Market backs Ma to win

Big test for Taiwan prediction market

By Jonathan Adams

Asia Times Online, March 14, 2008

TAIPEI - When the first "prediction market" for a Taiwan election was set up in 2000, the result was disappointing.

The market correctly called the election result, but by other measures it was a dud.

"There were only three or four guys who were really doing the trading, and they had really strong biases - one guy favored one party, one was in favor of the other," said Forrest Nelson, a co-founder of the Iowa Electronics Markets, which helped run the Taiwan market. "The fact that it worked at all was a major surprise."

Eight years on, such markets have boomed in popularity. Once the preserve of a few oddball US enthusiasts, they've gone mainstream - and global. They're now used as high-tech crystal balls to help predict everything from soccer scores in Europe to the severity of the flu season in Iowa to the likelihood of Pakistan's President Pervez Musharraf stepping down.

Such markets' growing global appeal is evident in Taiwan, which boasts a new, online Chinese-language prediction market. In contrast to the lonely market Nelson observed, some 2,000 politics fans from Taiwan, mainland China, Hong Kong and elsewhere have already crowded into the new market to trade contracts on who will win the closely watched March 22 presidential vote in Taiwan.

Whether it guesses correctly will be one of the market's first big trials. The election will also test two still-debated points: Do "funny money" markets such as Taiwan's perform as well as ones using real money, and how susceptible are such markets to trader bias?

Taiwan's Center for Prediction Markets, set up in mid-2006, is one of a small but growing crop of Asia-based markets. In Japan, the first political prediction market was set up in 2005; the market Shuugi.in now has some 500 registered traders predicting the coming Lower House election. Taiwan also boasts the smaller Taiwan Political Exchange, which correctly called the island's hotly contested 2004 presidential vote.

Like those other prediction markets, The Center for Prediction Markets' works on the model of a futures market, aggregating collective sentiment into one market "price". Except instead of guessing, say, the price of corn three months from now, participants guess the likelihood of a specific outcome (such as a certain candidate winning). Traders start with 100,000 virtual points, which they use to buy and sell contracts. The better their predictions, the more points they rack up.

In the US, such markets have often outperformed public polls, experts say. But they're still struggling to explain exactly why.

One reason is that such markets ask people who they think will win rather than who should win. Another often-cited point is financial incentive. Traders have to put their money where their mouth is, which gives them a stake in making good predictions.

But Taiwan's new market, like most in the US, can't use real money because of anti-gambling laws. That should put it at a disadvantage, right?

Not necessarily. Experts say the jury is still out on whether real money prediction markets outperform "funny money" ones. A 2004 study comparing real and virtual money markets for the US National Football League season found little difference in their predictive powers (both markets' predictions were better than the vast majority of individual predictions).

"People in play money markets act surprisingly similar to people in real money markets because they get some kind of psychic reward for doing well," said Justin Wolfers, a professor at the Wharton School and one of the study's co-authors. Turns out bragging rights can be as strong a motivator as cold cash.

Skeptics have another criticism of Taiwan's market. Its traders include many from mainland China and Hong Kong, who are likely to have a strong bias against Taiwan's pro-independence party. Won't that skew the results in favor of its rival, the China-friendly Kuomintang (KMT)?

Nope again. Traders with extreme and opposing biases can be expected to cancel each other out, experts say, as happened in the 2000 Taiwan prediction market. And traders who are in the game to win (instead of to prove a point or back a party) will rush in to any market thought to be out of whack, whether by manipulation or home-team bias.

"When traders suspect that such manipulation might exist, they will bet on the other side," said Robin Hanson, an expert on prediction markets at George Mason University. "The net effect is that the existence of people who might want to manipulate [the market] usually increases the accuracy of market prices."

Still, no one claims prediction markets get it right every time - they don't. The point, according to what academics call a persuasive body of evidence, is that such markets generally do a better job than predictions by any individual experts or forecasts from public polls.

Outperforming Taiwan's polls shouldn't be hard. They're notoriously bad as a forecast of election outcomes. In late 2006, for example, many media polls underrated the pro-independence party's support - a recurring problem. Taiwan's prediction markets did a much better job of estimating vote shares (the island's two markets both called the Kaohsiung mayoral election wrong, but that contest was a statistical dead heat).

