PDF(2.7mb) - 國家政策研究基金會

CONTENTS
Preface
Overview
ix
xi
Focus
Development of Democratic Politics after 2008 1
CHAO, Yung-mau( 趙 永 茂 )
Campaigns of 2008 and Beyond 13
HUNG, Chien-chao( 洪 健 昭 )
An Analysis of 2008 Legislative and Presidential Elections
in Taiwan 23
CHOU, Yujen, KU, Chih-chuan( 周 育 仁 、 古 志 全 )
What’s Wrong with Taiwan’s Economy?
Impact of Globalization 33
CHUANG, Yih-chyi( 莊 奕 琦 )
Corporate Governance in Taiwan’s Financial Institutions 53
LEE, Lawrence L.( 李 禮 仲 )
Taiwan’s Important Education Indicators 61
LEE,Chien-sing, LU Chen-wei( 李 建 興 、 盧 宸 緯 )
Establishment of the Pension System in Taiwan 81
CHAN, Hou-sheng, LIN, Chien-chen ( 詹 火 生 、 林 建 成 )
Interior Affairs
Party Politics after the 2008 Legislative Election 93
CHEN, Chao-cheng( 陳 朝 政 )
Feasibility of Creating a New Special Municipality of Taichung 101
Policy Committee of Local Self-Governance, National Policy Foundation
( 國 家 政 策 研 究 基 金 會 地 方 自 治 政 策 研 究 小 組 )
Policy for Indigenous Peoples in Transition 107
KUNG, Wen-chi( 孔 文 吉 )
Revision of the Assembly and Demonstration Act 113
HSIEH, Yu-cheng( 謝 宇 程 )
i

Government
Exercise of the Powers of Examination and Control 119
KAO, Yuang-kuang( 高 永 光 )
Referendums in Taiwan in 2008 125
SWEI, Duh-ching( 隋 杜 卿 )
Using PPGIS to Involve Citizens in Urban Policy Planning 135
HUANG, Chao-meng J., LEE, Chung-pin( 黃 朝 盟 、 李 仲 彬 )
Parliamentary Reform of 2008 143
LI, Chia-wei( 黎 家 維 )
National Security and Diplomacy
The Foreign and Cross-Strait Policies of the New Administration
in the Republic of China 149
CHEN, Stephen S. F.( 陳 錫 蕃 )
An Ancient Cure for Chinese Woe 157
HUNG, Chien-chao( 洪 健 昭 )
Stabilizing the Triangle: A Personal View from Taipei 163
TENG, Charles( 鄧 申 生 )
PLAN Looks beyond Taiwan 171
LAN, Ning-li( 蘭 寧 利 )
Overseas Chinese in the United States 183
KO, Wei-shin( 葛 維 新 )
Economy
Impact of Closer Cooperation with China on Taiwan’s Economic
Development 187
LIN, Chu-chia, TAN, Ching-yu( 林 祖 嘉 、 譚 瑾 瑜 )
Finance
Strategies for Cross-Strait Financial Exchange and Cooperation
under Financial Tsunami 195
HSU, Chen-min( 許 振 明 )
Budget Efficiency and Performance-Based Budgeting:
Implementation in the United States and Taiwan 205
LEE, Yun-jie Jack( 李 允 傑 )
Tax Reform Giving Consideration to Equity and
Competitiveness 215
HUANG, Yophy( 黃 耀 輝 )
ii

Agriculture and Fisheries
Impact of High Oil Prices on Taiwan’s Agriculture and Fisheries 219
LING, Shiang- nung( 林 享 能 )
Sustainable Development
Reconstruction of Dangerous Bridges: An Urgent Need 227
CHEN, George S. Y.( 陳 世 圯 )
A Synthesis of Energy Tax, Carbon Tax and Emission Trading
in Taiwan 231
LIANG, Chi-yuan( 梁 啟 源 )
Sports, Media and Culture
An Analysis of Development Trends in Physical Fitness for
Taiwan’s Children and Adolescents 249
CHAO, Li-yun, TSENG, Hui-chin( 趙 麗 雲 、 曾 慧 青 )
Cross-Strait Media Exchange after a Thaw in Relationship 267
CHAO, Yi, CHU, Jui-ting( 趙 怡 、 褚 瑞 婷 )
Shortcomings in Policy-Making on Cultural Affairs 271
HAN Pao-the( 漢 寶 德 )
Social Security
Long Term Care and Long Term Care Insurance 273
YAUNG, Chih-Liang( 楊 志 良 )
Protection of Dispatched Workers’ Right to Organize
or Participate in Labor Unions 275
CHENG, Chih-yu( 成 之 約 )
iii

Contributors
CHAN, Hou-sheng( 詹 火 生 )
Convener, Social Security Division, National Policy Foundation
CHAO, Li-yun( 趙 麗 雲 )
Legislator
Fellow, Education and Culture Division, National Policy Foundation
CHAO, Yi( 趙 怡 )
Fellow, Education and Culture Division, National Policy Foundation
CHAO, Yung-mau( 趙 永 茂 )
Dean, College of Social Sciences, National Taiwan University
CHEN, Chao-cheng( 陳 朝 政 )
Assistant Professor, General Education Center, Kaohsiung Medical University
CHEN, George S. Y.( 陳 世 圯 )
Convener, Sustainable Development Division, National Policy Foundation
CHEN, Stephen S. F.( 陳 錫 蕃 )
National Policy Advisor to the President of the Republic of China
Retired Ambassador, Former ROC’s Representative to the U.S.
Adjunct Professor: University of Maryland, Tamkang University, National Taiwan Normal University, National
Chengchi University
CHENG, Chih-yu( 成 之 約 )
Professor, Institute for Labor Research, National Chengchi University
CHOU, Yujen( 周 育 仁 )
Professor, Department of Public Administration and Policy, National Taipei University
CHU, Jui-ting( 褚 瑞 婷 )
Assistant Research Fellow, Education and Culture Division, National Policy Foundation
v

CHUANG, Yih-chyi( 莊 奕 琦 )
Professor, Department of Economics, National Chengchi University
HAN, Pao-teh( 漢 寶 德 )
Fellow, Education and Culture Division, National Policy Foundation
HSIEH, Yu-cheng( 謝 宇 程 )
Assistant Research Fellow, Interior Affairs Division, National Policy Foundation
HSU, Chen-min( 許 振 明 )
Professor of Economics, National Taiwan University
Fellow, Monetary and Public Finance Policies Division, National Policy Foundation
HUANG, Chao-meng J.( 黃 朝 盟 )
Professor, Department of Public Administration and Policy, National Taipei University
HUANG, Yophy( 黃 耀 輝 )
Associate Professor, Department of Public Finance and Tax Administration, National Taipei College of Business
HUNG, Chien-chao( 洪 健 昭 )
Professor of Diplomatic History, Fu Jen Catholic University
KAO, Yuang-kuang( 高 永 光 )
Dean, College of Social Sciences, National Chengchi University
KO, Wei-shin( 葛 維 新 )
Fellow, Foreign and Security Policy Division, National Policy Foundation
Former Vice Minister, Overseas Chinese Affairs Commission
KU, Chih-chuan( 古 志 全 )
Graduate Student, Graduate Institute of Political Economy, National Cheng Kung University
KUNG, Wen-chi( 孔 文 吉 )
Legislator
Adviser, Interior Affairs Division, National Policy Foundation
LAN, Ning-li( 蘭 寧 利 )
Vice Admiral R.O.C. N(Ret.)
vi

LEE, Chien-sing( 李 建 興 )
Convener, Education and Culture Division, National Policy Foundation
LEE, Chung-pin( 李 仲 彬 )
Graduate Student, the Graduate Institute of Public Administration, National Chengchi University
LEE, Lawrence L.( 李 禮 仲 )
Associate Professor, Department of Law, Asia University
S.J.D., University of Wisconsin Law School
LEE, Yun-jie Jack( 李 允 傑 )
Adviser, Monetary and Public Finance Policies Division, National Policy Foundation
Professor, Department of Public Administration, National Open University
LI, Chia-wei( 黎 家 維 )
Senior Assistant Research Fellow, Constitution and Law Division, National Policy Foundation
LIANG, Chi-yuan( 梁 啟 源 )
Research Fellow, Institute of Economics, Academia Sinica
LIN, Chien-chen( 林 建 成 )
Senior assistant Research Fellow, Social Security Division, National Policy Foundation
LIN, Chu-chia( 林 祖 嘉 )
Convener, Economy and Technology Division, National Policy Foundation
Professor, Department of Economics, National Chengchi University
LING, Shiang-nung( 林 享 能 )
Fellow, Economy and Technology Division, National Policy Foundation
LU, Chen-wei( 盧 宸 緯 )
Assistant Research Fellow, Education and Culture Division, National Policy Foundation
SWEI, Duh-ching( 隋 杜 卿 )
Adjunct Research Fellow, Constitution and Law Division, National Policy Foundation
vii

TAN, Ching-yu( 譚 瑾 瑜 )
Associate Research Fellow, Economy and Technology Division, National Policy Foundation
TENG, Charles( 鄧 申 生 )
Fellow, Foreign and Security Policy Division, National Policy Foundation
TSENG, Hui-chin( 曾 慧 青 )
Assistant Research Fellow, Education and Culture Division, National Policy Foundation
YAUNG, Chih-liang( 楊 志 良 )
Professor, Institute of Healthcare Administration, Asia University
viii

Preface
Two important elections took place in Taiwan in 2008. Voters went to the polls to elect
a new Legislative Yuan on January 12 and their new president on March 22. The Kuomintang
won a landslide victory in the legislative elections and its candidate Ma Ying-jeou was elected
president. A majority government was formed for the first time in eight years. These changes
are chronicled and their impact on the future of Taiwan is analyzed in Taiwan Development
Perspectives 2009.
A global financial crisis occurred in the third quarter of the year. Taiwan was
hard hit and the new Kuomintang administration has done what it could to get the
economy revitalized. One way to stimulate the economic is to set a new cooperation
framework between Taiwan and the mainland of China in place. An economic integration
between them under such a framework is researched in this annual publication of
the National Policy Foundation. Other possibilities of improving relations across the
Taiwan Strait are also featured. Among them are a prospect of a Chinese commonwealth,
closer financial cooperation, and media exchange. Foreign policy of the new
government is also analyzed, while an attempt is made to find out whether Beijing is
seeking naval supremacy in the South China Sea.
The chapter titled Interior Affairs features party politics after the 2008 legislative
elections, creation of a special municipality of Taichung, autonomy for indigenous
peoples, and revision of the assembly and demonstration act, while referendums,
parliamentary reform, and exercise of the powers of examination and control are discussed
in the chapter on Government that follows.
Other chapters highlight studies on overseas Chinese in the United States,
budget efficiency and performance-based budgeting, tax reform, impact of high oil
prices on agriculture and fisheries, reconstruction of dangerous bridges, collection of
energy tax and car tax, development trends in physical fitness, long-term care and
long-term care insurance, protection of dispatched workers’ right, corporate governance,
impact of the global financial crisis on Taiwan’s economy, comparison of Taiwan’s
important education indicators, and the new pension system.
The National Policy Foundation hopes its annual report for 2009, which examines
and analyzes major developments in Taiwan, will shed light on how the country
should chart its course of action in the foreseeable future. Its publication, the sevix

enth effort on the part of the Foundation, is timely, for Taiwan has just ushered in a
new era of détente with the other side of the Strait. The Kuomintang administration is
expected to successfully cope with problems arising from the worldwide financial tsunami
to bring about changes for the benefit of the people of Taiwan.
All contributors to Taiwan Development perspectives 2009, are leading researchers
in their respective fields of study. Special thanks are due to CHAN,
Hou-sheng; CHAO, Li-yun; CHAO, Yi; CHAO, Yung-mau; CHEN, Chao-cheng;
CHEN, George S. Y.; CHEN, Stephen S. F.; CHENG, Chih-yu; CHOU, Yujen; CHU,
Jui-ting; CHUANG, Yih-chyi; HAN, Pao-teh; HSIEH, Yu-cheng; HSU, Chen-min;
HUANG, Chao-meng J.; HUANG, Yophy; HUNG, Chien-chao; KAO, Yuang-kuang;
KO, Wei-shin; KU, Chih-chuan; KUNG, Wen-chi; LAN, Ning-li; LEE, Chien-sing;
LEE, Chung-pin; LEE, Lawrence L.; LEE, Yun-jie Jack; LI, Chia-wei; LIANG,
Chi-yuan; LIN, Chien-chen; LIN, Chu-chia; LING, Shiang-nung; LU, Chen-wei;
SWEI, Duh-ching; TAN, Ching-yu; TENG, Charles; TSENG, Hui-chin; YAUNG,
Chih-liang; and research fellows on the Policy Committees of Local Self-Governance
of the National Policy Foundation.
TSAI, Cheng-wen
President, National Policy Foundation
x

Overview
Another change of government took place in Taiwan in 2008. President Ma
Ying-jeou was sworn in on May 20, ending the eight years of Democratic Progressive
Party rule. President Chen Shui-bian was arrested on corruption and money
laundering charges shortly after leaving office. A global financial crisis hit Taiwan in
the third quarter of the year. An aggressive short-term stimulus plan was launched to
kick-start the stagnant economy. Long-term development policies have been laid
down in line with President Ma’s campaign pledges to upgrade infrastructure,
restructure the economy. Taiwan Development Perspectives 2009 presents a
comprehensive report on these and other essential events that have occurred in the
past year.
Specifically, it reviews several of the most widely discussed issues in the
Focus section. Chao Yung-mau makes an in-depth analysis of the Kuomintang’s
landslide victory in the presidential election. Hung Chien-chao concisely reviews the
tactics employed by the two candidates during the 2008 campaign. Chuang Yih-chyi
suggests how to lift the Taiwan out of its current recession, while Lawrence L. Lee
critically examines the core issues related to corporate governance in Taiwan and
advises application of the OECD principles. Lee Chien-sing and Lu Chen-wei present
an international comparison of Taiwan’s important education indicators. Chan
Hou-sheng and Lin Chien-chen trace the origin and the establishment of the national
pension program in Taiwan.
There are four treatises in the Interior Affairs section. They include an
evaluation of party politics after the 2008 legislative elections by Chen Chao-cheng, a
feasibility study of a new special municipality of Taichung by the Policy Committee
of Local-Self Governance, a review of the policy for indigenous peoples by Kung
Wen-chi, and an analysis of proposed amendments to the assembly and demonstration
act by Hsieh, Yu-cheng.
In the section on Government, Kao Yuang-kuang discusses the weakening
power of the Examination and Control Yuan during the Democratic Progressive Party
administration. Swei Duh-ching gives an informed account of the referendums held
since 2004, while Huang Chao-meng and Lee Chung-pin present two successful
examples of the application of the public participation geographical information
system in local communities. Li Chia-wei identifies the passage of most important
xi

ills pertinent to parliamentary reform in Taiwan.
The Nation Security and Diplomacy section features a study of Taiwan’s
sovereignty status by Stephen Chen and a solution to the Taiwan question by Hung
Chien-chao. This section also assesses the likelihood that China will become a
regional hegemon by Lan Ning-li and the influence of ethnic Chinese in American
Society by Ko Wei-shin.
The Economy section provides a fair and clear evaluation of the beneficial
effects on Taiwan as an economic integration goes on between it and the Chinese
mainland.
Hsu Chen-min examines strategies for financial exchanges and cooperation
across the Taiwan Strait in the Finance section, which also features Lee Yun-jie’s
study on the effectiveness of performance-based budgeting of Taiwan and Yophy
Huang’s treatise on tax reform.
Three authors contribute to the two sections that follow. Ling Shiang-nung
analyzes the impact of high oil prices on Taiwan’s agriculture in the Agriculture and
Fisheries section. The Sustainable Development section is highlighted by the call for
reconstruction of dangerous bridges by George S.Y. Chen and a study on carbon tax
by Liang Chi-yuan.
The Sports, Media and Culture section includes an analysis of development
trends in physical fitness for Taiwan’s children and adolescents by Chao Li-yun and
Tseng Hui-chin, propositions for cross-straight cooperation in media exchange by
Chao Yi and Chu Jui-ting, and an analysis of political influence on cultural policy by
Han Pao-teh.
Two Issues are discussed in the last section on Social Security: Long-term care
and long term care insurance for the aged by Yaung Chih-liang and the protection of
dispatched workers’ right by Cheng Chih-yu.
It is hoped that this volume will give readers an explicit insight into how
Taiwan’s politics and society evolved in 2008. What happened in Taiwan, an economy
that is among the largest in Asia and a democracy that has yet to mature, may have
important implications for countries across the world.
xii

CHU, Yung-peng
Minister without Portfolio
Executive Yuan
Distinguished Professor of Economics and Director
National Central University
xiii

xiv

Development of Democratic Politics after 2008 1
Development of Democratic Politics after 2008
CHAO, Yung-mau
Abstract
Democratization started in Taiwan in 1988. Martial law was lifted. So was the press
ban. New political parties were allowed to be formed. Parliamentarians for life were retired.
A peaceful transfer of power took place. Then, the Kuomintang was voted out of power in
2000 after half a century of a one-party rule of Taiwan. The party made a comeback in 2008.
It won a virtual three-fourths majority in the Legislative Yuan and its standard bearer Ma
Ying-jeou was elected president. Its victory started another stage of Taiwan’s democratic
politics.

2 Taiwan Development Perspectives 2009
I. Presidential Election of 2008
Voters turned out in droves on March 22, 2008 to
elect their president and vice president for the next four
years. Ma Ying-Jeou, standard bearer of the Kuomintang,
was elected president. He and his running mate,
Vincent Siew, received 7,659,014 votes or 58.45 percent
of the votes cast to handily defeat their Democratic
Progressive Party rivals Frank Hsieh and Su
Tseng-chang. It was a crowning success. The Kuomintang
won the important local elections in 2006 and a
landslide in the legislative elections in January 2008.
The Kuomintang is in full control of the government.
When Chen Shui-bian of the Democratic Progressive
Party was elected president in 2000, people in
Taiwan expected him to introduce a government free of
corruption and graft and usher in a new era of prosperity.
They were let down. The administration in the eight
years that followed made little improvement in the life
of the people. Worse still, President Chen and his family
were embroiled in corruption and graft. Moreover,
he resorted to brinksmanship to confront China and his
de-Sinicization campaign further polarized Taiwan,
destroying its communal harmony all but beyond repairs,
in his all-out effort to get reelected in 2004. All
this paved the way for the easy Kuomintang victory.
(See the tables below for the results of the presidential
election of 2008.)
Table 1 Votes Received by KMT and DPP by Counties and Cities in 2008 Presidential Election
District
Name
Number
of votes
received
Rate District Name
Number
of votes
received
Taipei County Ma Ying-Jeou 1359419 61.06% Taipei County Hsieh Chang-ting 866915 38.94%
Yilan County Ma Ying-Jeou 130951 51.42% Yilan County Hsieh Chang-ting 123700 48.58%
Taoyuan County
Ma Ying-Jeou 693602 64.64% Taoyuan County Hsieh Chang-ting 379416 35.36%
Hsinchu County Ma Ying-Jeou 208445 74.02% Hsinchu County Hsieh Chang-ting 73178 25.98%
Miaoli County Ma Ying-Jeou 227069 70.99% Miaoli County Hsieh Chang-ting 92795 29.01%
Taichung
County
Ma Ying-Jeou 505698 58.84% Taichung County Hsieh Chang-ting 353706 41.16%
Changhua
County
Ma Ying-Jeou 419700 57.59% Changhua County Hsieh Chang-ting 309134 42.41%
Nantou County Ma Ying-Jeou 179630 62.03% Nantou County Hsieh Chang-ting 109955 37.97%
Yunlin County Ma Ying-Jeou 187705 48.47% Yunlin County Hsieh Chang-ting 199558 51.53%
Chiayi County Ma Ying-Jeou 139603 45.56% Chiayi County Hsieh Chang-ting 166833 54.44%
Tainan County Ma Ying-Jeou 276751 43.85% Tainan County Hsieh Chang-ting 354409 56.15%
Kaohsiung
County
Ma Ying-Jeou 353333 48.59% Kaohsiung County Hsieh Chang-ting 373900 51.41%
Pingtung
County
Ma Ying-Jeou 247305 49.75% Pingtung County Hsieh Chang-ting 249795 50.25%
Taitung County Ma Ying-Jeou 81668 73.32% Taitung County Hsieh Chang-ting 29714 26.68%
Hualien County Ma Ying-Jeou 137604 77.48% Hualien County Hsieh Chang-ting 40003 22.52%
Penghu County Ma Ying-Jeou 25037 57.93% Penghu County Hsieh Chang-ting 18181 42.07%
Rate

Development of Democratic Politics after 2008 3
Keeling City Ma Ying-Jeou 152327 67.73% Keeling City Hsieh Chang-ting 72562 32.27%
Hsinchu City Ma Ying-Jeou 145930 64.7% Hsinchu City Hsieh Chang-ting 79634 35.3%
Taichung City Ma Ying-Jeou 365979 61.74% Taichung City Hsieh Chang-ting 226751 38.26%
Chiayi City Ma Ying-Jeou 79713 52.39% Chiayi City Hsieh Chang-ting 72442 47.61%
Tainan City Ma Ying-Jeou 223034 50.71% Tainan City Hsieh Chang-ting 216815 49.29%
Chinmen
County
Ma Ying-Jeou 33384 95.13% Chinmen County Hsieh Chang-ting 1710 4.87%
Lienchiang
County
Ma Ying-Jeou 4329 95.16% Lienchiang County Hsieh Chang-ting 220 4.84%
Taipei City Ma Ying-Jeou 1011546 63.03% Taipei City Hsieh Chang-ting 593256 36.97%
Kaohsiung City Ma Ying-Jeou 469252 51.59% Kaohsiung City Hsieh Chang-ting 440367 48.41%
Source: website of Data Bank, Central Election Commission
http://210.69.23.140/vote312.asp?pass1=A2008A990000000000
The Table is produced by the author.
Table 2 Changes in Voting Pattern in Presidential Elections of 2004 and 2008
Kuomintang ticket in
2004
48.21%
47.74%
42.29%
42.23%
43.94%
44.35%
Ma & Siew in
2008
58.84%
(+10.63%)
57.79%
(+9.85%)
51.42%
(+9.13%)
50.71%
(+8.48%)
52.39%
(+8.45%)
51.59%
(+7.24%)
County/City
Source: reports in relating to the 2008 presidential election from UDN website
Hsieh & Su in
2008
DPP ticket 2004
Taichung County 41.16% 51.79%
Changhua County 42.41% 52.26%
Yilan County 48.58% 51.71%
Tainan City 49.29% 57.77%
Chiayi City 47.61% 56.06%
Kaohsiung City 48.41% 55.65%
http://mag.udn.com/mag/vote2007-08/storypage.jsp?f_MAIN_ID=358&f_SUB_ID=3370&f_ART_ID=116
924
Two referendums were called alongside the presidential
election of 2008. Neither of them affected the
election in any way. The outcome signifies Taiwan’s
becoming a mature democracy in eight years, the voters
strengthening their anti-corruption determination, and
the people desiring to get out of the current economic
downturn.
1. Democratic Consolidation
Power changed hands in eight years from 2000 to
2008. Middle-of-the road voters increased in numbers.

4 Taiwan Development Perspectives 2009
They determined who would be elected to lead the nation.
That made two major parties to compete against
each other for support of these median voters. Such
competition is beneficial to Taiwan’s democratic consolidation.
Taiwan is becoming a mature democracy.
The Democratic Progressive Party tried to use its political
power to woo sway voters. But its poor track
record in governance alienated them. It is impossible
for political parties to manipulate these voters in the
future. The Kuomintang can be voted out of power, if it
cannot produce a satisfactory performance record.
The value of democracy has taken root. No party
can come into power by a negative campaign. It derives
its legitimacy to rule from the trust and support of the
people. The outcome of the 2008 election shows Taiwan
is stepping into a new stage of democratic consolidation.
2.Anti-Corruption Determination Strengthened
One single most important reason for President
Ma’s victory was his corruption-free clean image.
Voters supported him, for they were truly fed up with
the corruption and graft of the Democratic Progressive
Party administration over the past eight years. They
wanted to punish the corrupt party. Practically all the
median voters voted for Ma Ying-jeou, showing they
were more determined than ever before to oppose government
corruption and graft, which seriously impeded
Taiwan’s economic development.
The Kuomintang made government corruption a
main issue in the presidential campaign. It was crowned
with success by Ma outpolling Hsieh by more than two
million votes.
3. Desire to Get Out of the Economic Doldrums
The Democratic Progressive Party was unwilling
to improve economic relations with China to get Taiwan
out of its economic downturn. Nothing was done
to promote economic cooperation across the Taiwan
Strait. Taiwan remained in the economic doldrums for
eight years as a result.
The Kuomintang advocated Taiwan’s wider opening
to China, which the great majority of voters believed
was necessary if their country wanted to end its
economic doldrums. Cross-strait economic cooperation
was another vital issue in the Kuomintang’s presidential
campaign of 2008. The people who desired Taiwan’s
wider opening to China to cure its economic
woes voted for Ma Ying-jeou.
Table 3 Press Polls on Presidential Election in 2008
Time of
Survey
United Daily China Times Global Vision TVBS Era
Ma 40 Ma 51
Apple
Daily
2007/8/13
Hsieh 27 ─
─
Hsieh 30
─
─
undecided 33
undecided 19
2007/8/14
Ma 52 Ma 37.0 Ma 45.5
Hsieh 22 Hsieh 25.2 ─
─
Hsieh 21.8
─
undecided 27 undecided 37.7
undecided 32.7
2007/8/21 ─ ─ Ma 61.6 ─ ─ ─

Development of Democratic Politics after 2008 5
Hsieh 38.4
Ma 54
2007/8/28 ─ ─ ─
Hsieh 32
─
─
undecided 15
2007/9/20 ─ ─
Ma 51
Ma 60.9
Hsieh 39.1
─ ─ ─
2007/9/22
Hsieh 27
undecided 22
─ ─ ─ ─ ─
2007/10/18 ─ ─
Ma 50
Ma 59.4
Hsieh 40.6
─ ─ ─
2007/10/24
Hsieh 25
undecided 25
─ ─ ─ ─ ─
Ma 35.7
2007/11/08 ─
2007/11/16 ─
Hsieh 24.9
undecided 39.4
Ma 36.9
Hsieh 22.1
undecided 40.8
─ ─ ─ ─
─ ─ ─ ─
2007/11/19 ─ ─
Ma 37.1
Ma 58.6
Hsieh 41.4
─ ─ ─
2007/11/20 ─
Hsieh 21.4
undecided 41.6
─ ─ ─ ─
2007/12/19 ─ ─
Ma 52 Ma 45.3
Ma 60.8
Hsieh 39.2
─ ─ ─
2007/12/28
Hsieh 23 Hsieh 24.2
undecided 25 undecided 30.5
─ ─ ─ ─

6 Taiwan Development Perspectives 2009
Ma 47.5
2007/1/03 ─
2008/1/09 ─
Hsieh 22.5
undecided 29.8
Ma 48.3
Hsieh 25.1
undecided 26.6
─ ─ ─ ─
─ ─ ─ ─
Ma 60 Ma 51.4 Ma 62.3 Ma 56 Ma 41
2008/1/13
Hsieh 18 Hsieh 19.9 Hsieh 37.7 Hsieh 26 ─
Hsieh 16
undecided 22 undecided 28.7 undecided 18
undecided 43
2008/1/16 ─
Ma 52.8
Hsieh 20.8
undecided 26.4
─ ─ ─ ─
2008/1/26
Ma 54 Ma 46.0
Hsieh 23 Hsieh 23.2
undecided 23 undecided 30.8
─ ─ ─ ─
Ma 53
2008/1/29 ─ ─ ─
Hsieh 26
─
─
undecided 20
Ma 56
2008/1/31 ─ ─ ─
Hsieh 30
─
─
undecided 14
Ma 56 Ma 53 Ma 36.3
2008/2/14
Hsieh 18
─
─
Hsieh 29
─
Hsieh 19.5
undecided 25
undecided 19
undecided
44.1
Ma 63.3 Ma 53
2008/2/22 ─ ─
Hsieh 36.7 Hsieh 31
─
─
undecided 17
2008/2/25
Ma 49 Ma 48.6 ─
Ma 49
─
─
Hsieh 21 Hsieh 22.7
Hsieh 29

Development of Democratic Politics after 2008 7
undecided 28 undecided 28.8 undecided 22
Ma 55 Ma 54
2008/2/29
Hsieh 18 ─
─
Hsieh 30
─
─
undecided 26
undecided 16
Ma 49 Ma 52.7 Ma 54 Ma 41.3
2008/3/5~9
Hsieh 21 Hsieh 21.1
─
Hsieh 28
─
Hsieh 19.8
undecided 28 undecided 26.1
undecided 18
undecided
38.9
Ma 52 Ma 48.9 Ma 50
2008/3/10 Hsieh 22 Hsieh 21.8 ─
Hsieh 31 ─
─
undecided 26 undecided 29.2
undecided 19
Source: Poll survey made by the press published at UDN website(United Daily, China Times, Global Vision, TVBS,
ERA TV and Apple Daily). http://mag.udn.com/mag/vote2007-08/storypage.jsp?f_ART_ID=109235
II. Ma as President
With Ma Ying-jeou taking office as president, the
Kuomintang is in full control of the government.
Gone are the days of a minority government under the
Democratic Progressive Party.
Born in Hong Kong, Ma is considered a mainlander,
an ethnic Han Chinese who came to Taiwan after
1945 and any of his offspring. He became the first
mainlander president of the Republic of China popularly
elected, shaking off the jinx on a mainlander unable
to become the head of state in Taiwan, where native-born
islanders form by far the great majority. The
Democratic Progressive Party tried in vain to cash in on
his original sin of being born a mainlander. The
pro-independence party was able to win elections before
by arousing the feud between the islanders and
mainlanders, which was triggered by the bloody massacre
of innocent people following the February 28
Incident of 1947. It never failed to castigate the Kuomintang
government as an alien colonial regime.
Ma’s election has proved that curse futile and signifies
Taiwan in need of better cross-strait relations to stimulate
the economy, putting the islander-mainlander feud
behind, and strengthening its “subjectiveness.”
1. Need for Cross-Strait Relations
The press all over the world interpreted Ma
Ying-Jeou’s landslide victory as an expression of the
desire of the people of Taiwan to stimulate the economy
by improving relations with China. The people hope
that the improvement would help Taiwan to repeat its
rapid economic development in the last two decades of
the last century. CNN commented: “In Taiwan, the
people’s expectation on facilitating economic growth
by strengthening cross-strait relationships overrode
their fear of possibly losing independent autonomy due
to closer cross-strait relationships.”
The people remember the economic miracles Taiwan
wrought in the late twentieth century. Gross domestic
product grew by eight percent a year. After 2000,
the growth fell to 3.7 percent a year on an average.
Taiwan led the Asian dragons in economic growth in
the last century. It trailed at the bottom after the Democratic
Progressive Party had come to power. The
disposable income of the people shrank, while com-

8 Taiwan Development Perspectives 2009
modity prices went up. The people expected the Kuomintang
to make a change. President Ma had dialogue
resumed between the Straits Exchange Foundation and
the Association for Relations across the Taiwan Strait.
The two organizations were set up in 1991 in Taiwan
and China to conduct substantial relations across the
strait. They signed agreements after the change of government
in Taipei to start direct cross-strait flights,
shipping and postal service, improve food safety and let
Chinese tourists visit Taiwan.
2. End of the Islander-Mainlander Feud
Thousands of islanders were killed in the February
28 Incident of 1947. What has come to be known as the
reign of white terror that followed deepened the feud
between the islanders and mainlanders spawned by the
bloody incident. The Democratic Progressive Party
capitalized on the feud to win election after election
after it was inaugurated in 1986. The Kuomintang government,
labeled as an alien colonial regime, could
hardly reverse the trend, because the Amoy-speaking
islanders form 70 percent of Taiwan’s population
against 15 percent each of the mainlanders and the island-born
Hakka. One result is that communal disharmony
is dividing the country.
The election of Ma the mainlander is proof that the
islanders are putting that feud behind them. They are
convinced that the Kuomintang is a Taiwanized party.
In the future, no one can capitalize on the forgotten
feud to win elections.
3. Taiwan’s ‘Subjectiveness’
One contribution President Chen Shui-bian made
to democratic development is to strengthen Taiwan’s
“subjectiveness.” He made the people conscious of
their independence. This self-consciousness of independence,
or subjectiveness which is a great democratic
value, will be further strengthened by President Ma
Ying-jeou. He fully understands Taiwan’s subjectiveness
will play an important role in the conduct of its
relations with China as well as the rest of the world.
That understanding is reflected on his plan to organize a
ministry of oceanic affairs and the appointment of Lai
Hsing-yuan, a former Taiwan Solidarity Union legislator,
as chairwoman of the Mainland Affairs Commission,
a policy-making Cabinet agency responsible for
the conduct of relations between Taiwan and China.
The Taiwan Solidarity Union is a strongly
pro-independence ally of the Democratic Progressive
Party.
III. Impact on Taiwan’s Constitutional
Democracy
Taiwan marked the twentieth anniversary of the
lifting of martial law in 2007. The end of martial law
marked the beginning of constitutional democracy.
The election of President Ma Ying-jeou started a new
phase of democratic politics in Taiwan.
In the run-up to the election, Ma identified the
failure to obey the spirit of constitutionalism as the dilemma
of Taiwan on its way to true democracy. One
inevitable consequence is that politicians continue to
violate the laws and abuse their power. He hopes the
experiences in the development of democracy in Taiwan
will be reviewed in light of the principles of constitutionalism
so that it may learn to “get rid of such
nightmares as communally divisive mass movements,
demagogic populism, and corrupt and rotten government.”
He wants to start what he calls the second phase
of democratic reform to consolidate the constitutional
system of power matched with responsibility, promote
positive competition among political parties, uphold
judicial independence, strengthen the anti-corruption
mechanism, promote development of civil society, and
safeguard the basic human rights of minorities. He
wants a rational, fair, responsible, and clean and honest
democracy. The second phase of his democratic reform
is highlighted by consolidation of democracy, faithful
adherence to constitutionalism, and promotion of civil
society.

Development of Democratic Politics after 2008 9
1. Consolidation of Democracy
Samuel P. Huntington, the celebrated professor at
Harvard University, theorizes a second change of ruling
parties is beneficial to democratic consolidation. The
Kuomintang’s comeback to power is expected to contribute
to the consolidation of democracy in Taiwan.
As a democracy matures, median voters increase
in numbers. Political parties have to win them over to
come to power. Parties then have to compete fairly
against each other. The party that wins derives its legitimacy
to rule from the trust and support of the people.
The second change of ruling parties in Taiwan proves
that its democracy is being further consolidated.
2. Adherence to Constitutionalism
Constitutionalism emphasizes checks and balances
through the separation of powers, upholds the rule of
law, safeguards human rights, and guards against the
abuse of power by a government.
The Constitution mandates the president of the
Republic of China as head of state, who, however, can
appoint a head of government without the consent of
the Legislative Yuan. Most people in Taiwan do not
understand this constitutional principle. They believe
their popularly elected president should be the chief
executive as well. This popular misunderstanding paves
the way for politicians to abuse their power in violation
of the Constitution. As a matter of fact, Democratic
Progressive Party leaders, from President Chen on
down, did not obey the spirit of the Constitution and
abused their power.
President Ma follows the letter and the spirit of the
Constitution. He lets the president of the Executive
Yuan or premier serve as head of government in accordance
with the Constitution. As a consequence, he has
been criticized as a “negative” president, one who does
not rule. But it is an act on the part of President Ma to
prove his faithful adherence to constitutionalism.
3. Promotion of Civil Society
Civil society is composed of the totality of voluntary
civic and social organizations and institutions that
form the basis of a functioning society as opposed to
the force-backed structures of a state and commercial
institutions of the market. The role of civil society in a
democratic order is vital. The political element of many
civil society organizations facilitates better awareness
and a more informed citizenry, who make better voting
choices, participate in politics and hold government
more accountable as a result. Even non-political organizations
in civil society are vital for democracy. This
is because they build social capital, trust and shared
values, which are transferred into the political sphere
and help to hold society together, facilitating an understanding
of the interconnectedness of society and interests
within it. Civil society displays self-governance by
basic social communities and internal reviews on public
participation. It is also a local democratic control and
organizational social democratization. Such construction
enables extraordinarily diversified society to establish
a new integrated system dealing with local public
affairs through the connection networks of policy negotiations
and actions jointly built by the central or local
governments and various organizations in a civil society.
It lays the foundation for democratic consolidation. A
democratic society will not be able to generate effectively
restrictive power to the systems if it is not a civil
one.
The chiefs of lower administrative districts, township
representatives, magistrates and mayors, members
of the Legislative Yuan and the president are now
elected by the people in a direct and open manner in
Taiwan. The ability of the people to participate in public
affairs has been greatly enhanced in Taiwan. Such
condition has become even more solid after experiencing
the second change of ruling parties and peaceful
transfer of political power twice. In a civil society, the
local governments have to know how to react to the
contradictions and conflicts among them. They should
also know how to effectively develop, manage and in-

10 Taiwan Development Perspectives 2009
tegrate limited local resources; how to apply abundant
civil participation and potential so as to supervise local
politics and governments on possible power monopolization,
decay and disability. Meanwhile, civil society
can help to supplement the insufficiency presented by
local governments.
It is essential that a civil society exists and operates
in a common society so that an extensive grassroots
foundation in democratic politics can be established.
And the idea of equal participation may come
into the people’s hearts. To put it simple, a sound civil
society is able to avoid the public being manipulated by
politicians and prevent development of populism.
Civil society also prevents deterioration of democratic
politics. As Taiwan moves into the stage of democratic
consolidation, it is better to make more efforts to reconstruct
the political ecology, culture and system and continue
the development of governmental and public abilities
so as to strengthen the public responsibilities
shared by civil society and enhance public supervision
and anti-corruption force. The democratic development
in Taiwan can be further deepened and consolidated for
creating a more mature and developed civil society.
IV. Development of Party Politics after 2008
The year 2008 saw a marked change in the development
of party politics in Taiwan. The Democratic
Progressive Party, which increased its power base winning
election after election after 1986 at the cost of the
Kuomintang, lost steam and was defeated in the legislative
and presidential elections of 2008. The Kuomintang
overwhelmingly won the elections to come back to
power. The table shows the results of elections between
1992 and 2008.
Table 4
Voter Support for KMT and DPP in Elections(1992-2008)
Year Election
Rate of votes received
by KMT ceived by DPP
Rate of votes re-
Remark
1992 Legislators 53.02% 31.03%
1993 Magistrates and mayors 47.47% 41.03%
1994 Provincial governor 56.2% 38.7%
1994 Mayor of Taipei City 25.9% 43.7% New Party30.2%
1994 Mayor of Kaohsiung City 54.5% 39.3%
1995 Legislators 46.1% 33.2% New Party 13%
1996 President 54.0% 21.13% Independent 24.88%
1997 Magistrates and mayors 42.1% 43.3%
1998 Mayor of Taipei City 51.1% 45.9%
1998 Mayor of Kaohsiung City 48.1% 48.7%
1998 Legislators 46.4% 29.6%
2000 President
Independent: Sung Chu-Yu &
23.10%
39.30%
Chang Chao-Hsiung 36.84%
2001 Magistrates and mayors 35.1% 45.3%
2001 Legislators
People First Party 18.6%;Taiwan
28.6%
33.4%
Solidarity Union 7.8%
2002 Mayor of Taipei City 64.1% 35.9%
2002 Mayor of Kaohsiung City 46.8% 50.0%
2004 President 49.89% 50.11%
2004 Legislators
32.83%
35.72%
People First Party 13.90%;Taiwan
Solidarity Union 7.79%

Development of Democratic Politics after 2008 11
2005 Magistrates and mayors 50.96% 41.95%
2006 Mayor of Taipei City 53.81% 40.89%
2006 Mayor of Kaohsiung City 49.27% 49.41%
2008 Legislators 53.48%/51.23% 38.65%/36.91%
2008 President 58.45% 41.55%
Remarks: The “single constituency and two-vote system” was applied for the 2008 legislative elections. The first
figure denotes the regional rate while the second figure refers to the vote-winning rate for legislators at
large and nationals living abroad.
Sources: the databank website of Central Election Commission. http://210.69.23.140/cec/cechead.asp; information of
elections for public servants, Election Research Center, National Chengchi University.
http://vote.nccu.edu.tw/cec/vote4.asp
The above table is produced by the author.
One factor contributing to the change emerged in
2005 in an amendment to the Constitution. It mandates
the “single constituency/two-vote system” for parliamentary
elections. In the legislative elections of 2008,
voters were required to cast two ballots, one for a candidate
and the other for a political party, to elect 74
“regional” lawmakers, one from each single constituency,
and 39 others at large from among nominees of
political parties according to proportional representation.
The Democratic Progressive Party received 39
percent of the votes cast, a record high, but was able to
win 18 percent of the seats, the share it had in 1986
when it was inaugurated.
The 2008 legislative and presidential elections
have set four trends in Taiwan’s political development.
They are bipartisan competition, a majority government
as the key issue in that competition, political moderation,
and a leaning toward the presidential system of
government.
1. Bipartisan Competition
All minority parties were shut out of the Legislative
Yuan in 2008. Only two major parties remain.
The new legislative election system tends to eliminate
small political parties. The Kuomintang and the Democratic
Progressive Party will compete against each
other to win a parliamentary majority in the foreseeable
future. The bipartisan competition also precludes possibilities
of party alliance and coalition government.
2. Majority Government as the Key Issue
The Democratic Progressive Party could never
control a majority in the Legislative Yuan. Its government
was a minority one, lacking full support of the
parliament. A minority government is prone to political
instability. In the past, most voters in Taiwan supported
one party in the presidential elections but the other in
the legislative elections so that checks and balances
might be in place against the administration. While the
Democratic Progressive Party was in power, its minority
government was crippled by crisis after political
crisis.
Discontented voters who elected a Kuomintang-controlled
legislature opted for a majority government
to make Ma Ying-jeou president. (The votes
Ma received were five percent more than the party won
in the legislative elections.) A majority government is
conducive to political stability as well as Taiwan’s
economic development. In the future, the two parties
need to make majority government the key issue in
competition for power.
3. Political Moderation
Before the new election system was introduced,
legislators had been elected by “single-nontransferable
votes” from multiple constituencies. Radical candidates,
those diehard Taiwan independence activists and
equally deeply ingrained Chinese unification advocates,
had chances to win seats in the Legislative Yuan. The

12 Taiwan Development Perspectives 2009
radicals had no chance in the legislative elections of
2008. Moderate candidates won. Polarization will not
help win elections. Candidates’ “love of Taiwan” may
never be asked of them as their political correctness in
the dichotomy between islanders and mainlanders in
the future. Political moderation will prevail in future
elections.
communal harmony, continuing political reform, and
achieving a unity of purpose of the nation to rebuild its
economic strength and increase its national competitiveness
that Taiwan may play a role in the world commensurate
with its power in the years to come and serve
as a model of democratic development for developing
countries and Chinese societies.
4. Leaning towards the Presidential System of
Government
The Constitution mandates a system of government
similar to the French dual-leadership system,
which is also known as the semi-presidential system.
Since the Kuomintang won the presidency and the
overwhelming majority in the Legislative Yuan in 2078,
a tilt towards the presidential system has emerged. As a
matter of fact, President Chen Shui-bian imposed a
minority government in violation of the spirit of the
Constitution, though his Democratic Progressive Party
never had a majority in the Legislative Yuan, to which
his head of government or premier is responsible. The
Constitution gives the president the power of appointing
the premier without the consent of the Legislative
Yuan, while requiring the head of government to be
responsible to the parliament. But the legislature is fully
under control of Ma’s Kuomintang and he appointed
the premier, the system of government is more presidential.
It leans towards presidentialism.
V. Conclusion
The Kuomintang won the presidential and legislative
elections of 2008. It had won a majority of local
elections before. The Kuomintang is now in control of
the presidency, the parliament and most of the local
governments. It has the power it did before the lifting
of martial law in 1988. The great power entails responsibility
just as great. The ruling party has to be accountable.
It has to be put to strict public scrutiny. It
needs to promote civil society. It has to rise above the
dispute over independence versus unification.
Moreover, the Kuomintang must aim at restoring

Campaigns of 2008 and Beyond 13
Campaigns of 2008 and Beyond
HUNG, Chien-chao
Abstract
Ma Ying-jeou won the presidential election of 2008. His Kuomintang had earlier won
a virtual three-fourths majority in the Legislative Yuan to give the party full control of
government.
The Kuomintang’s victory is due mainly to the disastrous governance of Taiwan by the
Democratic Progressive Party, epitomized in the person of President Chen Shui-bian, who
is standing trial for forgery, corruption and graft. The electorate wanted change, rejecting
native-born islander Frank Hsieh and voted in Ma, a Hong Kong-born Chinese mainlander.
The new Kuomintang administration is having difficulties coping with problems arising
from the global economic crisis triggered by the U.S. financial meltdown. The year
2008 saw the Kuomintang come back to power but sink deeper in trouble trying to get Taiwan
out of its impending economic depression.

14 Taiwan Development Perspectives 2009
Eligible voters went to the polls to elect a new
Legislative Yuan and their president and vice president
in early 2008. Taiwan’s two major parties began their
campaigns of 2008 much earlier than were due. One
reason was that President Chen Shui-bian had to win
the two pivotal elections in a row in order to keep his
Democratic Progressive Party in power for his political
survival after his retirement. The legislative elections
took place first. In the past, parliamentary elections
were held in early December, at least three months before
the Legislative Yuan met for its opening session in
February in accordance with the Constitution. Chen
wanted the new Legislative Yuan to be elected not too
long before the presidential election. As a result, Chen
had the legislative elections moved back to January 12,
2008 from the originally scheduled first week of December
2007. In his capacity as chairman of the ruling
party, Chen kicked off the parliamentary campaign,
which would be a warm-up for the presidential election
of March 22, earlier than was necessary in an attempt to
crush the precarious majority of the opposition bloc in
the Legislative Yuan. He thought the ruling party had an
even chance to win both legislative and presidential
elections.
Chen resorted to his wonted China-baiting tactic,
wishing if provoked enough, Beijing would threaten to
invade Taiwan, thereby so hardening the anti-Chinese
feelings in Taiwan as to get all swing voters to vote for
the Democratic Progressive Party. He first tried to abolish
the National Unification Council and the Guidelines
for National Unification. The council, created by
President Lee Teng-hui in 1990, adopted the guidelines
on August 1, 1992. The guidelines define “one China”
with a different interpretation. To Beijing, that one
China may be the People’s Republic of China with
Taiwan as a “special administrative region” after reunification.
Taipei, on the other hand, considers “one China”
to mean the Republic of China, founded in 1912
and with de jure sovereignty over all of China. The
guidelines prescribe a three-step process for Chinese
reunification. Taiwan, according to this process, is now
in the medium-term phase – a phase of mutual trust and
cooperation – which features the establishment of
channels of communication to usher in direct postal,
transport and commercial links and an exchange of visits
by government leaders between the two sides of the
Strait. In the final phase, the two sides would establish
a consultative organization for unification through
which they will jointly discuss their task, while adhering
to the goals of democracy, economic freedom, social
justice and nationalization of the armed forces, and
finally map out a constitutional system to establish a
democratic, free and equitably prospering China. The
guidelines provide the legal basis for the consensus of
1992, which is an agreement on “one China with a different
interpretation.” And that is why President Chen
was compelled to commit himself in two inaugural addresses
not to abolish the council as well as the guidelines
as part of his pledge not to change the status quo
across the Taiwan Strait.
When President Chen made known his decision to
terminate the council as well as the guidelines in 2006,
the United States was greatly alarmed. Washington
considered it a move to unilaterally change the status
quo as it defines. The Department of State issued
warning after grim warning, though China kept mum,
preferring to watch the Americans trying rein in President
Chen. The Chinese learned a lesson in 1996.
Jiang Zeming threatened to war on Taiwan to intimidate
the electorate ready to vote for President Lee Teng-hui.
China did not like Lee to be reelected, but the threat
backfired. Lee won a decisive victory. After months of
frenetic consultations with Washington, Chen was finally
able to have the council “cease to function” and
the guidelines “cease to apply.” He claimed victory in
effectively “terminating” both.
De-Sinicization
The next step President Chen took was an all-out
drive to de-Sinicize Taiwan, of which a posthumous
dethroning of President Chiang Kai-shek was a main
feature. The time was right. He wanted to remind the
people of how Chiang was involved in the February 28
Incident of 1947 on its sixtieth anniversary. As a starter,

Campaigns of 2008 and Beyond 15
he had the name of Chiang Kai-shek International Airport
at Taoyuan changed. It is now called Taiwan International
Airport at Taoyuan. Statues of President
Chiang had to be removed from all military barracks
and, if possible, from all public places. Streets bearing
Chiang’s preferred given name Zhong-zheng
(Mean-Uprightness) were renamed.
On February 28, 2007, President Chen denounced
Chiang Kai-shek as “the chief culprit” of the bloody
massacre following spontaneous riots on February 27
six decades before. That was a false accusation, of
course. Chiang, the generalissimo at that time, was too
busily occupied in Nanjing with the civil war with Mao
Zedong’s People’s Liberation Army he was losing, certainly
did not have any role to play in the slaughter of
the innocent except that he granted the request by General
Chen Yi, the administrator-general of Taiwan, for
troop reinforcements from China for suppression of
what was reported to him as an island-wide rebellion.
As if on cue, Chen Chu, mayor of Kaohsiung, had the
huge bronze statue of President Chiang’s, Taiwan’s
largest of its kind, cut into pieces and carried to Taxi,
where a small park keeps a collection of the generalissimo’s
cast figures on display. There were two temporary
mausoleums for Chiang and his son Chiang
Ching-kuo at Cihu near Taxi. The Ministry of National
Defense that has jurisdiction over them had them closed
to the public. Chen also denounced Chiang Kai-shek as
the “butcher” in the reign of white terror, which began
in 1949 with Chen Cheng governing Taiwan as the
chief administrator of the Southeast Region that also
included Hainan Island. Chen Cheng declared martial
law, which was finally lifted by President Chiang
Ching-kuo in 1987.
A dispute over the renaming of the Chiang
Kai-shek Memorial Hall in Taipei followed. The memorial,
like Taipei 101 which is the world’s tallest
building, is one of the top tourist attractions in the capital
city. President Chen had it renamed the Taiwan
Democracy Memorial Hall. The name of the main gate
to the memorial park had to be changed. It had been
named Da Zhong Zhi Zheng or Great Mean/Ultimate
Uprightness. The second and last characters combined
spelt the generalissimo’s preferred given name of
Zhong-zheng. That was the only reason why the name
had to be changed to Liberty Plaza. Kai-shek is a Cantonese
transliteration of Jie-shi or Hard Stone in Mandarin.
Chiang Kai-shek rose to power from Canton or
Guangzhou, where he founded the Whampoa military
academy that provided a military cadre for his Kuomintang
army. With that army, Chiang unified China in
1927 and moved the Chinese capital from Beijing to
Nanjing. Hau Long-bin, mayor of Taipei, fought against
the renaming by designating the memorial as a historical
site where no change of any kind is possible without
his approval. President Chen had his minister of education
downgrade the memorial to make an end run
against the Chiang Kai-shek Memorial Act, which had
to be amended if the renaming was to be lawfully and
officially completed. The end run worked and the name
change was done. The upheaval was reported abroad,
with the London-based Economist describing it as a
small-scale cultural revolution, a miniature version of
Mao Zedong’s “Great Proletarian Cultural Revolution”
of the 1960s.
Mao unleashed his Red Guards to destroy China’s
Confucian legacy during the Cultural Revolution but
President Chen had no Green Guards to unleash to further
de-Sinicize Taiwan. All he could do was to require
schoolchildren to study less Mandarin Chinese, which
is a national language of the Republic of China as well
as the People’s Republic and have history textbooks
revised to deemphasize the Chinese origin of the people
of Taiwan. Chinese history was eliminated as a subject
of the civil service examination. Applicants for government
jobs are tested on the history of Taiwan instead.
Confucius’ birthday was revoked as a national holiday.
His statue at the Ministry of Education was “mothballed.”
Students were exempted from studying Chinese
classics, Confucian classics in particular.
As his wonted tactic failed to work wonders in
boosting the Democratic Progressive Party’s voter

16 Taiwan Development Perspectives 2009
support, President Chen tried his hands again on referendums.
Professing his reelection in 2004 was due
largely to a larger voter turnout in response to his call
of two referendums, President Chen had his ruling party
propose two more to be held alongside the legislative
elections of January 12 and the presidential race on
March 22.
The one held first was on whether the Kuomintang
should be liquidated. Voters were asked to decide
whether special legislation was necessary to force the
Kuomintang to return all assets it was alleged to have
acquired illegally. The Kuomintang had come into possession
of much property that belonged to the Japanese
during their 50 years of colonial rule of Taiwan. Some
of it was transferred by the Kuomintang government to
the party’s ownership at greatly reduced prices. The
Democratic Progressive Party wanted the Kuomintang
to relinquish whatever asset it had so acquired. Fearful
of the liquidation, the Kuomintang countered by proposing
a referendum on whether to pass legislation to
create a special counsel to investigate the president, the
first family and top government officials suspected of
corruption.
Later, the Kuomintang called for a boycott of the
two referendums, neither of which was adopted. But it
was the misgovernment that got the rich richer and the
poor poorer in Taiwan that led to a rout of the ruling
party in the January 12 elections. The amendment to the
Constitution in 2003 that halved the Legislative Yuan
membership to 113 from 225 and introduced a new
election system sealed the fate of the Democratic Progressive
Party. Ironically, it was the ruling party that,
with Lee Teng-hui’s support, had made that amendment
pass the Legislative Yuan, the rationale being it would
be easier for it to edge out, or at least closer to, the
Kuomintang in a two-party system if the new legislative
election formula were applied. The elections, as
was predicted, ushered in a two-party system with all
small parties washed out, but gave the Kuomintang a
virtual three-fourths majority in the seventh Legislative
Yuan, which opened after the Chinese New Year festival
in 2008. The Democratic Progressive Party managed
to keep only 27 seats in the legislature, one shy of
a one fourth of the membership.
Referendums
The other referendum President Chen wanted to
call was a very controversial one. He required the voters
to support Taiwan’s admission to the United Nations
under the name Taiwan. Though almost everyone in
Taiwan knew it would never pass, Washington and Beijing
were seriously concerned. The United States believed
the referendum, if adopted, would change the
status quo and held Chen responsible for trying to renege
on his word not to call such a referendum. Warning
after severe warning came from Washington and
even Condoleezza Rice, U.S. secretary of state, had to
come out to register official American opposition to
President Chen’s UN bid. Practically all major world
powers opposed the referendum as a move that might
endanger peace and stability in the Taiwan Strait.
Beijing, however, did not make any direct threat to
Taiwan, which might help Frank Hsieh, the standard
bearer of the ruling party, outpoll his Kuomintang rival
Ma Ying-jeou. It was good enough for China to ask
Rice to voice her opposition in Beijing to the Chen referendum.
The Kuomintang, on the other hand, jumped on
the UN bid bandwagon in the wrong conviction that
Chen’s election gimmick would defeat Ma Ying-jeou
who was entangled in what must be dubbed the “Accountgate.”
The opposition party proposed a return to
the United Nations as an agenda of its referendum. It
wanted Taiwan to return as the Republic of China to the
world body from which it was ousted in 1971. The
proposal did not compromise the one China principle
with a different interpretation, and as such, was not as
controversial as the Chen plan, causing little concern
abroad.
However, just as it did in January, the Kuomintang
had a second thought about its return to the UN referendum.
In the end, it decided to call on voters to stay

Campaigns of 2008 and Beyond 17
away from the Chen referendum but feel free not to
vote on its version, hinting it did not want either of
them to pass. Neither did. The Chen referendum collected
5,881,589 votes, or 35.82 percent of the electorate.
Altogether 5,686,369 votes were cast for the Kuomintang
referendum, representing a mere 35.74 percent
of the total of eligible voters. A referendum is invalid, if
less than half of the electorate takes part.
The Accountgate was a spin-off of the scandal involving
President Chen and his wife in the misuse of
the “state affairs” fund. The Democratic Progressive
Party wanted to prove Ma Ying-jeou was just as corrupt.
A lawmaker of the Democratic Progressive Party released
an expose, accusing Ma of misusing the expense
account to which he was entitled as mayor of Taipei
from 1998 to 2006. Officially known as a “special
fund,” the expense account allowance has been
awarded every top public office holder in Taiwan since
President Chiang Kai-shek moved his government to
Taipei at the end of 1949. Half of the allowance had to
be written off with receipts against outlay. The other
half needed no justification. Ma transferred that half to
his wife’s personal bank account, convinced that he was
doing nothing wrong. A prosecutor at the Taiwan High
Court Anti-Corruption Center, regarded the transfer as
unlawful and indicted Ma for corruption on February
13, 2007. On the same day, Ma resigned as chairman of
the Kuomintang but did not withdraw from the presidential
race in the belief that he would be proven innocent.
He was tried and acquitted by the Taipei District
Court on August 14 but the prosecutor, Hou Kuan-jen,
appealed to the Taiwan High Court, which again absolved
the Kuomintang presidential candidate. Hou
filed another appeal to the Supreme Court, which could
not hand down its final verdict before the presidential
election, making Ma a defendant in the corruption case
running for the nation’s highest public office for the
first time in history. Unlike in the United States, a public
prosecutor in Taiwan can appeal when the defendant
he has indicted is acquitted. Ma was finally absolved by
the Supreme Court after his election as president.
The indictment of Ma, believed a dirty trick to
eliminate Hsieh’s invincible adversary, led Kuomintang
lawmakers to sue Democratic Progressive Party officials
and political appointees for misusing their expense
accounts. That resulted in a series of countercharges
against Kuomintang officials filed with various district
courts across Taiwan. In the end, at least 6,000 ranking
public functionaries were involved in the Accountgate.
Among them were Frank Hsieh, his running mate Su
Tzeng-chang, Ma’s running mate Vincent Siew, and
even Lien Chan, honorary chairman of the Kuomintang
who was vice president from 1996 to 2000. Yu
Shyi-kung had to quit as chairman of the Democratic
Progressive Party when he was indicted for corruption
in connection with the misuse of his expense account
while he was premier. Other top officials involved included
Chen Tan Sun, President Chen’s secretary-general,
and Weng Yueh-sheng, president of the
Judicial Yuan and ex officio chairman of the Council of
Grand Justices. Charges against some of them were
dropped. Weng was absolved. Hou Kuan-jen who indicted
Ma dropped all charges against Hsieh and Su,
though they spent their expense accounts the way the
ex-mayor of Taipei did. It made Ma cry foul, suing the
prosecutor for applying a double standard in dealing the
similar cases.
The attempted incrimination of Ma in the corruption
scandal was a subtle dirty trick. Hsieh’s negative
campaign against Ma was full of open dirty tricks.
Negative Campaign
President Chen, who directed Hsieh’s campaign
until the Democratic Progressive Party’s January 12
election fiasco, openly questioned Ma’s loyalty to Taiwan
by pointing out that the latter was a filial son who
had an epitaph erected for his deceased father opposed
to Taiwan independence and wishing a powerful Chinese
nation into being. Chen claimed Ma would try to
do what he could to fulfill his father’s last wish, selling
out Taiwan to China in the process. After Hsieh was in
the saddle for his own campaign, a tabloid exposed an
alleged extramarital affair of the elder Ma with a mar-

18 Taiwan Development Perspectives 2009
ried woman whom he “recognized” as a daughter.
Such recognition is still quite common in China as well
as in Taiwan. The elder Ma’s relationship to the woman
is like a godfather to his goddaughter in the Christendom.
But in China’s extended family system, a recognized
daughter is considered to have the same status as
a natural daughter and an affair between the elder Ma
and his recognized daughter might be regarded as incest.
Then Ma’s wife, Christine Chou, was alleged to
have stolen newspapers while working as an assistant at
the Harvard-Yenching Library at Cambridge, Massachusetts.
She was with Ma, while he was studying at
Harvard towards his S.J. D. The allegation was made
by a spin doctor of Frank Hsieh, who could not substantiate
the charges. The sole purpose seems to tell
voters they might have a first lady with a theft record, if
Ma were elected. Ma’s sister was working as a schoolmaster
in Beijing and Ma was accused of trying to help
her school get accredited in Taiwan. His daughter was
accused of carrying an American passport. Finally, it
was Frank Hsieh himself who challenged Ma in open
TV debates to produce evidence that he had given up
his U.S. permanent resident card. Hsieh never let go of
Ma, who said again and again the “green card” he had
once had was given up on return to Taiwan from the
United States in 1984. Ma produced his Taiwan passports
where American visas were stamped, arguing that
no such visas could be granted a permanent resident in
the United States. That, however, was an inane issue.
The election law in Taiwan only disqualifies candidates
who have foreign citizenship. Nonetheless, Hsieh had
the Central Election Commission request information
on Ma’s permanent resident card from the U.S. immigration
authorities. No such information could be made
available for protection of privacy. In the end, a former
director of the American Institute in Taiwan, who happened
to be in Taipei on the election eve, attested to the
Ma argument.
Hsieh raised no issues in the presidential campaign.
He just attacked Ma for proposing a common market
across the Taiwan Strait. The Democratic Progressive
Party candidate called it a “one China common market,”
a blueprint for surrendering Taiwan to China. He
also demanded Ma produce evidence that he gave up
his U.S. permanent resident card. A holder of the card
might flee Taiwan and therefore not loyal to the country,
Hsieh charged. Ma was on the defensive, but promised
a corruption-free, clean government, if he were elected.
That appealed to swing voters who were sick and tired
of government corruption in the past eight years.
They trotted out in droves to teach the Democratic Progressive
Party a hard lesson on March 22.
Ma won a landslide victory in the presidential poll,
restoring the Kuomintang to the governing role it had
played for more than five decades before it was ousted
by the Democratic Progressive Party in 2000. He garnered
more than 7,658,724 of the 13,104,063 votes cast,
58.45 percent of the total, against 41.55 percent, or
5,445,239 votes, for Frank Hsieh. Turnout was 76.33
percent. Ma broke Lee Teng-hui’s record at 54 percent
in 1996.
Hsieh conceded defeat at once. President George
W. Bush of the United States congratulated Ma for
election. “Once again,” Bush said in a statement, “Taiwan
has demonstrated the strength and vitality of its
democracy. I also congratulate Mr. Ma Ying-jeou on his
victory. I believe the election provides a fresh opportunity
for both sides (of the Taiwan Strait) to reach out
and engage one another in peacefully resolving their
differences.”
Ma’s victory was not easy. Hsieh’s negative campaign
against him was staggering. But the largest handicap
he had to overcome was his original sin of being
born a Chinese mainlander. He was labeled as a China
lover, who would sell out Taiwan and flee with the help
of his American green card. Yet he was able to rout
Hsieh, Taipei’s native-born favorite son who subtly
made the last-minute emotional appeals to voters to
choose anybody but a mainlander. Ma’s election proved
that Taiwan’s Hoklo-Hakka majority are now by and
large immunized against their February 28 Incident

Campaigns of 2008 and Beyond 19
trauma. Many people, at least most of Hsieh’s supporters,
still cannot totally let bygones be bygones but
their ranks are shrinking fast. Hsieh and President
Chen seem oblivious of this reality. They thought they
could continue to take advantage of the islander-mainlander
feud to win elections. Gone, however,
are those days. Democracy triumphed because
voters, young and old, came out to elect the man who
they believed was fittest to lead their country. Ma was
better than Hsieh at one point. He was a man honest
enough to apologize for whatever blunders or faux pas
he or his Kuomintang leaders committed in the run-up
to the election. Voters regarded his opponent as a politician,
someone like President Chen, who did not step
down when one million protesters marched in Taipei in
the fall of 2006 to demand his resignation to take responsibility
for a spate of scandals. Ma’s honesty convinced
the people he would do what he could to usher
in the change he had promised to deliver. The people
needed hope for a change and he instilled that hope in
them.
Rampant government corruption, in fact, contributed
singularly to Ma Ying-jeou’s election as president
with the largest ever margin in Taiwan’s brief history as
a democracy. Chen Shui-bian was deeply involved in
graft and corruption in his second term. Aside from the
Accountgate, he was accused of amassing a slush fund
of more than US$100 million and laundering it. Many
of the Democratic Progressive Party Cabinet ministers
were arrested and tried for corruption. Some of them
were convicted. Chen was arrested on November 12 on
charges of forgery, corruption and money laundering.
The arrest followed a Special Counsel investigation
after he had to apologize in public for “doing what the
law does not allow” on August 14 when a Kuomintang
lawmaker charged him with stashing away at least
US$22 million in two Swiss banks by citing an Egmont
report on money laundering. During the investigation,
former first lady Wu Shu-chen, who is standing trial for
corruption in connection with the Accountgate, her son
Chen Chih-chung and his wife Huang Jui-ching were
found to have helped President Chen launder much
more in Japan and the United States. Business tycoons,
banking moguls in particular, poured millions of dollars
into the hidden troves of the Chen family in order just
to win favors in the controversial monet reform to halve
the number of holding companies. Still under detention,
Chen started a brief hunger strike to claim innocence
and protest what he called political persecution against
him. Through his defense attorney, he roused supporters
to rise against his persecutors and promised to run for
president in 2012 as standard bearer of the Democratic
Progressive Party, from which he resigned after he offered
the public apology to admit to money laundering,
for which he blamed his wife. He and his wife were
indicted. The open trial of Taiwan’s first president after
retirement is expected to last for years.
President Ma’s Tasks Ahead
Tasks facing Ma Ying-jeou, who was sworn in as
president on May 20, 2008, are indeed daunting. He has
to deliver what he has promised, a clean government.
He owed his election to the swing voters who wanted to
punish the Democratic Progressive Party for ubiquitous
corruption. To keep government integrity is almost a
mission impossible. Without a doubt, corruption undermines
both the democratic development and the
economic competitiveness of a country. Public corruption
has been defined as “the abuse of pubic office for
private gain.” Anti-corruption is a top policy priority in
Taiwan, where a recent survey showed a whopping 86
percent majority of the people believed their parliament
was under the great impact of corruption and another 75
percent were convinced the police are corrupt. In other
words, Taiwan’s democratic transformation has not
improved, but has rather blemished, the integrity of the
government. Taiwan needs to exert greater effort to
promote integrity, fight corruption and rebuild public
trust in government. However, there is no quick solution
to achieve the success of anti-corruption and integrity
enhancement; continuously investigating and
measuring the degree of corruption and exposing it to
the pubic could be one of the possible ways to end this
curse on democracy. That is easier said than done.

20 Taiwan Development Perspectives 2009
Another tremendous task is to reduce government
debt. Taiwan’s fiscal deficit was once reduced to zero
in 1989. There was a surplus in the following year. It
was an outstanding achievement. The government debt
ratio rose again in 1991. The debt balance rose from
NT$216.9 billion in 1991 to NT$1,214.9 billion in
1999. The situation turned worse after 2000. The current
national debt defies estimation. President Chen
promised no tax increase while he was in office and it
was practically the only one promise he kept. The debt
balance rose from NT$2,478.6 billion in 2000 to
NT$2,831.7 billion in 2002, bringing the cumulative
public debt to NT$3,292.2 billion or 33.4 percent of
Taiwan’s gross domestic product. With hidden amounts
such as national health insurance losses added, Taiwan’s
public debt topped NT$13.8 trillion or US$460
billion at the end of 2007, or more than 105 percent of
GDP. One way to chip away this mountain of debt is to
raise tax, but it is doubtful if Ma could do so, particularly
after his Democratic Progressive Party rival had
promised a tax cut during the presidential campaign.
Moreover, Ma promised a package of 12 economic reconstruction
projects, which needs NT$4 trillion
(US$130 billion) to finance so as to keep GDP growing
at six percent a year, lower unemployment to three percent,
and raise per capita income to US$30,000 in eight
years. He knows it is not at all easy to find that much
money to implement all 12 projects with success.
To make things worse, the silent tsunami, triggered
by the U.S. stock market crash, is hitting Taiwan in full
force. The Kuomintang administration had to scale
down the high economic growth Ma promised in the
presidential campaign. Recession is expected to start,
and the government has to do what it can to stimulate
domestic demand by channeling billions of dollars into
Keynesian investment in infrastructure construction.
As no quick economic growth was realized and unemployment
rose, Ma’s approval ratings nosedived.
They fell to a little over 20 percent from a record high
61 percent by the end of 2008.
Another task, which is a much harder nut to crack,
is a sort of moral rearmament to curb the hedonistic
penchant of young adults. People in their 20s belong to
what is popularly called the “strawberry generation.”
They look nice, red and shining, but are extremely fragile
like strawberries. Unlike their grandparents who
experienced war, most of these young adults were
pampered almost all their life so far. They detest hard
work. They would do almost anything to get a quick
buck. They are Machiavellian, convinced the end justifies
the means. One public opinion survey asked college
students whether they would cheat in examinations.
Eight out of every ten respondents told their pollsters
they would cheat just for getting high grades, albeit
they knew cheating is wrong. Honesty is no longer their
best policy. And they have role models to look up to:
corrupt political leaders from President Chen Shui-bian
on down. The rapid proliferation of colleges and universities,
one lamentable outgrowth of Taiwan’s education
reform Nobel laureate Yuan T. Lee recommended,
wound up with an increasingly high jobless rate among
new college graduates. Taiwan now has more than 160
degree-granting institutes of higher learning, the highest
density of university population in the world with
the concomitant fall in the quality of higher education.
Quite a few of these young college graduates who could
find no jobs chose to end their lives out of despair.
They were true strawberries, not tough enough to survive
the harsh struggle for existence. But by far a
greater majority of the young people believe that life is
for theirs to enjoy. Fun is easily available because
banks are more than willing and ready to give them
credit to buy it. These banks, overly eager to extend
consumer credit to people who they know are unable to
repay, have issued almost indiscriminately credit, debit
and cash cards to help create millions of “card slaves”
in the last two years. They are slaves in every sense of
that word, for they have to toil probably throughout the
rest of their lives to repay their card debt. Taiwan’s suicide
rate has soared.
On the other hand, Taiwan is becoming an
M-shaped society, where the middle-income group continues
to dwindle while the high income earners and the

Campaigns of 2008 and Beyond 21
people falling below the poverty line are increasing.
The gap between the rich and the poor is fast widening,
while wage-earners have seen their disposable income
shrink over the past four years. Ma’s economic reconstruction
master plan was intended as a remedy.
One spot of sunshine is sighted in Taiwan’s external
relations.
Ma is no stranger in the United States. Born in the
former British crown colony in 1859, Ma came to Taipei
with his Kuomintang apparatchik father in childhood.
He earned a law degree from prestigious Taiwan
University in 1972 and went on to study at New York
University, where he obtained an LL.M. degree in 1979.
It was at New York University where he met his future
wife Christine Chou. They were married and together
went to Cambridge, Massachusetts. He worked as a
consultant at the Law Office of the First National Bank
of Boston from 1981 to 1982 and got an S.J.D. degree
from the Harvard Law School in 1984. He was an associate
for Cole and Deitz Law Office in New York
briefly before joining the University of Maryland Law
School. The Mas returned to Taipei in 1984. Ma started
his civil service career as deputy director of the First
Bureau of the Office of the President after his return
from the United Sates. He served as a senior assistant to
and an official interpreter in English for President
Chiang Ching-kuo. After a brief stint as a deputy secretary-general
of the Kuomintang, Ma was appointed vice
chairman of the Mainland Affairs Council in 1991. He
was minister of justice from 1993 to 1996. In 1998 Ma
beat Chen Shui-bian in the mayoral election in Taipei.
He was reelected in 2002. Three years later, he was
elected Kuomintang chairman. He stood for president,
while he headed the Kuomintang, visiting Washington
to get acquainted or renew friendship with American
leaders.
President Ma mended relations between Taiwan
and the United States frayed during President Chen
Shui-bian’s eight-year reign. In a telephone conversation
shortly after Ma had been elected, President Bush
talked to his Chinese counterpart Hu Jintao and they
were agreed that dialogue should be resumed between
Taiwan and China on the basis of the consensus of 1992.
Shortly thereafter, Vincent Siew attended the Boao Forum
for Asia Annual Conference in the resort city on
Hainan Island, where he had a landmark meeting with
Hu Jintao and presided over a roundtable on the economic
exchanges between Taiwan and China in his
capacity as chairman of the Cross-Strait Common
Market Foundation. The cross-Strait common market, a
brainchild of Siew’s, is on the Kuomintang platform.
At the roundtable discussion, Chen Deming, Chinese
minister of commerce, offered at least NT$1 trillion
(US$33 billion) in foreign direct investment in Taiwan.
All the money would be invested in Ma’s 12 economic
development projects.
It would be the first capital flow from China to
Taiwan. Accounting for three fourths of Taiwan’s aggregate
foreign direct investment in China, which totaled
US$45.76 billion as of the end of 2007, the new
Chinese capital bears one fourth of the cost of Ma’s
Keynesian master plan to build and improve infrastructure
and start strategic industries.
P. K. Chiang, chairman of the Straits Exchange
Foundation (SEF), led a high-power delegation to China
in June to resume dialogue between Taiwan and
China that was disrupted at the end of 1999. Chen Yunlin,
chairman of the Association for Relations across the
Taiwan Strait (ARATS), came to Taipei at the head of a
60-member delegation on November 3 to sign four
agreements with Chiang to further improve the Taipei-Beijing
relationship. The four accords were inked
on November 6. President Ma received Chen and his
delegates at the Taipei Guest House. Under one of the
four agreements, direct charter flights along much
shortened air routes cut the time and cost of travel
across the Taiwan Strait. So did direct maritime shipping
between Taiwan and China under another of the
four accords. The SEF and ARATS, both charged with
conducting cross-Strait relations, would negotiate arrangements
for joint financial and banking cooperation
to better cope with the silent tsunami that is engulfing

22 Taiwan Development Perspectives 2009
the world.
One greatest accomplishment the 2008 change of
government has achieved is to start a rapprochement
between Taiwan and China. Efforts are being made to
usher in an entente. Both President Ma and his Chinese
counterpart Hu Jintao have gone on the record by saying
they hope a peace accord will be signed between
Taiwan and China. That is very much needed to formally
end the Chinese civil war that was renewed after
the end of World War II. Moreover, the agreement will
normalize relations between the two sides of the Strait
and lead to an entente cordiale, a prerequisite for the
prosperity of the Chinese nation.

An Analysis of 2008 Legislative and Presidential Elections in Taiwan 23
An Analysis of 2008 Legislative and Presidential Elections
in Taiwan
CHOU, Yujen, KU, Chih-chuan
Abstract
In Taiwan, two national elections were held in 2008. Legislative elections took place on January 12
and voters went to the polls on March 22 to elect their president. In the 2005 constitutional amendment,
the Legislative Yuan had its seats halved to 113 from 225. Moreover, a single constituency/two votes system
was introduced for the election of lawmakers. Voters were required to cast two ballots, one for a candidate
and the other for a political party, to elect 73 regional legislators from single constituency, 6 from
indigenous people and 34 others according to proportional representation. The Kuomintang won more
than 71 percent of the seats, and controls a virtual three-fourths majority in the new legislature. The Democratic
Progressive Party (DPP) won only 27 seats in the Legislative Yuan. In other words, two party
politics is in place in Taiwan after this election. Furthermore, Ma Ying-jeou, Kuomintang standard bearer,
won the presidential election which allows the KMT to control the Executive Yuan and the Legislative
Yuan simultaneously and therefore terminate the minority government.
Under the new legislative system, the DPP’s ratio of seats in the Legislative Yuan is much less than
the ration of total votes it won, and the space of small parties were also faced serious restrictions which
shows that the new system has great impact upon the direction of Taiwan’s party system. Besides, this paper
analyzes the effects of the new legislative and presidential elections on the system of government in
Taiwan. Moreover, we will deal with the effects of the time lag between these two elections on Taiwan’s
political system.

