Taiwan's China envy

Controversial Chinese philanthropist visits Taiwan, highlighting wealth gap and "new poor."

Global Post, Jan. 30, 2011

TAIPEI, Taiwan — You might think Taiwan would welcome a wealthy visitor who wants to pass out money to the poor. But you’d be wrong.

The island was abuzz last week over the visit of one of China's top philanthropists, Chen Guangbiao, who is well-known for his flashy style. The controversy highlights the still awkward relations across the Taiwan Strait, as well as the growing rich-poor gap on both sides.

Chen insists he merely wants to return the generosity of Taiwanese who have helped China, for example with huge donations after the 2008 Sichuan earthquake. But several objections have emerged from Taiwan's rowdy political and media arena.

Some think he's tasteless and disrespects the poor by making such a show of his charity. (In China last week, he ostentatiously passed out banknotes after erecting a massive, $2.3 million "wall of cash.") One Taiwan county head rejected his visit on those grounds, promptly igniting a backlash from angry constituents who were hoping for a payola.

Others in the pro-independence opposition see him as a Trojan Horse, spreading a pro-unification message under the cover of traditional, Chinese New Year generosity. (China claims Taiwan as its territory; Taiwan insists it's an independent state.)

Such critics pointed to his itinerary, which avoids the pro-independence south to focus on several counties in the more China-friendly north. And then there's the inscription on the 50,000 "red envelopes" he's using to distribute cash, which according to Taiwan media reports reads in part "the Chinese race is one family."

Chen denied any political motive, telling reporters, according to the Taipei Times: "I don’t know anything about propaganda for Chinese reunification. I only know about charity and environmental work. I just want to do good.”

Beneath the moral and political indignation, though, there's a palpable unease with the symbolism of Chen's visit. Taiwan's development once far outpaced China's. But as China's wealth booms and Taiwan's stagnates, the island is losing its sense of economic superiority.

Taiwan's per-person wealth may still be far higher than China's, at around $18,500 compared to some $4,300. But growth rates have sagged in Taiwan while soaring to double or high single digits in China. And in the last few decades, the island has seen a growing income gap. (Measured by the Gini coefficient, inequality rose from 0.28 in 1980 to 0.34 in 2006.)

Like other advanced economies, manufacturing jobs have shrunk as factories move to China and elsewhere. Lower-paying, non-unionized service sector jobs have taken their place. The service sector is now nearly 70 percent of the economy, compared to 50 percent 20 years ago. And since the global downturn, Taiwan firms have been increasingly relying on "dispatch" or temp workers, like Japan and South Korea.

The result has been a new legion of "working poor" or "new poor," as they're called here. They may not show up on unemployment statistics. But they struggle to make ends meet with two or even three low-paying jobs, but no job security.

"Those people cannot get help because they're not ill, or victims of a disaster, and they're not poor by the government's standards," said Taiwan sociologist Chiu Hei-yuan. "So they are just helpless — and they hope to get some unexpected help from people like Mr. Chen."

Twelve percent of the workforce now earns less than $700 per month, and average monthly wages are at 1998 levels, according to labor groups.

Meanwhile, highly-skilled workers in the technology and other sectors pull in ever-fatter paychecks, sharpening inequality between the haves and have-nots. "Taiwan's social welfare system cannot solve the problem of the gap between the rich and the poor — especially the 'new poor,'" said Chiu.

For its part, China is seeing a burst of newly-minted millionaires and even billionaires, as a lucky few strike it rich amid the rising power's go-go economy. There, too, inequality has spiked sharply, with the most noticeable chasm between the urban elite and the vast ranks of the rural poor. The top 10 percent now earns 23 times what the bottom 10 percent makes, compared to just a seven-fold gap in 1998. The Gini coefficient is now 0.47.

"In China now, some people can get very rich in a very short time because of China's growing, but unbalanced economy," said Chiu. "The large cities are developing so fast — they can accumulate wealth quickly."

One of those lucky few is Chen, who made his fortune recycling material from the construction industry after growing up poor in the boonies, according to a BBC profile. (In that interview, he also confirmed that he had vowed never again to give money to his sister, who works as a hotel dishwasher, or his brother, who works as a security guard, because they squandered his money in the past.)

He's exactly the type of swaggering, nouveau riche Chinese businessman who rubs some Taiwanese the wrong way. For others, though, all the criticism over Chen's visit is just sniping. One 67-year-old woman waited all night outside his Taipei hotel after he arrived, then hit the jackpot by nabbing Chen's first red envelope.

Amid a swarm of Taiwanese TV cameras, the woman explained that she wanted to take care of her 88-year-old mother, who has lost her eye-sight.

“I’ve never touched so much money in all my life," she told reporters after receiving about $2,300 from Chen. “I’m very thankful. He is a very generous man."

Original site

China's military head games

Rumors or no, news of China's military advances throws wrench in the works for US strategists.

Global Post, Jan 5, 2011

Taipei, Taiwan -- China's recent military advances have launched a debate in security circles on whether the People's Liberation Army is more bark or bite.

Much of the talk has focused on China's new anti-ship ballistic missile, which is now deployed, according to the top U.S. military commander in the Pacific. Not to mention today's news about a runway test for China's first radar-evading stealth fighter. State media called the news "rumors" and played down the aircraft's capabilities.

But for one top Taiwanese security analyst, rumors of the runway test and China's other upgrades have already achieved their key objective: to mess with U.S. war planners' heads.

"It's a very effective deterrent on the minds of strategic planners in Washington," said Lin Chong-Pin, a former Taiwan defense official who teaches strategy at Tamkang University. "The Chinese don’t have to do anything in the future. Their announcement has already thrown a monkey wrench in strategic planning for U.S. action in and around the Taiwan Strait."

To be sure, no one is arguing that China could beat the United States in a full-out conflict. U.S. military spending, war-fighting experience and technology vastly outmatch China's. That would make any war between the world's sole superpower and its rising challenger a lopsided, if devastating, fight.

But Lin and other experts say China's rapid military advances have exposed the vulnerabilities of one linchpin of U.S. military might: the aircraft carrier battle group. Now, they say, China has advanced just enough to deter or slow such a battle group from joining a fight in East Asia — thereby forcing U.S. strategists to rethink war plans, for example in a flare-up over Taiwan.

China's so-called "carrier-killer" missile is just one of its recent advances. It has also demonstrated its prowess in anti-satellite warfare. And its fleet of attack submarines — now Asia's largest — continues to grow apace.

Add to that the recent news that China's first aircraft carrier (a refurbished Soviet hand-me-down) may sail as early as next year, and that its advanced stealth fighter may be for real, and some are alarmed. "We are seeing the erection of a new Chinese wall in the western Pacific, for which the Obama administration has offered almost nothing in defensive response," security expert Richard Fisher told the Washington Times.

Others downplay the threat. They stress that the anti-ship ballistic missile has not yet been fully tested, involves extremely complex technology and can be countered through various means, including attacks on China's military satellites that would be key to the missile's targeting.

But Tamkang University's Lin said fundamental trends are "not favorable for the U.S. to maintain its dominance in East Asia, and even in space."

"Currently the Chinese are far behind, of course, but one country [the U.S.] is going level or down, the other is going up fast," he said.

For Lin, the real question is not whether the ballistic missile and China's other new equipment would turn the tide in an actual fight. The question is whether such advances can alter U.S. strategic thinking — and by that measure, the answer is already a "yes."

Though U.S. officials may still talk tough, the reality is a gradual, U.S. military retreat from East Asia, Lin said. "The U.S. has economic, social and political problems at home, and defense budgets are on a downward trend," Lin said. "Washington may not change its rhetoric, but in their own minds planners are very clear — they won’t guarantee the capability of intervening in the vicinity of the Taiwan Strait."

Lin said the Chinese military has consistently advanced faster than Americans thought it could. "This is a decades long phenomenon — Americans tend to underestimate the activities of the PLA," he said. That's not entirely surprising, he said, since "the PLA's strategic tradition is to conceal."

He said U.S. analysts often misread China and the PLA due to cultural bias. "The Chinese are students of Sun Tzu's 'Art of War,' not students of Clausewitz," said Lin. "So they'll avoid using the military up front, and instead use the military as a backbone for Beijing's extra-military strategies."

He predicts China will successfully challenge the U.S. without resorting to war, by manipulating U.S. perceptions through a broad range of means, with military being just one. Western analysts don't sufficiently "get" this more comprehensive Chinese strategy, he said.

