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."

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Asia's unsung flower power

In the last decade, Taiwan has quietly become the world's No. 1 exporter of orchids.

Global Post, Jan. 25, 2011

TAINAN COUNTY, Taiwan — In a massive greenhouse in balmy southern Taiwan, workers pack boxes of 2-year-old white butterfly orchids.

Around them stretch row after row of the flowers, a hothouse battalion prepared for customers in Japan. There, the flowers fetch about $12 each, earning producer Tai-Ling Biotech a more than 30 percent profit margin, according to managing director Peter Liu.

Tai-Ling exports 7,000 to 8,000 flowers to Japan per month with a 185-strong workforce. And growing demand boosted the firm's sales to $10 million in 2010 from $7 million in 2009. "I need to expand into more greenhouses," said Liu, as workers scurried behind him.

Taiwan may be famous as a high-tech manufacturing giant. But in the last decade, the island of just 23 million has also quietly become one of the world's top flower exporters, and the world's No. 1 exporter of orchids. Taiwanese know-how has also powered China's own emerging flower industry.

Flower and flower-seed exports have nearly tripled in value in the last decade, from $48 million in 1999 to $111 million in 2009, according to statistics from the Taiwan Floriculture Exports Association. Those numbers show how Taiwan has successfully married its agricultural past with cutting-edge technology for breeding and mass-producing flowers.

Much of the boom has been in orchids. $87 million of last year's exports were orchids, up from $40 million in 2004, according to government statistics. Orchids account for just 20 percent of Taiwan's flower exports by quantity, but 80 percent of export value, according to the orchid growers' association.

In 2005, Taiwan became the world's top orchid exporting country, replacing Thailand — a spot the island still holds, according to the association.

"Butterfly" orchids, also known by their scientific name phalaenopsis, have been a star export. Exports of butterfly orchids earned Taiwan $62 million last year.

Taiwan firms have also played a key role in the birth of mainland China's mass-produced flower business. Beginning in the early 1990s, Taiwan firms moved across the Strait, especially to the area around Kunming, in southwest Yunnan Province, which has an ideal climate for horticulture.

Taiwan firms typically produce for the Chinese domestic market, and serve as middlemen between Chinese growers and foreign breeders.

Tai-Ling serves the China market from a branch in Shanghai that employs 70 to 80 Chinese workers. Production costs are half what they are in Taiwan, but managing director Liu says Taiwanese workers are far better — one of them can do the job of two typical Chinese workers, he says, erasing the mainland's cost advantage. And Japan remains his most important market by far, he says, because Chinese still don't have regular buying patterns.

"They don't have the habit of buying flowers, except during Chinese New Year or National Day," said Liu. "At other times sales are very small."

That could change soon. Flower consumption is rising 20 percent to 30 percent per year in China, says Liu Bang-shein, managing director of the Dahan Group, a Taiwanese pioneer in China's flower market. That's a contrast with nearby markets like Japan, where consumption is stable or even decreasing slightly. According to a recent documentary that aired on China's state-run CCTV, China's flower market is already estimated at some $10 billion.

Dahan is now Asia's largest company for poinsettias, producing 4 million cuttings a year — 20 percent of China's overall production, and 65 percent of "legal" production, that is, plants produced under license, with royalties paid to breeders.

Amid all the success, though, Taiwan already has its eye on the rear-view mirror. New Taiwanese firms have crowded into the market, increasing competition and lowering profit margins. The Dutch are planning large-scale greenhouses in the United States, which could give them an edge in that key market.

China doesn't export much yet, because of problems with breeders' rights — the right to grow and sell specific flower varieties. Exports without the proper paperwork and licenses are banned from key markets like Europe and the U.S.

"Our plant variety protection is better than theirs [China's]," said Chang Su-san, from Taiwan's Council of Agriculture. "They focus more on food crops, we focus more on horticulture."

But eventually, homegrown Chinese firms could compete in key flower markets. So Taiwan firms are looking to move up the value chain, in search of better margins and an edge.

"We need to keep increasing our varieties and efficiency," said Chang. Some Taiwan producers hope to set up a cross-strait production line, with the first stages of production in lower-cost China and final production, branding, and packaging in Taiwan for export to world markets.

Dutch flower exporters use a similar model, with plantations in Africa or other cheaper locations. But at the moment, cross-strait trade barriers make that business model impossible. Some flower imports from China are banned; others face a 35 percent import tariff, said Parker Wu, a veteran of the orchid business at Orchis Floriculturing.

