Monday, June 30, 2008

Not M-Shaped After All: Taiwan's Economy and the DPP's Future

Note: this was written about a month ago when irrational exuberance over the Ma administration's opening to China was still running strong. Since then, the outlook for Taiwan's economy has become much bleaker with higher oil prices, higher interest rates, and an imploding stock market.

One of the great myths of the 2008 presidential election in Taiwan was that the economy was in deep trouble. Other than rising consumer prices, the most important piece of evidence for that thesis was the supposed erosion of the middle class. Taiwan was said to have become an M-shaped society: a society in which the income curve has two peaks, one in the lower middle class, and one at the top. Michael Turton blogged on this myth back in 2006 and it has become entrenched as piece of received wisdom in the Taipei view of the world.

In late May, the China Times ran a series of articles that examined the evidence. Despite a headline blaring the paper's Blue editorial line "Middle Class Suffers Serious Erosion since 2000," the articles actually explain that Taiwan is not an M-shaped society and that its middle class is holding up rather well considering the tremendous changes since 1980.

Let's get to the facts. According to data from the Taiwan Social Change Basic Information Database (台灣社會變遷基本調查資料庫), 44.2 percent of Taiwanese households were classified as middle class. In 2005, 39.68 percent of Taiwanese households were classified as middle class. Over the same period, middle class households' share of adjusted national income also fell modestly from 39.5% to 34.26%. Of the households that left the middle class, 57% moved into the lower class (defined as a household with income of less than about NT$680,000) while 44% actually moved upward to join the ranks of upper class households earning more than NT$1.3 million per year.

Significantly, the number of people reporting that they earn a "reasonable" income has increased from 85% in 1985 to 90% in 2005. Professor Cai Min-chang of National Taipei University explained this by a change in values. Taiwan's educated workers no longer see equate high income with success. Instead, they tend to value having interesting work from which they derive a sense of achievement. This suggests that at least a few of Taiwan's downwardly mobile may actually be highly educated people who are opting out of high income careers at least temporarily.

These figures also suggest a hypothesis that if correct would have important implications for Taiwan's political future. This research does not mean that there are no economic problems. To the contrary, they suggest that the brunt of Taiwan's economic problems are being borne not by the cosseted and fretful middle class, but rather by its working poor.

Taiwan's working poor have traditionally been the backbone of the DPP's political support. When they elected Chen Shui-bian in 2000, they were expecting that their lot would improve. While Taiwan's middle class has fared reasonably well in recent years, the same is probably not true for the Taiwan that works on construction sites in Taichung County, drives trucks in Kaohsiung, and dips plastic in moldings in Taipei County. It can be plausibly argued that the DPP was unable to effect much social change to help its constituents since the Legislature has been (and still is) firmly in the grip of an unholy alliance between some of Taiwan's most reactionary elements.

Still, the DPP's striking lack of imagination after it came to power left it struggling for a veneer of middle class respectability. The party's political elite, whose origins lie in the urbanized professional middle class, turned its gaze away from its working class constituents. The travails of the Chen family with its modest Sogo shopping sprees, petulant dentist daughter, greedy doctor son-in-law, and Berkeley PhD candidate son belonged to a narrative far removed from the concerns of the farmers and workers who supported them.

Ma Ying-jeou promised Taiwan's working people that they will soon have good jobs. Yet given the research cited in the China Times articles, the Ma administration's policy goals are misguided in the short term and politically suicidal in the long term. Premier Liu is promising to "rebuild a solid middle class" and grant salary increases to civil servants, teachers, and military (the DPP supports these as well) while his well-intentioned Minister of Labor is forced to admit that she cannot push for a rise in the minimum wage because that would increase inflation. As if an automatic raise for Taiwan's millions of public sector workers would not also increase inflationary pressure thing while leaving people working at 711 even farther behind.

The hypothesis, then, is that the DPP lost power because it failed to deliver good jobs to Taiwan's long suffering working class. Many of those votes went to Ma Ying-Jeou in March. But it seems that this Ma is ignoring his gift horse.

