RS20798 -- Taiwan: Findings of a Congressional Staff Research Trip, December 2000 January 31, 2001 Background. Elected in March 2000 with 39% of the popular vote, (1) Taiwan President Chen Shui-bian hassince faced an uncooperative legislature and has endeavored to establish a firm grip on his government. Chen'sDemocratic Progressive Party (DPP) currentlyholds only 67 seats in Taiwan's 225-member legislature, the Legislative Yuan. The Nationalist Party, orKuomintang (KMT), which lost the presidential election- the first time it has not ruled the Republic of China (ROC) - holds a plurality of 109 seats. Together, threeopposition parties - the KMT, the New Party, and thePeople First Party (PFP) - which tend to be economically and politically conservative compared to the DPP andmore inclined to consider eventual unificationwith China, have blocked, thwarted, and defied many of Chen Shui-bian's policies. Because the DPP lacksadministrative experience, many leadership postswithin the government remain filled by KMT members. Chen Shui-bian has faced several contentious issues during his first several months as President. These include: an economic downturn; labor demonstrations; Chen's anti-corruption campaign aimed at KMT vote-buying and gang-related politics ("black gold"); and PremierChang Chun-hsiung's announcement that workon Taiwan's fourth nuclear power plant, a project begun by the previous KMT government, would be halted. Opposition members have threatened to introducemotions of no confidence in Premier Chang and to recall President Chen. However, they have recently backeddown, partly in response to public demands toreduce political deadlock. Research Trip Findings. Taiwan's democracy is experiencing a period of rancor and instability as it undergoesa process of political maturation. Some Taiwanese government and party officials repeated the saying that "theDPP has not yet learned how to rule while theKMT has not yet learned how not to rule." The congressional staff delegation observed severalimportant features of Taiwan's "transition politics." One, thepolitical system lacks institutions for moderating partisanship and facilitating the transfer of power. For example,few formal and informal procedures andprecedents have been established for divided government. Two, Taiwanese political parties do not have experienceforming coalitions and creating stableparliamentary majorities. Three, voter identification tends to be unstable and unpredictable. A DPP representativeexplained that political personalities, ratherthan party ideologies, drive Taiwanese politics. An American observer stated that intra-party factionalism furtherdestabilizes Taiwanese politics. Four, the massmedia, though "free," lack traditions of objective reporting. A spokesperson for the Government Information Officestated that most mass media in Taiwan,including newspapers and television, are government- or party-affiliated and politically-biased. (2) There are no firm indications about how Taiwan's political parties will fare in the December 2001 legislative elections, although no party is expected to attain amajority in the Legislative Yuan. According to an American observer at the American Chamber of Commerce(AmCham) in Taipei, while the KMT continues towield economic clout and political influence, its popularity has continued to wane for several reasons: it has notdemocratized from within, expanded its partybase, created a compelling alternative vision for the country, or produced a charismatic leader. Background. President Chen faces some troubling economic indicators. At the end of 2000, Taiwan's stockmarket had fallen by more than 50% since Chen's election and unemployment had reached a 15-year high. (3) Taiwanese investment in the People's Republic ofChina (PRC) nearly doubled in 2000, which resulted in the transfer of many skilled and high tech jobs to themainland. According to some estimates,non-performing loans have reached 12-17 percent of all Taiwan bank loans. (4) Research Trip Findings. An expert at the American Institute in Taiwan (AIT), which conducts U.S.-ROCrelations, stated that the notion of a "troubled" Taiwanese economy is more a perception than a reality. Nonetheless,AIT officials envisioned several long-termtrends that would challenge the Taiwanese economy. These include declining exports to the United States,increasing imports from abroad if Taiwan joins theWTO, (5) greater economic competition from China,the loss of global competitive advantage of some Taiwanese export items, and falling consumer demand athome. Some American and Taiwanese economic analysts viewed China as the key to Taiwan's continueddevelopment. They told the delegation that the PRC'saccession to the WTO and direct trade, transportation, and communication between the mainland and Taiwan wouldfurther open China to Taiwanese investmentand exports. Because of a common language and culture, Taiwanese investors