KMT ECONOMIC ADVISOR SEES SIGNS OF NARROWING

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002444 SIPDIS SIPDIS STATE PASS USTR, STATE FOR EAP/TC,USTR FOR STRATFORD AND ALTBACH, TREASURY FOR OASIA/TTYANG, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN E.O. 12958: DECL: 11/05/2017 TAGS: ECON EFIN ETRD PGOV PREL PINR TW SUBJECT: KMT ECONOMIC ADVISOR SEES SIGNS OF NARROWING MA-HSIEH GAP ON CROSS-STRAIT POLICY TAIPEI 00002444 001.2 OF 002 Classified By: Robert S. Wang, AIT Deputy Director, for reasons 1.4 (b) and (d). ¶1. (U) This cable is one in a series on the Taiwan presidential candidates' economic policies and advisors. ¶2. (C) SUMMARY. Chen Tai-jy, an academic who informally advises KMT vice presidential candidate Vincent Siew on economic policy, believes both presidential candidates have yet to articulate clear economic platforms. Despite widespread perceptions, he maintains that DPP Frank Hsieh's relatively liberal cross-Strait economic agenda may be quite close to that of the KMT's Ma Ying-jeou. Chen criticizes Chen administration financial policy for encouraging excess liquidity in the Taiwan banking sector, thereby encouraging capital outflows and increasing inflationary pressures. END SUMMARY. ¶3. (C) In a November 5 meeting with AIT eocnomic chief, Chen explained that he has no official advisory role in the KMT campaign, but informally advises vice presidential candidate Vincent Siew (Hsiao Wan-chang),with whom he has a longstanding association. In Chen's view, neither the Ma nor Hsieh campaigns has articulated a clear economic policy platform. Although the campaigns' major policy differences appear to lie in cross-Strait economic integration, he observed, the Ma campaign is de-emphasizing cross-Strait issues for fear of being tarred as pro-China by the electorate. Chen believes Frank Hsieh is much more liberal than Chen Shui-bian on the issue of fostering cross-Strait economic integration, to the point that in reality there may be relatively little difference between Ma and Hsieh on that issue. Chen added, however, that Ma would be better placed than Hsieh to negotiate with the PRC on economic integration measures. ¶4. (C) Noting that Hsieh earlier in the day announced his support for easing the cap on Taiwan firms' investment in China and allowing Taiwan investors a grace period for reporting previously recondite mainland investments, Chen stated the DPP is finally responding to the business community's concerns that limits on cross-Strait economic ties are hurting Taiwan's competitiveness. According to Chen, Taiwan's disproportionately high number of small- and medium-sized enterprises may be thwarting efforts to improve the economy's international competitiveness, as many smaller firms may simply not have the resources to enter China or other major external markets. On other cross-Strait issues, Chen said he supported allowing Chinese banks to establish branch offices in Taiwan. ¶5. (C) In Chen's view, the KMT and the DPP have especially large differences on financial policy. He criticized the Chen administration for placing too much emphasis on bank consolidation, rather than increasing financial sector competitiveness. The Chen administration's consolidation policy has left banks awash in liquidity they are unable to use, he argued, and has increased inflationary risks while prompting excess liquidity to flow abroad in search of higher returns, rather than staying in Taiwan for domestic investment. He bemoaned the fact that around 40 Taiwan companies are now listed on the Hong Kong stock exchange, rather than its Taipei equivalent. Hsieh, asserted Chen, knows that the current administration's financial policies are ineffective, but is uncertain how to move ahead. ¶6. (C) COMMENT. Chen does not seem to be at the center of the Ma/Hsieh economic policy team, and adopted a relatively detached perspective that came across as more academic than political. END COMMENT. -------------- Biographic data -------------- ¶7. (SBU) Chen Tai-jy is in his 50s, and is originally from the Taipei area. He received a bachelor's degree in TAIPEI 00002444 002.2 OF 002 electrical engineering from National Taiwan University in 1975, and a doctorate in economics from Pennsylvania State University in 1983. In 1983-85, he was an assistant professor at the University of Mississippi Department of Economics. He returned to Taiwan in 1985-86 as a research fellow at the Chong-hua Institute for Economic Research (CIER),and then spent a year as an assistant professor at the Drexel University Department of Economics. After returning to Taiwan in 1987, he held various research positions at CIER, and served as CIER's president from 2003 through 2005. Since 1995, Chen has also been a professor at the National Taiwan University Department of Economics. ¶8. (SBU) Chen speaks very good English. He has two children, the elder of whom graduated from Ohio State University in 2005, and the younger of whom graduated from Pennsylvania State University in 2007. YOUNG