AmCham: Taiwan too dependent on China

Those of us who have been following the American Chamber of Commerce's longtime advocacy of closer links between Taiwan and China and adoption of KMT talking points as "analysis" had a good laugh this week as AmCham released its latest White Paper (here) as its director kvetched that Taiwan was too dependent on China and that issues of importance to the foreign business community aren't getting resolved.

Who could have imagined that?

Laudably, AmCham called on Washington to move closer to Taipei and to either resolve or ignore the idiotic beef issue.

The Taipei Times reported:

“Taiwan should pursue greater balance by consolidating its economic connections with such other major markets as Europe, Japan, Southeast Asia and especially the United States, the world’s biggest economy,” AmCham chairman Bill Wiseman told a media briefing on the release of the organization’s annual white paper.

Wiseman’s warning came a few hours before the release of Taiwan’s latest trade data, which showed China accounting for 40.2 percent of exports last month, while the US took only 12.3 percent.

“Over-reliance on one market is always risky,” Wiseman said. “Taiwan should not turn away growth when it can get it, but it needs to lock in the future. It needs to go and start broadening its economic relationships beyond focusing so much on China.”

Taiwan is almost doubly dependent on China, which drove 47 percent of the country’s economic growth last year, sharply higher than the 25 percent average with the G20 nations, he said.

Over-reliance on one market is risky? No kidding? Wasn't that the warning sounded repeatedly by the pro-Taiwan side in the run-up to the 2008 election? Didn't we all know what would happen? Ironically Wiseman's remarks took place even as dependence on China actually fell quarter on quarter, 42.8 percent in the first quarter last year to 40.9 percent of Taiwan's trade over the same period in 2011 (here).

According to the AmCham press release, the White Paper recommended that Taiwan focus on developing its European, Japanese and US markets. But at the same time, it remains strongly supportive of ECFA and urged the government to continue selling out the island opening to China. Laugh at Amcham if you will (and I certainly am!), but it is important to note that in its restrained way AmCham is criticizing its darling Ma Administration for being too focused on China.

Who could have imagined that the Ma Administration would be too focused on China?

The other point they made, also a criticism, relates to the government's resolution of issues important to AmCham.

The organization found that of the 114 issues and sub-issues raised last year, only 14, or 12.3 percent, were resolved or showed satisfactory progress — the lowest in its history of tracking issues seven years ago.

Many of these issues have been around for years.

Time Travel: just for fun I searched my blog for some previous AmCham comments. I've been following AmCham's institutionally pro-KMT stance for quite some time. Remember when AmCham complained that the TSU was gettin' all in their face with ideology? That was in 2006...

The editorial in AmCham's latest issue of TOPICS magazine criticizing the TSU's opposition to closer economic ties with the mainland yesterday infuriated TSU politicians, who warned the chamber against interfering in Taiwan's internal politics.

The editorial even provoked comments from former President Lee Teng-hui according to local news reports.

Vuylsteke said the chamber's stance on closer ties with China was similar to views held by the majority of the public. He warned that too much economic isolation would make Taiwan a nation similar to North Korea or Burma.

Yes, with a million Taiwanese in China at that point, the head of AmCham was worried that Taiwan would become like North Korea or Burma.

From the 2008 White Paper, which was quite reasonable in many ways, came this scolding:

AmCham reiterated its long-held position in favor of eased economic interflows across the Taiwan Strait, with particular reference to expanded non-stop charter flights. If air travel between Taiwan and mainland cities becomes time-saving and convenient, more multinational – and Taiwanese – companies will choose to locate more key personnel and business units in Taiwan for reasons of quality of life, IPR protection, and other rule of law issues, it said. The Chamber called on Beijing to appreciate the special opportunity created by the current political environment in Taiwan, and therefore to respond positively to the Ma administration’s initiatives. In addition, it asked the Taiwan government to take action on measures that it could implement unilaterally, such as removing caps on direct Taiwanese investment in China and on mutual fund investments with China holdings, and eliminating “frivolous” items such as potato chips from the list of products banned from being imported from China.

