VZCZCXRO1187
PP RUEHCN RUEHGH RUEHVC
DE RUEHIN #2461/01 3120925
ZNR UUUUU ZZH
P 080925Z NOV 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7344
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHBK/AMEMBASSY BANGKOK 3881
RUEHBY/AMEMBASSY CANBERRA 4641
RUEHML/AMEMBASSY MANILA 0191
RUEHGP/AMEMBASSY SINGAPORE 7054
RUEHKO/AMEMBASSY TOKYO 9229
RUEHWL/AMEMBASSY WELLINGTON 1907
RUEHCHI/AMCONSUL CHIANG MAI 0324
RUEHHM/AMCONSUL HO CHI MINH CITY 0152
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 TAIPEI 002461 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR, STATE FOR EAP/TC,USTR FOR STRATFORD AND 
ALTBACH, TREASURY FOR OASIA/TTYANG, COMMERCE FOR 
4431/ITA/MAC/AP/OPB/TAIWAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD PREL PGOV TW
SUBJECT: HSIEH OUTLINES A PRAGMATIC ECONOMIC POLICY 
 
TAIPEI 00002461  001.2 OF 003 
 
 
¶1. (SBU) SUMMARY. During a November 8 presentation to the 
American Chamber of Commerce in Taipei, DPP presidential 
candidate Frank Hsieh (Chang-ting) balanced an emphasis on 
Taiwan's underlying "sovereignty" with an espousal of greater 
economic openness.  He called for strengthening the 
manufacturing sector, liberalizing tax policy and capital 
markets to increase Taiwan's international competitiveness, 
and boosting tourism.  On cross-Strait economic policy, Hsieh 
advocated establishing regular charter flights and easing 
investment restrictions, including allowing Chinese 
investment in Taiwan. In response to a question, Hsieh hailed 
Taiwan's close economic relationship with its American "best 
friend," and called for a regular high-level policy dialogue 
with the U.S. and a bilateral free trade agreement.   END 
SUMMARY. 
 
------------------------------------ 
Support for the manufacturing sector 
------------------------------------ 
¶2. (SBU) Opening his remarks by speaking in slightly halting 
English, Hsieh stressed the DPP's "focus on national 
security", said "nothing is more important than protecting 
the sovereignty of Taiwan's status quo," and identified 
"national identity" issues as "extremely important." 
Shifting to Mandarin, he described his economic platform as a 
"golden triangle" combining economic prosperity, sustainable 
development, and social justice, and said his remarks would 
focus on the first of the three. In Hsieh's view, Taiwan's 
economic policy should not focus solely on GDP growth at the 
expense of developing key industries, and he identified 
biotechnology and biomedical services as among the new 
sectors on which Taiwan should focus.  Taiwan industry, he 
explained, should use enhanced IPR protection and advanced 
technology to move beyond original equipment manufacturing 
(OEM) and expand its presence in high value-added industries. 
 
¶3. (SBU) Asserting that Taiwan's manufacturing sector has 
been declining too rapidly, Hsieh argued that although 
manufacturing now accounts for only about 23% of Taiwan's 
GDP, the sector plays a disproportionately more important 
role in employment.  The authorities, he said, should create 
an environment in which technology, capital, and labor can 
help support the manufacturing sector.  According to Hsieh, 
manufacturing sector job loss has helped make Taiwan an 
"M-shaped" society of increasing social disparity and a 
weakening middle class.  Worsening social equality, he 
continued, can be blamed on the policy inadequacies of both 
the KMT and the DPP over the past twenty years. 
 
-------------------------------------------- 
Financial, tourism, and development policies 
-------------------------------------------- 
¶4. (SBU) Hsieh supported shifting tax policy from a focus on 
"fairness" to an emphasis on "competitiveness," and should 
look to Hong Kong, Singapore, and South Korea as models. 
Specifically, he advocated resolving double taxation 
problems, reducing inheritance and gift taxes, and attracting 
capital back to Taiwan by pardoning previous infractions 
involving overseas investments not legally registered with 
the authorities.  An 18-24 month amnesty period should apply 
to all who have not fully reported their overseas 
investments, explained Hsieh, and not only those who have 
invested in China. Hsieh underscored the importance of 
strengthening Taiwan's capital markets, which he described as 
"very weak," despite the relatively good performance of the 
stock market.  Taiwan should attract a greater number of 
IPOs, he added, and allow the stock market to increase its 
links with global counterparts.  Hsieh bemoaned the fact 
that, despite massive foreign exchange reserves, Taiwan runs 
a capital account deficit. 
 