24 Taiwan Development Perspectives 2009
I. Introduction
Two constitutional amendments have changed the
system of government in Taiwan. The one adopted in
1997 authorizes the president of the Republic to appoint
the president of the Executive Yuan or the premier
without the confirmation by the Legislative Yuan, to
dissolve the Legislative Yuan if necessary or at the request
of the premier, while the Legislative Yuan may
propose a non-confidence vote on the premier.
After the amendment, the premier remains the
head of government, and still need to responsible to the
Legislative Yuan. Budgets, acts, and important policy
decisions have to be approved by the Legislative Yuan.
If the Executive Yuan considers a Legislative Yuan resolution
unacceptable, it may be returned to the latter for
review with the permission of the president of the Republic.
But the Legislative Yuan may force the Executive
Yuan to accept its resolution with a majority vote.
As a result, it is difficult for the Executive Yuan to dominate
the law-making process without a majority
support in the Legislative Yuan.
The 1997 amendment makes the “dual-leadership”
system of government shift weight to the president of
the Republic when the president and the majority in the
Legislative Yuan belong to the same political party. If
they do not belong to the same party, the legislature
plays a more powerful role in government. In other
words, the power of the president is limited by the legislature
unless he or she controls the majority in parliament.
French experience shows if the president does
not control the parliamentary majority, he has to ask the
majority party to form a Cabinet. In Taiwan, however,
President Chen Shui-bian did not follow the French
example, though the Kuomintang (KMT) was the majority
party in the Legislative Yuan. That ran counter to
the spirit of the 1997 constitution amendment.
The other constitutional amendment, adopted in
2005, halves the seats of the Legislative Yuan to 113
from 225 and stipulates a single constituency system
for election of Members of the Legislative Yuan.
Voters are required to cast two ballots, one for a
regional candidate and the other for a political party, to
elect 79 regional lawmakers, one from each single constituency,
and 34 others at large according to proportional
representation. Six of the regional lawmakers
must be elected from among the indigenous peoples.
The term of all legislators is four years. Only those parties
that collect more than five percent of the total votes
cast are entitled to seat lawmakers at large chosen from
among the candidates they nominate. At least half of
the proportional representation members have to be
women.
Moreover, the 2005 amendment abolished the National
Assembly. It also mandates a Legislative Yuan-initiated
referendum, on which at least half of the
electorate has to vote for constitutional amendments or
changes in the national territory. Additionally, the legislature
alone can propose an impeachment of the president
or vice president of the Republic. The impeachment
has to be reviewed by the Council of Grand Justices.
The 2005 amendment affected the legislative elections
of 2008. The two largest parties battled it out.
Although the voter support for the Democratic Progressive
Party (DPP) did not decline significantly, its seat
holding shrank greatly to 27. The People First Party
(PFP) and the Taiwan Solidarity Union (TSU) won no
seats in the regional constituency or proportional representation.
Two-party politics is therefore in place in
Taiwan.
II. Single Constituency/Two Votes System
of Election
1. Effect of the Single Constituency
According to Duverger’s Laws, a plurality system
of election leads to a two-party system, a proportional
representation (PR) system leads to a multi-party system,
and a two-round election system leads to cooperation
among many parties.(Duverger, 1986:70; 王 業
立 ,2006:40) Anthony Downs argues that a “win-

An Analysis of 2008 Legislative and Presidential Elections in Taiwan 25
ner-takes-all” election in a plurality system leads to a
two-party system (Downs, 1957:124). On the other
hand, the cube rule shows that in a first-past-the-post
election, the proportion of seats a party wins is the cube
of the proportion of votes that party collects. If the ratio
of votes the two largest parties win is three to two, the
ratio of seats they win in parliament will be 27 and 8.
This rule is helpful to explain why the ratio of votes a
party receives and the ratio of seats it wins are disproportional.
For example, the KMT received 53.478 percent
of the votes for regional legislators, against the
38.654 percent for the DPP. The ratio was about three
to two. But the KMT won 57 seats, almost six times as
many as the DPP’s 12 seats. The proportion of seats the
former won is much higher than that of the latter.
However, it is not the case if there is a third largest party.(
張 文 揚 等 譯 ,2007:123).
In addition, the smaller the single constituency is,
the more disadvantages the small parties suffer. Duverger
argues that the mechanical factor of election
rules small parties less represented. Voters choose to
vote strategically in order to avoid waste of vote. This
psychological factor makes parties ranked lower than
the third receive seats fewer than the proportion of
votes they win( 吳 文 程 ,2007:187; 曹 瑞 泰 譯 ,2000:
130;Duverger, 1966:224-226; 周 育 仁 ,2003:
201-205; 吳 重 禮 ,2008)This factor contributed to the
failure of the TSU and the PFP in the legislative elections.
2. Legislative Elections of 2008
The DPP called for the reduction of the Legislative
Yuan seats to 113 from 225 in 2001 legislator election
which made the DPP the biggest party in the parliament.
However, the DPP changed its position to 150 seats
after this election. Since the DPP dominated more than
90 seats in the new parliament, many DPP Legislators
may fail to be reelected if the seats were halved into
113.
For the DPP, it never argued coherently about the
seats of the Legislative Yuan. In the 1997 amendment,
the DPP argued for 250 seats at first. After consultation
with the KMT, which argued for 200 seats, the DPP
agreed to increase the seats from 164 to 225. However,
according to a study conducted by the government reform
committee of the Office of President, the 225-seat
Legislative Yuan has four shortcomings: a waste of
taxpayers’ money, a smaller basis of voter support, a
fewer people represented by the lawmaker (one for
98,000 voters, much lower than 635,000 in the United
States and 253,000 in Japan), and encouragement of
biased interpellations that lead to confusion in the legislature.
The committee then concluded that the legislature
should reduce its seats to 150. Two reasons support
a 150-seat Legislative Yuan: first, consideration of
the compatibility of standing committee operations to
public opinion and the reduction of the number of
standing committees from 12 to 10 with each legislator
sitting on two committees, and each of which comprises
30 members. 1 As a matter of fact, this argument
lacks any academic ground. There are no precedents in
other countries.
Finally, under the strong pressure from public opinion,
the KMT’s position for halving the seats to 113
seats was accepted in the 2005 constitutional amendment.
After the amendment, the DPP hoped to amend
the Constitution again to increase the number of seats
in the legislature. However, on the one hand, the DPP
could not muster a three-fourths majority vote to initiate
an amendment in the Legislative Yuan. On the other
hand, it is almost impossible for the DPP’s position to
be supported by at least 8.5 million eligible voters in
the constitution referendum.
The 2005 amendment assures a county or a city to
elect at least one legislator. Since the number of regional
legislators has decreased to 73, a regional legislator
is elected per 300,000 voters on an average. As a
result, there are ten cities and small counties can elect
only one legislator each. S ix of the ten – the city of
Chiayi and the counties of Taitung, Hualien, Penghu,
1
請 參 閱 政 府 改 造 委 員 會 第 五 次 會 議 資 料 , 民 國 九 十 一 年
五 月 五 日 , 頁 37-38。

26 Taiwan Development Perspectives 2009
Kinmen and Lienchiang – have a population of less
than 310,000 each, so each city and county is entitled to
one legislator only. For the other four – the counties
of Yilan and Hsinchu and the cities of Hsinchu and
Keelung – although each has more than 310,000 voters,
only one lawmaker can be elected from each city or
county. Unfortunately it will be very hard for the DPP
to win in these ten cities and counties which, most of
them, traditionally were dominated by the KMT. Furthermore,
the KMT also has an advantageous position
in the six seats reserved for indigenous peoples.
However, the total voter population of the indigenous
groups and the two counties on the offshore islands-
Kinmen and Lienchiang - is equal to that of the one
single county of Yilan, where only one legislator could
be elected. In other words, the KMT might win as many
as eight seats to represent the same voter population as
the one-lawmaker county of Yilan. The new election
system heavily favored the KMT in these areas.
In addition, the KMT enjoyed dominance in almost
42 of the remaining 63 single constituencies,
against only 21 by the DPP. According to Lin Tsuo-shui,
a former DPP legislator, the KMT controlled more than
70 percent of the townships and villages, where it was
favored to win. His estimate was about the same as
Professor Hu Fu. 2 Legislative elections based on the
single constituency system in Japan and the United
Kingdom proved that the largest party won more seats
than the votes it won. In 1996, for instance, the Liberal
Democratic Party (LDP) won only 38.6 percent of the
votes but 56.3 percent of the seats in the Diet. The Labor
Party won 43.2 percent of the votes but 63 percent
of seats in the Lower House of the United Kingdom in
1997. Candidates of smaller parties had almost no
chance to win under the single constituency system. As
for the party proportional representation, there are 34
seats, and only those parties that collect more than five
percent of the total votes cast are entitled to seat. Under
the strict confrontation between pan-blue and pan-green,
it will be very hard for the small party to win in this
proportional representation.
As a result, the Kuomintang won 57 single constituencies
for a total of 81 seats, including four reserved
for indigenous peoples, or 53.478 percent of the
votes for 78.08 percent of the seats for regional legislators.
The DPP won only 13 single constituencies for a
total of 27 seats. Although it won 38.654 percent of the
votes, it won only 16.44 percent of the seats. The
Non-Partisan Solidarity Alliance (NPSA) won two seats.
An independent won in one single constituency, while
the NPSA and the PFP each won a seat reserved for
indigenous peoples. As a matter of fact, they won because
the KMT did not field candidates (For the results
of the elections see Table 1.).
The two major parties did well in the election of
lawmakers at large. The proportional representation
system did not favor small parties. In Japan, small parties
did not get any return for the wasted votes they
collected in single constituencies( 王 業 立 :2002).
Furthermore, the constitutional amendment of 2005
mandates no seats according to proportional representation
for a party that fails to collect at least five percent
of the votes cast in legislative elections. None of the
small parties crossed that threshold to send a lawmaker
at large to the legislature.
According to other countries’ experiences, the incumbents
were favored to win in single constituencies.
It is not easy for a challenger to replace the incumbent.
As a result, there would be few new faces in the Legislative
Yuan in the future. It is believed that the party
that won the 2008 legislative elections will have better
chance to win in 2012 election. Moreover, the result of
the legislator election will further affect the following
presidential election which will be held two months
latter.
2
請 參 閱 鄭 孝 莉 ,「 修 憲 過 關 , 小 黨 恐 得 關 門 」,
http://www.new7.com.tw/weekly/old/948/948-018. html

An Analysis of 2008 Legislative and Presidential Elections in Taiwan 27
Party
Constituency
Votes
(%)
Table 1 Result of Legislative Elections in 2008
Seats
won
(%)
Seats for
indigenous
peoples
Members
at large
Votes won
for Members
at
large (%)
Distribution
Seat
total
Total
seats
(%)
KMT 57 53.478% 78.08 4 20 51.23% 58.12% 81 71.68%
%
DPP 13 38.654% 16.44 0 14 36.91% 41.88% 27 23.89%
%
NP 0 N/A 0% 0 0 3.95% 0% 0 0
TSU 0 0.9634% 0% 0 0 3.53% 0% 0 0
NPS
U
2 2.2514% 4.10
%
1 0 0.7% 0% 3 2.65%
PFP 0 0.0212% 0% 1 0 N/A 0% 1 0.884%
Ind. 1 3.9682% 1.3% 0 0 0 0 1 0.884%
Resource: 行 政 院 中 央 選 舉 委 員 會 網 站 〈 第 七 屆 立 委 資 料 庫 〉 網 站 http://www.cec.gov.tw/?Menu_id=814
Calculated by the authors.
3. Impacts on Taiwan’s Political Development
The KMT won a landslide victory in the legislative
elections. The DPP was disastrously defeated.
There are only one predominantly large party and a
middle-sized one in the new parliament. The small parties
and an independent won where the KMT did not
field candidates. Table 1 show that the KMT won 53.4
percent of the single constituencies but 78.1 percent of
the seats or 57 out of the 73 seats at stake. The DPP
won 38.7 percent of the votes but only 16.4 percent of
the seats or 12 out of the 73 seats at stake. The single
constituency system benefited the largest party.
Studies show that the KMT won by fielding candidates
its local factions favored. In particular, local
factions were asked to field only one candidate in one
single constituency. As the KMT has strong local factions
in practically all the counties and cities in Taiwan
north of the Tropics of Cancer, plus the two offshore
island counties and as many in eastern Taiwan( 丁 仁
方 ,1999; 謝 敏 捷 ,2005). The DPP could only won
27 constituencies in Taipei County, Chiayi County,
Tainan County, Tainan City, Kaohsiung County, and
Kaohsiung City. No DPP candidates won in the other
18 counties and cities. To win in single constituencies,
candidates had to take the middle of the road. Radical
candidates stood no chance. The majority of voters like
moderate candidates. Many DPP candidates were too
radically pro-independence to win enough voter support.
All but one candidate without party affiliation won
as a regional legislator. This shows that it’s not easy for
independent candidate to win in the single district. For
example, in the fourth constituency in Changhua County,
there were four candidates: Chen Zhaorong (PFP,
incumbent legislator), Xie Zhangjie (PFP, a former legislator),
Jiang Zhaoyi (DPP, incumbent legislator), and
Xiao Jingtian (KMT nominee, new face). The first two
ran as independents. Xiao won 41 percent of the votes
to be elected. Jiang collected only 37 percent as the
runner-up. The two independents shared the remaining
22 percent of the votes. In the second constituency in
Taichung City, the KMT nominated Lu Xiuian and the
DPP fielded Xie Minuan, while Shen Zhihui ran as an

28 Taiwan Development Perspectives 2009
independent. All of them were incumbent legislators.
However, in a neck-and-neck rivalry between Lu and
Xie, Shen had no any chance. It shows that nominees of
a large party had a better chance to win. That also
means that parties will have better control over their
lawmakers.
After the legislative elections of 2008, there remain
only one predominantly large party and a middle-sized
one represented in the Legislative Yuan. The
KMT’s majority in parliament is conducive to Ma
Ying-jeou’s election as president on March 22.
III. Presidential Election of 2008
The single constituency system favors large parties
to win legislative elections. The party that wins the legislative
elections is likely to win the following presidential
election( 鄭 夙 芬 、 陳 陸 輝 、 劉 嘉 薇 ,2005:
32). The election fiasco on January 12 put Frank Hsieh,
the DPP presidential candidate, in a very difficult situation.
How could he deal with a parliament where the
KMT controls a great majority, if he won? If he did, he
admitted, he would “passively” exercise his presidential
power. That meant he would have to appoint a KMT
premier. If he had to make such an appointment, voters
would wonder why they should vote him in. Hsieh expected
a “pendulum effect” after the DPP failure in the
legislative elections. But the “bandwagon” effect was
observed. Voters chose Ma Ying-jeou of the KMT for a
majority government. Ma won 58 percent of the votes.
It attested to what is known as a “two-turnover test” of
Samuel P. Huntington. (Huntington, 1991:266~267)
President Chen Shui-bian presided over a minority
government for eight years. However, the KMT as the
majority party in the parliament, it did not challenge the
minority government probably because it was afraid the
president might dissolve the legislature and a snap election
would be costly. Under the minority government
structure, the executive branch of the government seriously
clashed with its legislative branch. The minority
government then resorted to populism to force the Legislative
Yuan to concede or issued executive orders to
rule. Moreover, resolutions adopted by the Legislative
Yuan were often ignored by the executive branch.
As the KMT controls more than 70 percent of the
seats in the Legislative Yuan in the new parliament,
President Ma appointed a KMT administration. It is a
majority government. Although the Constitution mandates
a “dual-leadership” system of government, this
system tilts in favor of the president after the majority
government was formed. It looks more like a presidential
system of government, because the president could
dominate the executive and legislative branches
through the party mechanisms. At the beginning of his
term, President Ma faithfully “obeyed the Constitution”
by letting his premier take charge of administration.
Moreover, he preferred to “be the president of all the
people” rather than of his party alone. He refused to be
the chairman of the ruling KMT. As a result, the KMT
caucus in the Legislative Yuan lacked channels for participation
in the decision-making of the government.
One result is conflict between the legislature and the
administration. The KMT lawmakers vetoed the vice
president and three members of the Control Yuan nominated
by President Ma. Relations between President
Ma and the KMT legislative caucus have improved
later, however. Moreover, a series of serious problems
arising from the worldwide financial crisis also forced
Ma to face the challenges as the chief executive rather
than to remain a figurehead president.
Practices after the constitutional amendment in
1997 have shown that constitutional conflict occurs
only if the president and the majority of the Legislative
Yuan belong to different parties and the president insists
on forming a minority government. If the president
and the majority of the Legislative Yuan belong to the
same party, the government is workable. In other words,
the Constitution does not need to be amended unless
the president does not respect the power of the majority
of the Legislative Yuan to form a government.

An Analysis of 2008 Legislative and Presidential Elections in Taiwan 29
IV. Timing of Legislative and Presidential
Elections
Timing of legislative and presidential elections
may also affect the outcome of government system( 陳
宏 銘 、 蔡 榮 祥 ,2008:122; 沈 有 忠 ,2005:41). After
the constitutional amendment in 2005, the president and
the legislators have a four-year term. Legislative elections
precede the presidential election by two to three
months, unless the Legislative Yuan is dissolved in advance.
This institutional design makes the results of
legislative elections influence the following presidential
race.
Generally, voters follow the same pattern in legislative
and presidential elections. If they support party A
in parliamentary elections held in advance, they are
likely to vote for the party A presidential candidate to
secure a majority government. Many studies show that
if a presidential election and legislative elections are
held at the same time or the former only slightly later
than the latter, the possibility is high that the party
whose presidential candidate wins will also control the
legislature.( 林 佳 龍 ,2000:196; 陳 宏 銘 、 蔡 榮 祥 ,
2008:120; 沈 有 忠 ,2005:51-52; 林 繼 文 ,2006:
9). A three-month time lag may produce a coattail
effect or result in a “honeymoon election.” ( 林 繼 文 ,
2006:242-261). Shugart and Carey distinguish the
“honeymoon election” (parliamentary elections held
within one year after the presidential inauguration) and
“counter-honeymoon election” (parliamentary elections
held within one year before the presidential inauguration).
The single constituency system benefits large
parties regardless of whether the presidential election is
held with or without legislative elections. It reduces
the number of effective parties as well(Shugart and
Carey, 1992;Shugart, 1995: 327-343;Lijphart, 1994:
144-146)
“Voting stable” means voters support candidates
from the same party in two consecutive elections and
“voting changeable” means voters support candidates
from different parties in two consecutive elections( 黃
紀 、 王 鼎 銘 、 郭 銘 峰 ,2005:859). To hold legislative
elections before a presidential election within three
months ensures a “voting stable.” The DPP lost the
presidential election due to the “voting stable,” because
it was held only 70 days after the legislative elections.
American experiences tell us a “honeymoon” lasts more
than 70 days. So the coattail effect triumphs over the
pendulum effect〈 楊 泰 順 , 聯 合 報 ,2008/1/13,A18〉.
The results of the legislative and presidential elections
of 2008 confirmed the theories advanced in the
aforesaid studies. The party that won the legislative
elections went on to win the presidential race. The
pendulum effect or a “golden cross” the DPP had expected
did not occur. The KMT had 58 percent of voter
support rate against the 42 percent of the DPP in the
legislative and presidential elections( 聯 合 報 社 論 ,
2008 年 3 月 23 日 ). Although the change in the term of
lawmakers and the halving of the seats were just part of
parliamentary reform, the timing of the legislative and
presidential elections may perpetuate a majority government.(
周 育 仁 ,2006a:116).
Frank Hsieh admitted in the run-up to the presidential
election he could not appoint a DPP premier, if
he won. By the admission he accepted the high probability
that the outcome of the legislative elections
would directly impact the presidential election. Once a
party lost legislative elections, it was likely to lose the
following presidential race as well. In other words, the
likelihood of a majority government to emerge is much
higher than a minority one in Taiwan under the new
parliamentary system.
V. Conclusion
The legislative and presidential elections of 2008
marked a milestone in Taiwan’s constitutional development.
Taiwan passed Huntington’s “two-turnover
test” for democratic consolidation. On the other hand,
the time for a minority government is over. The brief
time lag between legislative and presidential elections
helps form a majority government, while the single
constituency system of election made the KMT garner
more parliamentary seats than the votes it collected

30 Taiwan Development Perspectives 2009
warranted. Small parties almost disappeared.
Modifications in the constitutional system indeed
matter. Although the duel-leadership system of the fifth
Republic in France was followed in amending Taiwan’s
Constitution in 1997, the president was not given the
power to initiate a dissolve of the Legislative Yuan.
As a result, the president elected in 2000 could not call
a snap election in an attempt to make his party control a
majority in parliament. The 1997 amendment acknowledges
the reluctance of a popularly elected president
to remain a figurehead head of state by empowering
him to appoint the head of government without
confirmation by the Legislative Yuan. As a consequence,
the president is able to form a minority government.
Furthermore, after the term of legislators was
made four years, their elections have to be held two to
three months before a presidential race, unless the parliament
is dissolved in advance. A “bandwagon” effect
increases the possibility that the party controlling the
parliamentary majority wins a presidential election as
well. Last but not least, as two thirds of the lawmakers
have to be elected from single constituencies, the incumbents
are greatly favored to be reelected. It will be
more difficult for new faces to win legislative elections,
while the majority party in the legislature is likely to
continue its dominance.
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32 Taiwan Development Perspectives 2009

What’s Wrong with Taiwan’s Economy? Impact of Globalization 33
What’s Wrong with Taiwan’s Economy?
Impact of Globalization
CHUANG, Yih-chyi
Abstract
Taiwan’s economic slowdown since 2000 can be attributed mainly to its sluggish domestic
demand with low domestic consumption and investment. It was the growth of foreign
trade, especially trade with China, that supported the growth of Taiwan’s economy.
As the world was hit a global financial crisis, Taiwan is heading for an economic disaster.
A severe drop in orders from abroad for ICT related products after the third quarter of 2008
signifies the suppression of export trade as the engine of economic growth for Taiwan. The
best thing Taiwan can do in 2009 to cope with sluggish domestic and foreign demand is to
stimulate domestic demand by enforcing expansionary fiscal and monetary policies to stop
the economy from further recession. However, the Taiwan economy needs further structural
transformation, particularly modernization of the service sector, to increase aggregate productivity
and create more opportunities. Taiwan also needs to map out a forward-looking
strategy to further develop international trade. Harmonious relations between the two sides
of the Taiwan Strait are conducive to Taiwan’s participation in Asian economic integration
as a regional resource coordinator.
Keywords: Global financial crisis, sluggish domestic demand, outward FDI, deindustrialization,
Asian economic integration.

34 Taiwan Development Perspectives 2009
I. Introduction
Taiwan’s economy grew remarkably fast in the last
four decades of the twentieth century. The mean annual
growth rate was 8.47 percent between 1960 and 2000.
Unemployment averaged 2.28 percent, while inflation
was kept around 4.52 percent a year. The rapid growth
of the economy was reflected on the improvement of
the living standard of the people. Per capita income
increased from US$ 144 in 1960 to US$ 13,090 in
2000.
The economy slowed down after 2000. Unemployment
rose. Gross domestic product grew 4.07 percent
on average from 2000 to 2007, while unemployment
rate climbed up to 4.26 percent. In fact, the
economy shrank by 2.17 percent in 2001, the only negative
growth ever since 1960 and the unemployment
rate hit 5.17 percent in 2002. What is wrong with Taiwan’s
economy and what causes such a slowdown since
2000? Moreover, as the world was hit a global financial
crisis of 2008, a small open economy like Taiwan is
heading for a severe recession. Will Taiwan escape
from the current crisis as it did from the Asian financial
crisis in 1997? As Asia is moving toward economic
integration, will Taiwan be marginalized? What are the
relevant government policies that may be applied to
help restructure the economy to cope with new challenges?
This paper intends to analyze the causes of Taiwan’s
economic slowdown since 2000 and addresses
the current situation as well as the consequences of the
global financial crisis. Are exposure under rapid globalization
and outward foreign direct investment in
China the causes of Taiwan’s economic slump? What
can government do to prevent the economy from further
deterioration and successfully help regain Taiwan’s
past growth momentum and sustain its growth in the
future? This is the most important issue confronting
Taiwan today and requires a coherent investigation.
II. Forces of Taiwan’s Economic Development:
Past and Present
Taiwan’s fast economic growth in the past can be
attributed to rapid factor mobilization and accumulation
under an outward-oriented open-trade environment,
which enabled Taiwan to industrialize the economic
structure according to its comparative advantage. A
high saving rate sustained a high investment rate, augmenting
capital accumulation. Trade-induced learning
by doing with a better quality of human resources fostered
domestic technological upgrading and industrial
transformation. 1
In the 1960s, Taiwan’s economy grew fastest, by
9.17 percent per annum. (See Table 1.) Figure 1 depicts
the pattern of rapid industrial structure change in which
manufacturing industries rose from 18.63 percent in
1961 to 35.83 percent in 1973 before the first oil crisis.
High domestic savings (20.18%) in the 1960s sustained
a high investment rate of 21.22 percent a year on average
without massive borrowing from abroad. An outward-oriented
open trade policy made it possible for
Taiwan to increase exports by 33.83 percent a year in
the 1960s. As a result, Taiwan started accumulating a
trade surplus in 1976. In the two decades that followed,
Taiwan maintained a constant industry share of about
1 Using Taiwanese industrial data, Chuang (1996) confirms
the existence of strong external economies
among industries, and shows that these external
economies can be largely attributed to economic-wide
trade-induced learning from opening
trade with advanced countries. Chuang (1999) finds
that human capital accounts for 46% of output
growth in aggregate manufacturing industry and
from 23 to 84% in two-digit industries for the period
1978-1994. Tallman and Wang (1994) find that human
capital alone contributed 45% of Taiwan’s economic
growth for the period 1965–1989. Moreover,
they find that the total contribution of raw labor,
physical capital and human capital can account for
90% of Taiwan’s economic growth.

What’s Wrong with Taiwan’s Economy? Impact of Globalization 35
34 percent in total production and the production share
of heavy industries in manufacturing reached 46.97
percent. The export share of industry rose to 53.89 percent
in the two decades ending 1986. Since 1986, the
leading sector of manufacturing has been electric and
electronic machinery industries.
labor across the Strait but also helped the upgrading of
Taiwan’s domestic industry, especially in ICT industries.
4 In 2007, Taiwan’s exports to China contributed
44.57 percent to the growth of Taiwan’s economy.
Taiwan’s cost of labor began rising fast in the
mid-1980s. The New Taiwan dollar appreciated thanks
to the huge trade surplus. Land access became difficult.
The Labor Standard Law went into force, while environment
protection was made a government policy priority.
All this forced Taiwan businesses to start outward
foreign direct investment first in Southeast Asia and
then in China. 2 From 1991 to 2007, the accumulated
approved outward FDI had reached US$117.09 billion
in 2007, of which 55.40 percent went to China. Of the
investments in China 31.52 percent were in the manufacturing
of computer and electronics parts, components
and products. Manufacturers converged heavily in
Jiangsu and Guangdong provinces (67.88%). Despite
government restrictions on Chinese trade, Taiwan’s
outward investments in China, direct or indirect, have
remained very active since 1996. The strategy of Taiwan
investors in China is mainly to utilize the international
division of labor across the Strait, which not only
increased the efficiency in resources allocation between
the two sides, but also induced and facilitated Taiwan’s
exports to China. 3 The exports increased from US$3.28
billion in 1990 to US$21.21 billion in 2007, with the
trade surplus rising from US$2.51 billion to US$18.29
billion. Since 2002, China has surpassed the United
States as Taiwan’s top export destination. The outward
FDI in China, not only realized the vertical division of
2 In 1987, the government lifted the Martial Law and
allowed people in Taiwan to visit their relatives in
China. Many Taiwan businesses started to investing
in China through third places, such as Hong Kong
and the Cayman Islands.
3 See, for example, Chuang and Lin (2007) for evidence
of the division of labor across the Strait.
4
For example, the export share of
high-technology-intensity products increased from
26.7% in 1990 to 53.9% in 2005. See also Chuang
and Lin (2007) for further evidence of the technology
upgrading of manufacturing industries.

36 Taiwan Development Perspectives 2009
Table 1 Taiwan’s Annual Average Economic Performance Unit: %
1960s 1970s 1980s 1990s 2000-2007
Economic growth rate 9.17% 10.31% 8.18% 6.51% 4.07%
Unemployment rate 3.31% 1.65% 2.07% 2.04% 4.26%
Inflation rate 3.39% 9.53% 4.64% 2.88% 0.89%
Saving rate 20.18% 30.88% 33.12% 27.43% 26.79%
Investment rate 21.21% 29.37% 23.4% 23.97% 20.13%
Export growth rate 33.83 32.62 15.73% 6.70% 9.66%
Source: Directerate-General of Budget, Accounting, and Statistics, Executive Yuan, R.O.C.
Suffice it to say that the slowdown in Taiwan’s
economy since 2000 is not due to its foreign investment
and trade, especially with China, but to stagnant domestic
consumption and private investment, which lowered
domestic final demand and suppressed domestic
capital stock formation, further decreasing the economic
growth momentum. Figure 2 shows that after
2001 the share of exports to GDP increased while that
of domestic consumption to GDP declined. Furthermore,
Figure 3 shows that except 2004 the growth rate
of domestic consumption and investment remained
stagnant, averaging below 2 percent, while that of exports
stayed at about 10 percent. Taiwan’s FDI in China
contributed to the growth of its exports because of the
vertical division of labor across the Strait. Taiwan has
registered a surplus in trade with China every year since
it began. The surplus topped US$18.29 billion in 2007.
Table 2 shows the contribution of various final
expenditures to economic growth. It is clear from Table
2 that the major factor contributing to economic growth
is exports. Without foreign trade, the growth rate would

What’s Wrong with Taiwan’s Economy? Impact of Globalization 37
be a mere 2 percent. Sluggish domestic consumption
and private investment are factors that contributed to
the slowdown of Taiwan’s economy since 2000. How to
stimulate domestic consumption and encourage private
investment becomes the government’s first priority
economic recovery plan.

38 Taiwan Development Perspectives 2009
Year
Table 2. Contribution to Economic Growth (%)
Economic Private Government Private Changes Goods Goods
Growth rate = + + + in + services - services
(%) Consumption Consumption Investment inventory Export Import
2002 4.64 1.62 0.29 0.21 0.39 5.35 3.21
2003 3.50 0.90 0.08 0.32 0.40 5.52 3.73
2004 6.15 2.66 -0.07 3.57 0.91 8.17 9.10
2005 4.16 1.76 0.14 0.24 -0.61 4.66 2.03
2006 4.80 1.02 -0.05 0.18 0.19 6.48 3.02
2007 5.70 1.31 0.11 0.37 0.12 5.86 2.05
2008 f 0.12 -0.16 0.13 -2.01 -0.01 -0.12 -2.29
Source: National Income, DGBAS, Executive Yuan, R.O.C.
Note: Figures in 2008 are predicted values.
III. Reasons for the Slowdown in 2008 and
Difficulties Encountered
Taiwan’s domestic consumption and investment
remained sluggish in 2008. As shown in Figure 3 the
predicted growth rate of consumption and investment in
2008 were -0.29 percent and -10.78 percent, respectively.
Moreover, a financial crisis that started in the
wake of the sub-prime mortgage market crash in the
United States engulfed the world in the third quarter of
2008, touching off a global recession and decelerating
international trade. An IMF forecast set the growth rate
of the world economy in 2008 at 3.7 percent, significantly
lower than the 5.0 percent in the year before.
Moreover, as the deleveraging of the global financial
system has persisted longer than expected, the estimated
growth rate of the global economy in 2009
would fall to 2.2 percent. 5
Despite the global financial crisis, Taiwan’s financial
market remained relatively stable compared to other
economies. For domestic banks, the BOI (Bank of
International Settlement) ratio was 10.59 percent, the
liquid reserves ratio 20.58 percent, and the ratio of
overdue loans 1.53 percent at the end of September
2008. Their current account surplus then totaled
US$17.6 billion, with their cumulative foreign exchange
reserves hitting US$281.1 billion, which was
sufficient to support 12.91 months of imports and was
three times larger than their short-term foreign debt.
Foreign debt as a ratio of GDP and total exports were
26.78 percent and 39.45 percent, respectively, implying
that Taiwan had no problem of paying it back. In 2008,
as government adopted an expansionary fiscal policy
by increasing public spending to stimulate domestic
demand, the budget deficit increased to NT$244.1 billion,
or about 1.93 percent of GDP. However, the ac-
5 The actual situation is getting worse on the performance
of world economy than what people expected.
On January 28, the IMF cut its forecast for global
growth to 0.5 percent in 2009 from an earlier prediction
of 2.2 percent. It also forecast a 2.0 percent slide
in economic output from the world's most advanced
economies as a whole, an equally large downgrading
of forecasts it had made in November 2008. Global
Economic Prospects 2009 predicts that world GDP
growth will slide from 2.5 percent in 2008 to 0.9 percent
in 2009. Developing country growth is expected
to decline from 7.9 percent in 2007 to 4.5 percent
in 2009, while growth in rich countries next year
will probably be negative.

What’s Wrong with Taiwan’s Economy? Impact of Globalization 39
cumulated unsolved debt balance at all levels of government
was NT$4.3 trillion in 2007, or about 34.07
percent of GDP. The figure for 2008 is expected to
grow larger. Thus, the debt ratio in Taiwan is considered
to be supportable. 6
As the global financial crisis led to a serious credit
crunch, weak world demand significantly decelerated
the growth of global exports. Economists at the World
Bank predict that world trade will contract by 2.1 percent
in 2009, the first time since 1982 that world trade
will shrink. As a result, a small open economy like
Taiwan started to experience a fall in export orders,
especially in those for ICT products which are sensitive
to the global business cycles. Table 3 shows significant
drops in export orders. They dropped by 28.51 percent
in November 2008. The major destinations of exports
are the United States (23.5%), Europe (22.9%), China
(19.9%), and Japan (13.1%). Major items of export
were information and telecommunication products and
electronic products, the orders for which decreased by
11.52 percent and 27.69 percent, respectively. Apparently,
the drop in the primary export products with the
major trading partners signifies a slowdown in Taiwan’s
total exports.
tion of 2.12 percent in last November. A report from
UBS Investment Research forecasted that Taiwan was
likely to experience a 6.1 percent drop in GDP growth
this year. The Economist Intelligence Unit predicted a
negative growth of -6.5 percent. But one thing is certain.
Weak domestic final demand, coupled with the sluggish
world economy, makes the Taiwan economy stagnant or
even worse than in 2008.
Taiwan’s exports started to decline in August 2008.
(See Figure 4.) As export orders are a leading indicator,
their continuous and significant decline since the last
quarter of 2008 indicates that Taiwan’s exports are
likely to remain at a low level in 2009, as long as the
world recession persists. Forecasts for Taiwan’s economic
growth in 2009 vary widely. On February 18, as
the economy contracted a record 8.36 percent in the
fourth quarter last year from a year earlier the government
revised its estimation a contraction of 2.97 percent,
a remarkable alteration from its previous estima-
6 According to Maastrict Treaty and The Stability of
Growth Packs, the required ratios for foreign debt to
GDP and unsolved debt balance to GDP in European
Union need to be lower than 3% and 60%, respectively.

40 Taiwan Development Perspectives 2009
Table 3. Statistics of Export Order
November, 2008
Changes relative to last year
Amount Share(%) Amount Share(%)
Total 22,799 100.0 -9,093 -28.51
By region
U.S. 5,355 23.5 -2,218 -29.29
Europe 5,211 22.9 -953 -15.46
China (incl. H.K.) 4,547 19.9 -3,778 -45.38
Japan 3,104 13.6 -60 -1.9
ASEAN6 1,798 7.9 ---
By products
Information and communication products 6,406 28.1 -834 -11.52
Electronic products 5,300 23.2 -2,030 -27.69
Basic metal products 1,627 7.1 -1,119 -40.75
Precision instruments 1,401 6.1 -1,465 -51.12
plastic and rubber products 1,189 5.2 -502 -29.69
Eletric products 992 4.4 -654 -39.73
Chemical products 977 4.3 -631 -39.24
Machinery 815 3.6 -556 -40.55
Souce: Ministry of Economic Affair, R.O.C.

What’s Wrong with Taiwan’s Economy? Impact of Globalization 41
What will be the impact of globalization on Taiwan’s
economy? In economics, globalization engages
in various aspects of cross-border transactions, free
international capital flows, foreign direct investment,
portfolio investment, and rapid and widespread diffusion
of technology. Proponents of globalization argue
that it enhances economic prosperity and leads to more
efficient allocation of resources, which, in turn, will
result in higher output, more employment, a lower price
level and a higher standard of living. Critics worry
about the resulting outsourcing and offshoring production
may de-industrialize the economy, hollow out domestic
industry, and cause unemployment to rise.
China started rising as an economic power in the
1990s, while Asia’s regional economic integration got
under way towards the end of the last century. China
and the Association of Southeast Asian Nations
(ASEAN) have been the two largest destinations of
Taiwan’s outward foreign direct investment. In contrast,
the United States, Taiwan’s top customer until 2000,
saw that status being eroded. The restrictions the government
placed on Chinese trade in 1996 have slowed
down the division of labor across the Strait and opportunities
were lost for Taiwan to become a regional operation
center in East Asia. There lacked direct
cross-Strait links of flight and maritime shipping service.
If they were in place, the savings in cost would
total NT$ 52.5 billion per year.
Figure 6 shows the trend of labor productivity for
the manufacturing and service sectors since 2001. The
former is more productive than the latter. Moreover, the
ICT industry, which has made the largest foreign direct
investment in China, actually has the highest growth in
labor productivity. Chuang and Lin (2007) find that
Taiwan’s outward FDI in China has de-industrialized
but not hollowed out Taiwan’s economy. The slowdown
in Taiwan’s labor productivity can be attributed to the
lower productivity in the service sector, but not to the
outward FDI. Figure 7 shows the trend of total factor
productivity for the service sector. In general, the
growth of total factor productivity is relatively slow
except for real estate, rental and leasing, and trade services.
Four service industries – trade; real estate, rental
and leasing; accommodation and eating-drinking places;
and cultural, sporting, and recreational services – register
an upward trend, while the other four – professional,
scientific and technical services; transport, storage and
communication; finance and insurance; and health
care – stay stagnant or go downward.

42 Taiwan Development Perspectives 2009
130.00
130.00
Figure 7. Indices of total factor productivity of service secto
Figure 7. Indices of total factor productivity of service sector
Trade
120.00
120.00
110.00
100.00
110.00
Real estate & rental & leasing
Professional,scientific &
technicalservices
Accommodation &
Eating-drinkingPlaces
Transport, storage &
communication
Finance & insurance
Health care services
90.00
2001 2002 2003 2004 2005 2006
100 00

What’s Wrong with Taiwan’s Economy? Impact of Globalization 43
Table 4 presents the output growth of domestic
industries. After 2001, the economic growth was actually
sustained by manufacturing industries. However,
starting from the third quarter of 2008, manufacturing
industries failed to grow, with the rate of growth dropping
significantly from 10 percent to only 0.03 percent.
Most service industries registered a negative growth.
Those which did not were health and social welfare
services, education service, and professional, science
and technology services.
The slow growth in production was also reflected
on the reduction of employment and a surge in unemployment.
Table 5 shows changes in employment by
various industries. In September and October of 2008,
most industries experienced an across-the-broad reduction
in employment. Notable exceptions are professional,
science and technology services and health and
social work services, which have a positive change of 5
to 6 percent.
Low employment generated high unemployment.
After July of 2008, unemployment surpassed 4 percent
and kept going up until it hit 5.03 percent in December
with an average duration of joblessness lasting 26.19
weeks. The broadly-defined unemployment rate, which
includes those who want to work but do not try to find a
job, climbed to 6.46 percent. The aggregate unemployment
rate in 2008 was 4.14 percent, up by a 0.23
percentage point over 2007. Joblessness hit older
workers hardest. Those jobless workers aged between
45 and 64 numbered 88,000 out of the total of 450,000,
an increase of 18.23 percent (13,000) over the previous
year. Another hard hit group of workers is those with
university education or higher. Unemployment rose to
4.78 percent among university graduates and those with
advanced degrees. Table 6 shows unemployment by
educational attainment and age.

44 Taiwan Development Perspectives 2009
Table 4. Growth rate of domestic industries (%)
Economic
Education
(Quarter) & & & &
Service
1998 4.55 -6.32 2.62 -5.88 3.15 7.22 -1.79 5.75 6.68 6.67 10.52 3.42 4.23 8.73 8.19 8.91 2.89
1999 5.75 2.73 5.38 -7.85 7.36 4.09 -5.07 5.99 7.03 5.42 18.06 5.57 2.01 9.76 9.20 5.92 3.09
2000 5.77 1.21 5.77 -6.52 7.33 6.50 -4.56 5.89 6.76 7.53 11.50 2.58 4.63 10.66 7.00 4.28 3.56
2001 -2.17 -1.95 -7.51 -10.24 -7.44 -0.35 -12.58 0.08 -3.26 -0.88 2.29 0.49 -0.35 2.70 5.49 3.43 2.47
2002 4.64 4.74 7.29 1.46 8.90 1.40 -1.62 3.59 3.60 -0.27 5.49 5.86 0.02 1.47 2.41 5.17 2.15
2003 3.50 -0.06 4.00 -19.14 5.34 2.72 -4.75 3.39 2.69 -0.07 3.95 5.12 4.19 1.40 3.11 1.86 3.24
2004 6.15 -4.09 8.94 -2.80 9.74 3.91 6.06 5.28 7.59 6.04 7.48 4.73 3.64 7.81 2.70 3.13 1.35
2005 4.16 -8.07 6.34 -4.54 6.96 5.71 1.20 3.53 6.85 6.65 4.18 1.51 2.57 2.35 2.48 2.46 1.01
2006 4.80 6.08 6.76 -10.79 7.20 3.03 6.68 3.92 6.21 6.03 3.74 1.22 5.71 9.85 2.87 3.05 0.70
2007 5.70 -1.90 9.31 7.92 10.36 1.88 3.15 4.26 5.37 2.61 2.16 8.19 4.64 11.30 2.53 3.55 -0.61
2008 - - - - - - - - - - - - - - - - -
Q1 6.25 -4.61 11.19 11.82 12.24 5.24 3.36 4.35 6.90 2.42 3.24 4.12 4.26 8.27 2.28 2.93 -0.01
Q2 4.56 -5.78 8.26 -9.41 9.29 3.76 1.44 3.15 6.35 -0.69 2.11 -0.66 4.45 8.32 2.49 2.76 0.35
Q3 -1.02 1.80 -0.44 -16.64 0.03 -4.95 -1.27 -1.36 -1.83 -6.57 -1.03 -7.98 0.94 1.96 2.00 2.73 1.01

What’s Wrong with Taiwan’s Economy? Impact of Globalization 45
Table 5. Changes in the employment of industries
Unit
2008
2004 2005 2006 2007
Sept. Oct.
Agriculture, Forestry, Fishing & Animal Husbandry -6.70 -8.33 -5.38 -7.38 -1.71 -2.98
Manufacturing 3.18 0.40 1.14 1.40 0.27 -0.39
Food Manufacturing -0.01 0.68 1.30 1.96 -0.82 0.41
Tobacco Manufacturing 0.20 -0.14 -1.77 -1.04 5.36 5.07
Textiles Mills -1.15 -5.53 -4.32 -3.56 -4.92 -4.99
Wearing Apparel & Clothing Accessories Manufacturing -4.65 -7.63 -5.46 -2.44 -1.46 -0.72
Leather, Fur & Related Products Manufacturing -0.54 -4.94 -3.89 -2.35 -9.55 -7.64
Wood & Bamboo Products Manufacturing 1.09 -0.27 -8.33 -2.74 -3.46 -3.83
Furniture Manufacturing -4.22 -5.08 -1.86 -5.42 -7.36 -7.05
Pulp, Paper & Paper Products Manufacturing 2.48 1.05 3.00 1.19 -3.74 -4.27
Printing Products Manufacturing 0.10 -0.41 4.27 2.16 2.68 1.97
Chemical Matter Manufacturing 1.21 -0.32 1.53 0.67 0.14 0.88
Chemical Products Manufacturing 2.38 0.52 0.48 1.26 2.40 2.21
Petroleum & Coal Products Manufacturing 2.62 2.01 -0.98 -1.04 -2.19 -1.94
Rubber Products Manufacturing 3.15 -1.47 -0.43 1.73 0.52 -0.09
Plastic Products Manufacturing 3.37 -1.19 -0.59 0.58 -2.17 -2.57
Non-Metallic Mineral Products Manufacturing 0.22 0.44 1.24 1.28 -3.01 -4.47
Basic Metal Manufacturing 1.78 2.01 2.57 2.19 2.12 2.08
Fabricated Metal Products Manufacturing 4.52 -0.10 0.69 3.25 1.87 1.10
Machinery & Equipments Manufacturing 5.81 4.70 3.12 4.71 0.82 -0.19
Computers, Electronic & Optical Products Manufacturing 1.17 -1.72 1.51 1.23 -2.11 -3.95
Electronic parts & Components Manufacturing 11.89 4.72 6.00 3.44 4.33 2.92
Electrical Equipment Manufacturing 0.27 -0.54 -0.95 -1.18 3.62 3.30
Transport Equipment Manufacturing 3.84 2.06 -1.33 -0.84 -0.49 -0.81
Precision, Optical, health equipment, and watch manufacturing 1.08 -1.79 -0.61 -0.18 -2.32 -4.73
Other Manufacturing 1.82 -1.19 -0.55 0.36 0.89 -0.17
Electricity & Gas Supply -2.42 -1.51 -0.15 1.19 1.52 2.00
Construction 0.06 2.80 1.74 1.92 1.70 -0.13
Wholesale & Retail Trade 2.32 2.93 1.85 0.15 0.02 -0.56
Accommodation & food services 7.09 3.75 3.93 2.38 4.18 4.34
Transport, Storage & Communication 0.41 -0.63 -0.22 0.09 -0.43 -0.93
Finance & Insurance 3.33 2.96 -0.34 1.19 -0.33 -0.68
Real estate & leasing 5.98 6.04 5.91 5.64 1.78 2.10
Professional, Scientific & Technical Services 8.08 6.61 4.64 4.08 6.20 5.86
Human Health & Social Work Services 4.18 3.26 3.27 3.73 5.36 5.68
Arts, Entertainment & Recreation -0.70 -0.97 -0.08 -0.05 -2.02 -2.35
Other Services 7.13 4.22 6.06 9.52 6.77 5.80
Source: Earnings and Productivity Statistics, DGBAS, Executive Yuan, R.O.C.

46 Taiwan Development Perspectives 2009
Year & month Total
Junior high &
below
Senior high &
vocational
Junior college & above
15-24 years 25-44 years 45-64 years 65 years +
graduate schoo
Change in percent from last month
Change in percent from the same
month of last year
Chg. betw. cum.ave of last month
and that of same month last year
Source: Monthly Bulletin of Manpower Statistics, DGBAS, Executive Yuan, Taiwan, R.O.C.
NoteComparison referred here is about the percentage of change.

What’s Wrong with Taiwan’s Economy? Impact of Globalization 47
Apparently, weak domestic demand and sluggish
foreign trade in 2008 caused the slowdown in aggregate
productivity, lower growth of production, and higher
unemployment.
IV. Discussions and Policy Recommendations
Taiwan’s economy needs a further structural
transformation to cope with the low economic growth
and high unemployment. In particular, modernization of
the service sector should be given top priority, for it
may increase labor productivity and create more job
opportunities to reduce unemployment. The government
has taken measures to stimulate the economy. An
expansionary monetary policy is being enforced. Consumers’
vouchers are issued. Preferential tax treatment
is given businesses firms that promise not to lay off
workers. Estate tax is reduced. But all these measures
aimed to meet the stringent economic climate in the
short run. Their effect tends to be temporary. A forward-looking
strategy with a global perspective is
needed to cope with the challenges arising from the
current financial crisis that is engulfing the world. That
strategy has to be framed to address structural transformation
of the economy and the problems arising
from economic globalization.
1. Structural Transformation
The Taiwan economy has to undergo structural
transformation to stimulate and maintain domestic
consumption and investment. Change should take
place in fields.
a. Construction of infrastructure:
Airports, harbors, and other public works, including
bridges and highways, other transportation facilities,
such as bridges, have to be rebuilt or renovated. Furthermore,
special economic operation zones should be
set up, with considerations taken for their geographical
location and industrial clustering, to upgrade domestic
industries planning to manufacture high value-added
products. Plants in the zones have to prove they are
able to realize an international division of labor in production,
while those whose production process is environment-friendly
and/or ecologically oriented should be
given preference to operate. Traditional labor-intensive
industries or those plants manufacturing low value-added
products should be excluded. Multinational
corporations are welcome to establish their headquarters
or locate their regional operation centers in the
zones. Moreover, investment in infrastructure should
not be confined to physical capital only, from long-term
perspective investment should contain software infrastructure
such as human capital, social capital, cultural
capital, and institutional capital to facilitate the development
of creative economy in Taiwan.
b. Transformation of the service sector:
The service sector yields 70 percent of Taiwan’s
GDP, but employs only 58 percent of its workforce.
Moreover, the labor productivity of the service sector
grows far less than that of the manufacturing sector. It
is crucial to modernize the service sector, which includes
financial and insurance services, producer services,
education and culture services, tourist and recreation
services, and health services. Furthermore, those
service industries should aim at expansion to the international
market. For example, local culture and geographical
features should be emphasized in recreation
and sightseeing to attract international tourists and
higher education internationalized to enlarge and enrich
knowledge and technology spillover. Most importantly,
the growth of the modernized service sector not only
contributes to higher value-added production but also
creates abundant new job opportunities to make up for
the loss due to outsourcing and offshoring production,
helping ease the pressure of high unemployment since
2000.
c. High-skilled and talented workers from abroad:
The upgrading of technology and industrial structure
requires an infusion of high quality human resources.
Education and on-the-job training are important
means to cultivate domestic skilled labor. That is a

48 Taiwan Development Perspectives 2009
time-consuming process, however. Consideration
should be given to possibilities of importing skilled
labor from abroad. In a knowledge-base economy, mobility
of high skilled labor is a critical index for a country’s
competitiveness; i.e., to turn a brain drain into a
brain inflow.
d. Deregulation and re-regulation:
One of the important government roles is to institute
rules of the game so as to reduce transaction costs,
enhance efficient resource allocation, and make the
market function and prevent market failure. Any regulations
that prevent or hinder the market from functioning
well should be abolished. For instance, the
destination and amount of foreign direct investment
should not be regulated and there should be no restrictions
on labor mobility. Re-regulation may guard
against market failure or malfunction. It may be applied
to improve information exposure and transparency,
food safety and quarantine inspection as well as raise
product standards and ensure professional accreditation.
Taiwan should seriously consider its participation
in Asian regional integration and cooperation as well as
its membership in international organizations to preclude
its being economically marginalized. 7 However,
since China plays an important dual role as an assembling
factory for Asian products as well as a huge potential
market for its neighboring economies, Taiwan
should improve and consolidate the cross-Strait to ensure
its long-term interests.
Taiwan’s cumulative foreign direct investment in
China has topped US$47.5 billion. Trade with China
totaled US$635 billon in 2007. The market-driven division
of labor across the Strait seems inevitable as it
7 Using computable general equilibrium (CGE) model,
Chow (2008) finds a significant negative effect on
Taiwan’s GDP if Taiwan is excluded from the recent
surge of RTAs and regional cooperation initiatives like
ASEAN plus 3. See also Chen and Ku (2007) for similar
results.
benefits the production competitiveness of both sides in
the international market.
As Taiwan has a geographical advantage of proximity
to China and is located in the center of East Asia,
the direct links of transportation and communication
across the Strait will greatly help promote trade and
investment by reducing direct or indirect transaction
costs. The direct links will also help realize a better
division of labor across the Strait and the globalization
of Taiwan businesses, which is conducive to the upgrading
of Taiwan’s industrial structure and participation
in Asian economic cooperation.
2. Economic Cooperation across the Taiwan
Strait
Official statistics show that from 1991 to last October,
Taiwan had invested a total of US$73.8 billion in
China, with cumulative trade reaching as much as
US$752.4 billion. However, not one single official investment
guarantee or trade agreement has been signed
between Taiwan and China. This makes Taiwanese
trade with China risky as it lacks any safeguards. It also
goes against the spirit of the WTO and is potentially
damaging to the Taiwanese economy. Both Taiwan and
China are intent on trade normalization across the Strait.
The three direct links of flights, maritime shipping and
postal service were set in place December 15, 2008.
The most urgent task facing Taiwan now is to further
institutionalize cross-Strait trade relations. The following
steps should be taken to achieve closer economic
cooperation between the two sides of the Strait.
a. Conclusion of a trade normalization arrangement:
Any institutional arrangements for cross-Strait
trade normalization should be made under the framework
of the World Trade Organization as both Taiwan
and China are its members. Cross-Strait economic cooperation
should accord with the trend of Asian economic
integration. As a result, the trade normalization
will enable Taiwan to join in the process of Asian eco-

What’s Wrong with Taiwan’s Economy? Impact of Globalization 49
nomic integration, such as formation of an “ASEAN
plus 4,” which is in its long-term interest. Taiwan can
play the role of a resources coordinator and manager for
East Asia. No emphasis should be placed any preferential
exclusive treatments based on bilateral agreement,
which tends to convey short-term gains at the expense
of long-term interests. Taiwan has to sign a Comprehensive
Economic Cooperation Agreement (CECA)
with China. But since the CECA is so close in form to
the Closer Economic Partnership Arrangement (CEPA)
Hong Kong signed with the People’s Republic, it may
be suspected as China’s unification ploy to
Hong-Kong-nize Taiwan. The name can be changed to
Trade Normalization Arrangement (TNA). The TNA
may be easily accepted. Its conclusion is conducive to
comprehensive economic cooperation between the two
sides of the Strait.
The name of the agreement is not important as
long as its content is in line with the spirit and content
of the free trade agreements under the WTO framework.
The ruling and opposition parties should stop wasting
their energy squabbling over what the agreement
should be called and start focusing on openly discussing
the framework and details of a cross-strait trade
agreement that would benefit and promote Taiwanese
welfare.
Economic zone-to-zone cooperation:
Taiwan should reorganize its special economic
zones. For instance, the zone in north Taiwan should be
one for information technology industries. Another in
central Taiwan should be a precision equipment manufacturing
center, while capital-intensive industries
should cluster in still another in Southern Taiwan. The
reorganization should be followed up with comprehensive
zone-to-zone cooperation and exchange of goods,
services, capital, and labor among these zones. Such
cooperation should be extended to China. Taiwan’s
special economic zones should cooperate with the special
economic zones in the Pearl River and Yangtze
River deltas and the Bohai Bay area. Advantages of
zone-to-zone economic cooperation include easier
monitoring and management which tend to reduce the
fear of scarifying national security on the one hand and
to produce better results on the other.
Compensation to those groups suffered from further
trade opening:
Institution-led negotiations carried out under the
WTO framework could incorporate exclusion clauses to
provide controls and restraints where necessary. This
would help protect weaker industries such as agriculture
and select service industries, as well as reduce the
damage to such industries after an economic opening.
Before any discussion with other nations is conducted,
a consensus on critical issues should first be formed in
Taiwan. Issues such as which local markets would be
opened up and how those who may suffer as a result of
the market opening would be compensated should be
clearly defined before any action is taken. This would
help erase public doubt and ease worries about the
opening.
Dispute settlement mechanism:
Cross-Strait product standard identification will
reinforce international competitiveness of goods developed
and produced in Taiwan and China. Collective
research collaboration or strategic alliances, intellectual
property right protection, financial monitoring and a
monetary dissolving mechanism are important issues to
provide a stable environment for investment and trade
and reduce the impacts of an external financial crisis.
Monitoring committees:
Cross-Strait monitoring committees should be established.
The committees should consist of government
officials, industrial experts, and scholars to effectively
supervise and examine various economic cooperative
activities.
Long-term multilateral arrangements:
Institutional arrangements should be developed
across the Strait first and these short-term bilateral arrangements
have to be extended gradually to the greater

50 Taiwan Development Perspectives 2009
China economic sphere and eventually to the East
Asian community. The ultimate goal is the establishment
of long-term multilateral arrangements. Institutionalization
of cross-Strait economic relations can be
the stepping stone for the realization of Taiwan’s pivotal
role as the resources manager and coordinator for
East Asia. Hopefully, an agreement can be signed to set
up a Chinese common market for the benefit of both
Taiwan and the People’s Republic. Note that the institutionalization
of trade does not equate to the institutionalization
of politics. Economies are influenced by markets,
while politics is shaped by democratic process.
The EU is a clear example of this. Taiwan is an independent
and sovereign democratic nation where the
people have the final say.
The normalization and institutionalization of trade
between Taiwan and China would be helpful to Taiwan’s
internationalization and would also help stop
Taiwan from being marginalized. The US and ASEAN
have already made their stance clear by saying they
wanted Taiwan to sign a trade agreement with China
first before they would consider signing free trade
agreements with Taiwan. We should bear this in mind
because other nations may harbor the same expectations
toward Taiwan. If Taiwan were marginalized while
other countries enjoy preferential treatment such as zero
tariffs as a result of the agreements they ratified with
other nations, Taiwanese manufacturers would lose
their international competitiveness and would have to
either close down or move all of their business operations
to China. The result of this would be a Taiwan
even more reliant on China economically and a government
with even more China-leaning policies.
Taiwan’s participation in international organizations:
The People’s Republic should promise not to oppose
Taiwan’s participation in international organizations.
The promise is proof of China’s goodwill toward
Taiwan. It helps build Taiwan’s trust in the People’s
Republic. It also helps remove Taiwan’s doubt that
China would ruin Taiwan politically as well as economically.
In fact, closer economic cooperation will
ensure a win-win situation across the Strait by bringing
economic prosperity and decreasing political tension
and conflict, which will further contribute to the regional
stability in East Asia and convince the world of a
peacefully rising China.
V. Conclusion
Taiwan’s economy has slowed down since 2000.
The slowdown can be attributed mainly to its sluggish
domestic demand with low domestic consumption and
investment. It was the growth of foreign trade that
supported the growth of the Taiwan economy. However,
a global financial crisis hit Taiwan in the third quarter
of 2008. A small open economy like Taiwan is heading
for a once-in-a-century financial disaster.
Taiwan’s top money-earning items of export are
ICT products, which are sensitive to global demand
fluctuations and bear huge inventory costs. The sharp
drop in the export orders for these products after the
third quarter of 2008 signifies the suppression of export
trade as the engine of economic growth for Taiwan.
The performance of Taiwan’s economy in 2009
may be depressing but challenges may bring opportunities.
Taiwan can stimulate domestic demand by enforcing
expansionary fiscal and monetary policies to
cope with sluggish domestic and foreign demand in the
short run. That may halt the economy from falling into
recession. In the long run, however, the economy has to
undergo a further structural transformation, modernization
of the service sector in particular, to increase aggregate
productivity and create more job opportunities.
International trade sustains Taiwan’s economic
growth. Taiwan therefore needs a forward-looking
economic strategy with a global perspective. The strategy
must be one that helps prevent Taiwan from being
marginalized as Asia is being economically integrated.
Taiwan should actively participate in the process of
Asian regional cooperation and integration. It also
needs to join international organizations. Maintaining

What’s Wrong with Taiwan’s Economy? Impact of Globalization 51
harmonious relations across the Taiwan Strait is of
greatest importance. Such relations will help Taiwan
businesses reallocate resources across the Strait. Taiwan’s
participation in Asian economic integration as a
regional resource coordinator may also be made easier.
Three direct links of transportation and communication
across the Strait were set in place on December
15, 2008. Taiwan now has to consider concluding a
trade normalization arrangement first and then a comprehensive
economic cooperation agreement with China.
Finally and hopefully, Taiwan may sign an arrangement
with China for a Chinese common market.
More importantly, it is also in the interest of the People’s
Republic to convince the world that a peacefully
rising China contributes to Asia’s regional stability and
the consolidation of an Asian economic community.
References
Chen, Tain-Jy and Ying-Hua Ku, 2007, “Taiwan and
East Asian Integration,” in Peter Chow (ed) Economic
Integration, Democratization and National Security in
East Asia: Shifting Paradigm in US, China and Taiwan
Relations, Cheltenham.UK : Edward Elgar, 172-190.
Chow, Peter C.Y., 2008, “On East Asian Economic Integration:
Will Taiwan Be Marginalized?”, City University
of New York, Manuscript.
Chuang, Yih-chyi, 1999, “The Role of Human Capital
in Economic Development: Evidence from Taiwan, ”
Asian Economic Journal, 13, 117-144.
Chuang, Yih-chyi, 1996 “Identifying the Sources of
Growth in Taiwan's Manufacturing Industry,” Journal
of Development Studies, 32, 445-463.
Chuang, Yih-chyi and Chu-Chia Lin, (2007), “Evolution
of Industrial Structure and Policy for Future Development,”
Taiwan Development Perspectives 2007,
National Policy Foundation, Taipei, Taiwan, 49-67.
Tallman, Ellis W. and Ping Wang, 1994, “Human capital
and endogenous growth: evidence from Taiwan, ”
Journal of Monetary Economics, 34, 101–124.

52 Taiwan Development Perspectives 2009

Corporate Governance in Taiwan’s Financial Institutions 53
Corporate Governance in Taiwan’s Financial Institutions
LEE, Lawrence L.
Abstract
Taiwan is facing the threat of systemic risk in financial markets. Universal standards
have to be established for corporate governance of financial institutions. This article addresses
some important issues and concepts in the governance of multinational financial institutions.
Structural approaches to corporate governance differ from country to country. An important
task for Taiwan’s financial supervisors and regulators is to ensure that incentives
exist to encourage senior bank management to adopt good regulatory practices that approximate
the economic risk exposure of the financial institution. An analysis of corporate
governance within the framework of international financial markets is attempted to find out
how the standards of the OECD Principles can be applied in a way that can effectively reduce
systemic risk to Taiwan’s financial institutions..

54 Taiwan Development Perspectives 2009
I. Introduction
A spate of financial scandals occurred, threatening
Taiwan’s economic development. The stability of the
financial system is likely to protect bank depositors and
investors in financial products. 1
The scandals resulted, by and large, from loose
control over banking. The First Financial Holding
Company was involved in insider trading. The board
chairman of the Chung Shin Commercial Bank was
charged with embezzlement. The Bank of Overseas
Chinese could not cope with a mountain of
non-performing loans. The Kuo Hwa Life Insurance
went under because of its president Da-min Won’s
breach of trust. The public is losing confidence in Taiwan’s
financial system. Taiwan needs financial reform.
The Financial Supervisory Commission (FSC) is considering
reforming the banking industry. 2
The Organization of Economic Cooperation and
Development (OECD) has established principles of
corporate governance which can be used to ensure the
stability of the financial system.3 Corporate govern-
1 See La Porta, Rafael, Florencio Lopez-de-Silanes,
Andrei Shleifer, and Robert Vishny, "Investor Protection
and Corporate Valuation," Journal of Finance.
Vol. LVII, No.3. June 200 .
2 Under the Organic Act Governing the Establishment
of the Financial Supervisory Commission Executive
Yuan, the Financial Supervisory Commission, a single
financial supervisory authority to consolidate the
oversight of banking, securities, and insurance, was
officially established on July 1, 2004 to meet the
needs of Taiwan's financial holding companies operating
in cross-sector businesses. See Richard Abrams
and Michael Taylor, Issues in the Unification of Financial
Sector Supervision, in RK Abrams, M Taylor,
eds - Building Strong Banks: Through Surveillance
and Resolution 146-179 (2002).
3 The threat of systemic risk in international financial
markets necessitates the establishment of universal
ance refers to the structures and processes for the direction
and control of companies. Corporate governance
smoothes the relationships among the management,
board of directors, controlling shareholders, minority
shareholders and other stakeholders in a company.
Good corporate governance contributes to sustainable
economic development by enhancing the performance
of companies and increasing their access to outside
financial markets.
The OECD Principles of Corporate Governance
identify the key practical issues: the rights and equitable
treatment of shareholders and other financial stakeholders,
the role of non-financial stakeholders, disclosure
and transparency, and the responsibilities of the
board of directors. The OECD Principles have gained
acceptance throughout much of the world as an appropriate
framework for analyzing the corporate governance
environments of different markets and as a starting
point for developing approaches to evaluate the effectiveness
of governance of individual companies. The
challenge for Taiwan is to take the OECD Principles as
a model to set a pattern for best corporate governance
for the benefit of the wide spectrum of client companies.
Taiwan is facing the threat of systemic risk in financial
markets. Universal standards for corporate governance
of financial institutions have to be established
to cope with that threat. This article addresses some
important issues and concepts in the governance of
multinational financial institutions.
An important task for Taiwan’s financial supervisors
and regulators is to ensure that incentives exist to
encourage senior bank management to adopt good regulatory
practices that approximate the economic risk
exposure of the financial institution. An analysis of
corporate governance within framework of international
financial markets is attempted to find out how the stanstandards
for corporate governance of financial institutions.

Corporate Governance in Taiwan’s Financial Institutions 55
dards of the OECD Principles can be applied in a way
that can effectively reduce systemic risk to Taiwan’s
financial institutions.
II. Soundness of Financial System and
Economic Development
A well-developed financial sector could play a
major role in promoting economic development characterized
by sustainable economic growth. A financial
institution is not only an intermediate but also a credit
allocation to the public, which needs capital for private
needs or corporate transactions. In addition, the relationship
between economic development and financial
institutions is interdependence. 4
In order to maintain a stable financial system, financial
institutions are therefore among the most
closely scrutinized businesses in the world. For example,
the U.S. Sarbanes- Oxley Law passed in July 2002
was based for the most part on existing financial supervision
regulations. However, the transformation of financial
services has increased financial instability and
presented challenges to financial authorities to maintain
financial stability.
III. Goal of Financial Supervision
Financial stability at the top of the agendas is not
just of financial supervisory authority but of public-policy
makers generally. 5 Structures for financial
regulation and supervision differ considerably from
country to country. Nevertheless, the goal of financial
supervision is to enhance the stability, reliability, transparency
and efficiency of the financial sector, to reduce
4 See La Porta, Rafael, Florencio Lopez-de-Silanes,
Andrei Shleifer, and Robert Vishny, "Investor Protection
and Corporate Valuation," Journal of Finance.
Vol. LVII, No.3. June 2007.
5 See Andrew Crockett, Why Is Financial Stability a
Goal of Public Policy? In Jack Robin and Gleen L.
Stevens, Handbook of Monetary Policy 68-86 (2001)
systemic risk. In addition, financial supervision can
prevent the abuse of the financial sector for criminal
purposes, with a view toward protecting the interests of
clients and investors by safeguarding their financial
resources and supporting the stability of a national
monetary system.
In order to reach the goal of financial supervision,
a supervisory system should carry out two functions.
First, the supervision system should detect illegality
and unsound practices and provide early warning of
potential failure. Second, there is the need for the existence
of an array of enforcement techniques available to
enable financial regulators to rectify problems that have
been identified.
Financial stability requires vigilance in a number
of dimensions. Individual financial institutions have to
be managed on prudent lines, markets have to be open
and transparent, and the financial supervision framework
has to be robust. Specifically, the financial regulations
are responsible for amending prudential financial
supervisory regulations to promote a safe and sound
financial market.
The role of the regulatory environment in which
financial institutions and capital markets operate should
be viewed as regulators rather than participators. Most
Asian countries have common problems in which private
firms and financial institutions have a good relationship.
The close relationship was one of the factors,
which contributed to the Asian financial crisis in 1997.
The role of the financial supervisory regulator
should not focus on control and regulation, but mainly
on encouraging and promoting self-regulation of the
financial industry and on enabling the high standard of
corporate governance. The supervision should also be
subjected to the principle of differentiated regulation so
that financial institutions with sound financial and operational
status and good legal compliance will be able
to carry out their business in a more liberalized environment.
This is the way a more market-oriented and
risk-based supervisory system must be established.

56 Taiwan Development Perspectives 2009
Therefore, in order to create a safe and sound financial
system, financial regulators should keep away
from being a participator in financial markets. The financial
regulators should not become involved in financial
markets and avoid conflict of interest. Taiwan
has created an all-in-one financial services supervisor,
the Financial Supervision Commission under the Executive
Yuan, in July 2004.
Taiwan’s financial regulators should supervise financial
market rather than participate in the financial
market. Taiwan should promptly privatize state-owned
financial institutions, which make the government a
marketing participant and a supervisor at the same
time..
IV. Relationship between Financial Supervision
and Corporate Governance
In order to create a stable financial system, Taiwan
should follow the concept of corporate governance as
the standards of financial supervision.
Corporate governance is defined as “the system by
which companies are directed and controlled.” 6
In terms of fiduciary duties emphasized by the
OECD Principles of Corporate Governance, the duty of
care imposes an ongoing responsibility on directors to
monitor a financial institution’s compliance with the
law as well as its business performance. Specifically, a
corporate board of directors must implement and maintain
information and reporting systems reasonably designed
to provide timely and accurate information to
allow the directors to reach informed decisions.
With this in mind, the managing level in a financial
institution should follow the business judgments of
a majority of the directors. Accordingly, the business
judgments rule substantially reduces the risk that direc-
6 See Report of the Committee on the Financial Aspects
of Corporate Governance (the UK Cadbury
Code), London, 1992.
tors will be held liable for simple mistakes of judgment.
The essence of effective risk management in the financial
institution is identifying risks and then taking affirmative
action to keep those risks within manageable
limits.
Countries reaping the full benefits of global capital
markets and attracting long-term “patient” capital must
have corporate governance arrangement that is credible
and well understood across borders. For countries that
do not rely primarily on foreign sources of capital, adherence
to corporate governance will improve the confidence
of domestic investors and reduce the cost of
capital and ultimately induce a more stable source of
financing economic development.
Innovation, liberalization (deregulation), and globalization
in the financial service industry have contributed
to making the financial business more complex
and potentially riskier. The derivatives of financial services
have presented new challenges to financial supervisors
with respect to the structuring of their ongoing
supervision. In response, financial supervisors have
developed new methods and processes for monitoring
and assessing financial institutions on an ongoing basis.
Particular attention is being paid in this regard to
improving the quality of internal financial examinations
and the development of systems that can assist supervisors
and examiners in identifying changes, particularly
deterioration, in a financial institution’s financial
condition as early as possible.
In the future, formal risk assessment and early
warning systems will continue to be developed and
adopted by bank supervisors in developed and emerging
market economies for risk-based supervision and
will contribute significantly to strengthening the process
of ongoing financial supervision. Taiwan has ignored
the importance of risk assessment and early
warning systems to financial supervision, giving rise to
expensive financial scandals.
The benefits of enforcing corporate governance

Corporate Governance in Taiwan’s Financial Institutions 57
include:
1. Access to Capital Market
Policymakers and academics have focused their
attention on the role governance can play in improving
access to global portfolio equity. An increasing volume
of empirical evidence indicates that well-governed
companies receive higher market valuations. However,
improving corporate governance will also increase all
other capital flows to companies in Taiwan. Such flows
are from domestic and global capital and from public
securities markets as well as private capital sources.
2. Improved Performance
Equally important and irrespective of the need to
access capital is the benefit of good corporate governance
bringing better performance for IFC clients. Improved
governance structures and processes help insure
quality decision-making, encourage effective succession
planning for senior management and enhance the
long-term prosperity of companies, independent of the
type of company and its sources of finance.
3. Added Value
Corporate governance is a priority for Taiwan because
it presents opportunities for managing risks and
adding value to the financial market. In addition to the
benefits to individual client companies, working to improve
corporate governance contributes more broadly
to the promotion of sustainable private sector investment
in Taiwan.
4. Reduced Investment Risk
It is in Taiwan’s interest to reduce the risk of investments
by improving the governance of investee
companies. In the worst corporate governance environments,
poor standards and weak enforcement continue
to be a barrier to investment. Improving the corporate
governance of investee companies allows Taiwan
to work in higher risk environments. By doing so,
Taiwan can also bring an increase in the market valuation
of companies and attract more investors, thereby
augmenting the opportunities to exit its equity investments
on favorable terms. In recent years, Taiwan has
improved corporate governance. Establishing best practices
has a positive demonstration effect that benefits
other companies.
5. Reputational Risk Avoided
If Taiwan does not work to improve the corporate
governance of financial institutions, it takes on not only
investment risk, but also a reputational risk for involvement
with companies with poor governance or, in
the worst cases, corporate scandals.
V. Financial Scandals
Financial scandals have raised serious questions
about the way banking institutions are managed in Taiwan.
Its financial industry is lacking in transparency,
accountability and efficiency. The scandals have much
wider ramifications beyond Taiwan, for they occurred
at a time when investors worldwide were beginning to
take an interest in Taiwan stocks.
VI. Comprehensive Financial Supervision
Framework
The inefficiency in state-owned banks has been a
problem in addition to their high NPL (non-performing
loan) ratio. State-owned banks and private banking
institutions incurred between 5.94 and 6.39 percent of
the entire non-performing loans in June 2003. Moreover,
the high NPL ratio indicates the weakness in governance
of banking institutions.
Taiwan needs a comprehensive financial supervision
framework. In theory, it requires a good legal
structure, a less restrictive financial regulatory regime,
an efficient financial institution, a capital market, and a
low degree of government ownership in the financial
sector. The creation of a comprehensive financial supervisory
framework is part of a drive to mitigate the
financial crisis, which affects international financial
markets and economic development.
The framework will further promote corporate

58 Taiwan Development Perspectives 2009
governance in the financial industry and strengthen
supervision over personnel handling shareholder services.
The Financial Supervisory Commission (FSC)
has taken measures to make oversight more effective.
For instance, the FSC issued an amendment to the Regulations
Governing the Administration of Shareholder
Service of Public Companies in order to facilitate the
non-physical issuance of securities and to implement
supervision over personnel handling shareholder services
on February 14, 2007. To promote corporate governance
and encourage corporations to establish audit
committees and independent directors, the FSC
amended Article 2 of the Regulations Governing Director
and Supervisor Share Ownership Ratios at Public
Companies and the Auditing Thereof on October 16,
2007. But these amendments are not enough to pave the
way for a comprehensive financial supervision framework.
The following chart shows how Taiwan exercises
financial supervision.

Corporate Governance in Taiwan’s Financial Institutions 59

60 Taiwan Development Perspectives 2009
VII. Conclusion and Recommendations
Taiwan should enact a set of financial supervision
regulations based on the concept of corporate governance
and require financial institutions to strictly implement
corporate governance provided for in the
OECD Principles of Corporate Governance. Supervision
through the implementation of corporate governance
for financial services will enhance the legal
framework to stabilize the financial system. Whatever
may have caused financial instability; it is clear that
enforcement of corporate governance in the foreseeable
future will be stricter than it has been before.
In order to advance the lines of defense against financial
instability, Taiwan’s regulators should strengthen
the prudential orientation of the financial regulatory
and supervisory framework. Implementing corporate
governance in the financial sector will be one of
the mechanisms that will help management strengthen
safety and soundness of the financial system and protect
public interests.
In addition, the adoption of earlier risk assessment
and an early warning system will allow Taiwan’s financial
authorities to have more time to deal with a financial
failure at an earlier stage. A prudent financial supervision
regulatory framework will give Taiwan a safe
and sound financial market.
Better corporate governance will help raise capital
support for Taiwan’s sustainable economic growth.
When the entire legal infrastructure is in place, all that
is needed for financial supervision is to make financial
supervision work. Without legal enforcement, the financial
supervisory authorities are a toothless tiger.

Taiwan’s Important Education Indicators 61
Taiwan’s Important Education Indicators
LEE, Chien-sing, LU, Chen-wei
Abstract
Education has been greatly improved in the Republic of China on Taiwan over the past
60 years. Schools at all levels have been increased, making elementary education universal
and qualitatively enhancing secondary and higher education. Improvement has been
achieved in three stages, each lasting about a score of years. In the first stage, from 1950 to
1970, elementary education was made universal. The next stage saw secondary education
popularized from 1971 to 1990. Higher education was made popular between 1991 and
2008 in the third stage.
This study analyzes Taiwan’s development of education and compares it with the experiences
in the United States, the United Kingdom, Germany, France, Australia, the People’s
Republic of China, Japan, and South Korea.

62 Taiwan Development Perspectives 2009
Foreword
Education has been greatly improved in the Republic
of China on Taiwan over the past six decades.
Taiwan was restored to the Republic of China in 1945
after a half century of Japanese colonial rule. The five
years that followed were a period of transition from
Japanese to Chinese education. The development of
education since 1950 illustrates five significant trends.
1. Universality: After elementary education was made
universal, efforts have been made to popularize secondary
and higher education. Senior high schools
and universities have proliferated.
2. Liberalization: Education has been decentralized.
Colleges and universities enjoy campus autonomy.
Parental participation prevails. Schools have been liberalized.
3. Multiplicity: The joint entrance examination was
abolished as the sole criterion for high school and
college admission. A multiple screening system is in
place to admit students. They can take examinations.
Admission can be granted by recommendation. Talented
students may be admitted despite their low
academic performance.
4. Sophistication: Schools at all levels have been sophisticated.
They are richly funded. Sophisticated
teaching materials, apparatus and equipment are
available. The quality of the faculty has been greatly
enhanced.
5. Internationalization: International student and faculty
exchanges have been promoted.
As the economic globalization continues, Taiwan
should emphasize internationalization in education.
This study analyzes the development of education in
Taiwan and compares it with the experiences of the
United States, the United Kingdom, France, Germany,
Australia, Japan, South Korea and the People’s Republic
of China. Six educational indicators are compared.
They are: preschool education, elementary education,
secondary education, higher education, funding, and
student exchanges.
Taiwan’s Educational Development
The Japanese enforced their educational system in
Taiwan for 50 years until 1945. There were one university
and two junior colleges. Schools at lower levels
were not enough to enforce primary and secondary
education. Chinese education started after Taiwan was
restored to the Republic of China at the end of the Second
World War. There was a five-year period of transition.
Education has been popularized since 1950.
There were 1,504 schools on Taiwan in 1950.
The number rose to 8,202 in 2007. Teachers numbered
29,020 in 1950 and 175,501 in 2007, a tenfold increase.
The teacher-student ratio was one to 36.35 in 1950 and
one to 19.03 in 2007. In the meantime, students multiplied.
They totaled 1,054,927 in 1950, accounting for
13.964 percent of the population. The figures were
5,242,944 and 22.837 percent in 2007. In 2007, those
enrolled in primary and junior high schools accounted
for 51.64 percent of the student population. Senior high
and vocational high school students represented 14.38
percent and those receiving higher education made up
25.29 percent in the same year. The remaining 8.69
percent were students enrolled in supplementary and
special schools. (See Table 1.)

Taiwan’s Important Education Indicators 63
Table 1. Schools and Enrolments in 2007
Schools Aggregates Full-time teachers Enrolments
Grand Total 8,202 275,501 5,242,944
Kindergartens 3,283 17,403 191,773
Primary Schools 2,651 101,352 1,753,930
Junior High Schools 740 51,312 953,324
Senior High Schools 320 34,748 414,557
Vocational Schools 156 16,258 339,497
Junior Colleges 15 1,320 133,890
Universities and Senior Colleges 149 49,808 1,192,139
Undergraduates 987,914
Masters’ Courses 172,518
Ph. D. Courses 31,707
Cram schools and schools of special education 888 3,300 263,834
Source: Department of Statistics, Ministry of Education, 2008a, p.80.
Children go to school at the age of six. The number
of years of their school education represents the
level of knowledge of the citizens of a nation. The people
aged 6 and above in Taiwan had an average of 16.06
years of education in 2007–2008, slightly lower than in
Australia and Britain, higher than in the People’s Republic
of China, and on a par with the United States,
France, Germany, South Korea, and Japan.
Table 2. Average Years of Schooling for People Aged 16 and Above
Unit:Year
Countries Years Total Male. Female.
Republic of China 2002/2003 14.56 14.62 14.54
2003/2004 15.03 15.08 15.02
2004/2005 15.42 15.50 15.38
2005/2006 15.64 15.78 15.56
2006/2007 15.70 15.86 15.61
2007/2008 16.06 16.20 15.99
People’s Republic of China 2005 11 11 11
Japan 2005 15 15 15
South Korea 2006 16 17 15
United States 2005 16 15 17
United Kingdom 2005 17 16 17
France 2005 16 16 17
Germany 2001 16 16 16
Australia 2005 20 20 20
Source: Department of Statistics, Ministry of Education, 2008a, p.62.

64 Taiwan Development Perspectives 2009
The level of education of a nation can be indicated
by the ratio of people completing senior high school
education or above by age groups to its total population.
The ratio also indicates how popular its secondary and
higher education is. The ratio was 67.7 percent for
those aged 25-64 in Taiwan in 2007, lower than in Japan,
South Korea, the United States and Germany and
on a par with the United Kingdom, Australia and
France. That indicates Taiwan is a late developed country.
The ratio stood at 89.3 percent for the 25-34 age
group, at 76.8 percent for the 35-44 age group, at 54.3
percent for the 45-54 age group, and at 34 percent for
the 55-64 age group in Taiwan in 2007. The percentage
was higher for the first two age groups in Japan and
South Korea and for the last two in the United States
and Germany. (See Table 3.)
Table 3. Ratios of People with Secondary Education or Higher to Population in 2005
Unit:%
Age group
25-64 25-34 35-44 45-54 55-64
Countries
Taiwan /2005 64.2 87.0 71.3 49.7 29.8
Taiwan /2006 65.9 88.4 73.9 52.1 31.5
Taiwan /2007 67.7 89.3 76.8 54.3 34
Japan 84 94 94 82 65
South Korea 76 97 88 60 35
United States 88 87 88 89 86
United Kingdom 67 73 67 65 60
France 66 81 71 60 51
Germany 83 84 85 84 79
Australia 65 79 66 61 50
Source: Department of Statistics, Ministry of Education, 2008a, p.15.
Table 4 shows the ratios of people with higher
education to the total population in the nine countries.
Those completing junior college education in Taiwan
outnumber their counterparts in all other countries except
Japan. The ratio for those with university education
in Taiwan stood at 18.5 percent for the 25-64 age
group, higher than in Germany and France, but lower
than in Japan, South Korea, the United States, the
United Kingdom and Australia. The percentage was
higher for the 25-34 age group in Taiwan but lower for
all other groups, indicating the Republic of China
started promoting higher education late.