In 2009 I asked when AmCham was finally going to learn. AmCham was complaining that the government's  plan to lower the cap on credit card rates. The Taipei Times ripped them because of course all of us who are familiar with the KMT's long-term behavior knew precisely what was going to happen. But in that post I quoted my 2007 post...

One of the major problems with Taiwan's economy, from outsider's perspective, is that it is often a game outsiders are not allowed to play. The Chambers of Commerce appear to be of the opinion that this will change if Ma is elected. Lotsa luck, guys. Because after Ma "opens" the economy, AmCham editorials are going to read like this:

"While in principle we welcome the new openness shown by Taiwan during the first two years of President Ma's administration, AmCham wishes to express its growing concern over the preferential treatment given firms from China....."

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When will they realize....

A backyard full of pigeon cages outside Fengyuan.

You know the news is all bad when your main joy in life is saying I-told-you-so. In 2007 I opined at the end of a long discussion of AmCham and foreign businessmen, and KMT and DPP policies:

One of the major problems with Taiwan's economy, from outsider's perspective, is that it is often a game outsiders are not allowed to play. The Chambers of Commerce appear to be of the opinion that this will change if Ma is elected. Lotsa luck, guys. Because after Ma "opens" the economy, AmCham editorials are going to read like this:

"While in principle we welcome the new openness shown by Taiwan during the first two years of President Ma's administration, AmCham wishes to express its growing concern over the preferential treatment given firms from China....."

Today the Taipei Times pointed out in its editorial that the island is already lurching that direction:

How bittersweet it is to recall pronouncements — on and off the record — by Taiwan-based foreign chambers of commerce and individual businesses that the election of a Chinese Nationalist Party (KMT) government would improve Taiwan’s economy.

How amusing it is, then, to see the American Chamber of Commerce in Taipei (AmCham) and the European Chamber of Commerce Taipei (ECCT) complaining about a KMT legislative amendment that will lower the cap on credit card interest rates and probably damage Taiwan’s attractiveness as an investment destination.

The latter-day KMT is not the technocrat-friendly organization it once was, and in recent times individual legislators have used their authority within the party to advance spurious — sometimes almost anarchic — reforms at the expense of good governance and against all expert advice.

AmCham and the ECCT are absolutely justified in their concerns. But they cannot complain too loudly: They got what they asked for, and there is likely more of this to come. When they lament a “sudden and arbitrary shift in regulatory policy” resulting from political considerations, the real question that arises is why they didn’t heed this tendency when the KMT was in opposition.

Whether in opposition or government, the cultivation and protection of democracy has never been the guiding principle of the KMT machine. This is why it is so willing to cut hasty, unaccountable deals with the Chinese Communist Party. But with this latest display of financial ineptitude, there is a real concern that any economic cooperation framework agreement (ECFA) with China might carry a potentially crippling payload.

The evidence for this has amassed to the extent that it is shocking just how consistently think tanks in the US and other countries are ignoring it.

AmChan's institutionally pro-KMT stance, which I have long criticized (see here, for example), is bad, but not as bad as the Europeans. Unfortunately despite the fact that many of the things AmCham criticizes in their annual White Paper are hand-me-downs from the martial law era, and the fact that many of its members are long-term residents (Don Shapiro, the current head, was an active supporter of the democracy movement in the bad old days), AmCham consistently fails to make the connection between the past behavior of the KMT and its probable future policies.

The AmCham editorial that drew the Taipei Times' attention was in a recent issue of their superb Topics magazine, which some of island's top reporting talent has written for. It says:

A case in point is a bill, currently before the Legislative Yuan, which would lower the annual statutory interest-rate ceiling of 20% that banks may charge credit-card customers for revolving credit. The proposed new cap would be defined as 9% above the Central Bank’s rate for unsecured short-term lending – which at current levels would come to 12.5%.

.....

The major flaw in that reasoning is that the same severe economic downturn prompting the Central Bank to cut interest rates will inevitably lead to a higher incidence of credit-card delinquency, raising the banks’ cost of credit. Further, the cost of funds is only one part of the total operating cost for the banks’ credit-card departments. Looking only at the interest rate neglects the burden of processing huge quantities of small-volume transactions and of maintaining 24-hour customer service.

