US embassy cable - 05TAIPEI3880

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 003880 
 
SIPDIS 
 
DEPT PASS TO AIT/W AND USTR 
DEPT FOR EAP/TC, EAP/EP AND EB/IFD/OIA 
TREASURY FOR OASIA ZELIKOW,WISNER AND OCC AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE BOARD OF GOVERNORS, 
SAN FRANCISO FRB AND NEW YORK FRB 
 
E.O. 12958: DECL: 09/18/2020 
TAGS: ECON, EINV, PINR, PREL, TW, CN, Cross Strait Economics, Cross Strait Politics, Finance 
SUBJECT: PFP LEGISLATOR LIU YI-JU PUSHES CROSS-STRAIT 
ECONOMIC TIES 
 
Classified By: AIT ACTING DIRECTOR DAVID KEEGAN, REASON 1.5 B/D 
 
1.  (C) Summary:  People's First Party (PFP) Legislator 
Christina Liu (Yi-ju) is a harsh critic of the Chen 
Administration's economic policies and believes that better 
cross-Strait relations are an urgent economic priority for 
Taiwan.  At the same time, although she belongs to the same 
party as pro-unification PFP Chairman James Soong (Chu-yu), 
she believes Taiwan should not/not relinquish the option of 
independence, and she is very concerned with practical 
measures to protect Taiwan's economic interests.  An educator 
by calling and innovative dynamo by bent, Dr. Liu has worked 
to improve the understanding of economic issues of her 
colleagues in the Legislative Yuan (LY).  End summary. 
 
Introduction: 
------------ 
 
2.  (C) PFP Legislator Dr. Christina Liu spoke with AIT on 
September 2 and at an AmCham lunch on September 12 on the 
recent inter-Party, cross-Strait financial discussions she 
organized and led in Shanghai, Yangzhou, and Nanjing and her 
views of Taiwan's overall economic situation.  Dr. Liu is the 
founder and chairperson of an informal inter-party 
legislative group, the "Financial Legislation Enhancement 
Consortium," which was established in March this year to 
promote better understanding of the economic statutes that 
the legislators must review.  She has one of the strongest 
backgrounds in financial and economic affairs among members 
of the LY, and frequently writes and circulates opinion 
pieces on financial topics among her colleagues. 
 
Financial Issues Delegation to China 
------------------------------------ 
 
3.  (C) Even before PFP Chairman James Soong's landmark trip 
to China May 5-13, 2005, Dr. Liu had begun to organize a 
separate inter-Party LY delegation visit to China to discuss 
the practical cross-Strait financial issues that are of 
direct concern to Taiwan businesses.  Taiwan's business 
community would like to see real progress on financial issues 
including direct RMB-NTD currency exchange and a mechanism 
for Taiwan companies invested in China to list on the Taiwan 
stock exchange.  While accompanying Soong as part of his PFP 
delegation, Liu took the opportunity to speak with PRC Vice 
President Zeng Qinghong about her idea for broader-based 
discussions of practical financial issues. 
 
"One China" Not the View of Most in Taiwan 
------------------------------------------ 
 
4.  (C) Shortly before the Soong visit in May, the PRC had 
announced that it welcomed visits by any Taiwan politicians 
willing to accept the "1992 consensus" on "one China."  Dr. 
Liu complained to Vice President Zeng that this was too 
restrictive, that the PRC needed to recognize that most 
Taiwan people were not ready to accept this condition.  She 
explained to him her plan to bring a inter-Party delegation, 
including members of the ruling Democratic Progressive Party 
(DPP) to visit China in August and asked if this "1992 
consensus" restriction could be lifted for members of her 
delegation. 
 
Visas Where None Were Issued Before 
--------------------------------- 
 
5.  (C) PRC Vice President Zeng, Liu told AIT, agreed to her 
request on the condition that the delegation did not visit 
Beijing.  The delegation she assembled was composed of 12 
opposition party LY members, 12 ruling party LY members, as 
well as journalists, academics and business people.  Dr. Liu 
even succeeded in obtaining PRC visas for DPP legislators Kuo 
Cheng-liang and Kao Chih-peng who had previously been denied 
visas to go to Hong Kong because of their outspoken 
pro-independence views. 
 
CSB Squashes Inter-Party Cross-Strait Cooperation 
--------------------------------------------- --- 
 
6.  (C) In late August, however, just days before the 
delegation was scheduled to depart, Taiwan President Chen 
Shui-bian, asserting his leadership (and fear of losing 
control over the pace of cross-Strait re-approachment), 
ordered that no DPP members should travel with this 
delegation.  (DPP legislators Kuo Cheng-liang and Kao 
Chih-peng separately confirmed to AIT/ECON that they had been 
planning to travel with Liu's delegation until "events 
intervened.")  In the end, the delegation led by Dr. Liu 
consisted of 12 legislators (all from the "pan-Blue" 
opposition parties), 30 prominent business and finance 
leaders, and 11 journalists.  The delegation met with PRC 
banking officials, business executives, and academics in 
Shanghai, Yangzhou, and Nanjing.  PRC party officials they 
met included the Secretary General of the Communist Party in 
Shanghai.  Among the topics discussed was the continuing lack 
of any mechanism for direct currency exchange between the RMB 
and the NTD.  Liu told AIT she had succeeded in persuading a 
deputy governor of the Peoples, Bank of China (PBC) that 
there was no practical reason why this obstacle to 
cross-Strait business should remain. 
 
