PRESIDENTIAL CANDIDATES' CROSS-STRAIT ECONOMIC

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 002094

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: DECL: 09/12/2017
TAGS: ECON ETRD PGOV CH TW
SUBJECT: PRESIDENTIAL CANDIDATES' CROSS-STRAIT ECONOMIC
VISIONS

REF: A) TAIPEI 01202 B) TAIPEI 01670

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

SUMMARY


1. (C) In the run-up to Taiwan's 2008 presidential election,
KMT candidate Ma Ying-jeou and DPP candidate Frank Hsieh
continue gradually to unveil their prospective cross-Strait
economic and trade policies. Both Ma and Hsieh support
general liberalization of cross-Strait economic relations in
the areas of investment, direct transportation links and
tourism. They differ, however, on the extent of
liberalization and the best strategy to achieve it. Overall,
Ma proposes more extensive relaxation of restrictions on
investment and tourism, and supports running mate Vincent
Siew's concept of a "common market" with China, although he
acknowledges this would take time to implement. Hsieh has
not publicly specified what measures he would take to enhance
cross-Strait economic ties, although he has stated he would
not allow mainland investment in Taiwan's high technology and
agricultural sectors. Hsieh's advisors say he would, if
elected, implement economic policies that would strengthen
Taiwan's economy without compromising the DPP's advocacy of a
strong Taiwan "identity." Ultimately, the extent to which
either candidate will be able to effect his proposed
cross-Strait policy will depend on the new president's
relationship with Beijing, as any significant change in the
cross-Strait economic relationship will require reciprocal
effort. End Summary.

KMT AND DPP CANDIDATES BOTH SUPPORT LIBERALIZATION


2. (C) As campaigning for Taiwan's March 22, 2008
presidential election intensifies, the issue of Taiwan's
future economic relations with China is emerging as an
important factor in the campaign. While neither Ma Ying-jeou
nor Frank Hsieh (Chang-ting) have formally announced their
campaign platforms, and although the presidential campaign
will not formally begin until February 23, four weeks before
the election, economic themes are beginning to emerge. Ma
campaign staffer John Feng told us that Ma would formally
unveil his presidential campaign platform in late September.
Both candidates are on record favoring liberalization of
cross-Strait economic relations. The differences between the
two camps centers on the extent and focus of measures to
relax investment, travel and trade ties.


3. (C) In a June 5 meeting with leaders of an association of
Taiwan-based mainland investors, Ma stated he would, if
elected, work to "normalize" cross-Strait economic and trade
relations, including completing the "three links", reducing
restrictions on investment in China, and negotiating
investment protection and tax agreements with Beijing. In an
August 20 meeting with representatives of the U.S.-China
Economic and Security Review Commission (USCC),Ma outlined
his plan for a "comprehensive economic cooperation agreement"
with China, encompassing tariff reductions, investment
guarantees, a double taxation avoidance agreement, and a
dispute resolution mechanism.


4. (C) Frank Hsieh has also made general calls for
relaxation of cross-Strait economic restrictions. Broader
cross-Strait economic interaction seems implicit in Hsieh's
"New Silk Road" conceptualization of Taiwan's economic future
(Ref A),although he is constrained by the DPP's commitment
to enhance "Taiwan identity." On July 11, Hsieh said in an
interview with Hong Kong-based Phoenix TV that he hopes
Taiwan's Straits Exchange Foundation (SEF) and its
counterpart, China's Association for Relations Across the
Taiwan Straits (ARATS),could immediately resume
negotiations. However, Hsieh has also stated he respects
Chen Shui-bian's leadership in cross-Strait affairs and will
not break with Chen's mainland policy. Hsieh campaign
advisors Bikhim Hsiao and Kenneth Lin told the USCC that
Hsieh believes Taiwan should not become "over-reliant" on
investment in China as a driver of economic growth, and in
fact the DPP is conducting studies to gauge the effect that
Taiwan investment in China has had on Taiwan's unemployment

TAIPEI 00002094 002 OF 003


and income inequality conditions (implying a negative
impact). Hsieh has stated that, if elected, he would
maintain existing restrictions on mainland investment in
Taiwan's high technology and agricultural sectors.