The result, he says, will be that China pushes the United States out of its Pacific backyard without firing a shot. "The U.S. will gradually withdraw without China fighting it," said Lin. "China will achieve that not by military means, but in economics, and diplomacy — this is Beijing's plan, and it's very shrewd."

"By 2025, and probably even before 2020, they will have de facto dominance of East Asia, or at least the western Pacific."

Original site

What cross-strait thaw?

Famous Taiwanese actress Vivian Hsu was reduced to tears — and that's just the tip of the iceberg.

Global Post, Nov. 1, 2010

TAIPEI, Taiwan — In terms of international news, it was barely a blip.

But an ugly quarrel between delegations from China and Taiwan at a recent Tokyo film festival was the type of petty spat that has long characterized interactions between the two sides of the strait on the global stage.

Such incidents help explain why most Taiwanese have a dim view of China's government, and no interest in unification.

They also show how far apart the two sides remain politically, despite a historic warming of economic relations.

It started innocently enough. A group of Taiwanese movie stars and starlets lined up to take a stroll down the "eco-friendly" green carpet at the 23rd International Tokyo Film Festival on Oct. 23. A group from China did the same.

Then the head of China's delegation, Jiang Ping, decided to make a scene. After apparently noting that Taiwan's delegation was participating under the name "Taiwan," he demanded that this moniker be switched to "Chinese Taipei" or "Taiwan, China."

Beijing sees Taiwan as part of China and is hypersensitive to any suggestion on the world stage that the island is actually something else — namely, a de facto sovereign and independent state. For that reason, Taiwan is only allowed to participate in the Olympics and other global sporting events as "Chinese Taipei" due to the high-decibel pressure China puts on organizers.

The head of Taiwan's delegation refused his Chinese counterpart's request, saying "no concessions will be made this time around." Then, as cameras rolled, the two sides bickered.

"The Taiwan area delegation is a part of China's delegation," Jiang angrily told news cameras. At one point he gave Japanese organizers 10 minutes to accept his demands.

In the end, after more than two hours of heated discussions, neither delegation strolled the green carpet. China later withdrew from the event entirely after the Japanese hosts refused to enforce its demands.

But what really added news value in Taiwan were the waterworks from Taiwanese celebrity Vivian Hsu, one of the island's stars at the festival.

A news clip of the actress crying in Tokyo was played and replayed in Taiwan's frantic media. Hsu told reporters that one Taiwanese actor had "torn off his tie" after being told they couldn't walk the carpet. Hsu herself had bought a more than $6,500 Zac Posen-designed dress for the occasion, only to be stymied by the Chinese, media reported. The head of Taiwan's delegation said he felt as if his daughter's wedding had been ruined.

Soon the editorials poured forth and talk show discussions ensued. The island's internecine quarrels were put aside for a moment as politicians and commentators of all stripes lined up to condemn China's behavior and applaud Taiwan's delegation for standing up to China. The spat in Tokyo "proved to Taiwan's people that unification with China is absolutely not a good thing," wrote the Apple Daily. The presidential spokesman rebuked China, as did the premier, who said Jiang's behavior was "unreasonable and rude."

Such a strong reaction to a tiff at a minor event may seem puzzling to outsiders. But it speaks to the petty humiliation Taiwan routinely endures from China at international events — treatment that dredges up deeply emotional issues of identity and respect. While the rest of the world is just now getting to know a more assertive China, Taiwanese have long been familiar with Beijing's sterner face.

"We have to stand up to say we don't agree with that type of behavior," said George Tsai, a cross-strait relations expert at Chinese Culture University in Taipei. "We have our dignity and principles."

China has in the past two years allowed Taiwan to participate in some World Health Organization meetings as an observer. But it continues to block Taiwan's participation in other bodies.

One example, at the top of Taiwan's priority list, is the United Nations Framework Convention on Climate Change. Membership would allow Taiwan to network on green energy issues and receive technical and financial support for such efforts; China continues to block the island's participation.

Such snubs — hardly newsworthy outside Taiwan — have had a cumulative effect on Taiwanese. In the Taiwan government's latest opinion poll on cross-strait relations from September, 48 percent of those polled think China is "unfriendly" toward Taiwan's government, with 37 percent thinking China is "friendly," despite a dramatic warming in ties and the recent signing of a historic trade deal.

Just 10 percent of Taiwanese support unification with China, with a scant 1.7 percent supporting unification "as soon as possible," according to the government's latest data.

Well aware of this public sentiment, the Taiwan government has recently stressed that it has no timetable for political talks with China.

Analysts say that President Ma Ying-jeou has accomplished much of his cross-strait economic agenda, and is likely to put any further, substantial cross-strait talks on hold indefinitely. That's because he's now returning to job No. 1 for any Taiwanese politician: winning elections.

Local polls are coming up at the end of November. Those will soon be followed in Taiwan's hectic election schedule by a primary season, legislative elections and Ma's own re-election bid in March 2012.

Under the circumstances, slamming China for its film festival tantrum was a political no-brainer. Tsai said that "domestic political considerations" helped explain the strong backlash to China's belittling behavior; it was an easy way to score points by defending Taiwan's dignity.

Moreover, China has yet to meet Ma's longstanding condition for political talks; namely, that Beijing draw down its missile arsenal across from Taiwan, now estimated by the U.S. military at some 1,050 to 1,150 short-range ballistic missiles and scores of cruise missiles.

There are some signs this might change. Chinese premier Wen Jiabao caused a stir in September when he made vague comments suggesting the missile issue could eventually be addressed. Chinese Culture University's Tsai, who just returned from a trip to China, said Chinese academics told him Beijing is "seriously considering the possibility of re-deploying the missiles," but that it doesn't want to appear to do so under pressure.

"So if we keep a low profile, it will be easier for them to do this," said Tsai, who was told there is "very high-ranking internal discussion" in China on re-deploying the missiles, and even an "inclination" to do so.

But so far there haven't been any concrete steps. Even if there were, Tsai and other analysts say political talks are "out of the question." "It's not in the foreseeable future," said Tsai. "It's not in Ma Ying-jeou's interests, and it's not on his political agenda."

Ma's own premier said conditions are "not yet ripe" for political talks.

And if he needed any help making that point, what better than a fresh-faced Taiwanese actress, reduced to tears by China's bullying, at an event intended to celebrate cinema and the arts — not power politics.

Original site

More than just business

Cross-strait banking: More than just business

Taiwan and China may have different motivations, but they both wind up at the bank.

October 10, 2010 TAIPEI, Taiwan — After years of waiting, Taiwan banks finally have a shot at the mainland Chinese market.

In the last year the two sides agreed on mutual market access for each others' banks — and Taiwan's first branches in the mainland could open up by year's end.

But bank officials and analysts here are surprisingly cautious about what comes next — and many are downplaying expectations.

Their skepticism reflects the complicated dynamics of cross-strait relations, in which business and politics are inescapably linked.

The story of cross-strait banking opening is just one example of a larger contradiction. Taiwan's motivation is money — it wants access to the lucrative China market. But China's motivation is strategic. It hopes closer economic ties will lead to political unification, Beijing's long-cherished dream.

Opening the mainland market to Taiwan banks is just another carrot meant to boost China's economic sway over the island, say analysts. And with a China-friendly president now in power in Taiwan, the carrots are coming fast and furious.

"Because of the cross-strait relationship, the Chinese right now are trying very hard to please Taiwan, and be friendly toward Taiwanese," said Norman Yin, a finance expert at Taiwan's National Chengchi University.

The question is, given the two sides' sharply different dreams, how long can the good feelings last? For skeptics, China's track record isn't encouraging. China's recent, de facto ban on rare earths exports to Japan during a spat between the two countries showed how quick it can be to use its business clout for political ends.

And there's a recent example from Taiwan, too. When pro-independence politicians in southern Taiwan invited the Dalai Lama to tour disaster-hit areas after a 2009 typhoon, Chinese tour groups reportedly canceled trips to southern Taiwan, though it was unclear if this was under Beijing's orders or not. China reviles the Tibetan spiritual leader as a "splittist" and loudly complains to any governments willing to host or meet him.

Tough regulatory landscape

Politics aside, China has a highly-regulated banking market that ultimately answers to the guidance of the state. China's four big state-run banks are run not as commercial enterprises but, first and foremost, as strategic economic entities tasked with helping drive China's development.