7.  (C) Officials on both sides of the Taiwan Strait have 
long maintained that there can be no direct currency exchange 
until the two governments sign an MOU on currency 
settlements.  Liu suggested a way to facilitate direct 
exchange that avoided the need for an MOU by using the PBC 
branch office in Hong Kong as an intermediary for 
settlements.  Liu stated that the discussions also achieved 
consensus on about 20 other economic issues, including 
mechanisms for Taiwan businesses in China to list on the 
Taiwan Stock Exchange, RMB appreciation, and China's 
macro-economic adjustment. 
 
8.  (C) Dr. Liu told AIT that she had consulted with Taiwan's 
MAC and central bank both before and after her trip regarding 
the topics and proposals raised in the discussions.  Liu said 
she that as a consultant to the MAC on cross-Strait currency 
exchange issues, she knew her proposal could be accepted by 
the MAC (MAC had vetted it in advance of the trip).  She also 
stated that she had "indirectly" consulted with President 
Chen prior to her trip.  She explained that one of her main 
goals was to allow Taiwan retail investors to be able to 
share in the profits of Taiwan firms in China, and thus a 
listing mechanism was important to her. 
 
Financial and Economic Bills Promotion Society 
--------------------------------------------- - 
 
9.  (C) In March 2005, Liu organized an inter-party group 
within the LY, the "Financial Legislation Enhancement 
Consortium."  Approximately half of the group's 20-30 members 
came from pan-Green parties and half from pan-Blue 
(opposition) parties.  About 40 percent of the committee 
members serve on the LY Finance committee, while the other 60 
percent serve on other LY committees.  Liu expects the 
membership in this group will increase to over 30 during the 
LY session that started on September 13.  Liu has also 
recruited some 50 scholars and business leaders to serve as 
initiators of a new think tank called the "Financial and 
Economic Laws Research Association." 
 
Views on Taiwan Economic Issues 
------------------------------- 
 
10.  (C) Dr. Liu has a generally negative view of Taiwan's 
current economic performance.  She is a harsh critic of the 
Chen administration's economic policies and in her 
conversations with AIT alleged widespread government 
corruption and waste.  She told AIT and later told AmCham 
that she is opposed to any tax increases because more revenue 
would just create more opportunities for government 
corruption.  The solution to the real problem of the 
government deficit of 3.5% of GNP (she maintains the true 
percentage is much larger than official statistics show) is 
to reduce the size of government and cut government spending. 
 
 
11.  (C) Dr. Liu voted against additional funding for the 
"Financial Reconstruction Fund" designed to help problem 
banks exit the market, claiming that non-performing loans in 
Taiwan's banking industry were not a serious problem, and did 
not justify a government bailout.  She is very critical of 
Taiwan's Financial Supervisory Commission (FSC) because its 
commissioners are "academics who lack bureaucratic 
discipline" and "speak their ideas as though they were 
government policy."  Dr. Liu was also very critical of the 
Taiwan government's use of "Build, Operate, Transfer" (BOT) 
contracts for public infrastructure projects.  She strongly 
supports the demand by legislators for an investigation of 
possible malfeasance in the "five corruptions"-- construction 
of the Kaohsiung metro, the high-speed rail, stock market 
insider trading and the recent privatization of two 
state-owned enterprises. 
 
12.  (C) Dr. Liu said she does not think the Alternative 
Minimum Tax Statute (reftel) will pass the LY because the KMT 
will block it.  She personally opposes the bill because she 
believes additional government revenue will only encourage 
additional government waste and because of the statute's 
negative impact on investment in Taiwan.  Liu has drafted an 
alternate version of the bill which would apply to 
individuals, but not corporations.  She thought the 
government should devote more effort to establishing tax 
treaties with other countries as a prerequisite to taxing 
overseas income and reducing capital flight.  She argued that 
establishing direct links with China is an urgent economic 
priority. 
 
Not Seeing Eye-to-Eye with James Soong 
-------------------------------------- 
 
13.  (C) Liu said she would not join the September 14 PFP 
trip to China led by James Soong because of her disagreement 
with him over his statement in May that "Taiwan independence 
is not an option."  Liu believed that a democratic government 
should not take away options from the people, at least half 
of whom, she thought, prefer independence.  Under some 
circumstances, independence might be an option, she told AIT. 
 
Additional Background 
--------------------- 
 
14.  (C) Dr. Liu is the author of dozens of published 
academic and practitioner articles in international financial 
journals, as well as the author of four books on economic and 
financial topics.  She spent over 18 years in the United 
States during which time she earned her Ph.D. in Economics 
from the University of Chicago and taught economics at City 
University of New York.  In addition to being one of PFP's 
two at-large legislators, she is the founder and chairperson 
of the LY Financial Law Reform Forum, and a Professor at 
National Taiwan University as well as a Professor at 
Beijing's Tsinghua University.  (Note: Over the past four 
years, Liu has traveled to Beijing every weekend to teach a 
total of six hours of classes on Saturday and Sunday at the 
Tsinghua campus there.  However, this school year, she will 
 
SIPDIS 
teach at the Tsinghua campus in Shenzhen.)  She is the 
daughter of former Finance Minister Shirley Kuo. 
KEEGAN