Wu thinks the Taiwan government should set up an export zone and an auction, similar to the one in Yunnan province or in Holland, to better connect Taiwan's producers with global buyers.

Another focus will be on developing brands. Up until now, many of the island's flower firms have been akin to "contract" manufacturers in that they export small plants or cuttings to the U.S., where U.S. brands shepherd them through the final stages of production, market and sell them. That means Taiwan firms earn only a small slice of the profits.

Branding would expand Taiwan's slice. "In the end, your brand is the most important thing," said Richard Lin, of the Taiwan Orchid Growers Association. "There's still a lot we have to learn and improve."

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Keep your 'frenemies' close

In Washington this week, US and China will be looking to stabilize troubled relationship.

Global Post, Jan. 17, 2011

TAIPEI, Taiwan — Are the United States and China friends? Enemies? Partners? Rivals?

Ahead of Chinese President Hu Jintao's trip to the United States this week, observers are struggling to define a thorny relationship that increasingly defies characterization.

Taiwan-based Next Animation may have done best when it dubbed the two countries "frenemies." One blogger suggested the clunkier "parvals." But even those fall short.

"I don't want to use simple words," said China-U.S. relations expert Shi Yinhong, when asked to define ties between the two countries. "The U.S. and China have a relationship which is complex. But compared to the past, I think the strategic rivalry is increasing."

Last year the two countries grappled with a long list of issues that bedeviled relations: How to deal with North Korea, the value of China's currency, a massive trade gap, the South China Sea, U.S. arms sales to Taiwan, climate change and the Dalai Lama, just for starters.

Shi, from Beijing's Renmin University, said China's priority during the U.S. visit will be to "stabilize" relations after that turbulent period. But he doubted there will be any "historic breakthroughs" on the big problems.

He downplayed talk of a joint statement or declaration to guide U.S.-China relations, as suggested by former U.S. National Security Adviser Zbigniew Brzezinski.

"Dr. Brzezinski is very old and doesn't necessarily have a very strong influence on the U.S. government, so I don't think a joint statement is most important," said Shi. "Maybe they [the U.S. and China] will launch some statements, but they can only play a very limited role, because the substantial points are not being solved, or even dealt with."

For Shi, Presidents Hu and Obama should take steps to improve Chinese public opinion toward the United States, which he said had soured in recent months. "Beginning last year, the Chinese public has had a bad opinion of the U.S.," he said. "The Chinese people feel that the U.S. has not treated China as a strategic power, it only sees China as a financial great power, who can lend money to the U.S."

Shi's comments seemed to clash with polls conducted last summer by the Pew Research Center for the People and the Press. That poll found that 58 percent of Chinese had a favorable attitude toward the U.S., up from just 34 percent in 2007. Only 37 percent had an unfavorable view.

But Shi dismissed those numbers, saying "I don't think such polls are very accurate." Others agreed.

Li Mingjiang, an expert on China-U.S. ties at the S. Rajaratnam School of International Studies in Singapore, said that the poll was conducted before two major events: the war of words last summer over the South China Sea, and huge U.S. military deployments near Chinese waters.

Those two developments were "alarming" for China, he said. "If you did another survey now, the 'favorable' opinion would probably decline quite a lot."

Last summer, Washington said that the United States had a "national interest" in resolving territorial claims in the South China Sea. That was a response to China's description of its claim over nearly all of the disputed South China Sea as a "core interest" on par with Taiwan and Tibet. It was the first time China had used that language. Later last year, the United States dispatched aircraft carriers and conducted massive military exercises near Chinese waters, in response to North Korea's provocations.

Li said China would likely press the United States for a statement of principles to stabilize bilateral relations. China was especially concerned about U.S. wooing of new "strategic partners" in Asia, including Vietnam, Indonesia, Malaysia and India, he said.

"China's decision-makers may have concluded that the U.S. is trying harder to encircle China," Li said. "Their concern is to forestall this from moving forward." He said China's wish-list included a U.S. statement that Washington would respect China's "core interests," but he thought that was unlikely to happen. "I doubt America would go that far."

Li also rejected any simple labels for the U.S. and China's hot-and-cold relations. "It's so complicated, there's really no single term or phrase to characterize this bilateral relationship," he said. "I use the term 'cooperative competitor.' There’s a lot of cooperation, a lot of collaboration, but also a lot of competition and rivalry."