Taiwan’s Important Education Indicators 65
Table 4. Ratios of Higher Education Recipients to Total Population in 2005
Unit:%
Countries Junior College Senior College/University
Age groups 25-64 25-34 35-44 45-54 55-64 25-64 25-34 35-44 45-54 55-64
Taiwan /2005 15.1 22.6 16.2 10.5 5.7 15.6 26.3 14.2 10.3 8.7
Taiwan /2006 15.4 22.6 17.0 11.0 6.1 17.0 28.5 15.3 10.8 9.3
Taiwan /2007 15.5 21.7 17.9 11.3 6.9 18.5 31.7 16.6 11.4 10.0
Japan 18 25 21 15 8 22 28 25 23 13
South Korea 9 19 8 3 1 23 32 27 15 9
United States of America 9 9 10 10 8 30 30 30 30 28
United Kingdom 9 8 10 9 7 21 27 20 19 16
France 10 17 10 7 5 15 22 14 11 11
Germany 10 7 11 10 10 15 15 16 15 13
Australia 9 9 9 9 8 23 29 23 21 16
Source: Department of Statistics, Ministry of Education, 2008a, p.16.
Illiteracy is an important education indicator that
helps determine a civilization as well as modernization
of a nation. Table 5 shows the ratios of illiterates above
15 years of age in Taiwan, China, and South Korea.
Complete illiteracy statistics were lacking in the United
States, the United Kingdom, France, Germany, Australia
and other developed nations. However, illiteracy
must be lower in these countries.
Some 447,000 people in Taiwan were considered
illiterate in 2007, against 831,000 in South Korea and
70,000,583 in China. The ratio was 2.4 percent for
Taiwan, 2.2 percent for South Korea, and 6.7 percent
for China. Females outnumbered males.
Table 5.
Illiteracy in Taiwan, South Korea and China
Countries
Illiterates above 15 years of age (%)
Illiterates above 15 years of age (number)
Total M. F. Total M. F.
Taiwan /2005 2.7 0.7 4.7 494,000 66,000 428,000
Taiwan /2006 2.5 0.6 4.4 471,000 62,000 409,000
Taiwan /2007 2.4 0.6 4.2 447,000 57,000 390,000
China 6.7 3.5 10.0 70,583,000 19,105,000 51,478,000
South Korea 2.2 0.9 3.6 831,000 159,000 673,000
Source: Department of Statistics, Ministry of Education, 2008a, p.17.

66 Taiwan Development Perspectives 2009
Preschool Education
Preschool education lasts from one to two years.
Preschool education is not in Taiwan at present.
There were only 28 kindergartens on the island in
1950, with 17,111 in attendance. Nursery schools totaled
3,283 in 2007, with a combined enrollment of
191,733 children. Parents are eager to provide their
children below six years of age with preschool education.
The children attending kindergartens in 2007 were
10.2 times as many as in 1950.
Preschool education is most developed in France,
Germany, and Australia. Their gross enrollment for
children aged 5 or younger was 100 percent or above in
2006. The United States, the United Kingdom, Japan,
and South Korea followed, all well over 50 percent.
Taiwan and China lagged behind at 27.66 percent and
39 percent, respectively. A net enrollment rate is estimated
at 83 percent for Taiwan, the difference being
due to inconsistency in its preschool education system.
The Ministry of the Interior and the Ministry of Education
share the responsibility of preschool education,
under which kindergartens for children three to six
years old coexist with childcare centers for babies six
months old or younger. At least 80 percent of these institutions
are privately run. Tabulation is quite difficult
and only an estimate was made for the net enrollment.
(See Table 6.)
Country
Table 6.
Gross Enrollment Rates for Preschool Education
2006
Total M. F.
Unit:%
Taiwan
27.66
(83.0)
27.67
(83.0)
27.65
(83.0)
China 39 40 38
Japan 86 -- --
South Korea 96 94 97
United States of America 61 61 61
United Kingdom 72 71 73
France 116 116 115
Germany 105 106 105
Australia 104 106 103
Notes: 1. Children aged five are tabulated for the gross enrollment rate.
2. The figures within the parentheses are the estimated net enrollment rates.
3. Gross enrollment rate = number of children / population reaching school age for preschool education x100.
Source: Department of Statistics, Ministry of Education, 2008a, p.2.
Japan, the United Kingdom and Australia lead in
the net enrollment of preschoolers. The United States
and South Korea follow. Although Taiwan’s net enrollment
rate was as low as 27.5 percent in 2006, its estimated
enrollment of preschoolers at 82.7 percent. rivals
Japan’s 85 percent net enrollment. (See Table 7.) The

Taiwan’s Important Education Indicators 67
government is now planning to allow children aged 5 to
enter kindergartens free of charge, a practice that may
help boost the enrollment and enhance the quality of
preschool education.
Table 7.
Net Enrollment Rates for Preschool Education
Unit:%
Countries
2006
Total Male Female
Taiwan.
27.57
(82.7)
27.57
(82.7)
27.57
(82.7)
Japan 85 -- --
South Korea 51 50 51
United States of America 56 56 57
United Kingdom 67 67 68
Australia 63 63 62
Notes: 1. The net enrollment refers to the attendance of children aged 5 at registered kindergartens.
2. The figure within the parentheses indicates the estimated net enrollment rate.
3. Net enrollment rate = student number in preschool education / population reaching school age for preschool
education x 100
Source: Department of Statistics, Ministry of Education, 2008a, p.6.
Elementary Education
Elementary education in Taiwan lasts nine years. It
is compulsory. There were 1,231 primary schools with
a combined enrollment of 906,950 pupils in 1950. Pupils
are graduated in six years. Junior school education
was made compulsory in 1968. Junior high school students
take three years to graduate. Compulsory education
or elementary education requires children to study
nine years after 1968. Primary schools totaled 2,224
(with a combined enrollment of 2,383,204) in 1968.
There were 487 junior high schools with a combined
enrollment of 617,225 students in that year. Primary
schools totaled 2,651 (1,753,930 students) and junior
high schools 740 (953,324 students) in 2007. After
finishing the nine-year schooling, teenagers could either
go to work or enter senior high schools, senior vocational
schools, or junior colleges to continue their studies.
Elementary education is compulsory in all nine
countries surveyed. Gross enrollment rates topped 100
percent in all nine in 2006, except the United States (at
an average of 98%) and Taiwan where the rate for male
students stood at 98.2 percent and female students at
100.55 percent for an average of 99.54 percent. (See
Table 8.) There may have been some dropouts or students
who were unable to go to school in the United
States and Taiwan.

68 Taiwan Development Perspectives 2009
Table 8.
Gross Enrollment Rates for Elementary Education
Unit:%
Countries
2006
Total Male Female.
Taiwan 99.54 98.62 100.55
China 111 112 111
Japan 100 100 100
South Korea 105 107 102
United States of America 98 98 99
United Kingdom 105 105 106
France 110 110 109
Germany 103 103 103
Australia 105 105 105
Notes: Gross enrollment rate = number of students enrolled /number of children required to attend x 100
Source: Department of Statistics, Ministry of Education, 2008a, p.3.
Japan is the only country where the net enrollment
reached 100 percent. Japan is well known for paying
close attention to both primary school and junior
high school education by, for instance, providing
home-delivered educational service to those who are
physically challenged. Generally speaking, every one of
the nine countries surveyed regards primary education
as highly important, with the net enrollment approaching
100 percent. (See Table 9.)
Table 9.
Net Enrollment Rates for Elementary Education
Unit:%
Countries
2006
Total Male Female
Taiwan. 97.14 97.20 97.08
Japan 100 100 100
South Korea 98 -- --
United States of America 92 91 93
United Kingdom 98 98 99
France 99 98 99
Germany 98 98 98
Australia 96 96 97
Note: Net enrollment rate = number of school-age children /number of children required to attend x 100
Source: Department of Statistics, Ministry of Education, 2008a, p.7.

Taiwan’s Important Education Indicators 69
Secondary Education
Secondary education offers three years of schooling
to junior high school graduates. It is enforced in
senior high schools, vocational high schools, and comprehensive
senior high schools. Students are aged 16 to
18.
Senior high schools prepare junior high school
graduates for higher education. There were 62 senior
high schools with a combined enrollment of 18,866
students in Taiwan in 1950. The number of schools increased
to 320 and the student population reached
414,557 in 2007. Students were divided 55 percent to
45 percent between senior high and vocational high
schools. Of the schools 67.2 percent were senior high
schools and the 32 percent, vocational high schools.
(See Table 10.)
Table 10. Secondary Education and Student Population
Unit:%
School
Year
Ratio of
Sr. High to Vocational
Schools
Ratio of
Sr. High to Vocational School
Students
Ratio of
Sr. High to Vocational School
Students
(including Jr. Coll. Students in the First
Three Years)
Senior High Vocational Senior High Vocational Senior High Vocational
1976 52.3 47.7 38.0 62.0 34.0 66.0
1981 47.9 52.1 32.8 67.2 28.7 71.3
1986 46.2 53.8 31.4 68.6 27.4 72.6
1991 45.5 54.5 31.4 68.6 27.0 73.0
1996 51.5 48.5 34.0 66.0 29.6 70.4
2001 62.4 37.6 49.5 50.5 44.0 56.0
2004 65.8 34.2 55.7 44.3 51.7 48.3
2005 66.7 33.3 55.9 44.1 52.3 47.7
2006 67.1 32.9 55.5 44.5 52.1 47.9
2007 67.2 32.8 55.0 45.0 51.4 48.6
Source: Department of Statistics, Ministry of Education, 2008b, p.35.
Senior vocational schools are career-oriented,
preparing junior high school graduates for work.
There were 77 senior vocational schools with a combined
enrollment of 34,437 students in Taiwan in 1950.
The number of schools rose to 156 and the student
population reached 339,497 in 2007. A 43.48 percent
plurality of the vocational school student population
took business courses, followed by 41.22 percent enrolled
in polytechnic courses. Those studying home
economics and agriculture represented 9.83 percent and
2.83 percent, respectively, with the remaining 2.64 percent
made up by others enrolled in industrial art and
maritime service courses.

70 Taiwan Development Perspectives 2009
Table 11.
Countries
Gross Enrollment Rates for Secondary Education in Various Countries
Unit:%
2006
Total Male Female
Taiwan 99.15 98.66 99.68
China 76 75 76
Japan 101 101 101
South Korea 96 98 93
United States of America 94 94 94
United Kingdom 98 97 99
France 114 114 114
Germany 101 102 99
Australia 150 154 146
Note: Gross enrollment rates for secondary education = number of students in secondary education / number of children
required to take secondary education x 100
Source: Department of Statistics, Ministry of Education, 2008a, p.4.
Table 11 shows secondary education in Taiwan
prevailing, with the rate topping 98 percent. Taiwan
ranks with the United States, South Korea, and the
United Kingdom, while Japan, France, Germany, and
Australia are ahead with rates topping 100 percent.
China lags far behind at 76 percent.
Comprehensive senior high schools were established
in Taiwan in 1996. They offer a combined curriculum
to prepare junior high school graduates for
higher education and for work. Graduates from the
comprehensive senior high schools can choose to go to
work or to enter comprehensive universities, four-year
technology universities, or two-year junior colleges.
The number of comprehensive senior high schools
reached 151, with a combined enrollment of 110,215
students.
Table 12 shows Taiwan ranks among Japan, South
Korea, the United Kingdom, and France in the net enrollment
for secondary education and ahead of the
United States and Australia.
Table 12.
Net Enrollment Rates for Secondary Education
Unit:%
Country
2006
Total M. F.
Taiwan 94.93 94.46 95.44
Japan 99 99 99
South Korea 94 96 92
United States of America. 88 88 88

Taiwan’s Important Education Indicators 71
United Kingdom 92 90 94
France 99 98 100
Australia 87 87 88
Note: Net enrollment rate for secondary education = number of school-age children / number of children required to
attend x 100
Source: Department of Statistics, Ministry of Education, 2008a, p.8.
Higher Education
Higher education in Taiwan is offered by junior
colleges, senior colleges, academies, institutes,
four-year universities, and graduate schools. There were
only seven institutions of higher education in Taiwan in
1950. They included one university (where three graduate
programs were offered), three senior colleges, and
three junior colleges. The combined enrollment stood at
6,665. The number of schools increased to 164 (excluding
military and police academies as well as open
universities) in 2007. They included 100 universities,
49 senior colleges, and 15 junior colleges. The student
population totaled 1,326,029. Universities and senior
colleges ran 3,118 graduates schools, where
204,225.students were enrolled. The graduate schools
award master’s and Ph. D. degrees.
South Korea leads in gross enrollment for higher
education. Taiwan and the United States follow and are
followed by Australia, the United Kingdom, Japan and
France. China lags far behind. (See Table 13.)
Table 13.
Gross Enrollment Rates for Higher Education
Unit:%
Countries
2006
Total Male Female
Taiwan 83.58 81.37 85.94
China 22 22 21
Japan 57 61 54
South Korea 91 110 70
United States of America 82 68 96
United Kingdom 59 50 69
France 56 50 63
Australia 73 64 82
Note: Gross enrollment rate = number of students / school-age population x 100
Source: Department of Statistics, Ministry of Education, 2008a, p.5.
College freshman topped 206,000 in Taiwan,
714,000 in Japan, 612,000 in South Korea, 494,000 in
the United Kingdom, 382,000 in France, and 238,000 in
Germany in 2005. The enrollment rate was highest at
100.5 percent in South Korea. Australia followed at 82
percent, and was followed by Taiwan at 65.9 percent,
the United Kingdom at 62.6 percent, Japan at 52.3 percent
and France at 41 percent. Germany lagged behind
at 24.8 percent. (See Table 14.)

72 Taiwan Development Perspectives 2009
Table 14.
Entry Rates for Higher Education
Unit:Thousand
Countries
Number of first-year students
2005
Entry rates(%)
Taiwan 206 65.9
Japan 714 52.3
South Korea 612 100.5
United Kingdom 494 62.6
France 382 41.0
Germany 238 24.8
Australia -- 82.0
Note: Entry rate = Number of students enrolled / school-age population x 100
Source: Department of Statistics, Ministry of Education, 2008a, p.10.
Altogether 38 percent of college students in Taiwan
chose social sciences, business, and law as their
majors in 2005. Another 19.6 percent majored in arts
and humanities, followed by those studying medical
sciences who accounted for 18.7 percent. In China, a
35.1 percent plurality chose engineering. Another 27.8
percent majored in social sciences, business, and law.
Only 15.2 percent chose arts and humanities. At least
34.4 percent Japanese students opted for social sciences,
business, and law. Arts and humanities were the second
choice with students representing 18.5 percent and were
followed by engineering at 16.4 percent. British students,
like their Japanese counterparts, chose social
sciences, business, and law as their majors (26.1%),
with arts and humanities (20.6%) and sciences (19.3%)
closely behind. Social sciences, business, and law were
the most preferred majors in Germany (30.9%), followed
by arts, followed by humanities (21.6%), sciences
(17.4%) and engineering (16.4%). South Korean
students preferred sciences, engineering, and agriculture
(an average of 40.9%) to social sciences, business,
and law (26.7%). (See Table 15.)
Table 15.
Undergraduate Students by Fields of Study
Unit:%
Countries Year
Humanities Law &
Agri.,
Education
Sciences ing
nomics
Natural Engineer-
Home Eco-
& Social Science
Fishery
Fore. & Health
Arts
Unspecified
Taiwan. 2007 3.1 19.6 38.0 5.9 1.5 2.8 18.7 -- 10.5
China 2005 6.5 15.2 27.8 6.2 35.1 2.0 7.2 -- --
Japan 2007 7.5 18.5 34.4 3.1 16.4 2.7 8.4 3.8 5.2
United
Kingdom
2005 3.5 20.6 26.1 19.3 8.7 1.2 15.4 -- 5.2
France 2005 -- 36.6 23.5 16.5 6.8 -- 16.5
Germany 2005 3.6 21.6 30.9 17.4 16.4 2.0 6.1 0.5 1.5
South Korea 2006 4.8 10.1 26.7 40.9 5.4 -- 12.1
Source: Department of Statistics, Ministry of Education, 2008a, p.39.

Taiwan’s Important Education Indicators 73
About 34.9 percent of graduate students in Taiwan
(30.1% in Japan) studied toward advanced degrees in
engineering. Another 25.8 percent (18.1% in Japan)
majored in social sciences, business, and law. In the
United Kingdom, 32.7 percent of graduate students
chose engineering while another18.8 percent settled for
sciences. At least 23.8 percent of students in France did
graduate work in arts and humanities schools, with another
23.5 percent studying social sciences, business,
and law schools. For the Korean students, social sciences,
business, and law were their top choice (25.1%),
followed by natural sciences, engineering and agriculture
(23.2%).
Countries
Year
Education
Table 16. Graduate Students by Fields of Study
Humanities
&
Arts
Law &
Social Science
Natural Sciences
Engineering
Agri.,
Fore. &
Fishery
Health
Home Economics
Unit:%
Unspecified
Taiwan. 2007 9.8 11.9 25.8 7.8 34.9 2.3 5.6 -- 1.9
Japan 2007 5.3 9.8 18.1 7.5 30.2 5.1 13.9 0.5 9.5
United
Kingdom
2005 15.4 11.2 32.7 18.8 11.7 0.9 6.8 -- 2.5
France 2005 13.2 23.8 23.5 19.1 19.2 -- 1.2
South Korea 2006 22.6 12.7 25.1 23.2 8.8 -- 7.6
Source: Department of Statistics, Ministry of Education, 2008a, p.39.
In Taiwan, 30 percent of college graduates were
awarded bachelor’s degrees in social sciences, business,
and law. Those earning the baccalaureate degrees in
engineering-manufacturing-construction followed at 25
percent, while those awarded degrees in education, arts
and humanities accounted for 15.34 percent.. Among
the junior college graduates, a whopping 27.09 percent
majored in medical sciences.
Like Taiwan, Japan awarded bachelor’s degrees in
social sciences, business and law to a high 35 percent
plurality of college graduates, with another 22 percent
earning degrees in education, arts, and humanities. A 30
plurality obtained engineering and manufacturing degrees,
followed by recipients of degrees in education,
arts, and humanities as well as social sciences, business,
and law topping 25 percent. A larger plurality of American
college graduates (40-45%) earned baccalaureate
degrees in social sciences, business, and law, while 28.6
percent were awarded degrees in education, arts, and
humanities (university). In the United Kingdom, 34.7
percent won degrees in social sciences, business, and
law (university). The figures were 45-47 percent in
France, 31.3 percent in Germany, and 43 percent in
Australia. (See Table 17.)

74 Taiwan Development Perspectives 2009
Taiwan /2005
Countries
Table 17.
College Graduates by Fields of Study
Unit:%
Mathematics, Education, Social, Business,
Life
Engineering
Health
Statistics, & Humanities, & Law & Social
Sciences
Computing Arts Service
9.84 5.65 8.17 15.50 35.18 25.65 --
Unspecified
Universities
Junior Colleges 19.03 1.33 10.77 8.91 30.43 29.53 --
9.97 6.01 8.32 15.44 34.61 25.65 --
Universities
Taiwan /2006
Junior Colleges 23.40 1.42 11.12 9.14 28.54 26.37 --
10.50 6.38 8.19 15.34 34.13 25.45 --
Universities
Taiwan /2007
Junior Colleges 27.09 1.30 11.18 9.49 27.23 23.71 --
Japan
South Korea
United States
of America
United
Kingdom
France
Germany
Australia
Universities
6.5 7.9 X(2) 23.5 38.0 20.1 4.0
Junior Colleges 22.0 0.6 X(2) 20.7 33.5 15.8 7.4
Universities
8.4 7.6 5.0 25.9 26.1 27.1 N
Junior Colleges 12.4 1.1 3.7 26.4 24.6 31.9 N
Universities
9.3 6.1 4.3 28.6 45.3 6.3 N
Junior Colleges 31.3 2.2 9.0 3.4 40.8 13.2 n
Universities
12.0 8.7 7.3 27.3 34.7 8.7 1.3
Junior Colleges 39.3 8.9 6.7 20.3 18.4 5.2 1.2
Universities
8.1 9.8 6.1 18.9 45.1 11.9 n
Junior Colleges 21.4 0.6 5.5 3.8 47.9 20.8 n
Universities
13.1 9.8 7.6 22.3 31.3 15.9 n
Junior Colleges 49.5 2.9 0.5 7.8 20.7 17.2 1.3
Universities
13.2 6.1 8.3 22.0 43.0 7.2 n
Junior Colleges 14.6 4.1 9.0 10.9 49.4 11.7 0.3
Source: Department of Statistics, Ministry of Education, 2008a, p.40.
Table 18 shows how far higher education is extended
in nine countries. They are listed in descending
order according to the number of students in proportion
to the total population:
Total population: China (1.3 billion), the United
States (298 million).Japan (127 million), Germany (84
million), France (63 million), the United Kingdom (60
million), South Korea (40 million), and Taiwan and
Australia (over 20 million each).
Total student population: China (23 million); the
United States (17 million); Japan (4 million); South
Korea (3 million); the United Kingdom, France, and
Germany (over 2 million each); Taiwan (1.35 million);
and Australia (1 million).
Students in proportion to the total population:
South Korea ( 6.57%); Taiwan (5.96%); the United
States (5.86%), Australia (5.13%), the United Kingdom
(3.85%); France (3.48%). Japan: (3.20%), Germany
(2.71%), and China (1.78%).

Taiwan’s Important Education Indicators 75
Table 18. Students Enrolled for Higher Education in Proportion to Total Population
Countries
Number of
Students
2005 2006
Total Population
in Mid-Year
(Thousand)
Percentage
Number of Students
Total Population
in Mid-Year
(Thousand)
Unit: Person
Percentage
Taiwan 1,337,065 22,723 5.88 1,359,252 22,815 5.96
China 21,335,646 1,306,313 1.63 23,360,535 1,313,974 1.78
Japan 4,038,302 127,417 3.17 4,084,861 127,515 3.20
South Korea 3,224,875 48,640 6.63 3,210,184 48,847 6.57
United States of
America
17,272,044 295,734 5.84 17,487,475 298,444 5.86
United Kingdom 2,287,541 60,441 3.78 2,336,111 60,609 3.85
France 2,187,383 60,656 3.61 2,201,201 63,329 3.48
Germany … 82,431 … 2,289,465 84,422 2.71
Australia 1,024,589 20,090 5.10 1,040,153 20,264 5.13
Source: Department of Statistics, Ministry of Education, 2008a, p.46.
Budgets for Education
Since 2000 Taiwan has been allocating each year
no less than an average of 21.5 percent of its total government
revenue aggregated in the preceding three
years. The current government has promised to increase
the budget for education to 6 percent of GDP in eight
years, or a yearly addition of 0.2 percent. But the
promised budget is still insufficient.
For three years ending 2007, Taiwan’s budget for
education as a percentage of GDP, was lower than that
of seven of the eight countries compared. It was higher
than Japan’s in 2003 and 2004. (See Table 19.)

76 Taiwan Development Perspectives 2009
Table 19. Budgets for Education in Proportion to GDP
Unit:%
Countries
Budgets for
elementary and
secondary education
2004 2003
Budgets for
higher
education
Budgets for all
levels of education
Budgets for
elementary and
secondary education
Budgets for
higher
education
Budgets for all
levels of education
Taiwan. 2.68 0.78 4.37 2.75 0.78 4.45
2005 2.62 0.79 4.30
2006 2.57 0.83 4.21
2007 4.05
Japan 2.7 0.7 3.6 2.7 0.6 3.7
South Korea 3.6 0.6 4.6 3.5 0.6 4.6
United States
of America.
United Kingdom
3.7 1.3 5.3 3.9 1.5 5.7
3.9 1.0 5.3 4.0 1.1 5.4
France 3.9 1.2 5.8 4.0 1.2 5.9
Germany 3.0 1.2 4.6 3.1 1.2 4.7
Australia 3.6 1.1 4.8 3.6 1.1 4.8
Source: Department of Statistics, Ministry of Education, 2008a, p.52.
International Student Exchanges
Taiwan sends high school and college graduates
abroad for further studies. Foreign students are encouraged
to study in Taiwan. There were altogether 5,259
international students enrolled in Taiwan in 2007, up by
1,324 from the 3,935 in the previous year. A 43.94 percent
plurality of international students majored in social
science subjects in 2007. Another 36.34 percent majored
in technologies and natural sciences, with the
remaining 19.72 percent studying humanities. (See Table
20.)
Table 20. Foreign Students in Taiwan by Fields of Study
Fields of study Courses Number of students % of students
Humanities
Education, arts, humanities, design, defense and security,
and unspecified
1,037 19.72
Social and behavioral science, journalism and information,
Social sciences business and administration, law, social security, and personal
2,311 43.94
services
Life science; natural science; mathematics and statistics;
Sciences computer science; engineering; architecture and building;
and technology agriculture, forestry and fisheries; veterinary; public health;
1,911 36.34
transportation; and environmental protection
Source: Department of Statistics, Ministry of Education, 2008b, p.48.

Taiwan’s Important Education Indicators 77
These students were from 116 countries. (See Table
21.) Some 70.32 percent came from Asian countries.
Taiwan University had the largest international student
group (436), followed by Ming Chuan University (426),
Cheng Kung University (414), Chengchi University
(405), and Taiwan Normal University (207).
Table 21.
Foreign Students in Taiwan by Countries
Countries
Year
2007 2006
Growth Rate
Number of Student %
Vietnam 806 434 372 86
Malaysia 700 538 162 30
Indonesia 425 276 149 54
Japan 409 381 29 7
United States of America 348 350 -2 -1
South Korea 342 336 6 2
India 265 162 103 64
Thailand 194 131 63 48
Mongo 131 83 48 58
Philippines 126 76 50 66
Canada 122 94 28 30
Russia 92 68 24 35
Gambia 81 43 38 88
Honduras 61 43 18 42
Paraguay 60 46 14 30
Source: Department of Statistics, Ministry of Education, 2008b, p.48.
Under a new international student exchange program,
Taiwan will sent 10,000 students abroad and invite
20,000 foreign students in the four years ending
2012.
Recapitulation
The findings are summarized as follows:
1. Development of Education
a. The number of schools in Taiwan increased more
than 4.5 times between 1950 and 2007. The number
of teachers rose from 29,020 to 275,501, with the
number of students per teacher decreasing to 19.03
from 36.35. The total number of students increased
from 1,054,927 to 5,242,944, rising from 139.64 to
228.37 per thousand in proportion to the total population.
In 2007, altogether 51.64 percent of the students
were enrolled in primary and junior high
schools, 14.38 percent in senior and vocational high
schools, and 25.29 percent in colleges and universities.
The remaining 8.69 percent received other types
of schooling. The development of education is fast
and extensive.
b. The average years of schooling for children aged 6
and above were 16.06, only slightly lower than those
found in Australia, close to those in the United States,
France, Germany, South Korea, and Japan, but higher
than those in China.

78 Taiwan Development Perspectives 2009
c. People from 45 to 65 years old in Taiwan who have
received secondary education were slightly fewer
than their counterparts in the advanced countries. But
those in the 25-44 age group in Taiwan outnumbered
their opposite numbers. This is a popular phenomenon
in education in developing countries.
d. Illiteracy stood at 2.4 percent in Taiwan. There were
447,000 illiterates aged 15 and above. The rate was
2.2 percent and 6.7 percent in China. The problem of
illiteracy is not serious in Taiwan.
2. Preschool Education
Taiwan had 3,283 kindergartens in 2007, with a
combined enrollment of 191,773 children, an impressive
10.2-fold increase from 1950. As preschool education
in Taiwan is placed under the jurisdiction of two
different government agencies, enrollment tabulation is
complicated. An estimate has to be made often. Low
gross and net enrollment rates were observed in Taiwan
and China. Efforts have to be redoubled to promote
preschool education in both countries.
3. Elementary Education:
The gross and net enrollment rates for elementary
education are high – near 100 percent or over – in Taiwan
and all other industrialized countries surveyed.
The 100 percent mark was surpassed because some
underage children or older ones were enrolled and tallied.
All these countries, including Taiwan, may face
the problem of school dropouts.
4. Secondary Education
Taiwan is not behind industrialized countries in the
gross and net enrollment for secondary education.
Taiwan is on a par with South Korea and far ahead of
China.
5. Higher Education
a. South Korea leads in the gross enrollment for higher
education. Taiwan is on a par with the United States,
followed by Australia, Britain, France, and Japan.
China lags far behind at 22 percent.
b. Again, South Korea leads in matriculation, followed
by Australia, Taiwan, and the United Kingdom. Japan,
France, and Germany are closely behind.
c. Most students choose social sciences, business, and
law as well as arts and humanities as their majors.
Undergraduate students in Taiwan and the United
Kingdom prefer medical sciences, while their opposite
numbers in China and South Korea opt for engineering.
d. Graduate students in Taiwan choose engineering and
social sciences, business, and law, while their counterparts
in other countries evenly spread their majors.
e. A high plurality of college graduates in Taiwan
earned degrees in social sciences, business and law.
A similar phenomenon was observed in other countries
as well.
f. South Korea has the ratio of students to the total population
at 6.57 percent. Others in descending order
are: Taiwan at 5.96 percent, the United States at 5.86
percent, Australia at 5.13 percent, the United Kingdom
at 3.85 percent, France at 3.48 percent, Japan at
3.20 percent, Germany at 2.71 percent and China at
1.78 percent.
6. Budgets for Education
Taiwan’s budgets for education in proportion to
GDP were low at 4.05 percent in 2007, though slightly
higher than the similar ratio of Japan’s. Taiwan
lagged behind South Korea (4.6%), the United States
(5.3%), the United Kingdom (5.3%), France (5.8%),
Germany (4.6%), and Australia (4.8%). Taiwan has to
do whatever it can to catch up
7. International Student Exchanges
There were a record 5,259 foreign students in
Taiwan in 2007. Close to 44 percent of them majored in
social sciences. Another 36.34 percent chose technologies
and natural sciences. The remaining 19.72 percent

Taiwan’s Important Education Indicators 79
studied arts and humanities. They came from 116 countries.
Over 70 percent were from Asian countries. The
government has pledged to send out 10,000 students
abroad and invite 20,000 foreign students in the four
years ending 2012.
Reference
Department of Statistics, Ministry of Education(2008a).
Comparison of Education Statistical Indicators. Taipei:Ministry
of Education.
Department of Statistics, Ministry of Education
(2008b). Education Statistics: The Republic of China.
Taipei:Ministry of Education.

80 Taiwan Development Perspectives 2009

Establishment of the Pension System in Taiwan 81
Establishment of the Pension System in Taiwan
CHAN, Hou-sheng, LIN, Chien-chen
Abstract
Taiwan inaugurated its national pension insurance program in October 2008. Economic
security in retirement is therefore provided for people without work. This paper aims
to explain why and how the pension system has been established. Also reviewed are future
developments that may affect the enforcement of the system.

82 Taiwan Development Perspectives 2009
Introduction
Taiwan has tried to establish a sound social welfare
system since 1950. A safety net has been provided
for most of the people but some of them – housewives,
the unemployed, mature students and some retirees –
were left out. Many lacked support after retirement, in
particular. A national pension scheme was needed.
That scheme was finally set in place in the year 2008.
The national pension system was established.
This paper discusses issues of income security of
the aged. It reviews important developments of the social
welfare system in Taiwan and its fast aging society.
Efforts are made to explain why and how the national
pension system came into being. Attempts are also
made to probe the future of that system.
History of the Development of Welfare and
Pension Systems in Taiwan
Taiwan took the first significant social welfare
measure in the year 1958. It was a golden year, which
witnessed the legislation of the Factories Act, the Factory
Inspection Act, the Minimum Wages Act, the Labor
Contract Act, the Workers’ Welfare Benefits Rules,
and the Labor Dispute Solution Act. (See Table A.)
Also, a labor insurance scheme was officially started,
providing protection for workers ever since. Benefits
include payments for injury, disability, childbirth, death
and old age. Taiwan’s labor insurance, started 75 years
after Germany, ushered in a new era of social insurance.
Another important year is 1980. A series of laws
were adopted. They included the Old Age Welfare Act,
the Handicapped Welfare Act, the Social Assistance
Act, and the Private School Staff Insurance Rules. They
paved the way for many laws to come. For instance, the
Old Age Welfare Act provided the basic protection for
the elderly when Taiwan became an aging society in the
late 1990s. The Handicapped Welfare Act evolved into
a Disabled People Protection Act. The Social Assistance
Act has been invoked to provide emergency aid
and service for the poor.
Still another important year is 1994. Taiwan
launched national health insurance. It is Taiwan’s first
general and mandatory social insurance.
The fourth, and probably the most, important year
is 2008 which saw the inauguration of national pension
insurance (NPI). Started on October 1, NPI provides an
“annuity” for the people of Taiwan. (The NPI Act was
adopted in 2007.) NPI is different from a pension system
in other countries. In Taiwan, NPI is neither universal
nor fully mandatory. It now only shields people
who are not participants in employment-related insurance,
in particular the labor insurance coverage. These
people include housewives, students, and the unemployed
who are apparently not employed by anyone
under any circumstances and definitely have no stable
or sustainable income at all. The government shares the
finical burden in a much higher ratio than the employment-related
insurance. In addition, on August 13, the
Labor Insurance Act was amended to end lump-sum
payment in favor of an old age pension system. It is
believed that the latter provides more and better economic
security for participants.
As Taiwan is aging fast, poverty of the elderly is a
problem that needs to be addressed. Western European
countries have continued their pension reform. Some
have reduced public spending for pension, encouraging
people to sign up for private annuities. Others have
raised the mandatory retirement age.
Taiwan falls far behind the Western countries in
the protection of its elderly population. A basic universal
pension system that can provide for all retirees has
not yet been established. And the risk of aged people
falling below the poverty line is increasing because of
the economic slowdown in Taiwan, while the pressure
of inflation grows. The elderly account for more than
10 percent of Taiwan’s population. At the same time,
because retirees increase in number, its workforce is
shrinking rapidly. The burden of the working population
to care for the aged will become heavier as years
go by.

Establishment of the Pension System in Taiwan 83
Consensus should be reached on how to cope with
the problems of poverty in the old age and/or after retirement
as soon as possible. Moreover, efforts should
be redoubled to establish a comprehensive financing
plan to back up a basic universal pension protection
system lest Taiwan should face a financial crisis triggered
by a similar pension scheme in the United States
and Europe. It is also recommended that the government
reexamine its policy of subsidizing the needy.
The government should aim at building a sustainable
pension system for the aged.
Table A
Social Welfare Legislation and Policies in Taiwan
Year Social welfare legislation Social welfare programs, measures
Before 1949 Factories Act, Factory Inspection Act, Minimum
Wage Act, Labor contract Act, Workers’
Benefits Rules, and Labor Disputes
1947
Department of Social Affairs,
Taiwan Provincial, set up
Handling Act
1950 Servicemen Insurance and Labor Insurance
launched
1952 Veterans Affairs Commission, Executive Yuan,
R.O.C. set up
1953 Army, Navy and Air Force Servicemen Insurance
Rules
1958 Labor Insurance Rules, and Civil Servants
Insurance Act
1963 Assistance of children service program from
the Children's Fund of the United Nations
1964 Social policy of Present Stage for the Principle
of the People's Livelihood
1965 Social Welfare Fund set up
1966 Strengthening Social Welfare Measures of
Provinces and Cities (Phase I)
1967 Social Assistance Investigation of Taiwan
Province Law
1968 Labor Insurance Rules (amended) Community Development Eight-year Plan for
Taiwan Province, and the Outlines for Community
Development Program
1969 Outlines for present social construction program
1970 Four-year community development plan for
Taipei City,
Ten-year community development plan for
Taiwan Province
1971 Strengthening Social Welfare Measures of
Provinces and Cities (Phase II)
1972 Plan for Family Well-off
Plan to Re-construct the Poor and Disabled
1973 Children’s Welfare Act,
and Labor Insurance Rules (amended)
Plan for Health and Wealth

84 Taiwan Development Perspectives 2009
1974 Occupational Safety and Health Act, and
Civil Servants Insurance Act (amended)
Strengthening Social Welfare Measures of
Provinces and Cities (Phase III)
1975 National Housing Rules,
and Factories Act (amended)
Asylum Plan for the Impoverished Mentally Ill,
and Program for Improving Present Social
Welfare Services and Assistance
1978 Strengthening Social Welfare Measures of
Provinces and Cities (Phase IV)
1979 Labor Insurance Rules (amended) Measures for Reforming Current Social Work,
and Plan to Initiate Social Workers System in
Taiwan Province
1980 Old Age Welfare Act,
Handicapped Welfare Act, Social Assistance
Act, and Private School Staff Insurance
Rules
1981 Implementation Byelaws for Old Age Welfare
Act, Implementation Byelaws for Social
Assistance Act, and Insurance Rules for
Dependents of Public Servants
1982 Compulsory School Rules, Implementation
Byelaws for Child Welfare Act
Community Development Plan in the first
five-year period in Taiwan Province
1983 Vocational Training Act Program to Strengthen Infrastructure of Grassroots
Level, and Program to Increase Farmers’
Income
1984 Labor Standards Act
1985 Health Insurance for Retired Civil Servants and
Their Spouse, Health Insurance for Private
School Staff and Their Spouse, and Farmers’
Health Insurance
1987 Implementation Byelaws for Civil Servants
Insurance Act
1988 Juvenile Welfare Act, and Labor Insurance
Rules (amended)
Outlines for Present Labor Policy, and
Plans for the Elderly in Taiwan Province –
Welfare Measures for Caring Senior Citizens
1989 Farmers’ Health Insurance Rules Implantation Project of Cooperatives to Supply
Daily Necessities for Civil Servants
1990 Handicapped Welfare Act (amended), Employment
Service Act, Implementation Byelaws
for Farmers’ Health Insurance Rules,
and Labor Standards Act (amended)
Six-Year National Development Plan
1991 Occupational Safety and Health Act
(amended), Disable People Health Insurance
Scheme, Helping Nursery in Taiwan Province
Scheme, and Implementation Byelaws
for Handicapped Welfare Act
1992 Employment and Welfare Act, Points to Help
Abandoned Baby in Taiwan Province, and
Six-Year National Development Plan - National
Health Insurance, Outlines for Work of
Community Development, Implantation Program
for Emergency Life Aid of Unfortunate
Women in Cities and Counties of Taiwan
Province, and Management Rules for Funeral
Facilities of Taiwan Province
Work Program for Present Community Development
in Taiwan Province, Work Program for

Establishment of the Pension System in Taiwan 85
Implementation Points of Community Activities
for Classroom of mother
Children, Juvenile and the Old Health Care in
Cities and Counties in Taiwan Province, and
Program for Society Peace in Taiwan Province
1993 Children’s Welfare Act (amended), and
Old Age Welfare Act (amended)
1994 National Health Insurance Act Outlines and Implementation Program for Social
Welfare Policy
1995 Byelaws for the National Health Insurance
Act,
Handicapped Welfare Act (amended)
Child and Youth Sexual Trade Prevention
Rules, and
Labor Insurance Rules (amended)
1996 Women's Welfare Aids in Cities and Counties
of Taiwan Province
1997 Sex Crime Prevention Act, Social Worker
Act, Physically and Mentally Handicapped
People Protection Act, Social Assistance Act
(amended) - first reading, and
Old Age Welfare Act (amended)
1998 Domestic Violence Prevention Act
2000 Provision of Assistance for Women and
Households in Difficulties
2001 Voluntary Service Act
2002 Gender Equality in Employment Act
2003 Children and Youth Welfare Act
2007 Employment Insurance Act (amended), National
Pension Act, and
Disable People Protection Act (formerly
Handicapped Welfare Act)
2008 Labor Insurance Rules (amended) - pension
insurance system
Year Social welfare legislation Social welfare programs, measures
Current Situation in Taiwan
There are some developments specifically important
to the enforcement of the pension system. They
may have serious impacts.
1. A rapidly Aging Society
The 21st century is the century of the elderly. In
June 2006, a census report, Population Estimation between
2006 and 2051, was published by the Human
Resource Planning Office of the Council for Economic
Planning and Development. It forecasts that the aged
would account for 10.72 percent of Taiwan’s population
by 2011. By 2026, they will make up 20 percent
and are expected to account for 30 percent in 2040.
The figure will rise to 36.98 percent by 2051. The Report
also points out the change of the aged population
in relation to the young population. It projects the elderly
to outnumber those under 15 years of age (who
will account for 12.72 percent of the population) for the
first time in 2017. By 2051, the elderly will number 4.7
times that of the minors below 15 years of age.
According to statistics released by the Department

86 Taiwan Development Perspectives 2009
of Household Administration under the Ministry of the
Interior, the population of senior citizens in Taiwan had
surpassed 1,480,000 as of the end of September 1993.
The senior citizens accounted for 7.1 percent of the
total population, exceeding the 7 percent threshold set
by the World Health Organization for an aging society.
By the end of 2002, Taiwan's elderly population surpassed
two million. One estimate put the number of the
elderly at 2,382,000 or 10.35 percent of the total population
as of the end of 2008. In other words, one out of
every ten people in Taiwan is an elderly citizen. When
the elderly account for 14 percent or more of the total
population, Taiwan will become an aged society.
The old-age dependency ratio has tripled since the
1970s. It was about 5 percent between 1951 and 1971.
In other words, every 20 working people provided for
one elderly citizen. By the end of September 2008, the
ratio had risen to 14.27 percent, which means every
seven working people should support an old person.
Furthermore, according to the Council for Economic
Planning and Development, every 3.3 people in the
working age shall provide for an elderly citizen in 2026,
as postwar baby boomers join the ranks of the aged. By
2051, the ratio is expected to be 1.5 to one. The burden
of the working people to take care of senior citizens is
getting heavier.
2. Decline in Fertility and Rapid Changes in
Family Structure
As a result of industrialization and urbanization,
Taiwan’s traditional extended family system is gradually
crumbling. Most families are core families now.
Besides, the fertility rate is going down. A couple had
3.1 children on an average in 1976. The number
dropped to 1.7 in 1986 and 1.18 in 2004, lower than
1.50 among the developed countries and 3.1 among the
developing countries. Taiwan has one of the lowest
fertility rates in the world. Moreover, the proportion of
working people to retirees is also declining. It means
that the ability of the community as a whole to support
the elderly is on the decline.
At the same time, the ability of a family to transfer
its resources from generation to generation has weakened.
The deterioration of traditional family values is
making the younger generation to shirk the filial obligation
of taking care of the parents. Consequently, the
government or institutions have to take over the responsibility
of providing economic security and nursing
care for the elderly. On the other hand, a Ministry of the
Interior study shows the majority of old people wish to
retire and live with their families. The government
needs to promote traditional family values on the one
hand, and establish a sustainable national pension system
to provide economic security for the elderly on the
other. In addition, the government should plan to set a
suitable long-term care system and nursing services in
place as soon as possible to meet the health needs of the
old and accede to their wishes to retire and live with
their families.
Old Age Allowance
The Democratic Progressive Party announced a
manifesto on elderly pension allowance in the lead-up
to local elections in 1993. It called for a monthly cash
allowance of NT$3,000 or NT$5,000 per elderly voter.
This kind of universal subsidy is a classic representation
of “de-commercialization (de-commodification).”
It is also a main characteristic of a social democratic
institution.
Hsu Hsing-liang, the then chairman of the Democratic
Progressive Party, pointed out: “As long as
the government is clean and honest, this policy (old age
allowance) will not be a heavy financial burden." The
then ruling Kuomintang described that policy as “an act
of bribery” to win the 1993 elections. Hsu countered by
saying the Kuomintang “has bribed (voters) for 40
years, while the Democratic Progressive Party is bribing
only this time." Apparently, the Democratic Progress
Party was not prepared for elderly pension allowance.
It was a campaign promise to win local elections.

Establishment of the Pension System in Taiwan 87
The Democratic Progressive Party won in six cities
and counties in 1993. The six and the city of Chiayi
began paying monthly subsidies in 1994. But a few
months later, they asked for subsidization from the central
government to continue their old age allowance
project. Their request was turned down. Subsequently,
these seven local governments either stopped payment
or reduced the amount of subsidies for lack of budgeted
funds.
Though not lasting, elderly pension allowance was
accepted as a policy objective. In 1994, the ruling Kuomintang
initiated a low-income old age allowance
program. Another program was launched in 1995 to
provide welfare allowances for old farmers. Chen
Shui-bian was elected mayor of Taipei in 1995. The
new Democratic Progressive Party mayor began paying
subsidies to physically and mentally disadvantaged
residents of the city in September 1996. All of a sudden,
the subsidization became the most important welfare
issue for political parties in election campaigns.
Chen won the presidential election in 2000. He
tried to have an elderly welfare allowance bill adopted.
The opposition Kuomintang and social welfare groups
did not support the bill. No support was given by the
Ministry of the Interior and the Directorate-General of
Budget, Accounting and Statistics (DGBAS). They
argued that because of financial difficulties and rising
unemployment, the new administration should not
launch a welfare program which entailed massive
funding.
In May 2001, on the first anniversary of his inauguration,
President Chen reiterated his determination to
pass the welfare act. The DGBAS opposed on the same
ground but the Ministry of the Interior made a U-turn,
proposing an elderly welfare subsistence allowance bill.
According to the bill, people 65 years old or older, except
the rich, would receive a monthly subsidy of
NT$3,000. An annual outlay for the payment was estimated
at NT$16 billion. There would be 440,000 beneficiaries.
The bill was adopted. An amendment to the act
was adopted in 2003. The NT$3,000 subsidy was made
available also to retired civil servants and teachers, servicemen,
and workers who enjoyed old age benefits or
received retirement pay. This was a significant policy
relaxation and more people benefited. By the end of
July 2005, the number of beneficiaries topped 740,000
and the outlay totaled NT$73 billion (with the subsistence
allowance payment to elderly indigenous peoples
included).
Problems of Old Age Allowance Payment
Before providing national pension insurance, the
government offered protection for the elderly, especially
those who were not entitled to any sort of retirement
benefit. Such protection took the form of subsidies.
Subsidization has posed two problems.
1. Increasingly Heavy Financial Burden
The government provided old age subsistence allowance
and welfare allowance for old farmers to help
those who were not covered by labor insurance or national
insurance for public functionaries and servicemen.
The funds needed were supported by the government.
The burden gets heavier as the elderly population
grows. In 2004, the government spent NT$24.19 billion
for elderly welfare subsistence allowance, NT$9.25
billion for allowances to low-income elderly people and
NT$32.1 billion for welfare allowances for old farmers.
The total outlay was NT$65.54 billion. It will go up as
the elderly population grows. The financial burden of
the government will get heavier. The situation gets
worse in an economic downturn. The government has
to resort to more borrowing. Public debt will increase.
2. Fairness of Welfare Subsistence Allowance
The elderly welfare subsistence allowance program
raises the question of fairness in resource allocation.
The Ministry of the Interior insists on excluding
the rich from the program. Currently, however, more
than 200,000 low-income households are not entitled to
the allowance because they are arbitrarily considered

88 Taiwan Development Perspectives 2009
“rich.” Furthermore, low-income households can receive
NT$3,000 or NT$6,000 in grant a month. Old
vulnerable people in these households are also entitled
to a special monthly subsidy of NT$3,000. It is clearly
breaching the principles of fairness and justice.
Screening of eligible beneficiaries must be fair and
objective lest applicants should fear social stigmatization.
Difficulties often arise in deciding to award an
elderly welfare subsistence allowance or a low income
subsistence subsidy. One result is an increase in the
cost of processing applications and a possible waste of
taxpayers’ money. There is also the difficult problem of
funding the subsidization while Taiwan remains in an
economic downtown or recession. Probably the only
option open to the government is to borrow more money.
Public debt will balloon.
Establishment of the National Pension
System
The government planned to establish a national
pension scheme after the national health insurance program
was launched in 1995. The plan was deferred because
the financial burden it entailed was regarded as
too much for the general public to bear. According to a
new timetable, the plan would start in 2000. But a disastrous
earthquake occurred on September 21, 2000;
and the plan was once again deferred. There was a
change of government in 2000 and the plan was
shelved.
The new Democratic Progressive Party administration
began planning a new national pension system.
The Council for Economic Planning and Development
(CECD) proposed a national contribution mechanism
and a savings insurance system. Both proposals ran
counter to the scheme which the Kuomintang administration
planned to establish. The Kuomintang wanted a
social insurance system. Subsequently, the CECD
abandoned the national contribution system because it
would impose a huge financial burden on the government.
The savings insurance system was given up because
of the strong opposition on the part of social
welfare groups. After a national social welfare conference
was held in 2002, the CECD reverted to the social
insurance system. The change of government delayed
the establishment of the national pension system by two
years.
The Kuomintang proposed its social insurance bill
for action by the Legislative Yuan in 2002. The Democratic
Progressive Party administration also submitted
a similar bill for legislation. The government-sponsored
bill did not force farmers to join in the
social insurance program. They could choose one of the
two programs, farmers’ insurance or social insurance.
The former, however, did not provide retirement protection.
The Kuomintang version made it mandatory for
farmers to be covered by social insurance. The government
would pay 20 percent of the premiums, according
to the bill it sponsored. The Kuomintang
wanted the government to pay twice as much or 40
percent of the premiums. There was a difference in the
payment of the bereaved, too. The government mandated
lump sum payment, whereas the Kuomintang
offered an annuity option.
Dispute
The dispute was over whether farmers should be
included as social insurance beneficiaries. There were
advantages as well as disadvantages.
1. Advantages
The farmers’ health insurance program could be
terminated if they were covered by social insurance.
They could be covered by national health insurance.
Farmers were entitled to retirement pay. There was
no such stipulation in their health insurance program.
Their old age welfare benefits – a NT$4,000 monthly
subsidy – could be reduced or suspended, if the government’s
financial burden became heavier as the aging
population continued to grow. They would benefit more
and the government’s burden become less heavy, if
they participated in the social insurance program.

Establishment of the Pension System in Taiwan 89
Farmers’ health insurance provided benefits for
health, maternity, disability and funeral. No benefits
were provided for old age, the bereaved, and the physically
and mentally disadvantaged. National pension
insurance (NPI) provides them.
The loss the farmers’ health insurance program
had accumulated as of the end of 2004 totaled NT$100
million. The program continued to lose NT$50 million
a year after 2004. Their welfare benefits cost NT$30
billion in the meantime. They were required to pay
NT$78 a month as their share of the NT$10,200 premium
for their health insurance. The NPI program
would require a rise in their share in premium payment
to reduce the loss.
Farmers’ health insurance had 1.67 million subscribers
as of the end of 2004. A survey by the Directorate
General of Budget, Audit and Statistics, showed
there were not more than 720,000 farmers at the end of
2002. In other words, close to one million non-farmers
were covered by farmers’ health insurance. Most of
720,000 farmers, about 480,000 or 68 percent, were 45
years old or older. The mean age of the insured was
56.7 years. Of the 1.67 million farmers’ insurance subscribers
680,000 were 65 years old or older. If farmers
were not covered by NPI, the government could not
prevent them from falling below the poverty line.
On the other hand, the government had to make
up for the loss in the revenues from premiums.
Low-income farmers could pay less in their premium
contributions. Those receiving household subsidies
were exempt from premium payment. The loss had to
be made up by the government, whose burden continued
to grow heavy. To relieve such burden, the government
might set an age limit for applicants and/or
raise the subscribers’ share of the premium. If farmers
were made NPI subscribers, all these problems would
be solved.
2. Disadvantages
Farmers had to pay a higher premium if they were
NPI policyholders. If they were to receive the elderly
pension, farmers 25 years old had to pay premiums for
40 years. Those who were 40 years old had to pay for
25 years. Farmers did not like to subscribe to NPI.
On the other hand, NPI does not offer benefits for
childbirth. If farmers were compelled to subscribe only
to NPI, they would lose a maternity pay (which equals
the pay for two months).
Pension System versus Allowance
Experiences of a welfare state verify that elderly
welfare subsistence allowance and NPI play different
roles. The former is a social subsidy, which is a representation
of collectivism that emphasizes the rights of
citizens. It is funded through transfer of government
revenues. The latter, on the other hand, is a social insurance,
based on the concept of semi-collectivism
which comes between individualism and collectivism.
Semi-collectivism stresses mutual assistance as well as
personal responsibility. And it relies for funding on
insurance premiums paid by policyholders and governmental
grants. NPI specifies monthly contributions.
Participants, aged 25 or above, have to pay 10 to 40
years to collect pension on retirement. No input is
required of recipients of elderly welfare subsistence
allowances and old age farmers’ welfare benefits,
which are given out as a charity that can be suspended
without explanation. In addition, the allowances and
benefits are blamed for increasing public debt when
politicians propose to raise the payment of benefits to
win elections.
To describe a social security system as hidden
public debt is a hypothesis. It assumes that at a particular
time all the insured reach the age of 65 year old, and
retire at the same time, making it impossible for the
government to pay all the benefits. In reality, such assumption
of all policyholders retiring at the same time
is not warranted and does not hold because it does
not accord with the intergenerational transfer of
risk-sharing function. Experiences of welfare states
verify that the biggest drawback of a social security

90 Taiwan Development Perspectives 2009
system is the decline in population growth. It will entail
enormous debt for the next generation and even huge
liabilities to the government. In this sense, the actuarial
finance system is important. The premium and contributions
need to be dynamically adjusted according to
the actuarial result. The government should rule out
political considerations, especially during election time.
The insured have to pay normally. Then there will be
no hidden debt.
A small number of social welfare organizations
have protested that NPI is a mutual-help system for
vulnerable people. The pension is available to only
those people who are required to participate: i.e.,
housewives, farmers, and self-employed people. If voluntary
participation is permitted, people will have better
protection on retirement. If public functionaries,
workers and servicemen who are covered by their respective
insurance were allowed to sign up for NPI as
well, they would increase income replacement after
retirement. Then it may become a real universal basic
pension.
Basic Pension
Ultimately, NPI aims to provide universal old age
economic security. Taiwan has to strive for providing
all the people 65 years old or older with enough support
to keep their minimum standard of living. This is in
keeping with the spirit of universal welfare state and
social security.
The NPI program, which was launched in 2008,
benefits 3,530,000 of the disadvantaged people. They
include unemployed workers, students, housewives and
the physically and mentally disadvantaged people. Military
personnel, civil servants, and jobholders are excluded.
Social welfare groups argue that the program offers
a mere small-cale pension scheme. They criticize it
as a mutual-help system for the vulnerable people.
They insist that the principle of social security is for the
rich to help the poor to achieve the effect of mutual
assistance, and want a wider participation. They believe
the more participants the better. They also fear that the
‘small-scale pension scheme’ runs counter to that principle,
wondering how long it will last. NPI leaves out
economically advantageous people, such as civil servants,
military personnel and teachers. For lack of more
contributions, they argue, the program will go bankrupt.
Obviously, the administration does not want to face
these problems. It is more concerned about whether
workers would have a pension and servicemen and civil
servants enjoy high-income replacement. The administration
believes equality and justice will be lost, if they
are allowed to participate in the program.
In fact, to include public functionaries, teachers,
military personnel and labor in the NPI scheme is to
protect their basic civil rights rather than to allow them
to have ‘double protection.’ The scheme is supposed to
be one for a basic pension, separate from occupational
insurance, like the insurance for civil servants, servicemen
and labor.
The World Bank has suggested a three-tier model
of old age protection to resolve the problem of old-age
poverty. The government should develop a multi-level
system to provide more security for the old. All people
should be allowed to sign up for NPI. As the pension
only supports retirees to maintain the minimum standard
of living, the government needs to encourage people
to work. When people are working they are entitled
to an occupational insurance. It stands to reason that
people shall have more provision in retirement and
avoid pension poverty.
Taiwan has 8.7 million workers, whose retirement
payment is less than 50 percent of income replacement.
That is far below 70 percent considered enough by the
World Bank to maintain a decent standard of living.
The government should encourage labor to sign up for
NPI to top up their retirement income. In addition, retired
workers entitled to retirement benefits were given
elderly welfare subsistence allowances. They lost the
subsidies when the NPI program was launched. Nor
could they receive pension payment unless they sub-

Establishment of the Pension System in Taiwan 91
scribed to NPI. They would each lose NT$3,000 a
month.
The responsibility of the government is to protect
people's retirement income in real terms. Labor insurance
provides meager retirement benefits. Even if the
income replacement rate is raised, the retirement payment
will not prevent labor from old age poverty. The
government shifts the liability of workers’ retirement to
employers who have to pay a lion’s share of insurance
premiums. If they are required to pay more, their cost
of operation will be greatly increased. They may consider
passing the added cost to consumers or closing
down their businesses. If retirement benefits are raised
while the premiums remain the same, the labor insurance
may be risking bankruptcy. Either way, workers
are not beneficiated.
put a resulting increase in outlay at NT$4.3 billion a
year. But it is far lower than the elderly welfare subsistence
allowances and the old age farmers’ welfare benefits
put together. In the long run, this is a win-win policy
for the government and should be wholeheartedly
supported as such.
The worldwide trend is to make retirement security
not only the government responsibility but personal
obligation as well. Taiwan has to follow the trend, getting
prepared to start a universal basic pension. Such a
universal system of basic protection is a necessity indeed.
All citizens should be encouraged to sign up for
NPI to lay the ground for a basic pension, which can
truly shield the retirees against poverty.
The government wishes to stop paying old age
farmers’ welfare benefits after the NPI program got
under way. Otherwise, the national treasury will add
more than NT$2 trillion to public debt over the next 40
years. On the other hand, the NPI Act does not provide
for penalty. It is difficult to stop paying farmers’ welfare
benefits while they are free to sign up for NPI. Besides,
it is also difficult for the national pension to pay
the welfare benefits. (Should all old farmers be given a
NT$6,000 subsidy across the board? How can the burden
of the national treasury be eased, if the benefits are
incorporated in the pension?) In fact, the solution seems
simple. All that the government has to do is to let NPI
evolve into a basic and universal pension. Only new
farmers are required to participate in the NPI program.
The pension right of farmers is guaranteed and the
payment of welfare benefits can be terminated in due
time.
If allowed to subscribe to NPI freely, the number
of participants will increase by eight million. When
they all sign up, more than half of the insured will contribute
and the government does not have to pay subsidies.
In other words, the more people join the more
stable the NPI system will be. Moreover, people will
have more confidence in the government. One estimate

92 Taiwan Development Perspectives 2009

Party Politics after the 2008 Legislative Election 93
Party Politics after the 2008 Legislative Election
CHEN, Chao-cheng
Abstract
This article aims to observe and analyze the conditions of party politics after the legislative
election of 2008. Bipartisan politics is in place in Taiwan, which there is a de facto
predominant party in the Legislative Yuan. The Democratic Progressive Party, which has
only 27 of the 133 seats in the unicameral chamber, is resorting to street movements for
keeping its power base.
The Kuomintang, which controls the overwhelming majority and won the presidential
election, is expected to take advantage of being a “majority government” to exercise the
“complete ruling” power. However, coordination is not as harmonious as is expected
among President Ma Ying-jeou, the Cabinet, and Kuomintang legislators as well as their
party leadership. Furthermore, the global economic crisis and domestic political dispute
have frustrated the Kuomintang’s government. Its predominance in parliament has failed to
bring about satisfactory results.
On the other hand, despite holding less than a quarter of the parliamentary seats, the
Democratic Progressive Party has managed to create enough controversial issues on the
floor of the Legislative Yuan to exercise its power of checks and balances. But it has failed
to get out of the shadow of President Chen Shui-bian, who is standing trial for corruption
and graft in addition to money laundry.
If both parties cannot solve their problems, most middle-of-the road voters may stay
out of the polls in the future. The results of elections then will be decided by core supporters
of the two parties. One has to wait until the end of 2009 when voters go to the polls to
elect 21 mayors and magistrates across the country to find out how the two parties can mobilize
enough supporters to win the elections.

94 Taiwan Development Perspectives 2009
Introduction
On January 12, 2008 voters went to the polls to
elect a new Legislative Yuan. They voted in Taiwan’s
first general election under what is dubbed the single
constituency/two votes system. They were required to
cast two votes, one for a candidate and the other for a
political party. Altogether 64 regional legislators were
elected, one each from as many single constituencies.
The other 39 were chosen from among the nominees of
political parties by proportional representation. The
outcome of the legislative election was truly surprising.
None of the minor political parties won a seat. The
Kuomintang won 81 of the 113 seats in the Legislative
Yuan and a two-thirds majority. If those won by the
People First Party and the Non-partisan Solidarity Union,
which are both allies of the Kuomintang, are added,
the governing party will control 86 seats, or a
three-fourths majority, in the nation’s highest legislative
organ. The Democratic Progressive Party could manage
to hold only 27 seats. Though bipartisan politics is in
place, the ruling party overwhelms the opposition.
The Kuomintang is the predominant party in parliament.
New Look of Bipartisan Politics
The Democratic Progressive Party, holding only a
quarter of the seats in the Legislative Yuan, is almost
unable to contend with the ruling Kuomintang in legislative
action. A simple majority vote by lawmakers
present and voting passes bills and budgets as well as
adopts a non-confidence vote on the Cabinet. A
two-thirds majority vote can impeach or recall the
president and the vice president of the country. A
three-fourths major vote adopts a constitutional
amendment. The Kuomintang is capable of mustering
those votes. The Kuomintang can also prevent the opposition
party from proposing bills or resolutions. It is
very difficult for the opposition to stop the Kuomintang
legislative onslaught.
Huang Hsui-duan suggested in her study that the
confrontation in voting between the ruling and opposition
parties would be reduced if the former far outnumber
the latter in their respective seat-holding in the
Legislative Yuan, because the latter knows there is no
chance to win. 1 In fact, Democratic Progressive Party
legislators have refrained from challenging the Kuomintang
to put controversial bills or resolutions to a
vote. On the other hand, the Democratic Progressive
Party is encouraging supporters to take to the streets to
create controversial issues as a way to keep their power
base.
A few examples suffice. After the legislative election,
Frank Hsieh, the Democratic Progressive Party
presidential candidate, fired a broadside at his Kuomintang
rival Ma Ying-jeou for keeping a U.S. resident
card. After Ma was inaugurated as president in May, the
opposition party raised the question of Kuomintang
government officials keeping American “green cards”
and dual nationalities. The Office of the President and
the Executive Yuan had to come up with lists of officials
who once had green cards or Canada permanent
residence permits. In addition, the opposition has continuously
attacked the ruling party for raising fuel prices
and power rates, failing to increase domestic demand,
preventing an entero virus epidemic, and mismanaging
control over melamine-contaminated milk powder imported
from China.
In August and October, the Democratic Progressive
Party called large rallies to protest the Kuomintang
misrule since May. Tens of thousands of supporters
marched in protest in Taipei. According to a TVBS poll
conducted towards the end of October, a 43 percent
plurality of the respondents thought the mass rally of
October 25 was successful. The poll showed the support
for the opposition party increased by from 21 to 26
percent. In particular, its support from those aged 20 to
1 Huang Hsui-duan, ‘An Analysis of Party Interaction
from Roll-call Votes in Taiwan's Legislative Yuan:
The Third Term to the Fifth Term of the Legislative
Yuan’ Journal of Social Sciences and Philosophy
18:3 (Sept., 2006).

Party Politics after the 2008 Legislative Election 95
29 rose from 23 to 38 percent, surpassing that of the
Kuomintang, which stayed at a mere 21 percent. The
approval ratings for Tsai Ying-wen, chairwoman of the
opposition party went up slightly, from 34 to 37 percent,
while her disapproval ratings dropped significantly
from 37 to 27 percent.
On October 26 Cheng Wen-tsan, spokesman for
the Democratic Progressive Party, announced a switch
to mass rallies as the way to sustain the political momentum
of the opposition. He said: “To become an opposition
party with power and leadership, we have to
replace legislative action with mass movements. Our
political appeals will become even clearer when we
place more emphasis on mass movements.” 2
The Democratic Progressive Party staged a series
of mass rallies in November when Chen Yunlin, chairman
of the Association for Relations across the Taiwan
Straits (ARATS), visited Taipei to sign four agreements
to further improve relations between Taiwan and China.
At one of the rallies, Tsai Ying-wen promised supporters
her party will “fight against” the Kuomintang both
in the streets and on the floor of the Legislative Yuan.
The fights on the two fronts complement each other,
she said. But she gave priority to the fight in the legislature.
Legislator William Lai, a Democratic Progressive
Party legislative caucus deputy whip, stresses the importance
of mass movements, however. He said in an
interview with the Liberty Times: “The only thing we
can do in the Legislative Yuan is to highlight the unfairness
we suffer and our policy appeals. Since the
Kuomintang can beat us (in parliament) … more than
5.8 million voters (supporters of the opposition) will
definitely take to the streets if they are not satisfied
with governmental policies. To choose the parliamentary
route or mass movements isn’t a question for the
2 http://www.chinareviewnews.com/doc/1007/8/0/9/100
780908.html?coluid=5&kindid=23&docid=
100780908&mdate=1027145745
Democratic Progressive Party, for there isn’t any room
for our party to maneuver in parliament.” The political
strategy the opposition after the legislative election is to
create controversy in parliament and get supporters to
take to the streets in confrontation with the ruling Kuomintang.
Ma Ying-jeou’s Role in Government
President Ma Ying-jeou, according to the Constitution,
is the head of state. He is not the head of government.
His role differs from the president of the
United States who is the head of state as well as the
chief executive or head of government. But the great
majority of voters who elected Ma hope he would a
super president, one like President Barak Obama of the
United States, to lead Taiwan out of its current economic
downturn. Even the opposition party blames the
Ma government rather than Premier Liu Chao-shiuan’s
Cabinet for poor administration.
The Kuomintang controls a virtual three-fourths
majority in parliament. Its former chairman is the president
of the country. It has a majority government,
headed by Premier Liu, who was appointed by President
Ma. There is no wonder why Ma is perceived as a
super president. But he isn’t, because he does not have
support from all Kuomintang legislators.
Kuomintang lawmakers might dislike some of
President Ma’s political appointees, including Cabinet
ministers. It is also possible that Cabinet ministers do
not have good channels of communication with leading
legislators of the ruling party. Subtle tensions have existed
between the Executive Yuan and the Legislative
Yuan since President Ma assumed office on May 20.
For one thing, even Kuomintang legislators assailed the
government for choosing the wrong time to announce
fuel price hikes and failing to place an entero virus epidemic
under control without delay. They acted more
like opposition party lawmakers in confirming President
Ma’s nomination of candidates for the Control
Yuan and the Examination Yuan. In the end, Ma had to
withdraw four nominees for the nation’s highest

96 Taiwan Development Perspectives 2009
watchdog body. Chang Chun-yen, Ma’s nominee for
president of the Examination Yuan, was forced to withdraw
his candidacy.
As Ma’s leadership was challenged, Wu Poh-hsiung,
chairman of the Kuomintang, had to name three top
lawmakers his vice chairman at an extraordinary party
national congress in November to improve relations
between the government and parliament.
Public Dissatisfaction with Two Major Parties
The public was very much dissatisfied with the
new Legislative Yuan inaugurated in February 2008.
Public opinion surveys have shown people considered
the opposition Democratic Progressive Party performed
“irrationally,” while the performance of the ruling Kuomintang
was regarded as “poor” at best.
First of all, the Democratic Progressive Party
could not get out of the shadow of President Chen
Shui-bian, who is standing trial for corruption and graft
in addition to money laundry. People consider the opposition
party just as corrupt as President Chen. A public
opinion survey conducted by the Era Poll Center in
August showed only one out of every ten respondents,
or 10.5 percent of the sample, thought the opposition
party incorruptible, against the 31.4 percent for the
Kuomintang. A 66.5 percent majority thought the opposition
“highly corruptible,” much higher than the Kuomintang
at 40.2 percent. Furthermore, a TVBS poll in
October indicated a higher 69 percent majority believed
the opposition was corrupt while those who considered
it incorruptible were a 14 percent minority, down by 11
percent from the previous poll. The in-fighting between
the pro- and anti-Chen blocs made the ratings of solidarity
among the opposition party supporters plummet
11 percent to a record low 31 percent, far behind the
Kuomintang at 54 percent. Meanwhile, the party’s failure
to distance itself from President Chen made a 55
percent majority of eligible voters believe the opposition
lacks a self-examination ability.
On the other hand, the opposition is regarded as a
party of violence. The election of Tsai Ing-wen as party
chairwoman boosted the image of the opposition. The
successful mass rally on October 25 further improved
that image. But rallies held in protest against the visit to
Taipei of Chen Yunlin, chairman of the Association for
Relations across the Taiwan Strait, wiped out all the
gains. According to a United Daily News poll on November
6, a 53 percent majority was dissatisfied with
Tsai’s leadership in the protest rallies. A mere 26 percent
minority approved of her leadership. Similar results
were found by Global Vision Magazine. In a poll
held from November 7 through 9, Global Vision Magazine
found a 55.2 percent majority regarded Tsai as
irresponsible, whereas she was considered responsible
by a 24.7 percent minority.
The reason is not far to seek. Radical protest rallies
were considered out of date. Taiwan is no longer
under martial law, one most important reason for such
rallies while the Kuomintang was in power in the 1980s.
The protest was against the Kuomintang government
policy vis-à-vis relations between Taiwan and China,
which the majority of voters believe is conducive,
while the opposition party does not have a better China
policy. The opposition party, in fact, was going against
public opinion in calling the protest rallies, which were
marred by violence. As a matter of fact, a TVBS poll
conducted before Chen Yunlin’s visit showed a 47 percent
plurality would welcome him though he would not
be welcomed by a 30 percent minority. Moreover, a 33
percent plurality believed that Chen’s visit would be
favorable to Taiwan’s development, while 22 percent of
the respondents did not think so. A 49 percent plurality
did not support the plan by the opposition party to hold
an overnight protest rally before his arrival in Taipei,
with the supporters forming a 33 percent minority.
Moreover, the public thought the violent rallies
hurt the image of Taiwan. According to the Global Vision
Magazine poll, a 66.4 percent majority were convinced
the violence committed during the rallies seriously
damaged Taiwan’s image as a democracy. A mere

Party Politics after the 2008 Legislative Election 97
21.3 percent minority thought it was a democratic practice
as well as a public display of freedom of speech in
Taiwan.
The people were equally dissatisfied with President
Ma and the Kuomintang-dominated Legislative
Yuan.
Taiwan’s economic downturn had started before
President Ma assumed office. It turned worse. He could
not live up to the expectations of the people, who
elected him in the hope that he would lead Taiwan out
of the economic recession. According to a Global Vision
Magazine poll, his approval ratings started to fall
in June, while his disapproval ratings began to rise.
Subsequent polls showed a slight increase in approval
ratings and a small decrease in disapproval ratings in
August and November. The polls, on the other hand,
showed the public had “confidence” in him. Except in
October, those who had confidence in President Ma
outnumbered those who had no confidence in him. A
TVBS poll showed a similar result. More than half of
the voters were dissatisfied with President Ma. The
trend in public opinion is shown in the poll conducted
by Global Vision Magazine (on President Ma) is shown
in Figure 1.
Figure 1
Satisfaction with and Confidence in President Ma
Confidence No-Confidence Satisfaction Dissatisfaction
Source: http://www.gvm.com.tw/gvsrc/200811_GVSRC_6months_C.PDF
A Global Vision Magazine poll conducted from
November 14 through 18 showed a 56.7 majority of the
people were dissatisfied with the performance of Kuomintang
Members of the Legislative Yuan. A 27.9 percent
minority expressed satisfaction. Besides, the dissatisfaction
was higher than satisfaction in April, almost
a month before President Ma took office. The trend is
shown in Figure 2.

98 Taiwan Development Perspectives 2009
Figure 2
Satisfaction with Kuomintang Legislators’ Performance in Legislative Yuan
◆ Satisfaction ■ Dissatisfaction
Source: http://www.gvm.com.tw/gvsrc/200811_GVSRC_6months_C.PDF
The public had more confidence in the Kuomintang
after the January 12 legislative elections until a
month after President Ma was inaugurated on May 20.
A turn for no-confidence occurred in July, when the rate
of confidence dropped before 50 percent, lower than the
opposition Democratic Progressive Party. The trend is
shown in Figure 3.
Figure 3
Ruling DPP(Opposition KMT)
Ruling KMT(Opposition DPP)
◆Index of confidence in ruling party ■Index of political optimism ▲Index of overall confidence in the major
opposition party
Source: http://www.gvm.com.tw/gvsrc/tpmi/tpmi_200811.pdf

Party Politics after the 2008 Legislative Election 99
A decrease in confidence in the Kuomintang and
an increase in confidence in the Democratic Progressive
Party occurred in June, July, September and October.
The reverse was seen in August and November. The
decrease in confidence in the Kuomintang and the concomitant
increase in confidence in the opposition party
resulted from roaring commodity prices rises, failure to
control the entero virus epidemic, Cabinet appointments,
and confirmation of nominees for the Control
Yuan and the Examination Yuan, and the toxic milk
powder scare on the one hand and Tsai Ing-wen’s election
as Democratic Progressive Party chairwoman on
the other.
Factors contributing to the increase in confidence
in the Kuomintang and the decrease in confidence in
the opposition included the scandals involving President
Chen Shui-bian and his family, Ma’s promise of
leadership, and Premier Liu’s frequent appearances in
public. The successful meeting in Taipei between Chen
Yunlin and P. K. Chiang, chairman of the Straits Exchange
Foundation, increased public confidence in the
Kuomintang in November. Aside from the violent rallies
while Chen Yunlin was in Taipei, the detention of
President Chen, Chiayi magistrate Chen Ming-wen and
Yunlin magistrate Su Chih-fen made the public lose
confidence in the Democratic Progressive Party. Both
Chen Ming-wen and Su were arrested on corruption
charges and held incommunicado at detention centers
for more than a month. So was President Chen.
Conclusion
efforts to lead Taiwan out of the economic recession.
The Kuomintang has failed to take advantage of its
being a predominant party after the January elections.
Despite holding less than a quarter of the 113 seats
in parliament, the opposition Democratic Progressive
Party managed to create controversial issues to provide
checks and balances as a minority. It also adopted a
new political line to keep its power base. It encourages
supporters to take to the streets. Tsai Ing-wen, elected
chairwoman, was able to boost the party’s image, which,
however, was again tarnished by President Chen
Shui-bian’s trial for money laundry, corruption and
graft.
The public was dissatisfied with the ruling and
opposition parties. Most people showed lower confidence
in the Democratic Progressive Party than in the
Kuomintang. The ruling party was blamed for poor
crisis management and frequent gaffes of its leaders,
from President Ma on down. The opposition was criticized
for corruption and graft, violent mass movements,
and in-fighting between its pro- and anti-Chen blocs.
If neither party can solve its problems, middle-of-the
road voters may be so disenchanted as to
refuse to go to the polls in future elections. The results
of elections may be determined by their respective core
supporters. Voters are expected to elect 21 mayors and
county magistrates across the country toward the end of
2009. Both parties have to do what they can to win over
as many sway voters as possible to ensure victory.
The new election system contributed to the Kuomintang’s
landslide victory in the legislative election on
January 12. It controls a virtual three-fourths majority
in the Legislative Yuan. Ma Ying-jeou of the Kuomintang
was elected president on March 22. The voters
expected the majority government of the Kuomintang
to get the Taiwan economy growing apace. They were
let down. President Ma does not enjoy a smooth ruling
partnership with the Kuomintang and the Legislative
Yuan it controls. Furthermore, the global economic
crisis and domestic disputes frustrated the government

100 Taiwan Development Perspectives 2009

Feasibility of Creating a New Special Municipality of Taichung 101
Feasibility of Creating a New Special Municipality
of Taichung
Policy Committee of Local Self-Governance, National Policy Foundation
Abstract
There has been no large-scale adjustment of administrative districts in Taiwan since
1950. Population and urbanization have increased over the past half century, making it necessary
to readjust administrative districts. One such effort is being made. Plans have been
prepared to merge the city and county of Taichung into a new Taichung special municipality.
This paper aims at evaluating the feasibility of creating the special municipality, which
will be placed under direct control of the Executive Yuan (Cabinet).