"The other issue is the government," said JP Morgan's Taiwan banking analyst Dexter Hsu, commenting on Taiwan banks' prospects in the mainland. "China is highly regulated, so you don't know how many benefits they will give us."

So far, big foreign banks appear to be finding this out the hard way. A recent report from accounting firm KPMG, reported recently by the Wall Street Journal, found that big foreign banks' profits had tumbled in 2009, while China's state-run banks had a banner year.

The Journal explained that foreign banks' mainland units had stricter self-imposed lending limits, while China's state-run banks were all too eager to dole out cash. Some regulations sharply limit what foreign banks can do, such as a $1 million renminbi ($150,000) minimum deposit requirement for foreign banks customers' that effectively bars foreign firms from extensive retail banking in China.

In the past two years Taiwan has negotiated a better deal for its banks' mainland operations, compared to foreign banks like HSBC or Citibank. But it will still face the $1 million RMB deposit requirement (Taiwan's banking regulator says it's talking to China to try to change that). And average Chinese will likely be all too aware of the political risks of stashing their money in a Taiwan bank, analysts say.

"If you are Chinese, why would you go to Chinatrust [a large Taiwan bank] branches?" said Pandora Lee, a Taiwan banking analyst for investment house UBS. "You probably wouldn't trust them."

Greener pastures

Still, all that's not stopping Taiwan banks from piling into China. For one thing, they don't have many other options for finding new business. As with many markets in Taiwan, the island's banking market is overcrowded and hyper-competitive.

"There are too many banks, and too few customers [in Taiwan]," said UBS' Lee. "Large Taiwan corporations and SMEs [small and medium enterprises] have moved to China. You can reduce the number of players through consolidation, but the government is not going to push for consolidation because that will mean layoffs — and there are too many elections."

"So the only solution is to move to a new market where you have growth," she said.

Taiwan banks' returns on equity — a common measure of a bank's profitability — are around 2 percent to 5 percent, while ROEs in the mainland top 20 percent, according to Yin, the finance expert. "That's why Taiwan banks are looking at China — it's a big pie over there," said Yin. "It's very profitable in that market."

So far, four Taiwan banks have been cleared to open branches in China. A few more are waiting in the wings. Meanwhile, two of China's state-run banks have been approved to open offices in Taiwan. Their presence will be mostly symbolic, since they can hardly expect to make much money in Taiwan's saturated market.

Well aware of the many challenges in mainland China, Taiwan's banks are starting easy, with the customers they already know — Taiwan businesses operating in the mainland, also called "taishang." Such firms helped kick-start China's export miracle, and punch far above their weight in contract electronics manufacturing and some other sectors.

By one Taiwan government estimate, Taiwanese have invested a cumulative total of $150 billion in China since the early 1990s. Taiwan's Mainland Affairs Council doesn't keep official statistics on the Taiwanese presence in China, but rough estimates range from 100,000 to 150,000 Taiwan firms doing business there.

Taiwan's banks will first go after the taishang market, estimated by UBS at $56 billion. "Their target customers are Taiwanese businessmen," said Yin. "And then after they secure this market, then they will try to get into the local market in China."

UBS thinks Taiwan could snatch up to a third of that market, with Chinese banks and foreign banks keeping the rest.

That's a tiny drop in the bucket compared to China's overall banking market, which includes a staggering $7 trillion in loans and $10 trillion in deposits. But for Taiwan's small banks, the extra business matters. "For them it's peanuts, but for us it's big — it could have a huge impact on Taiwan," said JP Morgan's Hsu.

Provided, of course, that politics doesn't get in the way.

Original site

Kung-fu legislature

Kung-fu legislature

Controversial bills result in pushing, shoving, throwing things and general misbehavior on the legislative floor.

Global Post, July 10, 2010

TAIPEI, Taiwan — He looked like a crowd-surfer at a punk rock show.

Clad in a cream-colored party vest with his name stitched on the back in green and a headband around his graying hair, the pro-independence legislator bobbed in the air in front of the speaker's lectern. Shouting filled the chamber as he was pushed and pulled by a sea of clutching hands.

His fellow legislators tried to scale the speaker's platform, only to be pushed away by ruling party legislators. One pro-independence legislator tumbled ass over elbow to the floor.

Something flew through the air and struck a ruling party legislator in the face. The victim put a hand over his eye and raised his other hand like an injured soccer player asking to be taken off the field.

Welcome to Taiwan's legislature, one of the unruliest in Asia or, really, anywhere in the world. Its melees have made it onto CNN and sparked regular bouts of soul-searching here over the "loss of face" for Taiwan. But few think the chamber's likely to learn better manners anytime soon.

"The legislature is not a regular law-making platform — it's a martial arts platform," said ruling Kuomintang legislator Alex Tsai. "Especially when some legislators want to show off how much they oppose some bills."

So it went on July 8, when the legislature convened to take up the Economic Cooperation Framework Agreement (ECFA), a controversial China-Taiwan trade deal. In a surprise move, the speaker abruptly announced that the bill would proceed directly to a second and final reading within days, skipping committee review.

That's when pro-independence legislators, from the Democratic Progressive Party (DPP), went bananas. They charged the speaker's lectern, attempting to block the procedure. Tsai was one of the Kuomingtang (KMT) lawmakers on "defense," swatting away climbers' arms with a mischievous, amused grin on his face.

Just minutes after the session opened, it adjourned in chaos. Two legislators went to the hospital for minor injuries.

A hive of journalists buzzed outside, swapping information. One key point in dispute: what exactly had hit the KMT legislator's face? Some said a calculator; others, a small clock.

Said one visibly excited TV reporter: "They haven't fought much recently," before scurrying away to do a stand-up report.

A KMT legislator came outside to the steps in front of the chamber to show off his battle scars to the media pack. "We regret that the DPP uses violent methods, hurting the legislature's image and Taiwan's image," one of his party-mates said.

By now, it's a ritual. Legislators from both sides admit that much of the tussling is about as "real" as U.S. professional wrestling and is mostly a show for the T.V. cameras. They prepare for battle by slipping on sneakers or other soft-soled shoes and making other wardrobe adjustments.

"I can't wear a tie — sometimes it's dangerous," said opposition DPP legislator Twu Shiing-jer, explaining that ties only give the other side something to pull on in the heat of battle.

Sometimes the fighting gets out of control though — and people do get hurt. The women fight just as much as the men, pulling each others' hair and pounding on tables.

In 2004 a food fight broke out over an arms purchase bill, with rice-and-chicken lunch boxes flying across a conference room. In 2006, a female opposition legislator snatched away a bill on closer links ith China and stuffed it in her mouth — call it "veto by chewing."

In a separate brawl, another threw her shoe at the speaker, hitting a nearby legislator instead.

Why such high emotions?

"The DPP wants to show their supporters they are heroes, fighting with the KMT," said Tsai. "They say the KMT has an alliance with China, so if they fight with the KMT, they're fighting with China. That will please supporters and get them more money and more votes."

"If there were no cameras, they wouldn't fight with us," he said.

The DPP legislator Twu didn't entirely disagree. "Taiwan's democracy is not mature yet," he said. "We're just like kids, arguing in the legislature."

He said he "worried a lot" about the effect on Taiwan's international image. But he said his party, with only 33 out of 113 seats, sometimes had to take drastic action because the majority party routinely ignored them.

"From our point of view, we never fight," said Twu. "We just try to occupy the chairman's chair, to stop illegal processes. They [the KMT] don't like to discuss — unfortunately, they don't respect the minority."

He said legislators that fight tooth-and-nail over one "hot" bill will cooperate on others, and they can get along just fine after the closing bell's rung.

Asked about China's tendency to point to Taiwan's legislative brawls as a cautionary sign of the chaos democracy can bring, Twu was dismissive.

"Everyone knows this isn't true — this is just [China] trying to cheat its people," he said. "Even an immature democracy is better than rule by just one group or man," he said, referring to the Chinese Communist Party's autocratic rule.

Twu said his party hopes to prolong the ECFA review process as long as possible, to make sure the Taiwanese people understand the stakes. It looks more likely that the public will instead be treated to a few more days of fisticuffs.

Taiwan sociologist Chiu Hei-yuan said the main reason for legislative conflict was the imbalance between the ruling and opposition party. He said Taiwan had turned the clock back to the 1980s, when a vastly outnumbered pro-democracy opposition used violent methods to make its presence known.