The American public seems to agree. In Pew's polling last year, it found that 49 percent of Americans had a favorable view of China, with just 36 percent having an unfavorable view. And in a new Pew poll released last week, most Americans said China was a "serious problem, but not an adversary." They said the U.S. military was far more powerful than China's.

But Americans wrongly dubbed China the world's top economic power (the U.S. economy is more than twice the size of China's), and called China the country representing the "greatest danger" to the United States (just ahead of North Korea).

In terms of priorities for policy toward China, Americans put "build a stronger relationship" at the top of their list, with "get tough with China on trade and economic issues" second. Human rights and environmental concerns were a distant third and fourth.

The wisdom of the American people seems to be saying: Keep your friends close, but your frenemies closer.

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Who'd down with TPP?

Obama is betting on a new free trade bloc to help the US economy. Here's what you need to know.

Global Post, November 21, 2010

TAIPEI, Taiwan — New Zealand's down with it. Singapore's down with it. Now the United States, Australia, Peru, Vietnam and Malaysia are getting down with it, too.

Still waiting for word on whether Japan's down with it or not.

There's a new trade bloc on the block, and it's called TPP — short for the Trans-Pacific Partnership. Just a few years ago it was an obscure deal between the "P4," which sounds like an Asian boy-band but actually refers to four small, free-trade loving countries on the Pacific rim: New Zealand, Singapore, Brunei and Chile.

But since the Obama administration publicly embraced it last year as a way to help revive America's zombie-like economy, TPP has shot to stardom. And joined a long list of mind-numbing acronyms.

TPP was a hot topic at the recent APEC meeting in Yokohama, and has been widely lauded as a possible stepping stone to a FTAAP.

That last one may sound like something Bill the Cat would have spat out in the 1980' comic strip Bloom County. But it stands for a Free Trade Area of the Asia Pacific, a "Mother of All Free Trade Deals" that would include the world's top three economies — the U.S, China and Japan — and APEC's 18 other members in one king-sized trade block spanning the Pacific.

Too bad it's not likely to happen in our lifetimes.

"The FTAAP is a hopeless dream at this point," Deborah Elms, a trade expert with the S. Rajaratnam School of International Studies in Singapore, wrote in an email. "I don't see the political will to launch talks on this scale. And, practically, to get the entire 21 member economies to agree to talks on liberalizing trade with one another is just not in the cards."

It's the politics, stupid

Even TPP's prospects are dubious, some analysts say. The problem, as usual, is politics. Domestic politics, to be more specific — in the U.S. and Japan, for starters.

With TPP, Obama's team is headed into a bruising fight to get Americans down with another ambitious trade deal. Republicans are typically more free-trade-minded and likely to support such deals, so you'd think a Republican-controlled House could help.

But Obama's recent failure to re-negotiate a free trade deal with South Korea doesn't bode well. In that case, U.S. auto companies and beef exporters couldn't swallow the terms of the original 2007 deal and pressed for a better one. But so far Seoul isn't biting.

With TPP, it's the U.S. dairy lobby that's gearing up for battle. It threw down a gauntlet in March by marshaling 30 senators from both parties in a show of force against TPP. The reason, the senators said in a letter: Cheap dairy imports from New Zealand threaten U.S. dairy farmers livelihoods.

Elms, the trade expert, says objections are also likely from U.S. beef and sugar producers, and textile producers who would face cheap competition from Vietnam. She thinks these objections won't be as much of a hurdle as U.S. automakers' concerns over the South Korea deal. But the politics of TPP have others betting against Obama already.

"The net benefits to the U.S. economy are likely to be minimal and the political costs, imposed by dairy exports from New Zealand, substantial," said John Ravenhill, an expert on global trade at Australian National University. "So I would not be optimistic about its chances."

"The TPP at the moment has no significant economy involved with which the U.S. does not already have a trade agreement," said Ravenhill, with the possible exception of Vietnam. If Tokyo gets on board, TPP would become far more important, he said.

But Japan's inclusion would also sharply raise the political stakes — almost certainly sparking a fierce debate in America that would make the 1990s NAFTA fight look like a playground scuffle.

Land of the rising "no"

Which brings us to Japanese politics. Tokyo's center-left government has only expressed vague interest in joining TPP talks [4], and it's already ignited a firestorm of debate and brought 3,000 farmers onto the streets in protest. Japan's rice and vegetable farmers have long been protected by tariffs as high as 600 to 800 percent, and they like that arrangement just fine, thank you very much.