102 Taiwan Development Perspectives 2009
I. Foreword President Ma Ying-Jeou published an article titled
“Local Government and Territory Planning” in 2002,
There has been no large-scale adjustment of administrative
districts in Taiwan since 50. Population and
while he was mayor of Taipei. He pointed out the two
factors of “external impact” and “internal system” must
urbanization have increased over the past half century,
be taken into consideration in Taiwan’s territory
making it necessary to readjust administrative districts.
re-planning. By the external impact he meant what
One such effort is being made. Plans have been prepared
to merge the city and county of Taichung into a
Taiwan faces in relations with China, competition in the
Asia-Pacific region, and the consequence of its joining
new special municipality under the direct control of the
the World Trade Organization. The internal system has
Executive Yuan or the Cabinet.
to be adjusted to meet the requirement of the external
impact. It means government reengineering.
Cross-strait
Relationships
Government
Re-engineering
WTO impact
Industrial
Upgrading
Territory Re-planning
Restructuring
of the society
Competition in the Asia-Pacific Region
Ma believes the existing advantages should be
used to activate the development of comprehensive
competitiveness in Taiwan. A package of “consolidated
governance strategies” should be studied and made so
as to carry out the important engineering including
“government reengineering,” “industrial upgrading”
and even “restructuring of society.” He provides the
right approach to tackle the question of dividing administrative
districts in Taiwan.
II. Three Metropolises and 15 Counties
During the presidential campaign of 2008, Ma
Ying-jeou published a white paper on territory
re-planning in line with his 2002 policy. According to
his white paper, Taiwan’s administrative structure will
be composed of three metropolises and 15 counties.
The three metropolises are Taipei, Taichung and Kaohsiung.
The metropolitan area of Taipei will include the
current special municipality of Taipei, the county of
Taipei and the city of Keelung. The metropolitan area
of Taichung will be created by merging Taichung City
with Taichung County. The special municipality of
Kaohsiung and the county of Kaohsiung City will form
the metropolis of Kaohsiung. The 15 counties include

Feasibility of Creating a New Special Municipality of Taichung 103
Taoyuan, Hsinchu, Miaoli, Changhua, Yunlin, Nantou,
Chiayi, Tainan, Pingtung, Taitung, Hualilen, Yilan,
Penghu, Kinmen and Lianchiang. These 15 counties
will merge a few cities, which now are still nominally
under the administrative control of the provincial government
of Taiwan, which is being phased out. For
example, the city of Hsinchu will be merged with
Hsinchu City to form the new County of Hsinchu. So
will be Chiayi County and Chiayi City and Tainan
County and Tainan City.
According to this proposal of restructuring the
administrative districts, the only adjustment method
applied is “integration and consolidation.” The existing
25 self-governing bodies will be reformed into 18 by
integration and consolidation.
The new demarcation is necessary because there
are too many self-governing bodies on Taiwan with a
small area of 36,000 square kilometers. Rapid transportation
has blurred the boundaries of administrative
districts in the age of information. Population aggregates
along the west corridor or the West Strip of Taiwan.
The division of government work cannot be made
clear among too many administrative districts along the
densely populated West Strip. Take Taipei as an example.
The special municipality of Taipei is in the center
of the county of Taipei. Unless they are merged as a
Greater Taipei Metropolitan Area, the special municipality
and the county will have to make plans of their
own to separately control air pollution and the Tamsui
River as well as build mass rapid transportation systems.
The theory of “urban hierarchy system” supports
the creation of three metropolitan areas. Taipei, Taichung
and Kaohsiung are all on the West Strip. They
are at equidistance from each other, separated by 200
kilometers. Each of them should serve as an axis for
balanced development in north, central or south Taiwan.
Their neighboring counties should serve as their satellites
to achieve synergy in metropolitan integration.
Currently, there are two special municipalities in
Taiwan: Taipei in the north and Kaohsiung in the south.
Taipei and Kaohsiung are the political, economic, cultural
and transportation centers in the north and the
south, respectively. On the other hand, the merger of
the city and the county of Taichung to form a third special
municipality has been discussed for 20 years. Poll
after poll has shown the majority of the citizens in the
county and the city support the merger. Time has come
to make the merger a reality.
III. Necessity of the Merger to Create a
Special Municipality
One public opinion survey showed more than 60
percent of the people of the county and the city of Taichung
wanted the merger to form a special municipality.
In addition, a zone of metropolitan living with Taichung
City at its heart has been formed. Particularly,
the county and the city have been closely cooperating
closely in economic planning, societal interaction, and
transport. It is necessary to create the special municipality
to make their long-awaited expectations fulfilled.
The development of central Taiwan will be
seriously hampered if there is no centralized
self-governing body to coordinate separate efforts on
the part of six city and county governments in the area.
That centralized self-governing body must be the new
special municipality of Taichung. A greater Taichung
metropolitan area will stimulate the development of the
satellite counties such as Miaoli, Changhua and Nantou.
It will be the hub charged with the task of “common
development” for the entire area.
The population of Taichung City stands at 1.05
million. The county of Taichung has a population of
1.55 million. Neither of them alone can match Hong
Kong, Singapore, Guangzhou, Shanghai or Tianjin. If
not merged, the city and the county of Taichung will be
eliminated as a competitive metropolis in Asia and the
Pacific in the twenty-first century.
Enough infrastructure and facilities are already in
place in the area now. Taichung has an international

104 Taiwan Development Perspectives 2009
seaport at nearby Wuchi. There is an airport at nearby
Chingchuankang. Central Taiwan Science Park is located
in Taichung, which also accommodates the Central
Region Office of the Executive Yuan and an ultramodern
commercial center. As a matter of fact, it will
be easy to build on what the area now already has to
create the special municipality which promises to be an
internationalized city.
There should be no more delay in creating the new
municipality. Its founding now would make it easier to
create the two metropolitan areas in Taipei and Kaohsiung
to get President Ma’s master plan more than half
done.
IV. Difficulties Encountered
Many difficulties lie ahead of the proposed special
municipality of Taichung.
One difficulty lies in the fact that there will be only
one chief executive in the new municipality rather
two in the current self-governing bodies. Furthermore,
the councils of the city and the county have to shed
more than 50 seats, if they are merged. The shrinking
lebensraum of local politicians makes them resent the
merger. They may be forced to write off their long political
investment.
Other counties also resent Taichung becoming
Taiwan’s first metropolitan area. Taipei County is opposed
to it, in particular. It is Taiwan’s most populous
county, whose magistrate Chou His-wei was promised
its special municipality before the change of government
in May 2008. With a population of 3.82 million,
the county was given authorization to start preparations
for the creation of a special municipality in 2007. A city
or county, according to the Local Government Act, can
be made a special municipality if its population exceeds
two million. Chou threatened to resign as magistrate, if
the merger of the city and county of Taichung should
take place before his county was made a special municipality.
Local potentates in Kaohsiung also do not
want Taichung to take precedence. The special municipality
of Kaohsiung will be much smaller in scale than
the new metropolitan area of Taichung, which will have
a population of 3.6 million. These leaders want the merger
of their special municipality and the county of
Kaohsiung before Taichung is made Taiwan’s first metropolis.
Still another difficulty is that time is running short
for Taichung to be made a special municipality. President
Ma’s master plan requires the special municipality
of Taichung to be inaugurated on December 25, 2010. A
bill for its inauguration has just been passed by the Executive
Yuan. It will be referred to the Legislative Yuan
for action. Moreover, all the necessary bylaws have yet
to be drafted. If inaugurated on time without these bylaws
adopted, the new special municipality cannot
function properly for lack of enough staff and a sufficient
budget. The chances are that these bylaws can all
be enacted before the end of 2010.
Last but not least, the creation of the special municipality
of Taichung is being done from the top down.
The proposal for the creation was made by the Ministry
of the Interior in accordance with President Ma’s master
plan. No local authorities were consulted for how to
go about the inauguration of their new special municipality.
No local opinion was reflected on the planning
for the proposed metropolis. It will be very difficult to
have the new metropolis created without the support of
the fully consulted local authorities.
The aforesaid difficulties can be summed up as a
political problem. It needs a political solution. Political
opposition to the creation of Taichung as Taiwan’s first
metropolis has to be removed. Lawmakers have to be
urged to adopt all the necessary laws as soon as practicable.
V. Recommendation
One way to overcome the difficulties encountered
in merging the city and county of Taichung to form a
special municipality is to set up a Committee for Demarcation
of Administrative Districts, where all matters

Feasibility of Creating a New Special Municipality of Taichung 105
concerning the establishment of the new metropolis can
be fully discussed and debated to reach consensus on
how to proceed. Government officials, scholars, local
leaders and city planning experts shall sit on the committee.
The decisions they recommend will be included
in the policy planning, making it easier for the Legislative
Yuan to adopt all the necessary bylaws to help inaugurate
the special municipality with success.
It is recommended that President Ma or Premier
Liu Chao-shiuan promise budget appropriations for
subsidies and infrastructure construction when the city
and county of Taichung declare their intention to merge
as a special municipality. Such commitment will minimize
the local obscurantism.
The master plan of President Ma needs more promotion.
Most people in the city and county of Taichung
know little about the plan to create three metropolises
and 15 counties. It is suggested that President Ma and
top territory planners meet leaders of the Taichung area
to talk about how the new special municipality can
make their life better.

106 Taiwan Development Perspectives 2009

Policy for Indigenous Peoples in Transition 107
Policy for Indigenous Peoples in Transition
KUNG, Wen-chi
Abstract
Indigenous peoples in Taiwan were called Shan Bao or Mountaineer Compatriots after
the island was restored to the Republic of China at the end of the Second World War.
They were treated like second-rate citizens. As Taiwan was democratized, a constitutional
amendment was adopted to better protect the civil rights of the indigenous peoples. Their
political participation is guaranteed by the Constitution. Their education, culture, social
welfare, and economic undertakings have been promoted. The Council of Indigenous Peoples
was established under the Executive Yuan in December 1996. City and county governments
set up separate bureaus to provide service and care for indigenous peoples. The
Basic Law of Indigenous Peoples was passed by the Legislative Yuan in 2005. The basic
law lays the foundation for a new national policy for indigenous peoples. The United Nations
Declaration on the Rights of Indigenous Peoples was proclaimed on September 13,
2007.” The new policy on indigenous peoples is being formed in line with the stipulations
set forth in the basic law and the U.N. declaration to ensure their wellbeing.

108 Taiwan Development Perspectives 2009
I. History and Status of the Indigenous
Peoples in Taiwan
Opinion is divided over whether indigenous peoples
have their history. Scholars call them “a nation
with history.” (See Attwood & Arnold, 1992.) Others,
taking the Aborigines in Australia as an example, describe
indigenous peoples as “outside the nation, inside
the state” and eliminate them from the process of Australia’s
nation-building. (See Beckett, 1988.) I believe
indigenous peoples are peoples with a history that has
been erased.
The role the indigenous peoples in Taiwan have
played in its history is somewhat similar to that the Aborigines
did in Australia. The indigenous peoples in
these two countries account for around 2 percent of
their respective populations. (It was around 2.14 percent
in Taiwan as of the end of October 2008). Han
Chinese and white men were immigrants, who arrived
much later after the indigenous peoples had settled in
Taiwan and Australia. The indigenous peoples in Taiwan,
however, were eliminated from the process of its
nation-building. Before 1990, the indigenous peoples
were regarded as “others” in Taiwan. They were not
considered to belong to the Han Chinese nation. They
were always “others” to the Han Chinese majority.
Their historical identity is chauvinistically subsumed in
the master narrative of Han history. No due respect was
paid to their culture and tradition. Hence the indigenous
peoples were described as “savages” while Taiwan was
under Qing Chinese rule and called “Shan Bao” or
Mountaineer Compatriots after 1945. (The Japanese
called them Takasago-zoku or Takasago Tribes while
Taiwan was under their colonial rule from 1895 to
1945.) The somewhat derogatory common name of the
original inhabitants of Taiwan was finally changed to
indigenous peoples in 1994. The change is specified in
the Constitution to make it clear that the indigenous
peoples were original inhabitants of Taiwan.
The indigenous peoples had lived in what is formerly
known as Formosa for thousands of years before
the Western colonialists – Dutch and Spaniards – occupied
the island in the seventeenth century. Han Chinese
started a large-scale immigration after the Dutch had set
up their colonial rule in 1624. Soon the Chinese far
outnumbered the indigenous peoples. Koxinga drove
the Dutch out of Taiwan in 1662. His grandson surrendered
Taiwan to Qing China in 1682. China annexed
Taiwan in 1683, but ceded it to Japan under the Treaty
of Shimonoseki in 1895. In 1945, Taiwan was restored
to the Republic of China after 50 years of Japanese colonial
rule. The government of the Republic of China
moved to Taipei from Nanjing at the end of 1949, raising
Taiwan’s provincial status of Taiwan to that of nation
state. The Kuomintang had ruled Taiwan until 2000
when the Democratic Progressive Party came to power.
Eight years later, the Kuomintang came back to power.
The policy for indigenous peoples the current Kuomintang
administration has is in line with its party guidelines
laid down before 2000.
Taiwan’s indigenous peoples speak Austronesian
languages. There are nine major tribes: Ami, Atayal,
Bunun, Puyuma, Paiwan, Tao (Yami), Rukai, Tsou, and
Saisiyat. They were so defined by the Japanese during
their colonial rule of Taiwan. In recent years, five minor
tribes have been added. They are the Thao (2001), Kavalan
(2002), Truku (2004), Sakizaya (2007) and Sediq
(2008). The Council of Indigenous People serves altogether
fourteen tribes that have their own languages,
cultures, and social structures. Moreover, other tribes
are trying to win government recognition of their separate
existence. Among them are the Chimo, Kakabu,
Makatao, Pazeh/Kaxabu and Siraya. As of the end of
October 2008, Taiwan’s indigenous population stood at
492,548. Of them 232,031 are considered residents in
the plain area. The remaining 260,517 are residents in
the mountain area, which accounts for around 45 percent
of Taiwan’s total land area.
II. Shan Bao Policy 1950-1990
Dr. Sun Yat-sen, founder of the Kuomintang,
emphasized that the spirit of Nationalism, one of his
Three Principles of the People, was “helping the weak
and aiding the needy” and “ethnic equality.” However,

Policy for Indigenous Peoples in Transition 109
that spirit does not seem to be fully understood by the
Kuomintang that is Taiwan’s governing party now.
No policy has been laid down to follow his principle to
the letter to help the indigenous peoples in Taiwan.
There was no mention of the rights of indigenous peoples
in the Constitution before 1990. The Kuomintang
government policy for Shan Bao or Mountaineer Compatriots
was enforced by executive orders for the most
part of the previous four decades and a half. The indigenous
peoples complained that there were no special
laws to safeguard their basic rights.
Though Taiwan has been democratized and modernized,
the life of indigenous peoples is characterized
by “absolute progress and comparative regression.”
There has been progress in their cultural level as well as
social and economic status year after year but they are
lagging far behind their Han Chinese compatriots. For
example, the average income of Taiwan’s indigenous
peoples is only a third of what the Han Chinese majority
earn. Their unemployment rate is almost three times
as high as that of Han Chinese. Only nine percent of the
indigenous peoples are college graduates, against 22
percent of the Han Chinese. Only 17 indigenous people
hold Ph. D. degrees. Accidents and disasters occur frequently
in the mountain area, where medical assistance
is hard to come by. Their life expectancy is ten years
less than that of the Han Chinese. All this hampers the
proper economic and social development of indigenous
peoples.
Taiwan’s Shan Bao Policy from 1950 to 1990 emphasized
“assimilation” or “melting” in addition to
“modernization.” The government wanted Mountaineer
Compatriots to make “synchronized and parallel progress”
with the Han Chinese. The result is a marked
assimilation of indigenous peoples in Han Chinese society.
In education, on the other hand, Han Chinese
chauvinism precluded the teaching of the history of
indigenous peoples, their cultures and their languages.
Indigenous peoples were made to learn little of their
history and culture. Many of them can hardly speak
their mother tongues well. There never were plans to
revise school textbooks to give indigenous children a
better understanding of themselves.
Political reform began in Taiwan in the mid-1980s.
Martial law was lifted. So was the ban on new political
parties. The press was made free. It was time for indigenous
peoples to campaign for their basic rights.
The Association for the Promotion of the Rights of
the Indigenous Peoples in Taiwan (APRIPT) was set up
in December 1984. The APRIPT tackled such issues as
indigenous child prostitution, indigenous labor controversy,
the nuclear waste on Orchid Island, indigenous
land rights, and demolition of the bronze statue of Wu
Feng. (A Han Chinese myth made Wu Feng, an interpreter,
promise his life in exchange for an end by indigenous
tribesmen of their head-hunting custom.) Indigenous
lawmakers spoke up for the rights of their
peoples. These were memorable accomplishments of
the APRIPT. The indigenous rights movement compelled
the Kuomintang and its government to act positively
and proactively on the policy for indigenous
peoples. As a matter of fact, the administration was
forced to respond to the demands of indigenous peoples
for reform. As a whole, however, the policy was conservative
and passive.
III. Policy for Indigenous Peoples in the 90s
Taiwan lifted its long state of emergency in 1991
by ending the Period of National Mobilization for Suppression
of Communist Rebellion, which was proclaimed
by President Chiang Kai-shek in Nanjing in
1948. The end of the state of emergency, on the other
hand, contributed materially to the consolidation of
democracy in Taiwan. The Constitution of 1947 was
amended in 1992 to explicitly specify that the status
and political participation of the “Shan Bao in the free
region” shall be protected. The government has to assist
in and facilitate the promotion of their education, cultures,
social benefits and economic welfare. Another
constitutional amendment in 1994 further confirms
their multiple cultures, which must be taught in school
along with their Austronesian languages. The amend-

110 Taiwan Development Perspectives 2009
ment also designates the original inhabitants of Taiwan
as “indigenous peoples,” the goal they had strived for
more than 10 years to achieve.
These constitutional amendments are regarded as
an important watershed for the indigenous rights
movement. They provide a constitutional basis for laying
down a new policy for indigenous peoples. The
Council of Indigenous Peoples was organized as an
agency directly under the Executive Yuan in December
1996. Subsequently, city and county governments set
up separate bureaus to provide service and care for indigenous
peoples within their respective jurisdictions.
All this is a far cry from the near-neglect of indigenous
peoples after Taiwan’s retrocession in 1945
when a provincial government was organized to rule
the island. One of its departments, the department of
civil affairs, had the jurisdiction over the “mountain
area” where the Mountaineer Compatriots lived. A division
under the department, the fourth one, was in
charge of indigenous administration. That low-level
administrative system remained unchanged for four
decades, making it impossible to adequately promote
the wellbeing of indigenous peoples in Taiwan. It was
not until 1985 when the Ministry of the Interior established
a “Shan Bao Work Review Group.” Two years
later, in 1987, a Mountain Area Administration Division
was established under the Department of Civil Affairs
of the Ministry of the Interior. The affairs of indigenous
peoples were administered at the highest level of government
for the first time since Taiwan’s retrocession.
As urbanization continued apace in Taiwan, many indigenous
peoples left their tribal villages for big cities
to make a living. Taiwan’s two special municipalities,
Taipei and Kaohsiung, also established Shan Bao divisions
under their respective bureaus of civil affairs in
1988.
In answer to the repeated calls for elevation of the
level of administration, the Taiwan Provincial Government
upgraded its Mountain Area Administrative Division
to the rank of bureau. A Taiwan Provincial Shan
Bao Bureau” was inaugurated in 1990. But the organization
was still under the Department of Civil Affairs of
the Taiwan Provincial Government.
The two special municipalities took a large forward
step in 1996. An Indigenous Peoples Commission
was organized as an agency directly under control of
the Taipei Municipal Government in March. Kaohsiung
followed suit by creating its indigenous peoples commission
in December. The elevation of the level of administration
makes it possible to better conduct indigenous
affairs. All new agencies, including the Council of
Indigenous Affairs under the Executive Yuan, were
headed by political appointees. They were all indigenous
tribesmen. It is no exaggeration to say 1996 was
the year when indigenous peoples started to be their
own masters. They are able to make decisions on how
to manage their own affairs.
I made a five-point recommendation in an article
published immediately before my departure for the
United Kingdom in February 1993 to pursue studies
toward a doctorate. In the article, titled “Comprehensive
Shan Bao Policy Reform to Usher in a New Era for
the Indigenous Peoples,” I recommended:
That an ethnic minority commission be established;
That more indigenous people be invited to join in
the administration of their affairs;
That indigenous people be asked to join the Cabinet;
That laws be enacted for protection of the rights
and benefits of the indigenous peoples; and
That an autonomous community be set up for the
indigenous peoples.
The first four points recommended have been carried
out one by one in Taiwan with success. The last
one was included in the Kuomintang platform for the
presidential election of 2008. It is believed that President
Ma Ying-jeou will have an autonomous community
created for the indigenous peoples in the near fu-

Policy for Indigenous Peoples in Transition 111
ture.
IV. Better Administration and Autonomy
for Indigenous Peoples
The Council of Indigenous Peoples is a Cabinet
agency. Its policy decisions are subject to Cabinet approval.
On the other hand, it exercises no direct control
over city and county bureaus of indigenous peoples.
As a consequence, it does not have enough power to
effectively improve the administration of indigenous
affairs across the country. Recommendations have been
offered to make it an independent government agency
like the U.S. Bureau of Indian Affairs. It alone will
have a final say in the conduct of indigenous affairs.
With that high authority and a larger independent budget,
it will be able to properly promote the wellbeing of
all indigenous peoples.
As to the issue of autonomy for the indigenous
peoples, the “Basic Law of Indigenous Peoples” was
passed by the Legislative Yuan on January 14, 2005 and
promulgated on February 5, 2005. The regulations regarding
autonomy are specified in Articles 4, 5 and 6.
Article 4 reads in part: “the government shall protect an
equal status and autonomous development for the indigenous
peoples and implement indigenous autonomy
based on the indigenous peoples’ willingness. The related
matters shall be specified by laws.” It is stipulated
in Article 5 that “the nation shall provide sufficient resources
and list generous budget to assist in the indigenous
autonomy and development. Local system laws,
financial revenues and expenditures dividing act and
other county (city) laws and regulations shall be applied
to the autonomous authorization and financial affairs
within the autonomous communities unless otherwise
specified in this Law and the laws or acts concerning
autonomy.” Article 6 specifies that “any disputes arising
from the autonomous authorization between the
government and indigenous peoples shall be arbitrated
through the negotiation meeting convened by the Office
of the President.”
Furthermore, the “United Nations Declaration on
the Rights of Indigenous Peoples” was passed on September
13, 2007. Article 3 in the Declaration says: “Indigenous
peoples have the right to self-determination.
By virtue of that right they freely determine their political
status and freely pursue their economic, social
and cultural development.” Article 4 reads: “Indigenous
peoples, in exercising their right to self-determination,
have the right to autonomy or self-government in matters
relating to their internal and local affairs, as well as
ways and means for financing their autonomous functions.”
The declaration explicitly states and protects
the indigenous peoples’ right to autonomy and
self-determination.
President Ma promised the “trial founding of an
indigenous autonomous community” in the run-up to
the 2008 election. He believes an indigenous autonomy
act and an administrative district act must be drafted in
line with the Basic Law of Indigenous Peoples as soon
as possible to help them realize their desire for
self-determination. When these laws and related
by-laws are adopted, the government should set up autonomous
districts on a trial basis in politically mature
areas in Taiwan. These districts would be given power
to make personnel appointments and to administer their
finance. They may form a parliament where all matters
concerning indigenous autonomy will be discussed and
decided on. More autonomous districts will be created
after the success of the trial. In the end, these districts
will be combined to make an autonomous community.
V. Conclusion
Indigenous peoples in the fourth world are calling
for self-determination. This is the common and powerful
clarion call for autonomy the indigenous peoples the
world over. The Kuomintang came back to power in
2008, ready to implement a new policy for the benefit
of Taiwan’s indigenous peoples. Meanwhile, their appeals
for autonomy and better social and economic
development are heeded by the Kuomintang administration.
I believe the days are not too far off for
the indigenous peoples to achieve their goal of
self-determination.

112 Taiwan Development Perspectives 2009
I insist that to establish an autonomous community
for the indigenous peoples with the protection of
the Constitution is the only way for them to determine
their future and be their own maters with their rights
and benefits intact under any different political systems
or despite a change in time and space. This is in line
with the worldwide policy trend vis-à-vis ethnic minorities
that emphasizes the spirit of autonomy and
self-determination. For the indigenous peoples in Taiwan,
self-determination does not mean their breaking
away from the country to establish another political
entity with sovereignty. It means that they control their
own destiny in their autonomous community within the
country. It is necessary to establish such a community
to dispel their anxiety for the future. All the laws President
Ma has promised for the indigenous peoples have
to be adopted as soon as practicable.
Deng Xiaoping had a famous “one center, two
basic points” quip for peace across the Taiwan Strait.
As for me and my indigenous self-determination
scheme, his “one center” can be our free and democratic
political system in Taiwan and the “two basic
points” are our constitutional protection of the rights of
the indigenous peoples and the establishment of their
autonomous community. Currently, the one center (free
and democratic state) is in place. So is one of the two
basic points, constitutional guarantee of the protection
of the rights and benefits of the indigenous peoples.
The missing basic point is the establishment of an autonomous
community. When that missing basic point is
back in place, Taiwan’s policy for indigenous peoples
will be the world’s best ethnic minority policy. A free
and democratic governmental can establish an autonomous
community for the indigenous peoples where
they are their own masters and can also make it possible
at the same time for them to enjoy their rights and
benefits protected by the Constitution when they leave
their community to make a living in Han Chinese society.
It is a perfect indigenous policy.

Revision of the Assembly and Demonstration Act 113
Revision of the Assembly and Demonstration Act
HSIEH, Yu-cheng
Abstract
The Assembly and Demonstration Act is once again under debate and controversy.
Although both the ruling and opposition parties acknowledge the necessity of the amending
the act, no agreement has been reached on how the act should be amended. Lawmakers and
civic bodies have come up with a relatively more liberal version, for they insist that the act
should protect freedom of expression. On the other hand, the Executive Yuan wants to enforce
the act to maintain social order. A government version places stricter restrictions on
assemblies and demonstrations. The act is unlikely to be amended in the near future, for the
chances are slim that the two opposing versions can be readily reconciled.
Key words: the Assembly and Demonstration Act, freedom of expression, order maintenance

114 Taiwan Development Perspectives 2009
Introduction
The Assembly and Demonstration Act was promulgated
in 1988. The purpose of the act is to “protect
the freedom of the people to assemble and demonstrate”
on the one hand and to “maintain social order”
on the other. The legislation has been criticized for
curbing freedom of speech in the name of order maintenance.
Although it was amended twice in 1992 and
2002, calls for further revision have continued.
Amendment advocates consider the act overly and restrictive
for assemblies and demonstrations because
they may be called off by the law enforcement authorities.
The act is considered out of date.
An up-to-date assembly and demonstration act is
less a theoretical reflection than a realistic necessity.
Controversy occurs each time a demonstration takes
place, be it organized by civic bodies or political parties.
Demonstrators believe they are exercising their constitutional
right, while the police can crack down on them
in line with the 1988 act. This discrepancy causes social
conflict and undermines the legitimacy of the government.
Policing action against mass rallies in Taipei triggered
social unrest in early November 2008. In the
face of an outcry for injustice, the ruling Kuomintang
started pushing for another revision of the 1988 act to
close the gap between the law and the public expectation
of assemblies and demonstrations. The revision
may change the relationship between the people and
their government. At least, it will reshape the way of
political expression in Taiwan.
This article summarizes and analyzes the most
significant differences among several amendment versions.
They include the proposals from an alliance of
civic bodies, Democratic Progressive Party lawmakers,
their Kuomintang counterparts, and the government
(Executive Yuan).
Different Views
Fundamental differences among the various versions
of a new assembly and demonstration act lie in
what function that law should perform. Should the law
serve to safeguard freedom to speech, maintain social
order, or reduce the labor of the police? Various stakeholders
in the legislation demand a specific set of proposes
in their versions of the draft act. The administration
stresses the role of the police in the maintenance of
law and order. Civic bodies call for more freedom to
demonstrate and want to eliminate as many restrictions
as possible. Parliamentarians of the ruling and opposition
parties try to strike a balance to find a merging
margin in the conservative-liberal spectrum. Significant
differences are listed in Table 1. They are observed in
the following points:
1. Principle
The Executive Yuan stresses regulation in matters
pertaining to assemblies and demonstrations. Organizers
have to apply to the law enforcement authorities for
approval of, or give them notice in advance for, assemblies
and/or demonstrations. This principle of regulation
is reflected in Articles 1, 5, 8 and 9 of the government-proposed
Assembly and Demonstration Act. The
authorities can turn down the applications and any assembly
or demonstration without previous approval is
considered unlawful. In that case, the police are authorized
to disperse the assembled crowd by force, if necessary.
On the other hand, the requirement of previous notification
guarantees the right to assemble and demonstrate.
There are two types of advance notification, coercive
and voluntary. Coercive notification requires
organizers to notify the authorities in advance; and if no
notification is presented, assemblies and/or demonstrations
are unlawful. On receipt of notice, the authorities
may tell organizers not to hold an assembly or demonstration
if it is considered likely to cause social unrest.
In other words, the authorities are given the chance to
veto any assembly or demonstration. Voluntary notification
requires no obligation on the part of organizers
to give notice to the authorities. Demonstrators may
take to the streets freely. Notice is given the authorities

Revision of the Assembly and Demonstration Act 115
to ask for protection, if needed, or assistance in maintaining
order. Each of the three approaches is supported
by advocates for the proposed act.
The existing law fallows the Coercive notification
approach and requires organizers to apply for approval.
Statistically, applications in the past were overwhelmingly
granted but the authorities have the last say on
assemblies and/or demonstrations. They may turn down
the applications under the pretext of maintenance of
social order or at their own discretion.
Civic bodies and legislators support voluntary notification,
while the administration favors coercive notification,
which is strongly opposed by human right
activists.
2. Veto Power
Can assemblies or demonstrations be banned? If
so, for what reasons? Relevant stipulations are found in
Articles 4 and 11 of another proposed act. As a matter
of fact, voluntary notification takes away the veto power
of the law enforcement authorities. Only when two
or more groups are going to demonstrate at the same
location at the same time can the authorities mediate to
prevent clashes. Coercive notification and the approval
mechanism stipulated in the current act permit the authorities
to veto assemblies and/or demonstrations.
Human rights advocates criticize the coercive notification
mechanism for “appearing to protect the right to
protest but providing an excuse for the authorities to
ban a demonstration that is against their interest.” The
alliance of civic bodies has proposed the version that
gives the authorities no excuse to rule out a demonstration.
So have parliamentarians of the ruling Kuomintang
and the opposition Democratic Progressive Party.
However, the administration insists on coercive notification.
3. Power of Modification and Intervention
Can the police modify or intervene in the scheduled
assemblies and demonstrations? Article 14 of the
current act endows the police with the power to apply
“necessary limitations” to assemblies and/or demonstrations
in nearly every aspect. According to Article 12
of the current act, the police have to inform the organizers
of any modification to be made in 36 hours before
an assembly or a demonstration is to take place. Otherwise,
the public meeting can be held as scheduled.
Actually, the current act gives police a broad power to
intervene in any public meeting. Many civil bodies as
well as legislators complain that the current act undermines
constitutional freedom of assembly. The alliance
of civic bodies has proposed to leave the police no
room to modify the plan of a demonstration. Lawmakers
support the proposal but the administration wants
the plan to be reviewed by the law enforcement authorities,
who may make modifications in advance and
intervene while a public meeting is under way.
4. Power to Call off Public Meetings
The current act allows the law enforcement authorities
to withdraw the permission they have given to
a public meeting. Its Article 25 allows the police to
“warn against, and stop or dissolve by order,” any unauthorized
public meeting, albeit its Article 26 declares
the principle that the authorities should not violate the
rights and interests of those citizens assembled. Most
advocates find Article 26 toothless and insubstantial.
Many argue that the police are authorized to maintain
order when violence and irregularities occur anywhere
at any time and it is therefore totally unnecessary to
single out police control at public meetings in the current
act. But the administration has made no fundamental
change in the relevant stipulations in the current
act with merely wording changed. All other versions
either remove its Articles 25 and 26 or offer detailed
provisos for when and how police control can be enforced
and a public meeting can be called off.
5. Applications for Review
According to the current act, organizers can apply
for review when their applications for public meetings
are turned down or their plans are modified by the police.
Its Article 16 stipulates applications for review can

116 Taiwan Development Perspectives 2009
be filed with the next higher authorities of the police.
Voluntary notification makes this article irrelevant.
All versions remove the irrelevant act. However, the
Executive Yuan version which retains the coercive notification
mechanism does not offer alternative stipulations
for review. As a consequence, organizers will have
no recourse when their applications for an assembly or
a demonstration are rejected or their plans modified.
6. Imprisonment or Fine
One of the main criticisms against the current act
is that offenders have to go to jail and pay a fine, if
convicted. Its Article 29 stipulates organizers of public
meetings found to have disobeyed police orders can be
sentenced to not more than two years in prison. All
published versions delete this article. But the government-proposed
version gives the police the power to
fine offending organizers repeatedly until after their
public meetings come to an end.
7. Qualifications of Organizers
The current act specifies the qualifications of organizers,
their representatives and personnel in charge
of control at public meetings. Among those who are not
eligible are people under 20 years of age and foreign
nationals. Most versions remove the qualifications, because
the right to demonstrate has nothing to do with
one’s age and nationality. Actually, migrant workers,
new immigrants and international students who are no
citizens are the groups most vulnerable to exploitation
in Taiwan. Depriving them of the right to organize protest
rallies infringes on their human rights to fight for
better treatment when they are mistreated. Only the
administration wants to retain the limited eligibility of
organizers and their assistants.
8. Off-limits Area
demonstrations to take place near such locations as
important government offices, international airports and
harbors, military establishments, and the residences of
foreign diplomats. All versions remove this control.
Proponents are convinced that if people want to have
their complaints heard, they have to go to those places
that are made off-limits now. If the law prohibits them
from demonstrating in the face of government officials,
they may lose chances to seek effective recourse. But
the administration demands protestors to demonstrate in
places “at a safe distance” away from the off-limits
areas prescribed in the current act, though that safe distance
is not clearly defined.
9. Other Possible Revisions
The Executive Yuan retains Article 2 of the current
act, in which the term demonstration is not clearly defined.
All other versions insist on defining the demonstration
as a group action to campaign for a cause.
Its Article 3 assigns local chiefs of police to authorize
public meetings. But no mention is made of
exactly who their next higher authorities are to whom
organizers can go to ask for a review if their applications
for a public meeting are turned down or their
meeting schedule is modified. That has caused confusion
in the past. Is the local government head the next
higher authorities of chiefs of police? Or should the
director of the National Police Agency be asked to review
the decision of a local chief of police? All the versions
except the one proposed by the government
makes the National Police Agency the next higher authorities
of all local chiefs of police.
All versions delete Article 4 of the act in force that
bans public meetings in support of Communism or division
of the national territory of the Republic of China
in Taiwan.
The act in force does not allow assemblies and

Revision of the Assembly and Demonstration Act 117
Table 1 Comparison of Four Amendment Versions
Civic bodies
KMT Legislator
Chu Feng-chih et al
DPP
Legislators
Government
(Executive Yuan)
Act in force
Principle
Voluntary
notification
Voluntary notification
Voluntary
notification
Coercive
notification
Regulation
Veto Not possible Not possible Not possible
Modification or
limitation
No No No
Possible when
necessary
Modification or
limitation possible
Possible when
necessary
Modification or
limitation possible,
when necessary
Review Not necessary Not necessary Not necessary
Necessary but
without stipulation
Punishment Fining Fining Fining Fining
Eligibility
requirements
Necessary and
stipulated
Fining and
imprisonment
Removed Removed Removed Kept Kept
Off-limits area
No off-limits
area; or by
approval
No
No
Safe distance from
key locations
Prescribed
Notes:
1. KMT stands for Kuomintang.
2. DPP stands for Democratic Progressive Party.
Source: All versions are published on the Parliamentary Library Website 1 and the Action 1106 Website. 2
1 URL: http://npl.ly.gov.tw/do/www/homePage (2008/12/03 download)
2 URL: http://blog.yam.com/right_of_assembly/article/15270936 (2008/12/03 download)

118 Taiwan Development Perspectives 2009
Conclusion
Quite clearly, there is no agreement on how to
amend the Assembly and Demonstration Act. The fundamental
difference is whether to remove all control or
to keep part of it. Civil rights advocates and parliamentarians
are more liberal, insisting that all that is necessary
for voters to take to the streets is to give the law
enforcement authorities their “voluntary notification.”
The government is conservative and wants “coercive
notification” of organizers so that the police may veto
any assembly or demonstration at their own discretion,
whereas no veto power is available under the “voluntary
notification” mechanism.
Freedom of expression is the core consideration of
all proponents of the amendment except the Executive
Yuan. In terms of freedom of speech, the amendment
versions proposed by the civic bodies and the lawmakers
leave more room for people to speak out through
their public meetings for organizers are not liable to
punishment. As a matter of fact, organizers are convinced
it is no crime to rally for a cause even if that
may cause the police and the public some trouble. On
the other hand, the government version is not quite in
line with freedom to speech. The government wants
organizers to inform the police of their public meetings
in advance and the police can still ban the meetings or
modify the meeting schedules. If the police do so, the
organizers have no way to ask for a review of the police
decisions.
coercive notification mechanism to lighten the burden
on the police, who will be made better able to handle
any contingencies arising from more assemblies and
demonstrations.
Although each version is a trade-off between
freedom of expression and police workload, the one
proposed by the Executive Yuan might be a realistic
balance between the stance of the police, the expectation
of the public, and the intention of President Ma
Ying-jeou who promised a revamping of the act
adopted in 1988. The overhaul is clearly stated in his
white paper on human rights issued while he was campaigning
for president.
Though the voluntary notification mechanism has
bipartisan support in the Legislative Yuan, it may not be
passed with ease. Among legislators, this act is too controversial
to summon agreement from the significant
stakeholders in the near future. However, the Executive
branch traditionally has the capability of swaying public
opinion on a political agenda, which, in turn, may
influence the voting in the Legislative Yuan. If the
Kuomintang, which controls a virtual three-fourths
majority in the legislature, decides to throw full support
behind its administration, the act to be finally adopted
may be a conservative and restrictive one. Whether
President Ma will approve of the conservative act or try
to exert his influence over Kuomintang lawmakers to
go against their party line remains to be seen
The heavy workload of the police is the major
concern of the Executive Yuan, albeit it is not a key
issue to all other proponents. Their versions, if adopted,
may make it easier for people to march in protest, further
increasing the heavy workload of the police and the
chances of their clashes with protesting crowds.
When violence occurs in clashes, the police are inevitably
criticized. If they do not control the rowdy, the police
are damned for “being too soft” on violence-prone
members of the crowd. If they repress the rowdy in
force, they are condemned for police brutality. It is understandable
that the government wants to adopt the

Exercise of the Powers of Examination and Control 119
Exercise of the Powers of Examination and Control
KAO, Yuang-kuang
Abstract
The Constitution of the Republic of China provides for a central government with five
Yuans, each of which exercises a government power. Two of them are unique. They are the
Control Yuan that is the nation’s highest watchdog body exercising the power of control,
and the Examination Yuan that exercises the power of examination, responsible for the
examination, employment, and management of all civil service personnel. The powers of
control and examination were created in addition to the traditional three-power system of
government in the West by Dr. Sun Yat-sen, founder of the Chinese republic. During the
past eight years, however, former President Chen Shui-bian materially interfered in the exercise
of the examination and control powers, infringing on the neutrality of bureaucracy
and forcing the Control Yuan to fall into abeyance. President Ma Ying-jeou, who succeeded
Chem, insists on neutrality in the process of nomination for candidates to form the new
Control and Examination Yuan. Such an insistence to uphold his political idealism bruised
Ma in the inauguration of the two yuan in 2008.
Key Words: examination power, control power, Chen Shui-bian, party inclination.

120 Taiwan Development Perspectives 2009
1. Introduction
Ma Ying-jeou was inaugurated as president of the
Republic of China on May 20, 2008. In a New Year
message, President Ma stressed on January 1:
Taiwan entered a new and historic era of political
development last year. We have passed a test of democratization,
finishing our second peaceful transfer of
political power between different political parties. Taiwan
is advancing into a period marked by more stable
democracy and better governance. In the past six
months, the Control Yuan has been reinvested with its
full power and is now operating normally; therefore the
five-branches of the government under the Constitution
are functioning efficiently once again. We have cleaned
up political corruption and restored the political culture
of integrity 1 .
He meant the five-power government of the nation
did not function normally under President Cheng
Shui-bian over the past eight years.
The five-power government was invented by Dr.
Sun Yat-sen, the founding father of the Republic of
China. He separated the power of control from the legislative
power, and detached that of examination from
the executive power of government. In most Western
countries, a parliament or congress exercises the power
of control as well, making the legislative power disproportionately
stronger than the executive power. The
executive branch of the government, on the other hand,
is responsible for the examination, employment and
management of civil service personnel, infringing on
the neutrality of public functionaries. Dr. Sun wanted to
prevent the abuse by creating the two powers.
Dr. Sun’s separation of powers is increasingly accepted
in the West. Independent institutions, such as the
1 http://www.president.gov.tw/en/prog/news_release/
document_content.php?id=1105499867&pre_id=11
05499867&g_category_number=145&category_num
ber_2=145
Ombudsmen in Nordic countries or the Merit Systems
Protection Board in the Unite States, function like the
Control Yuan in the Republic of China, the nation’s
highest watchdog body that exercises the power of control.
While in office, President Chen Shui-bian insisted
that the central government of the Republic of China be
reduced to three yuan from the five mandated in the
Constitution. Aside from the Control Yuan, the central
government consists of the Executive Yuan (Cabinet),
Legislative Yuan, Judicial Yuan, and Examination Yuan.
He wants to get rid of the Control and Examination
Yuan simply because the five-power government was
an invention by Dr. Sun for the Republic of China proclaimed
in Nanjing in 1912. Chen even tried to rewrite
the Constitution promulgated in 1947 in an attempt to
de-Sinicize Taiwan. He tried to abolish the Control
Yuan and reorganize the Examination Yuan as a Civil
Service Commission directly under control of to the
Office of the President or the Executive Yuan.
2. Interference in the Exercise of the Power
of Examination
To get rid of the Control and Examination Yuan,
President Chen had to amend the Constitution. No
amendment was possible without the initiation by the
Legislative Yuan, where his Democratic Progressive
Party was a minority. As a consequence, hen had to
make an end run to undermine the powers of control
and examination.
According to the Constitution, the president, vice
president and members of the two yuan shall be nominated
and, with the consent of the Legislative Yuan,
appointed by the president of the Republic. All the appointees
serve a six-year term. When Chen was inaugurated
as president in May 2000, the head of the Examination
Yuan was Hsu Shui-teh ( 徐 水 德 ), whose
term of office ran out on August 31, 2002.
On June 21, 2002, Chen nominated Yao Chia-wen,
a former Democratic Progressive Party chairman, and

Exercise of the Powers of Examination and Control 121
Chang Po-ya, who had no party affiliation, as president
and vice president of the Examination Yuan. Also nominated
were 19 Members of the Examination Yuan.
Their nomination had to be confirmed by the Legislative
Yuan, where the opposition alliance of the Kuomintang
and People First Party controlled 113 of the
225 seats. Without agreement with the opposition, Yao
was unlikely to be confirmed. The Kuomintang tended
to support Chang as vice president of the Examination
Yuan, in place of whom the People First Party preferred
to have one of its members nominated by President
Chen confirmed. Only 116 legislators were present and
voting to confirm the nominees. Yao’s nomination was
confirmed by a vote of 113 for and one against. Chang
was rejected by a vote of 102 for and five against with
nine others invalidated. The nomination of all 19
members of the Examination Yuan was confirmed.
Twelve of them were supported by the opposition. They
included Iban Nokan ( 伊 凡 諾 幹 ), Wu Tai-cheng ( 吳 泰
成 ), Wu Chia-li ( 吳 嘉 麗 ), Lee Grace Whei-may ( 李 惠
梅 ), Chiu Tsong-juh ( 邱 聰 智 ), Hung Teh-hsuan ( 洪 德
旋 ), Hsu Cheng-kuang ( 徐 正 光 ), Hsu Ching-fu ( 許 慶
復 ), Liu Wu-tse ( 劉 武 哲 ), Liu Hsin-su ( 劉 興 善 ), Tsai
Bih-hwang ( 蔡 壁 煌 ) and Bian Yu-yuan ( 邊 裕 淵 ).
The governing party supported the other seven: Wu
Mao-hsiung ( 吳 茂 雄 ), Lee Ching-hsiung ( 李 慶 雄 ), Lin
Yu-tee ( 林 玉 體 ), Chang Cheng-shuh ( 張 正 修 ), Kuo
Guang-hsiung ( 郭 光 雄 ), Chen Mao-hsiung ( 陳 茂 雄 )
and Tsai Shih-yuan ( 蔡 式 淵 ).
Both Chen and Yao were inclined to abolish the
Examination Yuan. Nevertheless, they made it the
spoils of office, divided among political parties after
horse-trading.
With Yao as its president, the Examination Yuan
could not function independently. The governing party
was able to intervene. The power of examination was
not exercised normally for six years.
Political interference hindered the exercise of the
examination power in two ways. Amoy or Min, a dialect
spoken in southern Fujian and Taiwan, was introduced
in setting examination papers. For example, in
the civil service examination of 2003, some of the
questions asked in the test of Chinese were written in
Amoy, which was not quite intelligible to candidates
who speak Mandarin, the national language. Yao, a
Taiwan independence activist, did not recognize Mandarin
as the national language. Neither did Lin Yu-tee
of DPP and Chang Cheng-shuh, who formulated the
questions. The questions were resented by non-Amoyspeaking
candidates, particularly those who speak
Hakka as their mother tongue. On September 25, 2003,
the Examination Yuan members met in council to pass a
resolution on the principles to be followed in formulating
questions in the test of Chinese. They included:
a. Questions have to be formulated to ensure open
competition and in accordance with all related regulations
to meet the personnel demand of government
agencies; and
b. No political ideology should be tested, while questions
should be made not ethnically or genderly discriminatory,
without reference to difficult as well as
irrelevant old Chinese, and with no words yet to be
established by usage applied.
The other way of interference is by testing whether
candidates were political correct. Though the resolution
precludes any test on political ideology, candidates for
the bar examination of 2005 had to answer questions
that measured their political correctness. Those questions
were asked in the test of Chinese, again. The test
included two parts: reading comprehension and composition.
The candidates were asked to read President
Chen Shui-bian’s speech delivered at the fourth anniversary
of the founding of the Taiwan Solidarity Union,
a pro-independence ally of the governing party. There
would not have been any controversy, if the speech had
focused on his vision of the nation’s future. Instead it
was a severe criticism of Lien Chan and James Soong,
the chairpersons of the Kuomintang and People First
Party, respectively. The two opposition leaders were
accused of colluding with the Chinese Communists to
denigrating Taiwan. The subject for the composition
was “Characteristics of Lawyers and National Leader-

122 Taiwan Development Perspectives 2009
ship.” (Chen was a lawyer before starting his political
career.) Never before had candidates been asked in officially
sponsored examinations to write a composition
on such a subject. Examinees, writing on this topic,
were concerned about the political inclination of examiners,
worrying that their grades would be very low, if
they were not politically correct. Again, Chang
Cheng-shuh was the member of the Examination Yuan
who formulated the questions in the Chinese test of the
2005 bar examination.
Moreover, the Ministry of Personnel under the
Examination Yuan was instrumental in the campaign of
the Democratic Progressive Party administration to rid
the bureaucracy of Kuomintang influence. President
Chen inherited a bureaucracy dominated by
card-carrying Kuomintang faithful. He suspected them
of sabotage. In March 2001, the Democratic Progressive
Party central executive council declared the implementation
of policies by the new administration was
serious impeded by some old bureaucrats and a substantial
reorganization of the bureaucracy was needed. 2
High-level technocrats were forced to retire ahead of
time, while the Ministry of Personnel under the Examination
Yuan came up with a plan to end the payment
of a high interest for the savings of retired public functionaries.
Retirees are entitled to deposit part of their pensions
in special savings accounts with the Bank of Taiwan,
for which the rate of interest is set at 18 percent
per annum. The rate was not considered very high when
the pension system was introduced more than three
decades ago. As a matter of fact, it was set sufficiently
high to encourage public functionaries to retire without
receiving the retirement pay in lump sum, which the
national treasury then could not afford. It is extraordinarily
high now and an adjustment downward certainly
is needed, but not retroactively. The plan was modified
2 Yu, Chili. 2002. “New government and so-called old
Bureaucrats”. Guozhe Pingluen, Neizhen(Ping)
191-323. National Policy Foundation.
but most of the retirees were required to reduce their
special savings deposits for which that high interest is
paid.
3. Intervention in the Exercise of the Power
of Control
The Control Yuan exercises the powers of impeachment,
censure and audit. It was formerly a parliamentary
body, with its members elected by provincial
and municipal councils. However, constitutional
amendments in May 1992 transformed it into a quasi-judicial
organization. It now has 29 members, including
a president and a vice president, al of whom
were nominated and, with the consent of the Legislative
Yuan, appointed by the president of the Republic of
China. Their term of office is six years
Fredrick F. Chien ( 錢 復 ) and Chen Mon-chuan ( 陳
孟 銓 ) were president and vice president of the Control
Yuan, respectively, from February 1, 1999 to February
1, 2005.
In the late 2004, President Chen Shui-bian nominated
Clement C.P. Chang ( 張 建 邦 ) and Hsin-Muang
Michael Hsiao ( 蕭 新 煌 ) to replace Chien and Chen
Mon-chuan.
Many of the 29 nominees had a strong political inclination,
which was considered incompatible with their
independent discharge of duties. For that reason, the
opposition alliance in the Legislative Yuan refused to
act on the nominations. As a result, the Control Yuan
ceased to function after February 1, 2005. For lack of
control, the Democratic Progressive Party administration
became prone to corruption and graft.
4. New Control and Examination Yuan
Formed
Vice President Vincent Siew formed a review
committee almost immediately after he was inaugurated
in May 2008 to screen candidates for the Control and
Examination Yuan. He had two co-conveners: Fredrick
F. Chien and Kuan Chung ( 關 中 ). The latter is a former

Exercise of the Powers of Examination and Control 123
vice president of the Examination Yuan.
At their recommendation, President Ma Ying-jeou
nominated Wang Chien-shien ( 王 建 煊 ), a former leader
of the New Party, and Shen Fu-hsiung ( 沈 富 雄 ), an
ex-legislator of the Democratic Progressive Party, as
president and vice president of the Control Yuan. Ma
did not name proportionately enough candidates from
among the ranks of his ruling Kuomintang, which won
a virtual three-fourths majority in the new 113-seat
Legislative Yuan. Wang was confirmed by a vote of 74
for and 36 against. Shen’s nomination was rejected by a
vote of 51 for and 56 against. Also rejected were
three other nominees: Hsu Ping-chin ( 許 炳 進 ), Chen
Yao-chang ( 陳 耀 昌 ), Yu Mei-nu ( 尤 美 女 ). The new
Control Yuan was inaugurated on July 1, 2008.
The nomination of candidates for the Examining
Yuan also hit a snag. Ma nominated Chang Chun-yen
( 張 俊 彥 ), former president of National Chiao Tung
University regarded as Taiwan’s father of the semiconductor
in Taiwan, to head the Examination Yuan.
Chang served as a national policy advisor to President
Chen Shui-bian. Besides, he was reported to have received
long-time financial support from Wayne Pai ( 白
文 正 ), chairman of the Polaris Group ( 寶 來 集 團 ), the
second largest securities brokerage in Taiwan who was
said to have obtained a Chiao Tung honorary doctorate
by bribery. Pai committed suicide in July 2008 and
Chang immediately withdrew his candidacy.
Ma knew he had to mend fence with the Kuomintang
majority in the Legislative Yuan. And he succeeded
in getting all of his other nominees, including
Wu Jin-lin for vice president, confirmed by the nation’s
highest legislative organ. On September 12, Ma nominated
Kuan Chung as president of the Examination Yuan.
Kuan, confirmed by a vote of 85 for and none
against on November 14, was inaugurated on December
1.
5. Conclusion
The Kuomintang government follows Dr. Sun
Yat-sen’s five-power government principle enshrined in
the Constitution. President Ma Ying-jeou does not want
to launch constitutional reform, though he is willing to
consider the need for reform two years from now. A
constitutional amendment, initiated and approved by
the Legislative Yuan, still needs to be put to a referendum.
As the Kuomintang is relatively reluctant to initiate
a referendum, a constitutional reform is not likely to
begin in the near future. The five-power government
system is in place.
On the other hand, President Ma hopes corruption
and graft will be rooted out and integrity of the government
restored. It is likely that Taiwan may establish
an institution like the Independent Commission Against
Corruption (ICAC) in Hong Kong or the Corrupt Practices
Investigation Bureau (CPIB) in Singapore to help
exercise the power of control to fight corruption and
graft.
President Chen Shui-bian advocated a downgrading
of the Examination Yuan, not abolition of the power
of examination per se. It may be an option in the future,
but for now the Examination Yuan will continue to
function according to the Constitution.
Since he insists on the separation of five powers
and considers the Control and Examination Yuan independent
branches of the government, President Ma did
not take party affiliation into consideration in making
nominations for them. That is why he nominated
non-Kuomintang members as candidates for presidents
and vice presidents of the two yuan. No political parties
were dominantly represented in them, either. The
possibility of political interference therefore is minimized.
But Ma’s strictly neutral stand vis-à-vis the nominations
to uphold his political idealism met with resistance
from his ruling Kuomintang. Political reality often
distorts the rational evaluation of politicians. His
nominees for president of the Examination and vice
president of the Control Yuan were rejected. In
fact, some Kuomintang legislators opposed Wang

124 Taiwan Development Perspectives 2009
Chien-shien of the New Party as president of the Control
Yuan, because they did not want an “outsider” to
reap the spoils that rightfully belonged to one from
their ranks. They challenged Ma’s leadership.
President Ma was bruised in getting the new Control
and Examination Yuan inaugurated. Whether he
learns the reality of politics or keeps on dwelling in his
political idealism remains to be seen.

Referendums in Taiwan in 2008 125
Referendums in Taiwan in 2008
SWEI, Duh-ching
Abstract
President Chen Shui-bian called two “defensive” referendums on March 20, 2004.
They were held alongside the presidential election. Four more were called in 2008. None of
them were voted on by half of the electorate. They were invalidated.
Two of them were proposed by the Democratic Progressive Party. The Kuomintang
initiated the other two.
Voters went to the polls in January to vote on two referendums and elect a new Legislative
Yuan. Two months later, they elected their new president but the two other referendums
were rejected. Too many of them refused to vote on the referendums, which the Democratic
Progressive Party had designed to raise the voter turnout that would help its candidates.
The results of the legislative and presidential elections show counties and cities where
voter support for the Kuomintang was strong had a lower voter turnout for the referendums.
Those counties and cities where voter support was strong for the Democratic Progressive
Party saw more voters turn out to vote on the referendums.

126 Taiwan Development Perspectives 2009
I. Introduction
Eligible voters went to the polls on March 20,
2004 to exercise their right of referendum for the first
time in history. Two referendums were held alongside
the presidential election. Both were called by President
Chen Shui-bian, who was running reelection. He
wanted to raise voter turnout by calling what he called
“defensive referendums, convinced that the more the
voters turned out the better his chance to win would be.
He was reelected, thanks to a large turnout due not to
the referendums but to a mystery-shrouded shooting
incident on the eve of the election. He was slightly
wounded by a gunshot and more supporters turned out
to cast sympathy votes to give him the second term.
Not more than half of the electorate voted on the referendums,
which were declared invalid. To be valid, a
referendum has to be voted on by at least a simple majority
of all the eligible voters.
President Chen called the referendums in accordance
with Article 17 of the Referendum Law, which
was adopted on November 27 and promulgated on December
31, 2003. Article 17 reads: “In case the national
sovereignty is threatened by foreign powers, the president
may, by a resolution of the Executive Yuan Council,
make a referendum on issues concerning national
security.” In his first referendum on national defense,
voters were asked: “Taiwanese people insist that the
problem across the Taiwan Straits must be resolved
peacefully. Do you support the government purchase of
more anti-missile missiles to strengthen the self-defense
capability of Taiwan if the People’s Republic does not
remove missiles targeting Taiwan?” The question asked
in the second referendum was: “Do you agree that the
administration negotiates with the People’s Republic to
establish a framework of interaction for the peace and
stability across the Taiwan Straits to seek consensus
among the people on both sides of the Straits in pursuit
of their common welfare?”
II. Four Referendums in 2008
Four referendums were held in 2008. Two of them
were called alongside the legislative elections on January
12, 2008. The other two were held alongside the
presidential election on March 22.
1. Referendum on “ill-gotten party assets”
Yu Shyi-kun, chairperson of the Democratic Progressive
Party, initiated the referendum to demand the
Kuomintang to return all the assets it had unlawfully
acquired. He had enough endorsements to set the agenda
in accordance with stipulations set forth in Article 27
of the Referendum Law. The referendum was held on
January 12.Voters were asked: “Do you agree to enact a
statute governing the disposal of the property which a
political party has unlawfully acquired so as to require
the Kuomintang and its affiliated organizations to return
all assets except membership dues, political contributions
and subsidies for election campaigns?
Total Eligible
Voters
The following table shows the outcome of the referendum.
Valid Votes
Yes No
Invalid
Votes
Total Votes
Voting
Rates
Approval
17,277,720 3,891,170 363,494 296,217 4,550,881 26.34% No
2. Referendum against corruption
Wang Chien-hsien, former minister of finance, initiated
the anti-corruption referendum. Enough endorsements
were collected to put the anti-corruption
proposal on the agenda in accordance with the stipulations
set forth in Article 27 of the Referendrum Law.
The referendum was called on January 12.

Referendums in Taiwan in 2008 127
Voters were asked: “Do you agree to enact a law to
investigate the responsibility of national leaders and
their subordinates who have taken measures by design
or mistake to cause our country serious damage? Do
you also agree to let the Legislative Yuan set up an investigation
commission, with which all government
agencies concerned should cooperate, to protect the
interest of all the people and punish those who commit
crimes or neglect their duties and make them pay back
their illegal gains? ”
The following tables shows the results.
Total Eligible Valid Votes
Voters Yes No
Invalid
Votes
Total Votes
Voting
Rates
Approval
17,277,720 2,304,136 1,656,890 544,901 4,505,927 26.08% No
3. Referendum on Taiwan’s UN admission
Yu Shyi-kun, chairperson of the Democratic Progressive
Party, took the initiative. Enough endorsements
were collected to put the proposal on the agenda
in accordance with stipulations set forth in Article 27 of
the Referendum Law. The referendum was called
alongside the presidential election on March 22. It was
rejected.
Voters were asked: “The People’s Republic of
China joined the United Nations in 1971 and replaced
the Republic of China, making Taiwan became an international
orphan. In order to express the will of the
people of Taiwan, improve its international status and
facilitate its participation in international activities, do
you agree that the government should seek Taiwan’s
admission to the United Nations in the name of Taiwan?”
The following table shows the results.
Total Eligible Valid Votes
Voters Yes No
Invalid
Votes
Total Votes
Voting
Rates
Approval
17,313,854 5,529,230 352,359 320,088 6,201,077 35.82% No
4. Referendum on Taiwan’s return to the United
Nations
Vincent Siew, Kuomintang candidate for
vice-president, took the initiative. Enough
endorsements were acquired to put Taiwan’s return to
the United Nations under the name of the Republic of
China or any other titles on the agenda in accordance
with stipulations set forth in Article 17 of the
Referendum Law. The referendum was held on March
22. It was invalidated.
Voters were asked: “Do you agree that our country
applies for a return to the United Nations and participation
in its affiliated organizations under such names as
can be realistically and flexibly determined, including
the Republic of China and Taiwan, so as to enhance the
chance of success with dignity?”

128 Taiwan Development Perspectives 2009
The following table shows the results.
Total Eligible Valid Votes
Voters Yes No
Invalid
Votes
Total Votes
Voting
Rates
Approval
17,313,854 4,962,309 724,060 500,749 6,187,118 35.74% No
5. Analysis
Much less than half of the electorate showed up to
vote on any of the four referendums. The Kuomintang
has a larger power base than the Democratic Progressive
Party. On the other hand, voters also voted at their
own discretion. However, the following factors affected
the voting on the referendums.
a. Appeal to voters not to vote
Lien Chan, honorary Kuomintang chairman, appealed
to supporters to go to the polls to “pick up two
ballots and cast one for a candidate and the other for the
party but forget about the other two ballots.” In other
words, Lien asked supporters to elect a new Legislative
Yuan (the two ballots to elect regional lawmakers and
those at large) but told them not to vote on the two referendums,
one of them sponsored by the Kuomintang.
(Liberty Times/page A4, Jan. 1, 2008) Lien is the spiritual
leader of the Kuomintang. His appeal was heeded.
b. High threshold
Kuomintang supporters knew the best way to reject
the referendums is to refuse to vote so that the turnout
would be lower than a simple majority. So they
stayed away. Supporters of the Democratic Progressive
Party also knew it full well. As a consequence, many of
them did not show up to vote on the referendums, convinced
that their attendance made little difference.
c. Unattractive agenda
Voters fully realized that, even if the referendums
were adopted, none of them would be put into effect.
They knew it did not matter whether they voted or did
not vote.
d. Marginal utility
Voters understood their marginal utility was diminishing.
III. Linkage of Referendums and Elections
in 2008
Referendums are held alongside major elections in
many countries. For example, 153 referendums were
held in 36 states in the United States when the presidential
election was held in 2008.
It is stipulated in Article 24 of the Referendum
Law that the Central Election Commission shall hold a
referendum within one to six months after its proposal
is approved and made public. The referendum may be
held alongside a national election.
However, President Chen Shui-bian called the two
“defensive” referendums in accordance with Article 17
of the Referendum Law alongside the presidential election
of 2004. He won, because of the large turnout following
the shooting incident on the eve of the election.
The Kuomintang was convinced that the election
cum referendums, along with the shooting incident, was
the cause of the loss of its presidential candidate Lien
Chan. John C. Kuan, the then vice chairman of the
Kuomintang, concluded after comparing the vote tabulations:
“The two defensive referendums were the key to
the presidential election (of 2004). In all counties and
cities, our party had lower voter support when more
voters voted on the referendums. For example, more
than 50 percent of voters – higher than the national average
of 45 percent – voted on the referendums in Yilan

Referendums in Taiwan in 2008 129
County, Yunlin County, Chiayi County, Tainan County,
Kaohsiung County, Pingtung County, Chiayi City,
Tainan City, and Kaohsiung City. (The Democratic
Progressive Party ruled all nine counties and cities.)”(See
Chart 1, Kuan, John C., An Illustration of
Plebiscites about Returning the UN.)
That is why Kuan supported the initiation by the
Kuomintang to propose two referendums in 2008 when
the Democratic Progressive Party proposed the referendums
on the return of ill-gotten party assets and on
Taiwan’s admission to the United Nations alongside the
legislative and presidential elections.
Chart 1:Voting in 2004 Presidential Election cum Referendums
Counties and Lien % Chen % Voting To Strengthen To Negotiate
Cities Chan
Shui-bian
Rates National defense with Beijing
Tainan County 229284 35.21 421927 64.79 81.15 58.69 58.63
Chiayi
County
118189 37.21 199466 62.79 78.03 55.13 55.07
Yunlin County 159906 39.68 243129 60.32 75.94 50.51 50.45
Kaohsiung
County
302937 41.6 425265 58.4 81.56 53.57 53.55
Pingtung County 215796 41.89 299321 58.11 78.92 50.85 50.80
Tainan City 183786 42.23 251397 57.77 80.93 52.79 52.75
Yilan County 108361 42.29 147848 57.71 78.46 50.40 50.36
Chiayi City 67176 43.94 85702 56.06 80.53 51.19 51.16
Kaohsiung City 398769 44.35 500304 55.65 81.81 51.40 51.37
Changhua
County
350128 47.74 383296 52.26 80.18 48.27 48.20
Taichung County 410082 48.21 440479 51.79 81.41 48.85 48.78
Penghu County 22639 50.53 22162 49.47 66.16 34.65 34.64
Nantou County 153913 51.25 146415 48.75 77.97 42.57 42.51
Taichung City 297098 52.66 267095 47.34 80.89 43.87 43.83
Taipei County 1130615 53.06 1000265 46.94 81.31 43.00 42.92
Hsinchu City 118924 55.12 96818 44.88 81.22 40.44 40.43
Taoyuan County 555688 55.32 448770 44.68 81.33 41.19 41.15
Taipei City 897870 56.53 690379 43.47 81.71 39.05 39.04
Keelung City 132289 59.44 90276 40.56 78.35 35.00 35.00
Miaoli County 191059 60.75 123427 39.25 79.82 34.13 33.97
Hsinchu County 165027 64.06 92576 35.94 81.80 31.57 31.55
Taitung County 76382 65.52 40203 34.48 66.45 24.04 24.01
Hualien County 126041 70.2 53501 29.8 70.98 22.25 22.21
Kinmen
County
26433 93.95 1701 6.05 64.39 2.49 2.48
Lienchiang
County
4060 94.24 248 5.76 65.66 2.42 2.40
Total 6442452 49.89 6471970 50.11 80.28 45.17 45.12
Resource: The Author

130 Taiwan Development Perspectives 2009
The following two charts show the results of the
legislative and presidential elections and four referendums
(return of ill-gotten assets, anti-corruption legislation,
UN admission in the name of Taiwan, and return
to the UN).
Counties
Chart 2:Voting in Legislative Elections cum Referendums
Kuomintang
%
Democratic
Progressive
Party
%
Voting
Rates
Ill-gotten assets
Anti-
Corruption
Tainan County 188670 40.34 237083 50.69 57.04 33.52 33.16
Chiayi
59.10
County 102658 42.97 110782 46.37
30.61 30.28
Tainan City 150007 44.09 154087 45.29 60.57 33.73 33.30
Kaohsiung
60.38
County 250398 44.94 247196 44.37
32.80 32.37
Pingtung County 178051 46.04 170454 44.07 59.29 30.54 30.08
Yilan County 83859 46.88 77931 43.57 53.80 27.13 26.89
Kaohsiung City 317410 46.22 297453 43.31 60.23 32.37 31.82
Chiayi City 52228 46.70 47626 42.59 57.10 30.37 30.06
Yunlin County 139964 45.82 126255 41.34 57.76 27.79 27.48
Penghu County 18607 50.47 13739 37.27 54.26 20.75 20.38
Taichung County 328017 53.00 223773 36.16 56.49 25.80 25.67
Changhua
60.36
County 299844 53.07 201975 35.75
27.28 27.16
Taipei County 850650 51.59 589145 35.73 58.69 26.22 26.08
Taichung City 238750 53.65 152321 34.23 59.21 26.57 26.47
Taipei City 627591 50.54 411574 33.15 61.91 24.99 24.73
Hsinchu City 89742 55.12 52446 32.21 57.77 23.65 23.45
Taoyuan County 440705 57.10 244897 31.73 56.95 22.76 22.65
Nantou County 121057 58.15 66019 31.71 53.38 20.63 20. 50
Keelung City 86923 58.89 40588 27.50 50.74 17.59 17.49
Miaoli County 152681 64.62 59992 25.39 58.73 17.55 17.44
Taitung County 52811 66.95 18290 23.19 46.76 12.42 12.32
Hsinchu County 131329 67.30 40917 20.97 56.62 15.14 15.13
Hualien County 83659 69.91 24335 20.34 47.95 11.79 11.73
Lienchiang
County
3062 70.86 231 5.35 57.26 2.48 2.90
Kinmen
County
22128 85.18 997 3.84 41.79 1.66 1.75
Total 5209237 53.48 3765222 38.65 58.28 26.34 26.08
Resource: The Author

Referendums in Taiwan in 2008 131
Chart 3:Voting in Presidential Election cum Referendums
Counties
Ma
Voting Admission
% Frank Hsieh %
Ying-jeou
Rates to UN
Return to UN
Tainan County 276751 43.85 354409 56.15 74.54 46.42 46.31
Chiayi
72.32
County 139603 45.56 166833 54.44
42.25 42.08
Yilan County 187705 48.47 199558 51.53 70.06 38.57 38.48
Kaohsiung
76.88
County 353333 48.59 373900 51.41
44.14 43.95
Pingtung County 247305 49.75 249795 50.25 73.75 40.94 40.74
Tainan City 223034 50.71 216815 49.29 76.74 43.37 43.25
Yilan County 130951 51.42 123700 48.58 73.98 39.95 39.81
Kaohsiung City 469252 51.59 440367 48.41 78.79 43.12 42.96
Chiayi City 79713 52.39 72442 47.61 76.34 41.39 41.33
Changhua
75.05
County 419700 57.59 309134 42.41
36.35 36.32
Penghu County 25037 57.93 18181 42.07 60.39 24.68 24.61
Taichung County 505698 58.84 353706 41.16 76.47 36.8 36.7
Taipei County 1359419 61.06 866915 38.94 78.08 35.16 35.07
Taichung City 365979 61.74 226751 38.26 77.74 35.08 35.04
Nantou County 179630 62.03 109955 37.97 72.12 30.19 30.13
Taipei City 1011546 63.03 593256 36.97 79.19 32.70 32.69
Taoyuan County 693602 64.64 379416 35.36 77.58 31.8 31.75
Hsinchu City 145930 64.70 79634 35.30 78.52 31.67 31.55
Keelung City 152327 67.73 72562 32.27 76.09 26.97 26.91
Miaoli County 227069 70.99 92795 29.01 76.83 23.91 23.9
Taitung County 81668 73.32 29714 26.68 63.18 17.65 17.53
Hsinchu County 208445 74.02 73178 25.98 79.33 22.24 22.24
Hualien County 137604 77.48 40003 22.52 68.85 17.25 17.26
Kinmen
53.78
County 33384 95.13 1710 4.87
2.06 2.15
Lienchiang
58.12
County 4329 95.16 220 4.84
2.42 2.53
Total 7659014 58.45 5444949 41.55 76.33 35.82 35.74
Resource: The Author
Notes: The Kuomintang won 81 of the 113 seats in the Legislative Yuan with 58.45 percent of the votes cast. Though
the Democratic Progressive Party won 41.55 percent of the votes, it garnered only 27 seats. Ma Ying-jeou was
the Kuomintang standard bearer, with Vincent Siew as his running mate. They were pitted against Frank Hsieh
and Su Tseng-chang. Ma won a landslide victory.
A further analysis led to the following findings:
-- In the ten counties and cities where voter support
rates in the legislative elections for the Kuomintang
were higher than its nationwide support average of
53.48 percent, their corresponding rates for the referendum
voting were lower than the nationwide average

132 Taiwan Development Perspectives 2009
of 26.34 percent. The ten were Hsinchu City, Taoyuan
County, Nantou County, Keelung City, Miaoli County,
Taitung County, Hsinchu County, Hualien County,
Lienchiang County, and Kinmen County (in receding
order of support).
-- In the nine counties and cities where voter support
rates in the legislative elections for the Democratic
Progressive Party were higher than its nationwide support
average of 38.65 percent, their corresponding rates
for the referendum voting were higher than its nationwide
support average of 26.08 percent. The nine were
Tainan County, Chiayi County, Tainan City, Kaohsiung
County, Pingtung County, Yilan County, Kaohsiung
City, Chiayi City, and Yunlin County (in receding order
of support).
-- There were six counties and cities where the
trend was not consistent. In Taichung City, the Kuomintang
received 53.65 percent of the votes cast in the
legislative elections, higher than the nationwide average
of 53.48 percent, while its support rates in the referendums
stood at 26.57 percent and 26.47 percent, both
higher than the nationwide averages of 26.34 percent
and 26.08 percent. In Changhua County, however, both
the Kuomintang and the Democratic Progressive Party
saw their support rates in the legislative elections, 53.07
percent and 35.75 percent respectively, lower than their
respective nationwide support averages of 53.48 percent
and 38.65 percent, though their support rates in the
referendums were higher than their nationwide averages,
27.28 percent and 27.16 percent against 26.34
percent and 26.08 percent. In Penghu County, Taichung
County, Taipei City, and Taipei County, the support
rates in the legislative elections for the Kuomintang and
the Democratic Progressive Party (50.47% and 37.27%;
53.00% and 36.16%; 50.54% and 33.15%; and 51.59%
and 35.73%, respectively) were lower than their national
support rates (53.48% and 38.65%), while the
votes on the two referendums (20.75% and 20.38%;
25.80 % and 25.67%; 24.99% and 24.73%; and 26.22%
and 26.08%, respectively) were lower than the nationwide
averages (26.34% and 26.08%, respectively).
Despite this minor inconsistency, one can easily
conclude that in counties and cities where the Kuomintang
received higher support in the legislative elections,
less support was given to the referendums. The Democratic
Progressive Party, on the other, received more
support for the referendums in counties and cities
where support for its candidates in the legislative elections
was high.
A similar linkage was observed in the presidential
election, alongside which the two referendums on Taiwan’s
participation in the United Nations were called.
-- In the thirteen counties and cities where support
rates for the Kuomintang were higher than its nationwide
support average of 58.45 percent, support for the
two referendums was lower than its nationwide average
of 35.82 percent. The thirteen were Taipei County, Taichung
City, Nantou County, Taipei City, Taoyuan
County, Hsinchu City, Keelung City, Miaoli County,
Taitung County, Hsinchu County, Hualien County,
Kinmen County, and Lienchiang County (in receding
order of support). In the ten counties and cities where
support rates for the Democratic Progressive Party were
higher than its nationwide support average of 41.55
percent, support for the two referendums were also
higher than its nationwide average of 35.64 percent.
The ten were Tainan County, Chiayi County, Yunlin
County, Kaohsiung County, Pingtung County, Tainan
City, Yilan County, Kaohsiung City, Chiayi City, and
Changhua County (in receding order of support).
-- A similar inconsistency was found in two counties.
In Penghu County, Frank Hsieh of the Democratic
Progressive Party won 42.07 percent of the votes
in the presidential election, higher than his nationwide
support average of 41.55 percent, while the voting on
the two referendums (24.68% for Taiwan’s UN admission
and 24.61% for its return to the UN) was lower
than the nationwide average (35.82% and 35.74%).
On the contrary, Ma Ying-jeou of the Kuomintang won
58.84 percent of the votes cast in the presidential election
in Taichung County, higher than his nationwide
average of 58.45 percent but the voting on the two ref-

Referendums in Taiwan in 2008 133
erendums was also higher (36.8% and 36.7%) than the
nationwide average (35.82% and 35.74%).
The results did not clearly bear out John C. Kuan’s
2004 assertion that referendums were the key to the
presidential election. However, the pattern of voting on
the two referendums in all counties and cities, except
Penghu County and Taichung County, again indicates
those that supported the Kuomintang showed lower
support for the referendums, while those that supported
the Democratic Progressive Party gave the referendums
a higher support.
IV. Conclusion
Six referendums have been held since 2004. None
of them were passed. One reason is that the threshold as
stipulated in the Referendum Law is too high, an absolute
majority of the electorate. But another reason is
that many voters refused to vote because they did not
want to go along with politicians who tried to take advantage
of the referendums for their political gains. In
other words, it is next to impossible to pass any referendum
in the future unless politicians give up attempts
to manipulate voters for their political gains.
If the sole purpose of holding a referendum is to
pass it, one easiest way is to reduce the threshold as
stipulated in the existing Referendum Law. As a matter
of fact, Peng Mon-an and 24 other Democratic Progressive
Party lawmakers have proposed a bill to amend the
Referendum Law at the new Legislative Yuan. They
want to let a referendum pass if aye votes outnumber
nay votes, the former being more than a quarter of the
electorate. That means the threshold will be halved
from a simple majority to a quarter of all eligible voters.
There is a counterproposal by their Kuomintang opposite
numbers, who control the Legislative Yuan. The
counterproposal is exactly the same as the opposition
party’s proposal with a meaningless change of “a quarter”
to “25 percent.”
However, the reduction of the threshold to 25 percent
or a quarter of the electorate may let a major political
party and interest groups get a controversial referendum
adopted with ease. Such a referendum, if
passed, will cause social unrest. That must be a very
serious concern with which the new Legislative Yuan
acts on the proposals to halve the threshold as set forth
in the existing Referendum Law.

134 Taiwan Development Perspectives 2009

Using PPGIS to Involve Citizens in Urban Policy Planning 135
Using PPGIS to Involve Citizens in Urban Policy Planning
HUANG, Chao- meng J., LEE, Chung-pin
Abstract
The public participation geographical information system (PPGIS) has become one of
the hottest innovations for civil society activity. It enables the public to contribute local
geographical information to public policy-making. This paper lists and discusses the key
elements of a successful PPGIS project, including interactivity, usability, and visualization.
Furthermore, it introduces two selected PPGIS projects in Taiwan. One of them was developed
by Lin et al. (2005) for the aboriginal Atayal Smangus community. Nangang Community
College developed the other. It used web 2.0, citizen journalists, and a Google map to
collect opinions of residents about the delineation of a pothole conservation area along the
river.

136 Taiwan Development Perspectives 2009
I. Introduction
Local knowledge is recognized as an important
element in the process of urban planning. Kahila and
Kytta (2006) name local knowledge ‘soft data,’ which
means residents’ living experience. Involving local
knowledge is a bottom-up or citizen-oriented policy
design orientation and plays a decisive role in building
democratic legitimacy. However, due to the constraints
of communication skills and expression skills of the
public, local knowledge is usually ignored in the process
of policy making. This is one of the reasons why the
planning processes of most community development
programs have traditionally been government-centered,
and therefore have incurred much criticism for not allowing
direct participation of the stakeholders of the
programs.
With the advent of modern information technologies,
there are numerous Internet-based interaction mechanisms
offered by public organizations, including
governmental websites, online conferences and Internet
opinion polls. These technologies have potentials to
improve the quality of democracy by reducing the cost
of communications. The public participation geographical
information system (PPGIS), in particular,
has become one of the hottest innovations because of
its potential to enable direct public participation as well
as involve local knowledge in public policy-making
processes. This paper deals with how PPGIS can be
used in urban policy planning, and how PPGIS is practiced
in Taiwan.
II. GIS and PPGIS
The geographic information system (GIS) represents
a promising generation of powerful tools developed
to improve public policy-making processes. The
applications of GIS combine the complexity of the
physical landscape with citizen information, and provide
useful information for urban planners and public
managers in general. For example, GIS allows emergency
planners to calculate emergency response times
in the event of a natural disaster. GIS might also be
used to find wetlands that need protection from pollution.
Greene (2000) asserted that GIS can be utilized in
many subfields of public policy, including education,
health and security, public services, environmental
protection, social services and international relations.
Carr (1999: 222-223) lists six kinds of GIS applications
used in the public sector. They include:
1) Emergency Dispatch: GIS is and important
tool for public agencies in improving response time and
in minimizing arrival time for emergency services;
2) Land Use Planning: GIS provides decision
makers with high-quality information relating to land
use;
3) Healthcare Planning: “medical geography” is
a term that reflects this application of GIS, analyzing
the linkage between poverty and disease being a major
case;
4) Infrastructure Planning: GIS is used in debt
management and evaluations of the potential impact of
tax revenues;
5) Political Campaign: GIS provides data for
analysis needed to design campaign strategy, media
advertisement and resource allocation; and
6) Reapportionment: GIS can integrate population
data with detailed maps to allow decision-makers
to reexamine political boundaries.
GIS has been utilized in the public sector since the
early 1960s, but considered not user-friendly. On the
one hand, GIS offers public access to cultural, economic
and biophysical data generated by governments,
private sector organizations and academic institutions
(Aberley and Sieber 2002), thereby making more
optimistic social scholars see it as a tool for public
participation (Carver 2003); but on the other, the applicability
of GIS systems has been limited by their generally
low usability. Advanced knowledge of GIS and
general computer technology is often necessary to operate
a GIS system (Aangeenbrug 1992). As a result,

Using PPGIS to Involve Citizens in Urban Policy Planning 137
GIS systems are often thought of as elitist technology
(Pickles 1995) or expert GIS (AI-Kodmany 2002;
Kingston 2002a).
Responding to this criticism, many developers of
GIS systems have begun to pay attention to lower the
barriers to public involvement and participation since
the early 1990s (Schlossberg and Shuford 2003).
They merged this mainly technology-based spatial
analysis tool with the concept of participatory democracy
to come up with a concept of Public Participation
Geographical Information Systems (PPGIS). Craig et al.
(2002) viewed PPGIS as “a broad tent with multiple
meanings and a global reach,” and said “there are many
emerging forms of community interaction with GIS that
are linked to the social and geographic context of production
and implementation.” Kahila and Kytta(2006)
point out that PPGIS brings the “soft data,” the knowledge
and opinions of citizens or residents, into the
process of policy-making. PPGIS is intended to provide
a mechanism to enable community engagement, incorporate
local knowledge, integrate and contextualize
complex spatial information, and allow participants to
contribute inputs and analyze alternatives in public
policy-making processes (Weiner, Harris and Craig
2002; Sieber 2006). In other words, the advocates of
PPGIS see it as a people-centered alternative to the use
of traditional expert-driven GIS methodology.
III. Key Elements for Successful PPGIS
It is self-evident that one of the most important
performance criteria of a PPGIS is participation. The
technical aspects of the system that influence the system
performance cannot be overlooked (Jorda 1999).
Kingston (2002a) asserted that in designing and implementing
a PPGIS, the following issues need to be
carefully considered and addressed: access to the technology,
GIS and IT understandability, data and copyright
issues, and trust and response legitimacy. Steinmann
et al. (2004) argue that interactivity, usability, and
visualization are the three most important sets of criteria
on the basis of which PPGIS evaluations should be
undertaken. These are also essences of a PPGIS.
i. Interactivity
Interactivity implies a response to the messages or
behaviors between GIS users and the computer server
(Steinmann et al. 2004). According to AI-Kodmany
(2002), there are three types of PPGIS interactivity,
namely one-way, two-way, and three-way spatial communications.
Compared with traditional paper maps or
traditional GIS systems, it improves the users’ ability
and opportunity to express their preferences and opinions
to a great extent. Hence, the interactivity of PPGIS
is a substantial improvement. Kingston (2002a) recognized
that in order for PPGIS to be a fundamental tool
for facilitating a better social understanding of decisions
made, a key aspect of these systems is that they
should provide a two-way flow of information between
the client (the public) and the server (the authority).
AI-Kodmany (2002) provided a similar perspective,
stating that to become a robust tool for use in participation,
GIS should be a medium for two-way, spatially
based information exchange.
Above all, a website with one-way spatial communication
does not, by definition, qualify as a PPGIS
(Kingston 2002a). To construct a GIS with a participatory
mode, building in a two-way or three-way communicative
function is necessary. Three-way spatial
communication allows the public to view the opinions
of all participants in a democratic decision making
process (AI-Kodmany 2002).
ii. Usability
The term ‘usability’ means the ability of a user to
utilize GIS and is usually measured from the user’s
point of view (O’Looney 1997). Only the most usable
GIS websites ensure that all people, with distinct and
diverse backgrounds, can browse the site. In short,
usability is one of the important factors influencing
public participation in policy development.
Why is usability especially important for PPGIS?
Steinmann et al. (2004) provide two reasons: first, the
specialized functionality that supports online GIS in-

138 Taiwan Development Perspectives 2009
creases the complexity of a conventional browser experience,
and second, GIS is characterized by an inherent
complexity in the amount of content available and
the skills needed to interpret that content. In addition,
Haklay & Tobin (2003) reviewed related literature and
concluded with two reasons to explain the importance
of usability. The first reason is the recent increase in
availability and power of affordable personal computers.
It has broadened the computer user community, which
is no longer restricted to “a technical and mathematical
priesthood,” and secondly, GIS has been developing
since the late 1960s and has reached a state where functionality
such as map production, display and spatial
data analysis is commonly provided. Overall, usability
has become a major concern of GIS design. It is important
to take into consideration how GIS is actually
used and how it can accommodate the needs of such a
diverse user group.
Generally, a research framework on web usability
comprises a similar set of dimensions: ease of use, efficiency
of use, ease of memorizing data, low falsity, and
user satisfaction (Huang and Chao 2001; Nielsen 1993).
Steinmann et al. (2004) have compiled a comprehensive
set of usability dimensions of GIS, including suitability
of the web application for the task, data suitability,
user guidance, understandability, data description,
and degree of personalization of information.
iii. Visualization
Visualization is the form of maps or data, and the
method of interpreting these in visual terms. In other
words, visualization is a tool for making the data/maps
more readable and understandable. If GIS websites
provide visualization tools they would meet user needs
more easily. Additionally, visualization is a powerful
tool that can be used to simulate the real world by using
digital pictures, satellite photographs, and multimedia.
It is not only a method that can make large amounts of
data more easily and rapidly accessible than text-based
data formats, but is also an important factor in interactivity
(O’Looney 1997).
IV. Improving Public Involvement through
PPGIS
There are at least two reasons that PPGIS has been
conceptually recognized as a new approach of involving
public participation in urban planning. The first one
is because of its two-way government-citizen interaction.
According to OECD (2001), there are three types
of public involvement. A two-way interaction is required
to construct the ideal type of public participation.
1 The two–way interface with high interactivity
design could help PPGIS to get the potential which
could improve public involvement in the process of
urban policy making. Because of its high interactivity,
PPGIS reduces the barriers of involving public participation
and improve the possibility of public involvement.
In other words, unlike traditional methods of
public participation that are always held in a fixed place
and a fixed time, PPGIS allows people to input comments
at any time and in any place. Figure 1 shows a
typical example of the two-way spatial communication.
The experimental PPGIS website project in Slaithwaite,
UK, provides community residents with the ability to
comment on the future development of the village. The
website states “....virtual Slaithwaite system is an
online public participatory Geographical Information
System (PPGIS) which allows you to comment on the
future development of the village...”. It helps to involve
1 They are: 1) Information: government disseminates
information on policy-making on its own initiative,
or citizen access information upon their demand. In
both cases, information flow essentially in one direction.
2) Consultation: government asks for and receives
citizens’ feedback on policy-making. Receiving
citizen’s feedback also requires government to
provide information to citizens. Consultation thus
creates a limited two-way relationship. 3) Active
Participation: citizens actively engage in decision-making
and policy-making. For examples, citizens
propose policy options. This is an advanced
two-way relation between government and citizens.

