Monday, April 13, 2009

ECFA in the news....

Good news out of the economy this week, as the price of watermelons appears to be quite low this year, got quotes as low as $8/jin today. And that's about all the good economic news I can think of right now....

The US has announced it is going to back Taiwan for observer status at the WHA. Taiwan's foreign policy has grown so pathetic, it is front page news when we can observe an assembly. When this occurs, be prepared for a blizzard of announcements from the foreign policy community about how this demonstrates the great benevolence of China, and what an awesome breakthrough it is. Peace in our time, baby.

Speaking of breakthroughs, the ECFA framework for economic cooperation between Taiwan and China the KMT and the CCP was all over the news again this week. Today the Econ Minister said it would only require a few months of study by the respective negotiating bodies of the two sides, and that it would be signed under the WTO umbrella framework.

Chairman Tsai of the DPP, speaking at a local forum, observed:
Tsai said it was a pity that Ma did not attend yesterday’s meeting, which focused on various issues related to the signing of an ECFA, and that he had missed a chance to listen to the voice of the people and address concerns about inking an ECFA with China.

“I will not meet Ma if a real debate on signing an ECFA and other national issues is not possible ... If Ma continues to ignore the voice of the people and continues to push the ECFA, people will be left with only one choice — to shout angrily on May 17 so Ma can hear their voices,” she said, referring to a demonstration scheduled to be held in Taipei by the DPP, pro-localization groups and groups representing traditional industries.

Noting that last week Ma led government officials in paying tribute to the Yen Emperor, Tsai said: “If the president’s mind is always lingering on thoughts of a motherland in a distant place, people have to worry if the president would protect the nation or whether Taiwan’s best interests will be put in jeopardy?”
Lai Shin-yuan, head of the Mainland Affairs Council (MAC), countered that ECFA had nothing to do with sovereignty:
As an ECFA is purely an economic agreement unrelated to the issue of sovereignty and a referendum was therefore unnecessary, Mainland Affairs Council Chairwoman Lai Shin-yuan (賴幸媛) said as she debated signing an ECFA with China at the Taiwan Citizen Conference on National Affairs.

Lai said an ECFA aimed to establish a fair trade agreement with Beijing and remove certain restrictions that Beijing has in place on Taiwanese goods. She said the agreement was not a free trade agreement (FTA), which in some countries requires a referendum for approval.

“We are clear about China’s intentions on unification, but the government will insist on the Republic of China’s [ROC] freedom, democracy and sovereignty,” Lai said.

Unconvinced by Lai’s remarks, Chinese political analyst Ruan Ming (阮銘) told the forum that signing an ECFA with China would be tantamount to a “trick.”

Ruan also warned that pro-China supporters in the nation were seeking to create a new identity for Taiwanese, which aimed to make Taiwanese accept the idea that there is “one China” in the world and that Taiwan belongs to China.
Note how it follows that since ECFA is unrelated to sovereignty, there need not be any public oversight. The claim that ECFA won't affect sovereignty is meant not only to reassure the public that the sell out isn't really going on, but also to support a further claim that ECFA need not have democratic oversight. The Ma Administration's strategy has been to isolate the KMT-CCP agreements from public, democratic oversight in Taiwan, something the DPP has complained vociferously about.

It's a shame the article couldn't give a taste of who Ruan Ming is: a former CCP official, an assistant to Hu Yaobang....

Born an ROC citizen in 1931, the now [2002]-visiting professor at Taiwan's Tamkang University became a member of the communist party and then a citizen of the People's Republic of China in 1949.

The 71-year-old academic from Shanghai was Hu's special assistant between 1977 and 1982.

As one of the most prominent intellectuals in China at the time, Ruan was also one of the people that helped draft documents announced by former Chinese leader Deng Xiaoping (鄧小平) in the Chinese Communist Party Congress.

Though he served the communist party for years, Ruan, however, has been an advocate of democracy throughout his life.

Why is all this moving so quickly? Well, 2011 is coming up, the hundredth anniversary of the founding of the ROC. Look for something big. Visions of Nobels must be dancing in the heads of Hu and Ma for creating a treaty that will surely lead to peace in our time. One would note that such an award would completely discredit the Nobel Peace Prize, if Kissinger did not already have one.