Prime Minister Naoto Kan has an urban support base that's more likely to back free trade. But the opposition — and some in Kan's own coalition — draw support from rural farming areas. And amid Japan's musical-chairs political leadership, Kan is considered weak.

At his excellent "Observing Japan [5]" blog, Tobias Harris rounds up the politics of TPP in Japan, and says Kan needs to show leadership on the issue. Instead, Tokyo kicked the can down the road, saying it won't make any decision on TPP until next June. "By proceeding cautiously now, did the government simply give its opponents time to mobilize and thus ensure that once again the issue will be postponed?" wrote Harris.

If the politics of TPP look thorny, they're nothing compared to the politics of a wider trans-Pacific deal. Protected agricultural sectors have so far helped prevent a Korea-China deal, a Japan-Korea deal, or an expansion of the ASEAN-China deal to include Korea and Japan.

And any ambitious regional deal will face the same issues that have seen the the current "Doha Round" of global trade talks grind to a halt, said Ravenhill.

"What you have is essentially the same divide as exists in the Doha round, except with a couple of key players missing — the EU and Brazil," said Ravenhill. "But otherwise you've got the same players with the same attitudes and the same entrenched interests facing off against each other."

In other words, the politics are just as tough. "For economists, the puzzle is why states would ever do anything other than free trade," Harris wrote in his post on TPP, paraphrasing political economist Helen Milner. "For political scientists the puzzle is why states would ever practice anything but protectionism."

"Getting back in the game"

If the politics of these deals are so daunting, why all the rosy talk in Yokohama?

TPP is partly about showing that the U.S. is "back" in Asia. There's a perception that while Asia has been busy inking deals and integrating its economies, Washington's been asleep at the switch.

Now Washington is determined to be a player on economic as well as security issues. TPP "is a bid by the U.S. to keep at bay Asia-initiated economic integration in the region and maintain influence over Asia," Moon Gwang-lip wrote recently in South Korea's Joong Ang Daily. The deal is "being driven primarily by strategic calculations on what is necessary to get back in the game" in Asia, added Ravenhill.

Elms said the TPP drive began at the administration of George W. Bush over worries that Washington was being "locked out" of Asian markets and left out of preferential deals. "Many officials in the U.S. were increasingly concerned about the proliferation of trade agreements at all levels that would have left the United States on the outside," Elms said.

The next TPP talks are in December in New Zealand, and Obama wants big progress by next year's APEC summit in Hawaii. But if he can't sort out the politics, TPP — not to mention FTAAP — may well be DOA.

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Meet China's dolphin tribe

Analysis: Inflation, hoarding, hot money — why the "currency wars" will only get worse.

TAIPEI, Taiwan — They're called the "dolphin tribe," a pun on the Mandarin word for "hoarding."

They're an example of how a weaker U.S. dollar is starting to affect everyday lives in China and across east Asia — and why, even as Asia-Pacific leaders meet in Yokohama to hash out a free trade agreement, the "currency wars" have only just begun.

"Dolphin tribe" (haitunzu) is one of the latest buzzwords on the Chinese-language internet, and it refers to Chinese who have begun hoarding everyday goods on expectations of more price hikes.

Ms. Zhang, from the southern metropolis Guangzhou, told China's Southern Daily that hoarding had become an obsession, and she's even snatching up makeup and towels. "I'm hoarding everything I use — I've become a 'dolphin'," she told the paper.

It's not just hysteria. China just shocked analysts by posting 4.4 percent rate of inflation in October, far higher than expected — and some economists are now saying the rate could soon hit 6 percent. According to the Southern Daily, prices at Guangzhou supermarkets are soaring: cooking oil shot up 15 percent in late October; sugar, 13 percent, ditto garlic, ginger, apples and rice wine.

Why the sharp rise in prices? One of the reasons, explains Taiwan finance expert Norman Yin, is the weak dollar. "When the U.S. dollar is going down, people holding U.S. dollars dump them to buy other things to secure value, so it pushes everything up," said Yin. "So the price of imported goods and all kinds of materials is soaring."

Commodity prices are also sharply up in Taiwan, prompting the government to slash tariffs on key imports like corn flour, soybean flour and cane sugar to ease the burden on consumers.

