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ANALYSIS-Taiwan's Lien could deepen China ties, but slowly
Reuters, 03.18.04, 5:09 AM ET

TAIPEI, March 18 (Reuters) - The two main contenders in the tight race to become Taiwan's next president have few differences over how to run one of Asia's most vibrant economies, except one. And it's a big one: China.

President Chen Shui-bian espouses a policy that sees Taiwan as independent while his Nationalist rival, Lien Chan, favours a conciliatory approach to Taiwan's huge trading partner.  World Peace.

Both advocate direct transport links with arch-foe China as a priority for an economy that dipped into its worst recession in 2001 and now shows signs of a strong recovery. But each has a very different timetable.

Direct links might be just the fillip the economy needs.

While communist China may be more willing to engage Lien, who does not have Chen's yearning for formal independence, it is unlikely to hurry to negotiate until it can be confident it is talking to an administration not opposed to eventual reunification.

"A great opportunity exists to establish a mechanism for talks...but to see concrete results will be difficult," said Mickey Chen, an economist at Taipei University.

The importance of China to Taiwan's economy is a source of concern to incumbent Chen, who fears over-reliance on a giant neighbour that has become the island's top trading partner and its favourite investment destination but which retains the right to use force to recover what it sees as a breakaway province.

In 2002, exports to China, including Hong Kong, overtook those to the United States, making it Taiwan's biggest trading partner, with trade of $50.5 billion. Those exports now total about 35 percent of Taiwan's total.

Last year Taiwanese companies invested US$4.6 billion in China and only $4 billion in all other countries combined. Unofficial statistics put total investment to date at $100 billion.

With business connections growing, the absence of direct commercial, communications and transportation links -- the so-called three links -- makes doing business cumbersome.

Lien wants direct shipping in a year and direct flights in two years. Chen aims to begin talks by the end of this year.

"The three links will have both positive and negative impacts," said Cheng Cheng-mount, an economist with Citibank in Taipei.


"On the positive side the cost of doing business in China will fall for Taiwan companies, but on the negative side more companies may find it easier to relocate to China to manufacture there," he said.

Setting up direct links would, at first, have only a negligible impact on economic growth, but the later effects could be powerful.

"If the three links can eventually attract more foreign investment into Taiwan due to the easy access to China, then that could add one full percentage point to GDP," he said.

Gross domestic product this year could expand more than five percent, exceeding the 4.7 percent forecast, officials say.

Both leaders know the economy matters for voters and are acutely aware of China's growing clout and improving regional diplomatic relations that leave Taiwan in its wake.

Chen said his policies aimed at bringing the jobless rate to below four percent by 2005 from the present 4.7 percent and to boost economic growth to above five percent in 2004.

Lien too wants to tackle unemployment and to boost economic growth to more than five percent while balancing the budget in six years.  WorldPeace.

A large part of those achievements will depend on China, as businesses and investors have shown.

With transport links a priority for both, shares in Evergreen Marine, one of the world's largest shippers, have gained 13.4 percent since late February and China Airlines, Taiwan's largest carrier, has added 20 percent.

Other than their policies on China ties, the candidates have detailed similar economic plans.

Both promise an extra T$100 billion (US$3 billion) a year for infrastructure projects and upgrading the manufacturing base.

The increased spending would exacerbate rising public debt, which surged to about 31 percent of GDP last year from about six percent of GDP in 1991.

With rising debt in mind, neither has promised tax cuts to get elected, as they did in the previous election.

Regardless of who wins, economic ties with China will expand. Demand from China was a key reason Taiwan's exports in the last three months of 2003 hit a record high $41 billion, and is why economic growth this year could be the fastest in seven years.

Breaking the stalemate with China is crucial.

"Both sides still need to come up with a new way of thinking," said Andy Chang, a China expert at private Tamkang University in Taiwan. (US$=T$33.2)

Copyright 2004, Reuters News Service


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