KMT CROSS-STRAIT COMMON MARKET CONCEPT


5. (C) Ma and running mate Vincent Siew support creation of a
cross-Strait common market, which would theoretically
increase trade and investment flows in Taiwan's favor (Ref.
B). The DPP has criticized the concept, claiming it would
expose Taiwan to dumping of low-priced mainland products,
increase unemployment, and cause a surge of illegal
immigration from China. In a July 21 speech to Taiwan
residents in New York, Frank Hsieh stated that Taiwan's
strategic importance to the U.S. would "disappear" if Taiwan
establishes a common market with China, a theme he has
repeated to audiences in Taiwan. Ma has tried to counter DPP
criticism by emphasizing that current restrictions on entry
of mainland labor and agricultural products would remain in
force if he is elected. In his meeting with the USCC
delegation, Ma stated he believes a common market with China
is feasible, but will require "some time" to establish, hence
his proposal for a comprehensive economic cooperation
agreement between Taiwan and China.

DIRECT TRANSPORT LINKS


6. (C) The candidates' positions on cross-Strait
transportation are similar, although they propose different
ways to achieve the same end. Ma said his top priority as
president would be establishing direct cross-Strait passenger
flights, and he would propose to Beijing that the current
arrangement for holiday charter flights be expanded into
regular weekend flights, and eventually weekday flights,
within one year of his inauguration. Hsieh also supports
establishing regular cargo and passenger charter flights,
with the caveat that this will require resolving complex
technical issues, for example defining whether cross-Strait
flights are international or domestic routes. Hsieh thus
stresses that resolving cross-Strait transportation issues
would require consultations at a higher political level than
the current talks between private industry associations.
However, unlike Ma, Hsieh has declined to propose a timeline
for resolving such issues, arguing that unilaterally deciding
on deadlines for expansion of cross-Strait transportation
links risks provoking China to balk at further negotiations.

MORE MAINLAND TOURISTS A GOOD THING


7. (C) Both Ma and Hsieh have stated their support for the
ongoing -- but now apparently frozen -- negotiations with
China to expand the number of mainland tourists visiting
Taiwan to 1,000 per day. (Note: Mainland tourists must fly
to a transit point outside China before flying to Taiwan. In
2006, according to the Travel Agent Association of Taiwan,
there were approximately 100,000 tourists from China who
visited Taiwan. So far in 2007, approximately 50,000
mainland tourists have come to Taiwan, a 20 percent decrease
from the same period in 2006.) Ma's public statements,
however, are significantly more far-reaching than Hsieh's, as
he has proposed gradually increasing the quota of mainland
Chinese tourists allowed to enter Taiwan to a maximum of 3
million visits per year. His proposed schedule for this
increase calls for 3,000 tourists from China per day within a
year of the presidential inauguration, reaching an upper
limit of 10,000 per day within four years. In contrast,
Hsieh has said only that liberalizing restrictions on
mainland tourists' travel to Taiwan would be a good way to
break the ice in cross-Strait exchanges.

WHAT WILL HAPPEN AFTER THE 2008 ELECTIONS?


8. (C) Taiwan business executives tell us that they are
optimistic that whoever wins the presidency in 2008, the next
administration's economic development policies, including
cross-Strait investment and trade policies, will be more
pragmatic and effective than those of Chen Shui-bian's
administration. These business leaders also express the view

TAIPEI 00002094 003 OF 003


that Beijing may be willing to find areas for constructive
engagement on economic issues with Taiwan's next president, a
view echoed by the new SEF Chairman, Hong Chi-chang, in his
August 30 meeting with ADIR (Ref B). Hong stated he does not
expect improvement in cross-Strait relations, including
economic relations, before the 2008 presidential election,
but is optimistic that soon after the election, SEF and ARATS
could resume negotiations on issues such as direct
transportation links. In contrast, Tsai Horng-ming, Deputy
Secretary General of the Chinese National Federation of

SIPDIS
Industries, told us on September 7 that he doubts Beijing
will be inclined to work constructively with either Ma or
Hsieh. Tsai, who had ties to the DPP but has also been asked
by Ma's campaign team for advice on economic issues, believes
neither candidate will be capable of articulating a
comprehensive cross-Strait economic policy. He opined that
both Ma and Hsieh's closest advisors understand campaigning,
but not economic policy.

COMMENT


9. (SBU) Although they differ on the extent and pace of
change, both Ma and Hsieh have publicly stated their support
for expansion and strenthening of economic relations with
China. Ma's more ambitious plans may hurt him politically,
however, if he is seen as putting all of his economic growth
"eggs" in one basket, i.e., mainland China, and sacrificing
security interests. Similarly, the deep Greens are likely to
seek to constrain Hsieh in his outreach to the mainland. The
extent to which either candidate would be able to effect his
proposed cross-Strait policy would also depend on the new
president's relationship with Beijing, because any
significant change in the cross-Strait economic relationship
will require reciprocal effort. End Comment.
WANG