"Most opinion polls usually have 20 to 30% 'no answer'," said Lin Jih-wen, director of the Center for Prediction Markets. "We don't have missing data or a sampling bias, that's our strength."

The market has now picked the strong likelihood of victory by the China-friendly candidate Ma Ying-jeou. Time will tell if it's got the right guy.

But even if it doesn't, the markets' enthusiastic reception shows how Asia - like the US and Europe - has embraced such markets as a powerful fortune-telling tool.

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Tussle over 228

In Taiwan, the anniversary of a 1947 massacre is just another opportunity for political squabbling

By Jonathan Adams
Asia Times, March 1, 2007

When former Kuomintang (KMT) chairman Ma Ying-jeou visited Taipei's 228 Memorial Museum on Tuesday to meet with relatives of victims of a 1947 massacre, not everyone gave him a warm reception. Ma met with the relatives in a bid to heal wounds left over from the tragedy, in which KMT troops brutally put down a local uprising against one and a half years of the party's bumbling rule of Taiwan. For at least one relative, Ma's visit was just another insincere stunt. "Stop making political shows, Ma Ying-jeou!" shouted an irate Hsiao Chin-wen, as Ma chatted quietly with the group over tea. "Don't politicize the event anymore!"

On the 60th anniversary of the 2/28 Incident, such criticisms were more heated than ever -- and Ma wasn't the only target. President Chen Shui-bian's lame-duck government also came under fire, for using the date to score political points and foment anti-KMT sentiment as the 2008 presidential campaign gets under way. So it goes on the bitterly divided island: each side uses the 2/28 Incident to push its own political agenda, while accusing the other of politicizing the date. The result is that for many increasingly cynical Taiwanese, the anniversary is just another battleground in a long political war -- and an excuse for politicians to try to stir up conflict where none exists. "The 2/28 Incident has nothing to do with us, it's something the older generation cares about," said Jamie Huang, a 21-year-old student at National Taiwan Normal University in Taipei. "There's no problem between waishengren [mainlanders who came to Taiwan with the KMT in the 1940s] and benshengren [local Taiwanese who predate that wave of immigration]. But politicians use 2/28 because they want there to be a problem."

The incident may be ancient history for youth like Huang, and politicians like Chen and Ma weren't even born when it occurred. But for elderly Taiwanese, including former president Lee Teng-hui, it's still very much a living memory. It began when KMT officials beat a woman selling black-market cigarettes in downtown Taipei on February 27, 1947, and then shot dead an angry onlooker. That sparked days of anti-KMT riots that spread islandwide. The KMT began negotiations with local Taiwanese to end the standoff, but between March 6 and 18, KMT forces garrisoned in the south and reinforcements from the mainland that landed in the north went on a killing spree. They slaughtered civilians at random to terrorize the Taiwanese into submission, and carried out a targeted campaign to wipe out the Taiwanese elite -- local leaders and intellectuals - who represented the biggest threat to KMT rule. To this date the numbers killed are uncertain, but historians estimate 30,000.

Those facts are not generally disputed. But given Taiwan's polarization, the raw politicking over 2/28 is perhaps inevitable. For Chen's Democratic Progressive Party (DPP), appeals to Taiwan-first patriotism and anti-KMT hatred are time-honored ways to shore up support for the party's "deep green" base. For such people, 2/28 represents the original sin of a repressive, authoritarian KMT regime, whose still-visible legacy remains to be completely dismantled. The most prominent icon of that regime: late president Chiang Kai-shek, whose portrait once hung in every classroom -- where speaking the Taiwanese dialect was long forbidden -- as part of a campaign to indoctrinate Taiwanese in the KMT's Chinese nationalism.

Since taking power in 2000, Chen's government, whose grander ambitions have been blocked by the opposition-controlled legislature, has been quietly removing Chiang's image from classrooms, museums and military bases. (At Huang's high school in Taichung, a prominent Chiang statue vanished during one winter vacation about five years ago without a word from school officials.) Now there's a bigger target: Taipei's landmark Chiang Kai-shek Memorial Hall, which the government wants to transform into a democracy memorial hall. And this year, Chen stressed that Chiang was ultimately to blame for the tragedy, and demanded that the KMT apologize for the atrocities of the entire martial-law era, which lasted until 1987.

