KMT: KISSING ITS ASSETS GOODBYE

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 000959

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/22/2016
TAGS: PGOV TW
SUBJECT: KMT: KISSING ITS ASSETS GOODBYE


Classified By: AIT Deputy Director David J. Keegan, Reason(s): 1.4 (B/D
).


1. (C) Summary: The Kuomintang (KMT) is busy selling off
the assets it acquired while in power to keep the Democratic
Progressive Party (DPP) from flogging the issue in upcoming
elections. With operating costs of over NT$150 million
(US$4.7 million) per month, the party also has practical
reasons to liquidate assets and reduce staffing overhead.
KMT party officials tell AIT the DPP government has tried to
dissuade potential buyers by sending them letters suggesting
the proposed sales are improper and warning of possible
consequences. For this reason, the KMT maintains tight
secrecy until a deal is completed, despite its claimed desire
for greater transparency. End Summary.


2. (C) One of the KMT's reforms under Chairman Ma Ying-jeou
has been selling off the newspapers, television and radio
stations, investment companies, and commercial real estate
properties that it acquired during its 55 years as Taiwan's
ruling party. The reason for this is two-fold: First, the
DPP has for years accused the KMT of having used its
political position to enrich itself and its members, with
some success. Last October, to stir up Pan-Green support
before the December 2005 island-wide local elections, the DPP
submitted a draft "Party Assets Statute" to the Legislative
Yuan (LY) to force the KMT to divest itself of its "illegally
obtained assets." KMT Central Committee Deputy Secretary
Chang Che-shen, the person in charge of liquidating the KMT's
assets, told AIT that Chairman Ma Ying-jeou considers the
"illicit assets" question to be the party's greatest
Achilles' heel, and has ordered Chang to "get rid of it all"
before the presidential election in 2008. Even the KMT's
Pan-Blue ally uses the issue as leverage; the People First
Party (PFP) has thus far helped the KMT keep the Party Assets
Statute bill bottled up in the LY procedural committee, but
has threatened to allow the bill to go to the full LY if the
KMT supports the Defense Special Budget weapons procurement.


3. (C) Second, Chang and others tell AIT the KMT is in a
precarious financial position. Chang explained that the KMT
is unique in that it is the only "government" that has had to
transform itself into a "regular" political party. While in
power, the KMT obligated itself to pay pensions to the
thousands of party workers who staffed its government, nearly
3,000 of whom still survive. Now that it is "just" a party,
the KMT no longer has access to government resources to pay
those pensions, but remains legally obligated to the tune of
NT$50 million (US$1.6 million) per month. With an additional
NT$100 million (US$3.2 million) per month in salary, rent,
and other obligations, said Chang, the party is barely able
to make ends meet, and has had to mortgage many of its assets
to do so. Amid accusations that the KMT should be flush with
cash from the recent sale of three commercial real estate
properties and three media companies, Wang Hai-ching,
president of the KMT's Central Investment Holding
Corporation, announced in late February that although the
party grossed NT$8.8 billion (US$284 million) from the sales,
it netted only NT$5 billion, after paying NT$2.8 billion
(US$90 million) to satisfy capital gains taxes and loan
balances associated with the deal. The NT$5 billion (US$161
million) balance was used to fund pensions for employees
phased out by the sales, to handle KMT operating expenses,
and to liquidate the debt of the KMT-owned Huahsia Investment
Holding Company, to ready it for sale.


4. (U) The KMT's most valuable remaining asset (and its
biggest political albatross) is the party headquarters
building, which is located directly across from the
Presidential Palace. For the DPP, the massive 12-story
marble-covered edifice is the embodiment of KMT corruption
and excess. It sits in an area zoned for cultural and
educational purposes, but, according to Chang, can also be
used for public service or banking and finance purposes. KMT
diehards vocally protest the sale of the building, which they
see as the "spiritual pillar of the party." After two
presidential defeats and burgeoning financial problems, says
Ma, it is no longer feasible or appropriate for the party to
stay there. Taiwan press reported March 22 the possible sale
of the headquarters building to Taiwan shipping conglomerate
Evergreen Corporation, for roughly NT$3 billion (US$100

TAIPEI 00000959 002 OF 002


million). Evergreen Director Chang Yung-fa told the press
the company intends to use the property for cultural and
educational purposes. KMT Central Committee Deputy Secretary
Chang Che-shen declined to discuss the details of the deal.


5. (C) Chang told AIT the KMT understands the importance of
openness and transparency in its business dealings, but
cannot make public any details of potential sales for fear of
DPP government interference. Chang said that during
negotiations for the sale of the Huahsia Investment Group
(which included Central Motion Pictures Corporation, the
Broadcasting Corporation of China, and China Television
Company),the Government Information Office (GIO) sent
several memoranda to potential buyer China Times Group,
warning of possible property disputes and potentially adverse
legal consequences. The Finance Ministry also launched
investigations into the personal finances of several China
Times executives, ostensibly to insure no PRC funds would be
involved in the transaction, and to rule out prior tax
evasion violations.


6. (C) Under Ma's leadership, the KMT has reduced its
staffing numbers considerably. The 3,500 full-time workers
employed by the party six years ago have been reduced in
recent months to 900, some 200 of which shall retire in the
next few years. Chang said the goal is to retain a permanent
workforce of 700 (still twice the DPP's 300 island-wide),
supplementing permanent staff with volunteers during campaign
and election periods.


7. (C) Comment: Five decades of KMT one-party rule coupled
with years of DPP accusations have left the public suspicious
that, despite its claims of penury, the KMT is sitting on a
mountain of undisclosed assets. Publicly selling off assets
of questionable provenance, especially the ostentatious Party
Headquarters building, may help the KMT improve its cash
flow, but it won't stop the DPP from exploiting the "illicit
assets" issue in future elections. The KMT is stuck trying
to prove a negative -- that they have no illicit assets left
-- and the DPP knows the KMT can never win that game. The
KMT can only hope that Ma Ying-jeou's image as a clean
politician will persuade voters to accept his assurances that
the KMT has changed.
YOUNG