Showing posts with label real estate. Show all posts
Showing posts with label real estate. Show all posts

Thursday, April 24, 2014

Taxes and our fading economy


From the link below...

The Taipei Times wrote up a short piece on potential changes to the property tax laws to "curb property speculation"...
Taipei Deputy Mayor Chang Chin-oh (張金鶚) yesterday met with Minister of Finance Chang Sheng-ford (張盛和) to discuss the high housing prices, after Premier Jiang Yi-huah (江宜樺) vowed to reduce the home price to income ratio in the Greater Taipei area from 15.01:1 to 10:1 in two years.

“Under the cooperation established between the central and local governments, we are confident that the average cost of a housing unit [in the region] could be reduced by one-third in two years,” Chang Chin-oh told a press conference after leaving the ministry.

The two sides have agreed to expand the interval of the home tax rate on non-residential properties up to 3.6 percent and stipulate a more accurate definition of what constitutes self-use residences (properties not occupied by the owner).

Currently, local governments determine their own housing tax rate and all of them have adopted a rate of between 1.2 and 2 percent of a residential property’s value, which is the range set by the central government.
Note in that third paragraph the two salient points: (1) tax rate to jump up to 3.6% and (2) accurately defining what it means to self-use a residence. The skill lies in the second; it will be relatively easy for homeowners to evade this milequetoast tax rise simply by redefining their own residency.

The real issue, as always, is that the assessed value has remained the same since 1987. Recall this piece from the excellent mag Commonwealth:
Land in Taiwan has four different values. Aside from the actual market price, there is the "publicly announced land value," which is adjusted once every three years, the "reported current land value," which is the value reported by landowners used to calculate the land tax and can be up to 20 percent higher or lower than the publicly announced land value, and finally the "assessed present land value" on which land value increment taxes (similar to capital gains taxes) are based.

Taiwan's houses also have two prices -- the actual market price and a "standard unit price for housing construction" set by the tax revenue offices of each local government for residential units under their jurisdiction. This publicly assessed price has not been adjusted for 27 years. Legislator Lai Shyh-bao estimates that the current "standard unit price" is roughly only one-fifth of the actual market value.
and of course...
"Taiwan is the only country in the world that uses an assessed present value to calculate housing and land taxes," says the economist Ma Kai. The publicly assessed land and house value usually seriously understates actual market values. "The Palace's apartments are publicly valued at only NT$3 million to NT$4 million," Ma says of the luxury property that reportedly has sold its units for up to NT$ 70 million.

Another Commonwealth piece observed:
On a profit that was in fact NT$82 million but assessed by the government at NT$15.25 million, the investor paid a land value increment tax of NT$3.05 million, an effective tax rate of 3.71 percent. Even when deed taxes and other fees are added, the investor's tax liability was still under NT$4 million, or lower than 5 percent, the lowest marginal rate on personal income taxes.
You can see the problem. The additional tax on non-occupied residences is a fleabite because it doesn't address the real issue, the disparity between the assessed value and the actual value that has remained unchanged since 1987. That disparity is driving the enormous housing bubble in Taipei, an alternate universe of unreal values, spinning off still further alternate universes of housing price bubbles like a bad SF horror movie in other locations in Taiwan.

Still, that bubble of construction and "investment" is probably driving a large part of GDP and thus, no government can afford to prick that bubble. If Ma really wanted to screw the DPP, he'd raise the assessed value on real estate to current levels as his last act in office, but his Administration is owned and operated by the 1%, so don't look for that to happen.

Commonwealth also takes a look at the proposed tax reforms to make up the government's fiscal shortfall. I have a lot of respect for that mag: they produce a ton of useful articles on taxes and on economic growth and economic and finance policy. And they don't subscribe to the fiscal and economic insanity that lowering taxes on the wealthy produces economic growth.

Finally, a couple of weeks ago the 104 Job Bank, Taiwan's most important, produced data showing that average wages for first time job seekers fell below $30,000 NT a month. Other reports set the sum even lower, at 22K, a sum that was the butt of sardonic jokes during the occupation of the legislature. The 104 Job Bank also showed that average real wage is $44,739 for 2013, lower than the real average wage of $44,798 for 1998. Yet prices, the article notes, have risen 10% since then.
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Friday, August 02, 2013

Housing Bubble In Taipei...Resumes growth

The luxury tax had only a temporary dampening effect on the booming Taipei, says the CNA, and the market appears to have adjusted:
Citing the statistics, Yung Ching Realty Group, one of Taiwan's leading property sales agencies, said transactions of shops, offices and homes in the two major cities located in northern Taiwan grew 15.8 percent month-on-month in July, two years after the implementation of the luxury tax.

...

Under the tax scheme, a 15 percent tax was introduced on second homes not occupied by the owners and sold within one year of purchase. For such homes sold within two years of purchase, the sales tax was set at 10 percent.
The sales rise was driven by increased supply in Neihu and in several New Taipei city districts. Sales in July also rose in Tainan and Taichung. The key outcome is expressed in the final paragraph of the piece:
On the back of the July sales growth in July, the construction sector on the Taiwan Stock Exchange ended up 1.25 percent, with Cathay Real Estate Development Co. up 7 percent, the maximum daily increase, to close at NT$22.85, and Kindom Construction Corp. up 3.28 percent to end at NT$47.25.
...without the housing bubble driven by the low real estate taxes, the construction sector upon which the domestic political economy depends would take a huge hit, dragging down the entire economy. Remember what happened when the construction bubble in the US popped a few years ago....
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Wednesday, August 15, 2012

Investment Pact Protects Who?

AP writes on the investment pact signed Thursday...
The pact, which took two years to negotiate, offers investors from the two sides formal channels for dispute arbitration, while falling short of a Taiwanese demand that arbitration take place under international oversight. It is the 17th economic agreement between the sides since China-friendly President Ma Ying-jeou took office in Taipei in May 2008.

......

....But with this year's growth rate predicted to come in at less than 2 percent, broader tariff cutting and other trade promotion measures appear to have fallen short of Ma's promise that closer China ties would energize the Taiwan economy. The trade-reliant island is suffering from sagging demand for its trademark high-tech exports.

Chinese investment in Taiwan amounts to only about $300 million, far short of the more than $120 billion Taiwanese have invested in the mainland over the past 30 years. While the new pact could spur more Chinese investment in Taiwan, some restrictions aimed at preventing China's economic domination of the island remain in place.

Taiwan's opposition claims the new pact, like many of its predecessors, is helping to clear the way for increased Chinese economic influence on Taiwan, and setting the stage for an eventual Chinese political takeover of the island. That has been the ultimate goal of Beijing's Taiwan policy since the two sides split amid civil war in 1949.

........

But opponents point to Taiwan's continuing poor economic performance — its predicted 2012 GDP growth rate would make it one of Asia's most conspicuous economic laggards — as proof that Ma's highly vaunted China connection has failed to deliver the goods, and say the island needs greater balance in its trade ties.
No kidding.... not just the 2012 growth rate, but the economy hasn't gotten much help at all from China, certainly not like the golden days of CSB's latter years. With his usual mediocre luck, Ma seems to have both missed the best years of the China boom while getting hit by the Euro-American slump. Thus Taiwan's trade with China, Europe, and the US is all falling year on year, while with ASEAN Taiwan runs a trade surplus and trade volume is rising. Remember when Ma claimed we had to have ECFA in order to save our economy? We have ECFA, and growth is running 3-5% below what it was in the latter years of the CSB administration. This investment pact is years too late.