What would happen if banks had to slash the maximum interest charged on rollover balances? The immediate result would be to force banks to protect themselves against heavy losses by tightening up on their credit policies. According to one industry calculation, that would cause at least 3.5 million credit cards with a total credit facility of NT$690 billion to be withdrawn from the market. The estimated annualized impact on retail sales would be NT$274 billion – just at a time when the deepening recession calls for efforts to increase private consumption, among other forms of economic stimulus.

AmCham goes on to point out that poorer consumers would have to source credit from informal or illegal providers who charge even higher interest. The clincher was that the reduced profitability of credit cards, and therefore, of banks, would make the island a less attractive investment destination, as the Taipei Times pointed out.

It's only the beginning, folks.

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AmCham's New White Paper

The American Chamber of Commerce in Taipei has just released its annual White Paper full of advice for the government (White Paper). Their press release notes:

In the Overview section, entitled “Getting Down to Business,” the Chamber notes that the new administration is starting its term amid high hopes and expectations, but that it now faces the difficult task of producing concrete results. Part of that task will be to restore an atmosphere of greater social harmony after a long period of emotionally charged political strife, the Chamber said. Simply diminishing the harsh rhetoric and divisiveness that characterized the Taiwan political arena for too long will help revive business’s willingness to invest and consumers’ willingness to spend.

The Kuomintang’s substantial election victories this year should end the painful policy gridlock that Taiwan was often subjected to in recent years, said AmCham, but with that electoral success comes immense responsibility. The KMT must also guard carefully against a return to “black gold” and other forms of corruption, especially when the opposition has been weakened and the pro-blue media may be less of a watchdog than before.

AmCham reiterated its long-held position in favor of eased economic interflows across the Taiwan Strait, with particular reference to expanded non-stop charter flights. If air travel between Taiwan and mainland cities becomes time-saving and convenient, more multinational – and Taiwanese – companies will choose to locate more key personnel and business units in Taiwan for reasons of quality of life, IPR protection, and other rule of law issues, it said. The Chamber called on Beijing to appreciate the special opportunity created by the current political environment in Taiwan, and therefore to respond positively to the Ma administration’s initiatives. In addition, it asked the Taiwan government to take action on measures that it could implement unilaterally, such as removing caps on direct Taiwanese investment in China and on mutual fund investments with China holdings, and eliminating “frivolous” items such as potato chips from the list of products banned from being imported from China.

The White Paper also stressed the need for further deregulation to address such problems in the regulatory environment as inconsistent interpretations, inadequate transparency and due process, and departures from international best practices. It praised recent improvements, including eased entry and work-permit rules for foreign professionals and the drafting of a Financial Services Act. But it noted the need for a reorganized National Communications Commission to grapple with crucial policy matters, and for the National Health Insurance system to ensure both financial solvency and optimal patient care. It also pointed to the importance of ensuring that foreign companies can compete fairly for contracts in the planned new i-Taiwan infrastructure projects, so that Taiwan has benefit of the high-quality infrastructure they can build.

The paper also directs suggestions at the US, including calling for US support for Taiwan's WHA bid:

• Assist Taiwan in mitigating the consequences of international isolation, for example by helping it attain observer status in the World Health Assembly.
• Remove Taiwan from the Special 301 Watch List regarding IPR violations.
• Pursue trade policies that promote economic liberalization, such as restoring the president’s “fast-track” authority and exploring the negotiation of bilateral agreements with Taiwan.
• End tax-policy discrimination against U.S. citizens overseas.

The Chamber's appeals to the people of Taiwan are interesting. Each year it asks for stepped-up enforcement of fake agrochemicals and for Taiwan to clean up its water, something the island could easily afford to do. But in addition to the usual appeals for direct flights and for more government enforcement of intellectual property rights, AmCham also calls for more legislative transparency and greater multiparty democracy, saying that Taiwan's polarized political environment gives businesses a lack of confidence in the island. Laudable comments -- if only AmCham had made them louder in the most recent election, instead of openly siding with the KMT in so many policy areas.