"The structure of Congress has returned to the period of the end of martial law, so there's no way for the two sides to compromise," said Chiu. "The KMT says, I'll just ignore your opinions. And the DPP says, I'll just fight hard. I think both sides are irrational."

Chiu recently led a team of scholars in assembling a report on legislative and media reform. He said only tweaks to the legislative electoral system would help. "The big gap between the two parties will continue if the voting system isn't changed. There won't be any way to solve the problem for a long time," he said.

Twu, not surprisingly, agreed. "We must tell the Taiwan people, if you want more stable politics, you must increase the number of DPP legislators, to make it more even."

Outside the legislative chamber, one security guard had a jaded take on the chaos. He was surprised the session had concluded so quickly, but otherwise it was all business as usual.

Told that violence in the U.S. Congress had been rare for more than 100 years, he gave a quizzical look, then asked, "How does your Congress pass bills?"

Original site

Vitamin, or poison pill?

China-Taiwan trade deal: buyer's remorse?

July 8, 2010

Analysis: A week after historic pact, many Taiwanese worry that they did the wrong thing.

TAIPEI, Taiwan — Is it a vitamin, or a poison pill?

A week after China and Taiwan signed a landmark trade deal binding their economies closer, Taiwanese can't decide if they've been thrown an economic life-line or, as one paper put it, signed a political "suicide note." And that's the experts.

The two sides inked the Economic Cooperation Framework agreement (ECFA), on June 29 at a ceremony in Chongqing, China. The deal lowers tariffs on a range of goods. It also provides better market access for services, including banking.

All fine and good. Except this is no run-of-the-mill trade deal.

Strange to say, it was signed by two countries who don't recognize each other's existence. In fact, they're technically still in a state of hostilities. China covets self-ruled Taiwan and has some 1,300 missiles piled up across from the island as a reminder it shouldn't be naughty (i.e., make a formal, permanent break with the mainland.)

China's claim is long-standing. But instead of bellicose threats, Beijing has begun using the honey of economic enticements to catch the fly. ECFA's terms heavily favor Taiwan, with tariff reductions on 539 Taiwanese exports to China versus just 267 Chinese exports to Taiwan. In other words, it's a big, fat dollop of honey.

Now, self-ruled Taiwan is wondering whether its fragile young democracy can long endure in the sweaty economic embrace of the hulking suitor next door.

Participants in a protest against the China-Taiwan trade deal in Taipei on June 26, 2010. (Jonathan Adams/GlobalPost)

"I think we all know why China is making so many concessions," said Taiwanese economist Ma Kai at a forum. "China thinks ECFA is a very important step toward the unification of China. Everyone in Taiwan knows that."

"If that is the political price that Taiwan has to pay to get ECFA, this price is too high for many Taiwanese to accept."

Polls suggest a majority of Taiwanese backed the trade deal [3], at about a 62 percent to 37 percent ratio in May, according to survey data compiled by the Election Study Center's Yu Ching-hsin. But only 10 percent support unification with China.

Even some of the deal's supporters have voiced anxiety about how Taiwan can fend off Beijing's political advances. And they worry about over-dependence. Already, some 35 percent of Taiwan's exports go to China; after the deal some say that percentage could rise to 45 percent or even 50 percent.

"That ratio's too high — it's dangerous," said Hwang Jen-te, an economist at National Chengchi University. "It will endanger Taiwan's economic security; we have to consider this."

The pro-independence opposition thinks Taiwan's been hornswaggled. "In economics, maybe it [ECFA] is good for giant industries, but for the political part, we lose," said opposition legislator Twu Shiing-jer. "I hope the international community will not come to see Taiwan as a part of China because we signed this."

The opposition mobilized tens of thousands of people in a march against the trade deal on June 26. It says the government is exaggerating the deal's benefits, and it wants a referendum.

The pro-independence party has posted Youtube videos warning of ECFA's effects [4]. One shows a Taiwanese applicant passed over for a job in favor of a Chinese applicant willing to accept half the salary.

Taiwan president Ma Ying-jeou said he's well aware of China's unification agenda, but insists Taiwanese should stay calm and have confidence. He's pledged not to enter unification talks and not to allow Chinese workers into Taiwan.

His party, the Kuomintang, holds a large majority in the legislature and, barring an internal revolt, should push the deal through. "We are convinced that our position is strongly supported by the majority of people in Taiwan," said legislator Alex Tsai, adding that they want the legislative review done and dusted by the end of summer.

Other commentators also took a glass-half-full approach, putting the trade deal in the context of decades of troubled relations.

"For the first time in our 60-years history, the two sides, while hostile before, are talking about the institutionalization and formalization of economic relations between Taiwan and China," said Francis Kan, an expert from National Chengchi University. "This will go down in history as a turning point."

So what do normal Taiwanese think of ECFA's impact?

"It's not clear," said the owner of a neighborhood fruit stand, without looking up from his pear-peeling, as his wife cut up the fruit into white, juicy chunks. "Whatever the case, it won't
have a big effect on our business."

Original site

In Taiwan, an old-fashioned globalization debate

Analysis: A proposed Taiwan-China trade deal would mean cheaper stuff for consumers, but might also wipe out low-end local industries.

Global Post, May 23, 2010

TAINAN and LINKOU, Taiwan — Cabdriver Chang doesn't like the deal.

Weaving through traffic in the balmy, temple-studded southern city of Tainan, he lets loose on why a proposed Taiwan-China trade deal — the Economic Cooperation Framework Agreement (ECFA) — is bad for Taiwan.

Taiwanese will lose jobs, he says. Taiwan's president is "selling out" the island. And Taiwan firms can't compete with the dirt-cheap "China price" made possible by low-wage labor.

"Take these, for example," he said, tugging on the worn, dark gray pair of pants he was wearing. "These pants are made in China, and I bought them for just NT$200 (about $7). The same kind made in Taiwan will cost you NT$1,000."

Asked about the apparent contradiction of railing against cheap Chinese imports while wearing a cheap pair of Chinese-made pants, he just laughed.

So goes the ambivalence of a globalized age. Trade deals like ECFA promise cheaper stuff for consumers in wealthier countries like Taiwan or the U.S. But wages for most workers in such countries are likely to stagnate, and some in low-end industries will lose their jobs.

Nowhere are feelings more mixed than in today's Taiwan, where the government is negotiating a deal that would bind the island more tightly than any other country in the world to China's behemoth economy.

Taiwan has the added anxiety of negotiating with a rising political and military force that has vowed to one day absorb the self-ruled island, by force if need be.

But, to a surprising degree, the debate on ECFA in Taiwan is shaping up as a classic — if more pointed — argument on the pros and cons of globalization, mirroring similar conversations from Brazil to Botswana.

In a late-April TV debate with the pro-ECFA president, anti-ECFA opposition leader Tsai Ying-wen barely talked about politics, focusing instead on economics. ECFA will worsen income inequality, mostly benefit big conglomerates and put many Taiwanese out of work, she said, as the two sides commit to scrapping most tariffs over the next decade.

"You're talking about the first two or three years," Tsai told Taiwan president Ma Ying-jeou, chiding him for low-balling potential job losses. "But in the next seven or eight years we have to eliminate most tariffs. How many people will be affected then?"

Ma, for his part, said Taiwan's trade with China, the island's chief export market, will "definitely" increase after the deal and that he would not allow Taiwan's sovereignty to be hurt. He accused Tsai's party of fear-mongering, saying it was "exaggerating the negative effects" of the deal.

Interviews with business bosses, workers, government officials and locals here illustrate why trade deals like ECFA create so much anxiety and uncertainty. The gains are often intangible, spread economy-wide and over long stretches of time, and so don't mean much in day-to-day terms to the average "Chou."

The threat is much easier to grasp. Cheap Chinese stuff could overwhelm the island, putting Taiwan firms out of business and hundreds of thousands of workers on the streets, the deal's opponents say.

"We can't compete"

Such are the fears of hand-made shoemakers, clustered in the Tainan area in southern Taiwan, and in the north around the capital Taipei.

Over tea at the Taiwan-made Footwear Development Association's office in Tainan, association chairman Yang Rong-de and local industry official Chiu Fu-yin said ECFA will put their business in peril.

Right now, they said, Taiwan's small firms can still make money selling hand-made shoes, because a high tariff of more than 40 percent on Chinese-made shoes makes them sell for roughly the same price as Taiwan-made shoes.