Now, central banks in both Beijing and Taipei are expected to hike interest rates as they pivot from stimulating the economy to taming inflation. Expectation of those hikes from China — possibly over the weekend — sent commodities tumbling Friday, a sign of markets' ultra-sensitivity.

But hiking rates is likely to worsen another long-standing problem: hot money inflows. "Hot money" refers to short-term speculators looking to turn a quick buck on the currency or another craze du jour — be it New Taiwan dollars, South Korean won or Indonesian rupiah. Such investors are basically turning East Asian currency markets into casinos, pumping in funds by the billion only to dump the local currency when they think it has peaked.

According to one Chinese official, there's now $10 trillion — that's trillion with a 't' — in "hot money" sloshing around the globe, looking for easy returns. Buying in mass amounts creates self-fulfilling prophecies: whatever the hot money thinks will go up, usually does.

But exporting countries don't want their currencies to climb too much, because that makes their goods pricier abroad, and so slows business, sags economies and kills jobs. To keep their currencies from spiking up and then cratering like Pets.com stock circa 2000, China's central banks and others engage in massive interventions. Basically, they're sopping up all the "hot money" to keep their currency stable.

Now, the U.S. Federal Reserve has just made their job that much more difficult — turning the headache of "hot money" into a serious migraine. From East Asia's perspective, the $600 billion "QE2" injection plan has sent a tsunami of new "hot money" rolling toward their shores.

"The U.S. is trying to boost domestic demand in America, but that money will go abroad instead of staying in the U.S.," said Yin. "So it causes problems. When it goes abroad, it just pushes the U.S. dollar's value further down, and then it triggers a currency war."

Yin says Washington may not mean badly, it just don't "give a damn" about what QE2 will mean for China or other Asia exporters. "Americans aren't really taught to see this kind of thing as a concern," said Yin. "But for us, if there is such a large quantity of money flowing in in a very short period, then it really causes a lot of trouble, because most Asian countries have quite shallow financial markets."

"Hot money" inflows account for about 20 percent of China's accumulated reserves, says Yin; some economists say much more. And it's not just China; Japan, South Korea and Taiwan are also struggling to sponge up hot money inflows and hold down currency values. Yin said hot money began surging into Taiwan's currency market at $1 billion a day starting in mid-September when QE2 was first signaled, at least twice the typical daily flows before. It's coming in at $1.5 billion a day now.

"The four central banks are very busy in dealing with hot money from abroad, and they'll use every means," said Yin.

That means loading up their weapons of mass intervention. In Taiwan, sipping coffee with foreign bankers and hinting politely that maybe they should lay off the NT dollar didn't work so well (they called it "moral suasion.") So Taiwan's central bank is now selling massive amounts of Taiwan dollars toward the end of daily trading sessions to keep the currency down, adding steadily to its more than $380 billion pile of foreign exchange reserves — the world's fourth-largest reserves after China's, Japan's and Russia's.

Taiwan and South Korea are also dabbling with capital controls; changing rules to discourage short-term speculators. Japan is ready to sell massive amounts of yen into the market to keep down its value.

And China will continue to do the same with its own currency, the yuan. In fact, its intervention is only likely to increase, and its reserves balloon more (they're now a cool $2.65 trillion), as higher interest rates attract even more hot money.

That means despite what Obama and his "dogs" at the IMF may say (see Next Media Animation rap below), China's not likely to throw Washington a bone on the value of the yuan.

Economist Andy Xie is downright alarmist, writing in a recent commentary in China International Business that tit-for-tat attempts to drive down currency values are wreaking havoc on the global economy.

"If you print a trillion, I'll print a trillion. No change in exchange rate after a trillion? Let's do it again, QE2," writes Xie. "The world is heading towards high inflation and political instability. It's only a matter of time before there is another global crisis."

Think we're in a currency war? The dolphin tribe's rise is a sign you ain't seen nothin' yet.

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

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

Beef-storm hits Taiwan

US beef imports rear a very ugly head. Cow patties are on the menu, too.

Global Post, April 23, 2010

TAIPEI, Taiwan — Is the tongue an internal organ?

That's the timeless question that gripped Taiwan this week, as the issue of U.S. beef imports once again reared its ugly head.

The spark was Taiwan officials' statement Monday that U.S. beef tongues, testicles, tails and other choice bits are not "internal organs" and therefore not included in a ban on some U.S. beef products passed in January. This meant such imports would be allowed, albeit with close inspections.

