TAIWAN PREMIER ON MAYORAL ELECTION CAMPAIGN

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 004089

SIPDIS

SIPDIS

STATE PASS USTR
STATE FOR EAP/TC,
USTR FOR STRATFORD AND ALTBACH
TREASURY FOR OASIA/LMOGHTADER

E.O. 12958: DECL: 12/08/2011
TAGS: PGOV ECON ETRD CH TW
SUBJECT: TAIWAN PREMIER ON MAYORAL ELECTION CAMPAIGN


Classified By: AIT DIRECTOR STEPHEN YOUNG FOR REASONS 1.5 (b),(c)


1. (C) Summary. Two days before mayoral elections in Taipei
and Kaohsiung, Premier Su Tseng-chang told AIT/T Director
Young there is little hope for the Democratic Progressive
Party in Taipei but the race is still tight in Kaohsiung. Su
appears inclined to step down as premier if the DPP loses
both races and said DPP Chair Yu Shyi-kun would resign in
those circumstances. Su believes President Chen will remain
in office absent significant new information in the
corruption allegations. The Premier assured the Director
Taiwan officials want quick passage of the defense budget,
and opined that the opposition Kuomingtang Party winning both
races would not affect the political dynamics of the budget.
Su took credit for a stable economy with low inflation. He
said Taiwan should continue to liberalize trade but not make
abrupt changes in its cross-Strait economic policies. He
blamed Beijing for dragging its feet on cross-Strait economic
initiatives and allowing politics to dictate all aspects of
its policy towards Taiwan. End Summary.


2. (C) AIT Director Young met Premier Su Tseng-chang
December 7 to discuss the upcoming December 9 mayoral
elections in Taipei and Kaohisung and the political
implication for Su and the Democratic Progressive Party
(DPP). Director Young was accompanied by Deputy Director
Wang and AIT Econ Chief. Su had one translator and one note
taker with him.

Kaohsiung Mayoral Race is Tight
--------------


3. (C) With the DPP candidates trailing in both Taipei, by a
large margin, and in Kaohsiung, Su said a DPP victory in
Taipei is not likely, but that it is still a race in
Kaohsiung. Hence, he, President Chen and other DPP
heavyweights are going all out to visit Kaohsiung and
participate in voter rallies. He said DPP polls put their
candidate trailing by about six percentage points in
Kaohsiung and that this means the race is not yet decided.
He said past DPP Chairman Lin Yi-hsiung is campaigning and
setting a positive example for DPP supporters. Su noted that
though DPP members have criticized President Chen recently,
the entire Party is rallying to support its candidates
because the DPP remains the best Party operating in Taiwan.
Rain is predicted in the north for Saturday's election, but
Su said KMT supporters would not be fazed by bad weather
while DPP supporters would stay home and drink tea if it is
raining on Election Day. Thus, good weather would be
imiportant to Chen Chu's chances in the South.

Polling Accuracy Declining
--------------


4. (C) Su said the polls for the Kaohsiung mayoral race four
years ago were extremely accurate, but that more recent polls
have delivered less accurate predictions of the eventual
outcomes. He attributed the declining predictive power of
the polls to the fact people are increasingly reluctant to
respond to telephone polls. Currently less than half of the
people called for political polls are willing to respond.
However, Su's citing the six-point gap as evidence the
Kaohsiung race is not yet over demonstrates the DPP's
continued reliance on polling as an indicator of support and
a campaign tool to gauge their tactics.

DPP Resignations?
--------------


5. (C) Many commentators have told AIT/T Su will resign,
along with DPP Chairman Yu Shyi-kun, should the DPP lose both
Taipei and Kaohsiung. Asked about the impact of a potential
double loss, Su said Yu will certainly resign because that
practice is in the Party rules. Su did not respond directly
about his own plans, but seemed to be rehearsing an argument

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for his stepping down. He noted that he had tendered his
resignation in November with the indictment of President
Chen's wife over the State Affairs fund case but was
dissuaded by the President, who called upon Su to consider
the political and economic stability of the government and
Taiwan. Su said much has changed since then, with the
economy more stable and the stock market at a 6-year high.
On the political front, the President has weathered the
immediate storm by surviving the latest (and third) recall
motion. Su said Chen faces three political tests on the
calendar: the December 9 mayoral elections, his wife's trial
judgment and the LY elections next December. Chen has
promised to step down if his wife is found guilty. Su said
Chen would also face a recall vote if the DPP won less than a
third of the seats in the LY election. Losing both mayoral
races this week would not lead to his resignation.


6. (C) Casting the issue in a broader political context, Su
said the most important political target on the horizon is
the 2008 Presidential election. If the DPP can handle the
impact of the December 9 elections then the DPP can be in a
good position to retain the Presidency.

