CROSS-STRAIT OPENING WILL BE TOP ECONOMIC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 001042

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SIPDIS

STATE PASS USTR
STATE FOR EAP/TC
COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT
COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN/MCHOI
TREASURY FOR OASIA/LMOGHTADER
USTR FOR STRATFORD, ALTBACH

E.O. 12958: DECL: 05/08/2017
TAGS: ECON PREL PGOV EAIR EINV CH TW
SUBJECT: CROSS-STRAIT OPENING WILL BE TOP ECONOMIC PRIORITY
UNDER A MA PRESIDENCY


Classified By: AIT Director Stephen M. Young, Reason 1.4 d


1. (SBU) Summary: If the Kuomintang's (KMT) Ma Ying-jeou
is elected President of Taiwan next year, cross-Strait
liberalization measures will be the focus of his economic
policies. He is likely to lift various restrictions on
investment in China and continue cross-Strait discussions
on charter flights and tourism. Some of the KMT economic
advisors we spoke to were uncertain about the level of
cooperation Ma will receive from Beijing on bilateral
initiatives if he wins. However, they appear confident
that the Democratic Progressive Party (DPP) in the
opposition will not be able to block Ma's cross-Strait
economic agenda. End summary.

Setting an Agenda
--------------


2. (U) Cross-Strait economic opening is certain to be a
high priority if the KMT's Ma Ying-jeou is able to win
Taiwan's presidency in 2008. On May 2, 2007, after he
was confirmed as the KMT's presidential candidate, Ma
held a press conference and outlined his economic plan.
The plan set ambitious targets such as growth of 6.5
percent, increasing per capita GDP to US$20,000 (from
US$15,640 in 2006),and reducing unemployment below 3
percent. Ma also highlighted general strategies that
included promoting emerging industries, assisting
"traditional" manufacturing industries, and making Taiwan
a regional operations center.


3. (U) Most of the specific measures Ma identified to
reach these targets and implement these strategies
involved further opening Taiwan economically to China.
Ma pledged to eliminate the capital limit on investment
in China (often called the 40 percent rule because it
limits many Taiwan firms to investing no more than 40
percent of their capital in China). He also promised to
properly manage high-tech investment in China, implying
he would free investment in some more advanced
technologies. In addition, Ma said he would allow Taiwan
firms with large investments in China to list on the
Taiwan Stock Exchange and that he would open Taiwan up to
more mainland tourists with an upper limit of 3 million
PRC visitors per year.

Focus on Cross-Strait
--------------


4. (C) The lack of specific measures aimed at other areas
of Taiwan's economy strongly suggests that cross-Strait
issues will be the highest priority on the economic
agenda of a Ma presidency. One of Ma's economic advisors
explained to us that other economic problems were
important but would only be addressed after cross-Strait
initiatives were underway. Professor Chu Yun-peng at
National Central University, who is also Director of the
school's Center for Taiwan Economic Development has been
described in the media as one of Ma's closest economic
advisors. Chu told us that there was more to Taiwan's
economy than just cross-Strait trade and investment, but
he called cross-Strait restrictions a "bottleneck," which
is holding back the economy as a whole. Once the
bottleneck is broken, the Taiwan authorities can move on
to other issues, he said. In an April speech to AmCham,
Chu highlighted the need to relax cross-Strait
restrictions in order to allow Taiwan's economy to reach
its potential.


5. (C) In discussing Ma's cross-Strait economic agenda
with KMT insiders, we found disagreement about which
specific measures would be implemented first. Chu
emphasized that Ma would have to first implement those
measures he could accomplish unilaterally, specifically
lifting technology and capital restrictions on
investment. Kao Koong-lian, former Mainland Affairs
Council Chairman and a fellow at the KMT's National
Policy Foundation (NPF),said the opposite. He told us
Ma would focus on cross-Strait negotiations on charter
flights and tourism because those would bring the
greatest direct benefit to Taiwan's domestic economy.

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Chang Jung-kung, the Mainland Affairs Department Director
of the KMT Central Committee, said Ma would be able to
pursue all of these initiatives simultaneously.

PRC Cooperation and Prospects for Success
--------------


6. (C) Ma's ability to succeed in implementing his cross-
Strait agenda will depend in large part on the attitude
of the PRC toward a Ma presidency. On this issue too,
there were different opinions here on how eager Beijing
might be to work with Ma. Both former MAC Chairman Kao
and Professor Chu expressed uncertainty about Beijing's
reaction to Ma in the role of President of Taiwan and
suggested it might take time to conclude bilateral
initiatives. This could be particularly problematic as
expanded charter flights move closer to discussions of
regular direct air links. Chu pointed out that Ma was
much more cautious than KMT Honorary Chairman Lien Chan,
who has now led three delegations to China for meetings
with Chinese Communist Party leaders. Chu commented that
Beijing would likely take note of the fact that Ma still
talks about the Tiananmen Square incident in public
appearances. KMT Central Committee Member Chang was more
optimistic about Beijing's willingness to cooperate with
a Ma administration. He predicted a four year honeymoon
during which the PRC would be eager to demonstrate
quickly that Taiwan could benefit economically from
closer ties to China.

DPP Opposition Not a Problem
--------------


7. (C) There seemed little concern among KMT insiders
about the potential for DPP opposition to block progress
on cross-Strait economic initiatives or the need for
bipartisan consensus. Kao pointed out that nearly all of
the measures that Ma has proposed can be implemented by
executive authority alone, without requiring any approval
by the Legislative Yuan. The Chen administration hosted
two conferences in 2001 and 2006 to reach consensus among
academic, business and political leaders of all parties
on cross-Strait and other economic policies. Kao
dismissed the idea that a Ma administration would use
such an approach. He explained that the DPP in
opposition would boycott such a conference or use it for
political ends. In addition, he noted that the earlier
conferences had to a large extent already endorsed the
KMT cross-Strait agenda.

Comment - Just How Fast?
--------------


8. (C) If Ma Ying-jeou is elected President in 2008,
cross-Strait issues will form the core of his economic
policy. Expectations of rapid change will be high in the
Taiwan business community and among foreign investors.
Some may be disappointed by the pace of change if Beijing
initially displays caution about Ma. However, cross-
Strait liberalization under a Ma presidency will almost
certainly accelerate from the sluggish progress observed
under Chen Shui-bian.
YOUNG