But if ECFA is passed, that tariff protection could come tumbling down, and consumers like cabdriver Chang would buy Chinese instead.

Footwear industry spokesman Yang said Taiwan's entry into the World Trade Organization in 2002 wiped out a third of the jobs in the island's hand-made shoe industry. Another half of the remaining employees could be out of work if tariffs on Chinese imports are scrapped, he said.

Such workers are typically less-educated and don't have the specialized skills needed to thrive in a globalized world. Many will likely end up in low-end service sector jobs, or unemployed.

In a worst-case scenario, Yang and Chiu said they might have to move their businesses to China or elsewhere. Both are preparing to hand off the business to their sons; neither wants to see their sons leave to set up shop abroad.

"If ECFA is signed, our factories will move to Vietnam or other countries because their workers are cheaper than ours," said Yang. "Signing ECFA will hurt our next generation."

The blow might not be immediate, they acknowledge. Taiwan's current tariff on imported Chinese shoes will run through 2012, they said, and they may be able to extend it another five years. They say they need to buy at least that much time to adjust to the China threat. By then, they hope, Chinese wages and materials costs will have risen enough to create a more level playing field.

Currently, workers in a hand-made shoe factory near Tainan make above $630 a month; their Chinese counterparts across the Taiwan Strait make less than half that, said shoemakers.

"If the tariff on Chinese shoes went to zero today, it would be 'game over' for us — we'd be finished," said Chiu, chairman of the Yifeng Leather Company in Tainan. "We can't compete."

The government has already identified shoes as one of 17 traditional industries likely to be harmed by ECFA. It's set aside a $3-billion, 10-year fund to help such firms upgrade, but Yang and Chiu just don't believe they'll see any of that money.

An edge for machinery makers?

Nearly two hours north by high-speed rail, H.H. Huang presides over a sprawling machinery business that should benefit from the trade deal.

His firm, Dees Hydraulic, is headquartered in an industrial zone in Linkou, a suburban wasteland of cracked pavements, glass shards, jumbled shop fronts, traffic jams and wandering packs of wild dogs.

Dee's makes massive hydraulic presses for factories, mostly car factories stamping out car body parts with robot workers on mammoth assembly lines.

He exports 90 percent of his machines, half of that to China, transporting them by road to the port of Keelung from there to the world. He can't fly them out because some of his machines are heavier than an airplane, he says.

Right now, machines like his face tariffs of 6 to 9 percent in China. If ECFA is signed, those tariffs could be scrapped, making his products more competitive in what's now the world's No. 1 machinery market.

He's not worried about competition from Chinese companies, because Taiwan has a very small market for such machines, and firms like his are far ahead of their Chinese counterparts in technology and know-how.

But Dees Hydraulic doesn't fit the neat narrative of a firm that will gain from ECFA. Huang says he already has a factory in China focused on the Chinese market, and there his main competition is a Chinese firm, Tianjin Forge.

Huang says he's more likely to take advantage of ECFA by making lower-tech presses in China at his factory there, then exporting them tariff-free back to Taiwan for more value-added, before re-exporting them to markets in the Europe and the U.S. But even then, he said, "For my company, actually the effect of ECFA won't be very big."

Most of his staff are highly skilled engineers whose jobs are safe as long as Taiwan maintains an edge in their industry. Indeed, skills like theirs are at a premium in a globalized age, which helps account for the widening income gap between high-end and low-end workers worldwide.

Asked if he'd boost payrolls after the trade deal and its increased business, Huang said no. "It's not necessary to hire more people," he said. "What we need is to improve the skills of the people we have."

He said the Taiwan government hadn't done a good job explaining ECFA, and should work harder to build national consensus before signing the deal. "The government shouldn't be in such a rush," he said.

Dees Hydraulic illustrates how economists' tidy arguments and eye-catching graphs often have little bearing on any specific company's business decisions. Trade deals like ECFA are just one small factor among many.

For the machinery and machine tool industries, the value of the Korean currency, the won, is a far bigger concern than Chinese tariffs, said Wang Cheng-ching, president of the Taiwan Association of Machinery Industry.

That's because sector-wide, Taiwan machine firms' main competition is South Korea. Over the last two years, the Korean won has depreciated by almost 40 percent, says Wang, essentially giving their products a 40 percent pricing advantage over their Taiwan competitors in key markets like China.

That's given the Koreans such an edge that they nudged past Taiwan exporters last year to grab the fifth-largest share of the global market for machine tools (at $2.6 billion by production value), relegating Taiwan to sixth place (at $2.4 billion).

He says his association asked the Taiwan government for help but was told nothing can be done. "The currency change is terrible," said Wang. "For Taiwan, it's very difficult. Everybody's worried about it."

Still, Wang backs ECFA as a way to normalize economic ties with China and says it will be a long-term boost for his industry, especially if Taiwan can move on to sign similar deals with other key markets.

Faced with Korean currency games, they can use any help they can get.

Enter the experts

Deals like ECFA always look good on paper — or on PowerPoint. And most economists have never met a trade deal they didn't like.

The principle of comparative advantage — the theoretical bedrock of globalization — will unerringly show overall gains to the economy through such trade. Open bilateral trade plays to each country's respective strengths, the theory goes.

So it is with ECFA, where the winners are expected to be Taiwan's capital-intensive industries such as machinery, and China's labor-intensive industries, such as handmade leather shoes.

"China has a huge market and Taiwan has a relatively strong industrial base," said Taipei-based Standard Chartered economist Tony Phoo. "So more cross-strait trade and investment flows will be positive for both China and Taiwan's economy."

Researchers at Taiwan's Chunghua Institution for Economic Research prepared a study for the government showing that cross-strait trade liberalization could add 1.65 percent to 1.72 percent to Taiwan's GDP, create a net of 260,000 jobs and lure nearly $9 billion in new foreign direct investment in the seven years after the deal is inked.

Of course, such economic models say nothing about how such goodies are distributed within a country. Taiwan's opposition echoes a frequently made argument that, more often than not, the gains will go mostly to large corporations, padding top executives' salaries and shareholders' dividend checks. A small number of highly skilled workers benefits, too.

The vast majority of workers, by contrast, don't usually notice much change after a trade deal — except cheaper imported consumer goods on store shelves, and the possibility of being pink-slipped if they're unfortunate enough to work in an uncompetitive industry.

Even some investment bankers caution that the benefits of ECFA, if it's signed, may not be immediate. Negotiations are reportedly bogged down over what to include in a so-called "early harvest" list of industries to see the first tariff cuts. China and Taiwan are still gunning for a late-June deadline.

But that means ECFA could well end up being mostly technical agreements — on "rules of origin," dispute settlement and the like — with harder tariff reduction talks scheduled for later on most items.

"In the longterm it should be very beneficial, it will remove a lot of obstacles," said Tay Her Lim, of investment bank CLSA, about the deal.

"But like any fundamental change, it will take time, and ECFA is just the first step," said Lim. "ECFA is just a small little piece of the puzzle."

Original site

Taiwan debates trade pact

Weighing the costs in Asian trade talks

International Herald Tribune, May 12, 2010

YONGKANG CITY, Taiwan — In a dimly lighted factory off a dusty road in southern Taiwan, Liao Li-hsin, 29, smacks a leather sandal into shape.

He pulls a shoe from a pile, snugly inserts a bright yellow plastic fake foot, and gives the leather straps a few thwacks with a hammer. Then he tosses the sandal on a pile and repeats.

Mr. Liao is one of tens of thousands of workers making shoes in Taiwan, mostly for consumers on the island.

As negotiations move ahead on a Taiwan-China trade deal that could lower tariffs on handmade shoes and hundreds of other products from the mainland, fears are mounting that the island’s traditional industries — like shoemaking — may suffer, even as high-tech, financial services and other sectors gain from freer access to the giant market across the strait.

The government, however, contends that the benefits would far outweigh the costs, and Taiwan’s president, Ma Ying-jeou, hopes to use the agreement to fully normalize economic relations with Beijing while expanding the island’s access to other markets.

“We can handle diplomatic isolation,” Mr. Ma said last month, “but economic isolation is fatal.”

The Economic Cooperation Framework Agreement, the Ma administration says, would be a prelude to similar deals with Malaysia, Singapore and, eventually, Japan or the United States. “Once E.C.F.A. is signed, we want to sign other free trade agreements and try to use mainland China to link with international markets,” a trade official involved in the negotiations, Hsu Chun-fang, said.

