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---"Focused Coverage Informed Perspectives"---Wed, Oct 8, 1997 edition

Tung gives first post-handover report Chief executive reassures markets as he outlines ambitious government plans and closer contacts with mainland

Also in this edition . . . 1: Tung's policy report on-line 2: Qiao Shi gives first speech since ousting 3: report on China's internet investment 4: Explosion aboard tanker in Kaohsiung harbour 5: Lien Chan's 'private' trip continues 6: ROC will not fly flag in Hong Kong celebration 7: Taiwan's governor reverses himself, accepts job on commission to diminish his authority 8: Taiwan's investment across straits is extensive, fascinating and worrying 9: Central Bank props up NT dollar in face of speculation 10: government might raise quota on foreign investment to brace NT dollar 11: Kazakhstan, Muslim separatists are not welcome 12: report on China town in Yokoma

HONG KONG PROGRESS REPORT

Policy report: Tung gives first post-colonial report ( Chief Executive's transcript ) The Chief Executive held a press conference today, and the government's information center has a transcript of the English portion. Questions ranged over a number of issues, including the ten-year time frame for a transition to democracy: Reporter : You mentioned the 10 year evolution towards democracy, step by step. But in the Basic Law, after the first 10 years it is very vague what happens. When do you think is an appropriate time to start discussing and debating the specifics and for you to make your own proposals on what you would like to see happen? Mr Tung: I think all of us are thinking about these issues all the time and we will take time before we move forward because we have just begun the process, and I have not formed a firm view as to when we should go forward in this. I think a 10 year time frame is really quite reasonable. Looking at the history of many other nations of the world, from indirect elections to direct elections and also to universal suffrage, many countries take years and years and years and years. And I think the way we are moving about it is the right way. In the meantime it gives us an opportunity to digest what we have today from that point of view, and also focus on some of the more pressing issues which we have. And as I said earlier on, the important thing is to make sure that this government is accountable to the people; the important thing is to make sure that the rule of law continues to be strong; the important thing is to make sure that freedom prevails. And we will make sure all this continues in Hong Kong. When asked about tax policy and financing of government initiatives, Tung reaffirmed the government's grounding in fiscally conservative policies. Hong Kong's tax rates were predictable and would remain so, he said. But there are a number of long term issues which will preoccupy the government in the near term, influencing the direction of its policies: land prices remain some of the highest in the world, and Tung has committed his government to providing affordable housing: When questioned on whether speculation would continue to rise in the land market, Tung noted that the territory was a free market and speculators will do what they do. The key, he said, was for the government to ensure a ready supply of land in order to keep prices in line. Yet, he acknowledged there was no 'magic solution' to this problem. "The problem of property prices is as a result of many long term issues and therefore solution is a long term solution. I think what we are doing will be able to ensure that the property market will slowly, slowly go towards a soft landing." The government, however, was prepared to intervene if need be. "And at the same time, if speculation really gets out of hand we are ready to hit at it. And that is the way we will be going about it." "I set my Administration three main targets : to build at least 85 000 flats a year in the public and private sectors; to achieve a home ownership rate of 70% in ten years; and to reduce the average waiting time for public rental housing to three years." In addition, he said the government will reduce the waiting period for placement into low-income housing would be reduced to less than three years by 2005. Presently the waiting period averages six and a half years. The government will institute a means test of income and assets for all prospective public housing tenants beginning in 1998, he said. He acknowledges the schedule is ambitious. The degree to which the government will participate in shaping the future direction of the economy is on the minds of many: Reporter: Mr Tung, there has been quite a long- running debate between those who advocate a continuation of the policy of positive non-interventionism and those who want a strong industrial policy to boost the manufacturing industry. Given the lack of concrete measures in your policy address for the manufacturing industry, does this mean the debate has now been settled against the Singapore-style industrial policy? Mr Tung: We have never advocated a Singapore-style industrial policy. I don't believe in it. But on the other hand, Singapore has been successful in what they do. And we are successful in what we do and we will continue on our own path. But I think what I am suggesting is that we need to look at this thing carefully, how we move forward on hi-technology and industrial development. And this is why, again, I have suggested yet another committee to look at this and to give me advice as to how we move forward on this issue. I will recruit local industrialists, scientists, academics. And in fact I have asked Nobel Laureate Yang Chang Ling(?) to head this particular committee and he has agreed to do that. Another reported He announced that Hong Kong would develop a science and technology park and set aside HK$500 million for loans to small and medium sized businesses: "98% of Hong Kong's businesses, employing about two thirds of the workforce, are small enterprises. We have set up a Small and Medium Enterprises Committee to address their specific concerns. To help small enterprises raise capital, we will support the Stock Exchange's study into establishing a Venture Board. We have set aside $500 million to establish a pilot Credit Guarantee Scheme to help small and medium enterprises seek loans from commercial banks to finance pre-shipment activities. Details of such a scheme are being worked out and we hope to bring it into operation as soon as possible." ( Hong Kong's Tung Calls for Stronger Economic Ties to China ) Declaring that "Hong Kong has broken free of the psychological constraints during the colonial era," his administration would push for closer ties with the mainland, especially in Guangdong. "Hong Kong's stability and prosperity are linked to the mainland," he said. If it does not prosper, Hong Kong will not, he said. The market responded favourably to his remarks and plans, reports Reuters. "The blue chip Hang Seng Index soared 141 points, or 0.96 percent, to 14,952.," on what amounted to assurances that Hong Kong would not be changed. It should be noted that the economic links, not to mention cultural ones, with Guangdong province have developed extensively in the past two decades. Hong Kong's economy has changed substantially as a result. Most manufacturing has moved across the border, and what remains are the 'front offices' and 'banks' for these operations. Pointing out that Hong Kong is the "world's fifth largest banking centre and sixth largest securities market," the Chief Executive said his administration would work to improve the territory's standing as a premier financial centre "by maintaining a world class supervisory regime without over regulation; by providing state-of-the-art financial infrastructure and a well trained, adaptable workforce; and by maintaining the rule of law, a low and predictable tax regime, an open market and a level playing field," he said. Among other initiatives leading to these ends would be to study the impact of electronic commerce on the market. Coverage: Tung's policy report on-line Policy Address 1997 is a special site on the South China Morning Post internet edition. In addition to a number of stories on Tung's address, the paper has reproduced the entire address. We have linked them here: Introduction A. A Better Business Environment B. Connecting to the Information Age C. Homes for Hong Kong D. The Environment E. Uncovering Hong Kong's Treasure F. A Compassionate and Caring Society G. Vietnamese Boat People H. The Administration of Justice I. Upholding the Law J. Public Administration Conclusion

