and Development (CEPD) the May monitoring
indicators showed a "yellow-blue light," signalling a slowdown in the
economy. The "yellow-blue light" in May is the second consecutive
slowdown's signal in a row, after the council reported the same for April. The
index of leading indicators for May stood at 110.2 points, up 0.3 per cent from
April, when it registered a revised 0.1 per cent month-on-month fall, said the
Five of the seven leading indicators for May made positive contributions,
including housing start approvals in area terms, customs-cleared exports, the
wholesale price index, the average number of monthly working hours in the
manufacturing sector and orders for manufacturers. Among the two negative
factors, M1B money supply in May showed smaller year-on-year growth than in the
previous month, and the average weighted index of the Taiwan Stock Exchange
posted smaller year-on-year gains than the preceding month. The council said a
survey of manufacturers in May showed that 10 percent of the respondents expect
the economy to improve over the next three months, down from a revised 18 per
cent a month earlier.
Unemployment on the rise
Taiwan's unemployment rate rose to 3.87 per cent in May from 3.83 per cent
in April, as the number of first-time job seekers and people who lost their jobs
because of layoffs increased. The May figure was up from 3.84 per cent a year
earlier, according to the statistical monitoring agency, the Directorate General
of Budget, Accounting and Statistics (DGBAS). Seasonally adjusted, the jobless
rate was 3.95 per cent in May, down slightly from 3.96 per cent in April, but up
from 3.91 per cent a year earlier, it said. For the first five months of the
year, unemployment averaged 3.84 per cent, unchanged from a year earlier and
marking a new low for the five-month period since 2002.
Last month, 413,000 of Taiwan's 10.67 million labour force were unemployed.
Central Bank takes action to support currency
The Central Bank of China-Taiwan's central bank-raised its key interest
rates on June 21 by a higher-than-expected 0.25 percentage point, amid concerns
about inflation and signalling its determination to stem outflows that have
weakened the island's currency. The central bank also raised-for the first time
since 2002-the required reserve ratio on foreign-currency deposits (from 0.125
per cent to 5 per cent) of the commercial banks, citing a wide gap between that
ratio and the required reserve ratio on Taiwan dollar deposits. The increase in
the reserve ratio will effectively raise the costs for banks to take
foreign-currency deposits and is a further measure to discourage outflows.
The increase in the discount rate to 3.125% was the 12th quarterly increase
since the central bank began its current tightening phase in September 2004.
Economists generally expected an increase of 0.125%, in line with its recent
rate moves. According to commentators, the central bank's many recent efforts to
stem capital outflows appeared to have achieved modest success, as the benchmark
TAIEX index surged to a fresh seven-year high and the NT dollar advanced to a
In recent weeks, the central bank has used every available opportunity to induce
investors to keep their money in the nation's financial institutions, as capital
had been flowing out of the country at an ever increasing rate. The monetary
policymaker has consistently warned of possible losses when investing in
overseas mutual funds and it has urged securities investment trust firms to
provide mutual funds targeting local stocks and, according to the local press,
it even acted to strengthen the review process for foreign funds seeking to
raise money in Taiwan.
Some commentators believe that the latest rate hikes could represent an end to
the bank's "low interest rate, low currency exchange rate" policy,
which has been in place for nearly three years to support the domestic economy
and boost exports.
All in all, there is no reason to think that Taiwan is heading for a nosedive,
as the political opposition would like to think. Taiwan's economic managers
appear to have their finger on the pulse. Foreign investment in Taiwan remains
strong. 2006 saw a total of 1,846 investment projects, worth US$13.97 billion, a
year-on-year increase of 230.39 per cent.
The stock market is at a seven-year high with technology stocks doing
particularly well. Overall the stock market is up some 12 per cent since the
start of the year with most of the gain coming since May. Even the level of
unemployment is at a level comparable with or much lower than most rival
economies. Finally, despite warnings of a possible slowdown, the government
think tank is predicting that GDP growth will rise from 4.27 per cent in the
first half to 4.48 per cent in the second half of 2007.
And with numbers like these Mr. Ma and his team will have to try that much
harder if they are to win the hearts and minds of the voters and regain power in