The Blue media likes to disingenuously recommend that the DPP 'return to its core values.' What they really mean is that they hope that the DPP will endorse the kind of center-left policies that failed to gain the TSU even one seat in the legislature while abandoning the Taiwanese nationalism that binds the DPP together. While the DPP has wisely ignored this foolishness, it would has the opportunity to expand its base again by reconnecting with Taiwan's working classes if Ma's vaunted opening to China and his antiquated developmentalism fail to deliver the jobs that he promised.

where a middle class household is defined by the international standard of a household whose adjusted income falls between 75% and 115% of the

Saturday, June 21, 2008


This Taiwanese phrase, pronounced cualedan, seems to be being used in Taiwan's mainstream media more often recently. It means 'to tremble while waiting for something bad to happen. Here the pro-Blue China Times uses it in a headline:

親綠財團法人老董 剉咧等

Green Chairmen of Foundations Tremble While Waiting [for Ax to Fall]

Perhaps A-gu will jump in with the correct romanization and characters?

Thursday, June 19, 2008

NY Times Ma Interview

An interview with Ma Ying-jeou starts with an interesting reference to technical standards:

He also called for direct sea and air cargo links across the Taiwan Strait, regularly scheduled passenger flights, the drafting of common technical standards and the creation of a system to resolve commercial disagreements.

Why would the 'international' president Ma want to bind Taiwan to China's technonationalist efforts to create special standards for China? There are plenty of more specialized examples (WAPI, CDMA), but just think for a minute about how China has developed its own special version of the Internet. Furthermore, while China may have an interest in protecting its vast internal markets from foreign competition by developing its own indigenous technical standards a la Japan, Taiwan, as an integral part of the global IT supply chain, would be ill-served by common standards with China unless the Taiwan's strategy is to withdraw from international markets to focus in the China market.

Mr. Ma ran on a platform of strengthening the Taiwanese economy through a warming of relations with the mainland while insisting that he would not talk with Beijing about reunification.

This is a grave distortion of the platform that Ma ran on in Taiwan. Take a look at the the Ma-Sieuw campaign site. First of all note the campaign slogan: Taiwan Moving Forward (Taiwan xiangqian zou). Above this slogan is a logo that reads "Ma-Sieuw in 2008" with the '8' replaced by a map of Taiwan.

The Taiwan-first theme is strongly reinforced in the Policies sections of the site which kicks off with three sections on economic policy: infrastructure, industry, and taxation. None of these say anything about "strengthening the Taiwanese economy through a warming of relations with the mainland." Instead, his infrastructure section is about spending US$81 billion on projects such as the Taoyuan Air City, modernizing Taiwan's moribund fishing ports (never mind that the fish are all gone), and yet more industrial and software parks. Or in the section on finance and taxation policy, Ma says in a campaign ad that "633 is not just a number, it is our promise to Taiwan." 633 refers to the Ma campaign promise that under the Ma administration, Taiwan would enjoy 6% annual GDP growth, less that 3% unemployment, and an average national income of US$30,000. Not a word about China.

Wikipedia's summary of Ma's economic platform is far more accurate:

Since selecting Vincent Siew as his running mate, Ma Ying-jeou has announced that the focus of his election campaign is the recovery of Taiwanese economy. ... He also labeled Siew as the would-be "chief architect" to revive the economy, because of Siew's solid economic background.

While Ma's opening to China was certainly an important campaign issue, it was never presented to the Taiwanese people in the way that the New York Times consistently presents it to its international readers.

Mr. Ma also repeated his demand that China remove the more than 1,000 short- and medium-range missiles that it has aimed at Taiwan. Their removal is needed before any peace talks can begin to end the legal state of hostility that has persisted since the end of the Chinese civil war in 1949, he said. China has threatened the use of force to achieve political reunification.

“The idea is quite simple: we don’t want to negotiate a peace agreement while our security is under the threat of missile attack,” Mr. Ma said.

This a KMT canard. There is no legal state of hostility across the strait unless you believe that the KMT and the CCP are still fighting the Chinese civil war. Ma's 'peace accord' means a peace deal between two political parties, not two sovereign states.