Whether such moves represent appeals for "transitional justice" in a young democracy or mere KMT-bashing depends, of course, on your politics. Chiang Kai-shek's grandson John Chiang, now a KMT legislator, is incensed at recent moves to revise his grandfather's place in history, from the "savior of the people" to a dictator with blood on his hands. Chiang said he may sue the president and the DPP chairman for defamation. Ma, who is still the KMT's best shot at taking back the presidency next year despite being charged with corruption, has argued that the 2/28 Incident was not primarily an ethnic conflict, but rather an uprising against the government that was mishandled by local KMT officials. That's seen by some as an attempt to manipulate history to play down the KMT's guilt and shore up support from his own "deep blue" mainlander base. "For many Taiwanese, [2/28] is a deep wound, not just a political issue," said Steve Chen, director of the Conflict Study and Research Center at Chang Jung Christian University in Tainan. "But Ma is trying to twist it around to protect the old-time 'deep blue' [pro-KMT] population."

This year, even Beijing got into the 2/28 game, backing a book in which Hsieh Hsueh-hung, a prominent Taiwanese communist and anti-KMT activist during the 2/28 Incident, is described as a Chinese nationalist who would have never brooked Taiwanese independence. And on Wednesday, an official in China's Taiwan Affairs Office blasted "splittists" in Taiwan for using the 2/28 anniversary to further an independence agenda. The official said 2/28 was part of the "Chinese people's liberation drive" by "Taiwanese compatriots".

The struggle by politicians and propagandists to spin history in their favor obscures a substantive debate: What is the appropriate justice for a 60-year-old massacre, and when is it time to close a painful chapter of the past? In 1992, the KMT government publicly released a report admitting that KMT troops had killed up to 28,000 people in the incident. That marked a dramatic breakthrough: before martial law was lifted a few years earlier, public discussion of the 2/28 Incident was forbidden. The government also agreed to pay out NT$6 million (more than US$181,000) for each 2/28 victim, and subsequent KMT leaders, as well as Chen, have offered official apologies. For some relatives of 2/28 victims, that's enough - and it's time to move on. "I don't know what else we can get, because the killers are all dead," said Liao Ji-bin, whose grandfather was shot to death and dumped in the sea north of Taipei by KMT military police. "The two parties -- both green and blue -- just want to get credit from 2/28."

But others insist that justice has not yet been served. The major complaint: to date, the perpetrators have not been clearly identified and held accountable -- even if only posthumously. One group representing 2/28 victims wants the legislature to establish a special court for a trial of Chiang Kai-shek and his accomplices. Others cite South Africa, which set up an official truth and reconciliation commission in the post-apartheid era, as a model for what Taiwan still needs to go through to complete a healing process.

Wu Nai-teh, a research fellow at the Academia Sinica in Taipei, said he and other academics are organizing their own, nonpartisan truth and reconciliation committee. A priority: tallying and documenting the unknown number of victims of the White Terror, the long period of anti-communist hysteria and KMT repression -- torture, imprisonment, summary executions, assassinations of the regime's critics -- that followed the 2/28 Incident. Other goals: returning property seized by the government to victims' families, and some kind of "cultural reparations", such as setting aside one day when television and radio stations can only broadcast in the Taiwanese dialect.

Politicians' manipulation of 2/28 may only make it more difficult for Taiwan to put the tragedy behind it. "Many people in Taiwan have a feeling that they are stuck in a vicious struggle between political parties," said Wu. "People feel politicians in Taiwan should tackle real issues instead." But appeals to deal with historical justice in a non-politicized way are probably doomed. Already, some are bickering over numbers: independent legislator Li Ao claimed on Tuesday that the real number killed in the 2/28 Incident was a mere 800. Next year's anniversary will come just before the key presidential election, in which the KMT hopes to take back power after eight years of the independence-minded DPP's rule. As in most big elections in Taiwan, identity politics are bound to loom large: and that means the political wrangling over 2/28 is likely to be more fierce than ever.