Another issue the paper raises is investment from China to Taiwan. It's easy to look at that only in the context of China-Taiwan relations and blame, as the AP report does, investment restrictions. But I pointed out a couple of years ago when ECFA was still being "debated" that restricting FDI in its trade partners is a longterm policy of Beijing's:
The trade and foreign direct investment (FDI) figures are not encouraging either. Since 2004, tariffs between the two sides have been coming down, and Asean's trade deficit with China has widened. From 2000 to 2008, China-Asean trade grew sixfold to US$198 billion (S$280 billion). But Asean's trade deficit also widened five times to US$21.6 billion. Asean's cumulative FDI in China was US$52 billion in 2008. By comparison, China's FDI in Asean was just US$2.8 billion.
Total Chinese FDI in ASEAN is now over $10 billion. The FDI situation is complex because "Chinese" FDI can be many things:
China’s share may be higher than official home and host country data show as the example of Vietnam illustrates. As large amounts of Vietnamese FDI inflows originate from Hong Kong and the British Virgin Islands, Frost (2005) suspects significant further amounts of Chinese capital to be routed to Vietnam via these and other offshore financial centres. On the other hand, there are also reasons to assume that China’s share is overestimated in some host countries. During the field research in Cambodia and Vietnam we found that a number of companies that were identified and registered as mainland Chinese were in fact owned by a parent company from Hong Kong, Macao, or Taiwan. In some cases, these parent companies were established in mainland China and later moved to Hong Kong for reasons like taxes, logistics, or proximity to clients. In other cases, however, companies originated from Hong Kong or Taiwan and were incorrectly registered as mainland Chinese.
Recall also that in the glory days of the early 2000s when massive foreign investment in China was being touted, much of that "foreign" investment was Chinese money recycled through global offshore financial centers and reinvested as "foreign" investment in order take advantage of FDI investment benefits.

What about Korea? Well...(Asiaone):
South Korean statistics showed China's investment in its neighbor was US$3 billion last year, and was mainly in the tourism and entertainment industries. South Korean investment in China reached US$36 billion (S$45 billion) in 2011.
China has invested a lot more in South Korea, yet the same lopsided investment pattern shows up -- S Korea invests twelve times more in China than China does in South Korea. (Actually, if anything could motivate Taiwan to sell itself to China via FDI, it's the knowledge that China sends more FDI to Korea....ZOIKS! The Koreans are kicking our ass!)

So, looking at the overall Chinese investment situation in Taiwan and China's investments in other nearby small economies, it is hardly surprising investment in Taiwan is so low. After all, it's not like we have a booming economy here, with growth probably going to come in under 1% this year and inflation on the march, and it's not like China sends large allotments of funds overseas to nearby economies.

Two other points need to made. First, FDI in Taiwan must satisfy Beijing's political goals. This places an additional constraint on such FDI. Second, FDI in Taiwan, which ostensibly helps Taiwan's economy, actually conflicts with Beijing's longterm goal of hollowing out the island's economy and stealing its technology. Given the current economic growth in China and the cross-strait political situation, why should China want to invest in Taiwan unless furthers its political and technological goals?

This discussion of Chinese investment also hits on another issue: the housing boom here. Everyone talks about China's ghost cities and massive real estate boom. We're having an under-the-radar boom here in Taiwan -- it doesn't get any play in the global media, but here in Taichung building after building, estate after estate, new hotels, all going up in the best cargo cult style. Yet something like 40% of residences in Taichung are unoccupied and will probably never find buyers/renters. Think Chinese money will step in to prop up this bubble? LOL.

Finally, ETRC points out the obvious: Eighteen agreements in four years, what's next? What's next is obvious: the (open) political talks.
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Sunday, July 29, 2012

Taiwan Property Transactions Hit Nine-Year Low

Bought a 10X magnifying filter (NT$550) for my 18-55mm kit lens. Mwahahahaha

It seems to be island-wide....(CNA)
Property transactions in Taiwan for the first half of this year fell to an almost nine-year low, reflecting the implementation of the luxury tax which aims to curb market speculation, according to the government statistics released by the Ministry of the Interior Saturday. According to the statistics, transactions of residential and commercial properties on the island in the past six months fell 20.9 percent to about 159,000 units. The luxury tax, which took effect in June 2011, imposes a 15 percent sales tax on second homes sold within one year of purchase and a 10 percent sales tax on properties sold between one and two years after they were purchased.
Taiwan's property market has been so inflated that a 20% drop in six months represents a nine-year low. Ouch. Is it really due to the tax, or to the slowdown in the world's economies affecting would-be buyers?
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Sunday, December 05, 2010

Government to attack housing bubble?


One of America's least attractive exports is its bizarro-world Christianity. Here it says the end is near, plagues will increase in coming years, you can only rely on prayer, and you should get to a church quickly.

The property bubble, slowing spreading around the island, is compelling the government to contemplate strong measures to bring it under control. To curb speculation, which some say accounts for half of all transactions, one of these is a new property tax on real estate.

Taiwan’s central bank on Sept. 30 increased its benchmark interest rate by 0.125 percentage point for the second time this year after a jump in home prices fueled concern the island’s economic recovery may stoke a property bubble. Prices in the capital rose 7 percent from December 2009 to the end of September, said Stanley Su, an analyst at Sinyi Realty Co., Taiwan’s biggest real-estate brokerage.

The government is studying the tax “and we hope this would discourage speculation,” Lee told reporters in Taipei today.

The tax on property sales could be as high as 30 percent, the Taipei-based Economic Daily News reported, citing an unidentified official at the Ministry of Finance. Lee said the ministry hasn’t decided on the tax rate.

The government is also considering revising the land valuations more frequently to keep up with the exploding market:
Taiwan also plans to revise its so-called published property values every year starting as early as the second half of 2011, said Wang, who works at the Interior Ministry’s land department. The benchmark for annual real estate taxes is now revised every three years.
According to an RDEC-run online survey, rising costs for housing are the number one complaint of locals. Similarly, Taiwan Panorama reported a few months ago:
According to a survey of residential housing demand trends published by the Ministry of the Interior's Construction and Planning Agency, the price-to-income ratio in Taiwan's five largest metropolitan areas over the past few years has typically ranged from 6.0 to 7.0. For the last half of 2009 the figure stood at 7.08. But in Taipei City and County the ratio rose substantially-to 9.06 in the last half of 2009. It is estimated that residents of the silk-stocking Da'an District would have to put up 14.6 years of income to buy a home there.

The following graph clearly shows that the price-to-income ratio in Taipei City began to rise rapidly in 2006-2007, and it now stands as high as it has since the housing bubble that peaked in 1990.
1990 levels! Remember after that bubble popped housing prices in the major cities spent the next decade collapsing. Ugh.

