Taiwan bourse shrugs off Chen
scandal By Craig Meer
TAIPEI - Taiwan's economy has in general
remained calm over the current political crisis
amid calls by opposition parties for embattled
President Chen Shui-bian to step down, in what
analysts say is a sign of the maturity of Taiwan's
democracy.
Even Taiwan's politically
sensitive stock market is more affected by "what
is happening overseas'' these days, analysts say.
This is true despite a sudden 3.5% drop on the
Taiwan Stock Exchange index on Monday to 6,715,
widely seen as a reaction to the Taiwan opposition's
pressure on Chen to resign.
The Taiwan
Stock Exchange has been capricious of late, and
currently resides above the first-quarter average
of 6,574, though down on April's robust average of
6,941; but this is nothing
much
out of the ordinary.
The lack of a
stronger reaction is puzzling. The island's
political-risk calculus has been edging up in
recent weeks on the back of a corruption scandal
centered on Chen's son-in-law Chao Chien-ming.
Last week, the issue turned into a constitutional
matter when Chen announced that he would hand over
"most" of his executive authority to Premier Su
Tseng-chang and the cabinet. The move failed to
satisfy Chen's opposition critics - who want Chen
impeached or the cabinet sacked unless the
president steps down voluntarily - and may yet
precipitate a constitutional crisis.
But
it seems that the markets have simply taken all
this in their stride. "What's happening offshore
is a lot more important than the political
situation here," Diana Wu, a market analyst from
Taiwan Capital Securities, said in a telephone
interview. "The world economy is soft and this is
currently having a dampening effect on investor
sentiment. Then there's the [soccer] World Cup -
almost all of Europe is going on holiday. This is
probably a lot more important than the political
problems."
Investors are quite immune to
much of the noise coming out of the government
these days, Wu suggests. People just don't expect
things to spin out of control East Timor-style.
Both President Chen's ruling Democratic
Progressive Party and the main opposition party,
the Kuomintang (KMT), bend the rules from time to
time, but by and large the country's political
leadership is committed to due process. This is
good news for financial-market stability and a
credit to Taiwan's democratic development.
But short-term economic stability is one
thing, and good performance is something else.
National accounts statistics suggest the island's
economy is not performing anywhere near as well as
it could. While the economy grew by 4.93%
year-on-year, in the first quarter of 2006 -
almost entirely driven by exports, which expanded
by 14.52% - consumption was up by a meager 1.29%
and investment contracted by a worrying 3.96%.
People are not spending. But is this
because they cannot or will not?
Consumers
are almost certainly not spending because they are
unable to. Credit-card debt has reached epidemic
proportions in Taiwan, prompting the government to
institute a national rescheduling scheme to pull
the estimated half a million problem debtors -
known locally as kanu or "card slaves" -
out of the red. Their overdue card debt is worth
about US$10,000 per person.
The situation
for business, however, is another story. It seems
the corporate sector is not investing because it
is waiting for an improvement in the policy
climate. And for most companies that means a
reduction in tensions with mainland China and the
introduction of direct links between the two sides
of the Taiwan Strait. Currently, all contact
between the two sides is routed through a third
country, usually Hong Kong.
Almost
uniformly, the business community sees the
attainment of both these policy ends as dependent
on KMT chairman Ma Ying-jeou winning Taiwan's next
presidential election scheduled for 2008.
"With Ma Ying-jeou in power, the bilateral
relationship with China will likely improve and
the "three links" [direct transport, communication
and travel links] will be introduced," said Daniel
Chen, the deputy director of Taiwan's Chung-hua
Institute of Economic Research. "This will improve
the performance of Taiwan's economy, which is
currently less than optimal."
The KMT
chief is certainly making all the noises business
wants to hear. At a forum in Taipei hosted by the
securities brokerage firm CLSA on May 12, Ma said:
"Direct links [with the mainland] should be the
rule and prohibition the exception."
Peter
Sutton, head of research at CLSA, said at the same
gathering: "With the opposition KMT the clear
favorite to win Taiwan's 2008 presidential vote, a
powerful cocktail of higher GDP [gross domestic
product] growth, normalization of the
interest-rate structure, direct flights, asset
reflation and increased two-way capital flows lies
ahead."
But there are important question
marks hanging over Ma's capacity to deliver on his
promises. For example, it is not directly apparent
just how he will negotiate direct links with
mainland China. The Chen administration says that
the major obstacle currently holding back
introduction of the links is Beijing's insistence
that Taiwan accept the "one China" principle in
any negotiations.
Many if not most within
Ma's party would be extremely reluctant to support
anything that smacked of a diminution of Taiwan's
current sovereignty. Certainly, there would no
support at all for the claim, if it was so
asserted, that Taiwan is a province of China. Ma
hopes to finesse these potential conflicts with
the so-called "1992 consensus" formula - that
there is one China with different interpretations
in Taipei and Beijing - but to date,
there have been only vague indications that the
People's Republic of China actually accepts this
model.
To get business in Taiwan investing
again will take policy changes that embrace
mainland China. The business community is backing
Ma Ying-jeou to deliver this, and only time will
tell if it has bet on the right horse.
Craig Meer is a Taipei-based
freelance writer.
(Copyright 2006 Asia
Times Online Ltd. All rights reserved. Please
contact us about sales, syndication and republishing
.)