Using PPGIS to Involve Citizens in Urban Policy Planning 139
residents flexibly and make communication easier.
Figure 1
PPGIS website in Slaithwaite, England
(Source: http://www.ccg.leeds.ac.uk/slaithwaite/)
The second reason that PPGIS has been conceptually
recognized as a new participatory approach is its
friendly usability and visualized effects. These characteristics
reduce the constraints of communication ability
on residents by making the data/maps more readable
and understandable. These helps let residents easily
disclose experienced ‘soft’ data of their living environment
and merge the soft data with hard data. According
to Rambaldi et al. (2007), a user-friendly and visualized
PPGIS is a ‘catalyst in stimulating memory, articulating
tacit knowledge and creating visible and tangible representations
of the physical, biological and cultural
landscapes of the area’. 2 Compared with traditional
plain map, a visualized map, for example 3D, has
greater capacity to make low-educated residents understand
the context of the issues.
In short, the collaboration between residents and
officials could be improved (Kahila and Kytta, 2006)
by either providing more flexibility for public involvement
or reducing the constraints of communication
ability on residents. Kingston (2007) believes these are
the reasons that a PPGIS has potential to improve citizen-government
interaction from one-way relation to a
two-way type. Kingston (2002a) and Carver (2001)
revise the well-known “Participation Ladder” to an
“E-participation Ladder” and view PPGIS as a two-way
communication (see figure 2).
2 Please see the website of IAPAD http://www.iapad.
org/participatory_p3dm.htm, accessed on December
10, 2008.

140 Taiwan Development Perspectives 2009
online decision making
Increasing participation
PPGIS
online comments on application
online service delivery
online discussion forums
communication barrier
online surveys
basic Web sites
Two-way One-way
Level of communication
Figure 2 E-participation ladder
Sources: Kingston (2002a) & Carver (2001)
V. PPGIS Applications in Taiwan
Four types of institutional location for PPGIS delivery
are identified: nonprofit organizations, universities,
government agencies, and private companies
(Weiner et al., 2002). However, most of PPGIS applications
are applied by academia in Taiwan. According to
Huang and Lee (2006), only 6 percent of the local governments’
web-GIS provide two- or three-way communicative
functions. Additionally, both the usability and
visualization principles are lacking in attention on GIS
websites in Taiwan’s official system.
Here we are going to briefly introduce two selected
applications of PPGIS in Taiwan. The first one
was conducted by Lin et al. (2005) and used a case in
aboriginal Atayal Smangus community. Although this is
not an online web-based PPGIS, it successfully shows
the advantage of the PPGIS concept. The main purpose
of this study is to use ‘GIS technology to promote local
participation and to integrate the traditional knowledge
of the aboriginal communities in surveying traditional
territories.’ Due to the asymmetric information and
misunderstanding between planners and indigenous
people, the latter used to be unwilling to talk with officials
through traditional participatory methods. In this
case, researchers used GIS technology to help those
uneducated Atayal to draw a mental map about their
traditional territories. During this process, they successfully
empowered tribesmen to engage in policy
planning since these mental maps became an important
reference for delineating a national reservation.
Figure 3 is a mental drawing of traditional territories.
Researchers collected the ‘soft’ geographic
knowledge and merged them with modern hard geographic
data. They believe this combination could produce
a new way to connect official and local aspects.
Figure 3
A mental map of the indigenous people in the Atayal Smangus community
Source: Lin (2005)

Using PPGIS to Involve Citizens in Urban Policy Planning 141
Another PPGIS application in Taiwan is a case
about the Keelung River pothole conservation. This is a
project conducted by Nangang Community College
(NCC). It used web 2.0, citizen journalists, and a
Google map to collect opinions of residents about the
delineation of a pothole conservation area along the
river. This project used two steps to involve people in
the process of policy making. First, they held a workshop
and led participants to offer a primary conservation
map proposal through using the visualized GIS and
Google map. Then, they held a public discussion meeting
to gather opinions about their primary map. Based
on these two steps and GIS technology, people could
easily understand the scope of conservation and put the
comments on the website.
Figure 4
The Google map website of Keelung River pothole conservation
VI. Conclusions
Geographical Information Systems have been increasingly
utilized in the areas of urban planning, policy
analysis, and policy evaluation from the 1960s onwards.
In these areas, GIS’s have already had proven
effectiveness. However, due to recent democratic development,
demands for public participation have increased
the academic and practical expectations of
GIS’s. Researchers began to consider the potential of
PPGIS to increase public participation in public services
in the early 1990s. Since this is still a new concept,
only a few researchers have paid attention to this
issue. It is especially difficult to find PPGIS literature
in Taiwan.
In this paper, we introduced the concept as well as
essences of PPGIS. We also briefly described two
PPGIS applications in Taiwan. We hope this paper will
attract more attention to PPGIS potential and utilize it
to tackle related issues.
References
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142 Taiwan Development Perspectives 2009
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Parliamentary Reform of 2008 143
Parliamentary Reform of 2008
LI, Chia-wei
Abstract
The sixth Legislative Yuan had started amending its own organic laws and bylaws governing
the organization of standing committees before it dissolved at the beginning of
2008. The amendment was necessary because the seventh Legislative Yuan would have its
seats reduced by half to 113 from 225. It was not completed on time. The new legislature is
continuing to act on the amendment of bylaws. Changes made by the amendment so far
completed are not wide-ranging and material.
However, the amendment has made inter-party consultation more transparent and the
cool-down period shorter. The head of state is required to deliver a state of the nation message
on the floor of the Legislative Yuan, while resolutions and bills can be initiated with
fewer endorsements.

144 Taiwan Development Perspectives 2009
I. Introduction
Taiwan completed the seventh amendment to the
Constitution in 2005. It halved the seats of the Legislative
Yuan or parliament from 225 to 113. As a result, 73
legislators shall be elected, one from each single constituency,
and 34 others at large, from among candidates
nominated by political parties according to proportional
representation. Six other seats are reserved for
indigenous peoples. Their term is four years.
The sixth Legislative Yuan, which dissolved at the
beginning of 2008, started amending its own organic
law and bylaws governing the organization of its
standing committees as well as their exercise of powers.
The amendment could not be completed before it dissolved.
The seventh Legislative Yuan, elected on January
12, 2008, has continued to act on the amendment.
II. Reform in 2008
The Kuomintang holds 81 seats (72%) in the seventh
Legislative Yuan, against 27 of the Democratic
Progressive Party (24%). The Non-Partisan Solidarity
Alliance has three seats. The People First Party has one
seat, while there is one independent. The amendment of
the organic laws and bylaws continued at the legislature,
where the Kuomintang controls more than a two-thirds
majority. Only parts of the Law Governing the Exercise
of Power by the Legislative Yuan and its Bylaw on
Legislative Procedure have been amended.
1. Inter-party Consultation
The amendment to the Law Governing the Exercise
of Power by the Legislative Yuan was adopted on
April 25, 2008. Articles 70 and 71-1 of the law as
amended have stipulations on consultation between the
ruling and opposition parties. The stipulations set forth
require every consultation session to be fully taped
electronically to insure transparency and dispel suspicion
of horse-trading by a handful of caucus members
participating. The time for consultation has been reduced
from four months to one to insure an important
bill is acted on in one Legislative Yuan session.
Another stipulation requires the publication of the
minutes in detail of every consultation session in the
Legislative Yuan Records for public scrutiny. Moreover,
if the results of consultation are significantly different
from decisions made later at committee meetings, the
difference has to be fully explained and the explanation
published in the Legislative Yuan Records lest the outcome
of the consultation should be arbitrarily changed
by committee members present and voting.
A four-month “cool-down” period was provided so
that agreement might be reached during a Legislative
Yuan session between the ruling party and the opposition
before a bill was acted on or the opposition might
boycott the bill to let it fall into abeyance. The
cool-down was aimed at getting minority parties to participate
in the legislative process and preventing them
from resorting to contest outside the Legislative Yuan
floor. A long cool-down, however, adversely affected
law-making efficiency. Minority parties could take advantage
of it to boycott for their own political gains.
Moreover, the Democratic Progressive Party ran a minority
government from 2000 to 2008, during which
time a cool-down in inter-party consultation had no
positive effect. As a matter of fact, it was turned into a
tool for the ruling party and its ally to help the administration,
precluding the opposition Kuomintang from
providing the necessary checks and balances. The period
is shortened to one month to meet the public demand
for an efficient parliament while an unprecedented
financial crisis is engulfing the world. Important
legislation cannot wait.
2. President’s State of the Nation Message
Paragraphs 1 to 5 of Article 15 of the Law Governing
the Exercise of Power by the Legislative Yuan
were amended on May 9, 2008. The president of the
Republic of China is now required to deliver a State of
the Nation message before the Legislative Yuan. The
amendment was made in line with Article 4, Paragraph
3, of the Constitution as amended, which reads: “When
the Legislative Yuan convenes each year, it may hear a
report on the state of the nation by the President. of the

Parliamentary Reform of 2008 145
Republic.” A prior constitutional amendment required
the president to deliver a State of the National message
before the National Assembly. According to the prior
amendment, the National Assembly, when it convenes,
“may hear a report on the state of the nation by the
president, review national issues, and offer recommendations.”
This power was transferred to the Legislative
Yuan in 2000 after the National Assembly was made to
convene when necessary rather than regularly. When
that power was transferred, it took at least a quarter of
the Members of the Legislative Yuan to propose a resolution
requesting the president to make a State of the
Nation message and the resolution had to be adopted at
a Legislative Yuan plenary session. If the resolution
were adopted, the steering committee of the Legislative
Yuan would schedule the delivery of the message. On
the other hand, the president could offer to deliver the
message and review national issues and do so with the
consent of the Legislative Yuan. The Constitution does
not make the president responsible to the legislature;
and therefore he would not be subject to interpellation
on the floor, albeit he could give answers in writing.
It is now mandatory for the president to deliver a
State of the Nation before the Legislative Yuan without
the complicated procedures.
3. Initiation of Resolutions and Bills
Democratic Progressive Party Member of the
Legislative Yuan Kuan Bi-ling slapped her Kuomintang
counterpart Hung Hsiu-chu at an Education Committee
meeting on October 22, 2008. The incident occurred
because Kuan and her two opposition party colleagues
resented their being bullied at the committee meeting
where Hung presided. They wanted to initiate a resolution,
but were unable to do so for they lacked mandatory
endorsements. According to the Bylaw on Legislative
Procedure prior to an amendment, a motion or a
proposal for amendment has to be initiated by one
committee member and endorsed by three others present
and voting. The opposition party is represented by
27 members in the parliament, and cannot seat more
than three members on the Education Committee. Kuan
and her colleagues resented the overwhelming dominance
of the Kuomintang, which handily and lawfully
nipped their initiation in the bud.
Currently, the opposition party seats three members
on the Education Committee and each of four other
standing committees. The four are the Foreign Affairs,
Finance, Communications, Judiciary, and Health and
Environment Committees. There would be no chance
for the party to initiate a motion at meetings of the five
committees without the support of a member of the
Non-Partisan Solidarity Union or the independent, unless
the bylaw was amended.
Article 57 of the bylaw was deleted on December
26, 2008 to make it possible for the opposition to initiate
a motion without three endorsements. However, the
deletion is not necessary, because the lack of enough
endorsements for a motion was and still is a problem
that can be solved by the party caucus even if the article
remained intact. The deletion is likely to trigger proliferation
of motions and bills that may harass standing
committees.
III. Reform in Progress
1. Transparency in Legislation
The Legislative Yuan is planning to have all its
meetings televised live to ensure transparency in legislation.
A mission was sent to the United States to learn
the experiences of the Cable Satellite Public Affairs
Network in covering the Congress in July 2008. At the
recommendation of the mission, Wang Jin-pyng, president
of the Legislative Yuan, declared the decision to
open the whole legislative process to electronic media
coverage. According to the timetable he announced,
online coverage would start in mid-September, when
the Legislative Yuan started its second session of 2008
and a new Parliament Channel would open live coverage
in January 2009. No coverage started, however.
2. Power of Investigation
According to Interpretation 585 of the Council of

146 Taiwan Development Perspectives 2009
Grand Justices, the Legislative Yuan may exercise a
power of investigation to help effectively exercise its
constitutional power of legislation. The power of investigation
is a subsidiary power necessary for the parliament
to exercise its constitutional powers and authorities.
If and when necessary, the Legislative Yuan may
also, by resolution of its plenary session, request the
presence of a civilian or government official related to
the matter under investigation to give testimonies or
express opinions, and may impose reasonably compulsory
measures upon those who refuse to fulfill their
obligations to assist in the investigation within the
scope of pecuniary fines. However, the legalization of
that subsidiary power has yet to be completed, though
the interpretation was handed down in December 2004.
Since the seventh Legislative Yuan was inaugurated, six
proposals to legalize the parliamentary investigation
power, including a hearing system and the offense of
contempt of parliament, have been submitted. Five of
them have passed the first reading. One of them, the
proposal of administrative penalties for people who
disobey the duty of presence, has passed the first committee
examination. Another proposal for of investigation
power was discussed in committee once. Efforts
are being redoubled to legislate the parliamentary power
of investigation in 2009.
3. Cross-Strait Negotiation
The Straits Exchange Foundation (SEF) and the
Association for Relation across the Taiwan Straits
(ARATS), both authorized to conduct relations between
Taiwan and China, signed four agreements in Taipei on
November 4, 2008. Under the agreements, direct flights
and maritime shipping across the Taiwan Strait would
start, postal service improved, and food safety strengthened.
They were not treaties the Legislative Yuan has
to ratify in accordance with the Constitution. However,
there must be some mechanism to ratify these
“non-diplomatic” agreements of utmost importance to
the national interests. As a result, the Legislative Research
Bureau of the Legislative Yuan proposed a draft
Act Dealing with Cross-Strait Agreements. It stipulates
parliamentary participation before agreements are
signed and the parliamentary deliberation and oversight
function over signed agreements. Opinion is divided.
Those who support the bill argue that the Legislative
Yuan, according to Article 63 of the Constitution
which gives it the power to “decide by resolution
…conclusion of peace or treaties,” has to ratify
agreements between Taiwan and China which are just
as important as “treaties.” Opponents doubt the constitutionality
of the act as drafted and insist that the conclusion
of such agreements including their ratification
is stipulated in the Statute Governing the Relations
Between the People of the Taiwan Area and the Mainland
Area. They do not consider it necessary to adopt
the draft act. Agreement will have to be reached on the
act on oversight of the conclusion of agreements between
the SEF and the ARATS.
4. Congressional Aides
Wu Cherng-dean was suspected of paying NT$5.9
million to his non-existing congressional aides for six
years until 2008 while he was a Member of the Legislative
Yuan. Kinmen district prosecutors indicted him for
forgery and corruption dollars, demanding 15 years in
prison for the former legislator.
Members of the Legislative Yuan are entitled to
congressional aides, officially known as “assistants.”
Article 32 of the Organic Law of the Legislative Yuan,
each legislator may employ eight to 14 assistants at
public expense. Paragraph 4 of its Article 33 stipulates
each party caucus may select ten to 16 publicly
funded assistants, and assign them to legislators who
recommend them. Since these assistants are hired and
fired by legislators, such abuse as Wu Cherng-dean was
charged with is likely to occur. Moreover, congressional
aides so employed are often not qualified for their work.
Reform is needed.
Legislators have demanded for reform for years
but no action has been taken. Efforts must be made to
establish a sound employment system for congressional
aides.

Parliamentary Reform of 2008 147
IV. Conclusion
Not much parliamentary reform was done in the
year 2008. The sixth Legislative Yuan started amending
a series of its organic law and bylaws after the constitutional
amendment of 2005 mandates the halving of its
seats from 225 to 113. The seventh Legislative Yuan
picked up where it was left off. So far, however, inter-party
consultation has been made transparent, the
cool-down period in that consultation is shortened to
one month, resolutions can be initiated without endorsements,
and the president is required to deliver a
State of the National message on its floor.
of the president of the Republic to dissolve the Legislative
Yuan, and its power to force the president of the
Executive Yuan to resign.
Efforts were made in 2008 to legalize the Legislative
Yuan’s power of investigation, extend parliamentary
oversight over conclusion of agreements between
Taiwan and China, and have the whole procedure of
legislation televised live to ensure transparency.
Aside from completing the unfinished reform
work, the Legislative Yuan has to try to amend its organic
laws and bylaws in the year 2009 to make itself
better cope with the problems arising from the reduction
by half of its seats. It should consider enabling a
Member to sit on two committees, organizing special
committees, reviewing the current interpellation procedure,
allowing open ballot for confirmation of nominations
for government offices, and electing committee
chairmen in lieu of conveners. It should also consider
whether to adopt seniority in choosing committee
chairmen, provide checks for the presidential declaration
of an emergency decree, amend the procedure to
impeach the president of the Republic, give its speaker
the power to use police force on the floor, extend the
restrictions on the conflict of interests, and tighten the
discipline on errant Members.
Moreover, the Legislative Yuan may consider an optimum
number of its seats and a readjustment of requirements
for impeaching and recalling the president
of the Republic. Also necessary is an overall review of
the constitutional stipulations governing the appointment
of the president of the Executive Yuan, the power

148 Taiwan Development Perspectives 2009

The Foreign and Cross-Strait Policies of the New AdministrationIn the Republic of China 149
The Foreign and Cross-Strait Policies of
the New Administration in the Republic of China *
CHEN, Stephen S. F.
Summary
This article discusses the foreign and cross-Strait policies of the Ma Ying-jeou administration
in the Republic of China. The first part briefs the historical background and
legal status of Taiwan, followed by an introduction of the Constitution of the Republic of
China. The article then analyzes the changing relationship across the Taiwan Strait. Finally,
the paper presents detailed outlines on foreign and cross-Strait policies of the new administration.
*
This speech was delivered at the Chatham House in London on 8 December 2008.

150 Taiwan Development Perspectives 2009
Mr. Chairman, Ladies and Gentlemen:
It is indeed a pleasure and privilege to speak to
such a distinguished gathering at Chatham House in
London, a think tank of world renown.
You may have noticed that I made a slight change
in the title of my presentation. I will talk about the Foreign
and Cross-Strait Policies of the New Administration
in the Republic of China, not Taiwan.
The semantics is of great importance and relevant
to the topic I am going to discuss today. For purposes
of clarity, I am going to relate to you the historical
background and legal status of Taiwan, the Constitution
of the Republic of China, the changing relationship
across the Taiwan Strait, and then the foreign and
cross-Strait policies of the new administration.
Historical Background and Legal Status of
Taiwan
Taiwan was a part of the Fujian Province under the
Manchu Dynasty and was later made a province. That
was the legal status of Taiwan before it was ceded to
Japan following the first Sino-Japanese War of 1894-95,
in the Treaty of Shimonoseki.
The Republic of China, founded in 1912, succeeded
the Manchu Dynasty, not only because of the
Revolution led by Dr. Sun Yat-sen, but also because of
the imperial edict to abdicate the throne in favor of the
Republican government. As successor state, the Republic
of China inherited all treaties signed by the Manchus
with foreign powers, including the Treaty of Shimonoseki
and the Treaty of Nanking ceding Hong Kong to
the United Kingdom.
Then came the Japanese invasion of China, starting
as early as l931, with its sweep of Manchuria;
however, only after the Marco Polo Bridge Incident in
1937 did the Republic of China organize a full-scale
war of resistance against Japanese aggression, marking
the beginning of the Second Sino-Japanese War. At this
stage, for four years the Republic of China fought alone.
In 1941, Japan launched a surprise attack on Pearl
Harbor and invaded American and British colonies in
Asia. The Republic of China followed in the footsteps
of the U.S. and Britain in declaring war on Japan; the
three countries formed an alliance in their war effort.
The Republic of China, in accordance with international
law, declared all treaties signed between China
and Japan, including the Treaty of Shimonoseki, null
and void.
The Cairo Conference took place between the US,
the UK, and the Republic of China in December 1943.
In the Cairo Declaration that ensued, the three Allied
Powers demanded that Japan return all territories stolen
from the Republic of China including Manchuria, Formosa
(Taiwan), and the Pescadores (Penghu). The stipulation
was later repeated in the Potsdam Declaration
of 1945, and accepted by Japan in its Instrument of
Surrender in 1945.
Following Japan’s unconditional surrender in August
1945, the Republic of China government immediately
reclaimed Manchuria, Formosa, and the Pescadores.
Back then, not a single state in the world questioned
Taiwan’s status or objected to Taiwan’s return to
the Republic of China’s jurisdiction.
The Chinese Civil War resumed shortly after,
while thereafter the unfortunate 2/28 Incident occurred
in 1947 in Taiwan. The Republic of China government
relocated from Nanjing to Taipei in 1949 after losing
control of the Mainland to the Chinese Communists. It
was the worst of times for the Republic of China government;
however, Divine Providence did not forsake
the ROC. An epic victory in the Battle of Kuningtou on
Kinmen (Quemoy) Island on October 25, 1949, was a
crucial morale booster.
However, it is undeniable that the Republic of
China was experiencing a Dark Ages on the diplomatic
front at that time. Its plight was evident following the
release of the White Paper by the US State Department
in August 1949. After the People’s Republic of China
was created on October 1, 1949, US President Harry S.

The Foreign and Cross-Strait Policies of the New AdministrationIn the Republic of China 151
Truman, however, stated in a press conference on January
5, 1950, and I quote, “In the Joint Declaration at
Cairo on December 1, 1943, the President of the United
States, the British Prime Minister, and the President of
China stated that it was their purpose that territories
Japan had stolen from China, such as Formosa, should
be restored to the Republic of China. The United States
was signatory to the Potsdam Declaration of July 26,
1945, which declared that the terms of the Cairo Declaration
should be carried out. The provisions of this
declaration were accepted by Japan at the time of its
surrender. In keeping with these declarations, Formosa
was surrendered to Generalissimo Chiang Kai-shek,
and for the past 4 years the United States and other Allied
Powers have accepted the exercise of Chinese [referring
to the Republic of China] authority over the
island.” End quote.
In fact, the U.S. Embassy accredited to the Republic
of China government in Nanjing relocated to Taipei
with the government. It is true that the Embassy in Taipei
was headed by a young Charge d’Affaires, while the
U.S. Ambassador, Leighton Stuart, stayed on the mainland.
This fact did not diminish a bit the legal status of
the U.S. diplomatic mission.
Later that day, Secretary of State Dean Gooderham
Acheson, citing the Cairo Declaration and Potsdam
Declaration, said:
“In the middle of the war, the President of the
United States, the Prime Minister of Great Britain, and
the President of China [referring to the Republic of
China] agreed at Cairo that among the areas stolen from
China by Japan was Formosa and Formosa should go
back to China.
“As the President pointed out this morning, the
statement was incorporated in the declaration at Potsdam
and that declaration at Potsdam was conveyed to
the Japanese as one of the terms of their surrender and
was accepted by them, and the surrender was made on
that basis.
“Shortly after that, the island of Formosa was
turned over to the Chinese [referring to the Republic of
China] in accordance with the declarations made with
the conditions of the surrender.
“The Chinese [referring to the Republic of China]
have administered Formosa for 4 years. Neither the
United States nor any other ally ever questioned that
authority and that occupation. When Formosa was
made a province of China nobody raised any lawyers’
doubts about that. That was regarded as in accordance
with the commitments.
“Now, in the opinion of some, the situation is
changed. They believe that the forces now in control of
the mainland of China, the forces which undoubtedly
will soon be recognized by some other countries, are
not friendly to us, and therefore they want to say, ‘Well,
we have to wait for a treaty.’ We did not wait for a treaty
on Korea. We did not wait for a treaty on the Kuriles.
We did not wait for a treaty on the islands over
which we have trusteeship.
“Whatever may be the legal situation, the United
States of America, Mr. Truman said this morning, is not
going to quibble on any lawyers’ words about the integrity
of its position. That is where we stand.
“Therefore, the President says, we are not going to
use our forces in connection with the present situation
in Formosa. We are not going to attempt to seize the
island. We are not going to get involved militarily in
any way on the island of Formosa. So far as I know, no
responsible person in the Government, no military man
has ever believed that we should involve our forces in
the island.” End quote.
The international political scene experienced a
drastic change after the Korean War broke out on June
25, 1950. Seeing Taiwan’s strategic importance, President
Truman ordered the Seventh Fleet to patrol the
Taiwan Strait and declared, “Regarding confirmation of
Taiwan’s status … it should not be decided until after
peace and stability are restored in the region, or until

152 Taiwan Development Perspectives 2009
after a peace treaty is signed with Japan, or until the
United Nations reaches a decision on the subject.” End
quote.
While the US once thought about defining Taiwan’s
status as “undecided” until the signing of a peace
treaty with Japan to save Taiwan from the grip of
Communist China, it made its stance clear following its
exchange of notes with the Republic of China government
in February 1951, which led to the creation of the
Joint Defense and Mutual Assistance Agreement.
Meanwhile, the US steadfastly refused to recognize the
People’s Republic of China regime.
In 1951, the Allies of World War II, including the
US and the UK, began to discuss the signing of a peace
treaty with Japan. Those countries that had recognized
the PRC, including the UK, the Soviet Union, and India,
argued that the PRC, not the ROC, should be invited to
the peace conference as the representative of China.
Alas! If that had happened, Taiwan would have long
been part of the PRC. But it did not happen that way.
That’s why I am here.
What happened was that the US finally decided
not to invite any representative of China to the conference,
which meant neither the PRC, nor the ROC
would be invited. The US postulated that Japan should
be allowed to sign a separate peace treaty with either
the ROC or the PRC government after restoring its sovereignty
following the signing of the Peace Treaty of
San Francisco. Japan, at the urging of the US, chose the
ROC. The Treaty of Peace between the Republic of
China and Japan was signed on April 28, 1952 in Taipei,
putting an end to all the uncertainties regarding the
so-called undecided status of Taiwan.
Furthermore, the signing of the ROC-US Mutual
Defense Treaty in 1954 greatly improved Taipei’s international
status. It signified the fact that the Republic
of China’s sovereignty over Taiwan and Pescadores had
been confirmed by international treaties.
The reason is very simple. If one follows the argument
that Taiwan’s status had remained undecided
even after a separate peace treaty had been signed between
the ROC and Japan, how would it have been
possible for the United States to sign a treaty of mutual
defense with the Republic of China for the specific
purpose of protecting Taiwan and Pescadores? It takes
only elementary knowledge in international law to see
through the fallacy of its logic.
I have dwelt at some length on the historical background
and legal status of Taiwan for no other purpose
except to show Taiwan belongs to the Republic of China.
The fact that both Japan and the United States later
switched diplomatic relations from Taipei to Beijing is
irrelevant to the status of Taiwan, as other countries,
however small the number may be, continue to recognize
the Republic of China to this day.
The Constitution of the Republic of China
Having established that Taiwan is a province of the
Republic of China, I would like to describe to you the
Constitution under which it is governed. The ROC
Constitution was written in 1946 by a Constituent National
Assembly in Nanjing, including delegates from
the Province of Taiwan. After the ROC government
relocated to Taipei, the Republic of China government
has effectively controlled only Taiwan and the outlying
islands. The Constitution underwent several revisions
since 1949; however, the Republic of China has never
abandoned its sovereignty over the mainland. For this
purpose, the Constitution divides the whole country
into two areas, the free area (Taiwan) and the mainland
area. The official map of the country says the same
thing. The mainland is not a foreign state, and Taiwan is
a not separate state either.
The division of China is, of course, the result of a
civil war; it is different from that in Germany, in which
the division was imposed upon by the Allied Powers.
The hot war did not end in 1949, but continued into the
1950s, highlighted by the celebrated Artillery Duel of
Kinmen (Quemoy) in 1958. The hot war was followed
by a cold war for three decades, characterized by three

The Foreign and Cross-Strait Policies of the New AdministrationIn the Republic of China 153
no’s: no contact, no negotiations, and no compromise,
until President Chiang Ching-kuo decided in September
1987 to allow veterans to visit the mainland for family
reunions. Prior to this, world politics had already
changed; on December 15, 1978, the US abruptly declared
that it would switch diplomatic recognition from
Taipei to Beijing on January 1, 1979. Taipei had to bite
the bullet.
The Changing Relationship across the Taiwan
Strait
Chiang Ching-kuo’s decision to allow army veterans
to visit the mainland was far-reaching in its impact.
Other citizens followed the veterans to the mainland for
trade, investment, and tourism, with the government
looking the other way. The exchanges increased so rapidly
that in l992 both sides of the Strait sensed the need
to hold talks for resolving emerging issues. As governments
on both sides did not, as they still do not, recognize
each other, proxy organizations had to be set up to
conduct the talks.
In the government structure, a separate cabinet-level
agency handling mainland affairs, called the
Mainland Affairs Council, was established. Under this
agency, a proxy organization, the Straits Exchange
Foundation, a non-profit corporation, was set up. Its
counterpart, ARATS, the Association for Relations
Across the Taiwan Strait, was also set up. The Legislative
Yuan enacted a law titled “Statute Governing Relations
of People across the Taiwan Strait.” We do not
stamp visas on PRC passports, but issue a separate
booklet titled “Permit for Mainland Compatriots to Visit
Taiwan. Likewise, the PRC does not stamp visas on
ROC passports and also issue similar booklets.
For the purpose of a preliminary meeting, the two
proxy organizations sent delegations to Hong Kong for
a first-ever meeting in October 1992. They immediately
hit snags over the definition of “One China.” For
us, it is the Republic of China, and both Taiwan and the
mainland constitute China. For them, it is the People’s
Republic of China, and Taiwan is part of China. Finally,
both sides agreed that, having respectively stated their
interpretations, they should shelve the issue and proceed
to the formal business talks in the future. That in
essence was the “Consensus of 1992.” Indeed, the
principals of the two organizations, C. F. Koo and
Wang Taohan, were able to meet for talks in April 1993
in Singapore. Four minor agreements were signed. Parity
and dignity for both sides were meticulously observed
at the meeting.
A second meeting for Koo and Wang was scheduled
for late 1995 in Taipei, but plans miscarried because
of President Lee Teng-hui’s trip to the United
States to visit his alma mater, Cornell University, was
considered provocative by the PRC. The year 1996
witnessed an unfortunate missile crisis across the Strait.
After the ROC government assured the world that
cross-Strait relations had not changed, Koo was finally
able to visit Wang in Shanghai in 1998, but not for
talks.
Further exchanges were aborted following Lee
Teng-hui’s “special state-to-state relationship” statement
of July 1999 and his successor Chen Shui-bian’s
pro-independence utterances and moves. Tensions
mounted to such a point that the PRC enacted a law,
titled “Anti-Secession Act” in March 2005. To reduce
tension, Lien Chan, then chairman of the Kuomintang
(KMT) Party, went to Beijing in April/May on a Journey
of Peace at the invitation of Hu Jintao, General
Secretary of the Chinese Communist Party (CCP).
The KMT was in opposition then, so the two leaders
issued only a joint vision statement on April 29,
2005, which could be summarized as follows:
(1) Resumption of talks on the basis of parity and the
1992 consensus;
(2) Reaching a peace agreement, including the establishment
of a confidence-building mechanism;
(3) Promoting full-scale economic cooperation across
the Strait, leading eventually to a cross-Strait common
market;

154 Taiwan Development Perspectives 2009
(4) Promoting the exchange of views with regard to
Taiwan’s participation in international activities;
(5) Establishing a party-to-party platform for consultation.
As the KMT was in opposition, it could only carry
out Point No. 5, but reported the results of the Journey
of Peace to the DPP administration in hopes that the
government could endorse and implement them. Of
course it did not happen that way; the DPP government
rejected everything, as most people had expected.
Nonetheless, the five points of vision were incorporated
into the KMT party platform by the Party’s
National Congress in July 2005, and three economic/trade
forums were held between the KMT and
the CCP in 2006 and 2007.
When Ma Ying-jeou was nominated by the KMT
to lead the ticket in the presidential election, he basically
adopted the planks in his campaign platform.
Ma’s Foreign and Cross-Strait Policies
(1) Three Nos: no unification, no independence, and no
use of force
(2) Mutual non-denial
(3) Cross-Strait identity: according to the ROC Constitution
and the Statute Governing Relations between
People across the Taiwan Strait, cross-Strait relationship
is a special relationship, but not a
state-to-state relationship
(4) Economic policies: signing a Comprehensive Economic
Cooperation Agreement to achieve
cross-Strait economic/trade normalization, leading
eventually to a cross-Strait common market, so as to
pursue a win-win situation in cross-Strait economic/trade
relations whose concrete items include:
1. Direct air and maritime links for passengers and cargo
2. Financial exchange and cooperation
3. An investment guarantee agreement
4. An agreement on double taxation
5. Protection of IPRs and norms for patent certification
6. Joint standards for cross-Strait industries and norms
for certification of testing
7. Lowering of tariff and non-tariff barriers in trade
(1) Political area: signing of a peace agreement, including
the following aspects:
1. Modus vivendi, or a mode allowing international
space for Taiwan
2. End of diplomatic tug-of-war, a win-win situation
3. Setting up a coastal military confidencebuilding mechanism
4. End of the state of hostilities
5. Signing a peace agreement
President Ma Ying-jeou was inaugurated on May
20 this year. Already talks have been resumed between
SEF and ARATS. In two meetings, one in Beijing last
June and the other in Taipei just last month, the two
sides have signed six more agreements.
Preparations for further talks are under way; things
look rather smooth ahead. Both sides have professed
the desire to pursue peace, development, prosperity, and
a win-win situation, while shelving disputes.
In the foreign policy area, Beijing has shown some
good will in the Beijing Olympics, ROC’s bilateral
diplomatic ties with Latin American countries, and
Taipei’s level of representation in the APEC Economic
Leaders’ Meeting last month.
The Role of the Republic of China in the
World
As I mentioned a little earlier, the division of China
was the result of a civil war; however, the war was
not another dynastic fight as in Old China, but about

The Foreign and Cross-Strait Policies of the New AdministrationIn the Republic of China 155
the future direction of the nation’s overall development.
Dr. Sun Yat-sen, founder of the Kuomintang and
the Founding Father of the Republic of China, who
studied in the British Library and was rescued by his
professor and mentor, Dr. James Cantlie, and the British
authorities from the illegal abduction by the Manchu
legation in London, wrote the Three Principles of the
People, or Democracy, Nationalism, and People’s Livelihood,
to guide his party. The Communist Party of
China believed otherwise; they were ardent followers of
Marxism and Leninism.
Well-intentioned Westerners thought the CCP was
a group of agrarian reformers and believed there could
be a coalition government in postwar China; some even
equated the CCP with European Communist parties
taking the parliamentary approach of power struggle.
Of course, it did not happen.
Defeated in the Civil War, the KMT-led government
at least successfully stemmed Communist expansion
at a critical juncture in history, utilizing the Taiwan
Strait as a natural buffer, much as Britain successfully
stemmed Nazi expansion at a critical juncture in World
War II.
In the last six decades, the Republic of China has
built Taiwan from the ravages of
World War II into an economic miracle and a viable
democracy, although admittedly there are some
shortcomings. We may be small in size and population,
but there is no question that the Chinese mainland at
least indirectly used Taiwan as a role model in its
opening up and economic reforms. But that was not the
end of the story. We believe that in terms of freedom,
democracy, human rights, and rule of law, we hold the
moral high ground. When President George W. Bush, in
his congratulatory message to President Ma, lauded
Taiwan as “a beacon of democracy for Asia and the
world,” we knew it was a diplomatic compliment. With
our shortcomings, we still have a lot to learn, especially
from the cradle of modern democracy, Great Britain.
The Republic of China is also the repository of
Chinese culture. All traditions of China have been well
preserved there, including the art treasures in the National
Palace Museum, to the admiration of even Mainland
visitors to Taipei, because we were spared the bizarre
and lunatic vandalism of the Red Guards in the
so-called Cultural Revolution.
In this age of reconciliation, our resolve to have a
credible defense, however, has never wavered. We believe
that one goes to the negotiation table from a position
of strength, not from a position of weakness. That
is why credible defense is absolutely necessary.
The Republic of China has played a constructive
role in the international community, seeking at the same
time to expand ties with all nations. For instance, our
graduate students no longer concentrate on a particular
country; they go to all major countries, including the
U.K. In fact, our student population in Great Britain has
increased dramatically in recent decades, from a little
over 200 in the 1970s to around 16,000 in 2008.
In the current relationship of cooperation and
competition between the two sides of the Taiwan Strait,
the jury is still out. However, the worst of times for
Taiwan and for the Republic of China seem to be over.
With peace at hand, we only hope that we truly serve as
a beacon. We only hope that all Chinese communities
everywhere in the world will one day enjoy the same
degree of freedom, democracy, human rights, and rule
of law as we do.
Thank you.

156 Taiwan Development Perspectives 2009

An Ancient Cure for Chinese Woe 157
An Ancient Cure for Chinese Woe
HUNG, Chien-chao
Abstract
China must know the days of empires are gone. It has been an empire since 221 B.C.
What President Ronald Reagan called an evil empire of the Soviet Union crumbled with the
fall of the Berlin Wall. The British Empire came to an end much earlier. In its place has
evolved the British Commonwealth of Nations, which dropped the word “British” in 1949.
Taiwan has been a de facto independent, sovereign state since 1950 after Chiang
Kai-shek’s defeat in the Chinese civil war. China considers Taiwan a renegade province,
which has to be taken back to its fold, by force if necessary. They both want peaceful unification,
however. So does the rest of the world, at least on the record.
Peaceful unification or reunification is not impossible, if the example of the British
Commonwealth of Nations is followed. Just as Great Britain made Canada a dominion in
1867, the People’s Republic of China can give Taiwan dominion status now in preparation
for a full-fledged Chinese commonwealth. The People’s Republic and the Republic of China
in Taiwan may be united in the name of the Chinese nation. They will be equal in status
and in no way subordinate one to the other, albeit the People’s Republic may be the ex officio
head of the commonwealth. A dominion is recognized as a separate state entitled to
have separate representation in the United Nations and other world organizations, to appoint
its own ambassadors and to conclude its own treaties. At the same time, it is not considered
to stand in the same relation to the People’s Republic as foreign countries.
The Chinese commonwealth, on the other hand, may help Beijing to solve the questions
of Tibet, Xinjiang (Chinese Turkistan) and Hong Kong. They may join the Chinese
commonwealth as dominions like Taiwan. The time may come in the not-too-distant future
for Taiwan to become a dominion to keep the virtual status quo across the Taiwan Strait for
the common benefit of the whole world community.

158 Taiwan Development Perspectives 2009
China has been an empire since the First Emperor
founded his Jin Dynasty in 221 B.C. An empire is a
state that has a great extent of territory and a great variety
of peoples under one rule. The Chinese empire,
which still exists in the twenty-first century as the People’s
Republic of China, has since expanded or shrunk,
remaining divided and in turmoil for most of the time.
In fact, China was unified usually at the beginning of
each new dynasty, but a unified China did not last long,
a century at most.
History has seen the rise and fall of empires.
However, the days of the empire are over. The British
Empire, where the sun never set, has been taken over
by the Commonwealth. The Soviet empire came to an
end with the dissolution of the Union of Soviet Socialist
Republics. It is a historical inevitability.
The demise of the British Empire, on the other
hand, sets an example for Chinese reunification. It
yields a strategic lesson for Taiwan, the thriving island
state since 1950 which will be annexed by or merged
with the People’s Republic as a small part of a large,
unified China in the end. It is a historical inevitability.
Taiwan’s history began in the seventeenth century
with the Dutch colonization of the island. Koxinga,
defeated in the Chinese civil war, led his army to invade
Taiwan and drove out the Dutch in 1662. Chinese
immigrants came to Taiwan in droves and the island
was fully Sinicized by the time it was annexed by Qing
China in 1683. Taiwan, better known as Formosa, was
ceded together with the Pesacdores by China to Japan
under the Treaty of Shimonoseki in 1895. They were
restored, along with Manchuria, to the Republic of
China at the end of World War II in 1945. When Generalissimo
Chinag Kai-shek, defeated by Mao Zedong in
the Chinese civil war like Koxinga in 1662, came to
Taipei at the head of his Kuomintang government at the
end of 1949, Taiwan assumed a new status, that of sovereign
state. Taiwan was returned by Japan to China as
a province. With the national government moved to
Taipei, Taiwan became an independent sovereign state
with the official title of the Republic of China, albeit it
is so recognized by a mere 23 countries of the world
and the number may continue to decrease. The celebrated
New Encyclopedia Britannica, however, dates
Taiwan becoming a new independent nation on October
25, 1945. The Republic of China formally took over
Taiwan from Japan on that day, when General Rikichi
Ando handed over an instrument of surrender as governor-general
of Taiwan to General Chen Yi, administrator-general
of Taiwan.
The British Commonwealth of Nations, created in
1931, was an evolutionary outgrowth of the British
Empire, of which Queen Victoria was the first empress.
The traditional British policy of allowing considerable
self-government in its colonies led to the existence by
the nineteenth century of several dependent states,
which were populated to a significant degree by Europeans
accustomed to the form of parliamentary rule and
which possessed large degrees of sovereignty. In 1837 a
period of increasing tension in Upper and Lower Canada
culminated in rebellions. Lord Durham, sent from
England to investigate, declared in his famous report
that the only cure was to give the colonists the same
kind of self-government in all their internal affairs as
that enjoyed by Englishmen at home. The result was
that responsible government was established in the
North American colonies in 1846-49 and in Australia
and New Zealand a few years later. The next step these
self-governing colonies took was to change themselves
into dominions; i.e., their unification into national entities.
By this means colonies, which in their separate
existence had been small and weak, attained a size and
strength which made them at least potentially comparable
with the mother country. Unification also made
possible the steady growth of a distinctive national spirit.
In 1867 the four chief North American provinces,
on their own initiative but with full consent in Great
Britain, constituted a federation under the title of the
Dominion of Canada. It was the first dominion. After
Canada, dominion status was granted Australia in 1901,
New Zealand in 1907, the Union of South Africa in
1910, and 26 of the 32 counties of Ireland, which joined
the Commonwealth as the Irish Free State in 1921.

An Ancient Cure for Chinese Woe 159
A pronouncement by the Imperial Conference of
1926 described Great Britain and the dominions as
“autonomous communities within the British Empire,
equal in status, in no way subordinate one to another in
any aspect of their domestic or external affairs, though
united by a common allegiance to the Crown and freely
associated as members of the British Commonwealth of
Nations.” Internationally, the dominions were recognized
as separate states, entitled to have separate representation
in the League of Nations and other world organizations,
to appoint their own ambassadors, and to
conclude their own treaties. At the same time, the dominions
were not considered to stand in the same relation
to the United Kingdom or among themselves as
foreign countries. After 1947 the phrase “members of
the Commonwealth” came into use. The British Commonwealth
of Nations was taken over by the Commonwealth
of Nations in 1949. The birth of the modern
Commonwealth was set in train with India’s and Pakistan’s
independence in 1947. In the London Declaration
of 1949, the word “British” was dropped from the association’s
title to reflect the Commonwealth’s new reality,
for both countries have presidents as their heads of state.
Queen Elizabeth II of the United Kingdom has the new
designation “Head of the Commonwealth. She fills two
distinct roles for the Commonwealth. For the newer
republican members, such as India and Pakistan, she
was the symbol of the free association of the Commonwealth
while for the older members she was also
the head of the government and society to whom their
peoples gave allegiance. The Commonwealth facilitates
consultation among member states through meetings of
prime ministers and finance ministers, and through a
permanent secretariat. Members consult on economic,
scientific, educational, financial, legal and military
matters, and try to coordinate policies. Commonwealth
countries work together to build a better world.
The People’s Republic of China claims Taiwan is
one of its provinces, which has to be brought back to its
hold by force, if necessary. Beijing has ruled out possibilities
that Taiwan becomes part of a reunified China
as a dominion or free state, because it is afraid such an
arrangement may encourage Tibet, Xinjiang (Chinese
Turkistan), Inner Mongolia and other provinces to follow
suit in the belief that a change of China’s polity
into a confederation or union might elevate their rights
to govern themselves and weaken its centralized control
over them.
China’s hard stance is likely to change. It is rising
as a world power. It is now more self-confident than
ever before as a major world power playing an increasingly
important role in Asian as well as international
affairs. A more self-confident China is more likely to
accept Taiwan’s dominion status as an indispensable
arrangement for its reunification. Beijing may emulate
the British crown that has granted dominion status to
Canada and Australia. Taiwan as a dominion and the
People’s Republic of China should be, under this arrangement,
“autonomous communities within China,
equal in status, in no way subordinate each to the other
in any aspect of their domestic or external affairs,
though united in the name of the Chinese nation and
associated as members of the Chinese Commonwealth.”
The president of the People’s Republic of
China is the ex officio head of the commonwealth. It is
virtually the same as Deng Xiaoping’s “one country,
two systems” principle, applied to the former British
crown colony of Hong Kong. Internationally, Taiwan as
a dominion can be recognized as a separate state, entitled
to have separate representation in the United Nations
and other world organizations, to appoint its own
ambassadors, and to conclude its own treaties. At the
same time, it is not considered to stand in the same relation
to the People’s Republic of China as foreign
countries.
Then it is up to the People’s Republic of China to
create a Chinese commonwealth, which will greatly
benefit the People’s Republic. For one thing, Beijing
would be able to solve the question of Tibet, if it were
admitted to the commonwealth as a dominion. People
in Tibet rose against China in the lead-up to the Olympic
Games in Beijing in August 2008. The Dalai Lama
wants nothing more than autonomy. Should full au-

160 Taiwan Development Perspectives 2009
tonomy which comes with the status as dominion be
withheld, Tibet would rebel again and again. The People’s
Republic has to allocate an increasingly large defense
and internal security spending in Xinjiang as well.
If the Uighur Moslems were allowed to found a dominion,
Beijing would not have to deploy half a dozen
divisions in Xinjiang, while continuing to enjoy all the
economic benefits from that oil rich region. Inner
Mongolia may merge with Outer Mongolia, and join
the Chinese commonwealth of nations. Hong Kong
may also be given similar status. Singapore, with its
largely Chinese population, may consider joining the
new federation. So may Sarawak. As a matter of fact,
the commonwealth is an open-ended scheme to phase
out the Chinese empire once and for all.
Japan invaded China in 1937 to protect its national
economic interests. It started the Pacific War four years
later to insure its economic prosperity. It created the
Great East Asia Co-prosperity Sphere to protect and
promote its national interests. All the countries in
Southeast Asia now and China under Wang Ching-wei’s
rule were members of the Japanese-sponsored economic
community. Burma and India under Chandra
Bose also joined that organization. Japan’s economic
community project, backed by its military conquest of
the region, failed to bear any economic fruit. But it
reaped a much greater economic harvest in Southeast
Asia after World War II. It dominates the whole region
economically. It has achieved peacefully what it failed
to achieve by the use of force of arms during the last
world war. Revisionist historians are now wondering
who have won the Pacific War. The People’s Republic
of China will fare just as well as post-war Japan has, if
a Chinese commonwealth comes into being.
China is a cultural entity. It has never been a nation
state. Any peoples acculturated in China have become
part of the Chinese nation. That is the reason why
the Chinese empire had always been a benign empire
before Mao Zedong proclaimed the People’s Republic
in 1949. China used to be a benign suzerain to all its
vassal states. The Asia where China imposed its Pax
Sinica for centuries, in fact, appeared more like the
Commonwealth of Nations.
Change is taking place on the other side of the
Taiwan Strait. Ma Ying-jeou, a former Kuomintang
chairman, was elected president on March 22, 2008.
Unlike Chen Shui-bian, a native Taiwan islander whom
he succeeded, Ma is the son of a Hunanese Kuomintang
apparatchik. He knows well of his original sin of being
Chinese-born in Taiwan. Because of the Incident of
February 28 of 1947, in which at least 20,000 innocent
islanders were massacred by government troops sent
from China, mainlanders like Ma would not have had a
chance to get elected but for President Chen Shui-bian’s
truly disastrous misgovernment over the past eight
years. That is why Ma continues to insist that no reunification
with China will ever take place during his lifetime.
He does not want to antagonize the great majority
of Taiwan’s islanders. But he knows China will be
united in the end, though not in the not-too-distant future.
Paradoxically, Chiang Kai-shek’s indoctrination of
one China on the people of Taiwan has spawned a new
nationalism on the island. Most of the people – in fact,
except a handful of independence idealists – know they
are ethnically and culturally Chinese and identify
themselves with China, albeit they want to have their
own national identity. They wish their homeland would
be a truly independent, sovereign state. They know it is
impossible. Their second best choice is commonwealth
status or a close equivalent for Taiwan. They can be
won over as Taiwan keeps on relying increasingly
heavily on China for its survival as a prosperous
economy.
Texas is an example of the economic woes compelling
an independent, sovereign state to give up sovereignty.
It declared independence in 1836 during a
revolution against Mexico. The Republic of Texas had a
very difficult 10-year life. Financing proved critical,
and efforts to secure loans from foreign countries were
unsuccessful. Protection against the raids from Mexico
and occasional attacks by Indians required a mobile

An Ancient Cure for Chinese Woe 161
armed force, which further drained the meager coffer.
As a consequence, the Texans voted for annexation by
the United States; and the proposition, rejected twice by
Washington was finally accepted in 1845. Texas ceased
to be an independent, sovereign state in 1846 when the
transfer of authority from the republic to the state of
Teas took place.
Asia is emerging as the world’s largest trade bloc.
China, Korea and Japan are joining the Association of
Southeast Asian Nations (ASEAN) to form a free trade
zone in a few years. As Taiwan is excluded from this
ASEAN-plus-Three scheme, it will be marginalized
economically, for its export trade will wither and may
dry up. Ma Ying-jeou’s way out of this dilemma is a
common market across the Taiwan Strait. His vice
president, Vincent Siew, took part in the Boao economic
forum of 2008 in his capacity as chairman of the
Cross-Strait Common Market Foundation, and met with
Chinese President Hu Jintao. Lien Chan, honorary
chairman of the Kuomintang, and Wu Poh-hsiung, the
incumbent, followed it up with their respective meetings
with Hu Jintao, who doubles as general secretary
of the Chinese Communist Party. Lien, in particular, is
an advocate of Chinese confederation, an idea similar to
the Chinese commonwealth which alone may be endorsed
by the United States, Japan and other world
powers. All of them want the status quo between Taiwan
and China. Their national interests will be hurt if
Chinese reunification takes place as Beijing now wants.
Neither do they want Taiwan to get too closely associated
with China. If Taiwan remains a dominion within
the Chinese commonwealth, they will be able to best
safeguard their respective national interests.
The Straits Exchange Foundation (SEF), a government-funded
organization in Taipei charged with
conducting current relations between Taiwan and China,
held a “summit” meeting with its Chinese counterpart
Association for Relations across the Taiwan Strait
(ARATS) on June 11-14. Their chairmen signed agreements
to start direct flights across the strait and let
Chinese tourists visit Taiwan. The resumption of
cross-strait dialogue, suspended since 1998, marked the
beginning of a rapprochement between Taipei and Beijing.
The Beijing meeting was followed up by the signing
in Taipei of four agreements between Taiwan and
China. Chen Yunlin, ARATS chairman, came to Taipei
on November 3 and signed with his SEF counterpart
P.K. Chiang the four accords on daily charter flights
along much shortened routes, direct maritime shipping,
better postal service and food safety three days later.
President Ma also received Chen at the Taipei Guest
House before his departure for Beijing on November 7.
It was made possible after both sides accepted the consensus
of 1992, a tacit agreement on one China, with a
respective interpretation, which is a modus vivendi.
Issues over economic and cultural exchange have to be
solved through this arrangement to effect a workable
compromise in the immediate future, but the time will
come sooner than later for the two sides to address
themselves to the fundamental issue in dispute they
now do not want to settle permanently, their reunification.
China is now more amenable to the idea of commonwealth.
In meeting SEF chairman P.K. Chiang in
Beijing on June 14, President Hu said China would
consider Taiwan’s joining the World Health Organization,
which requires statehood for membership, in an
appropriate capacity. That is proof of Beijing’s willingness
to end its persistent and often malicious opposition
to Taipei’s participation in international activities as a
quasi-sovereign state. It was a far cry from Mao Zedong’s
vow to wash Taiwan with blood, and a marked
change from Deng Xiaoping’s opposition to the use of
the ROC. Lin Yang-kang, former president of the Judicial
Yuan, visited Wang Daohan, the deceased ARATS
chairman, in Shanghai in 1996. Lin proposed a reunification
with Taiwan joining as a dominion or free state
under the name of Zhong-hua gong-he-guo ( 中 華 共 和
國 ). Wang promised to study the idea. When they met
in the following year, Wang said Deng, the supreme
leader, did not like the English translation of the proposed
title of the reunified nation. The translation might
be the “Republic of China” or “ROC.” Zhong-hua is

162 Taiwan Development Perspectives 2009
China or Chinese. Gong-he-guo means “Republic.”
Taiwan’s official title is Zhong-hua min-guo, whose
English name is the “Republic of China,” abbreviated
ROC. Min-guo, in fact, is semantically the same as
gong-he-guo; and Zhong-hua min-guo is the name Dr.
Sun Yat-sen gave the republic he founded in 1912.
Moreover, there is little semantic difference between
Zhong-hua min-guo and Zhong-hua ren-min
gong-he-guo, which is the official title of the People’s
Republic of China in Chinese. Both have the same min,
which means people; and Zhong-hua min-guo could
have been translated into English as the People’s Republic
of China. Wang also told Lin the People’s Republic
did not want Taiwan to join either as a dominion
or as a free state, simply because Tibet and Xinjiang
might demand the same status. Wang said Deng was
afraid the world might think Taiwan had conquered the
People’s Republic to reunify the Chinese nation as
ROC. A much more self-confident People’s Republic
under Hu Jintao has no such fear.
At least a well-known Chinese economist has
suggested that Beijing adopt a revised “one country,
two systems” formula for Taiwan in Chinese reunification.
Lu De, the eldest son of the late reform-minded
vice premier Lu Dinyi, wants Beijing to consider a federation
or confederation with Taiwan. The formula Den
Xiaoping applied to Hong Kong and Macao can never
be accepted by Taiwan, which wants “one country, two
governments.” Lu De, a board member of Beijing’s
semi-official China Council for Promoting Peaceful
Reunification, hopes Beijing and Taipei will eventually
form a confederation, which differs little from a Chinese
commonwealth, to reflect the realities that now
exist across the Taiwan Strait. He described his suggestion
as a personal view to spark discussion and find the
least costly solution for peaceful unification; but as a
“princeling,” one of the privileged offspring of China’s
political elite, he has close ties with Beijing’s leadership.
kingdom to humble itself before a small kingdom so
that it may make that small kingdom “its prize.” “And
if a small kingdom humbles itself before a great kingdom,
it shall win over that great kingdom,” he teaches.
“Thus,” he concludes, “the one humbles itself in order
to attain, the other attains because it is humble. If the
great kingdom has no further desire than to bring men
together and to nourish them, the small kingdom will
have no further desire than to enter the service of the
other. But in order that both may have their desire, the
great one must learn humility.”
Beijing seems to have learned humility. It is up to
Taiwan to humble itself as a small state, which it is, to
win over its giant neighbor into a new Chinese commonwealth
of nations. One step Taipei can take now is
to initiate dialogue for a peace treaty between Taiwan
and China. Both President Ma and his Chinese counterpart
Hu have gone on the record by saying they hope
to sign such an agreement. The difficulty lies in the fact
that a treaty has to be signed between independent, sovereign
states and then ratified by due process of law;
and so far the People’s Republic officially regards Taiwan
as one of its provinces. Here is where the ruling
Kuomintang can play the pivotal role. The Kuomintang
can take the initiative to negotiate the peace accord with
the Chinese Communist Party. It will not be difficult,
for the KMT-CCP forum is meeting twice a year. The
treaty can be signed between the two parties. All that
the Kuomintang has to do after the signing is to initiate
a referendum on the accord. When it is passed by the
referendum, the treaty becomes the law of the land
through the due process of ratification.
Laozi or Lao Tzu in his Tao Te Ching or Daodejing
(Treatise on the Tao and Its Power) urges a great

Stabilizing the Triangle: A Personal View from Taipei 163
Stabilizing the Triangle: A Personal View from Taipei
TENG, Charles
Abstract
The coming April will mark the 30 th anniversary of the enactment of the Taiwan Relations
Act (TRA). This U.S. Congressional ingenuity has served the Washington’s policy
toward Taiwan well through seven consecutive administrations. It has also contributed significantly
to the peace and stability in the Western Pacific. However, in the past eight years
Taipei’s relations with Beijing and Washington were in turmoil owing to Chen Shui-bian’s
incomprehensible behavior in undermining the two most important basic factors of this triangular
relationships: Stability and predictability.
A new chapter has opened when new administrations came to power in Taipei and
Washington. The peaceful development of the cross-Strait relations received highly positive
response and encouragements. Meanwhile, Washington renews its commitments to Taipei
and TRA has been reaffirmed. The U.S. policy consistency has remained intact.
To ensure the stability of the peaceful development in the Taiwan Strait, all sides of
the triangle should respond to any attempt or act by some political forces to utilize the TRA
as a convenient vehicle to achieve their unilateral goal to alter the status quo.

164 Taiwan Development Perspectives 2009
Thirty Years of TRA
The coming April will mark the 30 th anniversary of
the enactment of the Taiwan Relations Act (TRA), a
U.S. Congressional ingenuity in governing the conduct
of a particular U. S. foreign policy in the wake of Carter
Administration’s de-recognition of the Republic of
China (R.O.C) while establishing diplomatic relations
with the People’s Republic of China (PRC).
Through all seven U.S. Administrations, Democratic
and Republican, the TRA has been upheld and
abided by, and often times, termed as a “success”. The
R.O.C. only hopes that this “law of the land” is fully
and faithfully implemented while weathering the diplomatic
storm and trying her utmost to maintain her
critically important relations with the U.S. The R.O.C.
did well.
Self-reliance has been her key to R.O.C.’s progress
and prosperity in the last thirty years. Nevertheless, like
the R.O.C.--U.S. Mutual Defense Treaty of 1954,
which provided Taiwan a formidable protective shield
against any external threats for 25 years, the TRA has
been working in a similar manner in providing a useful
shelter, in political, security, and other areas for the
“people on Taiwan”. Certainly, there have been ups and
downs, given the changes taking place within, between
and among Taipei, Beijing and Washington as well as in
the international arena.
The Changing Times
No one would have foreseen merely a decade after
the enactment of TRA that the world had gone through
dramatic changes such as the collapse of communism,
globalization which contributed greatly to the rise of
the People’s Republic of China, rampaging terrorism,
climate change, the current financial tsunami, etc.
Meanwhile, within all three parties in the triangular
relationships, changes in political, economic, social
and other areas have taken place at an unprecedented
pace and extent. No one could have imagined that Dr.
Martin Luther King’s dream of the 60’s would come
true in less than half a century. It was beyond belief that
after some two decades of upheavals of heated politics
and social polarization created by a few groups of special
interests in Taiwan, the voters elected a “mainlander”
president by a landslide. Across the Taiwan Strait,
a sea change has been taking place by transforming the
huge communist country into a massive capitalist factory
for the entire world, elevating the PRC to a new
and proud status as a major power.
Against this tremendous backdrop, a review of the
TRA as well as the status of triangular relationships
ought to be conducted in the right context.
TRA at Twenty
When one looks back to the testimony of a responsible
official before the U.S. Senate Committee on
Foreign Relations, entitled “Twenty Years of the Taiwan
Relations Act”, on March 25, 1999, it would be
interesting to notice that the some of his comments
would still be appropriate today. Stanley Roth, the then
Assistant Secretary of State for East Asian and Pacific
Affairs, declared the TRA “a resounding success.”
Mr. Roth pointed out that while the gains in the
U.S.-PRC and the unofficial U.S.-Taiwan relationship
have been formidable, the Beijing-Taipei relationship
has actually experienced the most dramatic improvements.
Taiwan’s security over the long term depends
more on the two sides coming to terms with each other
than on the military balance.
However, he also emphasized that despite modest
qualitative improvements in the military forces of both
China and Taiwan, the dynamic equilibrium of these
forces in the Taiwan Strait has not changed dramatically
over the last two decades. This means that for twenty
years the TRA had been effective.
Mr. Roth said in the same testimony that the Clinton
Administration carried out a lengthy interagency
review of U.S.-Taiwan policy. Based on the review, the
Administration took a number of specific steps:

Stabilizing the Triangle: A Personal View from Taipei 165
First, cabinet-level U.S. officials from economic
and technical agencies were authorized to travel to
Taiwan when appropriate.
Second, the Trade and Investment Framework
Agreement-TIFA-talks and the Sub-cabinet Level Economic
Dialogue-SLED-were set up to promote bilateral
economic relations.
Third, the U.S. would support Taiwan’s participation
in international organizations that do not require
statehood for membership.
In conclusion, Mr. Roth stressed that the U.S.
firmly believes that the future of cross-Strait relations is
a matter for Beijing and Taipei to resolve and the U.S.
has an abiding interest that any resolution be peaceful.
In view of Mr. Roth’s testimony on TRA then, we
may find that the law and its effectiveness remain unchanged
today. When the law and the pertinent policies
of the three sides are put into the context, we will find
the clues and nuances the evolution of the changing
times may have brought about.
The Eight-Year Turmoil
After eight years of the roller-coasting of the
cross-strait relations, especially the later half of it, Chen
Shui-bian’s brinkmanship of a “non-policy” conduct of
erratic international and domestic behavior brought the
triangular relationships to a new low and even to a possible
catastrophe on a motive yet to be uncovered .
Thanks to the wisdom of the people on Taiwan, Mr.
Chen Shui-bian’s initiatives on two unthinkable referenda
tied to two presidential elections on the totally
irrelevant and risky subjects within a span of four years
were soundly rejected by the majority of the voters. His
long-awaited departure from the office eventually offered
an opportunity for a sigh of relief to all those
concerned about the peace and security in the Taiwan
Strait and the future of the triangular relationships.
Across the Taiwan Strait, perhaps puzzled by
Chen’s incomprehensible behavior, the Beijing leadership
was sitting tight and in a far more skillful and sophisticated
fashion playing the chess game via Washington
than what their predecessors did during the past
politically sensitive times. Beijing’s adoption of the
Anti-secession Law, though unnecessary in Taiwan’s
view, seemed to have served their purpose at the time to
keep Chen Shui-bian at bay and sent a clear signal to
the U.S. that the bottom-line is not to be ignored.
President George W. Bush apparently was annoyed
by Chen’s persistent provocative behavior which served
no one’s interest and was harmful to all, sternly warned
Mr. Chen once even through TV program with Premier
Wen Jiabao on his side. During Chen’s second term, his
Administration played a meaningless role of a trouble-maker
in the triangular relations and a laughing
stock internationally.
The Dawn of Peace
In the spring of 2005, Dr. Lien Chan, the former
vice president and chairman of the Kuomintang, made a
historic visit to Beijing . His Journey of peace, which
was viewed as highly successful and “ice-melting”,
made a significant first step for confidence-building
between the two parties, thus cancelling considerably
the destabilizing effect Chen Shui-bian’s words and
deeds had produced and reduced greatly the possibilities
of armed conflicts in the Strait due to miscalculation.
When Mr. Ma Ying-jeou became the presidential
candidate of the Kuomintang in 2007, his campaign
platform to pursue a policy of “no unification, no independence,
and no use of force” in order to maintain the
status quo in the Taiwan Strait was not only a right answer
to the wishes of the majority of voters on the island,
but in the common interest of all parties in the
triangular relationships. Mr. Ma won the election by a
historic landslide with more than 58 per cent of the
votes. When he took office in May 2008, his inaugural
speech again reaffirmed his policy toward the mainland.

166 Taiwan Development Perspectives 2009
To bridge a hiatus of more than eight years in the
cross-Strait relations is an awesome undertaking. President
Ma Ying-jeou took a series of measures immediately
after his administration was sworn in to make up
the loss of time and opportunities as well as the huge
economic loss incurred to the Taiwan businesses on the
mainland.
Cross-strait talks between the two quasi-official
organizations were resumed right away. The
long-awaited non-stop chartered flights between the
two sides were started in July 2008.
Last November, to reciprocate SEF Chairman P. K.
Chiang’s visit to the mainland in June, Mr. Chen Yunlin,
chairman of the Association for Relations Across the
Taiwan Strait (ARATS), the highest-level representative
from the mainland made an unprecedented and
high-profile visit to Taiwan. During Mr. Chen’s visit,
four agreements on food safety and long-delayed “three
links”, namely, cross -Strait air and sea transport and
postal service were signed.
Panicked by their non-role in this historical development,
the opposition Democratic Progress Party
(DPP) launched a series of demonstrations, many of
which led to clashes between the protesters and the
police, resulting in a number of injuries, and dozens of
arrests.
Alan Romberg, a retired U.S. State Department official
and a China expert with Stimson Center, in his
recent article carried in the China Leadership Monitor:
“Cross-Strait Relations: “Ascend the Heights and Take
a Long-term Perspective” commented that Chen Yunlin’s
visit had “unquestionable political significance”
and his meetings with the senior officials and politicians
“reflected a new pragmatism on Beijing’s part.”
These meetings also “supported Ma’s claim that relations
had now entered a stage of mutual non-denial”.
Challenges Ahead
It seems that both sides of the Taiwan Strait have a
common perception that issues of mutual concern
should be handled in a prioritized way that economics
is ahead of politics and easier ones go before difficult
ones. The guideline to manage the relations is to proceed
with the mutually acceptable issues while shelving
the differences. In a short span of ten months, progress
on cross-Strait relations has been achieved far more
than what had been done in the last ten years.
However, in view of the above priorities, more
difficult challenges are still ahead, especially with the
issue of ROC’s international space. Last November,
Beijing acquiesced that former Vice President Lien
Chan represented President Ma as his special envoy at
the APEC Summit in Lima, Peru, the highest- level
representative Taiwan has ever appointed since the inception
of this economic forum. Moreover, Dr. Lien
Chan also met with President Hu Jintao for 40 minutes.
This good will gesture on the part of Beijing clearly
shows once again its pragmatism, flexibility and most
of all, self-confidence.
Yet the immediate challenge ahead will be Taiwan’s
aspiration to be a part of WHA (World Health
Assembly) and to participate in the activities of the
WHO (World Health Organization) in the coming May
in Geneva. Since this has been a cause pursued by both
KMT and DPP governments for 12 years and supported
by ROC’ diplomatic allies as well as some other WHO
members sympathetic on this particular issue, including
the U.S., this year’s outcome will be regarded as a litmus
test for Beijing’s good faith on the issue of international
space and the future direction of the cross-Strait
relations.
On the New Year’s Eve of 2009, President Hu Jintao
delivered a speech to call on the “Taiwan compatriots”
to join hands with the mainland for the eventual
peaceful unification of the motherland. Mr. Hu made
six main points in his speech and two of them are worthy
special attention.
On “external affairs”, he proposed bilateral consultations
to avoid wasting resources and efforts of both
sides with a view to advancing the interests of the entire

Stabilizing the Triangle: A Personal View from Taipei 167
Chinese nation. “We understand how our Taiwan compatriots
feel about the issue of participating in international
activities,” he added. Regarding the issue of Taiwan’s
participation in the activities of international organizations,
as long as it does not create neither “two
Chinas” nor “one China and one Taiwan” scenario, appropriate
arrangements can be made through practical
bilateral consultations.
On the issue of termination of hostilities between
the two sides and working toward a peace agreement,
President Hu proposed that both sides could start pragmatic
exploration on bilateral political relations under
the current special “pre-unification” circumstances. He
also proposed contacts and exchanges on military matters
when appropriate to discuss the issue on military
and security confidence- building mechanism. All these
should be based on “one China” principle, Mr. Hu
stressed.
The U.S. Role
Earlier on the U.S. front, Democratic presidential
candidate, Senator Barack Obama issued a congratulatory
statement on President-elect Ma Ying-jeou for his
victory on March 22, 2008, in which Mr. Obama
pointed out that “it is important for Beijing to demonstrate
to the people of Taiwan that the practical and
non-confrontational approach that President-elect Ma
promises to take toward the Mainland will be met with
good faith and progress. The PRC should reduce the
military threat to Taiwan by pulling back the missiles it
has deployed in southeast China and by other confidence-building
measures. And on issues such as Taiwan’s
observer status in the World Health Organization,
where the health of all Chinese people is at stake, it
should allow Taiwan greater international space.” Another
Democratic candidate, Senator Hillary Clinton
also called for “cross-strait “dialogue to reduce tension
between the two sides in his congratulatory message.
As regards U.S. relations with Taipei, Mr. Obama
recommended that it “should respond to Ma
Ying-jeou’s election by rebuilding relationship of trust
and support for Taiwan’s democracy. The U.S. should
reopen blocked channels of communication with Taiwan
officials. We should continue to provide the arms
necessary for Taiwan to deter possible aggression. And
we should encourage both Taipei and Beijing to build
commercial, cultural, and other ties, laying the
groundwork for a closer relationship and ultimately
movement toward resolution of their differences. And
he went on to say that “we should maintain our ‘one
China’ policy, our adherence to the three U.S.-PRC
Joint Communiqués concerning Taiwan, and observance
of Taiwan Relations Act.”
Before the U.S. presidential election, the Bush
Administration approved last October a long-delayed
arms-sale package in the amount of US$6.46 billion,
the largest amount in many years of Taipei’s procurement
of U.S. defensive arms. The Ma Administration
regarded the U.S. decision as the end of eight years of
turbulent relations between Washington and Taipei and
the beginning of a new era of peace and security, and
renewed mutual trust.
When Obama Administration came to power in
January, it lined up a highly regarded foreign policy
team, including old hands on key positions of Asian
Affairs immediately after the presidential inauguration
on January 20. Secretary of State Hillary Clinton made
a number of trips in her capacities as first lady, U.S.
Senator or otherwise, to Taiwan and Mainland China.
The new Senior Asian Affairs Director of National Security
Council, Mr. Jeff Bader, was former Deputy Assistant
Secretary of State in charge of Asian Affairs in
the Clinton Administration. The deputy Secretary of
State, Mr. James Steinberg, was reportedly the counterpart
of Mr. Ding Mou-shih, Secretary-General of
Taipei’s National Security Council in their secret meetings
during the waning years of Clinton and Lee
Teng-hui Administrations. And Assistant Secretary of
State designate in charge of Asian and Pacific Affairs,
Mr. Kurt Campbell, was deputy assistant secretary of
Defense of the Clinton Administration. This line-up
shows a strong sign of continuity of the U.S. policy

168 Taiwan Development Perspectives 2009
toward both sides of the Taiwan Strait.
To no one’s surprise, this well-seasoned team
acted swiftly on the Asian front. Secretary Clinton embarked
on her first trip overseas to visit four Asian
countries: Japan (Feb.16-18), Indonesia (Feb.18-19),
South Korea (Feb.19-20) and China (Feb.20-22). In
China, she met with senior officials in Beijing.
In a joint press conference on Feb. 21, PRC foreign
minister, Mr. Yang Jiechi said that he” briefed Mrs.
Clinton on the recent development of the relations
across the Taiwan Strait, and stated China’s principled
position on the Taiwan question. The Chinese side appreciates
the fact that the U.S. side has reaffirmed on
many occasions its position that it adheres to the One
China policy and abides by the three Sino-U.S. joint
communiqués, and opposes Taiwan independence and
Taiwan’s membership in any international organizations
where statehood is required. China hopes that the
United States will properly handle the Taiwan question
with caution, and support the peaceful development of
cross-Strait relations.” However, Mrs. Clinton’s response
on the issue of cross-Strait relations was succinct:
“We also look forward to further improved relations
across the Taiwan Strait.”
Earlier, during her confirmation process in January,
a written question on cross- strait relations was raised
by the Senate Foreign Relations Committee, Mrs. Clinton
answered the question in writing:” The administration’s
policy will be to help Taiwan and China resolve
their differences peacefully while making clear that any
unilateral change in the status quo is unacceptable.”
The word “help” seems to reveal a delicate nuance, an
interesting departure from one of President Reagan’s
Six Assurances to Taiwan in the wake of the August
17 th Communiqué. That assurance is to promise that the
U.S. will not play a mediation role between the two
sides of the Taiwan Strait. The Six Assurances have
been reaffirmed by all the subsequent U.S. administrations.
It is worth noting that Mr. Yang Jiechi mentioned
the Taiwan issue first at the press conference and hoped
that the U.S. will “support“ the peaceful development
of cross-strait relations. One may wonder if it could
also be a sign of departure from PRC’s traditional position
of mutual non-interference in each other’s internal
affairs and an echo to Secretary’s offer of “help”.
Conclusion
In view of the general developments above, it is
fair to sum up that there are unprecedented opportunities
in the future of the triangular relationships. The
Chen Shui-bian Administration’s trouble-making
non-policy has rendered a critical lesson to all that stability
is the key to the healthy development of the triangular
relationships.
1. The status of the triangular relationships today is the
making of the legacies of Chinese civil war and cold
war, as well as ideologies and independence sentiments,
all of which have come into play for decades.
The road to a peaceful resolution desirable to all
sides will be long and winding. Nevertheless, progress
can be made along the way as long as interests
of all sides are not neglected and caution and patience
are well taken.
2. A peaceful resolution requires a peaceful process and
stable environment. To ensure both, any destabilizing
factors, such as unilateral attempt or action to disrupt
or to change the state quo, should be promptly responded
to and decisively countered by all sides. The
security shields the TRA has provided for peace and
stability in the Western Pacific is not to be misread
by any political force as a convenient vehicle to stir
up conflicts in order to achieve their unilateral goal.
3. Since President Ma Ying-jeou’s election and the
peace initiatives that he has taken, words of encouragement
have been expressed by President Obama,
Secretary Clinton, Deputy Secretary James Steinberg,
National Intelligence Director Dennis C. Blair, and
most recently AIT Chairman Raymond Burghardt as
well as many China experts in the U.S. This is not
only a positive sign for further developments but also
a morale booster of Taiwan’s confidence in the proc-

Stabilizing the Triangle: A Personal View from Taipei 169
ess. Meanwhile, Mr. Ma’s initiatives have also been
well received and favorably responded to by the
other side of the Taiwan Strait. As Mr. Stanley Roth
pointed out ten years ago that Taiwan’s security over
the long term depends more on the two sides coming
to terms than on the military balance, Admiral Dennis
C. Blaire made similar comments and he added
that the development of cross-Straits relations since
President Ma’s inauguration was the most positive
the U.S. had seen in recent years. In this regard, not
only U.S. words of encouragement are highly appreciated
from time to time, but also her follow-up
deeds.
4. President Ronald Reagan’s “Six Assurances” are an
important and integral part of all the official documents
on the fundamental principles of the Washington-Taipei
relations and were reiterated and confirmed
by every administration ever since. Obama
Administration’s reaffirmation will certainly indicate
its policy consistency and its continued stabilizing
factor.