It will be interesting to see what happens, given that powerful construction and land development interests are intimate with the government. Will the government have the courage to push prices down?
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Sunday, October 10, 2010

Taipei Housing Prices to Remain High, NT on its way up

President Ma came to power strongly backed by foreign financial interests who also saw Taipei's real estate market as a good investment possibility. In the latter choice they were smart. From the China Post:
Prices of luxury apartments and office space in Taipei City's prime locations will continue to be high in the short-term, due to a strong rise of the local currency, analysts said yesterday.

The Taiwan dollar (TWD) has appreciated by a significant margin over the last couple of days, due to an influx of hot money into Taiwan as well as other parts of Asia, on the ultra-loose monetary policy announced by the United States.

........

According to a recent survey of My Housing Magazine, as much as NT$109.5 billion worth of new apartments will be rolled out in northern Taiwan in November.

Institutional investors pointed out prices of luxury mansions and office space in prime areas of Taipei City will continue to be high, due to several factors besides a rising TWD.

Luxury mansions in Taiwan are mostly sold at NT$1.8 million to NT$2 million a ping, far less than the NT$7.5 million to NT$12.5 million in Hong Kong. Each ping is 3.3 square meters.

The article also observed that the wealthy have plenty of cash on hand, and that the government is no longer selling state-owned land. That restriction on supply has, as many foresaw, helped to sustain high prices in the Taipei market -- it is difficult to avoid concluding that keeping prices high is the reason for it, in fact. Yet another factor keeping real estate costs up is the expected increase in demand for office space as Chinese and foreign investors set up shop in Taipei to take advantage of ECFA.

A high NT (it hit 30 to the dollar last week) threatens Taiwan's exports by making them more expensive. To counteract the inflows of cash, the Taiwan Central Bank flooded the market with NT last week:
Sales of the island’s dollar failed to prevent the exchange rate from closing at a two-year high as all of Asia’s 10 most- active currencies rallied following Japan’s first cut in interest rates since 2008. Taiwan’s central bank last week raised borrowing costs for the second time this year and foreigners have pumped almost $3 billion into local shares since the start of September.
Some analysts are predicting that the Taiwan dollar may hit 29.75 by the end of the year. Economic growth and a rising NT are masking an unanticipated fall in exports, a report on Thursday noted:
Taiwan's export growth slowed for the second straight month in September and was much lower than economists had forecast.

The country's shipments grew 17.5% year-on-year in September, slower than the 26.6% increase in August, data from the Ministry of Finance showed Thursday. Economists had expected the growth rate to remain unchanged from the previous month's level.

Meanwhile, growth in imports outpaced exports by rising 25%, following a 28% gain in the previous month. Import growth also fell short of expectations of a 30% increase. Total exports amounted to US$22.4 billion during the month and imports totaled US$20.6 billion.
The good news is that exports to the major areas of Europe, China, and the US are all rising, and that orders are also booming:
Data from the Ministry of Economic Affairs released last month showed that Taiwan's export orders, an indicator of the Island's export performance in the coming months, rose 23.3% year-on-year to US$34.88 billion in August, a record-high, beating economists' expectations. Taiwan's economy relies heavily on its export sector. In the second quarter, the economy maintained its double-digit growth on the back of strong exports, growing 12.53% annually. The growth, however, was slower than the 13.7% expansion in the previous quarter.
All this positive progress on the economic front has yet to translate into advantage for the KMT at the polls.
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Saturday, December 26, 2009

Western Understandings, Eastern Worlds: the China Asset Bubble

Over on a post at the excellent blog Peking Duck I left the following comment on a post about the asset bubble in China:

+++++++++++

I’m not sure this bubble thing is being read properly. Let me see if I can articulate my thoughts. First, Chinese buy real estate and hang on. Forever. Hence this bubble might simply peter out in permanently high property prices, rather than go ka-boom. I mean, the houses aren’t being sold on 99% credit, I would bet money that most of the mortgages are with substantial amounts up front. Owners will rent and if they can’t rent, they will sit on it. Second, what is the break even point for developers? In Taiwan one need only sell half of a typical development to break even. Developers can keep putting up buildings with 50% occupancy and make money, in that case — I would bet given China’s low costs and massive corruption, the actual break-even point is even lower.

Hence, it’s not a bubble of speculative money driven by easy credit, but an outlet for savings — money that actually exists, not money that exists in some unspecified future. People thus will not be in debt when it “pops” but will rather have manageable mortgages out of current incomes because they paid much up front, with an actual asset to show for their expenditure. Hence what we will see is not KA-BOOM but rather, going out with a whimper of permanent high property prices in large cities, because no one will sell at low prices.

Is this just another case of viewing eastern practices in western terms? It sure feels like it to me, looking at the fact that Taiwanese have cheerfully been scammed by KMT-connected construction firms for 50 years now with nary a complaint. At some point “high prices” will become the norm and part of the lived environment, as they are here, and no one will notice except puzzled westerners who keep waiting for the price collapse that never comes. You are just experiencing the transition right now and calling it a “bubble”. Perhaps, “price orogeny” might be a better term.

But this is just speculation. The real losers will be the future working-class hordes who will not be able to live in the cities.

+++++++++++++

As a friend of mine noted in a private response, landlords sustain high rents because the alternative is that the price of their massive capital investment falls. Everyone understands this. Therefore rents never fall. Better to let the flat sit empty. Another factor holding up prices is the ratchet effect of land taxes, which are fixed and take a substantial chunk of the building's value. Is China the same? I don't know. Since the ideal of land ownership is so rooted in local culture, people endlessly speculate in property, and new construction is purchased for that reason. With government support and low costs, profits are automated. In other words, as my friend points out, the key is to keep leveraging.

Offered here for your thoughts. Discuss!

UPDATE: Forbes' Gary Epstein has a set of great pieces on the asset bubble collected at Status of Chinese People. One, two, three, four. Epstein notes:

The U.S. government’s $7.2 trillion in debt at the end of June represented 50% of gross domestic product. The Chinese government’s officially disclosed $840 billion in public debt represents less than 20% of GDP. But the People’s Bank of China and the treasury are also on the hook for potentially $1.5 trillion in off-balance-sheet debt owed by cities and provinces and entities they control. They’re also implicitly obliged to backstop $1 trillion, both in loans that “policy banks” were directed to issue, even when they made no economic sense, and nonperforming loans that the government removed from the books of state-owned commercial banks over the past decade.

Add it up and the national government is responsible for debt equal to over 70% of 2009 GDP. That doesn’t count any loans generated this year that might go sour amid a 30% increase in debt balances nationwide. (The U.S. government, in addition to its direct debt equal to 50% of GDP, is responsible for cosigning of mortgage borrowers’ obligations equal to another 18% of GDP.)

Like the U.S. housing industry a few years ago, China’s big developers are highly leveraged and dependent on low interest rates and rising prices. Municipal governments are knee-deep in this asset swamp. They use land sales as a means of funding themselves.

Yowza!
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Saturday, December 05, 2009

Bubbling Taipei: the world's most expensive cabbages

A friend tipped me off to this article on the coming property bubble in Taipei. It notes:
Insulated from modern Taipei by a thin wall of knotweed, a gingham-shirted farmer adjusts his wellies and sprays insecticide on what, at an estimated $1.2 million (£725,000) each, are probably the most expensive cabbages on Earth. Even when the Taipei 101 tower was built 200 metres away from his garlic beds, the cabbage man and his wife — who do not live on the plot — held on to their patch, whose value has steadily risen. Consensus opinion holds that the 50m x 25m allotment may be worth about $150 million today, although some put it as high as $300 million and everyone expects it to gain about 25 per cent in value over the next 18 months.