China is putting pressure on Taiwan in a number of ways. As Jon Adams noted in an article on China's isolation of Taiwan in the CSR recently:

Since then, Taiwan has watched fretfully from the wings as Asian neighbors lower tariffs, ink trade pacts, and schmooze at regional conferences.

It was left out of China's trade pact with the Association of Southeast Asian Nations (ASEAN), which will create the world's largest free trade area (encompassing some 2 billion people) and eliminate tariffs on most goods by next year.

This weekend, China announced a $10 billion ASEAN-China infrastructure investment cooperation fund, plus another $15 billion in credit to ASEAN nations, designed to help them out of the global economic doldrums – with Taiwan again shut out.

Meanwhile, South Korea has signed its own trade pact with ASEAN, and is in talks with the United States and the European Union. Taiwan has tried but failed to interest those parties in trade talks
China has made an economic agreement with Taiwan a precondition for any free trade agreements between Taiwan and other nations. In 2004 it blocked a free trade agreement between Taiwan and Singapore, and has also pressured Japan not to sign one. The US has from time to time discussed an FTA with Taiwan, but the Korean FTA comes first, and that one is DOA in the US Congress at the moment. I've also heard that Japan is quietly waiting on a US-Taiwan FTA before it will commit, though the DPP attempted to get one with Japan. A commentator on one of the lists I'm on pointed out that Taiwanese investments in ASEAN countries are of the type that do not much involve local businesses, hence, they do not create constituencies for it in nations like Vietnam. These factors only serve to magnify China's already enormous clout.

Don't miss the comments below! And check out my blog and its sidebars for events, links to previous posts and picture posts, and scores of links to other Taiwan blogs and forums!


Anonymous said...

Dang, 8/jin? That is cheap... I think it must have been the drier weather earlier in the year.

Dixteel said...

I think it's now very obvious that China is using economy to force Taiwan politically. But I think here are some interesting questions:

1. Just how much power does China have in strangling Taiwan's economy? Does it has full control or is it bluffing with Ma's help?

2. What's the solution to this sticky situation for pan green? Externally, other countries are affraid to sign treaty with us due to Chinese pressure. Internally, there are pressure to sign treaties with others. What's a possible (realistic) pan green's economic and political solution out of this?

Anonymous said...

On the WHA, it seems that China will allow Taiwan in as an observer, on the condition that China be able to re-approve (or not) its status on annual basis. Its concern is that if they let Ma-era Taiwan in, and the DPP gets elected next time, they will have given away a semi-important diplomatic recognition chit to their enemies.

reeb said...

My Theory on the ECFA

At the last G-20 in London, Gordon Brown made two statements that were barely picked up in the press, but I think may have some significance: He stated: "We ordered the IMF to sell billions of dollars of gold reserves to help the world's poor countries" and "The IMF would undergo major reforms to reflect changes in the power structure of the world economy."At first glance these blurbs may appear to be typical bank moves, but given the PRC's recent statements about RMB currency swaps, developing an alternative reserve currency/SDR and positioning Shanghai to become a global financial center by 2020, I think these statements expose what the PRC may have been after all along: A way to accumulate more gold (using their depreciating US$ assets) to back a Chinese Monetary Unit as a new reserve currency for global trade.

Note, this is just a theory based on a hunch. I am not trying to convince anyone of anything. Believe what you want to believe. I just think it is important enough to bring to the table because I see the ECFA as the first step to Taiwan joining a C.M.U. (the death of free Taiwan). I know on AsiaTimes and elsewhere an A.S.U. has been mentioned in the past, but I do not think the Koreans and Japanese would go for it (or be allowed to go for it).

If interested, here are some supporting factoids and links:

1. At around the 5:40 mark of this Max Keiser youtube he mentions "What China doesn't have is gold bullion. China only has 600 tons, America has 8000 tons, the IMF 1000 tons. If China is serous wants to take on the US$, it needs to buy bullion, in size, so they have some real currency. Otherwise they are at the mercy at the global international arbitrage and hedge fund community.".

(Semi related: watch this short Peter Shiff youtube of him telling the Saudi's how to get back on the gold standard. "..If Saudi Arabia wanted to do something smart and basically rule the financial world, all the Saudi's would have to do is buy all the major mining companies. Every ounce of gold goes right into their vaults to back their currency....")