That led to an outcry from opposition lawmakers, who accused the government of being sneaky, and splitting hairs.

Just a day later, Taiwan's government flip-flopped, saying it now "suggested" that Taiwan firms not import tongue and some other U.S. beef bits for the time being, until public worries are addressed.

The issue is ostensibly about health concerns over mad cow disease and its human variant. But it's been politicized by opportunists looking to bash President Ma Ying-jeou's government, as well as critics of Ma's governing style. America's top diplomat here said as much this week to Taiwan reporters in remarks aired on Taiwan TV.

"It's unfortunate that some people, for political reasons, are making this into a new issue," said William Stanton, head of the American Institute in Taiwan, which handles U.S.-Taiwan relations in the absence of formal ties. "I eat beef tongue myself, and I don't think it's a problem."

In fact, U.S. beef has become a political issue across East Asia. After North Korean nukes and the value of the Chinese yuan, it's one of the biggest headaches for American diplomats.

It all started in 2003, when a single cow in Washington State tested positive for mad cow disease. The brain-wasting disease is linked, through tainted beef consumption, to variant Creutzfeldt-Jakob disease (vCJD) in humans. There's no known cure, and it's fatal.

Japan, then America's No. 1 export market for beef, promptly enacted a ban on U.S. beef after the finding. Taiwan, South Korea and other countries followed suit.

Since then, the U.S. has insisted its beef is safe and pressured Asian countries to re-open their markets — with mixed success. Japan opened its market to some imports in 2006, only to tighten up again after banned bone parts were found in shipments from the U.S. Tokyo recently announced it would re-open beef talks with the U.S.

Taiwan's political beef-storm hit last autumn, when the government announced it had inked a deal with the U.S. to relax its ban and allow some imports. Protesters were furious that Ma's government had not consulted with the legislature or communicated with the public on the issue first.

Perhaps the most notorious of the anti-U.S. beef protesters was Chu Cheng-chi, a grad student in sociology at Taiwan's top school, National Taiwan University. Incensed by the government's move and frustrated at protesters' inability to change policy, he decided drastic tactics were in order.

So he went to Yangmingshan, a cowfield-dotted, scenic mountain area north of the capital, and collected a cow patty. He then took a video camera-toting friend to the Presidential Office, propped up a table, and proceeded to fix and eat (with ketchup) a cow-dung burger. See his film here:

Under pressure from protesters like Chu, ruling party and opposition lawmakers and the media, the government backtracked. The legislature passed a law keeping a ban on U.S. beef products believed to be most at risk for mad cow disease, including ground beef, skulls, eyes, intestines and other organs.

On the day that law passed, Chu got a large tattoo on his back with a clenched fist and the words "The people stand up," in Chinese.

In an interview this week, he insisted he really ate cow-dung, saying, "I decided we needed a more special and personal way to make our demands known."

He agreed that the beef issue had become politicized. But he said the latest flap again showed the Taiwan government's contempt for the public.

"They didn't talk to the legislature or people first. They didn't communicate," said Chu. "The people's feeling is that the government doesn't respect us, and that it's trying to sneak these products into Taiwan."

Chu ticked off a list of concerns about U.S. beef. He said there was no cure for vCJD, and that consumers couldn't avoid risks by skipping beef, since tainted beef parts could make its way into other products.

Moreover, he said, the large-scale U.S. beef industry, with its huge machinery and chemical fertilizers to grow cow feed, is environmentally unfriendly. "It takes up so many resources," he said. "It's such a wasteful product."

Meanwhile, U.S. beef exporters, powerful U.S. politicians in beef-exporting states and U.S. trade officials have grown increasingly frustrated with Taiwan and other Asian trade partners. Trade officials this week said they were "deeply disappointed" at Taiwan's planned inspection process, and other U.S. officials insisted American beef is safe.

No vCJD cases have been linked to consumption of U.S. beef. (Of three known U.S. cases of vCJD, two were "likely exposed" in the United Kingdom, and the third was "most likely" infected as a child in Saudi Arabia, according to a recent U.S. Centers for Disease Control and Prevention fact sheet.)

And American officials cite a 2007 ruling by the World Organization for Animal Health that U.S. beef was safe for export "provided that certain slaughter and beef processing conditions are met." They note that there's been no case of mad cow disease in any U.S. cow born after 1997.