170 Taiwan Development Perspectives 2009

PLAN Looks beyond Taiwan 171
PLAN Looks beyond Taiwan
LANG, Ning-li
Abstract
China’s military modernization has changed the People’s Liberation Army (PLA)
thoroughly, its navy and air force in particular. The PLA Navy (PLAN) and the PLA Air
Force (PLAAF) have acquired since 2006 more than sufficient capabilities to defeat their
counterparts in the Republic of China on Taiwan.
The primary mission of the PLAN is offshore defense. But it plans to develop a
blue-water presence along the first island chain in the South China Sea by 2010, along the
second island chain by 2025, and along the third island chain by 2050.
The blue-water presence aims at defending China's highly developed coastal areas,
where its offshore defense strategy alone cannot provide enough security. The homeland
defense line has to be extended outwards to deepen the defense perimeter.
To China, Taiwan is theoretically within its “special economic zone,” for the island is
less than 200 nautical miles away from its southeastern province of Fujian. Taiwan is in the
PLAN’s way to get to the Pacific.
That is why the People’s Republic persistently refuses to yield even an inch in dispute
over the sovereignty of Taiwan. The city of Sansha was established on Hainan Island in
October 2007. It has jurisdiction over three archipelagoes in the South Sea. The PLAN also
enhanced the combat capability of its South Sea Fleet.
The PLAN is charged with protecting China’s sea lanes of communication (SLOC).
First priority is given to the maintenance of the regional SLOC security in the South China
Sea. But if China wants to conduct checkpoint defense in the South China Sea, the PLAN
must be strong enough to overpower all Southeast Asian navies combined and cope with
Japan’s Maritime Self-Defense Force and the Indian Navy.
The PLAN has conducted a fleet exercise in the Northern Pacific. Does it show China
already started building a blue water navy? China does not seem to seek hegemony in Asia.
There are no signs that China is trying to acquire such a navy in pursuit of naval dominance
in Asia against the United States, albeit the PLAN is reported to plan to acquire an aircraft

172 Taiwan Development Perspectives 2009
carrier combat group. China will continue to strengthen the PLAN, which, however, is not
designed to seek a global hegemony over the oceans.

PLAN Looks beyond Taiwan 173
Introduction
China has increased defense spending by 10 percent
each year on the average to modernize the People’s
Liberation Army (PLA) over the past two decades.
The modernization has changed the PLA thoroughly, its
navy and air force in particular. The PLA Navy (PLAN)
and the PLA Air Force (PLAAF) are thoroughly modernized
fighting forces.
The PLA’s fighting capability started surpassing
that of the defense force of the Republic of China in
2006. The PLA is now capable of defeating Taiwan.
But China’s military buildup has not slowed down.
That makes Western defense strategists believe
China is looking beyond Taiwan in strategic planning.
Rear Admiral Eric A. McVadon U.S.N.(Ret.) expressed
his concern over this PLAN strategic thinking in his
“China’s Maturing Navy,” 1 The U.S. Department of
Defense has also included this issue in a report to the
Congress in 2008 2 .
The truth is that the Western concerns are not justified.
The PLAN’s main interest is defense. It is true
the PLAN launched amphibious vessels and is planning
to acquire an aircraft carrier combat group but its primary
purposes are to deepen its perimeter of naval defense
to ensure the security of China’s southeastern
coast. On the other hand, there can be no doubt that the
PLAN intends projection of power beyond Taiwan into
the Pacific. It is very difficult for Taiwan to establish an
asymmetric capability to cope with the PLAN thrust.
This paper aims to assess the new naval buildup in
China.
PLAN’s Strategic Thinking
China’s naval force was charged with coastal defense
when the People’s Republic was proclaimed in
1 Andrew S. Erickson, “China’s Future Nuclear Submarine
Force” 2007 USNI press, page 22
2 “ Military Power of PRC 2008,” DoD
1949. 3 In fact, the navy was a branch of the People’s
Liberation Army.
In August 1979, Deng Xiaoping ordered the PLA
to build up a “navy with a formidable and modern
fighting capability” that could engage in offshore operations.
This is a turning point for the PLAN’s strategic
transformation from “coastal defense” to “offshore
defense.” 4
In 1982 Admiral Lieu Huaqing, the then PLAN
commander, ordered the Naval Research College to
develop a strategy of offshore defense. He had the
PLAN’s long-term offshore defense development plan
prepared in 1988. Under that plan, the PLAN will acquire
a blue-water presence along the first island chain
in the South China Sea by 2010. 5 By 2025 the presence
will be extended to the second island chain. 6 The third
island chain will be covered by 2050.
The term “offshore” must mean “within 200-600
3 Mao Zedong said in 1949: “We must strive to form an
air force which can defend our coasts together with
our ‘river navy.’”
4 See China’s Defense White Paper, issued in December
2006. The PLAN carries on offshore defense
missions. According to a 1997 version of "Military
Terminology," the term “offshore” designates all the
“sea area close to land.” China’s offshore defense
covers the Bohai, Yellow Sea, East China Sea, South
China Sea and sea areas east of Taiwan.
5 The first island chain includes the Kurile Islands and
the Ryukyu Islands of Japan, Taiwan, the Philippines,
and Borneo. The area includes the Yellow sea, East
China Sea, and South China Sea.
6 The second island chain includes all islands along the
north-south line from the Kuriles through Japan to
the Ryukyus and the Bonins, the Marianas, the Carolines,
and Indonesia.

174 Taiwan Development Perspectives 2009
nautical miles away from land or coast.” 7 That is a distance
from China’s coast to the first island chain. It is
an area where China’s economic interests lie. It includes
Taiwan and the South China Sea. 8
The second island chain encompasses areas approximately
1,800 nautical miles away from China’s
coast, including most of its sea lanes of communication
(SLOC) in East Asia.
In the third stage of Admiral Liu’s putative naval
strategy, the PLAN will be a global force with aircraft
carriers as its main strength, which will be deployed by
the middle of the 21st century.
The PLA changed approaches in the mid-1980s.
It attached importance to development of a navy to defend
and safeguard China's maritime rights and interests.
In 1987 a new concept of active defense was introduced.
China now wanted to extend its sea power
farther away from the continent. 9
In 1993, right after the Gulf War, the Central Military
Commission shifted the PLA’s strategic objective
to “wining local wars with modern technology.” Em-
7 The term “offshore” is defined by various Chinese
strategists as “at sea” within the limits of PLA capability,
or within China’s claimed territory, or within
that of a potential enemy.
8 Chinese Maritime Strategy, Chapter 7; The PLA
Navy and “Active Defense” by Bernard D. Cole; The
PLA and China in Transition by Stephen J. Flanagan
and Michael E. Marti; and. National Security Studies,
NDU, 2003
9 In April 1987, Xu Guangyu broached the concept of
“national gateways” in the Liberation Army Daily. He
said “The national gateway concept of active defense
that we are accustomed to using must be pushed outward
from traditional geographic borders to strategic
boundaries…. For this purpose, we need to build a
three-dimensional menacing force that is able to operate
on a battlefield far removed from China. ”
phasis is on “winning high-tech local wars.” The strategic
direction of modern local wars focuses on the offshore
and in-depth operations along the borders, and
emphasizes the positive offensive action to frighten the
enemy.
Taiwan's Strategic Position
1. China’s National Security and Space for
Survival
China has developed an ultra-large economic zone
along its southeast coast, which is also a vulnerable
spot in its national security. Its national survival may be
threatened from attacks on this coastal zone. As a consequence,
the PLAN has to change its offshore defense
strategy so as to provide enough security for the vulnerable
southeast coast. The PLAN must extend the
defense perimeter farther outward to ensure China’s
national security. 10
Offshore operations remain the PLAN’s main
mission. But it is now required to prepare for medium-range
and distant sea operations. In fact, offshore
operations cannot effectively defend the offshore area.
Operations farther offshore are required to ensure the
effective defense. That is why Admiral Liu said it is
necessary for the PLAN to acquire the capability of
conducting distant sea operations as well.
The PLAN is already capable of conducting offshore
defense in depth. It is extending its defense perimeter
farther offshore and enhancing its capability of
conducting nuclear counterattacks.
In the meantime, the U.S. Navy has completed its
plan for offense "from the sea to shore." Such a strate-
10 ADM. Liu also offered doctrinal direction, proposing:
_ stubborn defense near the shore
_ mobile warfare
_ surprise guerrilla-like attacks at sea.

PLAN Looks beyond Taiwan 175
gic plan forces the PLAN to shorten its defense perimeter.
Consequently, the PLAN has to enhance the
strength of defense within its offshore perimeter. Sea
engagements are not only the first line of defense to
cope with powerful American air strikes from the sea
but are the main line of homeland air defense as well.
The PLAN has to be able to fight in the open sea to
cripple the land-attack capability of the U.S. Navy. A
PLAN strategist defined “open sea area defense” as “an
essential shield of long-term national interests.” 11
This mission requires a number of offshore air defense
task groups. There are at least two tiers of defense,
early warning and the intercept line within the range of
250-400 nautical miles outward from the coastline.
That can provide a long-range multiple-layer defense
for vital zones of the homeland. The PLAN must be so
structured as to achieve its objective of “gradual extension
of the strategic depth for offshore defense operations
and enhancement of its capabilities for integrated
maritime operations and nuclear counterattacks.” 12
2. Taiwan's Strategic Position
According to the traditional sea power theory, a
global sea power should build a strong navy which is
capable of encircling the Eurasian continent and controlling
checkpoints or blocking the SLOC when necessary.
13 Can a country on that continent, like China,
11 Maritime Geostrategy and the Development of the
Chinese Navy in the Early Twenty-First Century, Xu
Qi, Naval War College Review, Autumn 2006, Vol.
59, No. 4
12 China's National Defense in 2004 (2004), Chapter
III:Revolution in Military Affairs with Chinese
Characteristics. Strengthening the Navy, Air Force
and Second Artillery Force
13 Western geostrategic theorists, such as MacKinder
Mahan of the “sea power school,” advocate that maritime
states should seek to control a fringe belt on
the Eurasian landmass.
break free of such encirclement?
Taiwan is in the middle of China’s first island
chain of defense in the South China Sea, although it is
no longer what General Douglas A. MacArthur described
as the unsinkable aircraft carrier at the beginning
of the Cold War. Geostrategically, China still is a
semi-secluded country on the Eurasian continent. If it
controls Taiwan, China can push its sea supremacy 200
nautical miles farther away from its coast and an unobstructed
way out of the encirclement. Moreover, the
PLAN can thrust into the Pacific and its nuclear-powered
ballistic missile submarines will no
longer be confined to the South China Sea. All obstacles
to the expansion of defense beyond China’s first
island chain will be removed as well. The PLAN will
have no fear of a pincers’ attack.
If Taiwan was unified with China or they had an
identical defense strategy, the PLAN would pose an
immediate threat to Japan’s southwest sea lanes. The
PLAN’s nuclear-powered ballistic-missile submarines
could enter the Pacific freely, posing a threat to the security
of the continental United States. One inevitable
result would be Japan’s rearmament.
China wants to control Taiwan not just for irredentism.
It needs Taiwan to evolve into a prosperous sea
power of the world.
3. Unification by Force
Beijing has never given up Chinese unification by
force if necessary. As a matter of fact, the PLA has long
acquired a more than enough combat capability of unifying
China. But it continues to add to its capability.
Most military analysts believe that the PLAN still lacks
an amphibious operation capability to successfully invade
Taiwan. But that does not preclude PLA attacks
on the island. For one thing, the western coast of Taiwan
has few large beaches cut out for large-scale amphibious
landing, while the PLA is unlikely to conduct
textbook amphibious operations. Rather, the PLA will
try to seize harbors and airports as its bases of operation

176 Taiwan Development Perspectives 2009
to conquer Taiwan. Another argument against
large-scale amphibious operations is that they are not
necessary, because massive missile attacks, coupled
with an effective blockade, can easily drain Taiwan’s
fighting capabilities, cut off its energy supply, and start
an island-wide stampede of war refugees. Taiwan simply
has to sue for peace. The PLAN is more than able
to play its role in that scenario.
China has built up an arsenal of advanced comprehensive
ballistic missiles. It is capable of launching
air-to-surface, surface-to-surface and underwater long
range anti-ship missiles with the guidance of the
space-based surveillance and positioning system. It
certainly poses a thought-provoking challenge to possible
U.S. naval intervention in hostilities across the
Taiwan Strait.
In the meantime, China’s military buildup is going
on apace. Beijing needs enough power to deter or delay
U.S. and Japanese naval intervention in the cross-strait
armed conflict. China also hopes a greater tilt in the
cross-strait military balance in its favor would compel
Taiwan to abandon its resolution to resist. Then the use
of force becomes unnecessary.
1. Territorial Integrity
China and Japan are engaged in a dispute over the
overlapping exclusive economic zones in the East China
Sea. The Republic of China, the People’s Republic
and Southeast Asian countries claim sovereignty over
three archipelagoes in the South China Sea.
While all parties to the disputes are agreed that the
issue of sovereignty must be shelved to get joint development
of undersea oil reserves under way, the People’s
Republic does not yield on the question of territorial
integrity. The Spratly Islands, the largest of the
three archipelagoes, are most controversial. These islets
are claimed by the Republic of China, the People’s
Republic, the Federation of Malaysia, Indonesia, Vietnam
14 and the Philippines. 15 Beijing wants to control
the Spratlys and the South China Sea, where sea lanes
of Japan, Korea and other Asian nations converge.
Beijing is doing what it can to protect its strategic
assets in the South China Sea. The PLAN is charged
with the missions to operate in the open sea to defend
China’s exclusive economic zones and to safeguard
sovereignty over all three island groups.
The People’s Republic is reported to have completed
what it calls “the third generation buildup” 16 on
Mischief Island of the Spratlys. The PLAN has held a
number of counter-landing exercises. China has also set
up facilities on other uninhabited islets to monitor radio
communications among neighboring countries. In addition,
the PLAN has expanded an airport on one of the
Paracels to serve SU-30 fighter planes. A very large
military harbor was opened at the southern tip of Hainan
Island. The new naval base is located in Yalon Bay
near Sanya. 17
China’s State Council approved the founding of
the city of Sansha in October 2007. The new city on
Hainan Island has jurisdiction over the three South
China Looks beyond Taiwan?
14 Vietnam is the only country that claims exclusive
sovereignty over the Spratly Islands. See State Ocean
Bureau website on March 12 in 2008. China patrols
waters off the archipelago to claim sovereignty by a
show of force.
15 Six reefs were under Chinese control at the end of
1991. The Republic of China stations a garrison on
Taiping Island (Itu Aba). Forty-four reefs were occupied
by the Philippines, Malaysia, and Vietnam.
16 China in Spratly Islands extension military installation,
Washington VOA, November 20,2008
17 China’s Naval Secrets, Asian Wall Street Journal, by
Richard Fisher, Jr. Published on May 5th, 2008.

PLAN Looks beyond Taiwan 177
China Sea archipelagoes of the Paracels, Spratlys, and
the Macclesfield Bank. 18
In November 2008, the South China Sea Fleet sent
a 071 amphibious transport dock and a 052C destroyer
as a task group on a patrol mission. The group patrolled
the Pratas Islands, Macclesfied Bank, and the Spratlys.
It arrived at James Shoal, where a boundary mark of the
People’s Republic was submerged. 19
2 . Importance of Sea Lanes
China consumes approximately 7.58 million barrels
of oil per day. By 2015 the daily consumption will
rise to 10-12 million barrels. The People’s Republic has
been the world’s third largest importer of oil and second
largest consumer since 2003. Over 53 percent of oil
is imported and shipped through the Malacca or Lombok
Straits.
The two straits are most important maritime highways
or segments of international shipping routes for
energy and other resources. 20 Increased dependence on
overseas resources will bring Beijing to exert a greater
effort by Chinese naval forces to protect the trade flow
and show the flag in ports of countries that are considered
important trading partners. "The oceans are our
lifelines. If commerce were cut off, the economy would
plummet," says Ni Lexiong, a fellow at the Shanghai
National Defense Institute and an outspoken proponent
18 On October 26 Wenchang municipal party committee
secretary Xie Min disclosed that Hainan will
have the new city of Sansha. China Times, Nov. 21,
2007
19 See www.wforum.com, Dec. 10 2008, “A 052C
guide missile destroyer has put a sovereignty monument
under James Shoal.”
20 As China Grows So Does Its Long Neglected Navy,
GORDON FAIRCLOUGH Article, JULY 16, 2007,
WSJ,
of Chinese sea power. "We need a strong navy," he
adds. 21
China’s naval construction plan indicates that the
PLAN will be called upon to protect the SLOC in the
next few years and to keep open the checkpoints relevant
to China's trade flow. SLOC defense falls under
four categories: coastal, regional, inter-regional, and
global defense. Coastal SLOC defense is solid. First
priority is given the security of the South China Sea to
ensure regional SLOC defense.
The Yalong Bay naval base can accommodate
three or four nuclear submarines in the future. The
PLAN has assigned all their new missile destroyers to
the South Sea Fleet to strengthen its air defense capability.
22 The combat radius of land-based fighters has
been lengthened, the aim being to let the fleet carry out
missions of commanding the sea without the air coverage
from the land.
The PLAN is now capable of carrying out regional
SLOC defense or South China Sea SLOC protection.
But if China wants to conduct checkpoint defense in the
South China Sea, 23 the PLAN must be more powerful
than all Southeast Asian navies combined and cope
with Japan’s Maritime Self-Defense Force (JMSDF)
and the Indian Navy. The PLAN has yet to acquire that
much power. Inter-regional SLOC defense, which entails
the keeping of security along the sea lanes from
China to the Persian Gulf with a distance of 5,500 nautical
miles, is a tremendous job. It entails development
of an ocean-going fleet matching that of the JMSDF or
the Indian Navy and acquisition of a series of overseas
bases. The job can be done only if China earmarks an
21 As China Grows So Does Its Long Neglected Navy,
GORDON FAIRCLOUGH Article, JULY 16, 2007
WSJ,
22 See Kanwa News, July 30, 2005.
23 Such as the Malacca Strait, Lombok Strait and Sunda
Strait.

178 Taiwan Development Perspectives 2009
enormous budget fund to build such a fleet and acquires
overseas bases to support its operation. One option is
open to China. The PLAN may build a superior asymmetrical
force, such as a nuclear attack submarine fleet,
to do part of the job so as to protect China’s greatest
national interests with the help of other sea powers who
wish to uphold the freedom of navigation principle of
the United Nations.
But the question remains: What if the intent is
not purely to defend the sea lanes? 24
Aircraft Carriers and Blue-Water Navy
1. Extension of Force to the Second Island
Chain
In November 2008, a surface action group of the
North Sea Fleet of the PLAN entered the Sea of Japan,
crossed the Tsugaru Strait, and sailed into the North
Pacific Ocean to conduct an anti-submarine and surface
interception exercise. The group consisted of four ships,
including a 051C class missile destroyer. Soon after the
exercise, another task group from the East Sea Fleet led
by a Soveremnny class missile destroyer followed the
same route to hold a fleet exercise in the North Pacific.
The exercises marked the second and the third times
the PLAN warships passed through the Tsugaru Strait.
The first passage took place when a survey ship crossed
the strait for data collection. The passages of the warships
aroused the concern of Japan and the United
States.
They are concerned that the exercises took place
beyond China’s first island chain and the PLAN is
reaching out to the second island chain. If so, China
may be planning to develop a blue-water navy.
2. Evolution of the PLAN into a Blue-Water
Navy
China’s most critical geopolitical weakness lies in
its lack of enough sea power to protect the sea lanes for
its crude oil supply and foreign trade. 25 It needs a navy
to safeguard the sea lanes as the economic globalization
continues.
The PLAN cannot cope with the navies of the
United States, Japan and India that may choke China’s
vital sea lanes from the East China Sea to the Middle
East through the South China Sea and the Indian Ocean,
if they so choose. The PLAN needs long-range operation
capabilities.
In fact, Admirals Xiao Jinguang and Liu
Huaqing have long complained: “We can do nothing, if
we have only small and medium-sized short-range
ships and share-based air force in the face of an enemy
who has long-range combat capabilities and can deploy
ballistic missile submarines and a carrier-based air
force.” 26
But China has continued to adhere to the policy of
not acquiring a blue-water navy, which can operate in
any ocean of the world. 27
3. Construction of Aircraft Carriers
25 The US intelligence agency related activity analyzes
China to make the aircraft carrier motive peripheral
situation to compel, http://www.chinareviewnews.
com , Dec. 28, 2007
26 The concept of Chinese aircraft carrier of two generation
Command in Chief of PLAN ADM. Xiao
Jin-guang and ADM. Liu Huaqing in. WorldForum.com
Nov.19, 2008
27 Chinese Maritime Strategy, Chapter 7, The PLA
24 Commander of the U.S. Pacific Fleet Adm. Gary
Roughhead: Why Does China Need That Navy? By
Richard Halloran, THE WASHINGTON TIMES,
August 26, 2005
Navy and “Active Defense” Bernard D. Cole, The
PLA and China in transition, Stephen J. Flanagan and
Michael E. Marti. National Security Studies, NDU,
2003

PLAN Looks beyond Taiwan 179
Admiral Liu Huaqing said long ago: “Active defense,
of course, includes an attack in a strategic retreat.
Without aircraft carriers, we can’t conduct long range
operations.”
China today is a country totally different from
Germany or Japan in the early twentieth century.
Germany and Japan sought hegemony then. China is
also unlike the Soviet Union during the Cold War. China
never seeks. Nor has it committed aggression on
other countries. China does not want to actively seek a
blue-water navy to challenge the United States. But as
it becomes increasingly dependent on oil imports for
sustained economic growth, China needs to have an
aircraft carrier combat group to keep a regional balance
of power and maintain its image as a big power or just
to carry out peace-keeping missions. 28 China wants to
build its own aircraft carriers. 29
The PLAN seems to have embarked on preparatory
work. It is reported that the People’s Republic has
ordered 14 Russian SU-33 carrier-based aircraft, purchased
four sets of aircraft carrier launch and landing
gear from Ukraine, and set up an office in charge of
planning aircraft carrier construction and training personnel
required. 30 China plans to build a 48,000-ton
28 U.S. military observers believe China changed its
opinion about the construction of aircraft carriers at
the end of 2004 after the disastrous Indian Ocean
tsunami. China saw the value of aircraft carriers
in diplomatic and humanitarian assistance.
http://www .chinareviewnews.com, Nov.14, 2007
29 Colonel Zhu Shaopeng , research fellow of the
Campaign and Tactics Department, Academy of Military
Sciences, PLA., accepted an online interview in
which he remarked the sea power of China should
have aircraft carriers at its core.” DWNEWS.COM,
July 26, 2007
30 The General Armament Department has set up the
048 Program Office in charge of the planning.
Kenwa Chinese Defense Review reported that the
conventional aircraft carrier by 2010. A 93,000-ton nuclear-powered
aircraft carrier will be built by 2050. 31
Beijing professed aircraft carriers are being built
not for hostilities across the Taiwan Strait but to meet
China’s long-term strategic needs. 32 Nevertheless, the
carrier construction plan has arouses concern among
East Asian countries. South Korean media regard Chinese
aircraft carriers as “a threat to our national survival.”
Military Force or Soft Power
The PLAN has deployed its first amphibious
transport dock ship Kunlun Shan in the South Sea Fleet.
It is a 071 LPD that can accommodate four large amphibious
hovercraft and some helicopters plus at least
500 troops for a very fast amphibious assault operation.
The 072 LPD is the most modern amphibious assault
vessel of the PLAN, suitable particularly for operations
to settle disputes in the South China Sea. Another large
amphibious assault ship similar to an LHD(landing
helicopter dock)has been built. It is known as 081 LPD.
It has a flight deck for helicopters taking off and landing
at the same time, a large hangar, and a well dock to
accommodate amphibious landing craft. 33
There are no signs that 071 and/or 081 amphibious
assault ships are being mass-produced. A couple of
them cannot form a large expeditionary group. Their
commission cannot be considered a projection of force
far overseas.
PLAN will soon start training aircraft carrier personnel.
World Forum.com. Nov.17, 2008
31 Korean Central Daily News, Nov. 19, 2008
32 PLA prepared to build aircraft carrier, UDN, Nov. 21,
2008
33 “China is developing a dock landing ship with fullthrough-style
deck.” W.Forum.com, Nov. 20, 2008

180 Taiwan Development Perspectives 2009
The PLAN has taken delivery of Hospital Ship
866. 34 The two amphibious assault vessels, together
with the hospital ship, contribute to the PLAN capability
of action in the South China Sea, according to John
Pike at Globalsecurity.Org, a think-tank at Alexandria,
Virginia. He says Hospital Ship 866 and the amphibious
assault vessels were designed to give China military
options for claiming disputed natural gas and oil
reserves in the South China Sea. He adds: "One would
enforce a claim to the South China Sea by possessing
islands. How does one possess island? By amphibious
assault." 35
The trio may carry out "military operations other
than war(MOOTW)." This is a new mission to offer
humanitarian assistance and disaster relief. Bob Work,
a naval analyst at the Washington-based Center for
Strategic and Budgetary Assessments, says Hospital
Ship 866 may be engaged in MOOTW. "The tsunami
embarrassed them (the Chinese)," he says, adding: "The
Chinese respond to embarrassments in very focused
ways. In this case by rushing new ships into production.”
36
World Politics Review reported: “Although the
vessels are intended for more conventional military
tasks, they could find themselves pressed into humanitarian
missions during major disasters. Either way, Ship
866 and the Type 071s are windows into an evolving
military strategy for an emerging world power.”
Construction of these ships will be beneficial to
the PLAN in the overseas military operations other than
34 Defense News reported: “The 866’s aft deck has a
helipad. It is deployed for the convenience of the
Chinese navy to conduct operations in the South
China Sea.”
35 David Axe “War is Boring: New Chinese Naval
Ships a Window into Evolving Strategy.” World Politics
Review, Nov. 12, 2008
36 Ibid.
war in a contest with the United States for projection of
"soft power." The commission of the hospital ship will
be more convenient to the PLAN expanding China’s
external influence in the future. 37
Conclusion
If China doesn’t have expansionist ambitions that
the Soviet Union in cold war did, 38 the statement that
China is in the process of transforming itself from a
strong land power to a powerful maritime country is
untenable. Equally untenable is the statement that the
future development may close this gap by extending the
range of power projection.
In fact China's ideological and theoretical concept
for development of its navy is different from what has
motivated the Western big powers. China has selectively
adopted Mahan’s concept. 39 China emphasizes
equality in rights and benefits. Its sea power is designed
to protect its sea rights. Its approach is peaceful: sea
power is needed for self-defense. “China hopes to create
a buffer around its continental and maritime periphery
that will increase the cost for other states to conduct
military operations against targets on the mainland.” 40
37 ”Foreign media say the People's Liberation Army
hospital ship fitted out amphibious assault ship preparing
to attack the island.” ChinaReviewNews.com,
Nov. 18, 2008
38 U.S. Intelligence Analysis: “Tthe building aircraft
carriers of China is forced by the situation surrounding.”
chinareviewnews.com, Dec. 28, 2007
39 Toshi Yoshihara ”China’s Turn to Mahan: Implication
for Taiwan’s Security” U.S. Naval War College,
Nov. 2008
40 M. Taylor Fravel, “Chinas Search for Military Power”
2008 by The Center for Strategic and International
Studies and the Massachusetts Institute of
Technology, The Washington Quarterly, 31:3 pp.

PLAN Looks beyond Taiwan 181
China follows Zheng He much more than Mahan.
China's naval strategy has been considered similar
to those of big powers for a long time. The PLAN’s
strength and development were over-exaggerated. Actually
the PLAN’s ability to project and sustain power
far overseas remains limited. Currently, the PLAN is
unable to resort to force to make China’s foreign energy
investments secure or to effectively defend the vital sea
lanes against disruption. The PLAN is facing an ambition-capability
gap, while it only has local sea denial
capabilities: mines, submarines, maritime strike aircraft,
and modern surface combatants equipped with advanced
ASCMs provide a supporting layer of defense
for its long-range anti-access systems. Cortez A. Cooper
III sums up the PLAN sea denial capabilities well:
By 2008, China is capable of short-term sea denial operations
up 400 nautical miles from coast; by 2010, it
may be able to sustain such operations for a few weeks;
and after 2015, the PLAN can show the flag in the
Straits of Malacca and the Indian Ocean. 41
The PLAN will try to develop conservatively thereafter.
It will not seek hegemony over the oceans. It
will plan its own development carefully.
125–141.
41 Statement of Cortez A. Cooper III for a March 16,
2006, hearing before the U.S.-China Economic and
Security Review Commission.

182 Taiwan Development Perspectives 2009

Overseas Chinese in the United States 183
Overseas Chinese in the United States
KO, Wei-shin
Abstract
The education and household income of overseas Chinese are above average in the
United States. While the new immigrants from both sides of the Taiwan Strait were mostly
graduate students and investors, they could do even better.
First Chinese emigrants to the United States were coolies; the road of the overseas
Chinese to a better life has been unfairly rough.
America is changing. So are both sides of the Taiwan Strait. In fact, the whole world is
changing. Change helps overseas Chinese in the United States, for it comes with the opportunities
free and fair competition.

184 Taiwan Development Perspectives 2009
Foreword
Jerry Yang resigned as chief executive officer of
Yahoo on November 17, 2008. The 40-year-old
co-founder of Yahoo returned to his previous job as
chief of one of the world’s largest Web portals to play a
corporate strategy role. He remains on Yahoo’s board.
Perhaps, his is not a household name but everybody
knows what Yahoo is.
Born in Taipei in 1968, Yang went to the United
States together with his widowed mother at the age of
ten. His father died when he was only two years old.
The mother and son lived in San Jose, California.
He attended school in San Jose and then went to Stanford
University at Palo Alto. After obtaining a bachelor’s
degree in electric engineering, he went on to work
towards advanced degrees. While studying towards a
Ph. D. degree, he decided to found an Internet website
with his classmate David Filo in April 1994. They established
Jerry’s Guide to the World Wide Web. Then
they quit studying at Stanford. A year later, Yahoo! Inc.
was born.
His net worth was US$2.3 billion as of the end of
October 2008.
Coolies from China
The slave trade was growing fast in the early nineteenth
century. White men raided Africa to capture
slaves for their colonies in the New Continent. A large
number of them shipped across the Atlantic to the
newborn United States of America, where manual labor
needed urgently for its tobacco and cotton farms. As the
slave trade being frowned, the British made a switch to
coolie trade.
China sent first coolies to the Americas in 1806. A
group of 200 coolies shipped to Trinidad in that year.
Between 1847 and 1874, half a million Chinese coolies
were working in British, French and Portuguese colonies
in the Americas. Of them 125,000 worked on sugarcane
farms in Cuba, which was then a Spanish colony.
Actually, they lived and worked just like slaves.
Chinese coolies reached the United States when
the Gold Rush started in California in 1849. When construction
of the Central Pacific Railroad began in 1869,
the United States imported coolies from China. More
than 14,000 coolies shipped to the United States in that
year alone. The number continued to rise. These coolies
were indentured laborers. When their indenture ended,
they were free men but most of them did not go back to
China. They stayed in the United States to do menial
work to make a living. Even so, prejudices and discriminations
were against Chinese coolies. The United
States passed a Chinese Exclusion Act in 1882. Under
that act, over 230,000 Chinese residents in the United
States had no human rights protected. The act repealed
in 1943, years after the Republic of China declared war
on Japan.
Many Chinatowns founded over time. They were
not exactly ghettoes, but still stand monument to the
hardships overseas Chinese endured while becoming
naturalized in their new home country.
On the other hand, those who went to British,
French, Spanish, Dutch and Portuguese colonies in
Southeast Asia fared better than their brethren in the
United States did. After their indenture was over, these
former coolies were free to live and work in their
adopted countries. Many of them, however, went back
to China to get married and raised families with the
money they saved while working overseas. Quite a few
started their own businesses and became successful
businesspersons who made fortunes.
Chinese Students in the United States
Qing China started sending young students to the
United States in 1872. They were boys ranging in age
from nine to fifteen. With government-provided scholarships,
they studied at Harvard, Yale and Columbia.
On graduation, they returned to China to work to modernize
the country. They made remarkable contributions
to China’s Westernization and development of industry

Overseas Chinese in the United States 185
as well as transportation.
In particular, the United States returned the indemnity
for the Boxer Rebellion of 1900, with which a
Tsing Hua preparatory school established in Beijing to
matriculate students in American colleges and universities.
The preparatory school provided free education for
students selected from provinces. The indemnity also
paid for their higher education in the United States.
The Republic of China proclaimed in 1912, following
the Chinese Revolution of 1911. The government
continued to award scholarships for students to
study in the United States and other advanced countries.
At the same time, rich families sent their sons and
daughters abroad for college education. Many of these
self-provided students went on to study towards advanced
degrees.
The government of the Republic of China moved
from Nanjing to Taipei at the end of 1949. Mao Zedong
won a Chinese civil war and proclaimed his People’s
Republic of China in Beijing on October 1, 1949.
Many Chinese intellectual refugees immigrated to the
United States when the Communists took over China.
In Taiwan, college graduates were encouraged to
go to the United States to pursue advanced studies.
Many of them returned to Taiwan to work. They were
professors, engineers, administrators, successful entrepreneurs
and top professionals. They were leaders in
different works of life. However, most of the graduate
students landed jobs after completion of their studies.
They became residence in the United States. In other
words, Taiwan exported its top of the crop to the United
States. This phenomenon called a brain drain.
These emigrants to the United States after the
second half of the twentieth century fared much better
than those in the nineteenth century and the first half of
the twentieth. There was no Chinese Exclusion Act.
Their human rights and rights of work all protected.
They did not undergo the hardships their predecessors
had in the century and a half before.
Many emigrants in the brain drain were famous for
their truly distinguished accomplishments. For instance,
Dr. Chen-ning Yang and Dr. Tsung-dao Lee were
co-winners of the Nobel Prize in physics in 1957. Dr.
Samuel C.C. Ting and Dr. Steven Chu won Nobel Prizes
in physics, too. Dr. Yuan-tseh Lee won a Nobel Prize
in chemistry. Elaine Chao served as secretary of labor
under President George W. Bush, Jr. President Barak
Obama appointed Stephen Chu his secretary of energy
and Gary Faye Locke, a grandson of a Chinese coolie,
elected governor of the state of Washington in 1996, his
secretary of commerce. Architect I. M. Pei designed the
world-famous pyramid glass entrance to the Louvre
Museum in Paris. Dr. An Wang built a computer empire
in the 1980s. His Wang Laboratories had more than
30,000 employees on its payroll in 1989. The Silicon
Valley in California offered chances to ambitious Chinese
immigrant entrepreneurs to make fortunes. Moreover,
of course, there is Terry Yang and his success story
of Yahoo! Inc.
Investors
As Taiwan wrought the economic miracle of the
twentieth century, it began foreign direct investment in
the United States. Entrepreneurs went to the United
States as investors, who brought their offspring there
for education. The youngsters were able to study at
prestigious colleges and universities. On graduation,
they could start professional careers. On the other hand,
large enterprises in Taiwan – such as the Evergreen
group, Taiwan Semiconductor Manufacturing Company,
Hon Hai Precision Industry Corp., and Formosa Plastics
– invested heavily in the United States. Their investment
often topped US$1 billion per case. As a result,
thousands of their employees “commuted” between
Taiwan and the United States; forming a small
population of overseas Chinese yet to become naturalized
Americans.
One thing of note is that most of investors are
small and medium-sized businesses. They are scattered
across the United States. Their paid-in capital, however,
far exceeded that of the big businesses.

186 Taiwan Development Perspectives 2009
Taiwan’s direct foreign investment in the United
States has contributed to the growth of trade between
the two countries. Taiwan is the eighth largest trading
partner of the United States now.
Emigrants from China
The People’s Republic started economic reform in
accordance with the policy decision taken at the Third
Central Committee Plenary Session of the Eleventh
Chinese Communist Party National Congress in 1978.
The policy, as Deng Xiaoping explained, aims at building
the People’s Republic as a “socialist country with
Chinese characteristics.” What actually took place was
a change from the planned economy to the market
economy. In fact, Deng opened China in 1977.
Many Chinese university professors sent to the
United States as visiting scholars. Graduate students
followed as the opening continued apace. On completion
of their studies, they were free to find work in the
United States. Chinese students in the United States
now far outnumber those from Taiwan.
It was a repetition of Taiwan’s brain drain. The
exodus peaked after the crush of the freedom movement
at Tiananmen Square in Beijing in 1989. A very
high proportion of Chinese students stayed and naturalized
in the United States. Then there was an economic
takeoff in China. Its economy has grown phenomenally
over the past two decades. Consequently, a large number
of Chinese students started returning to their home
country to work.
As the emigration has continued, the lingua franca
in Chinatowns has changed. It used to be Cantonese,
spoken with a Taishan accent. It is a Fuzhou Min dialect
with a Fuqing accent. Descendants of former coolies
have left Chinatowns for assimilation into citywide
communities. The restaurants and shops run by Cantonese-speaking
Nisei or Sansei have taken over by
native speakers of the Fuzhou Min dialect.
Conclusion
The change the overseas Chinese in the United
States have undergone over the past 160 years reflects
the process of China moving from an agricultural society
into an industrial one. When there was an overbalance
of labor against farmland, people had to emigrate.
They went overseas to seek work. They did menial
manual work abroad to eke a living. When high education
became popular, more graduate students and intellectuals
emigrated. As the economy has grown rapidly,
overseas Chinese entrepreneurs are able to do business
all over the world. Moreover, they often succeed.
Overseas Chinese in the United States have vastly
changed their role in the American economy.
Almost at the same time, emigration from China
began to surge. The United States is the most popular
destination.
Chinese immigrants in the United States far outnumber
those from Taiwan, as the former increase the
latter decrease. In addition, the Chinese are engaged in
more varied occupations and professions. There are big
business owners, scholars, experts, professionals as
well as laborers.

Impact of Closer Cooperation with China on Taiwan’s Economic Development 187
Impact of Closer Cooperation with China on
Taiwan’s Economic Development
LIN, Chu-chia, TAN, Ching-yu
Abstract
Economic cooperation between the two sides of the Taiwan Strait has been intensified
since President Ma Ying-jeou took office in May 2008. An agreement was signed between
the Straits Exchange Foundation and the Association for Relations across the Taiwan Straits
for the inauguration of direct weekend charter flights between Taiwan and China on July 4.
Four more agreements were signed in Taipei on November 4 in Taipei to further improve
relations across the Taiwan Strait.
A cooperative mechanism may be developed to normalize cross-strait economic and
trade relations. If Taiwan, China and Hong Kong form a free trade zone, they will each
substantially increase their respective gross domestic product. More benefits will accrue if
China succeeds in forming an East Asian free trade zone. This study aims at illustrate the
expanding effects of closer economic cooperation between Taiwan and China.

188 Taiwan Development Perspectives 2009
I. Introduction
There has been a surprisingly speedy change between
in relations between Taiwan and China since
1987. Trade across the Taiwan Strait has since been
growing fast. In 2007, trade between Taiwan and China
including Hong Kong amounted to US$94.16 billion,
accounting for 27.7 percent of the global volume of the
former. It totaled US$1.52 billion in 1987. There was a
sixty-one-fold increase over the two decades. China has
become one of Taiwan’s top customers. Exports to
Hong Kong and China accounted for 40.5 percent of
Taiwan’s total foreign sales in 2007, surpassing by far
those to its next top customer, the United States, that
made up a mere 13.2 percent. Taiwan’s trade surplus
comes mainly from exports to China. The surplus ran
up to US$50.43 billion in 2007, compared with the
US$940 million in 1987. Without that surplus, Taiwan
would have a huge trade deficit. For example, there
would be a US$32.99 billion trade deficit in 2007 but
for the US$50.43 surplus in trade with China. In the
mean time, Taiwan invested US$10.42 billion in China,
56.3 percent of its total foreign direct investment.
II. Costs of Indirect Cross-Strait Economic
Exchanges
Economic exchanges between Taiwan and China
remained indirect for a long time. There was no direct
maritime shipping between the two sides of the Taiwan
Strait, for instance. No direct flights across the strait
were allowed. They had to be relayed at a third place.
These indirect exchanges cost Taiwan the chance to
become a commercial hub in East Asia. As a matter of
fact, the American Chamber of Commerce in Taipei and
the European Chamber of Commerce Taipei called for
direct flights and shipping to regularize the flow of
people, goods and services, and investment across the
Taiwan Strait, with special emphasis on the value of
direct transportation links for domestic and multinational
business efficiency and effectiveness. Nothing
can be said that hasn’t been said repeatedly before
about how the failure to act on this issue has isolated,
constrained and damaged Taiwan’s economy.
1. Lost Chance
For lack of direct transportation across the strait,
foreign enterprises have moved their regional headquarters
from Taiwan to other places. UPS, for example,
was the first international company to open its Asian
regional headquarters in Taiwan. UPS opened a transferring
center in the Philippines in April 2002 because
there was no direct transportation link between Taiwan
and China. Taiwan has lost the chance to become a
business operation center in Asia and the Pacific.
2. Decline in Exports to China
Indirect transportation caused a decline in Taiwan’s
exports to China. Businesses had to relocate personnel
and operations from Taiwan to China. A sharp decline
was experienced in semi-finished product exports to
China. Taiwan’s share of exports to China has dropped
steadily. (See the table below.)
Table 1
Import Share of China: by Regions
unit:%
Import Area/Year 2007 2006 2005 2004 2003 2002
Japan 14.0 14.6 15.2 16.2 18.0 18.1
Taiwan 10.6 11.0 11.3 11.6 12.0 12.9
Korea 10.9 11.3 11.6 11.1 10.5 9.7
USA 7.3 7.5 7.4 8.0 5.9 9.2
Germany 4.8 4.8 4.7 5.4 3.4 5.6
Source: Board of Foreign Trade, Analysis of Cross-strait’s Trade, Dec 2002 to 2007.

Impact of Closer Cooperation with China on Taiwan’s Economic Development 189
III. Cooperation in 2008
Relations between Taiwan and China have improved
greatly after President Ma Ying-jeou took office
on May 20, 2008. The Straits Exchange Foundation
(SEF) and the Association for Relations across the Taiwan
Straits (ARATS) signed a memorandum, under
which direct charter flights between Taiwan and China
at weekends were inaugurated on July 4. Four agreements
were signed between SEF and ARATS on November
4 in Taipei to further improve economic cooperation
between the two sides of the strait. 1
One of the agreements set the direct flight link in
place. The agreement also shortened the air routes
across the strait. As a result, flight time is effectively
shortened. It took four hours to fly between Taoyuan
and Xiamen or Amoy. A flight is over in one hour and
a half. It takes only two hours and 40 minutes to fly
on the busiest route of Taipei to Shanghai, whereas
travelers had to stay aboard for five hours before. (See
Table 2.)
The Mainland Affairs Council reported that the
direct flights saved at least NT$3 billion a year. 2 In
addition, direct cargo flights greatly shortened air
freight shipping time, giving Taiwan enterprises a better
chance to improve their business across the world.
After direct marine transport line was set in place,
the four major shipping companies in Taiwan could cut
the cost of operation by 15 to 30 percent. The savings
per voyage amount to NT$300,000. Altogether NT$1.2
billion may be saved for 4,000 voyages per year.
At least 12.46 percent of enterprises in Taiwan
plan to increase their investment in Taiwan after the
direct shipping link was set in place, according to a
survey conducted by the Ministry of Economic Affairs, 3
They believe the cut in shipping time and cost efficiently
strengthen their competitiveness in the world
market. (See Table 3.)
1 Four agreements were the Cross-Strait Air Transport
Agreement, the Cross-Strait Sea Transport Agreement,
the Cross-Strait Postal Service Agreement, and
the Cross-Strait Food Safety Agreement. Major
breakthroughs of the Cross-Strait Air Transport
Agreement include: direct flight path in both directions,
weekday charters, increasing the flight schedule
and flight points, and cargo charters. Major
breakthroughs of the Cross-Strait Sea Transport
Agreement include: cross-strait vessels as the main
force in direct transport, opening of ports, mutual tax
exemption, and mutual establishment of entities to
facilitate operations. Major progresses under the
Cross-Strait Postal Service Agreement are expansion
of scope and greater convenience for public, direct
transmission, and delivery with addition of dispatch
points. Major progresses of the Cross-Strait Food
Safety Agreement are prompt notification of major
incidents, and cooperation mechanism for appropriate
handling.
2 See the Results of the Second Chiang-Chen Talks.
3 See the survey of Taiwan’s manufacturing industry
domestic investment, 2008.

190 Taiwan Development Perspectives 2009
Table 2
Flight Time of Weekend Charters
Weekend Charters
Flight Time
(Minutes)
Total Travel Time by
Flying via Hong Kong/
Macao* (Minutes)
Flight Time Saved
(Minutes)
Taoyuan- Beijing 255 350 95(27.1%)
Taoyuan-Shanghai 160(82)** 305 145(47.5%)
Taoyuan-Nanjing 175 305 130(42.6%)
Taoyuan-Guangzhou 105 245 140(57.1%)
Kaohsiung-Guangzhou 105 245 140(57.1%)
Taoyuan-Xiamen 95 245 150(61.2%)
Source:1.Civil Aeronautics Administration,http://www.caa.gov.tw/big5/news/files/970624doc.
2. Lin, Chu-chia, and Tan, Ching-yu (2006), Direct Transportation across the Taiwan Strait, Published by
Taiwan Development Perspectives 2006.
Notes: 1. Only Taoyuan International Airport and Kaohsiung International Airport have flights via Hong Kong/Macao.
2.”*” means data from Civil Aeronautics Administration.
3.”**” means data from the Results of the Second SEF-ARATS Talks.
Table 3
Impact of Direct Transportation on Taiwan’s Domestic Investment
Increase in Investment
(%)
Decrease in Investment(%)
Total 12.46 2.92
Large 15.19 2.08
Enterprise Scale
Medium 12.69 2.34
Small 10.41 3.83
Metal-Machinery 11.62 3.24
Electric 16.77 1.99
Industry
Semiconductor 24.21 1.05
Opto-Electrical and Material 21.05 0
Chemical 10.12 2.65
Real Estate 10.42 3.89
Source: MOEA, the Survey on Taiwan Manufacture Industry Domestic Investment, 2008, Nov. 2008.

Impact of Closer Cooperation with China on Taiwan’s Economic Development 191
The American Chamber of Commerce in Taipei is
convinced that direct transportation across the strait
would induce “thousands” its members to relocate their
regional headquarters back to Taiwan from China. 4
IV. Impact of Closer Cooperation with
China on Taiwan’s Economic Development
Chen, et al (2008) developed the FTAP model by
applying and expanding the GTAP model of Dee and
Hanslow (2001). The Chen model simulates the
impact on various economies in Asia and the Pacific.
The model is used to evaluate the impact of normalization
of economic and trade relations for closer cooperation
between Taiwan and China.
The Chen model shows if Taiwan, China and
Hong Kong develop a free trade zone, their exports will
increase by 13.99 percent, 11.25 percent, and 5.92 percent,
respectively. Their imports will rise by 22.79 percent,
13.35 percent, and 6.94 percent, respectively.
On the other hand, their respective GDP will increase
by 3.31 percent, 1.68 percent, and 0.99 percent, respectively.
They will each gain US$14.13 billion, US$11.46
billion, and US$3.87 billion in social welfare, respectively.
from Japan and exports to Korea, but there is no adverse
effect on the growth of GDP for all. Negative
influence is also apparent in the social welfare gains for
the United States, Korea, and ASEAN areas. Still, the
total social welfare gains increase when the Taiwan-China-Hong
Kong free trade zone is formed. The
net global social welfare gains rise.
China will increase imports, exports, real GDP and
social welfare gains a great deal, if it succeeds in forming
the East Asian Free Trade Zone. That shows China
benefit from closer cooperation with Taiwan. On the
other hand, Taiwan will benefit more at the beginning
of closer economic cooperation with China. In the end,
Japan, the United States and the ASEAN are going to
benefit gradually from economic integration in Asia
and the Pacific.
If cooperation is expanded to involve the emerging
East Asian Free Trade Zone (ASEAN+5), Taiwan,
China, and Hong Kong will increase exports by 18.28
percent, 41.03 percent, and 6.37 percent, respectively.
Their imports will rise by 27.66 percent, 52.88 percent,
and 7.64 percent, while their respective GDP will go up
by 3.26 percent, 2.65 percent, and 1.02 percent. Their
social welfare gains will increase by US$12.98 billion,
US$17.95 billion, and US$3.56 billion. (See Table 4.)
To sum up, establishment of a Taiwan-China-
Hong Kong free trade zone will benefit both sides of
the strait. It will be more advantageous for Taiwan.
Negative influence may be observed on imports
4 See http://www.haixiainfo.com.tw/16128.html.

192 Taiwan Development Perspectives 2009
Table 4
Impact of Asian-Pacific Economic Integration on Taiwan’s Economy
Taiwan+China
+Hong Kong
Taiwan+USA Taiwan+Japan ASEAN+5*
Exports(%)
Taiwan 13.990 4.849 4.780 18.283
China 11.253 0.0077 0.160 41.028
Hong Kong 5.921 0.1999 -0.077 6.370
USA 0.183 2.778 -0.069 -0.424
Japan -0.508 0.956 1.296 13.253
Korea+ASEAN 0.018 0.060 0.323 14.302
Other Areas 0.029 0.314 0.057 -0.093
Imports(%)
Taiwan 22.786 7.494 7.815 27.656
China 13.346 0.129 0.132 52.883
Hong Kong 6.938 -0.021 0.050 7.646
USA 0.021 2.441 -0.197 -0.803
Japan 0.489 -0.069 2.645 20.673
Korea+ASEAN -0.455 0.327 -0.108 16.257
Other Areas -0.035 0.207 0.003 -0.305
Real GDP(%)
Taiwan 3.310 2.492 2.534 3.255
China 1.676 0.010 -0.006 2.650
Hong Kong 0.990 0.051 0.041 1.024
USA -0.004 1.458 -0.006 -0.020
Japan -0.004 0.007 2.003 2.069
Korea+ASEAN -0.048 0.020 -0.030 2.981
Other Areas -0.005 0.010 -0.014 -0.043
Social Welfare(US$ million)
Taiwan 14,126 7,174 7,561 12,981
China 11,464 415 -424 17,950
Hong Kong 3,868 -468 65 3,561
USA -578 147,441 -1,400 -4,175
Japan 4,345 -5,856 86,808 108,879
Korea+ASEAN -2,746 2,084 -2,751 20,846
Other Areas -3,083 4,363 -5,301 -15,101
Source:Chen, Kun-ming, Chou, Ji, Lin, Chia-ching(2008), Impact of normalizing cross-strait economy and integration
in Asian pacific area on Taiwan’s economy, Page 29, 30.
*:ASEAN+5 includes the members of ASEAN( Indonesia, Malaysia, Philippine, Singapore, Thailand, and
Vietnam) , Taiwan, China, Hong Kong, Japan, and Korea.

Impact of Closer Cooperation with China on Taiwan’s Economic Development 193
V. Conclusion
China is the fourth top exporter of the world. It is
also the third largest economy in the world. It holds
US$1.9 trillion in foreign exchange reserves. It is also
the largest powerhouse of the world as well as one of
the most important consumer markets. On the other
hand, Taiwan used to be the largest exporter of umbrellas,
toys, shoes, and textiles. Now, it is the largest manufacturer
of motherboards, notebook PCs, wafers, and
IC products. Closer cooperation makes the two economies
complement each other. Formation of a Taiwan-China-Hong
Kong free trade zone is the first step
to strengthen that closer economic cooperation for mutual
benefit.
References:
American Chamber of Commerce in Taipei (2008),
Taiwan White Papers, May 2008.
turing Industry Domestic Investment, Nov. 2008.
Tan, Ching-yu (2008), “Evaluation of Cross-Strait
Economic Cooperation Framework and its priority topics,
published as Cross-Strait Economic Cooperation
Framework Conference of Institute of Taiwan Studies”,
Chinese Academy of Social Sciences, Nov. 3, 2008.
Tan, Ching-yu (2008), “The Impact of the second
Chiang-Chen Talks on Taiwan’s Economy”, National
Policy Foundation Analysis, Nov. 13, 2008.
Tan, Ching-yu (2008), “The Circumstances of
step-by-step opening of direct charter flights and the
impact of direct transportation across the Taiwan Strait
on Taiwan’s Economy”, National Policy Foundation
Research.
The European Chamber of Commerce Taipei
(2008), 2007-2008 Position Papers, Nov 2008.
American Chamber of Commerce in Taipei, Taiwan
White Papers , May 2007.
Chen, Kun-ming, Chou, Ji, Lin, Chia-ching(2008),
“Impact of Normalizing Cross-Strait Economy and
Integration in Asian Pacific Area on Taiwan’s Economy”,
Paper Presented “The Conference on the Impact
of Direct Transportation on Economics in Taiwan” Held
by Department of Economics, Shih Hsin University,
Oct. 4, 2008.
Lin, Chu-chia, and Tan, Ching-yu (2006), “Direct
Transportation across the Taiwan Strait”, Taiwan Development
Perspectives, 2006, National Policy Foundation.
Mainland Affairs Council (2008), “The Results of
the Second Chiang-Chen Talks: Air Transport”, Nov. 4,
2008.
Mainland Affairs Council (2008), “The Results of
the Second Chiang-Chen Talks: Sea Transport”, Nov. 4,
2008.
MOEA (2008), The Survey of Taiwan Manufac-

194 Taiwan Development Perspectives 2009

Strategies for Cross-Strait Financial Exchange and Cooperation under Financial Tsunami 195
Strategies for Cross-Strait Financial Exchange and
Cooperation under Financial Tsunami
HSU, Chen-min
Abstract
For China and Taiwan, the current international financial turmoil resulting from the
U.S. subprime crisis and the unprecedented financial tsunami not only has shattered the
solid foundation of economic development and financial markets, but has also withered the
growth of foreign trade and overseas investments. To cope with the severe challenges ahead,
China, Hong Kong, and Taiwan will have to establish a joint effort to strengthen their financial
cooperation. First of all, as the exchange rate of the U.S. dollar to the New Taiwan
dollar (NTD) has continuously appreciated since the global financial crisis began, the MTD
and the renminbi (RMB) should be authorized to substitute the greenback in trade and direct
investment between the two sides of the Taiwan Strait order to reduce exchange risks
and facilitate the expansion of their financial markets.
Furthermore, banks should be allowed to accept MTD and RMB deposits and handle
direct remittances between China and Taiwan to expand their operational scale. Banks
should also be permitted to establish representative offices or branches in each other’s territory
to elevate customer services. In addition, inter-bank RMB and NTD call-loan markets
in China and Taiwan should be permitted to improve the liquidity in the currency
markets and thus decrease associated carrying costs. A memorandum of understanding
(MOU) must be signed on the cross-strait financial supervision, while a cross-strait monetary
settlement system has to be established. Beijing shall allow financial institutions in
Taiwan to enjoy the preferential market access treatment in terms of the establishments of
subsidiaries and bank branches. Taiwan and China should actively employ top financial
experts from Hong Kong and provide attractive tax incentives.

196 Taiwan Development Perspectives 2009
I. Foreword
The collapse of Lehman Brothers touched systematic
breakdowns in the U.S. and EU financial markets
that have not only severely eroded the confidence of
investors and depositors in banking and insurance institutions,
but also caused a worldwide market panic.
The United States and the European Union have
jointly lent an impetus to bailout plans, with hundreds
of billion dollars being injected into the troubled banks
to resolve the worsening illiquidity problems arising
from capital shortages. Before the bailout plans were
rolled out, several countries had started relaxing monetary
policy to prevent the liquidity crisis from escalating
to a national scale. Besides, public funds were used
to buy bank stocks to stabilize market confidence in the
banking industry.
The United States and some European countries
are strong enough to consistently adopt loose monetary
policy and bailout plans to cope with the financial crisis
in the Group of Seven. But other European countries
such as Iceland and Ukraine are endangered by economic
bankruptcy. The crisis has also made serious
impact on Asian countries. American dollars keep
flowing out of the area and the depreciation of the Korean
hwan continues. It would be quite appropriate to
say that the Asian Financial Crisis of 1997 is being repeated.
The international financial crisis arising from the
subprime loans failure is quite similar to what occurred
in the 1980’s and 1990’s. It resulted from economic
bubbles, which were blown up by slack monetary and
credit policy. Then, after money supply started being
tightened and credit crunch was on the way, the bubbles
went burst. The crisis is originated from the combined
effects of bubbles in real estate, housing loans and derivative
markets, and the scope of its impact has quickly
escalated worldwide thanks to financial globalization
and the Internet. The economic bubbles this time are
somewhat different from what were evidenced in the
real estate and stock markets in Japan and Taiwan in the
1980’s, because the impact of the latter was only local
and had no direct influence on the international financial
system.
Originally, various securitization products – such
as Mortgage-Backed Securities (MBS), Asset-Backed
Securities (ABS) and Credit Default Swap (CDS) –
were designed as financial vehicles to diversify credit
risks and improve the asset liquidity of banks. However,
while these securitization vehicles are comprehensively
used as underlying assets of derivatives with more
complicated structures such as Collateralized Debt Obligation
(CDO) and Synthetic CDO (SCDO), issues
over information opacity and risk underestimation
emerge. The credit rating companies were either not
fully aware of the potential risk of these fancy products
or, even worse, conspired with investment banks to
mislead the general public.
Moreover, the investment banks used lots of subprime
loans purchased from banks to create new types
of financial derivatives. The loans with different credit
quality were repacked as complicated structured notes.
Although the structured notes were useful securitization
tools for banks, the risks of these products were severely
undermined, because the investment banks did
not make proper disclosures on the products structures
and the credit rating companies as well did not fully
capture all the critical risk dimensions, such as the default
risks of the issuing and selling banks.
While the U.S. financial authorities failed to effectively
supervise and manage the risks of structured
notes and derivatives, the investment banks were then
able to successfully promote these high leveraged
products across the world by their far-reaching marketing
networks and distinguished reputation for financial
engineering. The sequences of adverse market responses
to the burst of subprime loan bubbles have seriously
battered global financial system and economy.

Strategies for Cross-Strait Financial Exchange and Cooperation under Financial Tsunami 197
II. Influence of Financial Tsunami on
Cross-Strait Financial Development
The international financial tsunami makes it clear
that the consequence of supervisory failures might turn
out to be disastrous. While financial liberalization had
once become the prevailing thoughts for most of the
policy makers in the Western economies, the United
States and the United Kingdom were ever the most aggressive
promoters of liberalization in trade, international
capital movement, and direct investments by the
financing industry. The rapid growth of the knowledge
and Internet-based economy has made such financial
strategy even more powerful and popular. Ironically,
however, the victims who suffer most from the financial
tsunami are fortuitously those countries that are zealous
advocates for financial liberalization and internationalization.
With regard to cross-strait financial integration,
what influences of the financial tsunami will have
on the strategy China and Taiwan must adopt to establish
a regional financial center by their joint efforts as a
result of the possible restoration of conservatism in the
global market? What are the impacts on cross-strait
financial development? This is a topic worth further
exploring.
First, many people are worried that the rescue of
the endangered financial system by government intervention,
such as currently evidenced in some industrialized
economies such like the United States and some
European countries, illustrates that the value system
advocated by capitalism is being challenged again.
Somehow, such concern makes sense. The current situation
is quite similar to that which is evidenced before
the Great Depression arrived in the 1930’s. As the
United States stock market bubbles burst in 1929, the
American Communist Party firmly believed in the
principle of market self-adjustment, and the Hoover
administration as well as Federal Reserve Board failed
to identify and remedy the potential risks of the irrational
exuberance in the stock market, resulting in a
large-scale surge in bank financial distress, and tremendous
panic over the entire financial market. Finally,
the unprecedented Great Depression came as a consequence
of the seemingly never-ending vicious economic
cycles initiated by various mutually reinforced
factors composed of the market breakdowns, credit
crunch, deflation, national product decrease and increase
of unemployment. Accordingly, we could learn
that it is the erroneous monetary and financial policies
that shall be blamed for the crisis of capitalism. Thanks
to the lessons learnt from the Great Depression, as well
as the breakthroughs in academic research in the areas
of economy, monetary policy and finance market, the
United States and European countries are now able to
take decisive measures and make effective coordination
to fight against the crisis in a timely manner. In the
meantime, the growth of knowledge-based economy
also helps ensure that banks have sufficient liquidity by
smooth information exchange and a slack monetary
policy effectively adopted on the basis of internationally
consistent executions.
Second, owing to the relative immaturity of financial
market development in terms of globalization and
the government’s rigid supervision and control over
financial innovations, the impacts of financial crisis on
Taiwan are less dramatic compared with the Western
economies. As Taiwan’s financing industry has yet to
be internationalized, banks can at most fund exporters,
purchase overseas mutual funds or invest in other kinds
of overseas financial securities, instead of designing
and selling products globally. In other words, restricted
by their capability constraints, banks in Taiwan have
just a few business areas in the international market to
survive. Among those few areas are investment banking,
hedge funds, and mutual funds. All this explains why
Taiwan still has a long way to go to evolve as a regional
financial center.
Third, financial internationalization in Taiwan and
China is still immature, and as both are export-oriented
economies, their trade surplus has infused more than a
trillion of dollars into their foreign exchange reserves
and private foreign exchange assets (including those
owned by banks, insurance companies, retirement funds,

198 Taiwan Development Perspectives 2009
the industry sectors other than financial institutions, and
the general public). Take Taiwan for example. Its official
foreign exchange reserves have reached US$280
billion, against the US$420 billion in private foreign
exchange assets. The Central Bank keeps the foreign
exchange reserves primarily in U.S. bonds and bank
deposits, while private investors hold overseas funds,
bonds and derivatives as foreign exchange assets. For
Taiwan, the financial tsunami has significant influences
on private-owned foreign exchange assets, while the
impact on the foreign exchange reserves held by the
Central Bank is comparatively small. The impact on the
private sector would have possibly been lower, if Taiwan’s
financing industry has internationally competitive
expertise to provide highly value-added products
for them.
What are the financial tsunami’s implications for
to Taiwan’s strategy to turn itself into a cross-strait regional
financial center? For one thing, it has a significant
implication for financial supervision. As even in
the countries with more mature supervisory practices
than Taiwan, such like the United States and the United
Kingdom, large-scaled market failures might still happen,
both external supervision and internal risk management
of the financial institutions are critical issues
to be considered while we are mapping up the strategy
for developing Taiwan into a cross-Strait regional financial
center.
For another, the crisis tells Taiwan of the importance
of cultivating internationally competitive talents.
Financing professionals in Taiwan are generally not
good enough at communication in foreign languages.
What these professionals have to do to do business
worldwide is to improve their cross-cultural communication
ability through systematic training. On the other
hand, as a result of the financial crisis, tens of thousands
of Wall Street professionals have been laid off.
They are seeking new career opportunities. It is time to
get some of them to Taiwan to train our professionals
and help establishment our regional financial center.
Still another implication is that the current turbulences
in global financial markets make more and more
domestic investors withdraw offshore investments, and
shift their capital back to Taiwan. To establish Taiwan
as a regional hub of international financing, we have to
consider offering internationally competitive incentives
for the overseas Chinese (such as attractive tax exemptions),
which could at least compare favorably with
Hong Kong and Singapore, to encourage a capital
backflow. The amendments to relevant laws will facilitate
the development of financial modernization. The
laws which are subject to amendment include Overseas
Banking Unit Act, Securities and Exchange Law, Foreign
Exchange Control Act, Business Tax Act, Income
Tax Act, Trust Business Act, and Securities Investment
Trust and Consulting Act.
Moreover, the financial tsunami teaches Taiwan to
encourage domestic investors to invest in local mutual
funds. Continuing to promote the internationalization of
capital market and enhancing the diversity of financial
products will be important to make the domestic investors
willing to stay in local markets rather than shift
capital aboard looking for promising investments.
Besides, there are several essential aspects to be considered
while we are heading for our vision of becoming
a world-class fund raising center, such as providing
diversified hedging instruments, expanding foreign
participation in local future markets to enhance Taiwan’s
competitiveness and developing cross-strait exchange
rate futures to counteract the potential risks for
the NTD exchange rate policy.
On the other hand, the crisis has made us aware of
the importance of encouraging the issuance of overseas
mutual funds in Taiwan. In Taiwan, the investments in
financial products are taxed on various types of distributions
and capital gains, including dividends, interest,
income from transactions, and insurance payment.
Currently, Taiwan’s taxation system has introduced
some preferential regulations, such as exemptions of
tax on security trading income, futures trading income,
overseas income, insurance payments and the favorable
separate tax rate of 6 percent for securitization transac-

Strategies for Cross-Strait Financial Exchange and Cooperation under Financial Tsunami 199
tions. The galloping development of financial innovations
and the acceleration of capital outflows from domestic
markets, however, have evoked reflections on
the facts that the current taxation system for financial
products cannot cope with the international benchmarks;
and inconsistencies amongst the tax rates for similar
products are quite common. Such flaws in taxation
have not only adversely affected the developments of
financial innovations and market liquidity, but have
also caused unfair competition among financial institutions,
which might eventually be harmful to the development
of the capital market in terms of international
competition.
The rapid growth of financial innovations has singled
out the importance of modernizing the current taxation
system. For example, tax regulations for certain
types of financial products are inadequate, and are not
up to the international standards. Besides, the inconsistencies
amongst taxations on similar products have
made adverse impacts on the fairness of market competition.
To help financial institutions enhance their international
competitiveness, current tax regulations should
be comprehensively reviewed against the international
benchmarks for improvement of fairness and structure
consistency.
Last but not lease, it is necessary to deregulate the
market for financial innovations. We shall add more
variety to the existing pool of ETF. Currently, the underlying
index of ETF in Taiwan is none but the Taiwan
Stock Exchange Index. As a consequence, we shall be
able to find huge opportunities for brilliant ETF innovations,
if the underlying assets of ETF are extended to
international indexes.
Furthermore, fund management policy should be
consistent for offshore as well as domestic funds.
Variances between the regulatory mandates for offshore
and domestic funds are distinct in many aspects and
shall be adequately eliminated. For example, offshore
funds are allowed to invest in China securities, H.
stocks and Red Chips in Hong Kong and Macau, while
domestic funds are not permitted to make similar investments.
Besides, we shall consider following the
UCITSIII established by the European Union and accomplish
substantial deregulations on the trading activities
of local investment trust corporations, or tightening
the management policy on the EU funds to ensure
both EU and domestic funds are regulated on an
equivalent basis.
The business scopes of discretionary investment
services shall be further expanded. Due to
over-regulations on the varieties and ratios of investment
in derivatives as well as the unreasonable prohibition
of investment in certain types of securities in China,
Hong Kong and Macau, (such as H. stocks and Red
Chips), the discretionary investment services have taken
substantial risks of asset allocation inefficiencies.
III. Prospects of Cross-Strait Financial
Cooperation
Under the consensus achieved at the Cross-Strait
Economy and Trade Forum held on April 15, 2006, the
financial institutions in Taiwan and China are
encouraged to make joint efforts to structure a
well-functioning supervisory system around cross-Strait
financial issues and to launch cross-strait negotiations
on a Comprehensive Economic Cooperation Agreement
(CECA), which is similar to the Closer Economic
Partnership Agreement (CEPA), for establishing a
cross-strait financial supervision and monetary settlement
system. According to mentioned by P. K. Chiang
Pin-Kung, chairman of the Straits Exchange Foundation,
the CECA and the CEPA are very different. The CECA
is neither equal to a free trade agreement (FTA), nor the
same as the CEPA signed between China and Hong
Kong. The CECA aims at creating an exclusive model
of economic and trade relations to facilitate the consensus
building process across the Taiwan Strait on
various critical issues, such as tax exemptions on 90
percent of exports, reductions of customs duty and investments
thresholds.

200 Taiwan Development Perspectives 2009
The deregulation observed in cross-strait economic
and trade exchanges indicates Taiwan and China
have favorable opportunities to make considerable progress
on the negotiations of an MOU in the area of financial
supervision. Taiwan’s banks and securities
firms are very likely to start up their business in China
and on the other hand, China QDII may be able to obtain
authorized access to Taiwan’s capital market at an
earliest possible date. The MOU will be an important
milestone for the establishment of a sustainable partnership
in developing Taiwan and China as the regional
financial center in Asia and the Pacific.
Besides, China is willing to further strengthen the
economic and trade relationship with Taiwan after the
Beijing Olympic Games of 2008 and to listen to suggestions
from Taiwan businessmen. Wang Qishan,
Chinese vice premier, suggested on August 28, 2008,
that Taiwan and China could consider organizing a
common market. It was the first time a top leader of the
People’s Republic positively responded to the idea of a
common market across the Taiwan Strait, first broached
by Vincent Siew, vice president of the Republic of
China. The advantages of a common market are obvious.
Leaders in Taiwan even suggest the proposed
common market cover the whole of China, including
Hong Kong in a joint effort to organize a regional network
of funds, talents, and merchandise trade.
It was agreed at the Cross-Strait Economy, Trade
and Culture Forum on April 9, 2007, exchanges in the
areas of children’s education, elementary education,
vocational training, and continuous education shall be
carried out comprehensively. Academic cooperation in
various fields – such as instructor exchanges, research,
training, or scientific study between the schools of both
sides – shall be greatly promoted. To cultivate professional
talents and trainers for the financing industry,
cross-strait cooperation in training and testing for professional
certifications shall also be enhanced.
The cross-strait weekend charter flights, which
were successfully launched on July 4, 2008, have
brought forth tremendous improvement in air transport
between China and Taiwan. In addition, as the NTD
and the RMB can be mutually converted at local banks
on each side, the exposures of associated exchange
risks are thus decreased to a lesser degree. On the other
hand, however, while the people enjoy the benefits of
direct conversion between the NTD and the RMB, the
banks might take the risks arising from holding excessive
currency issued in China or Taiwan. How to resolve
the problem of excessive currency holdings and
reduce the capital costs for banks as well as the currency
conversion cost for the public would be a major
challenge we need to cope with in developing a sound
system for cross-strait currency exchange.
The establishment of a monetary settlement system
for the Hong Kong dollar (HKD) and the RMB has
enabled Hong Kong to develop RMB call-loan markets.
In other words, through the monetary settlement system
established by the joint efforts of the Hong Kong Monetary
Authority and the People’s Bank of China, Hong
Kong can convert the RMB surplus (from the currency
exchange settlements) into other foreign currencies,
such as U.S. dollars. Taiwan’s Central Bank and the
People’s Bank of China may follow Hong Kong’s example
for the establishment of a cross-strait monetary
settlement system. Currently, China appoints the subsidiary
of B.O.C (Bank of China) as the primary bank
handling currency settlements in Hong Kong.
After direct remittances are allowed across the
strait, the general public and enterprises on both sides
can use the NTD or the RMB as the currency of remittance
for cross-strait payment. In that case, the associated
exchanges risks and handling charges will be reduced
by 50 percent, as only one currency conversion is
necessary to complete the transaction.
If the commercial banks in Taiwan and China are
allowed to accept NTD as well as RMB deposits, the
China Union Pay Card and any credit cards issued by
Taiwan banks can be used as authorized payment vehicles
on either side of the strait. Direct wire transfers
across the strait can be made through the bank accounts
of the trading parties on both sides as well. For Taiwan

Strategies for Cross-Strait Financial Exchange and Cooperation under Financial Tsunami 201
and China, accepting NTD and RMB deposits will substantially
improve cross-strait remittances, and lead to a
win-win situation for both sides.
IV. Venture Capital Industry in Taiwan and
Innovations in SMEs Financing
Nurtured by favorable government policy and significant
financing support from banks and other financial
institutions over the past few years, Taiwan’s small
and medium-sized enterprises (SMEs) have grown as
the driving force for economic development. Seeking
for enhancement of financing for SMEs, China
launched in August 2008 a series of policy initiatives,
such as establishing state-owned SME-specialized
banks and expanding the scale of rediscounting to
strengthen the credit quality of SME loans. In addition
to loans offered by banks, venture capital and private
funds also play a catalyst role for the success of Taiwan’s
SMEs. For China, Taiwan’s experiences on SME
development provide a valuable example that is definitely
worthy of emulation.
1. Venture Capital and Private Funds
The Venture Capital Management Act, adopted in
1983, was abolished in 2001. For venture capital, the
act provided a legal basis for tax exemptions and financing
and set management standards to ensure entrepreneurs
invest in only high-tech related industries.
Since May 23, 2001, the previous act (approved in
1983) has been replaced by the Guideline for Venture
Capital Investment, a new regulatory system. It has
been 26 years since Taiwan began to develop venture
capital businesses; and as of the end of 2005, the number
of registered venture capital businesses reached to
268, with the overall paid-in capital amounting to
NT$189.3 billion and the number of investment projects
totaling 10,295. In the last decade, the venture
capitals made up 60.6 percent of all the high-tech related
investments in Taiwan. Compared with 2004, the
amount of investments in opto-electronics, electronics,
semiconductor, communications, and digital content
industries declined by 49.3 percent, 33.3 percent, 64
percent, 24.4 percent, and 100 percent, respectively.
However, the amount of investments in traditional, biotechnology,
software, and Internet industries grew by
94 percent, 30.5 percent, 143.7 percent, and 337.3 percent.
Before the 1983 act was abolished in 2001, venture
capital businesses were required to have at least
NT$0.2 billion of paid-in capital to get permission for
operation and their investment options were restricted
to the manufacturing sector only. Besides, the amount
of their investments in non high-tech industries was not
allowed to exceed 30 percent of their paid-in capital.
To reduce risks of concentration in investments, the
venture capitalists usually diversify their investments
portfolios by investing in a variety of products, industries,
regions, and life cycles of products or industries.
Meanwhile, they also make partnerships with other
venture capitalists to lower the percentage of their equity
holdings in a single high-tech firm.
The 1983 act was first replaced by the Scope and
Guideline for Venture Capital Investment on May 23,
2001. Venture capitalists no longer had to submit their
start-up requests to the Ministry of Finance for review
and approval; instead, they can directly file their applications
with the Department of Commerce of the Ministry
of Economic Affairs for permission to operate.
Once they reported their schedule for their operation to
the authorities and received necessary counseling and
assistance from professional institutions, they could
start operation. Their investment options, however,
were still confined to the manufacturing sector. Under
the 2001 regulatory system, the restriction on the
amount of investment in non high-tech industries was
removed.
In view of the tremendous contributions of the U.S.
venture capitalists in making Silicon Valley as a leading
high-tech hub in the world, Taiwan started to introduce
venture capital to facilitate the growth of local
high-tech industries. Under a government policy that is
helpful to incentive creation and effective supervision,
venture capitalists have been able to successfully chan-

202 Taiwan Development Perspectives 2009
nel the required funding, management know-how, and
techniques to high-tech industries and provide necessary
assistance in the IPO process for the sector as well.
Generally speaking, the venture capital business strategy
and functions are as follows:
(1) Making investments in emerging technology companies
that are rapidly growing;
(2) Providing assistance for emerging technology companies
in products or manufacturing technology innovations;
(3) Taking high risks in pursuit of great returns;
(4) Investments in emerging technology companies are
primarily in the form of stocks;
(5) Offering high value-added assistance through participation
in the operations and decision-making
process of the invested firms; and
(6) Making strategic plans for long term investments.
Venture capital is distinct from the usual types of
investment institutions, because it not only serves as a
fund provider, but also gives support in business connections
and techniques development for the invested
firms. They focus on the start-ups in the high-tech sector,
although they are not allowed to invest in either
non-manufacturing industries or stocks traded on the
open market. For high-tech industries, venture capital
has created a well-established business environment for
the management teams and laid a solid foundation for
sustainable growth of this sector.
One of the primary functions of venture capital is
to provide funding support for the start-ups in the
emerging technology sectors. Since they exist for the
same purposes as OTC, which aims to facilitate liquidity
in capital markets and thus create an efficient financing
channel for SMEs as well as emerging technology
firms, venture capitalists shall be allowed to be
listed as TIGER (Taiwan Innovative Growing Entrepreneurs)
stocks in OTC. While the number of institutional
or individual venture capital shareholders has
significantly declined since their favorable tax deduction
were called off in 1999, obtaining convenient access
to public financing is particularly critical to the
revitalization of venture capital businesses now. Unfortunately,
however, it seems that the proposal is unable
to receive positive supports from the securities authorities
are reluctant to render support and the venture capital
businesses are still plagued by funding difficulties.
Besides, the venture capital businesses, which
generally yield 5 to 10 times as much return as investments
in traditional industries, shall be very popular to
the investors in the open markets. Therefore, allowing
venture capital businesses to be listed on the TIGER
board will not only enable them to have access to public
funding, but will also improve the liquidity of the
OTC market.
Even though there is plenty of idle capital in the
private sector, the prolonged downturn in the stock
markets and the rapid depreciation in the NTD have
made the public much more conservative about investment,
resulting in the general underestimation of corporate
value as well as the prevalence of private placement
for the M&A of high-tech firms since 2006.
2. SME Credit Guarantee Fund
SMEs have made significant contributions to the
economic growth of Taiwan. However, due to the information
asymmetry emerging from the financial system
deficiency in SMEs, their financing is usually regarded
as risky. When they seek bank loans, SMEs are
either charged unreasonably high interest rates or unable
to get sufficient funding to sustain their operation.
To facilitate the growth of SMEs, the government
started to attach importance to counseling services in
the early 1960’s. In February 1964, a task force specialized
in the counseling services for SMEs was established
by the International Economic Cooperation and
Development Committee. In September 1967, the
Small and Medium-Sized Enterprise Guidance Regulations,
which clearly defined the appropriate targets of
the counseling services, was approved and put into

Strategies for Cross-Strait Financial Exchange and Cooperation under Financial Tsunami 203
force. In January 1968, the task force upgraded to the
Small and Medium Enterprise Administration, which
proposed a Small and Medium Enterprise Credit Guarantee
Fund.
The 1970’s were a decade of turbulence in the
global economy and financial markets. In October 1973,
the global energy crisis arose as a result of a war in the
Middle East. The Ministry of Finance proposed a bill
for the establishment of a credit guarantee fund for
small and medium-sized enterprises in February 1974
at the request of the Central Bank and the Ministry of
Economic Affairs. On July 9, the SME Credit Guarantee
Fund (SMECGF) started operation. The SMECGF
provides credit guarantees for SMEs that have tremendous
growth potential but have difficulties submitting
required collaterals to secure sufficient funding. It also
helps financial institutions reduce the risks of extending
loans to SMEs and increase their confidence in the
credit quality of the borrowers. Moreover, the Ministry
of Finance was made in charge of the development of
SMEs in April 8, 2003.
The government and financial institutions contributed
to the SMECGF. The total amount contributed by
financial institutions may reach up to 35 percent of the
SMECGF. As of March 2005, the government contributions
amounted to NT$42.925 billion (equivalent to
84.35 percent of the total fund) and those from the financial
institutions to NT$7.964 billion (15.65 percent).
The amount of contributions was determined annually
on the basis of actual demands. Furthermore, in principle,
compensation reserves shall be raised from the
revenue of guarantee services and investment returns to
secure the funding kept at the initial level. The annual
fees for all types of guarantee services except those for
direct guarantee which varied from 1.25 to 1.5 percent
depending on the level of credit quality were fixed at
0.75 percent in 2004. Since 2005, the original approach
was replaced by a risk-based pricing system, which
grouped the guaranteed at three levels by the degree of
their credit risk exposures and the rates applied were
0.75, 1.0 and 1.5 percent.
As of February 2006, the fund offered credit
guarantees to 246,726 SMEs, with the loans guaranteed
numbering 2,908,812, the total guaranteed amount
reaching NT$3.3837 trillion, and the total value of the
guaranteed loans amounting to NT$4.960 trillion. The
parties guaranteed by the fund are the qualified SMEs
(which complied with the prescribed requirements specified)
in manufacturing and other sectors. The types of
financing under guarantee included general loans,
commercial paper guarantees, export loans, inventory
loans, policy loans, performance guarantees, development
loans, small-scale loans, loans for promoting industrial
research and development, preferential loans
for facilitating R&D, guarantees by installments, and
financing for knowledge-based enterprises. Additionally,
the government also provided credit guarantees for certain
types of projects for non- SMEs and individuals.
V. Conclusions
In the era of globalization, international economic
interdependence is getting ever more intense, giving
rise to a greater risk of cross-border contagion of economic
and financial shocks. China has been growing at
an astonishing speed, since it decided to step on the
road to economic reform through policy liberalization.
Over the past few years, foreign investors converging
on China in pursuit of a plentiful source of labor and
favorable access to the market with tremendous growth
potential have made that country the largest and most
important production base in the world. In the mean
time, the industrial structure and production environment
in Taiwan and Hong Kong have been transformed
for rapid progress. It would be worthwhile to discuss
the trends of economic integration amongst China,
Hong Kong, and China in the future and their joint efforts
to share economic prosperity.
In the past, owning to the remarkable difference in
dimensions of market hinterlands, resources, labor
force, technology, and levels of development, China,
Hong Kong, and Taiwan were able to enjoy substantial
benefits through complementary cooperation among
themselves. However, as a result of the improvements

204 Taiwan Development Perspectives 2009
in technological research and development and the accelerating
pace of market opening in China, the division
of labor among China, Hong, and Taiwan has varied
dramatically from vertical to horizontal integration
across multiple industries in different parts of the value
chain. Furthermore, the scope of cooperation and exchange
has also been expanded from manufacturing to
service industries. The tripartite economic integration
will not only give rise to a substantial increase in labor
demand, create abundant capital supply and activate the
financial markets but will also broaden the scale of financial
markets and accelerate the economic development
in all three entities.
The demand for direct currency exchange in China
as well as Taiwan is expected to grow significantly after
direct weekend chartered flights, across the Taiwan
Strait started, Chinese tourists came to Taiwan, and
restrictions on investment in each other were removed.
Unfortunately, however, as the cross-strait money settlement
mechanism has yet to be established, problems
may possibly occur in money remittances between
China and Taiwan. Setting up a cross-Strait money settlement
mechanism would be critical to the developments
of economic integration between Taiwan and
China.
While the trend of globalization accelerates the
breakdowns of barriers between nations and facilitates
cross-border interactions, regional integration has become
the dominant force in the global economy.
Economic integration will not only mitigate regional
conflicts by strengthening economic and trade partnerships,
but will also increase the bargaining power on
interregional affairs. Therefore, we should exploit the
trends of regional integration to accelerate the pace of
economic integration among China, Hong Kong, and
Taiwan.
For China and Taiwan, the current international
financial turmoil has shattered the solid foundation of
economic development and financial markets and withered
the growth of foreign trade and overseas investments.
To cope with the severe challenges ahead, China,
Hong Kong, and Taiwan will have to make a joint effort
to strengthen their financial cooperation.
As the exchange rate of the U.S dollar to the NTD
has continuously appreciated since the international
financial tsunami began to engulf the world, the NTD
and the RMB should be authorized to substitute the
greenback as the currencies for cross-strait trade activities
and direct investments to reduce exchange risks and
facilitate the expansion of financial markets.
Permission should be granted banks to accept
NTD and RMB deposits and handle direct remittances
between China and Taiwan. Banks should also be allowed
to set up representative offices or branches in
each other’s territory.
Moreover, inter-bank RMB as well as NTD
call-loan markets have to be set up in China and Taiwan
to improve the liquidity in the currency markets and
reduce associated carrying costs.
An MOU on the cross-strait financial supervision
must be signed and a cross-strait monetary settlement
system established. China shall allow Taiwan financial
institutions to enjoy the preferential market access
treatment in terms of the establishments of subsidiaries
and branches. (China has granted that treatment to
Hong Kong under a CEPA.).
Last but not least, both Taiwan and China have to
learn from the experiences of Hong Kong in growing
into one of the distinguished financial centers of the
world. Particularly important is to follow Hong Kong’s
example to set up an optimum financial regulatory system.
Taiwan and China should employ top financial
experts from Hong Kong and provide attractive tax
incentives so that they may jointly set up a promising
international financial center in the Asia-Pacific region
to rival New York, London or Tokyo.