In recent years, Taiwan has watched as rivals like South Korea have signed free-trade deals throughout Asia, becoming more competitive in industries like machinery making and pushing their per capita gross domestic product ahead of the island’s.

Taiwan has been hampered in negotiating similar agreements because Beijing views the island as a part of China and objects to other countries’ signing formal treaties that could strengthen Taiwan’s claims to independence. The island has trade deals only with five Latin American countries, which buy a tiny slice of its exports.

The economies of Taiwan and China are already connected. Taiwan has invested $150 billion in China since the early 1990s, according to a Taiwan government estimate. About 40 percent of Taiwan’s exports already go to China, where they face average tariffs of 9 percent. Half of those exports are semifinished goods that are shipped to factories for assembly and other value-added services and then re-exported, according to Mr. Ma.

Yet many of the details remain vague, and that has fueled economic as well as political worries.

The pro-independence opposition says the deal would make Taiwan’s economy too dependent on China and would help conglomerates at the expense of small companies. It is gearing up for protests and is likely to employ stalling tactics in the legislature, where it holds 33 of 113 seats.

The opposition Democratic Progressive Party says the agreement would worsen income inequality and would not create jobs. It says the negotiations lack transparency and that the deal is politically dangerous given China’s goal of unification with Taiwan.

“China is always ambitious when dealing with Taiwan,” said Hsieh Huai-hui, deputy director of international affairs for the opposition party. “So we wonder if sovereignty has been the price for China opening its market for Taiwan.”

Mr. Ma’s government has sought to allay fears by insisting that the deal would not allow mainland workers into Taiwan or remove restrictions on mainland agricultural imports — at least at first. As for shoes, the government says they are not on the list of sectors to see the first tariff cuts.

The government says it will establish a 10-year fund of 95 billion Taiwan dollars ($3 billion) to help traditional businesses compete. Officials have identified 17 industries, including shoemaking, as particularly vulnerable. A special “Made in Taiwan” consumer label has been developed to promote high-quality products made locally.

The government has promoted a study that it sponsored that found that cross-strait trade liberalization could create 260,000 jobs and add 1.65 to 1.72 percent to Taiwan’s G.D.P., depending on the scope of changes.

Economists and research groups affiliated with the opposition dispute that forecast.

In a report on the trade agreement, the Standard Chartered bank did not estimate how the deal would affect the island’s G.D.P. but said it would “boost Taiwan’s long-term growth potential.”

The government said most new jobs would be in sectors like machinery, where exports could increase. Most of Taiwan’s machine products are produced for export, and China buys about 30 percent, followed by Southeast Asia at 15 to 20 percent, according to Wang Cheng-chin, president of the Taiwan Association of Machinery Industry.

But Taiwan’s machinery faces tariffs of about 10 percent in China and 3 to 5 percent in Southeast Asia. South Korea, in contrast, has a trade deal with the 10 members of the Association of Southeast Asian Nations and now exports machines there tariff-free, Mr. Wang said. South Korea and China are studying a trade deal.

The framework agreement would help Taiwan’s machine makers compete, especially with South Korea, though Mr. Wang emphasized that companies needed more than the trade deal. “First, we need good relations with mainland China,” he said. “Then, after signing E.C.F.A., we can talk with Southeast Asia, the E.U. and other countries.”

Petrochemical companies and automakers like Yulon Motor, which has partnerships with Chinese carmakers, could also benefit.

In the financial sector, recent agreements have paved the way for cross-strait mergers and acquisitions. But Taiwan banks want the framework agreement to give them preferential access that could, for example, shorten the waiting time for doing retail business in renminbi on the mainland.

Ms. Hsu, the trade negotiator, said talks had so far focused on issues like rules of origin, dispute settlement and “safeguard” tariffs that could, under some conditions, be slapped on Chinese imports if they were found to be damaging local industries. The list of sectors to see the first tariff cuts was likely to be “very limited,” she said, without giving details.

Past cross-strait agreements have become law after 30 days without legislative debate or a vote. But Ms. Hsu that said because the framework agreement was so wide-ranging and involved tariff cuts, more legislative involvement was required by the Constitution, though the exact process remained to be negotiated.

Though the opposition does not have the votes to block a deal, lawmakers could stall it with filibustering tactics. Taiwan’s legislative speaker often tries to broker compromises on crucial bills out of respect for the minority. One opposition party has proposed a referendum on the agreement; that application is under review.

To drum up public support, the government has begun a media campaign that includes rap videos and advertising. Mr. Ma and the opposition leader, Tsai Ying-wen, tangled over the agreement in a widely watched television debate last month.

Ms. Tsai accused Mr. Ma of recklessly pushing through a deal, saying he was creating a “false sense of urgency” when careful study was needed. The biggest difference between the ruling and opposition parties, she said, was that “we want to face China together with the world,” while Mr. Ma’s party “wants to go through China to deal with the world.”

But most commentators declared Mr. Ma the winner with his upbeat, folksy pitch to the cameras.

Accusing Ms. Tsai of lacking faith in Taiwan companies’ ability to adapt and compete, he asked, “Are we going to choose self-confidence, or are we going to choose fear?”

Original site

Strait of confusion

Sure, ECFA is important. Just don't ask any Taiwanese to explain it.

Global Post, April 6, 2010

TAIPEI, TAIWAN -- It may sound like an infectious disease. But for Taiwan's government, ECFA is the tonic the island's economy desperately needs.

ECFA is a proposed trade deal — or economic cooperation framework agreement — between China and Taiwan. First mooted last year, it was in the news again in recent days as more talks were held at a swank resort south of Taipei. Taiwan hopes to ink the deal by June.

Too bad most Taiwanese can't figure out what it's all about.

"I don't really understand ECFA," said Julia Hsieh, 32, who works in the hotel industry in Taipei.

"I don't know what the real impact on Taiwan will be after we sign it. We already have a lot of economic exchanges now, so what difference will ECFA make? There's an advantage for the government, but not necessarily for normal people."

She's not the only one in the dark. According to a recent poll by Taiwan's pro-independence opposition party, 78 percent of Taiwanese are stumped by the deal.

That puzzlement is a problem for Taiwan's China-friendly president, Ma Ying-jeou. He wants the economic pact in order to seal his record as a peacemaker in the Taiwan Strait ahead of a 2012 re-election bid. But Taiwan being a democracy, he also wants the public on board.

So the government has launched a PR campaign to boost support for the deal, complete with hip ads shown on TV and the web. Last December it was a rap-techno video that put lyrics about banned Chinese agricultural imports to a throbbing dance beat.

A couple weeks ago the government released another ad, this one with a foreigner dressed as the God of Fortune, trying to get into Taiwan's locked doors.

Inside, a young man tries to convince an elder to support ECFA, saying that otherwise Taiwan could become an economic pariah like North Korea.

After much brow-knitting, the elder finally says "yes," the family cheers, the doors are thrown open and the Caucasian god of fortune strides in.

"The god of fortune means foreign investors," said a government official who was not authorized to talk to the media. "That's why we got a foreigner to play that part."

ECFA would lay out rules of the road for further cross-strait economic cooperation and tariff cuts. It's also expected to include an "early harvest" list of trade items to see the first cuts.

According to a government-backed study, the deal could help bring in nearly $9 billion in foreign investment and boost Taiwan's GDP. Pro-ECFA economists say the deal is Taiwan's ticket to the Asian free trade party.

"Every other country has signed agreements with other East Asian countries," said Liu Bih Jane, vice president of the Chung-hua Institution for Economic Research, which conducted the ECFA impact study for the government. "Only Taiwan and North Korea have been left out."

But the government's slick PR efforts don't seem to be paying off. According to the most recent poll from the pro-government TV channel TVBS, only 35 percent supported ECFA, down 11 percent from six months ago. Meanwhile, 32 percent opposed ECFA and the rest had no view.

The government's up against two big hurdles in selling the deal.

First is the distrust many Taiwanese feel about China. Despite its recent goodwill gestures, Beijing still has hundreds of missiles pointed at the island and an explicit goal of political unification. In a recent poll, 53 percent of Taiwanese listed Japan as their favorite country, with only 5 percent choosing China.

Mistrust of China was on display last week, as a small group of protesters scuffled with police outside the trade talks venue, and held up banners calling for a referendum on the deal.

The second hurdle is that talking seriously about ECFA involves mind-numbing jargon about rules of origin, WTO obligations, even the "Heckscher–Ohlin model" of international trade.