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Palace Politics

At dueling "palace museums" in Beijing and Taipei, art and politics go hand in hand

Jonathan Adams
Asia Times, February 23, 2007

When Taiwan National Palace Museum curator Yu Pei-chin began organizing the biggest ever exhibit of highly prized ru ware -- rare, light-blue-green ceramics fired in the early 12th century -- she called up her counterparts at Beijing's Palace Museum out of curiosity.

"How many pieces of ru ware do you have?" she asked a museum official.

"How many do you have there?" the official shot back.

"We have 21," Yu said.

"Perhaps we have about 20 pieces too," came the response. (Based on public information, Yu guesses the real number in Beijing is closer to 15.)

Yu didn't bother to ask whether Beijing could send over its ru ware for the exhibit -- "I knew it wouldn't be permitted."

So goes the frosty relationship between Taiwan and mainland China, which extends even to their cultural institutions. For decades, the cross-strait political impasse has spurred an enduring rivalry between government-run "palace" museums showcasing the cream of imperial Chinese art in Beijing and Taipei.

To this day, Beijing has the palace (more commonly known as the Forbidden City), while Taiwan possesses the best of the collection -- a fact that has been a long-standing bone of contention for Beijing and for Chinese nationalists. (One former employee of Taiwan's museum said that while she was studying art history in Paris, some earnest students from China constantly badgered her about how Taiwan must give back the art it had "stolen".)

The politicization of the collection is a source of frustration for Chinese art lovers and experts on both sides of the Taiwan Strait, who have nonetheless quietly built up contacts in the past decade through conferences and informal exchanges.

"The museum field shouldn't be political, but unfortunately the two palace museums cannot avoid politics," said another curator at Taiwan's museum.

Politics intruded once again recently, as the palace museum in Taipei held its grand reopening celebration last week after a long renovation. Beijing museum officials accused Taiwan's government of revising the museum's charter to de-emphasize the collection's Chinese essence.

Their complaints were echoed by some opposition legislators in Taipei, who accuse Taiwan's government of waging a "cultural revolution" to suit a pro-independence agenda.

Taiwan's museum director has denied any such campaign, but acknowledged the cabinet-proposed charter change, which would revise the wording of the museum's mission from collecting artifacts from ancient China to collecting "domestic and foreign" art. (That proposal awaits approval from the opposition-controlled legislature.)

In fact, throughout the collection's history, art and politics have been inseparable.

The Emperor Qianlong (1711-99) was fond of defacing palace artwork -- including some of the ru ware now on display in Taiwan -- with critiques or laudatory poems.

Ever since, successive governments have been putting their own stamp on the collection.

When Chiang Kai-shek and his Kuomintang party fled to Taiwan in 1949, they took the best part of the collection with them and built a museum in the hills ringing Taipei to house it. During the Cultural Revolution era, that museum became Exhibit A in the Nationalists' claim to be the guardians of Chinese civilization, as their communist enemies across the strait went about destroying cultural relics in the name of creating a new China.

Then, in 2000, Taiwan's collection passed into the hands of the independence-minded Democratic Progressive Party (DPP) -- making President Chen Shui-bian the unlikely ward of what are considered the finest treasures of Chinese art.

For some in Taiwan, that was akin to giving the punk-rock teenage son the keys to Daddy's Jaguar.

Chen's political appointees at the museum have scandalized some of the island's traditionalists with moves to strip away symbols of the former authoritarian Taiwanese regime -- for example, by shunting a once-prominent statue of Chiang Kai-shek to a side wing.

Now, the latest director, Lin Mun-lee, is trying to bring a hip, multicultural flavor to the museum. She has invited young designers to create funky products based on the museum's greatest artworks, launched a snazzy publicity campaign to attract a new audience (the title: "Old Is New") and, most recently, brought in a Japanese Noh troupe to perform as part of the reopening celebrations.

Lin casts her efforts to jazz up the museum as ways to depoliticize the art and better connect it with the people, in line with the island's democratization.

But some on the island still can't help but see the continuation of a doomed campaign to play down links with the mainland and bolster a distinct Taiwanese identity.

"The palace museum represents our Chinese heritage," said one former museum staffer, adding that the DPP "wants to cut it off, but you can't cut it off -- the new Taiwan has to come from the old Taiwan. When you don't have roots, how can the flower bloom?"