Budget Efficiency and Performance-Based Budgeting: Implementation in the United States and Taiwan 205
Budget Efficiency and Performance-Based Budgeting:
Implementation in the United States and Taiwan
LEE, Yun-jie Jack
Abstract
Budget efficiency has implications for budget reform. Back in 1940, V. O. Key asked:
“On what basis shall it be decided to allocate X dollars to Activity A instead of allocating
them to Activity B, or instead of allowing the taxpayer to use the money for his individual
purposes?”
Since the 1980s, performance-based budgeting (PBB) has been adopted by many
countries to improve accountability and effectiveness of public programs. This exploratory
study attempts to understand how the practices of PBB may influence spending behaviors
of the government with an ultimate purpose of enriching the conversation about how to assess
the impact of PBB. By comparing the United States with Taiwan in PBB implementation,
this author argues that the impact of PBB varies from country to country because of
different PBB goals and implementation strategies.

206 Taiwan Development Perspectives 2009
I. Introduction
Back in 1940 Dr. V. O. Key asked: “On what basis
shall it be decided to allocate X dollars to Activity A
instead of allocating them to Activity B, or instead of
allowing the taxpayer to use the money for his individual
purposes?” Dr. Key called attention to the lack of a
budgetary theory which would assist in arriving at an
answer to this question. Pointing out that budgeting is
essentially a form of applied economics, since it requires
the allocation of scarce resources, Professor Key
urged that the question be explored from the viewpoint
of economic theory.
This emphasis on budget efficiency has implications
for budget reform. In response to the report of the
First Hoover Commission (1949), a proposal was advanced
to integrate more data into the budget process.
This proposal, which is referred to as “performance
budgeting,” was designed primarily to allow managers
to develop measures of workload and cost effectiveness.
Performance budgeting has a clear efficiency orientation.
The purpose of performance budgeting was to
determine the least costly method of achieving the objectives
of a program. The emphasis was not on making
government-wide budgetary tradeoffs. Its significance
stemmed primarily from its emphasis on the integration
of program information and budgeting. This emphasis
was to be continued in future reform efforts.
Budgeting eventually evolved to a planning orientation,
coincident with the development of the so-called
“rational” budget reforms, such as program budgeting
and zero-based budgeting. Each of these reforms was
driven by the perceived limitations of the previous control
and management focus. Program budgeting placed
its focus on results and on multiyear planning. Zero-based
budgeting was focused on the base, rather than
assuming that existing programs should continue without
being subject to detailed annual review.
Did these reforms offer anything new to the budget
process? Certainly the changes in orientation that
have been discussed by Schick—from control, to management,
to planning – represented changes in the emphasis
in federal budgeting. If successful, they could
have fundamentally changed the process of allocating
federal resources.
Many observers argue that the reforms did not enjoy
this kind of success for two reasons. First, the process
envisioned under these reforms was inconsistent
with the political nature of the budget process. Purely
“rational” solutions were threatening to those that had
an interest in maintaining the status quo. Second, the
workload and paperwork requirements of these processes
were overwhelming. Nevertheless, the significance
of performance budgeting has been the key tone
of budget reforms for 50 years.
Since the 1980s, performance-based budgeting
(PBB) has been adopted by many countries to improve
accountability and effectiveness of public programs.
The U.S. Congress passed the Chief Financial Officer
Act of 1990 and the Government Performance and Results
Act (GPRA) of 1993, which together laid down
the legislative foundation for PBB reforms. PBB has
also advanced rapidly in other member countries in the
Organization for Economic Cooperation and Development
(OECD) over the past decade as a way to make
government more competitive and cost-efficient and as
a response to cynical taxpayers who demand more accountable
government spending. Many have expanded
the practice of PBB and introduced new legislations
that require performance measurement and benchmarking
(Helgason 1997; OECD 2002; Willoughby and
Melkers 2005). In the countries that have been using
performance measurement for a number of years, many
have also begun to shift their focus to reporting outcome
and to building a stronger link between performance
and budgeting (OECD 2002; Perrin 2003).
Though studies have been conducted to examine
PBB’s immediate impact on management practices and
decision-making (Jordan and Hackbart 1999; Joyce
1993; Willoughby and Melkers 2005), few have explored
how it may affect spending behaviors of the
government. After all, the PBB’s promise of careful

Budget Efficiency and Performance-Based Budgeting: Implementation in the United States and Taiwan 207
scrutiny for the performance of public programs should
affect how these programs behave in resource allocation
decision-making as well as in curbing unnecessary
or wasteful public spending during a time when public
debts and budget deficits have grown rapidly in the
world since the 1980s, and both the Western and Asian
countries have been struggling to find the effective way
of reducing budget deficits and government debts.
This exploratory study attempts to understand how
the practices of PBB may influence spending behaviors
of the government with an ultimate purpose of enriching
the conversation about how to assess the impact of
PBB. A comparative setting with multiple countries
(regions) allows an enhanced experience for the exploratory
nature of this study to discover possible variations
of momentums and impediments for PBB, improving
the validity of findings and broadening the horizon
of the conversation.
II. A Comparative Method
This study employs the comparative method, as
defined by Lijphart (1971), which offers a strong basis
for evaluating hypotheses. The method allows a systematic
comparison in assessing alternative explanations
(Collier, 1991). The comparative method can fill
important knowledge gaps about alternative approaches
adopted in different countries for similar policy issues,
as well as effects of these alternative policies in solving
common problems such as those in budgetary reforms.
Moreover, the comparative method helps specify the
conditions under which one country can learn from
another. By utilizing the comparative method, researchers
not only can find new policy options in other
countries, but may also discover latent policy constraints
and opportunities within their own system.
As Nagel (1961) and Lijphart (1971) point out, the
logic of the comparative method is the same as that of
the experimental method. The experimental method is
the most nearly ideal method for scientific explanation,
but unfortunately it can rarely be used in policy and
management research because of practical and ethical
impediments. An alternative to the experimental
method is the statistical method that entails the
conceptual and mathematical manipulation of
empirically observed data in order to discover
controlled relationships among variables. This paper
will investigate two cases, the United States and Taiwan,
as comparative setting.
A framework to present the practices of PBB
comes next. How PBB influences spending is then discussed.
A section to present the key findings follows.
The paper concludes with lessons learnt to further the
conversation of assessing PBB implementation.
III. PBB Implementation in the United
States and Taiwan
The United States
The Government Performance and Results Act
(GPRA) became law in the United States in 1993, establishing
a strategic planning and performance budgeting
framework for the federal government. The Clinton
administration established the National Performance
Review (NPR) Committee in September 1993 to
implement the management reform with a policy of
budget deficit reduction. On October 26, 1993, the
White House released a legislative proposal, the Government
Reform and Savings Act, HR 3400, to implement
NPR’s cost-cutting recommendations. Section 3C,
“Delivering a Government that Works Better and Costs
Less,” of the Clinton administration’s Fiscal Year 1995
budget makes it clear that this reform was intended for
a budgetary outcome.
The GPRA was designed to strengthen the financial
management enhancement efforts of the Chief Financial
Officers Act (CFO) of 1990 through requiring
specification of objectives, standards, and goals for
federal programs. The GPRA requires submission of
performance reports to the Office of Management and
Budget (OMB), the publishing of annual performance
reports, and the integration of performance goals for
major expenditures into the federal budget. Consistent

208 Taiwan Development Perspectives 2009
with the original Hoover Commission work, NPR’s
goal was to enhance performance accountability by
eliminating wasteful spending and achieving better
program results through an extensive review of performance.
Executive leadership support plays an important
role in the U.S. case of PBB implementation. Both the
Clinton administration and Congress demonstrated
strong willingness and supports for the implementation
of GPRA and PBB. The central role of OMB in the
implementation was ensured in the content of GPRA.
The Bush administration continued the effort of PBB
with the implementation of the Program Assessment
Rating Tool (PART) to assess program purposes, strategic
planning, program management, and results of federal
programs (U.S. OMB 2004). PART was believed to
have limited but steady impact on the managerial
communication and decision-making of managers
(Newcomer 2007). Moreover, the message to improve
government performance and accountability through
PBB is resonated at various levels of governments in
the United States (Broom and McGuire 1995; Melkers
and Willoughby 1998; Wang 2000).
Taiwan
The Executive Yuan or Cabinet called a national
conference on administrative reforms in 2001, launching
a series of budgetary reforms intended to transform
the executive agencies into result-oriented performers.
In the same year, the government issued the Administrative
Regulations of Performance Assessment for
Agencies (ARPAA) under the Executive Yuan, outlining
a performance-based budgeting framework for the
public sector in Taiwan.
The ARPAA required each agency to submit strategic
performance objectives, performance indicators,
and performance targets in three key performance dimensions
of services, manpower, and funding. Each
agency was also required to develop five to ten strategic
performance objectives, as well as performance indicators
for each objective that reflect its specific functions
and activities.
All agencies subordinate to the Executive Yuan as
well as local governments were required to implement
PBB. At the end of each fiscal year, the performance of
each was checked against the performance objective.
PBB-related training courses have been offered at various
levels of governments, including city and county
governments, to improve the capability of implementation.
Compared with some other PBB systems in the
world, the reform in Taiwan has a distinctive emphasis
on two aspects of the PBB practice. One is the presence
of a strong executive leadership to implement and constantly
evaluate the practices of the reform. Hundreds
of major projects in the PBB reform are under control
of the Executive Yuan. The annual performance evaluation
of these projects is submitted to the Research, Development,
and Evaluation Commission (RDEC) of the
Executive Yuan. The RDEC assembles committees
consisting of members from Council for Economic
Planning and Development (CEPD), National Science
Council (NSC), Directorate General of Budget Accounting
and Statistics (DGBAS), and Central Personnel
Administration (CPA), as well as experts outside the
government to review and evaluate the performance of
these projects and their affiliated agencies. The final
evaluation results are published on RDEC website for
public review and are used in making funding decisions.
The RDEC also monitors the progress of each program
and verifies such progress with on-site inspections. A
monitoring report is published regularly.
The second distinctive feature of the Taiwan reform
is a carefully designed process of project management
in which each project in the PBB is subject to
intensified administrative scrutiny in planning, implementation,
and evaluation (Sung, 2008). Figure 1 illustrates
this process of preliminary self-evaluation, classification
and control, supervision, and performance
assessment. Included first in a medium-term (four-year)
plan, various governmental projects are incorporated in
an annual plan after a preliminary self-evaluation by

Budget Efficiency and Performance-Based Budgeting: Implementation in the United States and Taiwan 209
agencies. The projects are then categorized and reviewed
by the Executive Yuan, ministries and agencies
concerned. The Department of Regional Affairs of the
RDEC is involved in reviewing local governments’
projects subsidized by the central government. Commissioned
by the Executive Yuan, the RDEC is mainly
responsible for the project management, although the
CEPD, the Public Construction Commission (PCC),
and the NSC are also involved in the management of
projects of their concern.
[Figure 1 about here]
Noticeably, the process of project management
involves a carefully designed assessment phase in
which each agency uses performance results achieved
in the previous three years to set the performance goal.
The performance goal of the next four years should be
established, often to be 10 percent higher than the previous
goal. The results of this assessment are taken into
consideration in funding decisions for the budget next
year.
IV. Discussion and Summary: PBB and
Spending Efficiency
How does PBB influence government spending
behavior? Practitioners of PBB have tried to integrate
performance information in budgetary decision making
(Cope 1995; Grizzle and Pettijohn 2002; Willoughby
and Melkers 2000). Program outcomes are used in
budget deliberations of funding priorities and levels,
helping allocate resources more effectively to meet the
expectations of the public and elected officials (US
GAO, 2001).
Specifically, PBB can be used as a strategy to
change spending behaviors in ways of proposing fewer
ineffective programs and/or eliminating more ineffective
existing programs. In the United States, for example,
GPRA and related legislations were designed with
an intention to control or eliminate wasteful use and
mismanagement of public funds (Breul, 2007). In Taiwan,
the PBB effort is specifically designed to control
governmental spending by using performance management
tool during a time when the government is
facing a fiscal crisis manifested by a public debt level
growing at an accelerated pace. The practice of PBB is
treated mainly as a management tool of spending control
in response to criticism from citizens and the mass
media.
It is important to note that budgeting is essentially
a political process and spending decisions are a compromise
of diversified political powers. Performance
information, even if used in making spending decisions,
is likely to be adopted to advance the value of a political
agenda in the budgeting process (Joyce 1993; Wang
2008). Evidence does emerge to show the impact of
PBB on budgetary decision-making capabilities (Wang
2000) and behaviors (Lee & Burns 2000; Jordan and
Hackbart 1999; Willoughby & Melkers 2000).
The finding seems to provide evidence that PBB
has gradually become an essential part of administrative
practice in the U.S. federal government, indicating that
the performance-based reform strategy may affect the
deficit level. A recent study shows that a relatively large
number of federal managers have used performance
information in making resource allocation decisions,
and they have adopted performance-based practices in
management (Newcomer 2007). Although these practices
have little impact on curtailing expenditure growth,
they may have helped federal managers make funding
decisions more cautiously within revenue constraint.
In Taiwan, the administration’s request for a comprehensive
PBB reform places a very stringent restriction
on expenditure growth, providing incentive for
agencies to restrain discretionary spending, which explains
the negative relationship between PBB and the
expenditure growth rate. However, this finding should
be read with caution because some supplemental and
special spending items (e.g. some items on disaster response
and national defense) are not included in the
expenditure calculation and actual expenditure levels
can be higher.

210 Taiwan Development Perspectives 2009
The above findings indicate that the impact of
PBB varies from country to country and from region to
region because of their different PBB goals and implementation
strategies. Legislative leadership support in
form of a formal legislation, as the cases in the United
States and Taiwan indicate, appears to be critical in
PBB implementation. Passing a law and specifying how
agencies should follow it provide public officials with
the legal basis and responsibility of implementation.
PBB legislation reinforces political urgency and importance
of the reform, and it also provides legitimacy for
requests and approvals of financial support for PBB,
which is critical in PBB implementation. Moreover,
performance-based funding is relatively easier to make
when there is PBB legislation in place.
Strong executive leadership is critical to substantiate
and sustain the impact of PBB. Executive leadership
in PBB reflects in enforcing the law and carrying
out administrative responsibilities in PBB implementation.
Top executives, who have strong political connections
with legislators and good knowledge on management
and daily operations, are a catalyst in obtaining
resource support and acquiring necessary technical capabilities
in PBB (e.g. hiring capable performance analysts
and developing a good performance information
system).
Strong intent and effort to link performance results
with resource allocation decision-making, as
shown in the case of Taiwan, also appears important for
PBB to have impact on spending. The literature has
indicated that performance measurement is widely used
in the budget preparation and examination, but less
used in the funding decisions by the legislature because
of a variety of technical and political obstacles including
concerns about the validity of the measurement
system and the fear that performance funding is a threat
to political power structure. For PBB to impact spending,
the threat of these obstacles should be recognized
and eliminated.
Implementation length may also play a role in realizing
PBB impact. As the U.S. and Taiwan experiences
have shown, PBB is an exhaustive assessment
process demanding intensified effort in time and paperwork
to define performance, develop data collection
system, conduct analysis and evaluate the results. Accounting
and audit systems should provide information
needed for assessment. Also important is the creation of
positive incentives to encourage compliance with and
support for PBB. Clearly, the development and perfection
of these necessary elements in PBB take time, and
the maturation of a PBB system may indicate the development
of an organizational culture that is more
accustomed to performance funding.

Budget Efficiency and Performance-Based Budgeting: Implementation in the United States and Taiwan 211
Figure 1: Flow Chart of PBB Project Management
RDEC, CEPD NSC
Department of
Regional Affairs
Local government
Directorate-General
of
Budget, Accounting
and Statistics
Medium-term
Plan
Medium-and
long-term program
Preliminary
self-evaluation
Budget
Annual plan
Important
project items
Project-based
subsides
RDEC
CEPD
NSC
PCC
Executive Yuan
controlled
Project classification
Ministries
controlled
Agencies
controlled
Ministries
Project submitting
Performance
Assessment
Major policy project control
Major policy project assessment
Sources: RDEC. The authors are grateful to Deputy Director Wu-Yu Lee of RDEC for providing data of the flow
chart.
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214 Taiwan Development Perspectives 2009

Tax Reform Giving Consideration to Equity and Competitiveness 215
Tax Reform Giving Consideration to Equity and
Competitiveness
HUANG, Yophy
Abstract
Facing fierce international competition and an ever-widening poverty gap, Taiwan, a
small open economy, has to take its economic development and national competitiveness
into consideration when it develops a new making tax design. While tax rates have been
lower than 14 percent over the past few years, continued tax cuts are seriously eroding
Taiwan’s taxable base. Tax rates for labor income are higher than those for property income
and capital gains but value-added tax is always maintained at 5 percent. The key points of
current tax reform shall be raising the ratio of indirect taxes, lowering the ratio of direct
taxes, and forgoing selective tax cuts to widen the taxable base of income taxes to allow the
public to share the benefits of a broadened taxable base. Since lowering the estate and gift
tax rate to 10 percent shall be interpreted as a “short-term” and “transitional” measure for
coping with the global financial crisis and economic recession, action shall be taken in coordination
with the with long-term missions of the Tax Reform Council to reduce impact on
social justice and taxation loss.

216 Taiwan Development Perspectives 2009
I. Balance among Diversified Goals
Taiwan has to take its international competitiveness
into consideration when it develops its tax design.
There exists a widening poverty gap exists and taxation
contributes less to the improvement of income distribution
than social welfare. Consequently, consideration
should be given the impact on social justice when tax
reform is devised. The key points of current tax reform
shall be a balance struck between economic development
and national competitiveness on the one hand and
social justice and sustainable environment on the other.
They are the four major goals – social justice, international
competitiveness, economic development, sustainable
environment – which the newly established
Tax Reform Council has to achieve.
Indirect taxes are a main source of revenue for
social welfare under an indirect tax system in the West.
As emphasis is placed on social justice, income tax
rates have been set unduly high to create detrimental
impact on people’s working willingness and a nation’s
international competitiveness. In contrast, low indirect
tax rates exert disadvantageous influence on savings
and capital formation, which, in turn, hurts long-term
economic performance. Most Western countries have
followed this Reaganomic tax reform trend, endeavoring
to lighten the burden of income taxes and raise the
ratio of indirect taxes. Properly designed indirect taxation
must aim at raising consumption taxes or sales
taxes to stimulate savings and capital formation as well
as at promoting long-term economic development and
social justice by making tax exemption on necessary
consumer goods and decreasing regressivity. On the
contrary, lowering income tax rates, coupled with few
tax cuts and a broadened taxable base, can increase
people’s willingness to work, savings and investment as
well as promote equal income distribution. The ratio of
direct tax rates has been lowered in developed countries
since 1990.
Ireland provides the most illustrative example. It
lowered the corporate tax rate to 12.5 percent but VAT
(value added tax) is maintained at 21 percent. While
income tax rates in most European countries have been
lowered substantially, VAT is still very high. Singapore
rescinded estate and gift tax in 2008 but raised
GST(goods and services tax) from 5 percent to 7 percent
in 2007.
II. Indirect/Direct Tax Ratio in Taiwan’s
Tax Reform
The highest bracket in Taiwan’s consolidated income
tax rate has been lowered from 60 percent in early
1980 to 50 and then to 40, causing serious taxable
base erosion through tax reduction and exemption. It is
futile to expand the taxable base. VAT, the most important
among indirect taxes, has been kept at 5 percent,
the world’s lowest. On the other hand, Taiwan’s tax
burden (the ratio of taxation to GDP) has been kept at a
very low 14 percent. It contributes to the taxable base
erosion. Rates of tax on for labor income are higher
than those for property income or capital gains.
The key points of current tax reform shall be raising
the ratio of indirect taxes, lowering the ratio of direct
taxes and forgoing selective tax cuts to widen the
taxable base of income taxes to allow the public to
share the benefits of a broadened taxable base. Lower
income tax rates can reduce the tax burden on labor
income and improve income distribution as well as
raise Taiwan’s international competitiveness.
On the other hand, high estate and gift tax which is
unfavorable for international competitiveness shall be
lowered. Although the current estate and gift tax rate
requires high-income earners and wealthy property
owners to pay more, raising the amount of tax exemption
can reduce the impact on the middle class, cause
less taxation loss and lower auditing and levy costs. On
the contrary, lowering tax rates will create a bigger
negative impact on wealth distribution and more taxation
loss.
III. Measures to Cope with Economic Recession
The U.S. financial meltdown has touched off a

Tax Reform Giving Consideration to Equity and Competitiveness 217
worldwide economic crisis, to which Taiwan is not
immune. One most important task facing Taiwan is how
to induce an inflow of the capital that has flowed out
over the past few years.
For one thing, the Tax Reform Council has to try
to “win over money” from abroad. Plans are afoot to
lower estate and gift tax to 10 percent across the board.
A draft Regional Financial Service and Capital Management
Center Act, which is now under review, provides
tax cuts for the capital which fled abroad before
July 2008. Those who will open exclusive accounts
with the center yet to be inaugurated shall be entitled to
inheritance tax exemption for two to four years and
preferential income and gift tax cuts. The proposed
measures are not without problems, however. There are
many factors contributing to capital flow in and out.
Taiwan is an “open” island economy in which “money
flees faster than humans.” As Taiwan is facing difficult
problems, domestic as well as arising from tensions
with China, it is necessary to make a thoughtful analysis
of the critical factors to arrive at “right solutions.”
Taxation little affects capital movement. As Taiwan’s
tax burden is at 13.5 percent, the world’s lowest,
there leaves a very much limited possibility for further
lowering tax rates and only “structural” adjustment can
be made in tax reform. There is no direct relationship
between estate and gift tax and capital outflow. The
government plans to offer tax exemption by putting a
proposed Regional Financial Service and Capital Management
Center Act into force. That indicates it is not
confident that the lowering of estate and gift tax to 10
percent can induce an inflow of the capital which has
already fled.
The current “capital flight” doesn’t mean that a
crisis exists in Taiwan’s “liquidity.” Lowering estate
and gift tax might attract a capital flow back, though it
cannot guarantee any improvement in Taiwan’s national
competitiveness. If capital flowing back is ploughed
into investment a limited supply of real estate or stocks,
it is necessary to heed whether “economic bubbles”
thus caused in the early 1990s will emerge again. Investment
in manufacturing must also be given a similar
tax holiday.
All the measures to be taken to tide over the current
economic crisis are “temporary,” “transitional” and
“conditional.” While estate and gift tax is lowered to 10
percent, bylaws have to be enacted to ensure that the
limited tax holiday is not abused. For instance, beneficiaries
may be required to sign a “voluntary agreement”
under which they will be entitled to low tax rates for a
specified period of time. Should they break the promise,
all the tax savings would have to be returned to the national
treasury. A “dynamic adjustment mode” may also
be introduced. Under this measure, the U.S. Congress
may reduce estate tax for a period of time, at the end of
which legislative action will be taken to continue the
reduction or make the reduction permanent. It is
through these bylaws that the government’s rescue and
bailout measures will not contradict the midterm or
long-term planning the Tax Reform Council undertakes.
Only making these measures conditional can the government
win public support for them. Moreover, the
government can better maintain financial stability and
promote social justice as well as Taiwan’s national
competitiveness when the economy is back to normal.

218 Taiwan Development Perspectives 2009

Impact of High Oil Prices on Taiwan’s Agriculture and Fisheries 219
Impact of High Oil Prices on Taiwan’s Agriculture
and Fisheries
LING, Shiang-nung
Abstract
Taiwan’s agriculture has become capital- and technology-intensive over the past decades
to cope with problems arising from economic globalization. After joining the World
Trade Organization in 2002, Taiwan has to open the domestic market to farm products from
abroad. Farmers are facing an increasingly unrestricted international competition. When oil
prices rose in 2008, food prices soared in Taiwan as the livestock industry and ocean fisheries
could not hold down their cost of production. This paper analyzes the impact of high
oil prices on Taiwan’s agriculture and fisheries.

220 Taiwan Development Perspectives 2009
I. Preface
Taiwan is neither large in size nor rich in natural
resources. It has an area of 36,000 square kilometers. At
present, only about 825,947 hectares or 22.94 percent
of the area are used for agricultural production, though
it has to support 22.8 million people. Almost all farms
in Taiwan are small, the average landholding per family
being one hectare. It is extremely difficult for small
farms to reduce their cost of production.
Taiwan was admitted to the World Trade Organization
in 2002. It has to open up the domestic market to
farm and livestock products from abroad. Farmers are
facing an increasingly unrestricted international competition.
The skyrocketing world oil prices in early 2008
seriously hurt Taiwan’s agriculture, livestock industry
and fisheries.
The oil prices topped US$147 a barrel in July and
then began to fall. By November the prices went down
to US$60 a barrel, remaining prohibitively higher than
Taiwan could afford. This paper analyzes the impact of
high oil prices on Taiwan’s agriculture, livestock industry
and fisheries.
II. Rising Oil Prices
Taiwan depends on oil imports. After the first international
energy crisis in the 1970s, the government
adopted a policy of energy diversification in order to
reduce dependence on foreign oil. Following the second
oil crisis, the government has actively promoted the
substitution of coal and nuclear energy for oil. As a
result, oil’s relative share of Taiwan’s energy supply
went down to 57 percent in 1989. Such efforts contributed
to stable energy supply and minimized the dependence
on oil imports. Farmers need fossil fuel and
fertilizers in production. Fishermen need fossil fuel,
while livestock farmers have to import grain as feeds.
They all suffer when crude oil prices go up.
Crude oil prices were US$20 to US$30 a barrel
before 2002. The prices started to rise in 2003 and surpassed
US$40 a barrel in June 2004. Ten months later,
the prices soared above US$50 a barrel and then topped
US$60 a barrel in January 2006. They went up from
US$70 a barrel in August to US$80 in December 2007.
By February crude oil was traded at US$100 a barrel.
The prices peaked at US$147.27 on July 11, 2008. A
global recession began in the months that followed,
forcing down the crude oil prices to US$60 a barrel by
November. (See Table 1 for the rise and fall of prices.)
Table 1
Rise and Fall of Oil Prices
Origin\Date 2001.2.1 2002.4.1 2003.2.3 2004.2.2 2005.2.1 2006.2.1
WTI 29.83 26.88 32.45 34.28 46.68 66.72
Dubai 24.94 23.84 29.41 27.06 39.21 61.17
Brent 28.87 25.60 31.10 30.43 45.08 66.18
Origin\Date 2007.12.3 2008.3.3 2008.5.6 2008.6.6 2008.7.4 2008.11.6
WTI 88.73 102.46 121.87 137.54 145.31 60.770
Dubai 82.95 94.87 113.25 122.76 140.7 56.210
Brent 88.16 102.69 114.94 133.62 143.54 56.180
Source: Bureau of Energy, Ministry of Economic Affairs, R.O.C.

Impact of High Oil Prices on Taiwan’s Agriculture and Fisheries 221
Illustration 1: Rise of Oil Prices 2001 to 2008
(year/month) West Texas Intermediate Dubai
Source: Bureau of energy, Ministry of Economic Affairs, ROC.
Food prices went up as crude oil prices rose.
People in many a developing country took to the
streets to protest against the rising food prices.
Riots occurred. Taiwan faced no food crisis, but
high oil prices affected its food production.
Ⅲ. Impact on Agricultural Production Rice-farming is the mainstay of Taiwan’s agriculture.
The island nation produces more rice than it
consumes. It exported rice below cost under protest
from the United States, and has reduced production.
(See Table 2 for cereal production in
Taiwan.)
Table 2
Taiwan’s Cereal Production
Item Unit 1986 1991 1996 2001 2005 2006 2007
Paddy Rice m.t. 2496510 2311638 1930897 1723895 1467138 1558048 1363458
Brown Rice m.t. 1973823 1818732 1577289 1396274 1187596 1261804 1098268
Feed Corn m.t. 222009 267808 272522 59223 41820 37358 33885
Food Corn m.t. 99296 107002 122890 106772 91653 91075 84985
Sweet Potatoes m.t. 324042 224272 203870 188716 213991 235203 200087
Peanuts m.t. 77150 83816 79918 56087 53948 71561 51885
Sorghum m.t. 96982 110254 66755 21652 8325 4732 4895
Adzuki Beans m.t. 15874 10673 11300 4235 4850 7831 6056
Soybeans m.t. 14890 8333 9693 328 213 187 147
Source:Basic Agricultural Statistics 2007, Council of Agriculture, Executive Yuan.

222 Taiwan Development Perspectives 2009
Taiwan is self-sufficient in rice. It has to import other
grains. Its cereal yield totaled 1.22 million tons in 2007.
Grain imports in the same year totaled 6.62 million tons.
(See Table 3 for Taiwan’s grain imports.)
Table 3
Major Items of Grain Import
Year Corn Wheat Barley Sorghum Soybean
2000 4,941,785 1,157,932 139,869 38,054 2,301,750
2001 5,198,367 1,020,852 202,688 36,317 2,442,328
2002 5,055,173 1,153,435 182,683 45,528 2,534,075
2003 5,075,040 1,224,328 32,607 69,521 2,453,551
2004 4,860,146 1,091,295 140,859 51,870 2,025,481
2005 4,980,114 1,282,265 140,711 75,555 2,446,037
2006 5,077,878 985,993 124,478 57,929 2,386,000
2007 4,380,446 1,177,225 63,797 67,857 2,386,000
Source: Basic Agricultural Statistics 2007, Council of Agriculture, Executive Yuan.
Consumption of bread has risen in Taiwan. High
crude oil prices made wheat imports more costly. The
resultant higher bread prices forced people to switch to
cheaper foods. A large number of bakeries had to close
down in 2008.
Prices of chemical fertilizers went up, too. Farmers
protested, forcing the government-owned Taiwan
Fertilizer Corporation to reduce its sales prices. Prices
of other products necessary for farming also rose considerably.
The market competitiveness of local farm
products was greatly weakened. They could hardly
compete against imported agricultural products.
The government was forced to consider the rehabilitation
of those 230,000 hectares of retired farmland
to produce corns or soybeans as a way to partially substitute
imports. The private sector wants to introduce
fuel plants for farming. But for lack of enough of farmland,
fuel plants cannot commercially farmed in Taiwan.
IV. Impact on the Livestock Industry
Per capita consumption of rice and sweet potatoes
has been going down since 1970, though consumption
of meat, vegetables, fruits and milk has increased. Annual
per capita meat consumption increased from 26.43
kilograms in 1971 to 78.95 kilograms in 2006. Such
strong demand boosted the development of the
livestock industry. Altogether 9,418,921 hogs and
376,540,000 broilers and roasters were slaughtered to
meet the demand in 2007.
Taiwan imported 4,380,446 tons of corn, 1,117,225
tons of wheat, 2,386,000 tons of soybeans, 63,797 tons
of barley and 67,587 tons of sorghum in 2007. They
were imported mainly from the United States and Brazil.
High ocean freight cost caused by high crude oil
prices increased the cost of importing the cereals for
animal feeds. The cost and freight prices of corns were
tripled from NT$4.69 per kilogram in January 2002 to
NT$11.33 in June 2008. The soybean meal C&F prices
were doubled from NT$7.46 per kilogram in January
2002 to NT$14.95 in June 2008. The cost of production
of pork and chicken increased as a result. Hog and
poultry farming lost competitiveness. (See Table 4 for
corn and soybean meal prices.)

Impact of High Oil Prices on Taiwan’s Agriculture and Fisheries 223
Table 4 Prices of Imported Corns and Soybean Meal from 2002 to June 2008
2007 2008
Item 2002 2003 2004 2005 2006
May Oct Nov Dec Feb Apr June
Corns 4.69 5.35 6.27 5.21 5.78 7.66 8.37 9.89 10.7 10.88 10.88 9.76 11.33
Soybean
Meal
7.46 9.00 10.0 9.39 8.74 9.39 9.82 12.91 13.68 15.26 16.79 13.65 14.95
Source: National Animal Husbandry Foundation.
The increasingly expensive grain imports triggered
forced food prices to rise. According to the statistics
released by the Directorate General of Budget, Accounting
and Statistics, prices rose 2.1 times for wheat,
1.6 times for soybeans, and 1.5 times for corns from
January 2007 to February 2008. Inevitably, the cost of
swine production increased. In the 1990s, when the oil
price was stable and low, the cost of hog production
was around NT$4,600-4,800 per head (100 kilograms).
It gradually increased to NT$5,600-6,000. Pork prices
rose, too. Since the beginning of 2008, the hog auction
market prices went up to NT$7,500-7,700 per head
(100 kilograms). The high pork prices boosted pork
imports. (See Table 5 for pork imports.)
Table 5 Taiwan’s Pork Imports 2001~2008
Year
Item
Average pig auction market
prices(NT$)
2001 2002 2003 2004 2005 2006 2007
2008
Jun
3,982 4,341 5,312 5,911 5,323 4,917 5,146 6,536
Quantities of imported pork
16,46
37,72
64,14
78,13
54,21
46,00
37,87
21,56
(tons)
1
8
6
5
5
8
6
7
Source: National Animal Husbandry Foundation.
The effort to diversify sources of cereal imports
was thwarted. The swine industry contracted to import
200,000 tons of corn from India, but the Indian government
banned corn exports to Taiwan in March 2008.
Corn imports were contracted but postponed. The livestock
industry and the authorities concerned want to
secure the supply of cereals for animal feeds from China
to cut the cost of delivery. Imports from China could
reduce corn prices in Taiwan by 5 to 10 percent.
V. Impact on Fishery Production.
High oil prices hit fisheries hard around the world.
In France, fishermen lolled in the port of Dunkirk. Japanese
fishermen staged fleet protests in Tokyo Bay.
Fishermen in Taiwan did not take to the streets but they
seethed with discontent at the government that paid
little heed to their woes.
Ocean fishing – far sea, offshore and coastal fishing
– is the mainstay of Taiwan’s fisheries. Low-price
diesel oil is the fuel for ocean fishing vessels, which
numbered 13,026 in 2007, more than half of all the
registered 25,344 fishing craft. The rising diesel oil
prices, coupled with the rise in other expenses, drove
up the cost of ocean fishing twice as high as in the pre-

224 Taiwan Development Perspectives 2009
vious year, albeit the prices of tuna in the international
market fell by 50 percent. Many tuna boats remained
idle. Long-liner vessels came back from their overseas
bases to dock at their home port of Kaohsiung in southern
Taiwan. A 100-ton long-liner in operation burns one
ton of diesel a day. A 300-ton otter trawler uses up to
2.4 tons of diesel daily. A 500-ton super-chilling
long-liner consumes 3.5 tons. A 1,000-aton purse seine
ship needs eight tons, while its 1,500-ton counterpart
requires 10 tons of diesel oil for daily operation. Diesel
oil prices for fishing vessels, on average, were US$590
per ton in 2005, US$710 in 2006, and US$810-830 in
2007. The prices hit US$1,250-1,300 in July, 2008. The
government decided to increase its diesel oil subsidy to
fishermen by 14 percent in August 2008. Despite the
increase in subsidization, ocean fishing can find it hard
to survive. According to the Kaohsiung Fishermen’s
Association, only squid jigging, purse seine fishing for
tuna and saury fishing are likely to survive. (See Table
6 for diesel consumption by fishing vessels and Table 7
for diesel prices for fishing vessels.)
Table 6
Diesel Consumption by Fishing Vessels
Vessel Tonnage Daily Consumption (tons) Types of Vessels
100 1 Long-liner
300 2.4 Super-chilling long-liner
500 3.5 Otter trawling
1000 8 Purse seine
1500 10 Purse seine
Source: Kaohsiung Fishermen’s Association
Table 7 Mean Diesel Oil Prices for Fishing Vessels 2005~2008
Year
Mean Prices (US$/ton)
2005 590
2006 710
2007 810-830
2008 July 2. 1350-1400
2008 July 31. 1250-1300
Source: Kaohsiung Fishermen’s Association
VI. Conclusion
When crude oil prices were between US$20 and
US$30 a barrel from 1980 to 2003, Taiwan’s agriculture,
animal husbandry and fisheries made steady development.
They were hit hard by the jump in prices to
US$50 a barrel in April 2005. When the prices soared
to US$70 in December 2007 and then to US$100 in
February 2008, every industry in Taiwan suffered.
Food prices went up and consumers seethed with discontent.
Ocean fishing and the livestock industry found
it hard to survive if the three-digit oil prices remained
long. Agriculture fared slightly better than animal husbandry
and fisheries.
Fortunately, the oil prices started to fall after they

Impact of High Oil Prices on Taiwan’s Agriculture and Fisheries 225
peaked at US$147 a barrel. The prices at the end of
2008 were around US$60, which, however, is considered
high enough to hurt the farmers, fishermen, livestock
raisers, and consumers in general.
Taiwan has to reform its agricultural, livestock and
fishery production to cope with the problems arising
from the rise in crude oil prices.

226 Taiwan Development Perspectives 2009

Reconstruction of Dangerous Bridges: An Urgent Need 227
Reconstruction of Dangerous Bridges: An Urgent Need
CHEN, George S.Y.
Abstract
Typhoon Sinlaku hit Taiwan on September 14, 2008, leaving in its wake half a dozen
people killed. Most of those killed were drowned after their cars had plunged into the swollen
river when the Houfeng Bridge collapsed. Many other bridges were damaged in flash floods
triggered by the tropical rainstorm.
The bridges collapsed were seriously damaged because their foundations were washed
bare in the floods. Moreover, the foundations of these bridges had long been eroded. Efforts
have to be redoubled to reinforce the eroded bridge foundations.
Ruined bridges have to be rebuilt. Repairs are urgently needed to make all bridges safe
for traffic. A larger budget is needed to build and repair the unsafe bridges. In addition,
more research is necessary to improve construction of bridges, while better management
must be provided for all the bridges open to traffic.

228 Taiwan Development Perspectives 2009
1. Introduction
Typhoon Sinlaku hit Taiwan on September 14,
2008, leaving in its wake half a dozen people dead and
a dozen bridges broken down. The people were killed
as their cars plunged into the river when one of the
bridges collapsed. As rivers began to overflow their
banks during the typhoon, many bridges were closed to
traffic. The closing for traffic safety, though brief, affected
highway transportation. The Ministry of Transportation
and Communications was blamed for failure
to continue proper maintenance of bridges. As a matter
of fact, there are many bridges that may collapse in
floods triggered by tropical rainstorms. More government
efforts are needed to ensure bridge safety across
the country.
2. Causes of Collapses of Bridges
On-site inspections found most bridge foundations
were washed bare in floods touched off by the typhoon.
The weakened foundations caused the bridges to collapse.
Most of the bridges were built after Taiwan
started its economic takeoff in the 1965. They were
designed to withstand earthquakes, which hit Taiwan
more often than typhoons. The bridge foundations were
not designed to withstand flash floods, which are often
more devastating than earthquakes.
The Houli-Fengyuan Bridge was one of those
bridges. Its foundations had eroded seriously before
Sinlaku lashed central Taiwan. The bridge collapsed,
sending cars crossing it into the river, in which all the
people aboard them were drowned. It was built on the
river plate where such hydraulic structures as a dam,
weirs, and groundsill works had been constructed.
These hydraulic structures had to be taken into consideration
when the bridge was designed. The river flows
rapidly from a mountain more than 3,000 meters above
sea level to the sea less than 50 kilometers away, negotiating
an extremely steep gradient. Soil erosion in the
upstream of the river was just as serious. When torrential
rains brought by the typhoon triggered floods, the
bridge with its foundations eroded simply succumbed.
All bridge superstructures were found safe. They
were ruled out as the cause of collapses of bridges.
Collapses will occur during typhoons only if bridge
foundations are weak or weakened. Their foundations
have to be strong enough to withstand earthquakes as
well as flash floods caused by tropical rainstorms.
3. Reconstruction
There are more than 26,000 bridges on Taiwan.
Many of them are considered “dangerous,” for they
may collapse in floods. These dangerous bridges have
to be rebuilt and their reconstruction requires an outlay
which cannot be made up by the fuel tax collection
alone. Moreover, the revenue from taxation on fuel is
used to maintain not just bridges but roads and tunnels
as well. No tolls are collected for crossing most of the
bridges in Taiwan. The government has to prepare
enough budget appropriations for rebuilding the dangerous
bridges.
The majority of Taiwan’s bridges are simple support
bridges and shorter span RC plate bridges with box
caisson and/or pile foundations. Some of them were
built in the 1950s when the standard of design was low
and construction was technically poor. Moreover, dams
and weirs built upstream have changed the equilibrium
in sediment transport of rivers. The further erosion of
river plates resulting from gravel-mining downstream
has continued to weaken bridge foundations. Those
bridges with their foundations seriously weakened have
to be rebuilt.
Reconstruction is needed:
a. If bridges were destroyed or and washed away;
b. If bridge foundations were washed bare or sank to
cause the bridge floor to collapse and if there is no
way to reinforce the weakened foundations with
groundsill work to meet aseismatic prevention requirements;
c. If bridges suffered damage in the past and their
foundations were bared, while the reinforcement with

Reconstruction of Dangerous Bridges: An Urgent Need 229
groundsill work could not meet aseismatic prevention
requirement;
d. If bridges are found to suffer significant damage on
parts of their major structure and their condition continues
to deteriorate, while no reinforcement work is
considered effective to prevent the deterioration;
e. If bridges do not meet the requirements set forth in
the River Management Project;
f. If bridges are too old to meet the requirements stipulated
in the Regulations Governing the Reviews of
River-Crossing Structures, promulgated by the Ministry
of Economic Affairs on June 12, 2006; and
g. If local governments recommend the widening of the
existing bridges to link up with widened roads and
highways.
4. Government Projects
The government is spending NT$25 billion
(US$756 million) to rebuild dangerous bridges across
the country.
a. County old bridge improvement project:
Eighteen bridges were to be built or improved
upon between 1996 and 1998 under a special economic
development program, which is scheduled for completion
by 2015. Eight of them were built. Six others are
under construction. Another three will be completed by
the end of 2009. Construction of superstructures is under
way for still another, the Gueishan Bridge.
b. Improvement of dangerous bridges:
The Executive Yuan approved construction and
improvement of 188 bridges in March 2007. Altogether
NT$1,528,490,000 has been budgeted for the project.
Appropriations for 2008 totaled NT$581,540,000.
Another NT$946,950,000 will be appropriated for 2009.
Of the total outlay NT$1,320,640,000 comes from the
Central Government. The local governments raise the
remaining NT$278.5 million as a matching fund. Construction
of 140 bridges was scheduled to be contracted
in 2008. Contracts were signed for construction of 38
bridges. Only one bridge was built, though one more
had to be completed by the end of 2008.
c. Refurbishment of 40 provincial highway
bridges:
Forty provincial highway bridges are being refurbished.
The total outlay is NT$12,964 million. Construction
costs NT$12,802 million. The remaining
NT$162 million is appropriated for land purchase. The
Council for Economic Planning and Development
raised NT$11,793 million. The remaining NT$1,171
million came from the Directorate General of Highways
under the Ministry of Transportation and Communications.
d. Other projects:
Refurbishment of another 28 old bridges costs
NT$10,340 million. The refurbishment, however, has
yet to be approved by the Council for Economic Planning
and Development. No approval is given because
these bridges do not meet requirements of requirements
set forth in the River Management Project and the Regulations
Governing the Reviews of River-Crossing
Structures.
5. Conclusion
Taiwan is mountainous with plenty of precipitation.
Typhoons hit the island in summer and autumn.
Rivers are short and with a steep gradient. Flash floods
triggered by tropical rainstorms do bridges serious
damage. Many bridges have collapsed. There are many
old bridges that may collapse in floods.
Reconstruction of dangerous bridges is an urgent
need. To meet that need, the government should see to
it that strict quality control is exercised over construction
or reconstruction of bridges, which have to be
completed on schedule. Designing should be technically
improved to make bridges better withstand earthquakes
and floods. On the other hand, construction

230 Taiwan Development Perspectives 2009
projects not yet approved by the Council for Economic
Planning and Development (CEPD) have to be reevaluated
by the governments of counties or cities where
bridges are to be built or rebuilt. Then the projects reevaluated
must be submitted to the CEPD for a final
review and approval.
Once bridges are in use, their management must
be strictly enforced. Current regulations governing
bridge management have to be reviewed and revision
should be made, if necessary, to ensure accidents can be
prevented. In particular, sophisticated monitoring systems
have to be installed to detect faults, while more
personnel must be deployed to help guard traffic safety
on bridges that may collapse in floods.
Responsibility for maintenance has to be clearly
assigned. Currently, as roads, highways and freeways
are placed under the jurisdiction of different government
authorities so is the responsibility assigned differently.
Moreover, local governments are financially
unable to provide proper maintenance for bridges in
their jurisdictions localities. Responsibility should be
fairly shared.
On the other hand, the government should make
more budget allocations for maintenance of bridges.
If possible, a special bridge maintenance act can be
adopted to secure a sufficient fund to keep all bridges
safe.
Furthermore, the government has to come up with
a timetable for rebuilding dangerous bridges at an earliest
possible date and make a policy decision as well so
that research and development in bridge construction
and maintenance may be financed and better bridges
built.

A Synthesis of Energy Tax, Carbon Tax and Emission Trading in Taiwan 231
A Synthesis of Energy Tax, Carbon Tax and
Emission Trading in Taiwan
LIANG, Chi-yuan
Abstract
This paper compares the effects of energy tax and carbon tax on the economy with the
reduction of carbon dioxide emissions in Taiwan. It also compares the merits and demerits
of carbon tax and the emission trading system and synthesizes energy tax, carbon tax and
emission trading in Taiwan. The simulation model employed in the paper is the Dynamic
General Equilibrium Model of Taiwan (DGEMT).
One major finding is that the negative impact of carbon tax is only one third of the
similar impact of energy tax in reaching the same amount of carbon dioxide emissions to be
reduced. The government should levy carbon tax instead of the energy tax that is planning
to collect. Another finding is that carbon tax is fairer, more acceptable, more timely, and
easier to enforce and more cost-effective than emission trading. However, to enhance the
effectiveness in emission reduction and demand the big emitters such as power companies
and energy-intensive industries to share more reduction obligations, the government had
better impose carbon tax and emission trading at the same time.

232 Taiwan Development Perspectives 2009
1. Introduction
A new government policy has been adopted to
meet the requirements of the Kyoto Protocol. The first
goal is to keep the level of carbon dioxide emissions in
2025 at that of 2000; i.e., 2.1 billion tons. The second
goal is to raise energy efficiency 1 by 50 percent by
2025.
An energy tax bill was drafted by the Ministry of
Finance in 2006. Premier Liu Chao-shiuan’s new administration
is planning to levy an alternative energy
tax based on carbon dioxide emissions per caloric unit
or carbon tax. It is pertinent to compare the effects of
energy tax and carbon tax on the economy and the reduction
of carbon dioxide emissions.
The new government also intends to introduce an
emission trading system through legislation of a greenhouse
gas reduction act. The government should also
have to decide whether to enforce carbon tax or emission
trading or both at the same time.
This paper compares the effects of energy tax and
carbon tax on the economy and the reduction of carbon
dioxide emissions in Taiwan. It also compares the merits
and demerits of carbon tax with emission trading
and synthesizes energy tax, carbon tax and emission
trading. The simulation model employed in the paper is
the dynamic general equilibrium model of Taiwan
(DGEMT).
2. Theoretical Model
The dynamic generalized equilibrium model of
Taiwan (DGEMT) consists of the following four
sub-models: 1) the producer’s model; 2) the consumer’s
model; 3) the DGBAS’s macroeconomic model; and 4)
the MARKAL energy engineering model of the Industrial
Technology Research Institute (ITRI).
1 Energy efficiency is defined as energy consumption
divided by GDP.
2.1 Producer’s Model
The producer’s model decomposes the Taiwan
economy into twenty-nine sectors; namely, eight main
sectors (including agriculture, mining, manufacturing,
construction, public utilities, transportation, services
and industry (mining, manufacturing, construction and
public utilities)), seventeen manufacturing sectors (including
food, beverages and tobacco, textiles, clothes
and wearing apparel, leather and leather products, wood
and bamboo products, furniture products, paper and
printing, chemicals and plastics, rubber products,
non-metallic minerals, basic metals, metal products,
machinery and equipment, electrical machinery and
electronics, transportation equipment and miscellaneous),
and four energy sectors (including coal mining,
oil refining, natural gas and electricity).
We assume that the sectoral cost function is of the
translog form with homothetic weak separability of
energy and material inputs. The model actually consists
of four sub-models (for each sector): an aggregate
sub-model, an energy sub-model, a non-energy intermediate
input sub-model, and an oil product sub-model.
The aggregate sub-model includes one output price
equation and five equations relating to the cost shares
of capital, labor, energy, non-energy intermediate inputs
and the rate of technological change. The energy
sub-model has one price (energy price) equation and
four share equations explaining the cost shares of coal,
oil products, natural gas, and electricity, respectively.
The non-energy intermediate sub-model is composed of
one price (material price) equation and five equations
for the cost shares of agricultural intermediate inputs,
industrial intermediate inputs, transportation's intermediate
inputs, service intermediate inputs, and imported
intermediate inputs, respectively. Similarly, the oil
product sub-model has one price (oil price) equation
and four share equations explaining the cost shares of
gasoline, diesel, fuel oil and other oil products. Figure 1
presents the tier structure of the sub-models in the producer's
model. With the sole exception of the oil
sub-model, the explanatory variables consist of input

A Synthesis of Energy Tax, Carbon Tax and Emission Trading in Taiwan 233
prices and time as an index for the level of technology.
As for the oil sub-model, the explanatory variable consists
of input prices only.
With the aggregate input sub-model as an example,
the output price (P) equation is:
1
ln P = ln α
0
+ α
T
T + ∑ α
i
ln Pi
+ ∑∑ β
ij
ln Pi
ln Pj
2
(1)
i i j
1 2
+ ∑ β
iT
ln PiT
+ β
TT
T ,
i
2
where i, j = K, L, E, M, denotes capital, labor,
energy and intermediate inputs, respectively. T denotes
time as an index for the level of technology.
The input cost share equations are: 2
S = α + ∑ β ln P + β T ,
i
i
i
ij
i
iT
i, j = K, L, E, M,
(2)
and the rate of technical change (-R T ) is:
∂ ln P
− RT
= = α
T
+ ∑ β
i
ln Pi
+ β
TT
T.
(3)
∂T
i
The basic approach of the model, which is a modification
of the Hudson-Jorgenson (1974) model, is an
integration of econometric modeling and input-output
analysis. However, to reflect the dramatic changes in
both the industrial structure and energy consumption
patterns of the Taiwan economy, a time trend is included
in the energy and material sub-models. This
innovation makes this Jorgenson-Liang (1985) model
significantly different from most of the studies by Jorgenson
and his associates, which are based on highly-developed
economies, such as the United States,
Japan and West Germany. This kind of model will be
also useful for case studies involving the other newly
industrializing countries (NICs).
Liang (1987), Jorgenson and Liang (1985) and
Liang (1999) contain detailed descriptions of this theoretical
model, together with the estimation method, data
2 Based on Shephard’s lemma, the input cost share
equation (S i ) can be derived by differentiating Equation
(1) with the logarithmic form of the price of input
(P i ).
compilation and the results of coefficients estimated. It
is noted that Liang’s (1999) is a revised model of Jorgenson-Liang
(1985) in that it updates the time-series
data of the producer’s model from 1961-1981 to
1961-1993, and also combines the consumer’s model
(Liang 1983), the macroeconomic model of the Directorate-General
of Budget, Accounting and Statistics,
Executive Yuan (Ho-Lin-Wang 2001), and the MAR-
KAL Engineering Model of the Industrial Technology
Research Institute (Young 1996).
2.2 Consumer’s Model
We follow Jorgenson-Slesnick (1983) to assume
that the k th household allocates its expenditures in accordance
with the translog indirect utility function.
Under exact aggregation conditions, the vector of aggregate
expenditure shares can be expressed in the following
form:
1 ln
M k M k
M k Ak
S = ( α
p
+ β
PP
ln P − β
PPι
∑
+ β
∑
PA
) (4)
M
M
D(
P)
Under exact aggregation, systems of individual
expenditure shares for consuming units with identical
demographic characteristics can be recovered in one
and only one way from the system of aggregate expenditure
shares. 3
Equation (4) implies that the vector of the expenditure
shares of the household sector (private consumption)
are determined by commodity prices (P), the ex-
∑
M ln k
M
penditure structure ( M
k
) and the joint distribution
of household expenditure, and the attributes
∑
M
( M
k
A
k
M
), where
k
and
k
denote the k th
household’s expenditure and attributes, respectively.
is a vector of ones. We divide private consumption into
five categories:
(1) Food: Expenditures on food, beverages and tobacco.
3 See Jorgenson-Slesnick (1983).
A
ι

234 Taiwan Development Perspectives 2009
(2) Clothing: Expenditures on clothing, apparel. each sector. The GDP, wage, interest rate and private
(3) Housing: Expenditures on rent and non-energy utilities,
furniture, furnishing and household equipment,
household operations and services.
consumption are functions of the CPI or the WPI in this
macroeconomic model. Thus, there are feedback relationships
between the DGBAS macroeconomic model
and the producer’s model if sectoral output prices
(4) Energy: Expenditures on fuel and electricity including
fuel for vehicles.
change due to the implementation of an energy tax.
The total supply is composed of the intermediate
(5) Recreation: Transportation and Miscellaneous: Expenditures
on recreation, amusement and education,
demands of industries and the final demands of private
consumption (C), investment (I), government expenditures
(G), and net exports (X) minus imports (M).
medical and health care, transportation and miscellaneous
consumption expenditures.
Markets are cleared by the prices of domestically produced
Hence the vector of expenditure share (S) in fact
commodities for each sector (P i ). 6
consists of the five types of expenditure shared referred
Pi
Qi
= ∑ Pi
Aij
+ Pi
( Ci
+ I
i
+ Gi
) + Pi
X − Pi
M ,
i
to above. The following demographic characteristics
j
are employed as attributes of households:
i, j=1, …, 29 (5)
1.Family size: 1, 2, 3, 4, 5, 6, 7, 8 or more.
2.4 ITRI MARKAL Engineering Energy
2.Occupation: Non-farmer and farmer.
Model 7
3.Number of persons employed: 1, 2, 3 or more.
By employing the linear programming method, the
ITRI MARKAL engineering model combines the information
relating to the growth of industries, energy
For a detailed description of the model, please refer
to Liang (1983). 4 The consumer’s model is linked
supply and energy technologies to achieve the best energy
mix. This model is developed by the Institute for
to the producer’s model through output prices by sector;
while it is linked to the DGBAS’s macroeconomic
Energy and Resources of the Industrial Technology
model via total private consumption.
Research Institute (ITRI).
2.3 DGBAS Macroeconomic Model 5
The macroeconomic model of the Directorate-General
of Budget, Accounting and Statistics
(DGBAS) is a Keynesian model which consists of 159
equations. We retrieve the following projection data
from the macroeconomic model as initial values in the
baseline projection: 1) GDP growth rate, 2) wage, 3)
interest rate, 4) private consumption, 5) CPI, 6) WPI, 7)
investment, 8) government expenditure, and 9) exports.
Both the CPI and WPI are affected by output prices in
Because information regarding future energy
technology development is given careful consideration
in the model, we use the aggregate of the energy demand
by types projected by the ITRI MARKAL engineering
model to control for the total energy demand
projected by the producer’s and consumer’s models.
3. Simulation Methodology and Procedure
The simulation framework of the model is presented
in Figure 2.
4 It is noted that although the Liang (1987) model is
more up-to-date, in that model the monotonicity constraint
is not imposed, so that it might lead to the indirect
utility function not being well-behaved. Therefore,
we use the Liang (1983) model here instead.
5 Please refer to Ho-Lin-Wang (2001).
6 Please refer to Ho (2000).
7 Please refer to Yang (1996).

A Synthesis of Energy Tax, Carbon Tax and Emission Trading in Taiwan 235
Aggregate Sub-model
(Price, Share Equation)
Capital Labor Energy
Intermediate
Inputs
Technical
Change
Energy Sub-model
(Price, Shares)
Intermediate Sub-model
(Price, Share)
Coal Oil
Natural
Gas
Electricity
Agricultural
Intermediate
Input
Industrial
Intermediate
Input
Transport
Intermediate
Input
Services
Intermediate
Input
Coal Diesel
Oil Sub-model
(Price, Shares)
Fuel
Oil
Others
Figure 1 Tier Structure of the Producer’s Sub-model in the DGEMT Model
Figure 1 Tier Structure of the Producer’s Sub-model in the DGEMT Model
Imported
Intermediate
Input

236 Taiwan Development Perspectives 2009
Figure Figure 2 Simulation 2 Framework of of the DGEMT Model
(Producer’s (Producer’s Model) Model) 29 29 Industries Industries

A Synthesis of Energy Tax, Carbon Tax and Emission Trading in Taiwan 237
Base Case Projection
To assess the effect of an energy tax, we must first
determine the future path of the Taiwan economy in the
absence of the energy tax. We call such a scenario a
base case. The base case projection is conducted by
means of the following steps:
(1) We insert the values of the capital services price
(
PK
), the wage (
PL
) and the price of imported intermediate
inputs (
P m
) projected by the DGBAS
macroeconomic model into the producer’s model.
In this way, we obtain the prices and factor cost
shares for 29 sectors over 1999-2020.
(2) By employing the 1996 input-output table, we then
convert the 29 sectoral output prices into the prices
of five consumer goods during 1999-2020. By inserting
the prices of five consumer goods together
with the private consumption as projected by the
macroeconomic model into the consumer’s model,
we obtain the shares of five consumer goods in total
private consumption.
(3) The demand for types of energy by the sector – if oil
is taken as an example – is derived by multiplying
the oil coefficient (O/Q) by the total output (Q) for
each sector. The oil coefficient (O/Q) can be calculated
by means of the following equation:
O
Q
P E P O P
S S
P E⋅
O⋅
= ⋅ ⋅ = E⋅ O⋅ (6)
PQ ⋅ PE⋅
E PO
PO
where S E : Energy share of total cost,
S O
: Oil share of energy cost,
P : Output price,
P O
: Price of oil products,
and S E
, S O
, P, and P O
are endogenously determined
The projected growth rate of sectoral output during
1999-2020 is derived by: (i) the GDP growth rate
obtained from the macroeconomic model, (ii) the industrial
structure projection provided by this study, and
(iii) the use of the sectoral value-added shares in total
output which are endogenously determined from this
model’s simulation.
(4) The demand for energy in the household sector
( E H
) is derived by
PC
EH
= S
E
⋅
(7)
P
E
Here,
SE
,
PE
and PC denote, respectively,
the energy expenditure share of private consumption,
the energy price and private consumption.
Both
SE
and
PE
are determined endogenously
from the consumer’s model, while
PC
(private
consumption) comes from the projection of the
DGBAS macroeconomic model.
(5) The demand for the various types of energy are then
converted into CO 2 emissions by employing the
conversion factor projected by the MARKAL engineering
model, such as: coal (3.53 tons
CO 2 /KLOE) 8 , oil products (2.89 tons CO 2 /KLOE),
and natural gas (2.09 tons CO 2 /KLOE). This completes
the whole process of baseline projection.
Simulation Involving Energy Taxes
(6) Next, we evaluate the impact of an energy tax. We
convert the prices of different energy types endogenous
as well as exogenous. The prices of energy
are modified by incorporating energy tax
schedules into the producer’s model and consumer’s
model to calculate their corresponding output prices,
cost shares, demand for types of energy and CO 2
emissions by sectors, as well as the consumption
in the model. 8 KLOE stands for kiloliter oil equivalent.

238 Taiwan Development Perspectives 2009
structure and quantity of consumer goods.
(7) However, the above scenarios do not consider the
‘feedback’ effect in the changes in the capital service
price (P K ), wage (P L ) and output caused by implementing
the tax. In fact, the implementation of
energy taxes will affect P K and P L and total output
by the sector as well. In the DGBAS macroeconomic
model, P K and P L are affected by the energy
tax through the increase in the general price level.
Hence we insert the GDP deflator into the P K and P L
function to obtain a new P K and P L , and in turn new
values of the output price, cost structure and CO 2
emissions by the sector.
(8) The impact of energy tax on total output by sectors
is evaluated by means of the following procedure:
(i) First of all, we calculate the impact of energy tax on
the sectoral output price and the general price level
(GDP deflator), and, in turn, the new values of final
demand such as private consumption, investment,
government expenditure, net exports and GDP.
(ii) Next, we multiply the private consumption by the
private consumption shares of the five consumer
goods, which are then deflated by their respective
prices to obtain the new values of the five consumer
goods.
(iii) We then employ the 1996 Input-Output table to
convert the changes in the five consumer goods to
the changes in sectoral final demand (FD). 9
total output of the four energy sectors and the whole
economy. The energy conservation effect is obtained
by comparing the demand for the four types
of energy in the base case with that in the ‘energy
tax’ cases where energy taxes are implemented.
(9) Finally, the impact of different energy taxes on the
sectoral output price, the demand for various types
of energy and CO 2 emissions are compared.
It is noted that the imposition of energy-related
taxes will reduce total output and further reduce the
demand for energy and CO 2 emission. Therefore, the
total impact of energy taxes on CO 2 emissions reduction
should also accommodate the effect on output
growth. In a nutshell, we consider not only the ‘substitution
effect’ but also the ‘income effect,’ both in the
consumer’s and producer’s models, in relation to the
demand for energy and CO 2 emissions.
4. Simulation Results
4.1 Effect of Energy Tax without Tax Reduction
Energy Demand and CO 2 Emissions
By imposing energy tax, CO 2 emissions decrease
-9.27 percent for the economy as a whole by 2018. The
energy demand in relation to oil products has the largest
decrease, which is -14.64 percent, followed by coal
-6.53 percent, electricity -6.85 percent and natural gas
-2.17 percent. (See Table 1 and Figure 3.)
(iv) We obtain the sectoral total output (Q) by using the
following standard input-output equation
Q = FD ⋅(1
− D)
−1
Here, D denotes the matrix of domestic product input-output
coefficients.
(v) We calculate the energy conservation effect on the
9 Here we assume that the rest of the final demand by
sector changes in the same way as private consumption.

A Synthesis of Energy Tax, Carbon Tax and Emission Trading in Taiwan 239
Table 1 Effect of Energy Tax on Energy Demand and CO 2 Emission by Sectors in 2018
Unit:%
Sector (1)Coal (2)Oil
(3)Nature
Gas
(4)Electricity CO 2
Agriculture - -2.0423 - -
Mining -0.2542 -0.1768 -1.4779 -16.1551
Coal, Oil and Gas Extraction 0 -2.701 - -
Others - -3.3202 -0.5006 -9.1129
Manufacturing 2.3496 -11.8967 -5.7512 -7.0764
Food and Beverage -0.4324 -2.4801 -1.9975 -5.3558
Tobacco -0.5037 -2.507 -2.0895 -5.3255
Textiles -0.0073 -3.4699 -1.4155 -6.439
Clothes and Wearing Apparel -0.4382 -3.4297 - -
Leather and Leather Products -0.8485 -10.8725 -45.4798 -6.8522
Lumber and Wood - -3.3805 -1.8164 -7.6583
Furniture and Fixtures - - - -
Paper and Printing 0.0566 -2.7193 -1.3301 -6.744
Chemical and Plastic 15.9797 -3.0755 - -7.693
Rubber Products -0.3761 -2.9069 - -
Petroleum and Coal Products 30.7476 -30.6631 15.5896 25.1566
Non-Metallic Mineral -0.0138 -2.7986 -6.5246 -5.6675
Basic Metal -0.4782 -13.0987 -7.8214 -17.2281
Metal Products -0.3604 -3.1392 -1.7427 -7.1114
Machinery and Equipment -0.6088 -3.5622 -9.1726 -7.6506
Elect. Mach. and Electronics -0.7675 -3.2042 -2.2414 -6.6482
Transport Equipment -0.992 -3.6535 -2.4091 -7.2969
Miscellaneous - - - -
Water. Elect. and Gas -7.0947 6.2312 3.4404 -11.0091
Electricity Supply -6.9177 10.8249 7.7241 -1.2905
Construction -0.2411 -2.7811 - -
Transportation and Communication 0.7927 -27.6191 - -
Services -0.2208 -2.0827 -1.8584 -4.5371
Total Industry -6.528 -14.639 -2.1719 -6.8468
The change rate of CO 2 of Total Industry - - -9.27

240 Taiwan Development Perspectives 2009
40
Figure 3. The Effect of Energy Tax on the Energy Demand by sector in 2018
Coal
Nature Gas
Oil
Electricity
30
20
10
Unite:%
0
-10
-20
Agriculture
Mining
Coal, Oil and Gas Extraction
-30
Quarring
Manufacturing
Food and Beverage
Tobacco
Textiles
Clothes and Wearing Apparel
Leather and Leather Products
Lumber and Wood
Furniture and Fixtures
Paper and Printing
Chemical and Plastic
Rubber Products
Petroleum and Coal Products
Non-Metallic Mineral
Basic Metal
Metal Products
Machinery and Equipment
Elect. Mach. and Electronics
Transport Equipment
Miscellaneous
Water. Elect. and Gas
Electricity Supply
Construction
Transportation and Communication
Services
Total Sectorial Rate of Change
-40
-50
Sectors
Output Prices
Output Growth
Imposing an energy tax will of course have the
greatest impact on the prices within the four energy
sectors (see Table 2). The water, electricity and gas and
transportation sectors will have the highest price increases
among the seven one-digit sectors. Among
manufacturing industries, basic metal and paper and
printing sectors will suffer the greatest impact in terms
of price increases. For the economy as a whole, the
producer price index will increase by 1.185 by 2018.
(See Table 2 and Figure 4).
The four energy sectors will also suffer the great
decline in output growth when the energy tax is imposed.
This is due to the “substitution effect” and “income
effect” both in terms of the final demand and the
producer’s sector. The basic metal and non-metallic
mineral sectors are the most affected parts of the manufacturing
sector. The transportation and manufacturing
sectors will exhibit the greatest decrease in output
growth among the seven one-digit sectors. For the
economy as a whole, GDP will decline by 1.12 percent
if energy tax is imposed. (See Table 2 and Figure 5).

A Synthesis of Energy Tax, Carbon Tax and Emission Trading in Taiwan 241
Table 2 Effect of Energy Tax on Price and Output Growth by Sectors (without Tax Reduction)
Unit: %
Price Change
Output Growth
Sector 2018 Sector 2018
Agriculture 0.3073 Agriculture -0.2528
Mining 1.2354 Mining -0.4856
Coal Mining - Coal Mining -
Oil and Gas Extraction 5.9414 Oil and Gas Extraction -0.7302
Manufacturing 2.9001 Manufacturing -3.0799
Food 0.3621 Food -0.1605
Beverage and Tobacco 0.2694 Beverage and Tobacco -0.182
Textiles 1.0279 Textiles -0.3962
Clothes and Wearing Apparel 0.6604 Clothes and Wearing Apparel -0.257
Leather and Leather Products 0.3820 Leather and Leather Products -0.3246
Lumber and Wood 0.5594 Lumber and Wood -0.3852
Furniture and Fixtures - Furniture and Fixtures -
Paper and Printing 1.1247 Paper and Printing -0.3774
Chemical and Plastic 1.0377 Chemical and Plastic -0.363
Rubber Products 0.6269 Rubber Products -0.2938
Petroleum and Coal Products 25.4612 Petroleum and Coal Products -25.2503
Non-Metallic Mineral 1.0706 Non-Metallic Mineral -0.4249
Basic Metal 1.1571 Basic Metal -1.3943
Metal Products 0.7179 Metal Products -0.1782
Machinery and Equipment 0.6191 Machinery and Equipment -0.1693
Elect. Mach. and Electronics 0.3544 Elect. Mach. and Electronics -0.1779
Transport Equipment 0.4146 Transport Equipment -0.0404
Miscellaneous 0.6219 Miscellaneous -0.111
Water. Elect. and Gas 5.6860 Water. Elect. and Gas -1.6655
Electricity Supply 8.2523 Electricity Supply -6.8436
Construction 0.5415 Construction -0.1456
Transport and Communication 4.5117 Transport and Communication -5.7927
Services 0.2181 Services -0.0551
Whole Economy 1.0755 Whole Economy -0.3449
Producer Price Index 1.1851 Producer Price Index -1.1232

242 Taiwan Development Perspectives 2009
30
Figure 4. The Effect of Energy Tax on Price Changes
25
Unit: %
20
15
10
5
0
Paper and Printing
Chemical and Plastic
Non-Metallic Mineral
Rubber Products
Petroleum and Coal Products
Basic Metal
Metal Products
Machinery and Equipment
Transport Equipment
Sectors
Elect. Mach. and Electronics
Miscellaneous
Water. Ekect. and Gas
Electricity Supply
Construction
Transport and Communication
Services
Industry
Figure 5. The Effect of Energy Tax on Output Growth
0
Unit: %
-5
-10
-15
-20
Paper and
Printing
Rubber
Products
Non-Metallic
Mineral
Metal
Products
Elect. Mach.
and Electronics
Miscellaneous
Electricity
Supply
Transport and
Communication
Industry
-25
-30
Sectors

A Synthesis of Energy Tax, Carbon Tax and Emission Trading in Taiwan 243
4.2 Effect of Energy Tax Package with Reduction
on Tax and Social Security Payment
(SSP) on the Economy
According to the energy tax bill of 2006, the revenue
from energy tax collection will be used to lower
personal income tax by increasing the level of minimum
tax deduction; to eliminate the road maintenance
levy and all of the excise taxes except automobile and
cement; and to raise an energy research and development
fund. The effect of an energy tax package with a
reduction on tax and social security payment is shown
in Table 3.
The following conclusions are drawn:
moderate its negative impact on the economy. Price
increases will be reduced from 1.85 percent to
0.858 percent by 2018. The decrease in economic
growth goes down from -1.123 percent to -0.859
percent by 2018, while the reduction of CO 2 is still
significant, about -9.05 percent.
(2) To implement energy tax with a reduction on tax
and SSP payment can further reduce its negative
impact on the economy. The price level for the
whole economy will increase moderately by 0.59
percent, and the economic growth rate will also
come down moderately by 0.591 percent by 2018.
Meanwhile, it significantly reduces carbon dioxide
emission by 9.038 percent by 2018.
(1) To implement energy tax with a tax reduction can
Table 3
Effect of Energy Tax Package
Unit:%
(1)
Effect without Tax
Reduction
(2)
Effect with Tax
Reduction
(3)
Effect with Tax Reduction and
SSP Reducation
Price Change 1.185 0.858 0.590
Economic Growth -1.123 -0.859 -0.591
CO 2 Emission -9.27 -9.05 -9.038
4.3 Cost and Benefit Analysis on Energy Tax
with Reduction on Tax and Social Security
Payment
We assume that GDP (at 2006 constant price)
grows 4.47 percent per annum between 2006 and 2018;
CO 2 emission is estimated as 439.8 million tons by
2018; the abatement cost of CO 2 is NT$2,967 per ton; 10
and the abatement cost of air pollutant is SOx:
NT$45,919/ton, NOx:NT$53,790/ton and PM10:
NT$88,212/ton 11 .
Then, the total CO 2 abatement cost reduced will be
NT$117.946 billion (i.e. 439.84 million tons × 9.038
percent × 2,967/ton CO 2 ). And the air pollution abatement
cost reduced will be NT$33.764 billion. (See Table
4.)
10 The abatement cost of CO 2 NT$2,967 per ton comes
from an average of Liang (2005) and Huang-Lee-Hsu
and Lin (1999). It is estimated as NT$1,734/ton and
NT$$4,200/ton, respectively, by Liang (2005) and
H-L-H-L (1999).
11 Liang (2005 a) and Liang (2006)

244 Taiwan Development Perspectives 2009
Table 4
Air Pollution Reduction by Enforcing Energy Tax
(1)
Coal
(thousand
tons)
(2)
Oil
(thousand
tons)
(3)
Natural Gas
(thousand
tons)
(4)
Electricity
(thousand
tons)
(5)=(1)+(2)+(3)+(4)
Total
(thousand tons)
(6)
Unit
Abatement
Cost
(NT$/ton)
(7)
Total
Abatement
Cost
(million NT$)
SO X -34.1147 -350.1729 -0.0007 -97.4660 -481.75 45,919 -22,122
NO X -12.0607 -90.9540 -0.1670 -35.7151 -138.90 53,790 -7,471
PM10 -7.2563 -20.5101 -0.0027 -19.5126 -47.28 88,212 -4,171
Total -667.93 -33,764
Note: Unit abatement cost of air pollutants comes from Liang (2005) and Liang (2006).
To sum up, the benefits of imposing energy tax
due to the reduction of CO 2 and air pollution total
NT$151.71 billion in 2018. Compared with the loss of
GDP, which runs up to NT$115.56 billion (19.553.3
billion × 0.591 percent), the net benefit of imposing
energy tax amounts to NT$36.15 billion by 2018.
Consequently, we conclude that to enforcing energy
tax in package with the reduction in tax and SSP
payment is economically feasible and worthwhile for
the government to adopt.
4.4 Effect of Carbon Tax on Prices
To compare the effects of energy tax with the carbon
tax, we employ the study done by Liang (2008).
Table 5 shows the carbon tax schedule for Holland at
(US$2.24/tons CO 2 ), for Finland at (US$3.93/tons CO 2 ),
for Denmark at (US$14.88/tons CO 2 ) and for Sweden at
(US$ 22.2/tons CO 2 ). Coal has the highest tax rate,
followed by fuel oil, LPG, natural gas, diesel oil, gasoline
and electricity.
Because there is no perfect substitutability among
the different types of energy (e.g., coal and fuel oil
cannot replace gasoline and diesel for car use) and the
tax rate of each kind of energy is different, the unit caloric
prices of various types of energy are different in
Taiwan. The present unit caloric energy price structure
– the unit caloric price of coal is taken as 1 – is as
follows:
Coal: premium gasoline: premium diesel: fuel oil:
LPG: natural gas: electricity = 1: 4.25: 2.68: 0.84: 1.58:
1.63: 4.29.
With carbon tax according to Sweden’s
US$22.2/tons CO 2 rate, the energy price structure (in
NT$/LOE) will be as follows:
Coal: premium gasoline: premium diesel: fuel oil:
LPG: natural gas: electricity = 1: 3.0: 2.0: 0.83: 1.26:
1.25: 2.97.(See Table 5.)With carbon tax imposed,
each energy price in relation to coal declines significantly
except for fuel oil. This brings advantages to
natural gas, electricity and LPG that may serve as substitutes
for coal and fuel oil in the producer’s sector.
(See Table 5.)
Alternatively, we might choose a progressive approach
to achieve the same goal of CO 2 reduction,
while minimizing its impact on the economy. Using a
progressive ad valorem tax approach, we assume that
the tax rate in 2020 is the same as that when a one-step
approach is used in 1999.

