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Democratic Progressive Party
White Paper on China Policy for the 21st Century

30 November 1999

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White Paper on China Policy for the 21st Century

November 30, 1999

 

Preface

Taiwan is entering the new century keeping in pace with the rest of the world.

In the new century, the new President of Taiwan not only bears responsibilities to Taiwan, but also to the global community.

Taiwan, located at the cross line of Western and Eastern influences, undertakes both the friction and insecurity of cultural conflict, and plays an equilibrium role among international power struggles. The President of Taiwan in the new century must ensure the security, survival and development of Taiwan.   Furthermore, the President must lead the Taiwan community that has a majority consisting of immigrants to foster its unique vitality, flexibility and creativity.   This would provide substantial contribution to the future progress and harmony of civilization.

The new President's responsibility regarding Taiwan and the world rests upon how the government under his leadership would deal with the serious and difficult subject of cross-strait relations.

The difficulties of the relationship between Taiwan and China result from conflicting and contradictory perceptions of reality.

We do want to build friendly relations between Taiwan and China, but the hostility and antagonism of the Beijing government forces both sides to engage in a zero-sum game with no alternatives.

We hope that China can remove its barriers to democratic development and become an influential force in the Asia Pacific region.  But the current totalitarianism of the Beijing government causes the cultural differences of both sides to be greater.

Although, we promote bilateral economic and trade connections that should be mutually beneficial and prosperous.  There is still an underlying fear of harming Taiwan's national security in the pursuit of economic profit from China's markets.

This fear is in fact the result of cultural conflicts, which will certainly be carried from this century into the next. Thus, one of the most important goals and responsibilities of the President of Taiwan in the next century is to have a China policy that seeks order and stability.

A peaceful Taiwan Strait where both China and Taiwan co-exist and cooperate in the Asia Pacific region would assure to Taiwan and the world the foundation for long term stability and security.

In order to establish this foundation, the Democratic Progressive Party intends to use the next century as a starting point in time to promote the overall normalization of relations between Taiwan and China.   This would be the nexus for our China policy in year 2000.  Under this goal, Taiwan should be more assertive in its national security while at the same time be more proactive in its communications with China.  Providing assistance to contribute to the progress of China would be part of this plan. 

The major goal of establishing normal relations between Taiwan and China is premised on national security, with the building of a consensus on national status, establishing stable mechanisms for interaction, and developing economic and trade relations as the concrete themes. We expect the future leader of Taiwan to have a China policy that is principled and yet flexible enough to respond to new ideas. This policy must also be consistent with public opinion and accountable to the people.

Taiwan's goal is to pursue peace and to build order out of conflict.  It is an inevitable mission for the new President of Taiwan for the next century!

 

Building National Consensus on Taiwan's Status

  • Taiwan is a nation with independent dominion, named the Republic of China in accordance with the current Constitution.
  • Taiwan is not a part of the People's Republic of China.
  • Taiwan and the People's Republic of China are two states,  neither belonging to the other.
  • In terms of independent sovereignty and national interest, the relationship between Taiwan and People's Republic of China, based on similar culture and ancestry, will be more special and closer than with other nations.
  • The direction of the special relations between the two nations and any decision to change the current status must have the consent of the people of Taiwan.

Due to the hostile policy and actions of the Beijing government toward Taiwan's territory, there is no complete consensus on national identity in Taiwan. A national consensus must always be the foundation upon which we prepare or even execute any policy. A national leader is required to fully integrate public opinion because the priority of the national interest is to fully realize public opinion, and from it, form a consensus.

In order to integrate national consensus into our the China policy, one must first of all be realistic in facing Taiwan's situation and its international reality.  We must recognize the reality that Taiwan is different from Mainland China and has independent sovereignty.  Only in this way can we consolidate our national identity and avoid being trapped in chaotic hurdles.

Taiwan meets all the conditions for statehood: Taiwan's territory includes Penghu, Kinmen, Matzu and other surrounding islands; Taiwan has a population of 22 million; the government is elected democratically; and its rights do not derive from any foreign authority.  Even if our independent status is not popularly recognized by international governments, this does not alter Taiwan's de facto reality. Past public opinion polls support the view that we are an independent nation, and virtually none will accept the authority of the Beijing government. Continued confusion of Taiwan's status will not only distort public opinion, but also further lead the international community to undermine our position in favor of China's position. Since the establishment of the People's Republic of China in 1949, it has never incurred a political relationship with Taiwan, and it naturally has no right to participate in deciding the ownership and future of Taiwan.