[Taiwan]

Minimum Differentiation, Maximum Identification

I've stressed often in this blog that one important driver of identity politics in Taiwan is structural: on a range of important issues, the two parties have very similiar views. The one reliable difference between them is the pro-Taiwan stance of the DPP and the pro-China stance of the KMT. Hence, at the national level, both parties tend to stress that. From that perspective the renaming of the Memorial Formerly Known as CKS must be seen as part of the normal electoral dance between the two parties, one that allows each to send out appeals to their identity-based electorates.

Two articles came out recently that illustrate this similarity between what are essentially two nationalist, center-right pro-business parties very nicely. The first is a Taiwan Journal piece that reviews the economic policies of DPP Presidential candidate Frank Hsieh and KMT Presidential hopeful Ma Ying-jeou. After highlighting the two candidate's economic proposals, the piece concludes:

While the business world pays attention to the two candidates' cross-strait policies as a touchstone, in reality, both men are seen as having few differences in essence. Being viewed as more open in this issue, Ma promised to readjust the current 40-percent investment cap for Taiwanese companies in China. Opening Taiwan to tourists from China through direct transportation links is also included in his policy. "Not only entrepreneurs but also farmers hope for direct flights, because the latter can sell their fruit in China," Ma argued. "This is intended not to encourage Taiwanese investors to flow into China, but to assist them in making profits there and bringing them back to Taiwan." However, Ma said that the local agricultural marketplace would not be open to Chinese imports, and China's blue-collar workers would not be allowed to work in
Taiwan.

Hsieh said he approved of direct flights, but only on a charter-flight basis. He also proclaimed that an evaluation system designed to manage companies' investments in China is a must, adding that anything to do with national defense and agriculture must be strictly monitored. Hsieh pointed out that he is not against Taiwanese businessmen having closer ties with China, but every case should be handled on an individual basis.

Note that Hsieh's policy in practice amounts to having no restrictions on cross-strait investment at all, because such "review" processes in Taiwan are typically toothless. By contrast, Ma says he will "adjust" the cap, implying that it will remain. Both candidates plan to keep Chinese labor out of Taiwan, a sensible policy followed by virtually all of China's neighbors. Those of you on the East Coast can take heart for prosperity is on the way -- Ma plans industrial corridors there, something that was discussed back in the 1990s but fortunately was never realized.

Similarly, the conservative Jamestown Foundation has a piece out on the KMT's defense policy that begins by emphasizing similarities with the DPP, but then also moving on to differences:

The KMT's overall strategy is similar to what the DPP has proposed in many respects. For instance, DPP-affiliated anlaysts have proposed a variety of CBMs [confidence building measures] as well. Moreover, President Chen has also pledged that Taiwan will refrain from developing nuclear weapons. Perhaps most surprisingly, however, especially given the prolonged and highly acrimonious debate over the unprecedented arms sales package that Washington approved in April 2001, the KMT's defense strategy also appears to share some common ground with the DPP's preferred approach when it comes to determining the appropriate level of defense spending. Specifically, both parties support raising defense spending to at least 3 percent of GDP. The KMT and DPP also both favor improving Taiwan's defense industrial capabilities. In addition, both parties support making the transition to an all-volunteer military service system to enhance the professionalism and operational capability of Taiwan's armed forces.

I must repeat: if the KMT was really serious about the 3% level, all it has to do is get the legislature moving, since it controls the legislature. Ma Ying-jeou talked about that 3% level twenty months ago in his visit to the UK, and the KMT hasn't done jack about it since.

Meanwhile, on the subject of the island's political leadership, AmCham's Richard Vuylsteke left a parting blast reported in today's China Post:

The past seven years have witnessed an unhealthy -- and often unseemly -- evolution of leadership that pursues cross-faction and cross-party rhetorical vendettas, sows unnecessarily disruptive ethnic discord, and exhibits a profound pettiness of personal interaction that has soured the public image of political factional and party leaders, Dr. Vuylsteke notes.

"Nasty innuendo, false and unsubstantiated claims, bogus statistics, and a seemingly endless string of legally frivolous lawsuits dominate media reporting on current leaders and their interactions," Dr. Vuylsteke points out.

Political leaders have made little effort to cultivate public understanding of critical issues that seriously affect public welfare and economic well-being, Dr. Vuylsteke goes on. They have failed to make research and reflection to substantively address issues that worry the man in the street.