CHINA

Qiao Shi: ousted NPC chair says party should strengthen 'inner democracy' ( Qiao plea for more party democracy ) In a speech before government officials, ousted National People's Congress chairman Qiao Shi called on the party to strengthen "inner-party democracy" by abandoning rule by personality, the South China Morning Post reports. This was Qiao's first speech since being squeezed out of the Politburo and chairmanship for the National People's Congress by Jiang Zemin. Qiao said, the party should formalize its regulations concerning retirement of older cadres and warned that officials should not hold too many titles in their portfolio, the paper reported. The remarks were taken as implicit criticisms of Jiang Zemin. The article reports on an on-going search for a head of the Central Committee's Political and Legal Affairs Commission, which has overall control over judicial matters. . . . Internet: China on ambitious road leading to internet superhighway The china @internet.com Revolution is a story from the September issue of Asia Inc. magazine. The article discusses the explosion in internet access and interest in China. The magazine notes, many foreign companies have entered the market, investing in telecommunications and computers. "Not to be outdone, China's state-controlled Xinhua News Agency has launched China Internet Corp., a Hong Kong-based company that is building China's first national commercial network with an investment of $25 million. Its aim is to reach at least 200 cities and to target Xinhua's 200,000 subscribers. " "U.S. Web-software specialist Prodigy Inc. recently became the first foreign Internet provider to be licensed in China. In a joint venture, Shanghai Prodigy Telecommunications, the American company is investing $50 million to provide business information -- including Shanghai Stock Exchange listings -- and is even considering online shopping. " And of course the PLA has entered into a joint-venture with a Canadian company to open Spark Ice internet cafes.