Still, despite such to-and-fro, low-key cultural ties between the two sides have been blossoming, driven in this case by experts whose passion for Chinese art transcends politics. Case in point: after sparring with the Beijing Palace Museum, curator Yu was surprised to get a call from the Henan Provincial Institute of Cultural Heritage and Archeology.

In 2000, more ru ware specimens were discovered in excavations on the mainland, and the Henan institute said that sending over pieces for Taiwan's current exhibit shouldn't be a problem.

Now, 12 sets are on display at Taiwan's museum, thanks to the assistance of a Taipei-based foundation that served as a middleman. The institute's Sun Xinmin visited Taiwan earlier this month for a conference on Northern Song Dynasty art, along with curators from Beijing's Palace Museum and the Shanghai Museum.

Yu and others say that such contacts have multiplied in the past decade, as art experts and officials regularly meet in such places as Shenzhen, Macau and Shanghai, and mainland experts make less frequent trips to Taiwan for special occasions.

Those ties are coming at what experts describe as an exciting time in the field.

"New excavations are changing our idea of what Chinese art is. Before we were sort of limited by this imperial collection," said Jane Ju, an art historian at Taipei's National Chengchi University. "There is interaction [between art experts on both sides] already, and there's going to be a lot more going on."

Such exchanges have a friendly and collegial tone, according to participants: they usually avoid politics, except when cracking jokes. (One Shanghai curator offered his solution for unifying the collection to a Taiwanese counterpart a few years back: "It's very simple. Just take all of your stuff, put it on a plane, and send it over.")

More relaxed government policies have facilitated such exchanges. In fact, a top official from Beijing's Palace Museum even visited Taiwan's museum a few years ago.

"The Chinese government has adopted a more open policy, so curators can come here more easily, and our curators can go to China," said Ho Chuan-hsing, with the Taiwan museum's department of painting and calligraphy. "Both sides can compare their works."

When officials from the vying palace museums meet, they often discuss the possibility of cooperation. But that seems unlikely for the time being. Treasures from Taiwan's palace museum have traveled to the United States and Europe, but the museum will not send artwork to the mainland without a legal promise of its return.

That's something Beijing has not, so far, been willing to give.

"It's a sensitive political issue," said the former director of Taiwan's palace museum, Shih Shou-chien, in an interview last year. Shih said the mainland authorities "just cannot treat Taiwan as an independent political entity, so they cannot provide that kind of legal guarantee".

In theory, the two museums could come up with a creative solution to fudge the sovereignty issue, such as going through a middleman, as was done with the Henan artifacts now on display in Taiwan.

And some see a possible thaw in relations if the more mainland-friendly Kuomintang takes power in Taiwan, which could make cooperation between the museums easier.

But for now, the ru ware and other treasures from the palace collection, assembled by emperors long ago, remain divided by cross-strait politics.

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Don't Bank On It

Scandal highlights banking sector's woes

Jonathan Adams

Asia Times, January 18, 2007

The latest financial scandal to rock Taiwan - and one of its biggest in recent years - has shown that despite much talk of reforming the banking sector, the island still has a long way to go.

The "financial storm", as Taiwan's media call it, began early this month when two subsidiaries of the Rebar Asia Pacific Group announced they had filed for insolvency. That led to a run on the Chinese Bank, a member of the Rebar group, on January 5.

The government quickly moved to take over that and another Rebar firm to calm panicked customers. Then it emerged that the chairman of Rebar had fled to China late last month, and was reportedly holed up in a Shanghai luxury hotel with his wife.

Last week saw an around-the-clock media frenzy as the chairman's relatives were hauled in for questioning, regulators scurried to contain the fallout, the head of the nation's financial watchdog stepped down, and politicians began pointing fingers over who else might be to blame.

Most analysts said the bank run would not impact the larger banking industry, Asia's fourth-largest. But it's just the latest in a series of troubles to plague the overcrowded sector.

Taiwanese banks remain frozen out of the mainland China market by the cross-strait political impasse. Meanwhile, plans to consolidate and reform the financial sector have stalled. The government hoped foreign investors would help shake up the industry by buying stakes in local banks, but so far such activity has been limited.

