ECONOMIC CONFERENCE - CROSS-STRAIT CONSENSUS

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002365

SIPDIS

SIPDIS

DEPT FOR EAP/TC

E.O. 12958: DECL: 07/12/2016
TAGS: ECON EAIR EINV EFIN PGOV PREL CH TW
SUBJECT: ECONOMIC CONFERENCE - CROSS-STRAIT CONSENSUS
POSSIBLE

REF: TAIPEI 1644

Classified By: AIT Acting Deputy Director Charles E. Bennett, Reason 1.
4 d


1. (C) Summary: Taiwan's Sustainable Economic Development
Conference has been rescheduled to July 27-28. Planners
are optimistic that members of the pan-Blue opposition will
participate, although only in a personal capacity. Cross-
Strait issues will dominate the agenda with progress
possible on direct transportation links, tourism, and
liberalization of investment restrictions. The Chen
administration appears ready to move forward on cross-
Strait liberalization. However, implementation of some of
the conference's recommendations will require cooperation
from the PRC or opposition-controlled Legislative Yuan
(LY). End summary.

Back on Schedule
--------------


2. (U) Taiwan's Sustainable Economic Development Conference
will take place July 27-28. Participants in the conference
will discuss a broad range of economic issues facing Taiwan
to seek consensus for policy recommendations, in the same
mold as the Economic Development Advisory Conference in

2001. The conference was initially proposed in November
2005 by the Chen administration during the campaign for
island-wide local elections. It was originally slated for
December of last year. Since then it has been postponed at
least four times. Recent discussion of postponing the
conference again to September 2006 caused some observers to
doubt it would take place at all.


3. (C) Chairman Hu Sheng-cheng of the Council for Economic
Planning and Development (CEPD),which has been charged
with organizing the event, recently told AIT/T that some
participants had proposed delaying the conference until
September to allow more time for preparations. However,
Hu's CEPD argued that if the conference was held so late in
the year there would not be adequate time to implement any
recommendations that might emerge from it during the fall
2006 Legislative Yuan (LY) session. Hu also pointed out
that Taipei and Kaohsiung mayoral elections in December
could further interfere with implementation. At CEPD's
urging, the conference was moved back to July.
Preparations now appear to be on schedule with preliminary
meetings underway.

Indirect Pan-Blue Support
--------------


4. (C) Hu was optimistic about the prospects for a
successful conference because the opposition Kuomintang
(KMT) and People's First Party (PFP) would participate even
though they might not explicitly endorse the conference.
Hu explained that KMT chairman Ma Ying-jeou supported the
conference but had left the decision on whether the KMT
would participate to the KMT's LY caucus. The caucus
decided that the KMT would not participate officially.
However, according to Hu, the KMT's think tank, the
National Policy Foundation, will nominate 15 KMT members to
attend the conference in a personal capacity rather than as
representatives of the party. Prominent Pan-Blue People
First Party members, including LY Vice President Chung
Jong-chi and LY member Christina Liu have also agreed to
attend as individuals rather than as party representatives.
In addition, LY President Wang Jin-pyng and former KMT Vice
Chairman Vincent Siew will co-chair the conference with
Premier Su Tseng-chang. However, the Pan-Green Taiwan
Solidarity Union has indicated that it will not participate
if the conference includes discussion of the relaxation of
cross-Strait restrictions.

Can Cross-Strait Controversy Become Consensus?
-------------- -


5. (C) Attention at the conference will focus heavily on
cross-Strait economic issues. The health care system, the
pension system, and financial sector reform will also be on

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the agenda but won't generate the same level of controversy
or interest among the public. Cross-Strait issues to be
discussed will likely include direct transportation links,
PRC tourism, industry restrictions on investment, and
capital limits on investment. Chung-hua Institute for
Economic Research (CIER) President Ko Chen-en and his
counterpart at the Taiwan Institute for Economic Research
(TIER),David Hong, agree that consensus is most likely to
emerge on direct transportation links and PRC tourism.
Both told AIT/T that liberalization in these areas had the
most potential for improving Taiwan's economy quickly.


6. (C) Hong also believes that the conference might result
in the relaxation of restrictions on the activities of
Taiwan financial institutions in Mainland China. On July
10, one of the preparatory committees revealed that it had
reached a preliminary consensus that Taiwan should
negotiate financial supervisory mechanisms directly or
indirectly with the PRC so that PRC banks could be
permitted to open representative offices on the island.
This could in turn lead to further opening in the PRC for
Taiwan banks. Committee member Christina Liu told the
press that she believed industry organizations in the
financial sector could lead these discussions under the
"Macau model" used to negotiate charter flights.


7. (C) In addition, Taiwan's industry associations have
made alternative proposals to relax the capital limit on
investment in Mainland China. The Chinese National
Federation of Industry has proposed that the ceiling on
investment be raised from 40 percent of a firm's capital to
50 percent. The Taiwan General Chamber of Commerce
suggests that investment in the PRC should be aggregated
and limited to a percentage of Taiwan's GDP instead of
putting a limit on each firm's investment.

Premier has Authority and Pressure to Produce Results
-------------- --------------


8. (C) CIER's Ko believes that the Chen administration is
ready to move forward with substantial cross-Strait
liberalization. He observed that President Chen's May 31
announcement that he would delegate much of his authority
as president to Premier Su meant that Su might now have the
power to make changes to cross-Strait policy. Ko also
commented that Su was much more practical in terms of
cross-Strait policy than many other more ideological
Democratic Progressive Party (DPP) leaders and would have
two years as premier to show progress on economic growth
before running for president in 2008. Ko argued that
Taiwan's middle class feared the island was falling behind
the Mainland economically and that the DPP needed to show
that it can manage the economy.

Comment - Next Step: Implementation
--------------


9. (C) The recent announcement of a new package of charter
flights and the lifting of restrictions on investment in
the semiconductor packaging and testing industry suggest
that the Chen administration has concluded that further
opening of economic relations with Mainland China is
necessary. This will make it easier to reach a consensus
on cross-Strait issues at the conference, but
implementation may still prove problematic. Implementation
of some proposals may require cooperation from the PRC or
the opposition-controlled Legislative Yuan. Nevertheless,
as TIER's Hong observed, even implementation of 30 to 40
percent of the proposals that come out of the conference
would be a significant achievement. End comment.
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