Once we can reach a consensus on complete autonomy, we will move toward the normalization of relations with China, and make the maximum effort to improve cross-strait relations.

Although the people of Taiwan pursue political autonomy, the long- standing relationship between Taiwan and China in history, culture and ancestry is undeniable. From the angle of geopolitics, Taiwan should co-exist with China. It is impossible for Taiwan to confront China for a long time. Regarding economic development, Taiwan cannot separate from China's market. Only through normalization of the relationship with China can Taiwan be under due protection and its economy be fully developed. With motivating factors of mutual benefit and joint prosperity, the current status of the Taiwan Strait should be defined as a special relationship between the two sides.

Any special relationship may change the current status, but our position is open.  The Democratic Progressive Party once specified in the "Resolution Regarding Taiwan's Future" in May 1995, that any change concerning the current status of independence shall be decided by plebiscite by all residents in Taiwan." In other words, any possibility cannot be excluded in advance, and the DPP must accept any solution that is supported by the majority of the people.

 

Establish Stable Interacting Mechanisms

Beijing's hostility has led to a stalemate. The reason is that there exists the difference in the political systems of both sides, one is totalitarian and the other is democratic.  To overcome the major difference and to establish a stable order, the only feasible direction is through mutual respect and understanding of differences, before overcoming the differences. Gradually we must establish various kinds of interacting mechanisms.

The Democratic Progressive Party must possess sufficient wisdom and vision to engage in dialogue and cooperate with the Beijing government on various issues.  This is to improve mutual understanding, cultivate mutual trust and reduce differences in perception through multiple channels. In the long run, we should seek cooperation with those in China willing to respect the complete sovereignty of Taiwan, including individuals, organizations and groups, to jointly promote the improvement of the Chinese political environment and diminish the difference of the two nations in democratic development. Therefore, we will formulate future bilateral interacting mechanisms through the following four proposals of positive negotiation, comprehensive dialogue,diversification of communication channels, and assisting China's democratization.

I. Constructing Positive Negotiations

 

  • Taiwan should initiate open dialogue and negotiation with China.
  • The objective of dialogue and negotiation is to cultivate mutual trust, and further normalize relations between Taiwan and China.
  • National sovereignty should not be negotiated.
  • Negotiation results should be approved by the Legislative Yuan or by the 22 million people of Taiwan.

In order to promote peace between Taiwan and China, Taiwan should engage in comprehensive dialogue and negotiation with China.

Cross-strait relations will enter a new stage in the following century. Taiwan should no longer use outdated thinking in any negotiation with China. Our attitude toward dialogue and negotiation with China should turn from being passive to being active. The objective of dialogue and negotiation is to normalize relations between Taiwan and China and enhance peace and prosperity between both sides through mutual trust. Our objective is to reach reconciliation with China, while continued, systematic dialogue and negotiation are necessary procedures to realize reconciliation. As long as the national sovereignty and dignity can be adequately protected, we should try all efforts to further dialogue and negotiate between Taiwan and China.

II.    Engaging in Comprehensive Dialogue

  • We welcome talks on all issues, including functional and political. 
  • Various bilateral economic and trade matters, military confidence building measures, peace treaties, etc., should be incorporated into the scope of dialogue.
  • Issues that arise from cross-strait exchanges should be the priority in negotiation.

Cross-strait relations will enter a new stage in the following century and we must face future exchanges with a new vision   In the next century, we should develop a brand new vision. The new round of dialogue need not be limited to the subjects of the Koo-Wang Talks.

In terms of economic and trade matters, especially those related to air and marine transportation, we should enter into negotiations on navigation rights in order to promote Taiwan as the Asia Pacific Regional Operations Center, and facilitate the bilateral travel of Taiwanese businessmen. Concerning sea-land transportation, we request China to open international harbors such as Huangzhou, Dalian, Shanghai, and Tianjinn, to reciprocate our opening of the two major harbors of Kaohsiung and Keelung.  Direct navigation and expedient shipping should be the priority. For air transportation, we propose unilateral operation by Taiwan but with the principle of mutual benefit and profit sharing for both sides.  During negotiation, we must first ensure national security and then pursue mutually favorable interests.  We hope to normalize naval and air transactions under the WTO framework in the short term, and in the long term, promote Taiwan to become a major market for naval transportation and aviation industries, as well as a major competitor in the global economy. 

