ECONOMIC CONFERENCE - PROSPECTS DIM FOR CROSS-

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002462

SIPDIS

SIPDIS

DEPT FOR EAP/TC

E.O. 12958: DECL: 07/20/2016
TAGS: ECON EINV EFIN PREL CH TW
SUBJECT: ECONOMIC CONFERENCE - PROSPECTS DIM FOR CROSS-
STRAIT BREAKTHROUGH

REF: A. TAIPEI 220


B. TAIPEI 1644

C. TAIPEI 2365

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


1. (C) Summary: Taiwan's Sustainable Economic Development
Conference has suffered a series of setbacks in the last
week, including the announcement that People First Party
(PFP) Legislator Christina Liu would not participate and
President Chen's reaffirmation of the "active management"
policy. Vice Premier Tsai Ing-wen told the Director she
had lost hope of accomplishing anything substantial at the
conference. Council for Economic Planning and Development
(CEPD) Chairman Hu Sheng-cheng, who is organizing the
conference, is still optimistic, but the conference
recommendations that he described do not represent a major
breakthrough on cross-Strait economic policy. End summary.

Week of Setbacks
--------------


2. (U) The last week has seen a series of events that cast
doubt on the possibility that Taiwan's Sustainable Economic
Development Conference will result in any major
breakthroughs in cross-Strait policy or other important
economic issues. On July 13, Legislative Yuan Member
Christina Liu, of the Pan-Blue People First Party (PFP)
announced that she would not participate. Former President
Lee Teng-hui and the Pan-Green Taiwan Solidarity Union have
repeatedly objected to the possibility that the conference
might result in further economic opening to the PRC,
especially proposals to relax the 40 percent limit on
investment in the Mainland. On July 16, President Chen
reaffirmed the "active management, effective opening"
policy and said that the aim of the conference was not to
relax restrictions on cross-Strait economic relations. In
addition, the Executive Yuan announced during a July 19
preparatory meeting for the conference that it would no
longer pursue the goal of reducing the number of financial
holding companies in half and would re-assess plans for a
special international board for the Taiwan stock exchange.

Tsai Losing Hope

SIPDIS
--------------


3. (C) A downbeat Vice Premier Tsai Ing-wen privately told
the Director on July 19 that she had lost hope of
accomplishing anything substantial on economic policy at
the conference. When the Director complimented Tsai's work
with Premier Su Tseng-chang to quietly liberalize remaining
cross-Strait economic restrictions, Tsai agreed that the
work was important. She said at this point she and the
Premier hoped nothing said or done at the conference would
limit or restrict those efforts. She noted that the Deep
Greens' desire to derail such efforts could make the
conference rather raucous.

Hu Still Cheering
--------------


4. (C) Chairman Hu Sheng-cheng, whose CEPD is charged with
organizing the conference, told econoffs on July 20 that he
still hoped the conference would yield positive results.
He noted that LY Member Christina Liu and LY Vice President
Chung Jong-qi, both of the PFP, continued to contribute to
the conference preparations even though they would not
actually appear at the event. He described their behind
the scenes efforts as a way to support the conference while
saving face for the PFP leadership that had asked party
members not to participate. Liu even wrote an op-ed piece
in support of the conference that appeared in the United
Daily News on July 19.


5. (C) Hu emphasized that Liu had been a key contributor to
recommendations on financial policy. She formulated
compromise language on opening the way for Taiwan banks to
set up branches in the PRC and permitting PRC banks to open
representative offices in Taiwan. In addition, Hu
commented that the conference would likely recommend that
Renminbi exchange be legalized in Taiwan after industry-led
discussions with the PRC instead of waiting for a formal
agreement between the two authorities. This recommendation
echoes Liu's earlier efforts to amend Taiwan regulations
that call for a "currency settlement agreement" to require

TAIPEI 00002462 002 OF 002


only a "currency settlement mechanism."


6. (C) Hu also described a likely compromise on the cross-
Strait investment restrictions that limit Taiwan firms to
investing no more than 40 percent of their capital in
Mainland China. Hu said the conference would recommend
that the restriction stay in place as a general rule, but
investment beyond the 40 percent ceiling would be approved
on a case-by-case basis. Pointing out that only a small
number of Taiwan businesses had actually reached the 40
percent ceiling, Hu claimed that a case-by-case approach
could effectively resolve the objections to the ceiling.
(Note: Taiwan's Securities Exchange Commission recently
announced that 140 listed companies had reached the ceiling
on investment in China. End note.) The case-by-case
approach would be consistent with the "active management"
policy. Ministry of Economic Affairs Investment Commission
officials have hinted since January that the "active
management" policy could lead to case-by-case flexibility
on the 40 percent rule (ref A).

Comment - Keep Expectations Low
--------------


7. (C) Recent events and Tsai's pessimistic comments
indicate that there re likely to be no major breakthroughs
on cross-Strait policy at the conference. Hu must play the
role of conference cheerleader. His optimism seems
sincere, but the conference recommendations he described
won't be a radical departure from the "active management"
policy. The results will almost certainly be criticized by
the Deep Greens as going too far and the Deep Blues as
accomplishing too little. As Hu observed, this may be the
surest sign that the conference struck an acceptable
balance that approximates a consensus. Nevertheless, even
these modest recommendations will represent movement in the
right direction. The burden will then be on Su and Tsai to
implement the meager proposals in Taiwan's charged
political environment. End comment.
YOUNG