2. Real gold reserves are questionable, but you can get some idea at this wiki link: Offical Gold Reserves. I say questionable because others have noted that China has reported it's reserve at exactly 600 tons for awhile which is strange considering they are the largest gold miner in the world. China also recently approved four Chinese banks for gold future trades. btw, It is interesting to note that some of Taiwan's gold (422 tons) originally came from Nationalist China and was brought over by the KMT.

3. The IMF does not really have gold reserves either, but they want to sell 403 tons of "their" gold. See this link: G20 supports IMF's plan to sell 403 tons of gold. All IMF gold is owned by and pledged by member countries in a double accounting scheme for reserve purposes. This is why congress must approve the sale of any IMF gold. it's really U.S. gold owned by the citizens of the United States. According to this IMF link: The United States authorities have informed the IMF that U.S. Congressional authorization by law would be required before the U.S. Executive Director could support a decision for the IMF to sell gold. and The United States Treasury announced on February 25, 2008 that it will seek authority from Congress for a limited sale of gold, consistent with the Crockett Committee's recommendation.So banksters have to get congressional approval for any IMF gold sale. I have to wonder if this is what Volker and Geithner have up sleeves once all the tarp/talf/ppip, etc bailout programs fail. In is interesting to note that Volker, Geitner, Trichet, King and Zhou Xiaochuan (Gov of the People's Bank of China) are all members of the Group of 30 (and the IMF and the BIS).

Since the derivative monster is sucking the life out of the US$ and since the US must continue selling trillions of dollars of Treasuries to foreigners to keep the financial wheels turning, will the globalists in Obama's cabinet help the PRC create a fiat competitor to the U.S. Dollar? Remember Geithner made a comment about this a few weeks ago, but had to withdraw it shortly afterwords.

4. According to this link, Robert Mundell, a globalist (father of the euro), has been advising China for years on how to create a global currency. (basically buy gold). He has several working papers with Paul Volker on the subject. As we all know Volker is Obama's advisor. Some say marginalized already, but I think that is b.s. He is the power along with other the derivative banking scumbags that own BHO. Somehow they have to placate the Chinese because they know they sold them bogus goods.

5. I found a couple of papers written by Yeh Kuo-chun (National Chung Cheng University), on the feasibility of a C.M.U. Both cost a few $ to download, but here are the summaries.

Prospects for a Chinese currency area: simulations of Robert Mundell's multi-currency monetary union Based on Robert Mundell's proposal for an Asian multi-currency monetary union, this paper provides a framework to analyze whether a prospective Chinese currency union can be sustained after suffering from various shocks. An important assumption is that China and Taiwan can coordinate their economic policies without losing their independent national currencies. A dynamic game approach simulates possible outcomes if a China-Taiwan cooperative mechanism were to be implemented. The results show that the China-Taiwan coalition can be feasible under the shock of currency appreciation.Will a Taiwan-China Monetary Union be Feasible? Lessons from Europe The Europeans regard monetary arrangements as a key element of the overwhelming effort to never again allow hostilities to flare up on their continent. For Taiwan and China, a monetary coordination mechanism may also be appealing in order to eliminate hostilities caused by the Chinese civil war since 1949. Due to certain historical and geopolitical reasons, the impact of a China-Taiwan Economic Union on the world can not be measured by its economic scale only. On the basis of Robert Mundell's earlier proposal and the current development of the European Monetary Union, this paper provides a framework to analyze whether the establishment of a Chinese monetary union (CMU) could be sustained after suffering various economic shocks.

We assume that a Chinese central bank coordinates the single monetary policy of the Chinese Economic Area and that China and Taiwan maintain their fiscal independence. An international policy coordination approach is used to simulate possible outcomes if the CMU were to be implemented. The simulation indicates that the U.S. and Japan may suffer welfare losses if China and Taiwan insist on their monetary unification. However, if both the U.S. and Japan accept the CMU, further international policy coordination may help them decrease such kind of losses. The analysis is preliminary but may be helpful in considering the East Asian economic policies.
Btw, Robert Mundell has a March09 presentation called "Financial Crisis and the International Monetary System" that you can download here: pdf.