While the value of that plot has been rising, Taipei has been doing little in the way of building work. Just 2 per cent of GDP has been spent on construction in each of the past five years — far below even the dismal levels in deflationary Japan.

The effect has created a distortion that makes a bubble likely, said Mr Lim. About ten floors of the Taipei 101 building are vacant but they represent as much as 35 per cent of the total grade-A office vacancies in Taiwan.

“All it would take would be for ten large Chinese companies or banks to move into those offices as their first Taiwan branches, and the market is instantly squeezed as cross-straits relations improve, there is just going to be too much money chasing too little space,” he said.
The article also notes that Taiwanese businessmen have repatriated over $17 billion back to Taiwan in the first half of the year from China, and may move back here to erect headquarters, further increasing demand for office space.

Government officials, as the article observes, have warned that Taipei's property markets could become a bubble when the island opens to China -- something observed in financial reports for the last few years.

What does a bubble mean for the people who actually live in Taiwan, rather than the transient population of Taipei Aliens and investors? Seeking Alpha, which will inundate you with spam if you comment there, but often has good commentary, had this to say about the Hong Kong property bubble:
It’s all very well saying you are going to “innovate”, but the reality is that bubbles are just a way for crony capitalists to grab an unfair share of the product of past “innovation” at the expense of ordinary people, they are zero sum; fat cats win and ordinary people lose, no different from how monopolies distort free markets.
Crony capitalism is how Taiwan runs; the KMT is simply pursuing a policy of enabling the Chinese communist party to become the senior local cronies.

Just take a look at Hong Kong -- property prices skyrocketed there since the island was given to China. This year a house there sold for US$57 million (in a building in which 40 floor numbers were deleted so that the highest floor is 88, a lucky number in Chinese, with the floor below being 68). To get a sense of what this will mean for Taipei, read the Global Voices blog posts on housing in Taiwan a couple of months ago. Hong Kong officials were described as saying:
When answering the question of a professional couple who could not afford to buy a decent house in downtown area, the Hong Kong Chief Executive Donald Tsang suggested them to build their home from smaller apartment unit away from the city, where there are still apartments marked at HKD4000 (USD520) per square foot.

.....

In fact the Chief Secretary for Administration Henry Tang Ying-yen, has spelled out his vision for Hong Kong earlier this year that “by 2020, improved road and rail networks may mean Hong Kong people could be better off living in Guangdong than staying put.”
Welcome to the future; perhaps our Tung Chee-hwa clone will be equally gracious toward the Taiwanese. In Hong Kong property bubbles devastated the poor and middle class, and the city-state's income disparity is greater than that of even the bubble-driven US economy.

Unlike Hong Kongers, Taiwanese have more space to move to, and the government is rapidly increasing rail and metro links with the areas around Taipei, apparently so that the Morlocks who will serve the Eloi from China won't have to move all the way to Shenzhen -- just Taoyuan. Moreover, the suburbs around Taipei have much land that could see bubble-driven development, in areas like Luchou and Sanchung and Xinchuang, where currently there are warrens of warehouses and small factories, many underutilized as their owners have gone to China, or perhaps just gone bust. Maybe we can expect mini-bubbles in places like I-lan, now less than an hour away by the Huashan Tunnel, and in Taoyuan. Keelung still retains its cozy, intimate feel, but with the cruise ships coming in soon, and good land connections to the capital, sooner or later it is going to dawn on people that the fewer rain days the city is experiencing over time, thanks to our love affair with pumping carbon into the atmosphere, are making the city more livable than it once was. And Keelung is only an hour from Taipei by bike.

China Worker has a detailed look at what speculative Chinese money has meant for ordinary Hong Kongers. In a very informative piece at Market Watch (read the whole thing!), Craig Stephen discusses another aspect of the bubble that Hong Kong is also suffering from: retail price rises. As hot money floods in to drive a speculative bubble, ordinary people not only get killed by the rising cost of housing, but also by the rising cost of retail goods:
Last week, I had a first-hand experience of property-induced inflation while shopping to replace a lost dress shirt. I visited the Hong Kong branch of a British shirt maker but made no purchase after finding the same shirt cost almost twice what I paid in the U.K., despite the absence of a sales tax here.

Huge rents in prime Central and the puny Hong Kong dollar explain the hefty mark-up. Perhaps cashed-up mainland Chinese shoppers will be happy to pay top-dollar for shirts as well as apartments with lucky numbers?

Elsewhere, you can see not-so-subtle inflation in restaurants, where two sizes of dishes are introduced, making you pay more for what you got before.

As well as eating into disposable income, rising prices threatens the retail trade and Hong Kong's competitiveness.
Again, Taipei has what Hong Kong really does not: a hinterland. If Taipei folks can't get good prices in Taipei, they will head out to nearby cheaper areas to get what they need, which may buffer the negative effects of hot money. Nevertheless, incoming speculative flows, casino gambling which creates nothing lasting or important, will drive up prices even higher in already pricey Taipei.

Much will depend on how willing the government is to defend the locals from the effects of speculative investment flows, which in turn depends on how active and strong Taiwan's democracy is, and how well the citizenry uses it to defend its interests. That power of democracy to preserve the interests of ordinary people is one reason the KMT has struggled so hard to isolate the agreements with China from democratic oversight, especially since the citizenry, as recent polls have shown, is majority-against the agreements (review the Taiwan News piece on the financial MOU, and shudder). Taiwan's construction industry is currently moribund; as speculative money flows in construction demand will rise, tying the local construction-industrial state firmly to CCP apron strings. Scary.

The Times article referenced at the start asks as it concludes, financial types are puzzled why there are so many people holding on to property in Taipei worth millions and not selling. Maybe because they have that powerful local drive to acquire land, but perhaps also because they know that if they sell, they and their descendants won't be able to afford a place in in the new order in Taipei.
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Sunday, April 27, 2008

Prof Says Housing Bubble on its way

A leading researcher on real estate in Taiwan has warned that the housing market is looking a lot like a bubble...

After two and half a years of brisk business, the Taiwan housing market, especially that of Taipei, appears to have inflated a major bubble, warned Chin-o Chang, professor of land management science at the National Chengchi University and director of the university`s Taiwan Real Estate Research Center, on April 24.

While publicizing a research paper during a press conference, Chang noted that Taipei`s housing prices have been bloated by 38% over the usual levels, meaning the existing average price of NT$537,000 per ping (one ping being 36 square feet) for pre-sold houses in the city should be cut to NT$333,000 when excluding the bubble factor.

The current bubble has been blowing up following the previous one from 1987-1991, when domestic housing prices were bloated by 47% over the "un-hyped" levels, which ensued an earlier bearish market that lasted 15 years.

...........

Chang pointed out that Taiwan`s home prices have surged 50% over the past two and a half years, when local incomes have inched up only 2%, meaning that many home buyers rely on sizable loans to acquire houses. In light of the potential bursting of the bubble and impact on housing prices, local buyers and banks would be well advised to be very cautious to purchase homes and extend loans at the moment, warned Chang.