and traders on the mainland alreadyhave an edge over their American, Japanese,and European counterparts. However, ROC government officials stated that some restrictions on investment inmainland China were necessary in order to helppreserve Taiwanese technological superiority, economic autonomy, and political leverage. DPP Policy. The platform of the DPP has long advocated independence for Taiwan. (7) However, in hisinauguration speech of May 20, 2000, Chen Shui-bian promised that, as long as the PRC did not use military forceagainst Taiwan, he would not declareindependence. (8) Analysts have posited several factorsand considerations that may explain Chen's break from past positions and pro-independence members inhis party, including Chen's pragmatic nature, pressure from the PRC, Taiwanese public opinion, and U.S.-Chinarelations. Opposition Party Efforts. While President Chen and the PRC government have made little progress in breakingthe impasse on opening formal talks, many opposition lawmakers - up to one-third of the legislature - reportedlyhave gone to Beijing to engage in informaldiscussions on cross-strait issues. They and the PRC government have appeared eager both to resume the dialoguethat broke off in 1995 and to underminePresident Chen's role in the process. (9) Chen Shui-bianhas expressed a willingness to resume cross-strait talks, but without agreeing to the PRC's "one-Chinaprinciple" as a starting point. By contrast, opposition leaders have been more accepting of the "one-China" principleas a basis of negotiations. (10) Research Trip Findings. Taiwanese and American political experts told the delegation that following the March2000 presidential election, both the DPP and the KMT have taken more conciliatory stances toward the mainland. The KMT has downplayed former PresidentLee Teng-hui's suggested "state-to-state" framework for negotiations. The DPP has conveyed greater acceptanceof the idea that some political accommodationwith the PRC is inevitable, while the independence faction within the party has been marginalized. Severalgovernment officials privately suggested that VicePresident Annette Lu, an ardent member of the independence faction, does not enjoy widespread public support. An official at the ROC Mainland Affairs Council (MAC) stated that DPP and KMT positions on cross-straitissues have converged somewhat. Both partiessupport the "status quo" - a position of neither independence nor unification - for the time being. Both put forthdemocratization on the mainland as a conditionfor substantive moves toward greater political ties or unification. A DPP authority on international affairs cautioned,however, that the maintenance of Taiwan'ssovereignty is still a central goal of the party. He suggested that sovereignty could be achieved in two ways -through independence or a cross-strait politicalarrangement that is mandated by the Taiwanese electorate. Background. Despite the uncertain and often tense political atmosphere, cross-strait economic ties have grownconsiderably since the late 1980s. Bilateral trade was worth $25.8 billion in 1999, up 14.5 percent from 1998. Inthe first half of 2000, cross-strait trade increased29%. According to PRC data, Taiwan is China's largest source of imports. Taiwanese firms have invested anestimated $40 billion in more than 40,000enterprises on the mainland. Some analysts report that business interests on both sides of the strait are pursuinggreater economic cooperation in preparation forPRC and ROC accession to the WTO. (11) Research Trip Findings. Taiwanese leaders explained that growing economic ties with the mainland havecreated a dilemma for the new government. On the one hand, the mainland economy provides ample opportunitiesfor Taiwanese businesses. Economicinterdependence may also discourage the PRC from using force against Taiwan. On the other hand, Taiwaneseofficials worried, increased investment may causeTaiwan to lose jobs and technological know-how to the mainland. Furthermore, if the Taiwanese economy wereto become too intertwined with that of themainland, it may become vulnerable to economic shocks on the mainland or Taiwan may become beholden to PRCpolitical demands. Nonetheless, the DPP hascautiously encouraged greater trade and investment. President Chen has considered easing existing restrictions onTaiwanese businesses, which apply tolarge-scale investment, construction, and high tech manufacturing on the mainland. On January 2, 2001, the Chenadministration formally opened two ROCoffshore islands to trade and travel with the mainland as a precursor to broader direct links. (12) Research trip findings. (13) Officials of the ROC government and military establishment discussed military andpolitical solutions to the cross-strait tensions. Officials at the Ministry of National Defense raised several concerns. First, they articulated Taiwan's requirementsfor more sophisticated U.S. armaments in general.