Concerning the subject of protection of bilateral investment, as both sides are to participate in WTO, we think the unilateral exchange of investment, trade, and business trips will gradually change to a bilateral course.  Therefore, we urge both sides to engage in negotiation on signing an investment protection agreement, setting up mutual trade representative institutions, and legislating investment protection laws.  We intend to realize Taiwan and China as equal WTO members.  Meanwhile, we should set up trade representative offices in China.  Under equal and mutually favorable conditions, we will allow China to set up trade representative offices in Taiwan.

Regarding confidence building measures (CBM), besides the basic discrepancy existing in both sides, the risk of misperception and miscalculation exists.  The geographical distance between Taiwan and China is very close, so the chance of conflict is extremely high.  In the absence of mutual trust, any accident may be interpreted as an intentional act, and further raise an overall conflict.  In order to avoid a military confrontation, Taiwan and China should develop confidence building measures as early as possible. 

Confidence building measures cannot guarantee no occurrence of war.  It can only reduce the risk of war.   However, negotiation and implementation of  confidence building measures can cultivate trust and promote consensus for a peaceful resolution. 

We propose the content of confidence building measures as including the following:

  • Transparent measures -- Include the transparency of military practice and troop mobilization; transparency of military procurement and sales information.
  • Communication measures -- Include setup of hot line, mutual visits of military personnel, mutual participation into international seminars, exchange of military trainees, and joint participation in international organizations.
  • Navy security measures -- Include marine rescues, resolution of fishing disputes, and crime prevention in the Strait.
  • Restrictive measures -- Set up a buffer zone; discuss guidelines for action in the middle line between Taiwan and China.   

We admit, the current situation is far from conducive to an overall, substantial CBM framework; there are still many barriers to overcome.  However, the difficulty in sea-land cooperation and transparency measures is relatively smaller, because the function of CBM is to reduce the possibility of a conflict.  What it represents is the concern for human lives.  Therefore, we practically focus on subjects that are less confrontational, to serve as the major subject of negotiation and basis for mutual trust.

To further the dialogue between Taiwan and Mainland China on military security, it is necessary to reinforce our national defense strategy and civilian research team.  On one hand, this is an alternative to the military system and it avoids confronting the egotistical military personnel participating in discussion.  Civilian personnel are more flexible in adapting to the current discussions of Straits Exchange Foundation (SEF) and Association of Relations Across the Taiwan Strait (ARATS).

On the subject of dialogue to reach a peace agreement, Taiwan and China should realize a consensus on an ultimate goal and a transitional dialogue framework can be set up to improve the interacting relationship of both sides.

Both sides may engage in long-term dialogues concerning the feasibility of signing a peace treaty.  We think that a peace agreement should have the following content:

  • According to the United Nations Declarations, a dispute should be settled peacefully without engaging in the use of force.
  • The existing border between both sides should not be invaded in order to guarantee complete respect for the other side's territory.
  • Neither side should represent the other in the international community, or take action on the other's behalf. 
  • Both sides should exchange representative offices. 

To sign such an agreement is extremely difficult.  However, it is necessary to develop dialogue on this subject.  These difficulties are not unique to Taiwan and China.  Before East Germany and West Germany signed their basic agreement, they also went through lengthy negotiation. Only after formulating more than ten agreements on issues such as postal administration, telecommunication, radio channel, cargo transit receipt/delivery, travel convenience, railway transportation, and accident compensation, did both sides establish mutual trust and confidence.

Matters related to public interest incurred through bilateral exchange must take priority.  This includes topics such as: business arbitration, juridical assistance, and mutual attack on crime.

III. Diversification of Communication Channels

 

  • In order to improve communication and set up mutual trust, it is required to communicate with various organizations and groups in China.
  • Formal coordination and negotiation should be conducted by the government and authorized institutions.
  • Bilateral formal negotiation channels between SEF and ARATS should be promoted, to eventually include official government participation.
  • Complement bilateral dialogue through Track II diplomacy.

As a negotiation partner, Chinas evolution into a pluralistic society is a positive direction. The dialogue between Taiwan and China cannot be limited to the existing institutions and authority of the Beijing government. On account of the long-term objective of normalizing relations, we should further the understanding of the Chinese people about Taiwan and strive to encourage pluralism and diversity in China. Therefore, positive dialogue with various organizations and groups within China should play an important role in the future communication.