While I deeply respect and applaud AmCham's focus on the practical and necessary.... see, for example, Vuylsteke's comments below....

The American business executive cites sewage treatment as example. Currently, Taiwan has a 16.68 percent level of household connectivity to sewage treatment island-wide. The policy goal is to increase it to 22.1 percent by 2012. By comparison, South Korea's coverage currently stands at 87 percent. Taiwan's shortfall compared with its neighbor is unconscionable.

"Real leadership, at both municipal and national levels, would take on this issue -- informing the public of the threat this appalling state of affairs poses in terms of drinking-water safety and disease control, plus its potential negative impact for the development of water sports, fishing, and other recreational activities along river and ocean shorelines," the commentary says.

...it would be possible to take Vuylsteke's commentary more seriously had its lead not been The past seven years.... indicating AmCham's longstanding pro-KMT bias -- and thus, its complicity in the creation of this Taiwan it ostensibly deplores -- as well as proffering a fantasy world in which none of these attitudes and issues is older than seven years. Yet I can remember AmCham complaining about the sewage issue back in the 1990s, when DPP rule was only a remote possibility (the earliest AmCham White Paper on their website dates from 2002, and mentions sewage as a problem twice). As I said, the business community has internalized KMT talking points as if they were cogent commentary, and it is sad to see Vuylsteke engaging in such behavior here. All the nastiness that Vuylsteke identifies is easily identifiable in the KMT period as well..... Good luck in Hong Kong, Dr. Vuylsteke.

Vuylsteke's instancing of sewage as an example of failure here also shows another driver of identity politics at the national level: the KMT political economy that still determines the shape of political activity here. The KMT created widespread institutional corruption in Taiwan to purchase the loyalty of local faction and clan leaders. In exchange for permitting them to enrich themselves, the KMT did not permit local faction leaders to operate at the national level. One result is that local development issues generally do not become national development issues -- instead of the whole nation commenting on the massive, and massively stupid, industrial development project down in Mailiao, it is simply a matter between local Yunlin politicians and the relevant national government development entities.

Since "local" issues do not become "national" issues, public policy discussion at the "national" level is highly impoverished, limited to "national" issues like national identity and China policy. Sewage? That's a local issue....

UPDATE: Feiren also notes the pro-KMT slant of AmCham's recent comments, in its 2007 White Paper:

First of all, let's keep in mind that this is not up to the people of Taiwan, it's up to the government of China. The DPP government has wanted to negotiate with China about flights to and from China for years, but China insists that Taiwan first recognize the One China principle that Taiwan is part of China before it will discuss this issue. By disingenuously appealing to the people of Taiwan on this issue AmCham is inserting itself into Taiwanese politics on behalf of the KMT in an inappropriate and unseemly fashion.

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Forays into the UN US-Taiwan Bog

Rupert Hammond-Chambers of the American Chamber of Commerce in Taiwan US-Taiwan business council published a long piece on the malaise in US-Taiwan relations...Hammond-Chambers makes some excellent points also made in the Tkacik piece I referenced earlier this week:

China's political influence in the U.S. is growing as well. We see it on Capitol Hill, within the Executive Branch, and in the love-hate relationship many American companies maintain with China. As the PRC becomes increasingly able to press its interests within our political system, U.S. relations with Taiwan are left in an increasingly precarious position.

Taiwan policy issues are frequently subject to timing and atmospherics--of the next Chinese delegation visiting Washington or the next U.S. cabinet officer traveling to Beijing--and the timing rarely seems right for positive, long-term steps forward.

Taiwan finds itself in an unenviable political situation. In a recent interview with Hong Kong's Phoenix TV, U.S. Deputy Secretary of State John Negroponte made some critical comments in response to an effort on the part of Taiwan's government to implement a referendum on membership in the United Nations under the name Taiwan--as opposed to Taiwan's official name, the Republic of China.

The proposed referendum would take place on March 22, 2008 to coincide with the island's next presidential election. Commenting on the proposal in a speech at the U.S.-Taiwan Business Council's Defense Industry Conference, U.S. Deputy Assistant Secretary of State Tom Christensen stated, "We do not recognize Taiwan as an independent state and we do not accept the argument that provocative assertions of Taiwan independence are in any way conducive to maintenance of the status quo or peace and stability across the Taiwan Strait."