Now, the Rebar fiasco has highlighted some of the sector's dubious lending practices, and the need for better oversight of the island's financial firms.

"The run on the Chinese Bank is just a symptom of a larger issue, which is how do we deal with the banking sector?" said Chen Ming-chi, with the Institute of Sociology at Taiwan's National Tsing Hua University.

Dealing with it correctly has broad implications for the island's future. Taiwan is now a services-based economy (services account for more than 70% of gross domestic product and most of the island's jobs), which means further productivity gains and development depend on improvements in key service sectors such as banking and finance.

For several years, industry analysts have sent a blunt message: give Taiwan's banks an extreme makeover, or risk losing long-term competitiveness and becoming even more sidelined from regional economic integration.

"Without access to China in the medium term, the banking sector is structurally moribund," wrote consultancy Macquarie Research in a note last year. "We need the structure of the operating environment to change."

Access to mainland China appears to be off the table at least until May 2008, when a new president will take power in Taiwan.

The island's government bars its banks from providing anything more than consulting services in the mainland. The opposition sponsored a bill to change this last year, but it has gone nowhere, said Christina Liu, an opposition legislator and finance professor at both Taipei's National Taiwan University and Beijing's Tsinghua University.

She said that days after the bill passed its first reading in Taiwan's legislature, Beijing made it clear that it would only allow Taiwanese banks to open shop in the mainland if a cross-strait memorandum of understanding were inked.

The condition of such a memorandum is Taiwan's acceptance of the "one China" principle - a non-starter for the current independence-leaning government.

That roadblock has some Taiwanese tearing their hair out over lost opportunities. Taiwanese banks would seem to have distinct advantages in the China market, with their shared language and ties - particularly in commercially vibrant southern coastal provinces such as Fujian, which is the closest culturally to Taiwan. And they have a built-in customer base of Taiwanese living and working in the mainland.

But with Taipei-Beijing relations still frosty, the island's banks are left to gaze wistfully across the strait, as the big foreign players such as HSBC and Citibank get a rapidly growing head-start in the land grab in China.

"Taiwanese banks are stuck here - they can't do any business in mainland China," said Liu. "It's really a shame, because we [could] have so many customers there."

With the door to the mainland bolted shut for now, that leaves mergers and acquisitions as the way forward for the industry. Consultants have long bemoaned Taiwan's packed banking sector, which included more than 50 firms in 2000, serving only 23 million people.

In a 2005 report, the consultancy McKinsey argued that an ideal number would be about 15 at most, including one or two "regional champions" that would have the scale to compete in the mainland Chinese market. It urged Taiwan to follow South Korea's example and push ahead with the politically tough task of sweeping banking reforms - and to avoid Japan's example of merely "stapling" together bad banks to create bigger, but not necessarily better, players.

"Both industry and government could continue to pursue their incremental approach and hope the competitiveness of the financial sector and broader economy does not further erode," wrote McKinsey. "Or they could take bold steps to change the rules of the game and put Taiwan back on the Asian banking map."

The incremental approach appears to have won the day. The current administration has talked up consolidation and established ambitious goals, but the results have been modest.

Holding companies formed to spur consolidation have not performed as well as hoped. Taiwan now has 43 banks, with other mergers and privatization plans for state-run banks stalled.

Meanwhile, the government has worked to attract foreign interest in the sector, sending road shows abroad to lure big financial players into buying stakes. That campaign has had some success: last year several foreign firms bought stakes in Taiwanese banks, including Standard Chartered's bid for a controlling stake in Hsinchu International Bank.

But a more recent deal, Citibank's reported talks to acquire a stake of the Bank of Overseas Chinese (BOOC), have foundered amid vocal opposition from the bank's union leaders. And analysts don't expect many more such deals: both Hsinchu and BOOC are small banks, while the larger state-run banks are seen as less attractive targets.

All of this leaves many less than impressed with the government's reform efforts.

"Our government puts very strict limits on investment in China, while encouraging banks to merge and attract foreign investment as a substitute for going to China," said National Tsing Hua University's Chen. "I don't think the government formula can sustain itself, and it's not good for the banking sector. As long as there are limits on going to China, I think the problem will still be there."