At present, the SEF and ARATS provide the only authorized channels of negotiation across the strait.  Formal negotiations involve public law and thus should be led by the government, or government authorized institutions.  The SEF-ARATS negotiation is currently in authorized civilian form.   In the future, as negotiation subjects become comprehensive, official participation should be gradually enhanced, so as to move to a new stage in official negotiation and to ensure that the negotiation results are executed with public authority.

In addition, we suggest reinforcing the communication between both sides of the strait through Track II Diplomacy.

Track II Diplomacy refers to the communication channel consisting of scholars and experts or government officials participating as private entities.  Through informal discussion, the goal is to explore mutual understandings to prevent the formal diplomacy of Track I from being trapped into a deadlock.

Passive resistance is inferior to active participation. We should initiate various Track II conferences to involve both sides of the Strait or even other Asia Pacific countries concerned about the situation of Taiwan and China, including government officials or scholars, with a chance of direct communications. To be specific, talks initiated by Taiwan should have the following characteristics:

  • Supported by government, and held by designated private sectors on a periodical basis.
  • The participants should be professional, and have substantial influence on the decisions of government or political parties.
  • Concerning different issues, different kinds of communication mechanisms should be provided. For example, for economic or trade, a trade forum for both sides can be set up. Regarding security, a cross-strait security forum can be set up; and a cross-strait cooperative judicial forum can be built to deal with illegal immigrants and crime. Moreover, the future direction of relations between Taiwan and China is to establish a national status forum to allow both sides to express their own opinions.

In addition to the forums initiated by Taiwan, we should also actively participate in various existing dialogue channels. For example, forums held by American organizations such as the National Committee On US-China Relations, The American Assembly, and National Committee of U.S. Foreign Policy have been useful.  We should prudently evaluate the discussed topics, participating candidates, and messages to be conveyed. It is also useful to strive for changing the bilateral forum into a three-party or multiple-party forum, to avoid message twisting and mutual mistrust.  Furthermore, we must seek to participate in such international security forums such as CSCAP and ARF.

IV. Encourage China's Democratization

 

  • Democratization is not an automatic process. Experienced support and assistance would make the democratic progress more secure.
  • Taiwan should play an active role in the process of promoting democracy of China.
  • Assisting China in its democratic development is Taiwan's democratic concern and also in Taiwan's strategic and geopolitical interest.

A secure relation between both sides of the strait can be created from diversification of negotiation and communication channels. However, the fundamental conflict is that while one side is a free and democratic state, the other is a totalitarian state. If this conflict continues to exist, the stability of the cross-strait relations would be only temporary. To create long-term stability, Taiwan has to assist China in its path to democracy. Because we firmly believe human rights and democracy to be universal values, we should help promote these values. Moreover, as long as there is a totalitarian giant by its side, Taiwan cannot be secure. Thus, the democratic promotion of China concerns not only the welfare of Chinese people, but also the welfare of those living in Taiwan.

Those who can aid the democratic promotion of China include Western nations, international organizations and the Chinese democratic movement overseas. However, the role of Taiwan is also essential.   Although Taiwan has similar cultural influences to China, Taiwan already has a mature democratic system. The experience of Taiwan verifies that the Chinese are not destined to endure totalitarianism. As long as Taiwan exists, China cannot reject democracy on the argument that authoritarianism is compatible with Chinese culture.

The Democratic Progressive Party is the only party under influence of Chinese culture to successfully promote democracy. On how to change a governing system, the Democratic Progressive Party is rich in experience. We will cooperate with any individual or group to pursue democracy in China and to promote the transition of its political system. At the current stage, Taiwan may promote the following policies:

  • Invite Chinese academic and government officials to Taiwan in order to observe democratic elections.
  • Set up fellowships or scholarships to subsidize Chinese academic field in the study of promoting democracy.
  • Expand exchanges with various Chinese political parties, including Chinese communist party, democratic parties and various groups in China promoting democracy.
  • Establish a good interacting relationship with the Chinese overseas democratic movement.
  • Provide assistance to the current local elections in China, including training of the election staff and providing computer ballot systems, etc. 

 

Develop Economic and Trade Cooperation Relationship

Under the objective of normalizing cross-strait relations, we adopt an open attitude to economic and trade development, and hope the Beijing government can focus on joint prosperity rather than argue over sovereignty. If the Beijing government keeps bypassing Taiwan's friendly overtures, without diminishing its hostility and use of force toward Taiwan, it would be difficult to develop meaningful proposals and maintain favorable conditions.