Mr. Ma conducted the interview in flawless English

Flawless? Ma's English is certainly good, but hardly flawless. At least the NYT didn't revisit the sourceless 'Harvard-educated lawyer' myth.

The Times should be commended for the next few paragraphs that give an unusual amount of space to a DPP rebuttal in which it is correctly noted that China previously rejected an almost identical offer by the DPP administration because China ddidn't like the DPP's "broader vision of Taiwanese sovreignty."

Despite the framing of this formulation as an indirect quote from a DPP legislator, I have a great deal of trouble believing that a Taiwanese politician came up with this phrase in either Chinese or English. But just for the record, let's stop pussyfooting around and tell the world what the DPP's "broader vision" has been and is: Taiwan is an independent and sovereign country whose future must be decided by the 23 million people of Taiwan. Why is it so difficult to present this simple truth to NY Times readers?

Next we lapse into uncritical Chinese nationalist formulations of current events.

Lately Mr. Ma’s energies have been focused on smoothing out a diplomatic conflict that caught him by surprise — a surge in tensions with Japan over a June 10 incident in the group of disputed islands that the Taiwanese call the Diaoyutai Islands, where a Japanese coast guard vessel sank a Taiwanese sport-fishing boat. Although Japan administers the islands, which it calls the Senkaku Islands, China and Taiwan argue that they belong to the Chinese people.

Chinese nationalists claim that the islands belong to the "Chinese people." This propagandist formulation needs special critical attention now that Taiwan and China are using it as a code word for a Chinese polity in which Taiwan loses its sovereignty just as Tibet did. Also, when asked what country the islands belonged to in Taiwan, Ma said "Taiwan", not the "Chinese people."

Protesters in both mainland China and Taiwan have demanded a formal apology from Japan.

Another howler. A few extremist protestors in Taiwan have called for a formal aplogy. The whole incident is a mad effort to stir up anti-Japanese sentiment in Taiwan in an intentional effort to derail close Taiwan-Japan relations in recent years that offend Chinese sensibilities. It also probably served the political aim of removing Taiwan's former pro-independence ambassador to Japan who did far too much to improve Taiwan's relations with Japan during his tenure.

The issue is especially delicate for Mr. Ma, who has long argued that the islands legally belong to the Chinese people.

For crying out loud! Not the Chinese people again. What Ma argued just the other day in Taiwan was :

3. SOUNDBITE: (Mandarin) Ma Ying-jeou, Taiwan's President:
"Our position is that the Diaoyutai Islands are Taiwan's territory. They belong to Taiwan."

The Presidential Office's "Four-point Statement" from 12 June states:

The Diaoyutai islands are territory of the Republic of China. Geographically, the islands are affiliated islets of Taiwan and are under the jurisdiction of the Dasi Village of Yilan County's Toucheng Township. [my emphasis]

I would bet good money that Ma's doctoral dissertation also makes no mention of the "Chinese people" in this context. So what is the source for Ma's having long argued that the islands belong to the Chinese people?

Saturday, June 14, 2008

Nearly Perfect

By way of contrast to the New York Times piece I blogged on the other day, Jason Dean of the Wall Street Journal delivers a nuanced, balanced piece that shows real understanding of relations between Taiwan and China. Unfortunately it is behind the Dow Jones pay wall.

The first formal talks between China and Taiwan in nine years reached deals to expand tourism and to partly roll back a decades-old ban on direct air traffic between the two rivals, extending a burgeoning détente in one of Asia's historical flashpoints.

Note how the political nature of the talks is clearly foreground. The negotiations are about 'burgeoning detente', not strengthening 'economic relations.' The incremental nature of the agreement is also carefully referred: 'expand tourism' and 'partly roll back'. A style grump though is that I can't really see how 'burgeoning', which is a horticultural word meaning to grow or to blossom, can correctly describe 'detente' which means a relaxing or easing.

The two-day talks, which began Thursday in Beijing, are the latest sign that China's government is responding positively to efforts by Taiwan's new president, Ma Ying-jeou, to improve ties despite lingering disagreements about core political issues.