Still, some see a silver lining in the cloud over Taiwan's banks. Wu Chung-shu, a research fellow at the Academia Sinica's Institute of Economics in Taipei, says the worst may be over for the industry.

It has rebounded from a credit bubble in 2005 and early last year, and its bad-loan ratio has come down from more than 8% in 2002 to just over 2% now. Now, Wu says the Rebar crisis will prompt the government to crack down harder on shaky firms.

"Rebar will push the government to deal with under performing banking companies by telling them to get out of the market or merge with other firms," Wu said. "You're going to see more consolidation in the banking and insurance industries. But the number of banks is not the main issue; it's how to get these banks to operate in a more efficient way."

Figuring out how to do that will be one of the most pressing questions for Taiwan's government in the coming years.

Original site

The Four Heavenly Kings

DPP contenders set to battle for party's crown

Jonathan Adams

Asia Times, January 9, 2007

While Beijing may not want to see Taiwan's pro-independence Democratic Progressive Party continue to rule the island after 2008, the DPP emerged from last month's mayoral elections in Taipei and Kaohsiung with renewed hope that it might hold on to power in next year's presidential elections. Now the race is on to determine who will carry the party's banner as its candidate in that key vote.

Before the mayoral elections, most saw opposition Kuomintang (KMT) chairman Ma Ying-jeou as a virtual shoo-in for the presidency in 2008. He enjoys islandwide popularity for his incorruptible image and gentleman's demeanor, though his support has drooped in recent months. Meanwhile, the DPP's support levels have been tumbling as one scandal after another has rocked President Chen Shui-bian's administration.

But after holding on to the mayoralty of second-largest city Kaohsiung and doing better than expected in the Taipei mayor's race, the DPP is more confident that it will have a fighting chance in 2008. Ma has already come under fire for weak leadership on a range of issues and poor crisis management. The vote highlighted some of Ma's political vulnerabilities - in particular, his difficulty connecting with voters in the south. And the DPP now reckons it can put the more China-friendly Ma on the defensive on the highly charged issue of national identity and so dash his presidential ambitions. "We already knew Ma's approval ratings were dropping. But after the [mayoral] elections, we have even stronger confidence that our candidate can beat Ma," said Winston Dang, director of the DPP's department of international affairs. "He's going to lose."

The `Si Da Tian Wang'

If Dang is right, who from the DPP would replace Chen? And how would this affect cross-strait relations? Taiwan's media call them the DPP's "four heavenly kings": the four party heavyweights most likely to make a primary bid for the presidential candidacy, in an islandwide vote by party members now expected in June at the latest. But most observers see only two credible candidates: Premier Su Tseng-chang, who has been dubbed the "electric fireball" for his aggressive, energetic style, and Frank Hsieh, the party's losing candidate in the Taipei mayoral election. Both have broad government experience and strong credentials as former defense lawyers for pro-democracy activists. Notably, both are viewed as moderates on cross-strait relations, while the two dimmer "stars", party chairman Yu Shyi-kun and Vice President Annette Lu, take a harder pro-independence line.

On economics, both Su and Hsieh are believed to favor lifting the restriction for Taiwan-listed companies that caps mainland-bound investment at 40% of their net worth - the most divisive issue within the DPP. Su initially supported lifting the cap in a key economic conference last summer, but backed off under pressure from a small hardline pro-independence party that wants to tightly limit cross-strait economic ties. And as premier, Su has also quietly increased cross-strait charter flights, approved the transfer by Taiwanese firms of more advanced (though not cutting-edge) chip technology to mainland China, and pushed to open up the island to more tourists from the mainland.

Hsieh's stance is less clear, but politically he may be more moderate than Su. While Su pushes closer economic ties, he tends to talk tough on Taiwan's political sovereignty. By contrast, when the affable Hsieh was premier, he pushed a line of reconciliation with the KMT-led opposition and China, though with little effect. And in the past he has remarked that Taiwan is governed by a "one China" constitution - a formulation that might help soothe nerves in Beijing, which has insisted on acceptance of the "one-China principle" as a condition for political cross-strait talks.