No wonder a lot of Taiwanese can't be bothered to figure it all out.

"It's a subject for professionals, most laobaixing [regular people] don't really understand it," said cab driver Chen Ji-hsin. "We don't know what it has to do with our lives, and whether it's good for us or bad."

Original site

Taiwan's rusty air defenses

Analysis: A new report shows that Taiwan may not be as protected against a Chinese attack as first thought.

Global Post, February 23, 1010

TAIPEI, Taiwan — While China ramps up its missile threat, Taiwan's air defenses are getting shabbier by the day.

So says an unclassified report from the Defense Intelligence Agency, prepared for and sent to the U.S. Congress last month.

Taiwan has some 400 fighter jets, but "far fewer" than that number would actually be good in a fight, the DIA says.

(China has 330 fighters within range of Taiwan, and 1,655 fighters total, according to the most recent Pentagon report on China's military power).

Some of Taiwan's planes are too old, others have outdated gear. And for Taiwan's 56 French-made Mirage fighter jets, spare parts are in short supply. Afraid of China's wrath, France hasn't sold any major weapons to Taiwan recently, leaving the U.S. as Taiwan's only supplier of big-ticket arms systems.

The report also highlighted the growing missile gap between Taiwan and China. Despite warming cross-strait relations, China continues to build up its arsenal of short-range ballistic missiles (at least 1,300 and counting) and cruise missiles (several score).

To shoot those down, Taiwan has 200 Patriot missiles and 500 homegrown "Skybow" missiles, the DIA says. But Wendell Minnick, Asia bureau chief for Defense News, said in an email that only about half the Skybows can hit incoming SRBMs (the others can only be used against aircraft), and "normally you dedicate 2 missiles per incoming target."

That means Taiwan can only blunt some 15 percent or less of China's deployed missile force.

Three hundred and thirty more Patriot missiles, and missile fire units, were approved by Washington in 2008 but won't be delivered until August 2014, says the DIA. And the weapons package released for sale by the White House last month — the one China got so angry about — will add another 114 Patriots after that.

Even then, it's a lopsided game, and the Patriots and Skybows would be used to protect only the most valuable military and political targets.

China, for its part, has insisted its missile arsenal is there only to deter Taiwan's pro-independence forces from seeking a formal, legal break.

The DIA report comes as Taiwan and its allies in Washington push hard for President Obama to approve the island's request for 66 advanced F-16s to replace its over-the-hill fighters. Taiwan has been asking for the planes since 2006.

The DIA didn't openly push for the sale, but the implications of its report are clear. Says the report dryly, "Taiwan recognizes that it needs a sustainable replacement for obsolete and problematic aircraft platforms."

One interesting side-note of the DIA report was its inventory of Taiwan's tactical or short-range surface-to-air missile arsenal. It includes some 2,000 Stinger missiles, including 728 shoulder-fired units, and more than 700 other missiles.

Those wouldn't be any help against ballistic or cruise missiles. But if China's People's Liberation Army ever did attempt to invade and occupy Taiwan, they could be a "huge problem for [PLA] helicopters and low-altitude aircraft," said Minnick.

Original site

Flat-panel firms eye China

Taiwan gains mainland market entry

New York Times, February 11, 2010

TAIPEI — Taiwan’s decision to relax some restrictions on investment in mainland China will help its flat panel manufacturers compete in the mainland’s booming consumer electronics market, analysts and company officials said Thursday.

The top producer of liquid crystal display panels in Taiwan, AU Optronics, said it would apply to the Taiwanese government to build an advanced LCD panel facility in China as soon as possible. Until now, Taiwanese companies have been allowed to assemble only panel modules — consisting of panels and frames — in China.

The company expects China to become the world’s No.1 market for flat screen televisions sometime next year.

AU Optronics, which has 20 percent of the market in China for the screens used in such televisions, said the new rules would help it compete against South Korean and Chinese rivals.

“China will be the biggest market next year, so it will be very helpful for us” to have a factory there to provide faster service to customers and shorten shipping times, said Freda Lee, a company spokeswoman. A factory to build LCD panels can cost $3 billion.

The government in Taiwan, under pressure from its top technology companies and other businesses, has been relaxing limits on China-bound investment over the past decade.

Taiwan said Wednesday that it would let flat panel makers build screen-making factories in China, as long as their most advanced plants stayed in Taiwan and they keep equivalent investments on the island.

The government also lifted some limits on investment in China by semiconductor companies, and will let them use more advanced manufacturing technology at their mainland plants. Also relaxed were China investment rules for Taiwan chip testers, packagers and companies involved in real estate, telecommunications, wind power and solar energy.

The biggest implications are for flat panel makers in Taiwan, who build the screens used in devices like cellphones, computer monitors and televisions.

Companies in Taiwan have long battled with the South Korean giants of Samsung Electronics and LG Display to dominate that market. The move by Taiwan on Wednesday followed the South Korean government’s approval late last year of ambitious plans by those two companies for joint-venture factories in China.

AU Optronics said it wanted to build a “7.5 generation” factory in China when the new rules take effect. Such factories produce 42-inch to 46-inch screens. The company’s most advanced, “8.5 generation” factory produces 65-inch screens, Ms. Lee said.

On Wednesday, the chairman of Hon Hai Group, Terry Gou, told Reuters that the group’s flat panel unit, Innolux, would also consider building a factory in China.

Dale Gai, a flat panel industry analyst at Yuanta Securities in Taipei, said that the Chinese flat screen television market was growing 80 percent yearly and that Chinese makers were “aggressively” building factories.

DisplaySearch, a market researcher, said last year it expected flat panel television sales in China to increase from 13 million in 2008 to 37 million in 2012, as subsidies from the Chinese government fueled demand and Chinese users replace old cathode-ray tube televisions with newer models.

Flat panel companies in Taiwan sell screens to Chinese televisions makers. Chi Mei Optoelectronics has about a 35 percent share of the market in China for flat screens while AU Optronics has 20 percent, Mr. Gai said.

Samsung and LG Display, each have 10 percent to 20 percent, according to Mr. Gai.

AU Optronics’ main customer is Changhong, Mr. Gai said, and Chi Mei’s main customers are Skyworth and Hisense.

“The weakness of both companies is they don't have own brands, like LG and Samsung, so they need to be close to their Chinese TV brands,” Mr. Gai said. “Now Taiwan panel makers can set up fabs in China to compete with South Korea,” he said referring to factories.

Chi Mei is in the process of merging with Innolux. The combined company would be the largest flat panel maker in Taiwan and No. 3 globally by revenue.

AU Optronics reported revenue in 2009 of 359 billion Taiwan dollars, or $11.2 billion while Chi Mei Optoelectronics posted 209 billion dollars in revenue from its LCD business last year.

According to DisplaySearch, LG Display was the No.1 LCD panel maker in 2009, followed by Samsung, AU Optronics and Chi Mei.

Original site

Arms sale more symbol than substance

Riling China, the US's newest $6.4 billion sale includes 60 Blackhawk helicopters, Patriot missiles, and sophisticated command-and-control software.

Christian Science Monitor, February 18, 2010

Taipei, Taiwan -- The latest arms package for Taiwan, cleared for sale by the White House Jan. 29, has more political than military significance, military analysts say.

With Taiwan playing catch-up to a rapidly modernizing People's Liberation Army (PLA), the deal does little to alter a military balance that has tipped in China's favor.

But the arms do send a political message.

Beijing always objects loudly to US arms sales to the self-ruled island it views as its own. But China has reacted more strongly than usual to this $6.4 billion package, which includes 60 Blackhawk helicopters, Patriot missiles, minesweepers, Harpoon antiship missiles, and sophisticated command-and-control software.

And for the first time, it has threatened sanctions against firms involved in the deal, which include Boeing and Sikorsky Aircraft.

"It's not purely a military issue, it's a symbol," says Arthur Ding, secretary-general of the Chinese Council of Advanced Policy Studies (CAPS) in Taipei. "It signifies US support for Taiwan's democratic institutions, and for Taiwan this is very important."

Whatever the reason for China's sharper tone, it has little to do with the capabilities of the military gear offered to Taiwan, analysts say. "I don't think they're breakthrough items," says Lin Chong-pin, a professor of strategic studies at Taiwan's Tamkang University. "They're at most maintenance items."

Take the Patriots. China now has some 1,400 short-range ballistic missiles and scores of cruise missiles aimed at Taiwan. Lin said two or three Patriots are needed to knock out every Chinese missile; last week's package included 114 Patriots.