Communication--or the lack thereof--is very much at the heart of the inability of the U.S., Taiwan and China to deal with the recent changes in the Taiwan Strait. There is currently excellent communications between the United States and China, partial communication between the U.S. and Taiwan and no communication between China and Taiwan. It is very difficult to comprehend how the triangular relationship between the three will improve when the quality and level of dialogue over shared concerns is so erratic and unbalanced?

As a practical matter, America is in an increasingly untenable position vis-'-vis maintenance of the status quo, particularly as the facts on the ground have changed so dramatically. China's emergence as a global economic power and an emerging regional military power has placed an increasing U.S. emphasis on managing our myriad interests with China.

Everyone on all sides is saying the same thing: communication between Taiwan and the US has to be improved. The State Department needs to lift restrictions on visits to Taiwan by US government officials, and to get its people over here pronto to thwack heads and talk turkey.

The US Taiwan Business Council also released a statement criticizing the US for not selling F-16s to Taiwan, which I discussed in the post below this one. With this piece, is the council setting out to take up some of the slack in US-Taiwan discourse?

The Japanese papers carried a flurry of Taiwan stuff this week, including the announcement that Taiwanese drivers licenses will be recognized in Japan. The editorial section of the Japan Times carried this excellent piece castigating the UN for its neglect of Taiwan (thanks, Sponge Bear)....

The most significant issue on which the international community of states is in complete denial is the way in which Taiwan has been "banned" from the U.N., just like undesirables in apartheid South Africa. Taiwan is refused membership, is not granted observer status, and does not figure in the U.N.'s statistical databases.

The refusal to permit any form of Taiwanese participation in the World Health Organization, for example, means that 23 million people are cut off from information on global health policy discussions, exchanges on technology and best practices, and the monitoring and prevention of epidemics. Japan and the United States are the main backers of increased Taiwanese participation in the WHO.

On July 19, Taiwan submitted, yet again, its application for admission to the U.N. It satisfies all the normal criteria of a state: territory, people and effective control by a stable government. Moreover, as an island it has a natural demarcation. But on July 23, the U.N. Office of Legal Affairs returned the application. The decision has little to do with the merits of the application and everything to do with the geopolitics of China as a permanent member of the Security Council. Questioning the right of the secretariat to decide on the issue, Taiwan will try to take its case directly to the General Assembly, with little chance of success.

Where does this leave all the fine talk of democracy, human rights and self-determination in Kosovo, East Timor and elsewhere? Taiwan is better credentialed than most of them. Its population of 23 million is about the same as the combined total of Australia and New Zealand, and bigger than scores of U.N. members. Is the U.N.'s democracy fund a complete sham?

In his campaign for the post of U.N. secretary general, Ban Ki Moon made much of the fact that he is from a country that has actually made the transition from poor to high income and from an authoritarian to a democratic regime. South Korea's example is much more relevant to most U.N. member states than countries that have failed to make the transition and others that were already developed.

Like South Korea, Taiwan is a vibrant democracy and a dynamic economy. It is the world's only Chinese democracy. Both countries embody U.N. ideals, values and aspirations. In March 2008, the Taiwanese people might get a chance to express their opinion directly on a referendum on U.N. membership. Yet, far from welcoming direct democracy, most outsiders are counseling "restraint" on Taiwan.

So much for "We the people." As the great Soviet dissident Alexander Solzhenitsyn noted, the U.N. is the place where the peoples of the world are often served up to the designs of governments. In the decades to come, we are likely to look back at the Taiwan charade as one of the more shameful examples of the international community lacking the courage of its convictions.

Each year we petition the UN for entry, and each year we're denied. Taiwan is approaching this in typical Chinese fashion: petitioning the emperor. Just picture us in that legendary village of petitioners in Beijing, hoping the Throne will, with a wave of its hand, restore our rightful place in the world. For Taiwan is at the moment a thing out of place, and in Chinese thinking, things that are out of place, that have fallen behind, are sources of chaos and disorder....

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