Economic moderates

The two men's broad goals on cross-strait relations aren't that different from Ma's: all three back the political status quo (at least in the near term) and favor warmer economic relations. But Ma is willing to be far more accommodating to Beijing to achieve those goals. For example, Ma embraces the convoluted "1992 Consensus" - an unofficial agreement to fudge the "one China" issue that allowed cross-strait talks to proceed in the early 1990s - and could start talks again. Ma hopes the shibboleth will lead to a breakthrough such as the resumption of regular cross-strait direct flights. The official DPP line is that no real agreement was ever reached, so the "1992 Consensus" is a non-starter. Su and Hsieh can be expected to toe that line. "Saying you accepted the '1992 Consensus' would be a form of political suicide for the [DPP] nomination," said Hsu Yung-ming, a political analyst at Taipei's Academia Sinica.

Ma has also backed an interim cross-strait peace pact that any DPP president would find difficult to embrace, at least in the heat of a presidential campaign. Ma said in an interview last October that if elected president, he would try to ink a deal with the mainland by 2012 under which Taiwan would forswear formal independence in exchange for Beijing's promise not to attack the island. The deal would normalize relations between the two sides while putting off the question of unification. Su responded with withering comments that sounded like the first shots in the 2008 presidential race. Said Su: "If there is any negotiation with China, it will be between two independent countries ... No matter who wins the presidential election, this person is not supposed to give up our own bottom line to negotiate with China. Otherwise, the Taiwanese president will become a 'Taiwanese chief executive'. We cannot let someone like this become our president." Ma fired back that Su was "ignorant" about cross-strait affairs. But Su's tough talk could well earn him his party's nomination in a few months' time - and leave Ma fighting to answer potent attacks that he would sell out Taiwan's core interests.

Meanwhile, Su - who grew up in a poor family in Pingtung county, in the deep south - has also built up a public image as a down-to-earth, no-nonsense public servant who can get things done. He has the support of the powerful New Tide - the DPP faction that supports closer cross-strait economic ties, and continues to wield influence despite a supposed party ban on factions last year ("They just took the 'New Tide' sign down at the office," said one DPP member). All of this makes Su a formidable candidate. "Su has an image as someone who will stand up more strongly for Taiwan's sovereignty, and wouldn't give in as much as Hsieh, though I don't know if that's really true in the policy sense," said Shelley Rigger, an expert on the DPP at Davidson College in the United States. "People think Su is more macho."

But observers haven't written off Hsieh altogether. "Frank Hsieh's popularity is rising among DPP voters," said the Academia Sinica's Hsu. His support base is what the media call his "own army" - a group of legislators who are political proteges from Hsieh's days as Kaohsiung mayor. And he has received public praise from former president Lee Teng-hui, now a staunch promoter of Taiwanese independence, as well as a respected pro-independence "elder", Koo Kwang-ming. Party members credit Hsieh with doing better than expected in the Taipei mayoral race, and helping the party hold on to Kaohsiung with his strong mayoral record there.

`Deep Green' candidate

The long-shot candidate is Yu, who is seen as closest to the unpopular President Chen - not the best position to be in politically. Yu is Chen's strongest defender within the party, has support from "deep greens" (those on the more independence-minded end of the political spectrum), and held the DPP together through tough times (his hard-working loyalty has earned him praise for his "water-buffalo spirit"). He is already being mentioned as a possible vice-presidential candidate, a pick that would please the hardline pro-independence vote. Most observers dismiss Lu as a serious candidate because of her lack of support within the party.

That leaves Hsieh or the "electric fireball" Su as Ma's most likely opponent. If either is able to beat Ma, how will Beijing react to another four years with the independence-leaning party in charge? Analysts say that despite the "Taiwan first" rhetoric that will surely fly during the presidential race, a new DPP president and mainland China would both recognize an opportunity to put cross-strait relations on a new footing. A DPP president would likely seek a new strategy for engaging Beijing, even if he or she could not go as far as accepting the "1992 Consensus". And for its part, mainland China has learned over the past six years with the DPP in power in Taiwan that it needs to take a more pragmatic approach. "For China, anyone's better than Chen Shui-bian," said the Academia Sinica's Hsu. "Any new president will provide a window of opportunity. I think Beijing will see 2008 as a new game."

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