"It's a continuation of what we've been asking for, but not a great stride forward for our capabilities," says Mr. Lin.

The Blackhawks may be more significant for disaster relief on the typhoon- and flood-plagued island than for military use, he says. The command-and-control software has long been requested by Taiwan, and, according to Lin, "it doesn't make a huge difference."

Wendell Minnick, Asia bureau chief for Defense News, noted that the 12 Harpoon missiles were for training only.

He says the latest sale was for "legacy" weapons held over from the Bush administration; many of the others were released in 2007 and 2008. The Obama administration added nothing to the list of systems in the pipeline, he says, and left out Taiwan's more sensitive – and militarily significant – request for advanced F-16 fighters and submarines.

"There was nothing new in the release," says Mr. Minnick. "So the question is actually, 'Will the US continue to back Taiwan's defense needs?' "

Beijing has warned Washington not to sell the F-16s that Taiwan wants. And the submarines request has now likely been "killed," says Ding, of the CAPS.

US weighs its response

For several decades, Taiwan's vastly outnumbered military has counted on its edge in quality over the PLA. The PLA's modernization has erased that advantage, leaving Taiwan more dependent than ever on its chief deterrent: the US Navy's Seventh Fleet.

Now, China is developing and deploying submarines, destroyers, and missiles to keep the US out of a fight.

Of particular concern to US planners: an aircraft-carrier-busting antiship ballistic missile, now believed to be in development.

Those expanding capabilities have sparked a debate among Taiwan and US security analysts on how best to respond.

Taiwan's government touts a "preventive defensive" posture that it dubs the "Hard ROC" strategy, a play on Taiwan's formal name, the Republic of China.

In a 2008 essay that was widely discussed in Taiwan's security circles, retired US naval officer William Murray argued that the island should go further, adopting a so-called "porcupine strategy" focused strictly on hunkering down and hardening facilities.

Taiwan's own deterrent

But some in Taiwan say the island needs to strengthen its own offensive deterrent.

"If China continues to modernize its military force, they'll reach a level that our defensive-oriented posture could not withstand," says Ding. He argues Taiwan should develop precision-strike cruise missiles, ballistic missiles, and unmanned aerial vehicles as a deterrent, to "make China think twice" about any attack.

Tamkang University's Lin argues that Taiwan needs F-16s and submarines. But as a last resort, it should also develop a lower-tech deterrent to dissuade China from attempting an occupation of the island.

"Taiwan needs to develop its asymmetrical capabilities, because we cannot confront the PLA head-on," he says. He envisions home-grown, perhaps US-trained "cement jungle guerrilla warfare" units, consisting of trained reserves and snipers who can operate independently and harass PLA occupiers.

"When the PLA comes, let them in – don't engage in bloody, Stalingrad-type warfare," he says. "Give them one shot today, two tomorrow, and three afterward, so they cannot conclude a war."

Original site

Taiwan welcomes US weapons

Taiwan asked for weapons from the US years ago, and most on the island back the deal.

Global Post, February 1, 2010

TAIPEI, Taiwan — Taiwan's reaction to America's formal offer of $6.4 billion in weaponry could be summed up as follows: "Thanks — but next time, give us the good stuff. And can we talk about the price?"

Across the Taiwan Strait, China's government and netizens are lashing out at Washington over the deal. But they're conveniently overlooking a couple things. Taiwan asked for the weapons years ago. And despite warming cross-strait relations, most Taiwanese back the deal.

Here, as in Beijing, the offer is seen first and foremost for its political symbolism. With the deal, the United States is signaling that it's in Taiwan's corner.

"It sends a message to China that the U.S. is still concerned about Taiwan," said retired banker Robert Lin, 75, as he and his wife Y.K. finished up lunch in Taipei on Monday. "If the U.S. didn't sell us the weapons, the message is very clear that they don't care."

Like many here, Lin and his wife don't think Taiwan could go toe-to-toe with China in a fight, with or without the weapons cleared for sale last week. Those include 60 Blackhawk helicopters, Patriot missiles, anti-ship missiles, mine-sweeping ships and sophisticated command-and-control software.

"If China attacked, it would be very hard for us to resist," said Lin. So U.S. political and military support is critical.

Most Taiwanese back economic engagement with China. But the number supporting political unification with China is under 10 percent and falling. Only America will sell Taiwan the weapons it needs to prevent being gobbled up by its neighbor.

A Global Views Survey Research Center poll last year found that 48 percent thought it necessary for Taiwan to purchase better weapons, while 37 percent thought it unnecessary.

An Apple Daily poll released Sunday found that 57 percent support buying the arms offered last week, while 30 percent said they weren't necessary (13 percent expressed no view).

The Apple Daily put the U.S. arms news on its front page Sunday, and posted one of its "Action News" clips, made famous by the Tiger Woods animations.



(Watch the clip on Youtube. The highlight: the entire island of Taiwan blinking red in alarm at 0:48.)

The daily also parsed U.S. officials' comments, fretting that America's "six assurances" to Taiwan may not be so sure anymore.

That refers to Ronald Reagan's 1982 commitments to a nervous Taiwan as America moved closer to Beijing. Those promises to Taipei included that the U.S. would not consult with Beijing before selling arms to the island, and that Washington's promise to Beijing to curb arms sales to Taiwan was conditioned on Beijing committing to a non-military solution of cross-strait differences.

Other Taiwan media reaction was mixed. The pro-independence Liberty Times lamented that the deal didn't include the advanced F-16 fighter jets or submarines that Taiwan wants (U.S. officials say they're still studying those items).

The Beijing-friendly China Times had sticker shock, reporting claims that the weapons were as much as 40 percent more expensive than their original asking price.

Under the headline "Uncle Sam's a sharp dealer; it never loses out," the China Times wrote that the U.S. was taking advantage of Taiwan.

Meanwhile, Taiwan government officials have publicly thanked the U.S., repeating the line that American weaponry will help Taiwan enter talks with China from a position of strength. Officials promised to look into the price, and if necessary haggle with the Americans to avoid a budget-busting buy.

Last week's release of arms sales to Taiwan was the first under President Barack Obama, and focused on less-sensitive defensive weaponry. It followed several formal "releases" of weaponry first offered by President George W. Bush in 2001.

Those included some $2 billion in sub-hunting aircraft in 2007, $1 billion in upgrades to Patriot anti-missile systems the same year, and $6.4 billion in Apache attack helicopters, Patriot missiles, and anti-ship and anti-tank missiles in 2008.

In Taipei and Washington, such arms are seen as a response to China's rapid military buildup. Beijing's arsenal now bristles with more than 1,000 short-range ballistic missiles and scores of cruise missiles, along with advanced, Russian-made fighter jets and destroyers.

China is also believed to be developing an aircraft carrier-busting, anti-ship ballistic missile that, if and when deployed, could significantly change U.S. war planners' calculus for a Taiwan conflict scenario.

Security analysts say that despite warming cross-strait ties in the past two years, China's aggressive military posture toward the island is unchanged. It's keeping the stick held over Taiwan, even as it dangles the carrot of economic cooperation.

"They haven't scaled down the deployment of missiles targeting Taiwan," said Arthur Ding, secretary general of the Council of Advanced Policy Studies in Taipei. Ding said China's only concession to Taiwan sensibilities in recent years has been to lower the profile of its military exercises.

It's stopped conducting such drills near Taiwan and hyping them through Hong Kong "mouthpiece" media outlets, said Ding, instead running thinly disguised mock Taiwan invasions farther inland or in northern China.

Ding said he's concerned that the defensive items released by the Obama administration last week didn't go far enough.

Taiwan has also requested more than 60 F-16 fighter jets. That's sensitive in part because F-16s have more obvious offensive capabilities, though security experts say China's air defenses are now so advanced that any attempted Taiwan F-16 strike would be a suicide mission.

The island also covets latest-generation aircraft, such as the planned F-35 joint-strike fighter, and high-tech, Aegis-equipped destroyers. But the U.S. typically gives Taiwan only older technology, and sometimes even hand-me-down gear (four destroyers built for the Shah of Iran are now bobbing in Taiwan's military ports).

Experts attribute that to fears of China's wrath, and U.S. concerns that America's cutting-edge technology could end up in China's hands, either through corruption in Taiwan's ranks or the penetration of Taiwan's military by Chinese intelligence.

Original site