In order to substantiate the policy of "base strengthening, go west", the future cross-strait economic and trade policies of the two states should be conducted according to the following principles:

First, the economic and trade connections between the Taiwan and China should consider both national security and economic interest.

Second, Taiwan needs a comprehensive strategy for the development of economic security that will replace temporary and passive policies with long-term positive management.

Third, we will, on any subject, including the economic and trade issues negotiate with China. Both parties should develop a better understanding and trust during the negotiation process.

  • Options for economic and trade should not be limited to the two policies of "no rush, be patient" or "courageously march west."
  • Strengthening the economy should form the basis for economic and trade connections.
  • Economic and secure development policy should be built with concurrent consideration of proactive and defensive policies.
  • Only by friendly overtures and creative proposals can we create economic prosperity for both sides.Provide assistance to the current local elections in China, including training of the election staff and providing computer ballot systems, etc. 

Trade between Taiwan and China has always been a controversial issue.  For a long time, the domestic attitude has often been trapped into the myth of having to accept either a closed door or open door policy.   People tend to think that if "not rush, be patient" is not the answer, then "courageously march west" is the solution.  The way thinking oversimplifies the complexity of cross-strait economy and trade.  Essentially, there are both economic interests and security risks.

In Taiwan's interest, cross-strait trade has been an important part of the economic development in Taiwan.  However, national security risks should be considered as well.

The traditional perception puts economic and security interests in opposition to each other.  The current governmental restrictions on navigation, trade and investment are formulated from this assumption.  But such measures are outdated.

The passive policy of restricting investment to China belongs to a different context.  It can only serve as an interim policy to give Taiwan time to strengthen itself.  But the aging ruling party forgets how to conduct long-term proposals after providing auxiliary measures.  In the long-term, the DPP feels that we must actively upgrade the economic capacity of our nation, to lessen Chinas ability to threaten us economically.  We would be augmenting our economic strength by establishing an active policy.

Upon both Taiwan's and China's entry into WTO, the current economic and trade restrictions against China may be affected.   First of all, Taiwan currently requests that products of China should be imported by a third party. Whether this violates the Most Favored Nation treatment of WTO has been controversial.  Second, unless China is found dumping its products, or if our national security is violated, we cannot black list China, because this regulation may not conform the free trade spirit of WTO.  Third, according to GATS of WTO, Taiwan must provide the Most Favored Nation treatment and Civilian treatment to China and thus the restriction on inbound Chinese capital and entrance of Chinese businessmen will be more difficult.  Fourth, although WTO does not stipulate direct navigation of aircraft, the issue related to Taiwan's development of local operation branches with reduced travel costs will arise.

To solve the economic and trade problem, we must reduce the assumed conflict between national security and economic interest.  Both of these two major interests must be considered when we develop our strategy for economic security.

The basic objective of a strategy for developing economic security is to ensure economic resources (including capital and markets) can be channeled smoothly to facilitate basic economic conditions that are free from threatening forces.  The strategy promotes economic prosperity while at the same time, it would protect the territory and maintain independent sovereignty.  Basic material conditions, national identity and national infrastructure are all within the scope of security considerations.

Strong economic forces guaranty Taiwan's security.  The fundamental strategy to develop economic security is to replace passive control with positive management; expanding the market rather than resisting against market trends.  Measures include expansion of the market, accumulation of national wealth and foreign currency, prevent financial deficit and unemployment, solidify national consensus, and increase living standards through economic strength.  At the same time, we must reduce risk by means of establishing institutional or systematic guidance, using advance warning index systems, and maintaining stable sources of raw materials, labor market, export market, financial market and securities market.

Concretely, we should take the following measures:

I.        Positive Measures

 

(I)    Strengthen economic integration with advanced nations 

From the viewpoint of 'relative interests', both advanced and developing nations must cooperate.  Cooperation with developed nations can bring advanced technology and is less likely to cause deterioration of income allocation.  Therefore, cooperation with advanced nations is the priority and cooperation with developing nations should be more conservative.

1.   The trade connection between Taiwan, USA and Japan should surpass the existing most favorable nation treatment level required by WTO and gradually evolve toward bilateral waiver of tariffs.  This would create an environment that facilitates circulation of various products.