Dean gets the agency of these inherently political talks correct. Beijing is now choosing to respond positively. Implicitly, it did not respond positively to the previous DPP government despite the fact that the same incremental improvements were on the table before. Beijing claimed before that Taiwan would have to acknowledge Beijing's one China principle. However, it is worth noting that other than in the meeting between Hu Jintao and Chiang Pin-kun, the 1992 Hong Kong consensus was never mentioned in the talks, nor did it appear in the agreement reached yesterday.

Back 2006, Chen Shui-bian basically offered exactly the same thing:

First, I have already said that both sides of the strait should handle the "one China" issue on the existing foundation and adhere to the principles of democracy and parity. I have also said that the existing foundation includes the spirit of 1992, which is dialogue, exchanges, and shelving controversial disputes. Today, it is not a problem of what we can or cannot discuss, for there are many things that cannot be avoided. Although we may not talk, we still cannot avoid this issue.

Then Beijing did not respond positively because it had demonized Chen Shui-bian. To their shame, most of the China-based international media went along for the ride.

Back to the Wall Street Journal account:

Mr. Ma took office May 20 promising a "new era" of peace and economic normalization with China. The eight-year tenure of his predecessor, Chen Shui-bian, was dominated by disputes over Beijing's claims to sovereignty over Taiwan and by Mr. Chen's efforts to assert the island's independence.

It probably would have been worth pointing out that Chen also came to office promising the same things and ended up with the same incremental approach based on the method of setting aside the sovereignty issue. Perhaps that is why Dean has placed "new era" in quotes.

In any event, the description of relationship across the straits during Chen's presidency is a model of balance: Beijing claimed sovereignty while Chen Shui-bian asserted independence.

It's also worth pointing out that unlike Wong (or his editors), Dean never uses the politically loaded term 'the mainland' to describe China. Throughout the article, China is China and Taiwan is Taiwan. Confucius would have been proud of this correct
use of names in the face of pressure to use wrong ones.

The rest of article sets out the details with the precision one expects from the Journal. Unlike the Times, the Journal gets the currency exchange news correct. To be fair, they had an extra day to check.

Finally, Dean points out that Taiwan-China relations do not exist in vacuum:

The improvement in cross-strait ties has been welcomed by officials in the U.S., which is Taiwan's most important international friend. The current talks come amid criticism over U.S. arms sales that threatens to complicate relations between Washington, Taipei and Beijing.

If and when Taiwan buys arms from the US, especially the 66 F-16 fighter jets, China's positive response to Taiwan will be tested.

Thursday, June 12, 2008

Another horrid article by Edward Wong in the New York Times on the talks in Beijing. Which is too bad because he did some very moving pieces on the Sichuan earthquake.

The agreement came on the first day of negotiations over how to strengthen the economic relationship between China and Taiwan, which the government in Beijing regards as a renegade province but which many Taiwanese assert is a de-facto nation.

This is not too bad. But notice how Beijing "regards" whereas Taiwan "asserts." China's views get a cool, rational verb that subsumes thought into the classical enlightenment metaphor of vision while Taiwan has to "'assert" itself. Beijing is a centered subject founded in its rationality while Taiwan asserts its unauthorized unrecognized subjecthood.

And it's just misleading to say that many Taiwanese view Taiwan as a "de-facto nation." The more common view is the one Chen Shui-bian used to put forward at every opportunity: Taiwan is an independent and sovereign country whose future must be decided by the 23 millin people of Taiwan. Those who subscribe to this view do not see Taiwan as a "de-facto" nation. They see it as an independent nation full stop.

Although Taiwan is the biggest investor in China and many Taiwanese businesspeople live on the mainland, there are no direct commercial flights between the two.

Is Taiwan really the biggest investor in China? Bigger than the US and Japan? Not in recent years if you look at recent FDI figures. And who really knows how much Taiwan has invested. The MAC under the DPP said US$150 billion since the late 1980s, but no one really knows. This bald assertion is not grounded in fact and lends an air of inevitability about the supposed goal of these talks--"strengthening the economic relationship." What a hoot! Why does the economic relationship need to be strengthened if Taiwan is already the biggest investor?

