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Thursday, June 09, 2005

Bloomberg.com: Top Worldwide > Taiwan Constitution Vote May Ease China Tensions

Bloomberg.com: Top WorldwideTaiwan Constitution Vote May Ease China Tensions, Analysts Say

June 9 (Bloomberg) -- Taiwan's constitutional changes passed this week could help ease tensions with China as they made it more difficult for the island to declare independence and may prod President Chen Shui-bian to improve ties with the mainland, analysts said.

Taiwan's National Assembly ratified legal amendments on June 7 that added a requirement that future revisions of the constitution will need the support of half of Taiwan's eligible voters in a referendum. Previously, such revisions needed approval by three-quarters of members of the island's Legislative Yuan, the parliament, and the assembly.

``The hurdle is very high, making it almost impossible for future constitutional revisions,'' such as one declaring independence, said Liu Bih-rong, a political science professor at Soochow University in Taipei.

The week's passage of constitutional changes is the latest in a series of steps in recent months that have eased investors' worries about strained Taiwan and China relations. President Chen is under pressure to continue to improve ties following visits to the mainland by the chairmen of Taiwan's biggest two opposition parties, Lien Chan and James Soong.

``Political risks are lower for the market now,'' said Victor Shih, who manages the equivalent of $220 million for HSBC Investments (Taiwan) Ltd. ``Chen's government may ease restrictions on mainland tourists and then direct links,'' he said, referring to air and sea transport across the Taiwan Strait.

Improving Ties

Chen, who took power in 2000 advocating independence, is facing demands from Taiwan companies, including Taiwan Semiconductor Manufacturing Co., to do more to improve ties with the mainland, where international rivals are expanding.

Taiwan is considering allowing in as many as 1,000 mainland tourists a day. More mainland visitors would bolster tourism- related shares and help spur domestic demand, Shih said. Private consumption accounts for about 60 percent of the Taiwan's economy, which grew in the first quarter at the slowest pace in almost two years.

The Taiex Tourist Index, which tracks six stocks, has gained 24 percent since May 3, when China announced plans to ease travel restrictions, outperforming the 5.9 percent rise of the benchmark Taiex index. Shares of Formosa International Hotels Corp., the island's largest hotel operator, have also risen 24 percent.

Restrictions

China made the tourism offer after Lien met Chinese President Hu Jintao, in the first reported meeting between a Nationalist chairman and China's top leader since Nationalist troops lost a civil war to the Communists and fled to Taiwan in 1949.

Taiwan limits investment in China. Taiwan Semiconductor, the world's biggest contract chipmaker, is the only Taiwan company with government approval to build a chip plant on the mainland. The island also restricts investment in China's infrastructure, including power plants.

Taiwan also bars direct flights with mainland China, located about 150 kilometers (94 miles) from the island, citing security concerns. A trip from Taipei to Shanghai, China's commercial capital, now takes about five hours, or more than triple the time for direct travel.

The mainland's parliament on March 14 passed a law authorizing an attack should the island declare independence, prompting Taiwan's Premier Frank Hsieh to describe cross-straits relations as ``very tense.''

``There may be chances for the two governments to sit down and talk about economic and trade issues, such as direct links,'' now that tensions may ease, said Andrew Yang, secretary-general of Taiwan's Council for Advanced Policy Studies.

Spurning Chen

China's government has refused to talk directly with Chen's government on suspicion he may seek to lead the island further toward formal independence.

Taiwan has 16.8 million voters, who are split on their views on mainland relations. About 19 percent of people support independence, compared with 13 percent for unification, while most of the rest prefer the status quo, according to a May government poll.

The National Assembly, whose only function was to review constitutional changes passed by the Legislative Yuan, Taiwan's parliament, also approved the implementation of a single- constituency election system for parliament to replace the current multi-constituency one.

The change will reduce the chances for radical candidates to be elected and President Chen's party ``must move toward the center to win elections,'' Soochow University's Liu said. ``That could mean Chen may become more moderate on mainland relations.''

Chen's Legacy

Chen, who is barred from seeking a third term, has said repeatedly he hopes to meet China's President Hu and resume regular direct transportation links with the mainland. His second term ends in May 2008.

Chen's rivals in presidential elections, Lien and the People First Party's Soong, traveled to China in April and May. An opinion poll released on May 11 by the Taipei-based China Times showed Lien's approval rating rose to 47 percent from 31 percent in late February, while Soong's rose to 35 percent from 29. Chen's rating fell five percentage points to 39 percent.

``Chen will want to leave a legacy during his presidency, and he probably hopes to launch direct links,'' Liu said.

On Jan. 29, Chen's government allowed a mainland commercial carrier to land in Taiwan for the first time since 1949. The charter flight carried Taiwan business people home for the Lunar New Year.

To contact the reporter on the story:
Yu-huay Sun in Taipei ysun7@bloomberg.net

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