BY LUCIEN CROWDER

MACROECONOMICS
SLOWING EXPORTS DAMPEN GROWTH

CROSS-STRAIT RELATIONS
LIEN GOES TO CHINA
LIMITS PLACED ON CHINESE MEDIA

DOMESTIC NEWS
RACE FOR KMT CHAIRMANSHIP MUDDIED

INTERNATIONAL
PRESIDENT ATTENDS PAPAL FUNERAL
CHEN VISITS NON-ALLY FIJI

BUSINESS
UMC CHAIRMAN FINED

MACROECONOMICS

SLOWING EXPORTS DAMPEN GROWTH
For nearly a year now, Taiwan's economy has been on a course of slow-motion deceleration. Two top think tanks announced in April that they see further deceleration ahead.

First, the Chung-Hua Institution for Economic Research (CIER) lowered its 2005 GDP forecast to 4.07% from an earlier 4.35%. CIER attributed its changed outlook primarily to slowing export momentum, with March exports having increased at a rate of only 6.9% year on year, far below the double-digit levels that supported the strong economic growth of 2004. CIER said that the export slowdown was partly due to the strength of the NT dollar and partly due to high fuel prices (with expensive oil both driving up the cost of exports and acting as a drag on the world economy).

By the end of April, the Taiwan Institute of Economic Research (TIER) had seen enough softness in the economy to follow CIER's lead, lowering its GDP forecast to 4.41% from an earlier 4.61%. TIER's analysis called attention to the first quarter's higher-than-expected import growth, which resulted in a trade surplus for the quarter of only US$290 million, tiny by historical standards. The think tank sounded one optimistic note on growth, however, saying that first-quarter imports were inflated somewhat by government purchases of aircraft and high-speed trains, and that GDP growth will remain fairly steady if the trade balance returns to more familiar levels.

Whether a more positive trade balance is soon achieved depends a good deal on the strength of the NT dollar. After reaching a five-year high of 30.79 against the US dollar on March 10, the local currency underwent a steady pullback through March and most of April - but by the end of April it had begun appreciating again, closing the month at 31.28 against the greenback. CIER forecasts that the NT will finish the year at NT$31.31 against the U.S. dollar - but other organizations are on record as saying that the NT could appreciate rather sharply, crimping exports and cutting into GDP.

Perhaps even more important to the local economy than the strength of the currency is the health of the U.S. and Chinese economies. The United States seems to have hit another of the soft patches that have characterized its emergence from the 2001 recession, with first-quarter GDP growth reaching only 3.1%, the slowest rate of increase in two years. At the same time, high fuel prices are contributing to troubling signs on the inflation front, and the U.S. Federal Reserve felt compelled in early May to raise its benchmark short-term interest rate by a quarter-point despite the sluggish growth.

China's problem, meanwhile, is that the government there can't seem to inhibit growth no matter what it tries. Most analysts expected China's first-quarter GDP growth to come in at something under 9%, but in fact it reached 9.5%, a number in line with last year's white-hot rate of expansion. With the PRC government already having raised interest rates and put in place administrative barriers to many types of investment, it seems possible that nothing short of a yuan revaluation will bring the Chinese economy in for a landing. So far China has resisted all international pressure to let its currency float - which is beneficial in the short term for Taiwanese businesspeople, who well understand that any yuan revaluation could make their China-manufactured goods less in demand worldwide.

Two pieces of good news deserve mention. First, the supply glut that has been plaguing the semiconductor industry is widely predicted to ease in the second half of the year, which should help local firms like Taiwan Semiconductor Manufacturing return to greater profitability. Second, March unemployment numbers revealed a modest improvement in the job market even though the manufacturing and agricultural sectors had shed jobs. This was because the service sector produced more than enough new work to compensate for the losses, perhaps indicating that the domestic economy is mature enough now to swim against the tide of slowing exports.


CROSS-STRAIT RELATIONS

LIEN GOES TO CHINA
KMT Chairman Lien Chan's trip to China over late April and early May might prove to be a historic breakthrough in cross-Strait relations. Or it might simply result in the Taipei Zoo's playing host to a pair of overheated panda bears. Or neither.

Ahead of Lien's departure, his trip seemed a bold risk. Statements from President Chen Shui-bian's government indicated that Lien might be committing treason if he negotiated with Chinese officials, and it was far from certain that the Taiwanese public would embrace a visit to a country that had just codified in law its military threats against Taiwan. The notion of treason, at least, was put aside before Lien even embarked for China, as the KMT chairman and President Chen scheduled a phone conversation that seemed to result in a workable understanding. The risk that Lien might suffer in public opinion, however, seemed quite high at the outset - his departure from CKS International Airport was marred by an egg-throwing melee between his supporters and his opponents.

Accorded a lavish welcome, Lien visited Nanjing, Xian, Shanghai, and most importantly Beijing, where he met Chinese President Hu Jintao. Though Lien and Hu met as the leaders of their political parties, the two produced a communique that touched on resuming cross-Strait negotiations and formally ending hostilities between the two sides. Hu also made gestures of goodwill - or politically-calculated concessions, depending on how you look at it - including a promise to scrap tariffs on several kinds of Taiwanese fruit and an offer to send a pair of pandas to Taipei.

Two days after Lien returned to Taiwan, People First Party Chairman James Soong left for China on a similar trip, having been asked by President Chen to relay messages to China's leaders on his behalf. Soong, however, downplayed the idea that he was traveling as the president's messenger.

