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TAIWAN


 

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2002)
GDP
Millions of US $  406,000    
         
GNI per capita
 US $ 18,000
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 053 - (30/06/08)

OFF TO A GOOD START 
As might have been expected, the new KMT government led by President Ma Ying-jeou and Premier Liu Chao-shiuan has moved quickly to improve relations with China although agreements reached so far have been largely symbolic and have concentrated on those areas where there is a clear win-win deal to be had. Meanwhile on the domestic front, the deteriorating global economy has given a hollow ring to KMT campaign promises to improve dramatically-and quickly-Taiwan's growth performance. Nevertheless the government has hiked the growth target for 2008 from 4.8 percent to 5.0 percent on the strength of the benefits to be had from new and improved cross-straits links. 

This past month, Taiwan and China held their first formal talks since such exchanges were broken off in 1999. Taiwan was represented by the semi-official Straits Exchange Foundation and China by its counterpart body the Association for Relations Across the Taiwan Straits (ARATS). Both bodies were set up in the early 1990s as a means of allowing the two governments to talk indirectly to one another but broke down over differences in 1999. They had been allowed to languish during the administration of the DPP. 

After two days of talks in Beijing between the two sides, a number of new initiatives were announced. These initiatives really amount to little more than confidence-building measures but they are welcome nonetheless as a sign that the sting in the relationship, that had been the hallmark of the eight years of DPP rule under former President Chen Shui-bian, has dissipated. Taiwan's staunchest ally, the United States has, for one, welcomed the agreements as a step in the right direction. 

So what actually has been agreed?
Importantly, the first agreement announced was that China and Taiwan would set up quasi-official offices in each other's capital cities. They have agreed to allow a substantial increase in the number of mainland Chinese tourists able to visit Taiwan and to a concomitant increase in the number of direct cross-straits flights. 

The growth in Chinese visitors will directly benefit Taiwan's hotel and tourism industry and, in particular, small businesses within the rural economy which have for a long-time been pushing for a relaxation of tourism limits. The increase in direct flights will also benefit Taiwanese companies doing business with the mainland (which is most of them) and is a great leap forward in the direction of direct transportation links. More than 4 million Taiwanese visit China every year and for the most part have to make an indirect journey via Hong Kong. 

As a result of these fresh agreements, visitors from the mainland to Taiwan will climb from 1,000 a day to 3,000 a day effective immediately and with a foreshadowed further increase to 10,000 a day once circumstances allow; direct charter flights will increase from four days a year (at present such direct flights take place only during the lunar new year holiday) to 36 flights per week. 

Taiwan has taken a number of related but unilateral measures that will underpin the bilateral accords. Effective immediately, Taiwanese and foreign nationals holding valid travel papers will be able to enter China through the outlying islands of Kinmen and Matsu. Previously only residents of these islands enjoyed that privilege. Three of Taiwan's domestic air carriers, Mandarin Airlines, Uni Air and TransAsia have already announced plans to increase their capacity from Taiwan airports to and from these islands to cope with expected demand. 

In a second unilateral measure, Taiwan has announced the free exchange of the NT dollar and the Yuan. This measure is also effective immediately and so far, 13 banks which operate a total of 1500 branches have applied for permission to handle such exchanges. Taiwanese and foreign visitors will be allowed to carry out exchanges valued up to 20,000 Yuan per person per day. Initially such transactions will be restricted to hotels, souvenir shops and outlets and transactions will only be one-way: from Yuan to New Taiwan Dollars. 

Finally, Taiwan has relaxed restrictions on investments into Hong Kong and China by opening the domestic market to Hong Kong exchange-traded funds and by also allowing Taiwanese securities companies to invest as much as 20 percent of their net worth in China. This represents a doubling of the previous ceiling and is aimed ostensibly at rejuvenating Taiwan's capital market which has been hard hit in recent days by global volatility and risk aversion from traditional sources. 

These unilateral moves reinforce what has been agreed in the bilateral talks and all of them represent a step towards economic normalization and, perhaps eventually, towards political normalization. 

But nobody underestimates the difficulty of moving substantially further and beyond the freeing up of transportation and communication links. Much mutual suspicion remains on both sides. China continues to point its ballistic missiles at Taiwan and, for its part, Taiwan continues to seek greater freedom to manoeuvre on the international stage-although under the LMT government it may seek to do so with greater finesse than was the wont of the Chen Shui-bian government. 

China may not yet have woken to the fact that Taiwan is a democratic country and as much as the new government of the island does not have the same hostility to China, nevertheless it is firmly part of the democratic tradition and there is unlikely to be any winding back on that score. 

These moves come at a time when the promise held out by the KMT during the election campaign of reinvigorating the domestic Taiwan economy, is becoming increasingly difficult to deliver. 

The economy has been showing signs of slowing in recent months and in late June the TAIEX hit a five month low-its worst performance since January-thereby demonstrating that the new KMT expert team is finding it just as difficult to lift domestic growth as its predecessor. Premier Liu has acknowledged that "fixing the economy would take time," and has called on the public to have patience. 

Already the Cabinet has planned an economic stimulus package with a budget of NT$130.1 billion (US$4.28 billion) along with a supplementary budget that it is hoped could boost economic growth by up to 0.45 percentage points in a full year and would ease the impact of rising commodity and fuel prices. To revitalize the stock market, domestic insurance companies-which control an estimated NT$8 trillion (US$262.7 billion) in capital will be encouraged to invest in the local stock market and in local infrastructure development. 

Clearly the incoming government is finding that the global economy is in worse shape now than when it made its campaign promises. Already the honeymoon is over and Mr. Ma and his team are under some pressure to deliver. 

The government is placing much faith in the Chinese market, hoping that by opening up Taiwan to Chinese tourism and deregulating Chinese investment, Taiwan's economy will be boosted in the process. Clearly, and as one newspaper succinctly put it, the KMT cannot deliver a "new Eden." For the moment at least they have produced a new chapter in Taiwan's relationship with China and a reduction (but not elimination) of cross-straits tensions. 

That alone is a good start.

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