The CNA via Yahoo News also described his presentation, adding more detail from his talk:

Taiwan's real estate prices, sustained by sound fundamentals, began to rise in the second half of 2003 following a series of SARS outbreaks, Chang said.

Taiwan's property prices continued to go up in 2004 despite relatively pessimistic sentiment in the market after the presidential election earlier that same year, he pointed out.

According to Chang, the influx of investment capital after the March 22 presidential election will only have a short-term stimulus effect on the real-estate market, and mainly on commercial and resort properties.

Short-term incentives may also prop up the saturated housing market, but the higher the price goes up, the bigger is the risk when the housing bubble bursts, Chang warned.

According to Chang, Taiwan's housing market risks becoming a bubble as the supply of private houses has exceeded the demand.

It will be useless even if Chinese capital were allowed to invest in the domestic real-estate market at a time when the market has begun spiraling downward afer an expansion period of more than three years, he argued.

He noted that an expansion period of two or three years is usually followed by a containment period of seven or eight years.

The story would not be complete without the obligatory death threat:

An academic who warned of a property bubble in Taipei in a letter to a newspaper editor April 12 has received a threatening letter telling him to "shut up" or a contract killer will be sent to murder him.

The Wenshan police station in Taipei confirmed Thursday that its officers were investigating the intimidation case.

Chang Chin-oh, a professor of land economics at National Chengchi University, warned property hunters in his letter to the editor that the property market in Taipei is showing signs of a bubble and that although the market is no longer flourishing, housing prices are still being maintained at abnormally high levels.

After the letter was published, Chang received a computer-printed letter from the "Greater China Real Estate Alliance," warning him to keep his mouth shut or his life will be in danger.

*sigh* In Taichung where I reside something like a third of all the dwellings in the city are empty, waiting for a land price rise that will never come. Want to see one possibility for Taiwan's future? A similar bubble recently blew in Shanghai....and in Shenzhen.

Sunday, April 20, 2008

Chatting with Somebody: Professor Thomas Liou

With this post I'm initiating what I hope will become a regular feature on the blog every couple of weeks: Chatting with Somebody -- chats and interviews with local people who are involved in interesting things. This first one is with Professor Thomas Liou, Chairman of the Urban Planning Department at Fengchia University (pic, left). Hope you enjoy....

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DEVELOPMENT, BUREAUCRACY
TURTON....I have my casino development project, it's an urban planning project, and I run it past the Economic Development Commission first.

LIOU: Yes, you see it is just like the States. Within the government structures, each department actually is fighting against each other, because they have conflicting goals. If you have a project that is going to help the economy, like you might claim, you might want to go to the Economic Development Department first, to be recognized by them, so they will help you to fight against other bureaucracies to the permission you need. That's their job, right? And it's the same here. Within the city, if you want to build a casino......you go to the Economic Development Department and say "I have lots of capital, and I want to build a casino with all the attachments -- convention centers and whatever...once they recognize you as a big investor who is going to help Taichung's economy, it is their job to help you. They will even help you get through the environmental impact review process.

ENVIRONMENTAL MONITORING
TURTON: But the environmental impact review process has never stopped a project in Taiwan, has it?

LIOU: No. Always, all the projects are approved, with conditions.

TURTON: But there is no oversight over whether the conditions are fulfilled....

LIOU: Exactly. I mean, I think this is a worldwide phenomenon.... And we are getting there, where we have civic actions, meaning that we have civic groups that are capable of monitoring the side effects of pollution. For example, here in Taichung, the Taichung thermal generation plant, when they built it -- ten or eleven years ago -- because of the resistance organized by civic groups, they have a so-called parallel monitoring system, meaning that the powerplant will issue their internal assessment report every year, and also, they will provide funding, $5-6 million each year, to outside groups, to have a parallel assessment. Those outside groups will hire professors from local universities in rotation -- Donghai University, Chunghsing University, Fengchia University -- they all have departments of environmental science. They will help the citizen groups to do assessment, and then every year they will have a big meeting where the internal assessment report will be compared to the outside assessment report to see whether there is any glitch in terms of impact on the environment. That's a very good system, functioning for more than ten years. But the key is: they provide the funding. That's a big corporation, Taiwan power company, they provide -- not a lot -- but at least sufficient, $5-6 million annually, so they can support the projects.

TAOYUAN FREE TRADE ZONE
TURTON: What about a development like the one down in Mailiao. Is that one providing funding for a similar system?

LIOU: (shakes head). I just wrote an editorial last night on the Taoyuan Free Trade Zone. You see, in the past, Taiwan, when people heard about Keelung Harbor, Taichung Harbor, Kaohsiung Harbor, those areas were seen by most Taiwanese as "rentier" -- an area that was forbidden. And also, the science park, used to be like a special district, with no contact with the outside world. However in recent years, at least after 2000, we have seen the harbor authority, the science park authority, opening up.

TURTON: In the last how long? Ten years?

LIOU: the last seven-eight years, only after the DPP was in power. You see, they forced them to open up. For example, here in Taichung Harbor, I was put on the management board -- for like, three months only -- to actually hear the report from the port authority. They had to report their revenue to us. They were very nervous, reporting their revenue! (laughter). We did see the opening up of the so-called "rentiers". But now we'll see the building up of brand new rentiers. People argue that, for efficiency's sake, for whatever reasons, for competitiveness, we have to have a streamlined process, so all the capital will come in. Well, I agree with that. We do need some streamlining process in order to accomplish better economic performance. But, the way they phrase the legislation, I see it more for land speculation than for economic performance.

TURTON: It seems a lot of development decisions are....driven by land speculation.

LIOU: (nods) It is not for industry per se, say for streamlining all the bureaucracy and regulations, so that the productivity of specific industry will increase. I don't see that -- only part of it. Mostly it is to take undeveloped area and make it developable.

TURTON: ...so the new free trade zone takes in a lot of undeveloped area...

LIOU: ...it's a combination of urban planning zone and free trade zone. So it is more powerful. Not just free trade, but urban planning district. Land for further development.

TURTON: So they expect to put in a residential area in the zone?

LIOU: Convention, residential, commercial, recreational...so that's why people say, if this special legislation passes, you're going to see a casino! Under the special legislation, it's doable. It's doable! They have the authority.

TURTON: Then everyone's going to want a free trade zone in their county, the Nantou free trade zone, the Hualian free trade zone....

LIOU: (chuckles) That's the ending of my editorial. If you really want to pass the special legislation for the airport district, ok, give every county one.

TURTON: How is the administration of that district going to be carried out?

LIOU: By a public entity.

TURTON: An elected entity?

LIOU: No. It's going to be an appointed entity, like a board. It's like, something more powerful than the state corporations like Taipower. It's going to be more powerful.

TURTON: A national-level geographic entity with an appointed board and an appointed supervisor....

LIOU:..and with some authority that allows them to be immune from 16 existing legislations. They are immune from the national property act, the urban planning act, even medical doctors...they can have their hired doctors from outside practicing medicine, legally.

TURTON: How are they fitting this into the existing framework of city/county/town/township?