LIMITS PLACED ON CHINESE MEDIA
When China's "anti-secession" law was passed in March, many observers expected the Taiwanese government to take retaliatory actions against what it saw as an act of Chinese belligerence. But at first, the response was muted.

That seemed to change 10 days into April, when the Mainland Affairs Council (MAC) announced that two Chinese news agencies - Xinhua and People's Daily - would not be allowed to send new representatives to Taiwan when their current reporters are rotated out of the country. The MAC's stated rationale was that the two news outlets' coverage "has not helped China understand Taiwanese society at all." It went without saying that China would lash out at the decision. More thought-provoking was a statement by the Association of Taiwan Journalists saying that the move damaged Taiwan's reputation for freedom and democracy. The journalists' group displayed its own professional impartiality by calling on China to allow Taiwanese journalists to work in the PRC without restrictions.

At question wasn't whether the Chinese news outfits had provided fair coverage of Taiwan - no one outside the Chinese Communist Party would argue that they had. The question was whether Taiwan had lost more by restricting press freedoms than it had gained by expelling propaganda agents.


DOMESTIC NEWS

RACE FOR KMT CHAIRMANSHIP MUDDIED
An aspect of Lien Chan's trip to China that received relatively little attention was the effect it might have on the race for the KMT chairmanship - or whether, with the trip having elevated Lien's political stature, a race for the chairmanship will occur after all. Following the KMT's loss in last year's presidential election, it had looked as though Lien's term as chairman was coming to an end. Speculation had turned on whether it would be Taipei Mayor Ma Ying-jeou or Legislative Speaker Wang Jin-pyng who would succeed him.

Ma and Wang engaged in a tussle concerning which party members would be allowed to vote in the chairmanship election, and a compromise of sorts was reached in the end. But the two men may have been wasting their time.

Returning from China, Lien said that he had "no current plans" to stand for the chairmanship. This was another in a series of coy statements that have left the door open for a "draft Lien" movement that could keep him in his chairmanship and give him a third chance to run for president. Could a "draft Lien" movement succeed? It looks more likely than it did a month ago.


INTERNATIONAL

PRESIDENT ATTENDS PAPAL FUNERAL
When Pope John Paul II died in early April, two political questions presented themselves in Taiwan - whether President Chen would be able to attend the pope's funeral and whether the next pope would continue to extend the Holy See's diplomatic recognition to Taipei instead of Beijing.

The first question was answered quickly enough, with the President receiving a last-minute visa that allowed him to travel through Italy to reach the Vatican. Once at the funeral, President Chen had a chance to rub shoulders with - or at least sit in close proximity to - a who's who of world leaders, an unheard-of opportunity for a Taiwanese elected leader.

In the days after John Paul's death, a Hong Kong bishop indicated that the Vatican was "reluctantly" prepared to cut its ties with Taiwan if China made concessions on key issues, such as allowing Chinese Catholics to acknowledge the pope's authority. But no such concessions seem forthcoming from Beijing. Meanwhile, the Vatican is little interested in the economic carrots and sticks that are China's stock in trade when dealing with other countries, so ties with the Vatican ties appear to be safe for the moment.

CHEN VISITS NON-ALLY FIJI
The transit stop, a form of travel that is of unique political importance to Taiwanese officials, is a devil of a thing to define. Situated on the great travel continuum somewhere between "actual visit" and "longish layover," the transit stop is the opportunity that may arise for Taiwanese leaders as they move from point A to point B. It may involve spending a week in New York City, apparently to catch up on rest, or it may involve paying an unscheduled visit to a Pacific nation with diplomatic ties to China.

While Lien Chan was sharing a Beijing stage with the leader of the world's most populous nation, President Chen was paying visits to the Marshall Islands, Kiribati, and Tuvalu. But things took an unpredictable turn when reporters traveling with the president were informed that a planned visit to Guam had been pushed back on the itinerary to make room for an unscheduled visit - a transit stop - to Fiji. President Chen met with officials from Fiji's government, but issues of diplomatic recognition were reportedly not discussed. This cleared the agenda for detailed discussions of sugar transactions. Sugar purchases might seem too minor an issue for a head of state to intervene in ' but that's the nature of the transit stop.


BUSINESS

UMC CHAIRMAN FINED
Back in February, prosecutors became suspicious that improper ties existed between giant chipmaker United Microelectronics Corp. (UMC) and the Chinese firm He Jian Technology (Suzhou) Co. They searched UMC's offices and briefly detained a former company executive. At first the crux of the matter seemed to be whether UMC had violated the law by transferring funds and technology to He Jian without government approval. In April, however, the Financial Supervisory Commission became interested in a different question - whether UMC had violated shareholders' rights by failing to report its dealings with He Jian. The commission finally decided that the answer was yes, and imposed fines totaling NT$3 million (about US$96,400) on UMC Chairman Robert Tsao.

Tsao had made things worse for himself on March 21 by taking out a newspaper ad in which he denied improper behavior but also announced that UMC intended to obtain a 15% stake in the Chinese company in exchange for "past assistance." The commission relied on the ad to support its finding that Tsao's be-havior had in fact been improper, and the fines followed.

In late April, Tsao announced that he would challenge the commission's decision. The commission said it had done its job properly and referred Tsao to the court system.