2.    Encouragement of Joint ventures with advanced nations, finance, low interest rate loans, and other favors should be provided by the government for the guidance and assistance in information and technology.

3.    Joint venture with such developing nations, in particular China, must focus on the industries unable to develop in Taiwan domestically.  No government restriction is required, nor is it required to provide special incentives.

 

(II)     Concentrate on Developing High Tech and Innovative Industry

 

As long as the industrial development and upgrade in Taiwan is successful, there is no need to worry about industry outbound movement.  As long as the suppliers of Taiwan can control key technology and maintain superiority product design from China, we need not worry about the economy of Taiwan being absorbed by China.  Industrial upgrading is the fundamental outlet for Taiwan.  This would focus on developing high tech, innovative industries to solve the economic and trade risk problems.

 

1.   Considerably upgrade the quality of manpower in accordance with the standards of advanced nations as well as upgrade the percentage of those receiving college education to be above 40%.

2.   Encourage R&D, strengthen protection of intellectual property rights, and patent rights through a reference report system.

3.   Simplify the underwriting and OTC standard of high technological companies.  Open the securities report system to facilitate new rising industries to acquire capital.

4.   Encourage opening research labs and other technical service industries, to enable medium and small business entities to input in the high tech industry.

5.   Encourage university laboratories to cooperate and exchange information.

6.   The government should expand the existing labor training to further guide and aid private industries in strengthening professional training.

7.   The government should adopt functional incentive measures, to subsidize industries to engage in technical research, product development, talent cultivation and training.

 

(III)    Develop navigation rights negotiation, reduce corporate operation costs, and attract multi-national industries to come to Taiwan.

 

The WTO has no strict regulations about navigation rights.  But in order to reduce corporate operation costs and to attract multi-national industries to invest in Taiwan, to build Taiwan into the operation center for the entire Asian market, we may, under conditions of national security and mutual benefits, call upon China to negotiate on the subject of navigation.  Some creative proposals are: 

1.    Sea-land transportation: We can negotiate with China and request them to open the ports of Guangzhou, Dalian, Qingdao, Shanghai, and Tienjin on a reciprocal and mutually beneficial basis.  We would open the two major harbors of Kaohsiung and Keelung to facilitate direct navigation.

2.    Air transportation: Both parties should discuss unilateral operation by Taiwan airlines, with the profit to be shared by both sides.  This would help Taiwan develop into a regional operations center and reduce the cost of business travel..

 

II.    Defensive Measures

 

(I)   Diversify Export Market, Reduce the Reliance on the Market of China 

At present, 18% of cargo of Taiwan is exported to China.  Trade with China accounts for 266% of the trade surplus difference.  At this rate, by the year 2005, the reliance of Taiwan on the market of China will reach as high as 26%, with trade surplus percentage to further reach 300%.   Relatively, the reliance level of China on Taiwan market is less than 2.5%, and has been in deficit to Taiwan.  But if armed conflict occurs, the injury suffered by Taiwan will be higher than that of China.  In order to avoid the risk, the following measures should be taken:

 

1.   Build an advance warning system for various products exported to China.  The total export level is 15-20%, with individual product export levels to be determined by the nature of the product.

2.    Financial incentives should be provided to products exported to other nations by simplifying custom declaration procedures and reducing commission rates, in order to diversify the export market.

3.    Develop the high value-added industries, strengthen international marketing ability, so that Taiwan's products can be sold to advanced nations.

4.   Change the product structure of importing into China's market. At present, our products exported to China are mainly those that can be easily replaced by other nations, i.e., parts, industrial raw material, etc.  In the future, product sophistication should be upgraded so that China would rely on us for upgrading their technology, and raise the cost of a trade war between the two.

 

(II) Properly Respond the Problem of Inbound Chinese Capital into Taiwan

 

1.    Expand market magnitude and reduce the influence of the single capital source

 

The reason why the market of Hong Kong is easily controlled by Chinese capital is because of its small market magnitude.  At the end of 1995, the marketing value of underwriting securities in the Hong Kong Market was about US$300 billion.  This is similar to the magnitude of the securities market in Taiwan at present where Chinese capital accounts for 20% therein.  Taiwan should make an effort to expand its market to avoid following the fate of Hong Kong.  Under diversification of capital source, a sufficient domestic capital can minimize the influence of Chinese capital on Taiwan.  In order to realize this goal, the following measures should be adopted:

 

a.   Lift the inbound investment ratio restriction of foreign capital in Taiwan.

b.   Accelerate the offering of shares, speed up the pace of privatization of government enterprise, provide more investment chances for private sectors and foreign capital, and avoid being trapped in industries under political party operation or minority monopoly.

c.    Reduce the underwriting capital amount and business amount limit in order to help more business entities in underwriting to expand securities market magnitude.

d.    Reduce cash capital increment terms of business entities and enable business entities to upgrade private capital ratio through cash capital increment.

