KMT VICE CHAIRMAN P.K. CHIANG ON CROSS-STRAIT

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 004062

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/06/2031
TAGS: PGOV TW PREL
SUBJECT: KMT VICE CHAIRMAN P.K. CHIANG ON CROSS-STRAIT
RELATIONS, ECONOMIC DEVELOPMENT, AND DOMESTIC POLITICS


Classified By: AIT Deputy Director Robert S. Wang,
Reason 1.4 (b/d)


1. (C) Summary: KMT Vice Chairman Chiang Ping-kun told DDIR
recently that Beijing's approach toward the KMT has softened
under President Hu Jintao. Hu is more willing than previous
CCP leaders to work with the KMT to preserve the "status quo"
because of his concern that President Chen is pursuing an
independence agenda. Chiang expected that the KMT will
encounter resistance from Beijing on issues of Taiwan's
sovereignty and foreign relations if the KMT returns to
power. However, he stressed, cross-Strait opening will be
crucial to Taiwan's long-term economic viability. Chiang
criticized DPP economic policy, discussed upcoming mayoral
elections in Taipei and Kaohsiung, and said KMT Chairman Ma
Ying-jou is the party's only viable candidate for the 2008
presidential election. End Summary.


Optimistic on Future Cross-Strait Relations . . .
-------------- --------------


2. (C) Kuomintang (KMT) Vice Chairman Chiang Ping-kun, ONE
of the party's top strategists on economic and cross-strait
affairs, told DDIR on November 29 that he is optimistic about
the future direction of cross-Strait relations if the KMT
returns to power in 2008. Chiang suggested Beijing's
approach has softened significantly under President Hu
Jintao, who is unnerved by Chen's independence agenda and is
more willing than previous CCP leaders to work with the KMT
to preserve the "status quo." Although reluctant to work
with the pro-independence DPP, Beijing is willing to engage
the KMT because it maintains a "one China" policy, Chiang
said.


3. (C) According to Chiang, the KMT has opened a dialogue
with the CCP that is aimed at: 1) reaching a peace agreement
that provides a framework for future cross-strait relations;
2) initiating dialogue and confidence building measures; and
3) expanding Taiwan's participation in international
organizations, such as the World HEALTH Organization. A KMT
administration after 2008, ideally headed by Ma Ying-jeou,
could make substantive progress along these lines, Chiang
asserted.

. . . But Wary of Looming Challenges
--------------


4. (C) Once in power, Chiang acknowledged, the KMT would
encounter predictable resistance from Beijing on issues
involving Taiwan's sovereignty. For the KMT "one China"
means the Republic of China, which has been an independent
and sovereign state for over 80 years. Given this situation,
the "one country, two systems" model proposed by the PRC is
"completely unacceptable." Maintaining the ROC as a
sovereign state is different from the DPP's ultimate goal of
creating a Republic of Taiwan, Chiang suggested. The KMT
supports the right of the 23 million inhabitants of Taiwan to
choose between unification with the mainland and maintaining
the "status quo" of the ROC as a sovereign, independent
state, Chiang added.


5. (C) Chiang said the KMT expects Beijing to continue
"squeezing" Taiwan's international space by pressuring its
remaining 24 formal diplomatic partners to switch recognition
and by trying to constrain the international travel of ROC
leaders. Chiang told DDIR that the KMT has not raised this
issue with Beijing during its dialogue with the CCP, but he
acknowledged that the two sides would have to address the
issue if the KMT wins the 2008 presidential election. Any
accommodation would be difficult to reach since Beijing
maintains a "strong position" on the issue, Chiang added. As
an example, he cited Beijing's pressure on South Korea in
2005 to withdraw an invitation to then KMT Vice Chairman and
Taipei Mayor Ma Ying-jeou to attend an Asian leaders forum.

Taiwan's Economy
--------------


TAIPEI 00004062 002 OF 002



6. (C) Chiang strongly criticized Taiwan's economic policies
in recent years, characterizing as a "lost decade" the period
since former President Lee Teng-hui implemented the "go slow"
approach toward investment in the PRC in 1995. Greater
economic integration and closer links with China are
essential for the future well being of Taiwan's economy,
Chiang insisted. The failed policies pursued by Lee and then
President Chen have damaged the long-term economic viability
of Taiwan. Chiang pointed to slowing consumer consumption,
which accounts for 60 percent of Taiwan GDP, down from 6 to 3
percent growth, as well as a significant slowdown in the rate
of investment growth over the past five years as key
indicators. Without a correction, he lamented, Taiwan could
become a "second Philippines," noting that South Korean
companies have already begun to target Taiwan as a source of
high quality workers.


7. (C) Chiang argued that direct cross-Strait links will
encourage further foreign direct investment in Taiwan and
entice Taiwan's high-tech companies to maintain most of their
operations on the island. Direct links would facilitate
Taiwan's rise as a distribution, re-export, and investment
base for the China market, and would also allow more Taiwan
businessmen and their families to continue living on the
island rather than moving to the PRC. Premier Su Tseng-chang
is ONE of the few DPP leaders who understand the importance
of additional opening, Chiang suggested, adding, however,
that Su is currently constrained by "extremists" within his
party.

Domestic Politics
--------------


8. (C) Chiang said the December 9 mayoral elections in
Taipei and Kaohsiung are critical to the KMT in laying the
groundwork for the 2007-2008 legislative and presidential
elections. The KMT has had little money to spend on the
mayoral elections despite their importance, Chiang said,
pointing to Ma's decision to use the proceeds from party
asset sales to pay for KMT worker pensions rather than
campaign expenses. The investigation of Ma's mayoral special
allowance has only minimally affected the KMT candidates'
election prospects, Chiang suggested, though Ma's popularity
has taken a small dip. Ma still energizes crowds on the
campaign trail, even in Kaohsiung, and will continue to be
the most important KMT campaign asset. Aside from Ma, Chiang
observed, the KMT lacks any other viable presidential
candidate for 2008.

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


9. (C) The KMT, pleased with the progress of its
party-to-party relations with Beijing over the past year and
a half, could encounter a more difficult situation if it
comes into power in 2008. Beijing's accommodating attitude
toward the KMT may in part reflect united front tactics to
put pressure on the DPP government. In power, the KMT would
have to directly bear the brunt of whatever pressure Beijing
chooses to exert on the Taiwan government at that time.
While the Chinese Communist Party can recognize the KMT as an
equal political party, PRC unwillingness to accept the ROC
government as having equal status will complicate efforts to
reach agreements on politically sensitive issues.
YOUNG