A Synthesis of Energy Tax, Carbon Tax and Emission Trading in Taiwan 245
Table 5 Comparison of Carbon Tax and Energy Prices in 1998
NT/LOE
Coal Gasoline Diesel Fuel LPG
Natural
Gas
Electricity
Price in 1998
4.51 19.15 12.07 3.77 7.14 7.34 19.37
(100) (100) (100) (100) (100) (100) (100)
Dutch Carbon Tax
Amount
[U.S.$ 2.24/CO 2 (Ton)]
0.261
(5.787)
0.214
(1.117)
0.214
(1.773)
0.214
(5.676)
0.214
(2.997)
0.154
(2.098)
0.174
(0.898)
Finnish Carbon Tax
Amount
[U.S.$ 3.93/CO 2 (Ton)]
0.458
(10.155)
0.375
(1.958)
0.375
(3.107)
0.375
(9.947)
0.375
(5.252)
0.271
(3.692)
0.306
(1.580)
Danish Carbon Tax
Amount
[U.S.$ 14.88/ CO 2 (Ton)]
1.733
(38.426)
1.419
(7.410)
1.419
(11.756)
1.419
(37.639)
1.419
(19.874)
1.026
(13.978)
1.159
(5.983)
Swedish Carbon Tax
Amount
[U.S.$ 22.2/ CO 2 (Ton)]
2.586
(57.339)
2.117
(11.055)
2.117
(17.539)
2.117
(56.154)
2.117
(29.650)
1.531
(20.858)
1.729
(8.926)
Note 1:LOE stands for liter oil equivalent.
Effect on Energy Demand and CO 2 Emissions
By imposing the highest carbon tax
(US$22.2/CO 2 (Ton)) on the 22-year progressive tax
rate, CO 2 emissions will decline by 25.31 percent by
2020. (See Table 5). This is almost the same as the rate
of reduction when a one-step approach was employed
for 1999.
The energy demanded in relation to coal has the
largest decrease, which is by –33.38 percent, followed
by oil products by –25.08 percent, natural gas
by –15.52 percent, and electricity by–14.82 percent.
Effect on Prices
We found that the progressive tax approach can
effectively reduce the negative effect on the price level.
For instance, at the same carbon tax rate of
US$22.2/CO 2 (Ton), the one-step approach will increase
the GDP deflator by 2.26 percent, while the increase is
1.01 percent when the 22-year progressive approach is
applied.
If the 22-year progressive approach is applied, the
water, electricity and gas sector (14.42%) will be affected
the most in terms of a price increase among the
seven one-digit sectors. It is followed by mining
(11.88%), construction (1.79%), manufacturing
(1.75%), transportation (1.12%) and agriculture
(0.80%). The top five manufacturing sectors in terms of
respective price increases are oil refining (35.58%),
non-metallic minerals (3.72%), basic metals (3.39%),
chemicals and plastics (2.57%) and paper & printing
(2.08%).
To sum up, sectoral ranking in terms of the impact
of price increases as a result of imposing the 22-year
progressive carbon tax rate is identical with the case
where the one-step carbon tax approach is applied.
(See Tables 6).

246 Taiwan Development Perspectives 2009
Effect on Output Growth
Table 6 shows when the 22-year progressive carbon
tax rate is applied, GDP will be reduced by 1.19
percent by 2020, which is less than the reduction due to
the application of the one-step approach (-1.57%). The
sectoral ranking in terms of the decrease in output as a
result of imposing the 22-year progressive carbon tax
rate is also the same as that in the case of the one-step
approach.
Table 6 Effect of Carbon Tax on Taiwan’s Economy
[Sweden Tax:U.S.$ 22.2/CO 2 (Ton)]
One-Step Approach
Progressive Approach
CO 2 reduction rate (%) -25.77 -25.31
Price change (%) 2.26 1.01
Output growth (%) -1.57 -1.19
4.5 Energy Tax versus Carbon Tax
A comparison of the effects of energy tax and carbon
tax without tax reduction is shown in Table 5 12 .
We conclude that in order to reach the same goal of
reducing CO 2 emission by 25 percent, the negative impact
of carbon tax is only one third that of energy tax..
The government should enforce carbon tax instead of
energy tax. Inasmuch as the CO 2 emission per unit of
caloric value is concerned, carbon tax on fuel oil should
be close to that on gasoline and diesel, while that on
coal should be made higher than on fuel oil. However,
the energy tax rate for fuel oil is one twentieth of gasoline,
while the similar tax on coal is even lower than
that on fuel oil.
To moderate the negative impact of carbon tax on
the economy, the government should consider using the
revenue from carbon tax collections to lower the personal
income tax by increasing the level of minimum
tax reduction; to eliminate the road maintenance levy
and all of the excise taxes except automobile and cement;
to raise an energy research and development fund;
to reduce social security payment; to subsidize the energy
cost of low-income-families; to purchase carbon
dioxide credits from abroad; and to refund part of carbon
tax to those who distinguish themselves in achieving
energy efficiency.
5. Merits and Demerits of Carbon Tax and
Emission Trading
Table 7 compares the merits and demerits of carbon
tax and emission trading. We conclude that carbon
tax is much better than emission trading in fairness,
acceptability, timeliness, scope of levy, use of the tax
revenue and cost of transaction. On the other hand, the
emission trading system surpasses in certainty of emission
reduction. Carbon tax therefore is more suitable
than emission trading to enforce, if one of them has to
be chosen in Taiwan. However, in order to enhance the
effectiveness in emission reduction and demand the big
emitters such as the power sector and energy- intensive
industries to share more reduction obligations, the government
should consider enforcing both carbon tax and
emission trading at the same time. It is worthy of note
that to enforce carbon tax and emission trading simultaneously
is not without precedent. They have been
enforced in Sweden, Denmark, Norway, Finland, the
Netherlands, and Great Britain.
12 No simulation on carbon tax with tax reform has
been done by this study.

A Synthesis of Energy Tax, Carbon Tax and Emission Trading in Taiwan 247
6. Conclusion and Suggestion
The negative impact of carbon tax is only one
third that of energy tax in reaching the same goal of
reducing CO 2 emission by 25 percent. The government
should enforce carbon tax instead of energy tax in Taiwan.
Inasmuch as CO 2 emissions per unit of caloric
value are concerned, carbon tax on fuel oil should be
close to gasoline and diesel, but that on coal should be
higher than fuel oil. However, the tax rate in the energy
tax bill of 2006 for fuel oil is one twentieth that of gasoline,
and the energy tax rate for coal is even lower
than that for fuel oil. Carbon tax is better than emission
trading system in fairness, acceptability, timeless, scope
of levy, use of tax revenue and cost of transaction. The
emission trading system surpasses carbon tax in certainty
of emission reduction, however. Carbon tax is
therefore more suitable to enforce than the emission
trading system, albeit the government should consider
enforcing both at the same time in order to enhance the
effectiveness in emission reduction and demand big
emitters such as the power sector and energy-intensive
industries to share more reduction obligations. It is
worthy of note that to implement both carbon tax and
emission trading system simultaneously is not without
precedent. They have been enforced in Sweden, Denmark,
Norway, Finland, the Netherlands, and Great
Britain.
Table 7
Merits and Demerits of Carbon Tax and Emission Trading System
1.Fariness
2.Acceptability
3.Timeliness
4.Scope of levy
5.Tax Revenue
6.Cost of Transaction
7.Certainty of Emission
Reduction
Carbon Tax
Yes.
Polluters to pay principle
Yes.
Similar tax system(air-pollution
fee)existed in Taiwan
Yes.
Can be implemented without cap
emission
Yes.
Taxpayers include all of energy users
Yes.
Government can use the tax revenue
for tax reform
Yes.
Cost of transaction is low
No.
The actual reduction depends on the
price elasticity of demand for energy
Emission Trading System
No.
Grandfather Rule
No.
No similar tax system exists in Taiwan
No.
Generally cannot be implemented without cap emission
No.
Cost payers include only the big energy users( e.g.
power industry and energy intensive industries)
No.
Except retaining part of the emission right for auction,
the government cannot raise any tax revenue.
No.
Cost of transaction is high
Yes.
The actual reduction does not depend on the price
elasticity of demand for energy

248 Taiwan Development Perspectives 2009

An Analysis of Development Trends in Physical Fitness for Taiwan’s Children and Adolescents 249
An Analysis of Development Trends in Physical Fitness for
Taiwan’s Children and Adolescents
CHAO, Li-yun, TSENG, Hui-chin
Abstract
Physical fitness has been recognized as an important health indicator. Childhood and
adolescence are the two crucial phases where health behavior and attitude are finalized into
a pattern. Phenomena found in the two stages can be analyzed for the introduction of policies
and measures to improve public health.
In accordance with the results obtained from tests on physical fitness for children and
adolescents in Taiwan, Japan, China, and Hong Kong over the past 10 years, authors of this
article discover: Children and adolescents in Taiwan, both male and female, are not doing
so well in their physical fitness performance, as they used to; and compared with their
counterparts in the neighboring countries, they are behind in body mass index (BMI), muscle
strength, and cardiovascular endurance, except in flexibility which is slightly better than
that in Hong Kong. Reasons behind this trend are failure to properly enforce physical education
and imbalance in nourishment for students.

250 Taiwan Development Perspectives 2009
I. Foreword
Physical fitness is a national health indicator in a
country’s competitiveness to which every nation attaches
great importance. Since the turn of this century
industrialized countries have one after another pushed
forward a series of national fitness or health plans
(Chao Li-yuan, 2005), of which the physical fitness
improvement plan has been recognized as an important
indicator as it quite accurately detects physical and
physiological functions, both good and bad. Although
physical fitness is generally attributed to genes, research
has proved that a steady improvement can be
made through environmental factors, one of which is
physical activity. As studies also show that childhood
and adolescence are the two most critical phases in
which individual lifestyle, health behavior and attitude
are shaped and fixed (Ortega, Ruiz, Castillo, and Sjostrom,
2008), many countries are observing and testing
the current status and development trends in physical
fitness for children and adolescents with a view to proposing
further effective plans and measures for improvement.
This article collates the data collected through
physical fitness tests on Taiwan’s children and adolescents
over the past 10 years to analyze the development
trends. Results from the analysis are also used to make
a close comparison with similar information from
neighboring countries.
II. Current Status and Changes in Physical
Fitness for Taiwan’s Children and Adolescents
1. Physical Fitness Test Instrument
According to a definition given by the American
Alliance for Health, Physical Education, Recreation and
Dance (AAPHPERD), physical fitness fall under two
categories: health-related physical fitness and performance-related
physical fitness. The former refers to a
need for the survival of human beings in their environment
of living; a requirement that can help maintain
physiological soundness, such as muscle strength and
endurance, cardiovascular functions; and the scope of
free movement in joints. The latter concerns skills for
body performance, such as a certain level of reaction
time in sports, speed, agility, sense of balance, and coordination
of body organs, tissues, and systems. Contents
and test items of physical fitness are different in
different countries and institutions because of different
test methods and viewpoints adopted by researchers.
For example, the American College of Sports Medicine
(ACSM) holds that physical fitness consists of 1) cardiovascular
fitness, or the ability of the heart to infuse
blood and oxygen to all parts of the body; 2) muscle
fitness, or muscle strength and endurance; 3) flexibility,
or the ability to move joints freely; and 4) body components,
or the fat in proportion to the body weight.
Generally, common physical fitness test items are
composed of five categories: namely, muscle strength,
muscle endurance, flexibility, cardiovascular endurance,
and the percentage of the body fat (Tso Chun-chen,
2001). For the convenience of collection of data and
their comparison with other countries, the authors of
this article use the health-related physical fitness test
instrument adopted by the Ministry of Education in
1992 for the implementation of a project calling for the
improvement of the national physical fitness. The instrument
was devised from the 1980 Health-Related
Physical Fitness Test Manual by AAHPERD. According
to this manual, test items comprise body mass index
(BMI), flexibility, muscle endurance, cardiovascular
endurance, and standing long jump. A brief description
of the test items, including their objectives and methods,
is as follows:
(1) BMI: Using figures gained through the body weight
divided by the height square minus BMI as an index
to estimate the body composition, thereby examining
if one is overweight.
(2) Flexibility: Using the distance measured in “sit and
reach” to evaluate the movement range of the back
legs and the lower back joints as well as the level of
being lithe of such tissues as muscle, tendon, and

An Analysis of Development Trends in Physical Fitness for Taiwan’s Children and Adolescents 251
ligament, so that resistance of the body against hurt
and ache can be tested.
(3) Muscle endurance: Using the frequency of
“one-minute sit-up” to evaluate the muscle endurance
in the abdomen, whereby the capability of doing
activities over a log period of time can be
measured.
(4) Cardiovascular endurance: Using the time needed in
“800-meter /1,600- meter run” (speed) to evaluate
efficiency in the operation of the heart, blood vessel,
lungs, and muscle over a long period of time, or the
capability of the foregoing organs in fatigue over a
long period of time, in order to measure the body’s
resistance to physical and mental pressure.
(5) Muscle strength: Using the distance measures in
“standing long jump” to evaluate the maximum
power produced by muscle in the shortest period of
time, since muscle strength is usually the basis of
the capability in sports.
2. Change Trends in Physical Fitness for Taiwan’s
Children and Adolescents
The Ministry of Education has since 1992 conducted
four major surveys on physical fitness for high
school and elementary school students aged 10-18.
The results of the first survey undertaken in 1997 and
the one in 2005 serve as the reference material for
analysis to understand recent development trends in
physical fitness for Taiwan’s children and adolescents.
goes up as they advance in grades, with the number of
overweight and obese male students being evidently
greater than that for female students. (Department of
Physical Education, the Ministry of Education, Republic
of China, 2007).
In accordance with the surveys done in 2006 and
2007 by the Department of Health on health behaviors
of junior high, senior high, senior vocational high, and
junior college students, one third of them in 2006 and
one fourth of them in 2007 were overweight and obese.
As to the reasons behind the trend, researchers found
that about 80 percent of junior high students took sweet
beverages for more than two days a week and that approximately
20 percent of them ate fast food more than
twice each week. They also discovered that a 40 percent
plurality worked out less than three days per week,
another 20 percent watched TV for two consecutive
hours per day, and still another 10 percent logged on
computers and played computer games for over two
hours a day (Department of Health, Executive Yuan,
Republic of China, 2008). It is obvious that Taiwan’s
children and adolescents in general do not eat balanced,
nor do they take enough exercise, a phenomenon that
should not be overlooked.
(1) Chang of BMI
In view of a high correlation among BMI, the
body fat, the mortality rate, and the rate of disease suffering,
the World Health Organization has suggested
that nations adopt BMI as the index for obesity (WHO,
2000). Both Figure 1 and Figure 2 show that the BMI
for the various age groups of children and adolescents
in Taiwan is on the increase, among male students in
particular. Besides, the rate for moderate weight among
elementary students goes down while the obesity rate

252 Taiwan Development Perspectives 2009
Average
(BMI)
23
22.5
22
21.5
21
20.5
20
19.5
19
18.5
18
10 11 12 13 14 15 16 17 18
Age
1997
2005
Figure 1 Change in BMI for Male Students Aged 10-18
Average
(BMI)
22
21.5
21
20.5
20
19.5
19
18.5
18
17.5
17
16.5
16
10 11 12 13 14 15 16 17 18
Age
1997
2005
Figure 2 Change in BMI for Female Students Aged 10-18
(2) Change of Flexibility
The objective of the “sit and reach” test is to evaluate
the movement range of joints and the level of
muscle, tendon, and ligament litheness. Both Figure 3
and Figure 4 show that the flexibility of Taiwan’s children
and adolescents seems to be improving as they are
growing older. But the flexibility among male students
at various age levels has fallen off recently. Reasons for
this development need to be found.
32
31
30
Average
(cm)
29
28
27
1997
2005
26
25
24
10 11 12 13 14 15 16 17 18
Age
Figure 3 Change in Distance of “Sit and Reach” for Male Students Aged 10-18

An Analysis of Development Trends in Physical Fitness for Taiwan’s Children and Adolescents 253
Average
(cm)
35
34
33
32
31
30
29
28
27
10 11 12 13 14 15 16 17 18
Age
1997
2005
Figure 4 Change in Distance of “Sit and Reach” for Female Students Aged 10-18
(3) Change of Muscle Endurance
The objective of the “sit-up” test is to evaluate the
muscle endurance in the abdomen so that the muscle
ability in sports over a long period of time can be
measured. Both Figure 5 and Figure 6 show that the
muscle endurance for Taiwan’s adolescents aged 12 and
above, both male and female, is greatly improved.
43
41
39
37
Average 35
(no.) 33
31
29
27
25
10 11 12 13 14 15 16 17 18
Age
1997
2005
Figure 5 Change in Frequency of “Sit-up” for Male Students Aged 10-18
33
31
Average
(no.)
29
1997
2005
27
25
10 11 12 13 14 15 16 17 18
Age
Figure 6 Change in Frequency of “Sit-up” for Female Students Aged 10-18
(4) Change of Muscle Strength
The objective of the “standing long jump” test is
to evaluate the maximum power produced by the lower
limbs in the shortest period of time in order to estimate
muscle power in an instant needed in regular activities
and sports. Both Figure 7 and Figure 8 show that the
muscle strength of Taiwan’s children and adolescents at
all age levels, both male and female, is on a downward
trend.

254 Taiwan Development Perspectives 2009
Average
(cm)
250
240
230
220
210
200
190
180
170
160
150
140
10 11 12 13 14 15 16 17 18
Age
1997
2005
Figure 7 Change in Distance of “Standing Long Jump” for Male Students Aged 10-18
Average
(cm)
165
160
155
150
145
140
135
130
125
10 11 12 13 14 15 16 17 18
Age
1997
2005
Figure 8 Change in Distance of “Standing Long Jump” for Female Students Aged 10-18
(5) Change of Cardiovascular Endurance
The objective of the “800-meter /1,600-meter run”
test is to evaluate efficiency in the operation of the
heart and lungs over a long period of time, or the capability
of these organs in fatigue over a long period of
time, in order to measure the body’s resistance to mental
and physical pressure. Both Figure 9 and Figure 10
show that the cardiovascular endurance for Taiwan’s
children and adolescents at all age levels, both male and
female, is on a downward trend.
600
550
500
Average
(Sec.)
450
400
1997
2005
350
300
250
10 11 12 13 14 15 16 17 18
Age
Figure 9 Change in Speed of “800 m /1600 m Run” for Male Students Aged 10-18

An Analysis of Development Trends in Physical Fitness for Taiwan’s Children and Adolescents 255
Average
(Sec.)
340
320
300
280
260
240
10 11 12 13 14 15 16 17 18
Age
1997
2005
Figure 10 Change in Speed of “800 m /1600 m Run” for Female Students Aged 10-18
Despite efforts made by the Ministry of Education
to promote physical fitness for years, physical fitness
for Taiwan’s children and teenagers is generally suffering
a relapse. Except for muscle endurance, BMI
(obesity) for both males and females at all levels of age
is on the increase, while flexibility, muscle strength,
and cardiovascular endurance all indicate a downward
trend. Furthermore, results from a test done in 2005
by the Ministry of Education show that less than 60
percent of Taiwan’s elementary and junior high school
students reached the norm in physical fitness set by the
educational authorities (Table 1, Ministry of Education,
2007b). Compared with their counterparts in California
where 60 – 80 percent passed the similar tests (Table 2),
Taiwan’s children and adolescents have to be provided
with much more care in their physical fitness.
Table 1 Percentage of Passing Physical Fitness Tests for Taiwan Students in 2005 (%)
Test Item Primary School Junior High School Senior High School
Sit and reach 51.34 52.86 52.91
Sit-up 48.87 53.25 52.26
Standing long jump 47.63 48.50 49.71
Cardiovascular endurance 48.25 47.64 48.71
BMI 55.84 55.17 55.67
Source: Ministry of Education, Republic of China (2007a).
Table 2 Percentage of Passing Physical Fitness Tests for California Students (%)
Test Item Grade 5 Grade 6 Grade 7
Aerobic Capacity 58.4 59.8 50.9
Body Composition 66.4 66.7 66.9
Abdominal Strength 80.2 83.7 81.3
Trunk Extensor Strength 87.4 88.5 84.3
Upper Body Strength 66.6 68.5 68.7
Flexibility 65.7 71.5 69.3
Source: California Department of Education (2007).

256 Taiwan Development Perspectives 2009
III. Strategies for and Current Status of
Physical Fitness Development
Different countries have different physical education
policies for the development of physical fitness.
Strategies for the improvement of physical fitness also
differ. The authors of this article compare Taiwan’s
physical fitness data with those of its neighboring
countries, and attempt to analyze strategies applied in
advanced nations.
1. Physical Fitness for Children and Adolescents
in Taiwan and Neighboring Countries
(1) BMI
Table 3 shows that the BMI for Taiwan’s children
and adolescents aged 10-18 is higher than that for
their counterparts in Japan, Hong Kong, and China,
except for the 16-year-old girls whose BMI is slightly
lower than that of their Japanese opposite numbers.
As the BMI is an indicator frequently used to measure
obesity, it can be said that overweight or obesity among
children and adolescents are more serious in Taiwan
than in its neighboring countries. Figures shown in the
material collected by the International Association for
Study of Obesity [IASO] in 2008 from a study about
overweight and obesity in 56 major nations and regions
have proved the foregoing estimated situation in Taiwan.
A comparison of information gathered in six
countries in the Pacific area – New Zealand, Taiwan,
Australia, Singapore, Japan and China – brings out the
fact that overweight and obesity among Taiwan’s children
and adolescents ranks second in prevalence (based
on figures for males, see Table 4), a phenomenon that
cannot be overlooked.
Table 3 Comparison on BMI for Children and Adolescents Aged 10-18
Age
Country
Gender
Taiwan Japan Hong Kong China Taiwan Japan Hong Kong China
Male (BMI)
Female (BMI)
10 19.4 17.6 19.1 18.1 18.4 17.3 17.6 16.9
11 20.0 18.1 19.2 18.5 18.9 18.0 16.9 17.8
12 20.4 18.8 19.8 18.8 19.5 19.0 18.5 17.9
13 21.1 19.3 19.9 19.1 20.2 19.6 19.9 18.9
14 21.3 19.8 19.9 19.6 20.6 20.3 20.3 19.6
15 21.7 20.9 20.7 20.3 20.8 20.7 20.0 20.2
16 21.9 20.8 21.1 20.5 20.6 20.8 20.0 19.9
17 22.1 21.8 21.1 20.9 20.7 21.2 20.4 20.3
18 22.3 21.5 21.5 20.9 20.8 20.8 20.4 20.3
Notes: 1. Figures for Taiwan from 2005; 2.Figures for Hong Kong (aged 10-12 from 2005-2006; aged 13-18 from
2004-2005); 3.Figures for Mainland China from 2005, investigative target was urban children and adolescents;
4.Figures for Japan from 2007.
Source: Ministry of Education, Republic of China (2007b); Education Bureau, the Government of Hong Kong Special
Administrative Region (2007); Ministry of Education, Culture, Sports, Science and Technology, Japan
MEXT (2008); Ho Ling, Jen Hung (2007).

An Analysis of Development Trends in Physical Fitness for Taiwan’s Children and Adolescents 257
Table 4 Prevalence of Overweight (including obesity) among Children and Adolescents in Western Pacific Area
Country Survey Year Age Prevalence of overweight (%)
Male
Female
New Zealand 2000 11、12 30 30
Taiwan 2001 6-18 26.8 16.5
Australia 2007 9-13 25 30
Singapore 1993 10、15 20.4 14.6
Japan 1996-2000 16-14 16.2 14.3
Mainland China 1999-2000 11、15 14.9 8.0
Source: International Association for Study of Obesity (2008).
(2) Flexibility
Table 5 shows that the flexibility of Taiwan’s children
and adolescents aged 10-18, both male and female,
is relatively better than that of their counterparts in
Hong Kong, while the performance of the Taiwan’s
children and adolescents aged 15 in “sit and reach” is
slightly poorer.
Table 5
Comparison of Results in “Sit and Reach” Tests for Students in Taiwan and Hong Kong
Country Taiwan Hong Kong Taiwan Hong Kong
Gender
Age Male (cm) Female(cm)
10 25.7 25.21 28.9 28.70
11 25.6 24.63 29.3 28.48
12 25.9 23.45 29.7 29.1
13 26.0 24.84 29.6 30.0
14 26.8 25.67 30.4 30.2
15 27.0 27.26 30.5 31.41
16 28.3 27.64 32.8 31.14
17 28.8 27.88 33.4 32.25
18 29.4 29.15 34.1 32.07
Notes: 1. Figures for Taiwan from 2005; 2. Figures for Hong Kong (aged 10-12 from 2005-2006;
aged 13-18 from 2004-2005).
Source: Ministry of Education of Republic of China (2007b); Education Bureau, the Government of Hong
Kong Special Administrative Region (2007).
(3) Muscle Endurance
Table 6 shows that the muscle endurance of Taiwan’s
children and adolescents aged 10-18, both male
and female, is far worse than that of their counterparts
in Hong Kong. The performance in “sit-up” for both
girls and boys in Taiwan aged 10, however, is slightly
better.

258 Taiwan Development Perspectives 2009
Table 6
Comparison of Results of “Sit and Reach” Tests for Students in Taiwan and Hong Kong
Age
Country
Gender
Taiwan Hong Kong Taiwan Hong Kong
Male (no.)
Female (no.)
10 19.4 18.6 18.4 18.2
11 20.0 22.0 18.9 20.4
12 20.4 24.2 19.5 21.8
13 21.1 30.1 20.2 24.2
14 21.3 32.2 20.6 24.7
15 21.7 34.3 20.8 24.3
16 21.9 33.9 20.6 24.6
17 22.1 35.3 20.7 26.0
18 22.3 36.9 20.8 26.3
Notes: 1. Figures for Taiwan from 2005: 2. Figures for Hong Kong (aged 10-12 from 2005-2006;
aged 13-18 from 2004-2005).
Source: Ministry of Education, Republic of China (2007b); Education Bureau, the Government of Hong
Kong Special Administrative Region (2007).
(4) Muscle Strength
Table 7 shows that the performance in the “standing
long jump” test for Taiwan’s male or female children
and adolescents aged 10-18 is far worse than that
for their counterparts in Japan and China. The muscle
strength of Taiwan’s children and adolescents is inferior
to that of their counterparts in the two neighboring
countries.
Table 7 Comparison of Results of “Standing Long Jump” Tests for Students in Taiwan, Japan and China
Country
Taiwan Japan China Taiwan Japan China
Age
Gender
Male (cm)
Female(cm)
10 142.0 156.29 153.0 131.4 146.20 142.5
11 150.9 165.82 161.9 139.1 156.19 150.6
12 159.9 180.61 171.8 144.3 162.44 154.5
13 178.0 197.99 188.6 146.5 169.03 159.0
14 187.9 213.02 201.8 147.4 171.22 159.7
15 193.5 216.22 213.1 148.3 166.43 162.6
16 207.6 222.63 221.2 153.0 168.18 166.6
17 211.4 228.04 226.2 154.5 170.90 166.9
18 212.9 225.04 227.3 155.0 166.74 167.0
Notes: 1. Figures for Taiwan from 2005; 2.Figures for Japan from 2007; 3.Figures for Mainland China from
2005, investigative target was urban children and adolescents.
Source: Ministry of Education, Republic of China (2007b); Japan MEXT (2008); Ho Ling, Jen Hung (2007).

An Analysis of Development Trends in Physical Fitness for Taiwan’s Children and Adolescents 259
(5) Cardiovascular Endurance
Table 8 shows that the performance in the
1,600-meter run for boys and 800-meter run for girls
aged 13-18 fell off in comparison with their counterparts
in Japan and China. On average, Taiwan’s boys
and girls are 100-120 seconds and 40-50 seconds slower,
respectively. This indicates that the cardiovascular
endurance for the Taiwan’s adolescents is far poorer.
Table 8
Results of 1,600-Meter and 800-Meter Runs for Students in Taiwan, Japan and China
Country
Taiwan Japan China Taiwan Japan China
Age
Gender
Male (sec.)
Female (sec.)
13 591.9 418.3 479.2 295.7 231.4 273.2
14 568.2 398.3 455.0 298.8 234.6 270.8
15 551.2 405.6 437.4 300.4 248.0 265.8
16 521.5 394.8 426.1 287.8 243.8 264.4
17 519.2 394.5 424.3 289.4 245.3 264.0
18 517.8 435.0 417.8 291.9 251.1 261.3
Note: 1. Figures for Taiwan from 2005; 2.Figures for Japan from 2007, and the test results in male students is
according to measured that runs 1500 m transform to 1600 m; the female students is according to
measured that runs 1000 m transform to 800 m; 3. Figures for China from 2005, investigative target
was urban children and adolescents, and the male students is according to measured that runs 1000 m
transform to 1600 m.
Source: Ministry of Education, Republic of China (2007c); Japan MEXT (2008); Ho Ling, Jen Hung (2007).
It is concluded that the performance in physical
fitness for Taiwan’s children and adolescents is worse
in the categories of muscle strength, muscle endurance,
cardiovascular endurance, and the BMI than their
counterparts in Japan, Hong Kong, and China, in spite
of the fact that the performance in flexibility for the
Taiwanese is acceptable. As poor physical fitness poses
a great threat to the health of children and adolescents
and research has proved the high correlation between
obesity and major chronic diseases, there may arise a
national health crisis in the future.
2. Strategies for Physical Fitness Development
for Children and Adolescents
Physical education in school paves the way for lifelong
exercise. All major activities for the promotion
of physical fitness are carried out in school. As physical
fitness for schoolchildren and adolescents has been on a
downward trend, the importance of PE in school has
been constantly emphasized. The following are the
strategies for the improvement of physical fitness
adopted in Japan, the United States, and Taiwan.
(1) Physical Fitness Development Strategy for Japanese
Children and Adolescents
The Japanese Ministry of Education, Culture,
Sports, Science and Technology has proclaimed “four
visions” for the improvement of physical education.
One of them is for the promotion of physical education
teacher’s capability of guidance. In Japan, training PE
teachers is strictly regulated by law. Trainees have to
follow a set of standard curricula for professionalism
(Lin Tao, Chang Mei-chiang, and Chao Li-pin, 2007), a
practice that can help ensure the quality of teachers and

260 Taiwan Development Perspectives 2009
physical education.
In addition, for the purpose of building a “lifelong
sports society,” the Japanese government has been
promoting the establishment of comprehensive community
sports clubs and youth sports corps, and physical
fitness improvement plans in school. As of the end
of 2006, a total of 2,155 comprehensive community
sports clubs had been established in 783 districts
throughout Japan (Japan Sports Association, 2005).
There were 36,286 youth sports clubs with a combined
membership of 929,960 at the end of 2006 (Japan
Sports Association, 2007). As for the physical fitness
improvement plans for children, the Ministry of Education
has conducted various surveys on physical strength
and sports capabilities. The findings in 1985 showed
both physical strength and sports capabilities among
children were found to go down. The ministry introduced
a new physical strength test and adopted a set of
comprehensive strategies for the promotion of children’s
physical strength in 1999. Four years later in
2003, the ministry created a website on the enhancement
of the physical strength of children where visitors
could download information about the status of children’s
physical fitness, lifestyles, contents and test
items of the new physical strength test, various outdoor
activities, comprehensive community sports club, and
youth sports corps. The purpose was twofold: to help
children develop good lifestyles and habits and to elevate
the effectiveness of the physical fitness improvement
plans through proper use of the material by
schools, families, and communities.
A recent study shows that ten years after Japan
started administering its new physical fitness examination
in 1998, the Japanese children and adolescents
braked the downward spiral in their basic exercise ability
in the 50-meter run (speed), softball, and handball
throws (muscle strength), while making improvement in
sit-ups (endurance), the sit-and-reach (flexibility), side
cross jumps with a 20-meter run (agility, reaction time).
In short, the new physical fitness examination helped
schoolchildren and adolescents bounce back in physical
fitness in the ten years. (Ministry of Education, Culture,
Sports, Science and Technology, Japan, 2006). The
strategies worked.
(2) Strategy for American Children and Adolescents
President Dwight D. Eisenhower appointed a
Council on Youth Fitness in 1956. It was renamed the
President’s Council on Physical Fitness and Sports in
1966. A series of plans was implemented. The council
laid down regulations for awards and for the betterment
of national physical fitness. More than six million children
and adolescents have passed the test on physical
soundness to win the President’s Challenge Award since
1996. Of the various groups making contributions to
the physical fitness improvement, the National Association
for Sports and Physical Education (NASPE) is the
one worthy of special mention. The membership of the
association comes from the K-12 PE teachers. The association
developed in 1986 a set of test standards for
sports skills in 1986 as guidance for various levels of
school in the conduct of physical fitness studies and
activities. In 2004, the association proclaimed a new
curriculum stating clearly that the objective of PE in
American schools was to bring up citizens who have
sufficient knowledge of physical fitness, skills and confidence
to remain physically fitness for life. As jurisdiction
over compulsory education rests with each state,
the state rather than the federal government set its own
PE development standard on the basis of the NASPE
curriculum.
One example suffices. The state of California
rules that its PE curricula are enforced in all elementary
and high schools. On the other hand, schools are allowed
to spare students PE for two years at their own
discretion, although senior high students must earn at
least two PE credits before graduation. At the same
time, while schools are encouraged to apply physical
fitness standards set by the state government, all students
have to go through a comprehensive physical
fitness test before graduation, and results of the test
must be included in each school’s reports on the basis
of which the overall school performance is judged.

An Analysis of Development Trends in Physical Fitness for Taiwan’s Children and Adolescents 261
The physical fitness performance of Californian students
in 2005-2007 showed an upward trend, with the
aerobic capacity up by 3.8 percent, body composition
by 1.4 percent, abdominal strength by 0.8 percent, trunk
extension strength by 1.7 percent, upper body strength
by 2.3 percent, and flexibility by 3 percent (California
Department of Education, 2007).
In addition, “Healthy People 2010,” a campaign
jointly promoted by the government and the private
sector in 1999 set another good example. The project
aimed at promoting national health in the next 10 years
(President’s Council on Physical Fitness and Sports,
2001). Both the quality and amount of a citizen’s regular
exercise were listed as the first index for the evaluation
of national health, the purpose being to improve
physical fitness and the quality of life across the nation.
Various indexes about physical fitness for children and
adolescents were also available. (See Table 9.) A follow-up
plan, dubbed “Healthy People 2020,” is on the
drawing board and is scheduled for publication in 2010
(President's Council on Physical Fitness and Sports,
2008).
Table 9
‘Healthy People 2010’ for Children and Adolescents
Objectives Subject 2010 Target (%)
To increase the proportion of adolescents who engage in moderate
physical activity for at least 30 minutes on five or more of the previous adolescents 35
7 days
To increase the proportion of adolescents who engage in vigorous
physical activity that promotes cardio-respiratory fitness three or more adolescents 85
days per week for 20 or more minutes on each occasion
To increase the proportion of adolescents who spend at least 50 percent
of the time for school physical education for physically activity
adolescents 50
To increase the proportion of adolescents who view television two or
fewer hours on a school day
adolescents 75
To increase the proportion of trips of one mile or less to school on foot children and adolescents 50
To increase the proportion of trips of five miles and/or those of two
miles or less to school on bicycle
children and adolescents 5
Source: President's Council on Physical Fitness and Sports (2001).
(3) Strategy for Children and Adolescents in Taiwan
To enhance physical fitness for students, the Ministry
of Education has been promoting a variety of
physical fitness development plans since 1999.
Among them are a medium-term project for the improvement
of physical fitness for students (1999-2000),
a medium-term development project for PE teaching in
school (2002-2007), a five-year project to upgrade the
physical fitness for elementary and high school students
(2004-2008), a medium-term project for the improvement
of student skills in swimming (2000-2004), and a
medium-term development program for the adaptation
of PE teaching and LOHAS (2007-2011). At the same
time, a special website was opened to provide information
on physical fitness promotion plans, including the
aforesaid medium-term projects, programs on the
training of physical fitness counselors, and rules for
inclusion of physical fitness as part of the grades required
for high school and college admission. Besides,
the National Council of Sports has launched campaigns
calling on active participation in physical fitness activities
and tests. It is also actively engaged in training and
accrediting physical fitness counselors.

262 Taiwan Development Perspectives 2009
Despite all this effort, about 60 percent of students
fail to develop a habit of exercise, which helps make
people physically fit (Ministry of Education, Republic of
China, 2007b).
Japan and the United States have proved PE is effective
in making students physically fit. In Taiwan,
however, the PE classes have been reduced. When a
nine-year integrated secondary education system was
enforced, health classes were introduced, partially
crowding out PE classes (Kang Jui-chung, 2003).
Taiwan’s elementary and senior high and vocational
schools hold fewer PE classes and award fewer PE credits
than their counterparts in Japan and the United
States. (See Tables 10 and 11.) Besides, only 28.8
percent of the PE classes offered in elementary schools
are taught by PE teachers and the rest are tutored by
homeroom teachers (Department of Physical Education,
Ministry of Education, Republic of China, 2008).
Less than one third of students join school sports clubs
in Taiwan, lower than in Japan and the United States
(Ministry of Education, Republic of China, 2007a).
(See Table 12.) Adjustments must be made in PE
classes, the quality of PE teachers improved, and students
encouraged to participate in outdoor activities to
make schoolchildren and adolescents physically fit.
Table 10
PE Curriculum Hours in Various Countries
Unit: Minute/Week
Countries Taiwan Japan China South Korea France Germany US
Elementary
schools
Secondary
schools
80 90-135 150-250 180 200 180
90 100 150 120-180 250 120-240
Daily 15 +
Note: Schools in the United States have to offer a PE class lasting 15 minutes or more every day. An elementary
school usually allocates 60-120 minutes for PE a week. Secondary schools allocate 120 minutes.
Source: Department of Physical Education, Ministry of Education, Republic of China (2006); Japan MEXT
(2005).
Table11
PE Credits (Senior High) Awarded in Various Countries
Country Taiwan Japan US UK
Required 12
14-16
plus 4 credits of health
care
Source: Department of Physical Education, Ministry of Education, Republic of China (2006).
30
10% of total credits,
equivalent to those of
English and mathematics

An Analysis of Development Trends in Physical Fitness for Taiwan’s Children and Adolescents 263
Table 12 Rates of Secondary School Student Participation in Sports Clubs (%)
Country
Taiwan Japan US
Educational System
Junior high school 17.6 70.8
54.8
Senior high school 33.4 37.4
Source: Department of Physical Education, Ministry of Education, Republic of China (2006); Japan MEXT (2005);
National Federation of State High School Associations(2008)。
IV. Conclusion
Taiwan’s children and adolescents lag behind their
counterparts in neighboring countries and regions in
physical fitness because physical education has not
been sufficiently enforced in schools.
It is recommended that the Ministry of Education
require schools to increase PE classes and award more
PE credits. Efforts should be redoubled to improve the
quality of PE teachers and instructors.
Achievements in the development of physical
fitness should be taken into consideration in the evaluation
of school management. Physical fitness should also
be made a part of the score students need for admission
to senior high schools or colleges and universities. Taiwan’s
schoolchildren and adolescents are not doing
well in the tests on cardiovascular endurance and muscle
strength in lower limbs. Physical exercise that helps
increase their cardiovascular endurance and lower limb
strength has to be included in the school PE curriculum.
Moreover, a national physical fitness test data bank
must be established as soon as practicable.
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266 Taiwan Development Perspectives 2009

Cross-Strait Media Exchange after a Thaw in Relationship 267
Cross-Strait Media Exchange after a Thaw in Relationship
CHAO, Yi, CHU, Jui-ting
Abstract
The year 2008 saw media exchanges between the two sides of the Taiwan Strait invigorated,
thanks to Cape No. 7, a record-breaking box office hit. The film, a Golden Horse
Awards winner, was scheduled to be shown in China, while Taiwan reciprocated China’s
goodwill by allowing Chinese actors and actresses to come to the island for location.
The current status of cross-strait media exchange is analyzed and short-term objectives
are recommended for the two sides to continue to pursue so that a common platform for
global Chinese-language broadcasting may be formulated in the nearest possible future.
Key Word: cultural exchange, media industry

268 Taiwan Development Perspectives 2009
Current Status of Cross-Strait Media Exchange
China’s Central Chinese Television (CCTV) made
a debut in Taiwan in 2002. Its CCTV-4, which were
permitted to land on Taiwan is a channel targeting an
overseas audience. In return, Beijing promised to consider
removing the ban on Taiwan media moving onto
mainland for operation.
Although the broadcast of CCTV-4 in Taiwan was
later suspended by the Government Information Office
(GIO), Beijing tended, on the eve of Taiwan’s 2004
presidential election, to permit residents in government
compounds, school campuses, diplomatic and Taiwanese
communities and three-star or better hotels in China
to receive some satellite TV signals from Taiwan. But
this proposed policy change failed to be implemented
mainly because Chen Shui-bian was reelected in the
2004 presidential campaign. Only sporadic efforts were
made to keep a semblance of cooperative media relationship
across the Taiwan Strait over the past four
years. The chances of a change for the better, however,
have been greatly increased after Ma Ying-jeou was
elected president in 2008.
Short-Term Objectives of Cross-Strait Media
Exchange
There are three areas where the authorities of both
sides of the Taiwan Strait can work closely together to
help their media industries to grow:
1. Chinese reporters should be allowed to be posted in
Taiwan. Currently, 13 Taiwanese media have reporters
posted in China, while only three Chinese correspondents
are allowed to stay in Taiwan. The people
in China are comparatively less informed on Taiwan.
The GIO eased control over Chinese reporters in
Taiwan in June 2008. The Xinhua News Agency and
the People’s Daily were allowed to resume posting
correspondents in Taiwan for three months, who can
apply for renewal of their stay. More Chinese correspondents
should be permitted to stay longer to cover
Taiwan.
2. Mainstream electronic media should be allowed to
land in each other’s side of the Strait. Both CCTV-4
and Phoenix TV of Hong Kong had been granted the
right to go on the air in Taiwan on a 24-hour basis.
Their landing permits however, were later revoked
by the GIO. According to the current regulations, for
the broadcast of individual TV programs in Taiwan,
Chinese operators or their agents must apply for
permission in advance and only up to ten types of
programs can be broadcast. In China, on the other
hand, some satellite TV operators can downlink Taiwan
TV programming to serve Taiwanese businessmen
and certain other viewers, although the service
is still illegal. As far as economic benefits and audience
effects are concerned, allowing the landing of
TV programs on an equal footing is to the advantage
of Taiwan. The gain may spill over to print media,
news websites, and other audio and visual publications
or industries devoted to digital contents. With
the expansion of the market for the Taiwan media,
improvement of the contents can be expected. Besides,
Taiwan may serve as a role model for democratic
development in China. It is contended that the
GIO and the Mainland Affairs Council should take
the initiative to get CCTV-4 and Phoenix TV programs
to land in Taiwan.
3. China’s State Administration of Radio, Film, and TV
adopted two policies with regard to Taiwan’s TV
drama series on January 1, 2008. Drama series jointly
produced can be broadcast and distributed freely
in China after they are approved by the Chinese authorities
and the authority of approval is delegated to
provincial governments concerned. In return, the
GIO lifted the ban on the performance of Chinese
entertainers in Taiwan in August 2008. The GIO is
also expected to relax control over Chinese record
and TV production in Taiwan. It is hoped that the
State Administration of Radio, Film, and TV would
revise current regulations to effectively implement
the two policies for the benefit of Taiwan media
workers.

Cross-Strait Media Exchange after a Thaw in Relationship 269
Control over Chinese Performers in Taiwan: A Comparison
Current Status
After Relaxation
Only two persons are allowed to participate
in the performance of a wholly owned creases to five while the proportion of pro-
The number of Mainland performers in-
TV Industry Taiwan film. Chinese mainlanders are not duction and performing staff can be up to
permitted to join the Taiwan production 50% in case foreign capital is involved.
team.
Chinese teams are not allowed to stay in While Chinese performers cannot play the
Taiwan, and Taiwan performers must go to roles of leading actor and leading actress at
TV Drama Series Industry Mainland for shooting.
the same time, the number of the Chinese
staff on the Mainland teams in Taiwan cannot
exceed one third of the total.
Chinese singers are not allowed in Taiwan Restrictions on the itinerary and visa applications
are lifted. Recording and perform-
for commercial performance. Each stay on
Record Industry the island is two months and applications ance in Taiwan are allowed.
for permission must be made beforehand
for each visit.
The private sector is much more enthusiastic than
the government in carrying out two-way media exchanges.
Though the government authorities on the two
sides of the Strait come to realize the importance of the
exchanges, they still seem to hesitate to take steps to
improve the situation. Fortunately, substantial media
interaction was made possible between the two sides.
Exchanges on a smaller scale took place over the past
four years. In fact, the TV industries on the two sides
traded variety shows and drama series as well as cooperated
on news and other types of programs on a regular
basis, such as simultaneous live coverage of important
news events concerning Chinese communities
across the Strait and joint charity activities.
Outlook and Suggestions
Undoubtedly, the two-way media exchanges are
conducive to the normal development of relations between
Taiwan and China. For Taiwan, its experience in
both political and economic development can be shared
by the Chinese people and thus, mutual understanding
further promoted. Besides, the quality of Taiwan’s
broadcast products can be enhanced and their competitiveness
in the world market strengthened when they
are exported through China. Moreover, reporting of
news of Chinese communities can be greatly facilitated.
Taiwan still excels in media management. But that
superiority is disappearing fast as Taiwan’s media have
put too much emphasis on ratings, a phenomenon that
hinders improvement in quality of programing and the
development of the whole mass communication industry.
It is recommended that the Taiwan authorities concerned
– including the Mainland Affairs Council, GIO,
and the National Communications Commission – revise
relevant laws and regulations to ease control. Allowing
media to post their correspondents on each other’s sides
of the Taiwan Strait can be a good starting point.
Permission to employ staff from each other’s sides
should follow. Publication and broadcast of Taiwan’s
media products on the mainland should be allowed.
Only through cooperation can a Chinese media production
platform with a competitive edge in the world arena
be established.

270 Taiwan Development Perspectives 2009
On the other hand, China must review policies
vis-à-vis personal and cultural exchanges across the
Strait. The exchanges help foster mutual trust and build
a consensus between China and Taiwan. Continued
joint investments and production and further promotion
of the optimum division of labor will pave the way for
a pan-Chinese media industry with a global capacity.
Expected Effect
The previous administration tried over the past
eight years to strengthen the function of the public
platform, namely the public broadcasting system, with
a view to checking the development of the cable TV
industry run by private operators which were regarded
as overly critical. But the private channels have managed
to survive thanks to the support from a much larger
audience. They have to have an open Chinese market
to survive and remain free from any interference
from any quarters. Moreover, more frequent contact
between the media industries on both sides of the Taiwan
Strait will lead to a great increase in cultural interchange.
A true thaw in the so far frozen relationship
will come in the not-too-distant future.

Shortcomings in Policy-Making on Cultural Affairs 271
Shortcomings in Policy-Making on Cultural Affairs
HAN, Pao-teh
Abstract
There is something wrong with the way policy decisions are taken on cultural affairs
in Taiwan. Examples are given to demonstrate why joint consultation in decision-making
rarely paves the way for good policies and often helps justify or cover up dishonest government
projects. Joint consultation in a committee review is often under political influence.
It may be wielded as a political tool. Experiences teach us good work can be done only
when the officials in charge have foresight and wisdom and are sufficiently empowered to
take a decision. .

272 Taiwan Development Perspectives 2009
Joint consultation in a committee review is often
the way to make decisions on public affairs in Taiwan,
those on government projects in particular. This committee
review procedure is said to aim at stopping up all
possible loopholes. While the procedure may be just
and fair, it needs a full review.
Take construction projects for example. Shortcomings
stemming from the committee review procedure
are obvious. It is often abused to justify dishonest
and disreputable projects. A committee, formed to
choose the best qualified contractor for a government
project, can and often does help officials in charge shirk
responsibility when something goes wrong. The government
officials can easily claim the committee is to
blame.
Such a committee usually is manned half and half
by government officials and academics, the latter
slightly outnumbering the former. All the officials have
to do is to sway a couple of academics to go along with
them and ram through their predetermined decisions.
On the other hand, such a policy-making format
rarely leads to truly desirable outcome. When a vote is
taken, proposals which arouse little controversy are
often approved. That actually is the way decisions are
taken on creative cultural projects.
government official, who dared to take responsibility,
made that artwork possible. As a matter of fact, the
foresight of government leaders is most important to
the creation of architectural wonders. All French presidents
are known to have a decisive say in the country's
cultural affairs. Otherwise the Louvre Pyramid could
not have been erected.
One may argue that a decision made in a committee
review can be free from political influence. That is a
myth. The Historical Site Review Committee, a seemingly
independent organization under the Council of
Cultural Affairs, decided to change the name of the
Chiang Kai-shek Memorial Hall in 2007. President
Chen Shui-bian, who called Chiang the “chief culprit”
of the February 28 Incident of 1947 in which tens of
thousands of innocent native-born islanders were killed
by government troops, wanted to rename the memorial.
The committee was his political tool to make the
name change. There is no reason whatsoever why a
30-year-old structure can be designated as a historical
site to make it possible for the committee to take the
decision to get rid of the mention of Chiang Kai-shek.
However, conscientious officials in charge who do
not shirk responsibility can make a difference. A case
in point is a Kaohsiung Metro station called Formosa.
It was contracted out against the opposition of many a
committee member reviewing the whole Metro project.
The contract was considered excessively overpriced
and the contractor is a relative of the Kaohsiung
government official in charge of the BOT
(build-operate-transfer) project in the southern Taiwan
port city. The official insisted. The contract was
awarded and the contractor, who was given a free hand,
came up with a glass-inlaid artwork Metro station,
“Dome of Light.” A masterpiece of architecture, the
Metro station is a new “must-see” scenic spot in Kaohsiung.
Only the foresight and wisdom of the Kaohsiung

Long Term Care and Long Term Care Insurance 273
Long Term Care and Long Term Care Insurance
YAUNG, Chih-liang
Abstract
Taiwan’s population is fast aging. Those aged 65 and over accounted for more than
10.2 percent of the population in 2006. They will make up 22 percent of the population in
less than 10 years. People in need of long-term care totaled 330,000 in 2006 (1.45 percent
of the total population). They will number 378,000 (1.64%) and 448,000 (1.93%) in 2011
and 2016, respectively. Different government agencies are implementing various programs
to provide long-term care for these people. What must be done urgently is to integrate these
programs in coordination with Taiwan’s national health insurance in order to achieve a
seamless total care – from acute to long-term care – for its rapidly aging society. A task
force has been formed under the Council for Economic Planning and Development to plan
to start providing long-term care insurance by 2010 or 2011.

274 Taiwan Development Perspectives 2009
Background
Taiwan is aging fast. Those aged 65 and above
accounted for more than 10.2 percent of its population
in 2006. They will make up 22 percent of the population
by 2016.
One important reason is a decline in marriage.
Fewer and fewer young people are willing to get married.
Altogether 77.3 percent of the women aged 25-29
were married in 1983, against a mere 47 percent in
2001. Fewer marriages mean fewer children. More serious,
the married couples prefer not to have children.
So, the fall in fertility is the main reason for the
rapid aging of the population. The fertility rate was
only 1,115 per 1,000 women in their lifetime in 2006, a
sharp decline from the 1,680 in the year 2000. It is far
less than two per woman to keep the population from
declining.
Still another reason is the advancement in healthcare.
People live longer. The aged people often need
long-term care.
Need for Long Term Care
Most countries use ADLs (Activities of Daily Life)
to evaluate the need for long-term care. If one cannot
perform one or two ADLs, it is “light disability.”
Failure to perform three or four ADLs is “medium disability,”
while “severe disability” describes an inability
to perform five ADLs or more. The kind and amount of
necessary care – such as home care, community care or
institution care – are determined by the level of ability
and the family setting of those who need it.
There were 330,000 people in Taiwan who needed
long-term care in 2006. They represented 1.45 percent
of the population. The number of such people will rise
to 378,000 (1.64% of the population) in 2011 and
448,000 (1.93%) in 2016..
for long-term care. Among them are the Elderly Welfare
Act, the Law for Protection of the Physically
and Mentally Disadvantaged People, and the National
Health Insurance Law. Competent government agencies
include the Ministry of the Interior, Veterans Administration,
and National Department of Health. This diversified
competency results in omission or duplication
of coverage as well as in inefficiency. What Taiwan has
to do as its population is aging fast is to integrate all
long-term care programs to make sure that all those
who need such care are provided for.
There are two ways to achieve long-term care for
all. Such care services can be financed either through
taxation or by social long-term care insurance. The Executive
Yuan has decided to adopt social insurance for
long term care. The decision is apt. For one thing, people
of Taiwan are familiar with social insurance for they
are already covered by labor insurance and national
health insurance. People know they have to pay premiums.
For another, their tax burden is not heavy. The
total tax in proportion to GDP is only 14 percent in
Taiwan, much lower than 24 percent in South Korea,
23.1 percent in Japan, 26.4 percent in the United States,
30 percent in Germany, 35.1 percent in France, 39 percent
in the United Kingdom, and 51.1 percent in Sweden.
Compared with OECD nations, Taiwan lacks resources
to finance social welfare and it is best to finance
long-term care for all by insurance.
Prospective
Premier Liu Chao-shiuan has a task force formed
under the Council for Economic Planning and Development
to prepare a long-term care insurance program
which will be launched by 2010 or 2011.
Long-Term Care Insurance
Taiwan has adopted a series of acts that provide

Protection of Dispatched Workers’ Right to Organize or Participate in Labor Unions 275
Protection of Dispatched Workers’ Right to Organize
or Participate in Labor Unions ∗
CHENG, Chih-yu
Abstract
Due to the influence of market forces and the strategies of labor flexibility, development
of "dispatched work" has become an inevitable trend. Based on the research findings,
"dispatched work" would cause effects on industrial relations, both individually and collectively.
In order to cope with the development of dispatched work, many countries have
made directed much effort to the study of effects of dispatched work and to the formation
of related labor policies. Even though the development of dispatched work in Taiwan is still
at its initial stage, the study on effects of "dispatched work" and its relevant policies shall
not be neglected. The interactive relationship between labor unions and “dispatched workers”
in Taiwan is chosen as the main topic of discussion for this discourse. Through an empirical
survey on both dispatched workers and labor unions, it intends to find what obstacles
the dispatched workers have come across to their exercise of the right to organize or
participate in labor unions.
This essay explores the intention of dispatched workers to organize or participate in
labor unions and the intention of labor unions to accept them as members. Suggestions are
offered for how to protect the right of dispatched workers to organize or participate in labor
unions.
Keywords: Dispatched Work, Dispatched Workers, Industrial Relations, Labor Policies,
Labor Union.
*
This essay is part of a research project funded by the National Science Council, Executive Yuan, Taiwan. (Project
No. NSC 92-2414-H-004-014)

276 Taiwan Development Perspectives 2009
Introduction
Owing to the influence of labor flexibility
strategies, “atypical work types” have been widely
adopted by employers in dealing with market variation.
An atypical work type, "dispatched work" is
controversial and has attracted much academic
attention, since it challenges directly the fundamental
principle that labor is not a commodity. 1
Although dispatched work is of much con
cern to employers, workers and governments, it
has been growing in some OECD (Organization
for Economic Cooperation and Development)
countries and is recognized as a phenomenon irreversible.
(See Table 1)
Table 1 Evolution of Part-time and Temporary Workers as a Percentage of Total
Employment in Selected OECD Countries in 1985, 1990 and 1995
Country
Part-time work
Temporary work
1985 1990 1995 1985 1990 1995
Ausrtalia 1 17.5 a 21.3 24.8 15.6 e 18.7 23.5 e
Belgium 2 8.6 10.9 13.6 6.9 5.3 5.3
Canada 1 16.8 b 17.0 18.6 7.5 d 8.8 e
France 2 10.9 11.9 15.6 4.7 10.5 12.3
Germany 2 12.8 15.2 16.3 10.0 10.5 10.4
Ireland 2 6.5 8.1 12.1 7.3 8.5 10.2
Japan 1 15.8 b 18.8 19.8 10.3 11.0 10.4 e
Netherland 2 22.7 31.8 37.4 7.5 7.6 11.4
New Zealand 1 15.3 b 20.0 21.5 -- -- --
Norway 1 29.6 26.3 26.5 -- -- 14.0
Spain 2 5.8 a 5.0 7.5 15.6 a 29.8 35.0
Sweden 2 25.7 23.8 25.8 11.9 a 10.0 12.5
United Kindom 2 21.2 21.7 24.1 7.0 5.1 7.0
United States 1 18.4 b 16.9 18.6 -- 0.8 d 2.2 e
Source: Ozaki, M. 1999. Negotiating Flexibility: The Role of the Social Partners and the State.
(Geneva: ILO.) p. 9.
Notes:1. OECD, 1996-97; 2. European Commission. DG V, 1996, pp. 147-162.
a 1987 data; b 1983 data; c 1984 data; d 1989 data; e 1994 data.
1 Vosko, Leah F. 1997. “Legitimizing the Triangular
Employment Relationship: Emerging International
Labour Standards from a Comparative Perspective.”
Comparative Labor Law Journal. 19(1): 44.

Protection of Dispatched Workers’ Right to Organize or Participate in Labor Unions 277
The attitude of labor unions toward dispatched
work was defensive and negative.
However, in recognition of the irreversibility of
dispatched work, labor unions have adjusted their
attitude and tried to find an appropriate strategy
and method to deal with the development of dis
patched work. 2 Generally speaking, labor unions
have adopted such strategies as exclusion, servicing,
partnership, social dialogue and mobilization
to deal with the development of dispatched work.
(See Table 2 for description of each strategy.). 3
Table 2 Labor Union Strategies to Cope with Dispatched Work
Strategy
Exclusion
Servicing,
Partnership
Social dialogue
Mobilization
Description
Labor unions exclude dispatched workers from employment and
perhaps also from union membership.
Labor unions draw dispatched workers into trade unionism
through provision of individual services.
Labor unions seek cooperation with employers for furnishing
existing union members with guarantees of future employment.
Labor unions attempt to influence government policy and secure
changes in employment laws in order to conserve job opportunities
of existing union members and reduce the insecurity experienced
by dispatched workers.
Labor unions seek to mobilize members and supporters in pursuit
of an explicitly moral demand for justice.
Source:Excerpt from Heery, Edmund & Abbott, Brian. 2000. “Trade Unions and the Insecure
Workforce.” In Heery, Edmund & Salmon, John ed. The Insecure Workforce. (London:
Routledge). pp. 158-163.
Although labor unions have adopted such positive
strategy as servicing to deal with dispatched work,
they are still deeply concerned with the potential
threat posed by its development, in particular
when the decline in labor union density has become
a worldwide phenomenon and most of dispatched
workers are inclined not to join labor unions.
4
2 Ozaki, Muneto. 1999. Negotiating Flexibility: The
Role of the Social Partners and the State. (Geneva:
ILO). P. 99.
3 Heery, Edmund & Abbott, Brian. 2000. “Trade Unions
and the Insecure Workforce.” In Heery, Edmund
& Salmon, John ed. The Insecure Workforce. (London:
Routledge) p. 157.
4 Heery & Abbott, Ibid, p. 155.

278 Taiwan Development Perspectives 2009
Like in many OECD countries, the development
of dispatched work in Taiwan has drawn
much discussion and attention. 5 Nevertheless,
most of the studies in relation to dispatched work
in Taiwan cannot provide a comprehensive description
of the interactive relationship between
labor unions and dispatched workers for lack of
empirical surveys or because research is focused
on only one of the three parties involved. Two
empirical surveys, one about labor unions and the
other about dispatched workers, have been made
for this discourse, the purpose being to find what
obstacles the workers have encountered to their
exercise of the right to organize or participate in
labor unions and what implications are involved
vis-à-vis employment relations and labor policy in
Taiwan.
Research Method
Two empirical surveys were conducted about
dispatched workers and enterprise-based labor
unions in Taiwan. 6
5 Yang, Tong-shun, 1998, “A Study on Issues of ‘Dispatched
Work’”, paper presented at the Seminar of
“The development of ‘Dispatched Work’ and Its Impact”
organized by the Council of Labor Affairs,
March 7, Taipei, Taiwan.
Cheng, Chin-chin, 1998, “A Study on Issues of ‘Dispatched
Work’”, paper presented at the Seminar of
“The development of ‘Dispatched Work’ and Its Impact”
organized by the Council of Labor Affairs,
March 7, Taipei, Taiwan.
Ong, Yu-chen, 2000, An Evaluation on the Effects of
“Dispatched Work” on “Dispatched Workers”.
Master thesis of the Department of Labor Relations,
National Chungcheng University.
6 The reason of choosing enterprise-based labor unions
as the surveyed is due to that enterprise-based labor
unions are usually holding a negative or excusive
standing toward dispatched workers. Please see Oza-
For lack of aggregate data concerning the
quantity of dispatched workers, the sampling in
intention was adopted instead of random sampling.
A total of 100 dispatched workers were surveyed
with the assistance of dispatched work agencies.
Questionnaires were sent them but only twenty-eight
responded. The questionnaires were designed
to understand their attitude toward labor
unions and their intention to organize or participate
in labor unions.
As to the sampling of labor unions, only enterprise-based
labor unions in Keelung City, Taipei
County and Taipei City were surveyed. A total of
298 unions were surveyed. Only sixty-two of them
responded, however. The survey was held to find
out their attitude toward dispatched work and also
dispatched workers.
Survey on Dispatched Workers
Most of the respondents are female, with college
education or above, and between 20 and o 29
years of age. A majority of them are engaged in
clerical and service work, with a monthly pay
ranging from US$700 to US$1,000. None of them
are labor union members.
They were queried on their opinions about
their jobs, their interaction with dispatched work
agencies and “user enterprises” or employers, and
their own attitude toward dispatched work.
To most of the respondents, dispatched work
is a temporary job. If possible, most of them
would like to have a non-dispatched work type job
in the future. Only a small minority, around 18
percent, had agency-arranged dispatched work
before. A majority are first-time dispatched workers.
Although contract relationship exits between
dispatched workers and dispatched work agencies,
many of the former regard “user enterprises” as
ki, ibid, pp. 108-109.

Protection of Dispatched Workers’ Right to Organize or Participate in Labor Unions 279
their employers, who they believe determine, at
least to some extent, their fringe benefits and
monthly pay.
Dispatched workers were asked whether they
face a layoff before their contract expires. A 10.7
percent minority confirmed but another 33 percent
said they were forced to terminate their contract.
Job insecurity did exist, but only a minority had
that experience.
agencies and user enterprises have labor unions
they may join. There exist labor unions in the latter
but none in the former. It is therefore necessary
to survey user enterprise-based labor unions to
gain an insight into the interactive relationship
between labor unions and dispatched workers.
Questions concerning the attitude of dispatched
workers toward their work and their participation
in labor unions are tabulated below..
Two questions were posed. Dispatched
workers were asked whether their dispatched work
Table 3 Questions Concerning the Attitude of Dispatched Workers toward Dispatched
Work and Participation in Labor Unions
Number
Question
1 Dispatched work is secure.
2 Labor unions could be helpful in dealing with the dispute between dispatched
workers and dispatched work agencies or user enterprises.
3 Labor unions could be helpful in obtaining better terms and working conditions.
4 Dispatched workers should take part in user enterprise-based labor unions
for acquiring more protection.
5 Dispatched workers should take part in dispatched work agency-based labor
unions for acquiring more protection.
6 Dispatched workers should simultaneously take part in both user enterprise-based
and dispatched work agency-based labor unions for acquiring
more protection.
7 Dispatched worker should organize a labor union of their own to acquire
more protection.
8 Either organization of or participation in labor unions would be harmful to
dispatched workers’ interests.
9 It is meaningless to participate in a labor union since its functions are limited.
Source: The author.
Responses to the nine questions listed in Table
3 are tabulated in Table 4.
As indicated in Table 4, most of the dispatched
workers said they do not think their jobs
are secure in reply to Question 1 of Table 3. Responses
to Questions 2 and 3 about the helpfulness
of labor unions are exactly the same. Most of the
respondents are agreed on participation in labor
unions (Questions 4 , 5 and 6) and on organization
of their own labor unions (Question 7). They feel
uncertain, when asked whether their participation
in or organization of labor unions is harmful to
them (Question 8).and “meaningless” because la-

280 Taiwan Development Perspectives 2009
bor unions have “limited functions” (Question 9)
Table 4 Attitude of Dispatched Workers toward Dispatched Work and Participation in
Labor Unions
Question
Disagree Uncertain Agree Total
Freq. % Freq. % Freq. % Freq. %
1 13 46.4 12 42.9 3 10.7 28 100.0
2 4 14.3 12 42.9 12 42.9 28 100.0
3 4 14.3 12 42.9 12 42.9 28 100.0
4 2 7.1 7 25.0 20 71.4 28 100.0
5 2 7.1 5 17.9 21 75.0 28 100/0
6 2 7.1 8 28.6 18 64.3 28 100.0
7 3 10.7 6 21.4 19 67.9 28 100.0
8 11 39.3 15 53.6 2 7.1 28 100.0
9 4 14.3 18 64.3 6 21.4 28 100.0
Source: The author.
Most of the respondents are inclined to organize
their own unions or participate in those organized
by dispatched work agencies or within
their user enterprises, probably because they do
not feel their jobs are insecure. Nevertheless, quite
a few respondents feel uncertain about whether it
is indeed helpful to organize or participate in a
labor union.
Survey on User Enterprise-based Labor
Unions
Sixty-two user enterprise-based labor unions
returned the questionnaires. Only 33 of them
have labor unions. Sixteen of the 33 enterprises
(49.9%) belong to the tertiary industry, while another
40.3 percent are manufacturers. The rest are
engaged in construction and farming industries. A
membership of 500 is used as a criterion to determine
the size of labor unions. 7 Small-sized labor
unions account for the largest proportion.
The questions asked are listed in the table
below.
7 Usually, there is no such a criterion, but for the purpose
of analysis three ranges including five hundred
and below, five hundred and one to one thousand,
and one thousand and one and above were being used
to determine the size of labor unions.

Protection of Dispatched Workers’ Right to Organize or Participate in Labor Unions 281
Table 5
Questions Concerning the Attitude of Labor Unions toward Dispatched Workers
Number
Question
1 The use of dispatched workers can meet the need of the company.
2 Dispatched workers can work in harmony with employees of the company.
3 The use of dispatched workers would not affect the right to work of employees
of the company.
4 The use of dispatched workers would not affect the terms and working conditions
of employees of the company.
5 The use of dispatched workers would not affect the fringe benefits of employees
of the company.
6 Labor union members are clannish.
7 Labor unions should recruit dispatched workers as members.
8 Only when dispatched workers join the labor union can the right to work of
employees of the company be well protected.
9 Dispatched workers can acquire more protection after they join the labor
union.
10 Dispatched workers are not employees of the company; there is no legal
base to let them join the labor union.
Source: The author.
Responses to the ten questions listed above
are tabulated in Table 6.
Respondents disagreeing with the clannishness
of labor unions (Question 6) and their membership
contributing to the protection of the employees
of user enterprises (Question 8) outnumber
those who agree (36.4% vs. 30.3% and 39.4%
vs.33.3%). The ratios in the rest of the questions
are reversed. It is fair to say that labor unions in
general are not clannish, though a few of them
think that the right to work of employees in the
company may not be well protected if dispatched
workers are given membership.

282 Taiwan Development Perspectives 2009
Table 6
Attitude of Labor Unions toward Dispatched Workers
Question
Disagree Uncertain Agree Total
Freq. % Freq. % Freq. % Freq. %
1 8 24.2 10 30.3 15 45.5 33 100
2 4 12.1 13 39.4 16 48.5 33 100
3 12 36.4 6 18.2 15 45.5 33 100
4 11 33.3 8 24.2 14 42.4 33 100
5 12 36.4 5 15.1 16 48.5 33 100
6 12 36.4 11 33.3 10 30.3 33 100
7 12 36.4 7 21.2 14 42.4 33 100
8 13 39.4 9 27.3 11 33.3 33 100
9 9 27.3 6 18.2 18 54.5 33 100
10 4 12.1 7 21.2 22 66.7 33 100
Source: The author.
Note: Although 62 labor unions returned their questionnaire, only 33 of them replied their companies have
employed dispatched workers. The analysis is based upon the responses from the 33 labor unions.
Even though labor unions in general are not
clannish, their industry and size attributes may
make difference. A cross-examination of industry
attributes with the attitude of labor unions shows
those manufacturing and construction companies
are more inclined to be exclusive-minded. Table 7
indicates labor unions in manufacturing and construction
industries tend to disagree on Question 3
(dispatched workers likely to affect the right of
work of employees of the company), Question 4
(dispatched workers unlikely to affect the terms
and working conditions of employees of the company),
and Question 5 (dispatched workers unlikely
to affect the fringe benefits of employees of
the company).
Size attributes of labor unions also makes
difference. Table 8 shows small-sized labor unions
disagree on the employment of dispatched likely
to meet the need of the company (Question 1) and
agree on labor unions being clannish (Question 6).

Protection of Dispatched Workers’ Right to Organize or Participate in Labor Unions 283
Table 7
Attitude of Labor Unions toward Dispatched Workers by Industries
Q. Industry
Disagree Uncertain Agree Total
Freq. % Freq. % Freq. % Freq. %
Agri., etc 0 0.0 1 50.0 1 50.0 2 100.0
1 Industry 3 0.25 4 0.33 5 41.7 12 100.0
Services 5 26.3 6 32.6 8 42.1 19 100.0
Agri., etc 0 0.0 0 0.0 2 100.0 2 100.0
2 Industry 0 0.0 6 50.0 6 50.0 12 100.0
Services 4 21.1 7 36.8 8 42.1 19 100.0
Agri., etc 0 0.0 0 0.0 2 100.0 2 100.0
3 Industry 6 50.0 1 8.3 5 41.7 12 100.0
Services 6 32.6 5 26.3 8 42.1 19 100.0
Agri., etc 0 0.0 0 0.0 2 100.0 2 100.0
4 Industry 6 50.0 1 8.3 5 41.7 12 100.0
Services 5 26.3 7 36.8 7 36.8 19 100.0
Agri., etc 0 0.0 0 0.0 2 100.0 2 100.0
5 Industry 5 41.7 2 16.7 4 33.3 12 100.0
Services 6 31.6 3 15.8 10 52.6 19 100.0
Agri., etc 1 50.0 1 50.0 0 0.0 2 100.0
6 Industry 3 25.0 6 50.0 3 25.0 12 100.0
Services 9 47.4 5 26.3 5 26.3 19 100.0
Agri., etc 0 0.0 0 0.0 2 100.0 2 100.0
7 Industry 4 33.3 2 16.7 6 50.0 12 100.0
Services 6 31.6 4 21.1 9 47.4 19 100.0
Agri., etc 0 0.0 0 0.0 2 100.0 2 100.0
8 Industry 4 33.3 3 25.0 5 41.7 12 100.0
Services 9 47.4 6 31.6 4 21.1 19 100.0
Agri., etc 0 0.0 0 0.0 2 100.0 2 100.0
9 Industry 4 33.3 1 8.3 7 58.3 12 100.0
Services 5 26.3 5 26.3 9 47.4 19 100.0
Agri., etc 0 0.0 1 50.0 1 50.0 2 100.0
10 Industry 2 16.7 2 16.7 8 66.7 12 100.0
Services 2 10.5 4 21.1 13 68.4 19 100.0
Source: The author.

284 Taiwan Development Perspectives 2009
Table 8
Attitude of Labor Unions Toward Dispatched Workers by Size
Q.
Sizes Disagree Uncertain Agree Total
(persons) Freq. % Freq. % Freq. % Freq. %
500 and below 7 41.2 3 17.6 7 41.2 17 100.0
1 501~1,000 0 0.0 1 20.0 4 80.0 5 100.0
1,000 and above 1 9.1 6 54.5 4 36.4 11 100.0
500 and below 3 17.6 7 41.2 7 41.2 17 100.0
2 501~1,000 0 0.0 0 0.0 5 100.0 5 100.0
1,000 and above 0 0.0 6 54.5 5 45.5 11 100.0
500 and below 7 41.2 1 5.9 9 52.9 17 100.0
3 501~1,000 1 20.0 1 20.0 3 60.0 5 100.0
1,000 and above 4 36.4 4 36.4 3 27.3 11 100.0
500 and below 6 35.3 4 23.5 7 41.2 17 100.0
4 501~1,000 1 20.0 0 0.0 4 80.0 5 100.0
1,000 and above 4 36.4 4 36.4 3 27.3 11 100.0
500 and below 7 41.2 1 5.9 9 52.9 17 100.0
5 501~1,000 2 40.0 1 20.0 2 40.0 5 100.0
1,000 and above 3 27.2 3 27.2 5 45.5 11 100.0
500 and below 4 23.5 5 29.4 8 47.1 17 100.0
6 501~1,000 4 80.0 0 0.0 1 20.0 5 100.0
1,000 and above 4 36.4 6 54.5 1 9.1 11 100.0
500 and below 7 41.2 4 23.5 6 35.3 17 100.0
7 501~1,000 2 40.0 2 40.0 1 20.0 5 100.0
1,000 and above 3 27.2 1 9.1 7 63.6 11 100.0
500 and below 8 47.1 4 23.5 5 29.4 17 100.0
8 501~1,000 1 20.0 3 60.0 1 20.0 5 100.0
1,000 and above 4 36.4 2 18.2 5 45.5 11 100.0
500 and below 4 23.5 3 17.6 10 58.8 17 100.0
9 501~1,000 2 40.0 1 20.0 2 40.0 5 100.0
1,000 and above 3 27.3 2 18.2 6 54.5 11 100.0
500 and below 3 17.6 4 36.4 10 58.8 17 100.0
10 501~1,000 0 0.0 0 0.0 5 100.0 5 100.0
1,000 and above 1 9.1 3 27.3 7 63.6 11 100.0
Source: The author.

Protection of Dispatched Workers’ Right to Organize or Participate in Labor Unions 285
Implications for Employment Relations and
Policy
Many macro and individual factors contribute
to the development of dispatched work. For
instance, transformation of economic structure,
global market competition, undertaking of labor
flexibility strategies and change of value between
employers and employees are all directly or indirectly
conducive to the development of dispatched
work. 8 Labor unions in some OECD countries were
defensive, negative and even repulsive in attitude
toward dispatched workers. Nevertheless, in recognition
of the irreversibility of dispatched work,
labor unions have adjusted their attitude and tried
to find an appropriate strategy and method to cope.
Like their counterparts in OECD countries,
labor unions in Taiwan always express openly
their hostility against dispatched work and dispatched
workers. Labor unions in manufacturing
and construction industries and small-sized labor
unions are indeed more inclined to be exclusive to
dispatched workers. Nevertheless, labor unions in
general are not inclined to be as exclusive, the
majority of them even agreeing on the question of
their ability to offer more protection to dispatched
works if membership is allowed.
Most of the dispatched workers are female
workers and none of them are labor union members.
Since job insecurity is the major concern of
dispatched workers, their inclination to join labor
unions seems to be very high.
Though both dispatched workers and labor
unions are not hostile to each other, there still are
8 Please see Cordova, Efren. 1986. “From Full-time
Wage Employment to Atypical Employment: A Major
Shift in the Evolution of Labour Relations?” International
Labour Review. 125(6): 646-648
obstacles to the former to join the latter. One of
them is legal. The Labor Union Act precludes dispatched
workers from joining labor unions in user
enterprises, of which they are not employees. The
act must be amended to provide dispatched workers
with more opportunities to join or participate
in either user enterprise-based or dispatched work
agency-based labor unions.
There is no doubt that job seekers may use
dispatched work as a stepping stone to longer-term
and more secure employment. Their motivation is
to reduce the time and cost to look for jobs in the
triangular arrangement. Female workers, in particular,
find dispatched work to satisfy their demand
for flexibility in work. 9 However, to some
unskilled workers the possibility of being “permanent
dispatched workers” does exist, since skill
deficiency make it difficult for them to land longer-term
and more secure jobs in the labor market. 10
Dispatched work has become widely accepted
by enterprises in Taiwan, especially those
engaged in service industries and with a foreign
capital background, in enlarging their flexibility in
human resource employment. Under such circumstances,
employment relations are bound change.
For instance, the number of workers lacking job
security would increase owing to the development
of dispatch work, and labormanagement relations
in individual enterprise would become tenser
when many peripheral jobs are filled with dispatched
workers. In the face of this transformation,
however, the government in Taiwan cannot make
up its mind where it should stand in the process of
9 Vosko, Leah F. 1998. “Regulating Precariousness?
The Temporary Employment Relationship Under the
NAFTA and the EC Treaty.” Relations Industrielles/
Industrial Relations. 53(1): 129.
10 Polivka, Anne E. & Nardone, Thomas. 1989. “On
the Definition of ‘Contingent Work’.” Monthly Labor
Review. 12(12): 13.

286 Taiwan Development Perspectives 2009
legitimizing dispatch work, either being pro to
employers or con to workers, or vice versa. Undoubtedly,
if the legitimizing of dispatched work
were delayed, rights of all parties involved in the
triangular arrangement would be heavily impaired.
Besides, how to help female workers not to
become permanent dispatched workers is of much
concern to the government. Generally speaking,
education and training are the most important
means of facilitating labor mobility. Accordingly,
the responsibility of dispatched work agencies for
giving education and training to dispatched workers
should be clearly stipulated. Otherwise, dispatched
workers will find it difficult to develop
their career and further development of dispatched
work might also be hindered.
Conclusion
Dispatched work has been a product of modern
economic and social environments and its development
is irreversible. It should not be prohibited
by law. However, in consideration of the
negative impact of dispatched work on employment
security, taking laissez-faire stands on its
development is also unrealistic. Since neither regulation
nor deregulation is appropriate in dealing
with the development of dispatched work,
re-regulation turns out to be the way out. 11 As
discussed above, amending the Labor Union Act
and providing dispatched workers with more flexibility
in choosing to join or participate in either
user enterprise-based or dispatched work agency-based
labor unions serve as an example of
re-regulation.
There is no doubt that legitimizing dispatches
work would be the most urgent task of the gov-
11 Standing. Guy. 1997. “Globalization, Labour Flexibility
and Insecurity: The Era of Market Regulation.“
European Journal of Industrial Relations.
3(1): 7-37.
ernment. Once dispatched work is legalized, many
problems can be easily solved and rights of all
parties concerned well protected. Given the interaction
among the government, employers and employees,
it is not easy to legitimize the triangular
arrangement.
Finally, law and regulations are only one of
many factors influencing the development of employment
relations. Tripartite consensus and support
for dispatched work are indispensable to the
continued development of dispatched work in
Taiwan.
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288 Taiwan Development Perspectives 2009

Taiwan Development Perspectives 2009
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