¶5. (SBU) Calling for expansion of the Taiwan tourism sector, 
Hsieh said he would support allowing up to 1,000 Chinese 
tourists a day to visit Taiwan for stays of up to ten days. 
As part of a comprehensive policy to stimulate domestic 
demand, Hsieh advocated improving public infrastructure. 
Such efforts should not, however, necessarily focus on the 
 
TAIPEI 00002461  002.2 OF 003 
 
 
highways, industrial plants, and other large public projects 
of the past, but should instead concentrate on more 
environment-friendly areas such as flood control and care for 
children and the elderly.  Hsieh also mentioned the 
importance of reducing the urban/rural development gap. 
 
--------------------------------- 
Cross-Strait economic integration 
--------------------------------- 
¶6. (SBU) Returning to English as he began his remarks on 
cross-Strait economic policy, Hsieh said he would adopt a 
"more open attitude," but also observed that "protecting the 
sovereignty of Taiwan's status is more important than many 
things," and said cross-Strait economic integration must not 
proceed to the point that "Taiwan becomes a local government 
of the PRC."  Instead, he stated, Taiwan should "combine 
openness with individuality."  Hsieh said he supported direct 
cross-Strait flights, but added that such flights should 
begin as charter flights during holidays, and then gradually 
expand in frequency.  "Charter" status will help avoid bitter 
disputes over whether the flights are "domestic" or 
"international", he added, before observing that "both sides 
are too preoccupied with ideology and need to be more 
practical" on the issue. 
 
¶7. (SBU) Hsieh said he would "welcome foreign capital to 
Taiwan," including investment from China.  Investment must be 
"based on the principle of mutual benefit," and if Taiwan 
businesses and investors can go to China, then a similar flow 
should be possible in the other direction.  Taiwan's strong 
"rule of law" would help address concerns about Chinese 
investors buying up the island, he added.  In Hsieh's view, 
Taiwan should relax the current 40 percent-of-net worth limit 
on companies' investment in China, but must also retain 
"active management" and review investments on a case-by-case 
basis, rather than allow what he characterized as the KMT's 
proposed "wide open" policy.  In national defense, 
agriculture, and other sensitive sectors, technology transfer 
to China must be carefully regulated.  Industry 
representatives should take part in the transfer evaluation 
process, said Hsieh. 
 
¶8. (SBU) During a brief question and answer session after his 
remarks, Hsieh responded to a query about Taiwan's lack of 
bipartisanship by saying that, if elected, he would like to 
form a coalition government.  He predicted that neither the 
DPP nor the KMT would be able to win an outright majority in 
the LY.  Answering a question about apparent discrepancies 
between Hsieh's relatively liberal cross-Strait economic 
policy and Chen Shui-bian's more conservative views, Hsieh 
promised that if elected he would move ahead on cross-Strait 
economic integration, despite expected political pressures. 
In response to another question, Hsieh expressed general 
support for the concept of a bureaucratic "one stop shop" for 
Taiwan-based investors doing business on the mainland.  In 
reply to a query on how Taiwan can maintain a vibrant 
manufacturing sector in the face of low-cost regional 
competition, Hsieh acknowledged the long-term trends that 
favor moving manufacturing to cheaper locations offshare, but 
argued that Taiwan's manufacturing sector has eroded too 
quickly, and must adapt by increasing value-added. 
 
----------------------- 
Relations with the U.S. 
----------------------- 
¶9. (SBU) Replying to a final question on the U.S.-Taiwan 
economic relationship, Hsieh noted that the U.S. remains a 
leading export market for Taiwan, especially because many 
Taiwan-owned factories in China rely on American demand.  The 
U.S. and Taiwan enjoy a "very close" economic relationship, 
he continued, and the U.S. is Taiwan's "best friend."  Hsieh 
called for establishing a regular series of high-level 
U.S.-Taiwan exchanges to exchange ideas and ensure openness 
in economic and other policy areas, and also expressed 
support for a bilateral free trade agreement (FTA). 
 
¶10. (SBU) COMMENT.  Hsieh's speech was clearly designed to 
 
TAIPEI 00002461  003.2 OF 003 
 
 
appeal to the local as well as foreign business sector. 
Relaxed and confident, he appeared to be aware that the 
largely business-oriented audience was most interested in 
hearing about cross-Strait and other economic liberalization 
issues, and tailored his remarks accordingly.  In elaborating 
on his own cross-Strait policy views, Hsieh also sought to 
distinguish his positions from those of the current 
administration. He came across as pragmatic, engaged, and 
comfortable with his economics brief. END COMMENT. 
 
YOUNG