But it's hard to convince the Taiwanese public, especially when they can watch a cow-dung-burger-eating protester instead.

Original site

The yuan diaries

Analysis: Your guide to understanding the yuan-dollar currency spat

Global Post, April 13, 2010

TAIPEI, TAIWAN -- To get the scoop on China's currency, follow the "hot" money.

So says Shanghai-based independent economist Andy Xie, a highly regarded maverick who used to be Morgan Stanley's chief Asia economist.

Economists like Xie are locked in a fierce debate over the simple question: is the Chinese currency too cheap?

"Hot money" — or speculative foreign money — is the key to the answer, he says.

It's not just an academic tiff. If the currency is too cheap, that means Chinese imports are too cheap on Wal-Mart shelves. That's unfair to competing U.S. firms and means, politically speaking, China's a bad guy.

If the currency is fairly valued, that means Chinese goods at Wal-Mart are fairly valued, too. U.S. firms are just whining and should suck it up. All's fair in love and globalization. By this reasoning, China's just a savvy business rival.

U.S. political pressure was pushing the White House toward the first conclusion. It was about to label China a currency "manipulator" (read: a really bad guy.) But diplomacy appears to have won the day; a decision on that was postponed, and China in turn has hinted it will let its currency rise, at least by an itty-bit. The yuan-dollar level was on the table again Monday, when President Barack Obama met with Chinese President Hu Jintao in Washington.

That's not likely to end the economists' debate, though. To understand that, we first have to unpack a few suitcases of financial jargon.

For those who don't speak "Forex," here's the situation, as explained patiently by Nicholas Lardy, one of America's top go-to guys on China's financial system.

China usually sells a lot more stuff to America than it buys from America. China sells stuff for dollars and buys stuff with China's currency, the yuan or renminbi. That means China's firms end up with way more dollars than yuan. Follow?

The problem is, Chinese firms need yuan to pay their employees and suppliers and buy materials. So what do they do?

They go to China's currency market and swap their dollars for yuan. That creates a lot of demand for yuan. If you remember your Econ 101, a lot of demand should push up the price of the yuan, given a steady supply. In finance-speak, the yuan should "appreciate."

Here's where China's government intervenes. It pumps in extra supply of yuan and sells to all comers, at a roughly set price of 6.8 to the dollar, or about one yuan for 15 cents. "The natural tendency would be for the renminbi to rise," says Lardy. "The government doesn't want that to happen, so it steps into the market and sells the renminbi to keep its value low."

In doing so, China's government collects massive amounts of dollars, mostly U.S. Treasuries, to be more specific. Voila, China's ballooning "foreign reserves," which you've heard so much about. (Beijing's stash is now worth about $2.4 trillion, with $450 billion tucked away in 2009 alone.)

Now back to the debate. Wang Tao, the Beijing-based head of China economic research at investment house UBS, says the fact that China has to sell huge amounts of yuan every day means it's obviously too cheap. If China's central bank overslept one day, the market would drive the value of the yuan higher.

Sounds like an open and shut case. China is creating artificial supply to keep its yuan cheap and so help its exporters. "If the central bank was not buying forex day in and day out, the currency would have appreciated," says Wang.

But here's the catch, counters Xie: A big part of the demand for yuan is artificial, too — that's the "hot money."

Foreign speculators are betting the yuan is going to rise like Amazon.com stock in the 1990s. So they're rushing into China to buy the yuan at 15 cents a pop, hoping to sell it later when the price is, say, 17 cents, pocketing two cents per yuan profit. Sounds like chump change, but it adds up if you're swapping large amounts.

Meanwhile, speculators are parking their yuan in Chinese property. That's driving a massive property bubble, particularly in places like Shanghai. The country's in the grip of a speculative "mania," warns Xie, and "the day of reckoning will come."

He thinks "hot money" accounts for fully half of China's accumulated reserves.

UBS' Wang isn't as worried. She admits some speculators have bet on the yuan, especially since 2007. But she says China still keeps close tabs over foreign money flows, and has many controls. "It's not so easy to get in and out," she says.

That means small speculators may be able to move money back to the home country. But big institutional investors that could really distort China's currency market can't move money in and out of China the way they can in some other countries, says Wang.

Her investment house's latest estimate is that "hot money" accounts for less than 20 percent of China's accumulated reserves, or $480 billion at most.

So who's right?

Ask your nearest economist. And expect to hear three different answers.

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