U.S. Support for Taiwan
--------------


7. (C) The Director reiterated U.S. support for Taiwan's use
of democratic institutions to address its issues, emphasizing
reliance on constitutional processes and the rule of law. He
also noted he had talked with both KMT Chair Ma Ying-jeou and
LY Speaker Wang Jin-pyng urging them to pass a solid defense
budget that would raise Taiwan's defense spending closer to
three percent of GDP. He related that Wang indicated this
was possible, while Ma suggested the issue is very complex.
Su quickly responded that the Government position is very
clear: pass the budget and pass it quickly. He added that a
KMT victory in both mayoral elections would not affect
consideration of the defense budget.

Time as Premier
--------------


8. (C) As the conversation turned towards economic issues, Su
said while there have been many political twists and turns
during his tenure (not quite a year since January 2006) his
goal has been to have a coordinated cabinet to respond to
issues. He said he cannot have ministers saying
contradictory things in public or one would have chaotic
conditions. He claimed credit for a stable economy with low
inflation and steady growth. (Note: GDP growth will be 4%
this year and local think tanks and the Asian Development
Bank predict the same for next year.) Su said Taiwan firms
invest a lot in China, but that recently many of these same
firms are also investing in Taiwan. He said Taiwan's
Powerchip Semiconductor Corporation (PSC) had just yesterday
told him it would join with a Japanese company to invest
US$15 billion in a 12-inch wafer fabrication plant. (Note:
Internet-based media reported this news on December 7 and
Taiwan's newspapers reported it on December 8, pegging the
amount at US$14 billion. The Japanese company is Elpida, a
partner of PSC, which is a major producer of DRAM memory
chips. This investment has been common knowledge in the
industry and equipment suppliers have been jockeying for
contracts. End Note.)

Cross-Strait
--------------


9. (C) The Director observed there has been substantial
discussion in the press lately about cross-Strait economic
policy, including debate on raising the investment and
technology limits on Taiwan businesses in China, implementing
direct flights and permitting Chinese tourists to visit
Taiwan directly. Su responded by saying it is important not
to have an abrupt change in cross-Strait policy that could

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shock the system. He added that Beijing has not been
cooperative on these issues because it doesn't want to give
President Chen any credit for improving China-Taiwan ties.
Specifically, he said China has not cooperated to get Chinese
tourists moving to Taiwan. He confirmed Taiwan is talking
and working with Chinese officials on these issues and will
continue to do so. His message is that progress can only be
made step by step, suggesting that after successfully
arranging charter flights for holiday periods the next step
is to expand the charter flights to also accommodate tourist
traffic.


10. (C) The Director noted the consensus view in the U.S.
that Taiwan should relax restrictions across the Strait to
ensure Taiwan's continued economic prosperity and involvement
in regional and global trading patterns. He said Taiwan need
not be overly concerned about expanding economic ties with
China, so long as this is coupled with greater defense
budgets. Su demurred somewhat by noting more than 70 percent
of Taiwan's outbound investment goes to China. He believes
such a high level may be "putting all your eggs in one
basket" and that more investment should flow to South East
Asia, Japan and India. He complained that even though Taiwan
is the largest foreign investor in Vietnam, Taiwan
representatives to APEC were slighted during the meetings in
Hanoi. As evidence, he cited the official picture of the
Leaders at the end of the meeting where Taiwan representative
Morris Chang is completely obscured in the photo. (Note:
It's true; of the several official photos on the APEC Website
from the meeting, Chang is blocked from view in one shot,
though he is in full view in the picture of the Leaders
waving for the camera. End Note.)


11. (C) Confirming his reputation as a pragmatist on
cross-Strait economic issues, Su said he doesn't believe
these issues are all political in nature. However, he said
China does view everything in political terms. He complained
China purposely tried to wait until his airplane was in the
air and headed to Chad before the announcement of Chad
shifting diplomatic recognition from Taiwan to China. He
said this deliberate slight was to embarrass Taiwan and him.
(Note: Taiwan provides police protection outside the houses
of diplomatic representatives. This protection, including
the guard booth, was removed from the Chadian
representative's residence the same day Chad broke relations.
End Note.) Su noted China applies political pressure to all
countries regarding Taiwan, even extending to healthcare
issues like preparations for and treatment of SARS, Avian
Influenza and HIV/AIDs.


12. (C) Comment: Resignation following a double defeat for
his Party in this weekend's election wouldn't be a bad career
move for Su, who is widely viewed as the frontrunner to
secure the DPP's presidential bid next spring. He would look
principled, sharing responsibility with Party Chairman Yu for
the defeat, and he -- like retiring Taipei Mayor Ma -- would
be free to plot his election strategy. That said, we would
expect President Chen to again try to persuade Su to stay on.
One compromise, which NSB Director Hsueh Shih-min sketched
out to the Director December 8, would have Su hold off until
January to step down. This could still provide the above
benefits to Su, but would allow Chen a breathing space after
the elections to pick the next Premier. Obviously, this
scenario would be even easier if the DPP pulls out a victory
in Kaohsiung. End Comment.
YOUNG