6. So how can the Chinese purchase gold, get rid of toxic assets and keep the global financial system from collapsing before their monetary unit is in place? A highly respected commenter on Karl Denninger's blog, came up with this theory:

[1] China and Arabs sells Treasuries to Bernanke for dollars
[2] IMF sells gold to China and Arabs for dollars
[3] IMF loans dollars to some poor country
[4] Poor country uses dollars to buy Chinese products (cheaper than US/Euro goods) and ME oil

Result: China and Arabs survive and prosper while Western economies collapse under weight of their stimulus debt. The IMF gold sale is really just an an excuse for transferring the gold supply. He also mentions: This gives the Chinese excellent cover to start loading up without pushing up the price and causing a buying panic. and Silver stocks dwindling too. Another 2 million ounces removed today. (Apr03.09). I used to check this regularly a while back, but I stopped because stock was steady at around 135 million ounces. Now it's down to 119. This is odd with a recession and all. Somebody must be stockpiling. Or it could be Chinese covered shorts taking their ball and going home.

7. This article is related, but I will hold off on the explanation. Did the ECB Save COMEX from Gold Default?8. There is also the GS/AIG/Kissinger China connection that is part of all this. Note that Sean Lein is in the USA for an Eisenhower Fellowship. James Soong also has one. Kissinger was the chair of this group until a few years ago. It is a Kissinger shill group. Lien Chan is positioning his spawn to manage Taiwan's capitulation. (~!)

9. At the top of this comment, I mentioned a second statement from the G-20 about a major reforms at the IMF. Perhaps this article explains what that is about. China Seeks More Involvement -- and More Clout (PRC having more voting rights at the IMF/BIS).

10. I don't think it is a fluke that more and more articles are appearing in the papers such as: China Must Make Yuan Convertible to Extend Influence and China positioning its currency for a run at world supremacy. Likewise, the appearance of these types of subversion articles: China to stick with US bonds.

Michael Turton said...

reeb, that's very interesting. Very. I can hardly digest it all.


Anonymous said...


You should write your own blog so that you can properly format your comments and get feedback.

Unfortunately, I think you lack some basic economic understanding of what's going on with China, their currency, and US treasuries.

In the past, they lent the US money at rates that were essentially too cheap. The reason we know these rates were too cheap is the US financial crisis and US demand falling off a cliff. Repeating what's become obvious this past year--Americans totally overborrowed.

China throwing out there that there should be a reserve currency other than the USD is a red herring. They are not challenging the US; they want someone to save them from their vast amounts of US dollar denominated assets.

Normally, an economy like China's with very large overall size would start to take on the characteristics of a reserve currency. But China played a stupid game and emphasized exports over everything else. This led to basically the whole country being cheapened (Chinese labor, Chinese land, Chinese capital, Chinese water, Chinese clean air...) so that those in the export business would make a little more money.

The way China did this was to prevent their currency from floating (fixed exchange) and to buy huge amounts of US treasuries. In a normal state of affairs, the more China exported to the US, the more expensive goods in China would become until China also bought goods from the US. Instead of buying goods, China bought US treasuries.

From time to time, you hear these sort of right-wing type alarmists screaming about how the US is beholden to China because of how much they hold in US treasuries. About how if they dumped these on the market, the US would be screwed.

Well, the US would have much higher (one could say rational) borrowing costs, and no, actually, China would be screwed. They'd first of all, basically lose all that money if they tried to sell so much at one time. Second, if they tried to sell dollars, the RMB would be under huge pressure to appreciate. If that happened, no more Chinese exports.

Which is okay if China had a real service economy or a well-developed internal market (it is a huge country afterall). But they don't and they still are over-reliant on exports.

As long as China doesn't liberalize and let the RMB float (and they are too scared to allow it), China will continue to have a undeveloped financial system and they will never be considered a viable reserve currency.

I would put it like this--China is one devious, scary motherfucker who has a chip on its shoulder and rapidly growing military and economic power--but they are also very poor at decision making, their financial system is still very third-world, and their economy right now is completely out of whack, with total over reliance on exports, manufacturing, and pollute-the-environment for cheaper industries.

There is no simple way to fix this, though the slowdown does present China an opportunity to avoid inflation if they float their currency.

reeb said...

