KMT VICE PRESIDENTIAL CANDIDATE OUTLINES ECONOMIC

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 002193

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 09/25/2017
TAGS: PGOV PREL ECON ETRD EFIN PINR TW CH
SUBJECT: KMT VICE PRESIDENTIAL CANDIDATE OUTLINES ECONOMIC
AGENDA BEFORE U.S. TRIP

REF: TAIPEI 1670 (NOTAL)

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Classified By: Stephen M. Young, AIT Director, for reasons 1.4 (b) and
(d).


1. (C) SUMMARY. In a September 26 meeting with the Director,
KMT Vice Presidential candidate Vincent Siew (Hsiao
Wan-chang) previewed his October 3-5 visit to Washington,
where he will articlulate KMT plans for Taiwan to play a
"moderate and positive" regional role if they return to power
next year. Siew reiterated his support for cross-Strait
economic liberalization (reftel),including increased
transportation, investment, and tourism. He noted, however,
that China's growing economic strength is making it
increasingly less reliant on Taiwan investment and business
links. Siew said KMT economic policy hinges on stimulating
growth through increased domestic demand, especially
investment. The Director emphasized the importance of
progress on economic and defense issues, particularly
cross-Strait security, and urged prompt passage of defense
spending legislation this fall. He also called for continued
cooperation on export controls and counter-proliferation, and
highlighted the Trade and Investment Framwork Agreement
(TIFA) as the best vehicle for addressing ongoing U.S. market
access concerns. END SUMMARY.



2. (SBU) The meeting took place at Siew's newly-opened
Cross-Straits Common Market Foundation (CSCMF) office in
Taipei. Siew was accompanied by advisor and former Health
Minister Dr. Steve Chan (Chan Chi-shean; see bio par. 10) and
CSCMF Chief Executive Officer Douglas Hung. The Director was
joined by economic chief (notetaker).

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Siew's Washington agenda; importance of defense budget
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3. (C) Noting that Siew would receive a warm welcome during
his October 3-5 visit to Washington, the Director stressed
U.S. interest in working with the next Taiwan administration.
Relations have suffered in recent months, especially over
the UN referendum issue, but the two sides must continue to
prudently address defense, economic, and, in particular,
cross-Strait security issues. After Washington, Siew said
that he will travel to the San Francisco area, including
technology sector meetings in Silicon Valley, and Vancouver.
Responding to the Director, Siew identified two goals for his
Washington visit: 1) On behalf of Ma Ying-jeou, to
articulate the KMT's future plans for national defense,
foreign, cross-Strait, and economic policy; and 2) to discuss
the KMT's plans if returned to the Presidential Palace to
play a "moderate and positive" role as "stakeholder and
peace-maker" in the region. The Director reiterated the
importance of a continued recovery in Taiwan defense spending
toward a target of 3 percent of GDP, and said he would use a
meeting with Legislative Yuan President Wang Jin-pyng later
in the day (septel) to encourage prompt action on the annual
defense budget. Siew said Ma told him that the KMT is
committed to defense budget passage.

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Economic relations with China
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4. (C) According to Siew, the KMT continues to support
improved cross-Strait economic ties, and hopes that China
will be ready to respond quickly and favorably to a Ma
administration's overtures. He added, however, that China's
growing economic strength has made Taiwan investment and
business links relatively less important than in the past.
China, for example, is now less reliant on Taiwan for high
technology investment and know-how. As a result, explained
Siew, China is less "anxious" to engage with Taiwan on

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cross-Strait economic liberalization, and negotiations will
therefore be "more difficult" than in the past. In Siew's
view, cross-Strait economic negotiations will be easier under
the KMT, as the PRC would not "immediately trust" Frank
Hsieh. In general, observed Siew, Taiwan is "losing our
leverage" on economic relations with China. Siew noted that
Chinese friends and contacts are optimistic that cross-Strait
economic relations will improve if Ma wins the election.
Taiwan is gradually losing its economic advantage over China,
he continued, and must "work out a dialogue" while avoiding
becoming overly dependent on the PRC.