 

2.    Strengthen Auditing of Inbound Chinese Capital into Taiwan

 

At present, concerning the inbound Chinese capital into Taiwan is under the control and management of government sectors such as SEC, Mainland Affairs Council, MOEA (Investment Commission, Commerce Department, Board of Foreign Trade), MOTC, and Foreign Exchange Department of the Central Bank of China. But in fact, the coordination of various executive departments in advance warning, audit, monitor and control are not comprehensive and have defects.  These defects include: First, each sector independently operates on its own, without joint reviews, monitor or control action in the inbound investment from China into Taiwan.  Second, execution is passive.  For example, for a foreign company applying to set up a branch in Taiwan, the share holding ratio of Chinese capital should not exceed 20% and the Commerce Department of MOEA will take action in accordance with this regulation.  But the problem is, after approval of establishing a branch company, the share holding ratio of Chinese capital is increased to above 50%, then the Commerce Department provides no monitor, control mechanism.  Third, at present, the control of inbound Chinese capital from Hong Kong and Macau into Taiwan is rather restricted.  Yet for the inbound capital from USA, Canada and Australia, the control is rather loose.  It is recommended to take the following measures in the future:

 

a.    Concerning the review of inbound capital into Taiwan, the present control manner of "focusing on upper limit of capital ratio" should be changed into the control modes of "focusing on capital property" and "focusing on investment item."  The so-called "focusing on upper limit of capital property" control method is under the regulations related to security clause or special defense clause of WTO, to restrict Chinese capital from intervening in the following several industries:

 

     The industries that easily form monopolies, such as telecommunications, power, railway, and major infrastructure.

     The sectors that influence public opinion, such as operation of media, TV, broadcasting, newspapers, etc.

    The high tech industries with key leading functions in the industrial structures of our nation, such as semi-conductor industry.

     The sectors which influence our economic stability or production fluctuation, such as finance and securities.

 

b.    Set up 'capital ownership declarations' for inbound foreign capital into Taiwan, for such related organizations as economy and trade, cross-strait investment such as  SEC, Mainland Affairs Council, MOEA (Investment Commission, Commerce Department, Board of Foreign Trade), MOTC, the Central Bank of China, which should jointly formulate a declaring, reviewing, monitoring and tracing system for the inbound or outbound capital into or out of Taiwan.  Besides regular monitoring on special cases, a periodical random inspection system should also be set up, to avoid Chinese capital from evading supervision by means of using a different name.

 

c.    Chinese businessmen coming to Taiwan should be permitted in general and restriction should be for exceptional cases.  However, such organizations such as Mainland Affairs Council, Straits Exchange Foundation, Investigation Bureau, National Security Council, etc. should strengthen auditing the background data of the inbound personnel into Taiwan, requiring the personnel from China to periodically report their whereabouts to the related organizations after arriving in Taiwan.

 

Conclusions

In the future, through the above policies, promoting the normalization of cross-strait relations is anticipation.   However, the hostility from China toward Taiwan is a reality that influences national security. How to cope with the challenge from China should be a major concern for various political parties in Taiwan.

The Democratic Progressive Party advocates four pillars for the security of Taiwan:

1.      Clear national status

2.      Normalization of across-strait relations

3.      Strong national defense force

4.      Stable economic development

 

The four pillars are all essential to Taiwan.  A clear national status defines our national interest and enables the formation of our defense and diplomatic strategy.  The strength of national defense relies on economic power, and economic development requires the protection of national defense.  Taiwan's economy is significantly affected by cross-strait trade, yet the trade relationship depends on a harmonious environment.

The Democratic Progressive Party believes that a proper China policy should consider these four pillars and the cause-and-effect relationship therein.  Only though a comprehensive, diversified strategy can the security of Taiwan be ensured, only then will Taiwan be able to fulfill its obligations as a member of the global community in the next century.

 

  Democratic Progressive Party

Democratic Progressive Party 

DPP Mission in the United States 

 

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Source: Democratic Progressive Party