Everyone knows that this is not about the 'economic relationship'. It's about affirming the 1992 Hong Kong consensus on One China by the simple fact of holding the talks. Of course these talks are political. Has the Times suddenly lost the ability to explain the news?

I'm not going to bother to say anything about the craven adoption of the 'mainland' terminology.

Mr. Ma, from the Kuomintang party, was elected president on March 22 in a landslide victory on the platform of strengthening economic ties between China and Taiwan. Many Taiwanese believe their economy has stagnated in recent years while China’s has surged forward and that Mr. Ma’s predecessor, Chen Shui-bian, had failed to capitalize on the mainland’s economic growth.

Here's a heavy dose of conventional wisdom current ex-Taiwan. Yes, Ma was elected in a landslide. And yes, it had something to do with the economy. Ma was elected to improve Taiwan's economy just as South Korea's Lee Myung-bak was. Inside Taiwan, Ma presented his China policy as the means to the end of a better economy. But the real appeal of his economic platform lay in his promises to restore the glory days of Taiwan's boom economy in the 1970s and 1980s. Strengthening economic ties with China is certainly something Taiwan's business community wants. What ordinary people want are better jobs and hope for the future. If better economic relations with China help, then great. But a better economy, not "strengthening economic ties between China and Taiwan" was what Ma was elected to achieve.

Mr. Chen, the Democratic Progressive Party candidate who was elected president in 2000, favored steps toward independence, a position that has brought growing anxiety among the Taiwanese public, Chinese leaders and Americans officials in recent years.

Again, Chen did not "favor steps toward independence." Chen said over and over again that Taiwan was an independent and sovereign country and that there was no need for an already-independent nation to declare independence.

Chinese leaders and American officials may have suffered anxiety over Chen's position on Taiwanese independence and sovereignty, but outside deep blue reactionaries in Taipei, the Taiwanese public wasn't anxious at all for the reason that most Taiwanese share Chen's views and find the idea that Taiwan is anything but an independent country ludicrous at best. It is very telling that pro-Chinese nationalists in Taiwan failed to attract significant support for their repeated efforts to depose Chen outside the democratic process until after they hit on the idea of portraying Chen and the first family as corrupt. While Chen's supposed corruption caused widespread outrage connected to deep-seated anxieties over the partial globalization of Taiwan's economy, Chen's position on independence, even as misrepresented here, caused little anxiety in Taiwan.

At the moment, many Taiwanese want neither formal independence nor reunification, and they want warmer economic ties with the mainland. They are still aware, though, that the Chinese government maintains ballistic missiles pointed at Taiwan, occasionally lobbing some into the 100-mile-wide Taiwan Strait

Even pro-China media outlets know this to be untrue. Just a few days ago, TVBS, a Hong Kong owned station with close China connections, released polling data showing that

Q3. If you can choose, would your prefer Taiwan to become an independent country, or unify with mainland China, or become a state in the United States of America?
58%: Independent country
17%: Unified with mainland China
8%: Become a state in the United States of Amreica
17%: No opinion

Now Q2 in the same poll says that 58% of the Taiwanese public prefer the status quo. But this needs to be read in the context of the fact that most Taiwanese think that the status quo is Taiwanese independence. It also needs to be read in the context of Q3, which I have quoted above. Given a choice, most Taiwanese prefer independence, but when asked about the status quo, they read the question as meaning 'what would you settle for if you didn't have a choice?' But again that view needs to be recontextualized for Taiwan. Most Taiwanese think the status quo questions with the absence of any choice are silly because most Taiwanese believe that they do have a choice and expect to exercise it. Hear the echoes? The future of Taiwan must be decided by the 23 million people of Taiwan.

The two paras about the new amendment to allow exchange of the RMB are just plain wrong. The amendment treats the RMB as a foreign currency and authorizes the Central Bank and the Financial Supervisory Commission to regulate exchang of the Chinese currency even before a currency agreement or settlement mechanism has been set up between Taiwan and China. In other words, the Legislative Yuan has made RMB exchange subject to the discretion of the executive branch. All indications are that the Central Bank and SFC will soon allow Taiwanese to buy RMB in Taiwan as soon as Taiwan has an adequate supply of the currency and those agencies have amended their regulations.