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KMT economic platform
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5. (C) Outlining the KMT's overall economic platform, Siew
highlighted the importance of stimulating domestic demand to
boost economic growth. Although consumer spending remains
strong, investment is relatively low. Improved cross-Strait
economic ties would help encourage multinational corporations
to use Taiwan as a regional operations hub. In Siew's
analysis, upgrading Taiwan's infrastructure and improving its
quality of life will encourage foreign companies to locate
here. The Director said that eventual cross-Strait flights
should be open to third-country travelers, a proposition
welcomed by Siew, who said that Taiwan "does not need to
protect" its transportation sector. Siew also said Taiwan
would be willing to accept third-country carriers in a Ma
administration, although China likely would oppose this. He
described exchange of a banking surveillance memorandum of
understanding (MOU) as a "precondition" for opening
cross-Strait financial ties, and noted that Hong Kong could
serve as a model in this regard. Siew said he welcomes
branch offices of Chinese banks in Taiwan, and supports
Chinese investment in Taiwan's science parks as long as IPR
protections are respected.


6. (C) Siew elaborated on the KMT's priorities, which include
achieving annual GDP growth of 6 percent through increased
investment, as well as raising per capita GDP to USD $20,000
and reducing unemployment to below 3 percent by 2011.
According to Siew, an economic slowdown in the U.S. would
have only limited impact on the Taiwan economy, which must
rely instead on domestic factors to increase growth. Siew, a
native of the southern Taiwan city of Chiayi, also identified
reducing the north-south income and development gap as a top
priority.


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Cross-strait investment and tourism
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7. (C) Siew expressed satisfaction that China has publicly
indicated its willingness to accept increased cross-Strait
economic ties. He said a Ma administration would welcome
Chinese investment in Taiwan on a case-by-case basis.
Although the KMT would generally be open to all Chinese
investment, high technology, agriculture, and other sensitive
sectors would have to be handled carefully. Cross-Strait
investment should be "two way," added Siew. He proposed
allowing one million Chinese tourists to visit Taiwan during
the first year of a liberalized tourism policy. After the
initial increase, the hotel sector would be able to make
decisions about investing in increased capacity. Siew
identified Jinmen as a potential site for casino development
to take advanatage of liberalized cross-Strait tourism.

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U.S.-Taiwan economic agenda
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8. (C) The Director stressed that continued cooperation on
export controls and counter-proliferation remains a top U.S.

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priority. Although discussion of a bilateral free trade
agreement is unrealistic given the President's lack of trade
promotion authority, the Director highlighted the Trade and
Investment Framework Agreement (TIFA) as the primary vehicle
for expanding U.S.-Taiwan trade and economic ties, and said
the two sides should continue to press ahead on bilateral
investment, taxation, and procurement concerns, as well as
continue to address pharmaceutical pricing issues.


9. (C) COMMENT. Siew repeated his pragmatic, liberal approach
to cross-Strait economic opening, but today's meeting was our
first chance to hear him elaborate on the KMT's overall
economic policy. Siew's emphasis on stimulating domestic
demand is a welcome counterpoint to a traditional focus on
export-led growth, and could serve as a useful model in the
region. A broader and less China-centric economic
development plan is also likely to play better in the
political arena. END COMMENT.


10. (C) Biographic data on Steve Chan (Chan Chi-shean):
Chan, 59, is a Changhua native and served as Minister of
Health under President Lee Teng-hui in 1997-2000. He will
accompany Vincent Siew during his October 2007 visit to the
U.S. A surgeon, Chan completed his residency at Yale in
1974-76, and continued his medical training in Philadelphia
in 1976-80 before practicing in California in 1980-90,
including a 1986-89 stint as Chief of the Department of
Surgery at Pomono Medical Center. Chan returned to Taiwan in
1990, and served as President of the Chimei Foundation
Medical Center in Tainan from 1990 through 1997. Chan
continues to be associated with Chimei, which was involved in
medical treatment related to the 2004 campaign shooting
involving Chen Shui-bian and Annette Lu, and more recently
provided care to the wife of Taichung mayor Jason Hsu after
she was seriously injured in a car crash last November. Chan
and his wife Lee Lee-hung have two children in the U.S.: a
son who works as a federal attorney in New York, and a
daughter in her final year at Boston University medical
school.
YOUNG