LIOU: It is under the direct control of the Executive Yuan. It's a special zone.

TURTON: So it is like a cabinet-level zone.

LIOU: Exactly. You could say that. Roughly 6500 hectares. It's a bit larger than Beitun, about twice the size of Hsitun.[two areas in Taichung]. They are asking for 1200 hectares of land from the National Property Bureau -- they manage all the public lands -- they are asking for free use, the right to use the land to generate revenues without cost. 1200 hectares.

TURTON: Where are the revenues going to go?

LIOU: To the entity they are going to create. It's a no-cost operation. They want to set up a corporation with a huge base of land donated by the national government, and it will be semi-controlled by the national government, with the board members appointed by people from the same party. And they are going to lease all the land for all kind of development and receive revenues. The corporation manages the land, but ownership remains with the government. They have to hand in a certain percentage of the revenue to the central government. Working for the public good. It's still not clear, but they will probably pass it today. It's a joint committee, of transportation and interiors. Once they pass the joint committee, the draft proposal will be sent to the assembly for the second, third reading. They are going to pass it before May 20.

TURTON: Ooohhh. A gift to the incoming president.

INVESTMENT CAPITAL
TURTON: What kinds of laws will need changing for the massive foreign investment in land we're supposed to be getting?

LIOU: It's a given that you have to hand out incentives in order to attract capital...it's hard to disprove the idea that without incentives, no one will come. Business ask "give me the incentive, give me the special privilege." But...who are they? Are they the same kind of groups in the past? In the past we gave out incentives, and they did come, and they made a profit. When you tighten regulations, they decide they will move. That's how the system worked in the past. I think this society has come the point where we have to question the logic of that. Is that the only solution? Giving out more incentives? Do we have a choice about what kind of capital we prefer? Or we don't have a choice -- we're so dependent on capitalists. That's what puzzles me....for me it is more important to focus on: do we have a choice? Who is more qualified, more suitable, to receive the kind of incentives we are handing out now. I just don't buy the argument that we have to relax all the regulations for all kind of capitalists.

URBAN PLANNING INSTITUTIONS IN TAIWAN
TURTON: Last time I was here you told me there were three urban planning departments in Taiwan....?

LIOU: That's a long story. You have to go back into the postwar history of Taiwan, when Taiwan was still a member of the United Nations. We got support from the United States first, but then after 1965, the Taiwan government tried to get funding from the UN for development projects. So we got consultants from the States. Actually, they were stationed in Thailand, but they were sent to Taipei to advise our government on the importance of urban planning. You see, you needed urban planning at the time to get land from the private sector to build public projects. So at least you have to pretend that you are going to build something so you have to come up with some kind of zoning map, so the government can tell the private sector "we have to acquire your land." So we got help from the UN, essentially a guy from Columbia [Donald Monson], and they advised the government: you need a planning school, you need to have some kind of educational institution to train some planners. In 1968 they set up a grad school in Taipei, at National Chunghsing University. That was the first planning school, at the graduate level. Then National Taiwan University got interested in the idea -- they wanted to set up a department of urban planning. So they submitted an application to the United Nations for funding support. At that time we were still a member. But something lousy happened in 1971! [Taiwan’s UN membership was handed over to China] So the funding was taken away. But, on the other hand, National Chengkung University submitted an application to the government for the same purpose, to set up a department of urban planning under Wang Chi-cheng -- he was also the professor of architectural program there. He got his first masters from Rice in architecture and got his second masters in urban planning from U of BC. He was charged with setting up the new department urban planning at Chengkung. So you had a grad school in Taipei, one brand new department in Tainan. A year later the Board of Fengchia asked Professor Wang to come to Fengchia to set up a program. Fengchia was interested in getting the third one here in central Taiwan. In 1973 he came up. So that's why we call the planning program at Chengkung "our brother." So by 1973 we have a system, a planning education system whereby we can produce 100 planners per year.

TURTON: In total?

LIOU: National Chunghsing takes 20-30 grad students annually, and Fengchia and Chengkung annually produce 40-50 undergrads.

TURTON: They all go into the government?

LIOU: Before 1981, yes. In 1981 something happened. Before 1981 all the planning documents were produced by the government. They are the only authority allowed and charged with the mission producing urban planning documents. But somebody challenged that: why can't the private sector prepare the plans, and let the government review them? Why should the government be both the referee and the player.. So in 1981 the private sector was given the partial right to assist local government to take part in the system of local urban planning. So job opportunities opened up in the private sector. Before that it was either into the government or career change.

TURTON: So what kind of organizations are involved in urban planning?

LIOU: There is the Republic of China Urban Planning Institute that was established around 1968 that was initiated by members of the Legislative Yuan. So they do have a professional institute. Originally it was a small, one-man, two-man show. But nowadays it is a fair size, a couple of hundred members.

TURTON: They do standards development, stuff like that?

LIOU: They don't do that. They participate in hearings, research, membership and policy advisory.

TURTON: Think tank?

LIOU: Think tank? They don't have any permanent staff. If you want to call yourself a think tank, you must at least have some permanent staff! (laughter)

TURTON: Do they produce White Papers?

LIOU: They don't do that. They should, but they will not. The American Planning Association does do that. One thing they do which I admire the most -- they will provide lists of expert witnesses to speak on issues inside the court. They will ask members to speak as expert witnesses, sometimes free of charge. They will make a stand on specific issues, and they are very strong on that.

TURTON: In land cases they don't call on expert witnesses here?

LIOU: Sometimes they do, but very few. We don't have any professional court that specializes in land use conflict yet. You keep using 'land' but whenever you talk about land here in Taiwan, it's a different issue. Because the land office in Taiwan is very powerful. We do have a department of land management at National Chengchi University. They are the godfather of L-A-N-D. They existed from 1945. They have close ties, at first, with the sponsorship of the Land Bank. Those faculty are in the department of land management at National Chengchi University are the figures who -- in land use, land taxation, eminent domain...

TURTON: So any plan that you come up with has to go by them?

LIOU: Within the urban planning districts. We have 435 urban planning districts in Taiwan which account for 13% of the total land area of Taiwan. So 87% is non-urban land. Inside the 13%, it is mostly the jurisdiction of urban planning officers and authorities.

TURTON: Who are under local government?

LIOU: All of them are under local government, but local government cannot make the final decisions. Central government does. Within the ministry of the interior, they have the planning commission who makes the final decisions. You see, the local government is responsible for preparation and modification of the plans. They do have a planning commission, but they are not the entities that make the final decision. The national government, that's the final call. So it is very centralized.

TURTON: Tomorrow, I am elected mayor of Taichung. I look at the rivers that run through my city and I want to put in a whole plan -- boardwalks, cafes...

LIOU: then you don't have to go through the central government. That would be a minor modification, just decoration. Local government can decide to do that and the mayor can make the final call, but he is running the risk....that kind of work does not need permits -- but actually they do. Any alteration of the landform or landscape needs a permit. But in the last ten years, the beautification projects, pedestrian projects. Actually, those projects all need permits. But because they were all done by the local governments, they didn't ask themselves for the permits. The permitting process was never engaged. They should have engaged the Permit Office to give them the permits. You see, they added to and altered the landform....