Damn, that was longer than I thought plus some formatting got screwed up. Sorry about that.

btw, capitulation on 11-11-11?

(~30 months from now?)

Readin said...

In discrediting the Nobel prize, you have Gore, Annan, Carter (2002, not 1978 when it might have made sense), and Arafat, and you instead take a cheap shot at Kissinger. Did the peace he negotiated to end the Vietnam War annoy you that much?

Michael Turton said...

Why yes, Readin, it did annoy me, for Kissinger sold Taiwan to China to get that "peace". Did the war end in 1973 when Kissinger got the prize? No, it continued, as did the region's agony, a legacy of our war.

I don't think Gore should have got it, period. I think he did well, but the Peace Prize needs to go for the creation of Peace, not becoming a liberal icon.


Dixteel said...

For sure though there is no way Hu will get Nobel peace price...remember during his command in Tibet things got really ugly. Many Tibetant are killed.

Ma on the other hand...yes, I can see those fools in Nobel Peace Price committee give him the NPP. But that's what we have to watch out for and keep reminding the world that Ma is promoting "peace" in the expenses of Taiwanese.

Anonymous said...

Readin: if you have an hour or so, check out this video: Henry Kissinger DocumentaryIf you don't I recommend these two articles:
Hitchens on KissingerHitchens on Kissinger part 2In case you think this is some liberal hack job, Hitchens is a very serious thinker and writer and was strongly for the the war in Iraq. He also regularly writes for

cfimages said...

readin - Kissinger also had an awful lot to do, albeit unintentionally, with bringing the Khmer Rouge to power in Cambodia.

reeb said...

@5:00 anon,
I understand the economics, believe me. That is why I do not think a C.M.U. is a red herring.

I have trouble trying to figure out the globalist agenda, especially the ones in Obama's cabinet. I just don't see how the current system can continue. Something has to give somewhere.

Thanks for your feedback. I appreciate that you took the time to read my ramble.

reeb said...

@5:00 Anon,
I should also add that I too hold the PRC just as complicate in the meltdown as the investment bankers and financiers. They knew the game, they knew the risk.

Btw, I an not trying to correct you, but I think it is important to mention that it's not over borrowed consumers that are the biggest problem. That excuse is just used by the bankers to shift the blame onto Main St. The real, nation killing issue is the derivative black hole.

I have more to say on this, but I don't want to bogart this thread. I posted the gold/C.M.U. thing because it may (or may not) be related to the ECFA.

I am very curious to find out what the KMT is trying to hide though because it may affect my life and business here in Taiwan. As it stands now, I am considering throwing in the towel and moving out of here (been here 17 out of the last 21 years) ~ which is probably what the CCP/KMT wants, get rid of all the non-Han foreigners.

Anonymous said...

Technically, the Nobel Peace Prize should go to whoever has done the most to reduce the standing armies of the world. Therefore, both Bushes should have gotten it for reducing the armies of Iraq.


cfimages said...

I am considering throwing in the towel and moving out of here (been here 17 out of the last 21 years) ~ which is probably what the CCP/KMT wants, get rid of all the non-Han foreigners.What an odd statement. There's a lot you can complain about the way the KMT runs things, but seeing as they changed the law last year to make it easier for any foreigners to live permanently here, what you've said makes no sense at all.

reeb said...

My reasons for leaving have absolutely nothing to do with visa issues.

Unknown said...


Gold is an irrelevancy; a historic artefact.

The world is not going back to a gold-backed currency any time for the simple reason that you can't make more of the stuff on demand; and because it overwhelmingly provides power to countries simply for having the good fortune of having shiny metal in the ground.

What seems more likely is the system described broadly in the media, whereby the IMF's standard drawing rights become a form of international currency, and in times of broad deflation, the IMF can 'print' SDRs to produce 'world inflation', rather than have the present situation whereby any country that prints its own money, gets thwacked by the forex markets. Essentially making the IMF a mechanism to inflate away otherwise unmanagable imbalances in the world's economic system.

I believe the yuan already plays a role in the SDR system, so China would get a bigger say by making this already-existing system more influential.

reeb said...

Re-post this follow-up here: Chinese Diversification Strategy by Jim Willie, April 23, 2009