KMT ASSETS SELL-OFF IN FULL SWING

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002535

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/27/2031
TAGS: PGOV TW
SUBJECT: KMT ASSETS SELL-OFF IN FULL SWING

REF: TAIPEI 0959

Classified By: AIT Director Stephen M. Young, Reason(s): 1.4 (B/D).


1. (C) Summary: The Kuomintang (KMT) continues to liquidate
its assets in order to ease financial pressures on the party
and to deprive the DPP of a campaign issue, a KMT official
told AIT. Most of the KMT's major assets, including the
party headquarters building, have already been sold, and the
party hopes to sell off its shares in the Central Investment
Corporation before the end of 2007. KMT Chairman Ma
Ying-jeou is behind the push to sell off party assets. Some
party members oppose selling certain assets such as the
party's newspaper and its headquarters building for emotional
reasons. End Summary.


2. (U) The KMT's opponents have recently stepped up
discussion of the "party assets" issue, perhaps in
retaliation for the spate of Pan-Blue inspired corruption
accusations against the Chen administration, according to
press reports. In mid-June, legislators from the Democratic
Progressive Party (DPP) and Taiwan Solidarity Union (TSU)
restated accusations that the KMT acquired many of its assets
illegally, and proposed that the Legislative Yuan should pass
referendum legislation to demand the KMT return its
properties to the public. In early July, the Executive Yuan
ordered the Ministry of Finance to serve notice to the KMT to
return to the government 19 theaters owned by the Central
Motion Picture Company (CMPC). During Ma Ying-jeou's
mid-July trip to Japan, the Taiwan media published
allegations that Ma was arranging for the sale of a KMT-owned
building in Tokyo.


3. (C) KMT Deputy Secretary General Chang Che-shen discussed
KMT efforts to resolve the "party assets" question with AIT
on July 20. Cheng claimed all of the KMT's assets, including
the Tokyo property, were obtained legally, and that KMT
ownership is supported by proper documentation. (Note: KMT
opponents discount the importance of documentation, noting
that the KMT ran the government for 50 years, and could then
easily obtain whatever legal cover it needed.) According to
Cheng, the dispute over KMT assets stems from the fact that
KMT was the government before Taiwan democratized, but had to
extricate itself from government and transform itself into a
distinct political party during the democratization process.
While in power, Cheng explained, the KMT often used
party-owned assets to perform governmental functions that the
government could not do itself. For example, the CMPC served
as the government's international propaganda wing, giving the
public the wrong impression that it was actually part of the
government. When the KMT was forced by increasing
democratization to withdraw itself from governmental
functions, blurred private-public distinctions like the CMPC
case led many to believe the KMT was wrongfully taking
government assets for itself.


4. (C) According to Cheng, the KMT first began selling off
assets when Lien Chan assumed the KMT chairmanship in 2000,
in response to increasing political pressure from the
ascendant DPP and the newly elected President Chen. But it
was Ma Ying-jeou who shifted the project into high gear ---
since Ma became chairman in August 2005, the KMT has sold off
a majority of its assets, including various companies,
newspapers, television ad radio stations, and real estate
properties (see reftel). The party even sold its lavish
headquarters building opposite the presidential palace in
March, and moved into more modest quarters in June. Cheng
said the main balance of KMT assets are now held by the
Central Investment Corporation (CIC),and he hopes to sell
off all KMT-held shares in the CIC by the end of 2007.


5. (C) There are two reasons for Ma's drive to liquidate
party assets, said Chang. First, the KMT remains in dire
financial straits because of massive pension obligations and
high fixed operating expenses. Many of the KMT operations
such as the party's newspaper were losing money, or, like the
old headquarters, cost too much to maintain. Second, Ma
wants to resolve this issue prior to the 2008 presidential
election campaign, short-circuiting DPP accusations that the
KMT is still hoarding "illicit assets" gained during its
fifty years of political dominance. Chang said that although
Ma has delegated responsibility for resolving the "party

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assets question" to him, Ma remains involved in the process
and monitors its progress closely. To help rebut critics'
charges, said Cheng, the KMT will on August 19 make public a
report disclosing the history of the KMT's assets and the
party's efforts to resolve the matter responsibly.


6. (C) In closing, Cheng said opposition within the party to
the sale of certain assets should not be interpreted as
opposition to Ma himself or his reform agenda. Certain
assets, like the old headquarters building and the Central
Daily News, Taiwan's oldest newspaper, have emotional
significance to many KMT members. Though some within the
party opposed letting these icons go, they still support Ma's
leadership of the party, Cheng said.

Comment
--------------


7. (C) Ma has a strong interest in neutralizing the "party
assets" issue before the 2008 presidential election, and this
is one issue on which he has exercised effective leadership
and not tolerated dissent. Despite grumbling from various
quarters, Ma has pressed on, with considerable success. The
KMT is also launching a public relations campaign, hoping
that increased openness will help put the issue to rest with
the public. Despite Ma's resolve, and greater KMT
sophistication in trying to sway public opinion, many voters'
minds were probably made up on this issue years ago. The KMT
can't convince everyone that it acquired its assets fairly
and that it doesn't owe compensation to the public; the best
it can do is hope to help the issue fade away over time. All
of Ma's efforts notwithstanding, this is an issue the DPP
will still likely exploit against him in 2008.
YOUNG