TAICHUNG DEVELOPMENT
TURTON: So what kind of changes can we expect in Taichung then? Are we going to get massive investment and development here?

LIOU: I never expect that. Projects and fantasies. I think we are seeing changes at the grass roots level. We are seeing more and more communities willing to stand up for their identities, to fight for their rights. So we are going to get better. But if you focus on big projects, big casinos, big investment, well, I just don't see that. For example, we've been talking about the mass transit system for ten years, and we are still talking.

TURTON: Why are we still talking? We could have completed it by now.

LIOU: Yeah! You see, for those who speculate on the transit station areas....the longer you speculate: they are going to break the ground! (hand makes rising gesture). They have passed the environmental impact report! (hand rises higher). The line is going to be built! (hand rises still higher). They have approved the budget! The line is going to be opened by 2012 (hand rises higher). Pieces and pieces of news, they just keep adding up.... But when the race was over, when Ma was elected, Jason Hu [Mayor of Taichung] told Ma that Taichung didn't want an elevated system, it wanted an underground. So they are going to take at least two more years to study the issue. (laughter). Two more years. And they are going to get more money in order to build those two lines. We just keep waiting. You see, originally they had an MOU with the high speed rail, they had to build a transit system.

TURTON: You mean for every city on the line?

LIOU: No. When the central government signed the BOT, one of the conditions of the agreement was that they would build a green line from the train station to the HSR station. That was only true of Taichung....

TURTON: ....What can we look forward to with the new administration?

LIOU: Taichung County government offices are encouraging consolidation of the city and the county. But that's not the view of the city, which wants only the city for special status like Taipei and Kaohsiung. The county government wants to become a special status area, which means you get more money. Right now, there is roughly $300 billion allocated by the central government to local governments. Out of that, the city of Taipei and Kaohsiung get 43% of the allocation. The other -- 39% went to the other city and county governments. Taipei County became a quasi-special status county, and is now fighting for more money. The city, especially the city of Taipei, how can they give up the privilege? The combo of Taichung City and County has nearly 2.6 million people, while Taipei City, with 2.6 million, has an annual budget of $150 to $160 billion each year....while Taichung City and County get only $600 to $700 million, about half.

THE FUTURE
TURTON: What about the future? Where is Taiwan going?

LIOU: For me, I'll keep working on public exhibit of planning information. Disclosure of whatever we are working on. Wherever I go, I ask -- did you open this information up for public examination? It's my belief that the reason planning failed in the past is because it was so locked away from public review. This made the public suspicious of urban planning. The only way to is unlock those urban planning decisions, is to have more disclosure of information and urban planning decisions, so the public can examine any contents, or any draft, or urban planning decisions. Students can use them in their research. I think essentially, that is one thing I would like to do.

TURTON: How green is urban planning in Taiwan?

LIOU: It's still very traditional. This semester we have Professor Michael Bristow, a visiting professor. He's preaching about climate change: what do we have here in Taiwan?

TURTON: ....I was going to ask that next....

LIOU:....we haven't addressed that yet. We have some planning thoughts. That's not enough -- we need action. We have some kind of semi-White Paper. I think action is what is needed now. We haven't had a chance to implement the strategies yet. For example, we're proposing protection of environmentally sensitive land from development. We proposed a land banking system that will cut it off from any speculation or development. Form a consortium of government and private groups. We have the thought -- but we don't have the action yet. In fact we proposed that to some of the losers in the election -- don't just focus on the election, but do something for the public interest. But most of them appear to view politics as their career. They don't do that.

TURTON: So there's no connection between the progressive movements and the party...

LIOU: ....once they get in office, there's no progressiveness.(Laughter). It's very frustrating. Very frustrating.

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Notes: The interview was done in English and recorded. I stupidly forgot to take a picture of him, profuse apologies! UPDATE: Money error correct -- thanks to the commenter who spotted that. Also added spaces per next recommendation. Pic of Dr. L on the way.

Thursday, April 17, 2008

Thursday Media Roundup

First, the good stuff. The island's own Jon Adams has a strong post in a FEER blog about the missiles that those statesmen in China point at the radical corporate lawyer Presidents in Taiwan. He writes:

Fortunately, such scenarios are extremely unlikely. In the next few years, it’s the missiles’ role as a bargaining chip that could be the most important.

Mr. Lin says Mr. Ma’s demand that China withdraw its missiles before peace talks can begin was just an opening negotiating position. The missile issue is not necessarily that big an obstacle, he said. “Ma had good reason to up the ante—you never start at a low point, you start as high as you can go,” said Mr. Lin. “I don’t think the high demand by Ma will be an obstacle to Beijing and Taipei talking.”

One key is that Mr. Ma is talking about “withdrawing” missiles, not dismantling them. As Taiwan’s defense minister has emphasized, the missiles are on mobile launch vehicles that can easily be moved. Even if they were rolled inland, they could be moved back in a crisis. A “withdrawal” would therefore be mostly symbolic, with China displaying a less aggressive military posture and winning public-relations points in the process.

Still, there’s another hurdle. Chu Shulong, of Beijing’s Tsinghua University, says he thinks Beijing will likely raise the issue of U.S. arms sales to the island if Mr. Ma pushes for a missile rollback. “The mainland side will link Ma’s demand for a withdrawal of missiles targeted at Taiwan to Taiwan's purchase of arms,” said Mr. Chu. Beijing could demand, for example, that Taiwan halt at least some arms purchases in return for a partial missile pullback.

Adams always does excellent work, and somehow manages to wade through all the political minefields in China-Taiwan relations without managing to blow himself up. Kudos to him for a very readable and informative piece, which shows how the "informality" of blogs is an asset in presenting complex information.

The Christian Science Monitor has a pretty good piece on the Taiwan-Tibet-China situation, that calls for concessions on China's part. As A-gu pointed out, Veep-elect Siew was greeted at the Boao Forum by the Vice-governor of Hainan Province -- someone of equal status, one vice-island-leader to another....although the sentiments are good, the editorial can't resist one last reference to Mad Chen:

The Dalai Lama seeks only full autonomy for his people within Chinese rule while the newly elected leaders of Taiwan are happy with the island's ambiguous status as de facto independent but still officially part of "one China" (someday). Taiwan's president-elect, Ma Ying-jeou of the Nationalist Party, plans closer economic ties with the mainland and, unlike outgoing President Chen Shui-bian, won't agitate Beijing with moves toward official independence.

Poor Beijing, tortured by the wholly evil and all-powerful Chen Shui-bian. Luckily Ma Ying-jeou has arrived to cure cancer, raise the dead, usher in a 1,000 year reign of peace on earth, and remove all the calories from dark chocolate. *sigh* I doubt any of these editors will ever realize how thoroughly they have been used by Beijing.... still, the article's heart is in the right place.

Lots of people sent me the opening paragraph to an article in the Wall Street Journal from Apr 15:
There's a welcome outbreak of pragmatism on both sides of the Taiwan Strait. Saturday's meeting between Chinese President Hu Jintao and Vice President-elect Vincent Siew of Taiwan was the highest-level session between officials of the two Chinas in almost 60 years. What happens next will be a test of Beijing's imagination.
It's funny to recall that Siew is not actually an official of the Republic of China; he's a private citizen at the moment. The reference to the Two Chinas, which many people described in terms not fit for a family blog, was not so much misguided as ominous. Folks, we are going to see a general rollback in the way Taiwan is portrayed -- all those struggles to get "Taiwan, Province of China" out of websites and so on are going to take a huge hit. References to "the Two Chinas" in WSJ are only the beginning of a long downhill slide. It goes without saying that the article does not mention the ongoing and behind-the-scenes talks between Beijing and the KMT that go back years. I wonder what it will take to get those mentioned in the international press?

Why were there US carriers deployed to the waters around Taiwan during the elections? Bill Geertz at the Washington Times informs us....

The American military officials said U.S. fears had been heightened shortly before the election, in which a pro-independence party's presidential candidate was defeated, because U.S. intelligence agencies determined that Chinese mobile short-range missile units within range of Taiwan had been moved to a heightened alert status.

The activity was interpreted as a signal that China might try to intimidate the Taiwan government and people with missile test firings, as occurred before their 1996 presidential election, or in the worst case, an actual attack. China has between 900 and 1,000 missiles deployed within range of the island that Beijing considers a breakaway province.

Scary eh? What was China up to? China was simply out to convince US officials that Mad Chen was for real:

Chinese officials described the Taiwan Strait situation as "increasingly dangerous" during one such military exchange in 2007, the report said.

"Chinese officials assessed as 'high,' the risk of an 'incident' occurring during the time between the March 2008 election and the May 2008 Taiwan presidential inauguration, and called on the United States to make more direct and open statements opposing the referendum [on United Nations membership] at higher levels than the United States has previously issued," the report said.

Yes, there really is a serious possibility that Chen Shui-bian, an unpopular lame duck president would foment a pro-independence incident when the military, legislature, the county magistrates, the bureaucracy, the police, the judiciary, the universities, and the media are all pro-KMT, and the island's most important ally, the US, hates him..... A Wag the Dog incident fomented by China -- that perhaps is a possibility.

Although there seems to be little commentary in the media that points out that China may well judge that Ma will not fight -- and may thus invade, looking for the easy win. Amid the dozens of articles this week on Ma's call for regular flights between China and Taiwan, and the move to make the Yuan a fully convertible currency, Ma the Destabilizer is one role no one has assigned to the world's most handsome leader yet.

Finally, in addition to media reports in today on the proposed free trade zone around the Taoyuan Airport (free trade zones around Taiwan ports of entry have long been a favorite panacea -- Cargo Cult style -- proposed by local legislators), Reuters reports on the visit of Chinese investment moguls to our fair island in search of investment opportunities....

According to the announcement, the group will visit Taipei and Kaohsiung, Taiwan's two largest cities, as well as other popular development areas. But a spokeswoman at Phoenix, which is also sending an affiliated real estate unit, said the itinerary had yet to be finalised.

Ma, who will take office on May 20, has said he favours opening up the commercial property market to mainland investors. He also wants to allow investment in housing as long as properties are held for at least five years to avoid speculation.

Although the outgoing administration of President Chen Shui-bian started to open up Taiwan's property market to mainland investors, it put up so many restrictions that most would-be investors stayed away.

Self-ruled Taiwan and China, which claims the island as its own, remain political rivals since the end of the Chinese civil war in 1949. But despite that rivalry, economic links between the pair have thrived, with China now Taiwan's biggest trading partner and favourite investment destination. Taiwan has become a popular investment ground in recent years for foreign real estate buyers who believe markets such as China and Hong Kong have become overpriced.
I'm curious to see how local property laws will have to evolve to accommodate the influx of foreign investment.....

BONUS: for those of you wanting to see Taiwan's dollar diplomacy in action, read this article from a St. Lucia paper on donations of Taiwan computers by the local Taiwan embassy that somehow morphed into donations from a particular local political party to area schools....

The Embassy confirmed that only the computers they have donated to government bore that particular sticker, as all other donations were monetary. In response to questions surrounding the reasons afforded by government in their request for the computers, the Taiwanese Ambassador said: "Once I send you the present I will not ask you if you are going to eat the cake or sell it to someone else."

Saturday, April 05, 2008

CNA: Ma will not permit hot money speculators from China

The Central News Agency (CNA) offers parts of an exclusive interview with President-elect Ma on the China money issue:

President-elect Ma Ying-jeou said Friday that he will propose anti-speculation legislation that will prevent Chinese investors from trying to make quick profits in the local real estate market.

Ma said in an exclusive interview with the Central News Agency (CNA) that his government will seek to normalize economic relations between Taiwan and China while maintaining Taiwan's national security and dignity.

As an example, Ma said his government would allow Chinese investors to invest in Taiwan's real estate market but also pass supplementary measures to prevent speculators from manipulating the market to make quick gains.

Under the measure, Chinese investors will not be allowed to resell the properties they buy in Taiwan within five years after making the purchase, he said.

Ma also warned that speculative capital might come not just from China but also from Southeast Asian countries and said the new government will take action against any speculative moves.
A law that prevents investors from "the mainland area" as Ma refers to it, from engaging in speculation, shows a number of currents in Taiwan society -- the idea that China needs to be restrained is something that the KMT hacked on the DPP for. And something that nations around China routinely engage it. It also shows ghosts of an underlying agrarian, or perhaps Confucian, horror of mercantile speculation. Taiwan's land use laws are rigid and appear to be primarily aimed at enabling local development and concrete firms to make big bucks putting up hideous cookie cutter concrete pestholes. One wonders how the laws will need to be revised.... last month a group of tycoons lead by the owner of Hong Kong's Phoenix TV visited Taiwan to see what the pickings were real estate wise, and there was one in November of 2007 as well.

This China Post article also explains why so many in Taipei are praying for real estate investment from China:

Feng explained that following the previous Chinese New Year, local Taiwan banks announced that they would stop lending money to buyers of apartments smaller than 20 ping (66 square meters). With the subprime crisis expanding worldwide, Taiwan banks have also learned to be careful when lending money, she said, noting that buyers of small apartments usually face more financial constraints.

"Taiwan people still want to invest in the housing market," she went on, "but they are waiting for the right moment."

Last Tuesday, Yeh Kuo-hua, a manager in charge of the luxury housing department of Yungching Real Estate Co., said that not only had the number of transactions in Taipei City and Taipei County shown a substantial decrease, but the prices of the luxury housing units sold in October also dropped about 5 percent.
Taiwan is already open for Chinese real estate investment, beginning in 2002, all that is required is a permit application. In other words, the framework, including restrictions, already exists, and was required by the WTO. One wonders how the WTO would view a law that discriminated against Chinese investors -- and if Ma and Beijing will slide around by saying WTO doesn't apply because the two sides are "One Country." Finally, what investor would want to buy a property that he couldn't sell when he pleased -- and why would other potential buyers support a law that took properties off the market for years at a time? Probably the government will install a "case by case" fig leaf -- looking at "speculative" sales on a case by case basis -- which will, like all such Taiwan regulations, have no teeth and permit anything to happen in practice.

For those interested, China Information, put out by the China Center at Leiden University, hosts an article on Taiwan's opening to China under the WTO rules out just this year.