TAIWAN DESK

Accident: explosion on oil tanker in Kaohsiung harbour An explosion on a 200,000-ton tanker occurred outside the southern Taiwan port of Kaohsiung yesterday morning, according to officials with the state-run China Petroleum Corp. (CPC). CPC officials said there were 25 crew members and five maintenance workers boarding the Chang Yun tanker when the explosion occurred at 9:30 a.m., ripping a 10 meter-wide hole in the starboard side of the ship. Two workers probably died in the accident. A fire caused by the blast was quickly extinguished, but CPC and port authorities were left with containing an oil leak. Because the cargo of crude oil had been unloaded before the blast, environmental damage was kept to a minimum. The Chang Yun tanker, owned by Yang Ming Marine Corp., was commissioned by CPC to ship in crude oil from abroad. CPC officials thought the blast might have resulted from not having thoroughly cleaned the cabin before starting the maintenance work. The officials said the shipping company should take the responsibility for the blast. The officials said CPC will lease other oil tankers from local companies to carry crude oil, so there will be no shortage of crude oil in the domestic market. See also: http://www.chinatimes.com/papers/ctimes/focus/86100810.htm, http://www.chinatimes.com/papers/ctimes/focus/86100809.htm and http://www.chinatimes.com/papers/ctimes/focus/86100811.htm Lien Chan: VP's 'private' trip continues Vice President Lien Chan confirmed he would meet with Iceland Prime Minister David Oddson on Wednesday at the Summer Palace. Lien told reporters outside his hotel in the Icelandic capital Reykjavik he was just making a "private visit" to the island nation. He is hoping to better understand the economy and the situation of this region. However, Beijing said Tuesday it strongly opposed countries that host visits from ROC Vice President Lien Chan. Allowing Lien to visit, no matter in what capacity, would be extremely serious and viewed by Beijing as interference in its internal affairs, Foreign Ministry spokesman Shen Guofang said. Beijing sees Taiwan as a province with no right to foreign relations of its own. Shen also criticized leaders on Taiwan for using overseas visits to promote the island as an independent country. Beijing's embassy in Reykjvik lodged a formal protest with Iceland's Foreign Ministry over Lien's visit. Chen Yu-chu, Taipei's chief representative in Denmark who handles unofficial ties with Iceland in the absence of a representative office there, told reporters Lien and Oddson would not discuss anything political during their Wednesday night dinner. Vice President Lien Chan also denied he would be received by Iceland's president. See also: http://www.chinatimes.com/papers/ctimes/focus/86100801.htm Flags: ROC will not fly flag for Double Ten Day celebration in Hong Kong A senior official from Taiwan said Tuesday Taiwan has decided not to fly its flag publicly in Hong Kong on the ROC's national day. The announcement ends months of speculations on whether Taiwan's ROC flag will, as in previous years, continue to be hoisted on Oct. 10 in this former British colony after its July handover to communist China. But apart from the absence of the ROC flag, Double Ten celebrations will proceed this year as they have done in previous years. The celebrations will begin with a huge party in the morning followed by a grand cocktail reception in the evening. See also: http://www.chinatimes.com/papers/ctimes/mainland/86100805.htm Provincial Government: Governor reverses himself, accepts job on commission to diminish his authority Taiwan Governor James Soong yesterday said he would accept the central government's offer to serve as vice converer of an ad-hoc Cabinet panel set up to downsize his provincial administration. Soong reversed his earlier refusal to participate in the committee's activities, which he had blasted as being tantamount to abolishing the province altogether. Observers said Soong's decision may have decided to cut his losses amid moves by opposition Democratic Progressive Party lawmakers to bypass the committee by simply legislating the province's downsizing, the China Post reported. Soong told a gathering of provincial government staff at the provincial government's Chunghsing Village headquarters in central Taiwan that he was pleased to learn how Premier Vincent Siew was handling the sensitive downsizing issue, since the latter recently directed the committee to follow the principles of comprehensiveness, broadness, completeness, flexibility and respect. See also: http://www.chinatimes.com/papers/ctimes/taiwan/86100801.htm (Note: the China Times is supported by paid-subscriptions. However, even if you have paid, you may not access an article directly from its URL; go to the front-page first at http://www.chinatimes.com and from there access the article)

BUSINESS AND POLITICS

Taiwan: investment across straits is extensive, fascinating and worrying ( 10/13/97 TABLE: Taiwan's Next China Thrust ) An interesting story in Business Week details how Taiwan's companies have moved to the mainland, setting up networks to supply themselves and, in the process, spreading around their know-how and capital. The authors note that forty percent of Taiwan's listed companies are invested in the mainland, albeit mostly in small ways. But Taiwan's government is clearly worried about the trend and encourages its larger ones to stay at home. By any measure Taiwan has played no small part in the mainland's growth, the magazine notes. Like most foreign investors, they are drawn to China as both a market and an export platform. Proximity and a common language and culture make it all the more compelling. The official Chinese figure of $14 billion in Taiwanese investment is certainly understated, since most companies do not register their commitments. Taiwan companies dominate industrial parks such as Kunshan in Jiangsu Province and coastal cities such as Xiamen. The magazine also quotes Toby Brown, managing director for General Oriental Investments (HK) Ltd., who attributed the emergence of the $50 billion US-China trade deficit to Taiwan money: "The big trade surplus numbers didn't emerge until the Taiwanese invested in China [ seven years ago]. At least 70% of the growth in China's trade surplus with the U.S. is in one way or another linked to Taiwan companies.'' See also: 10/13/97 TAIWAN'S RUSH TO CHINA, also in this issue of Business Week. Central Bank: Bank props up NT dollar in face of speculation The Central Bank of China yesterday released up to NT$62.7 billion into the local banking system to ease a credit crunch plaguing the system and to lower short-term interest rates. The ceiling on the overnight interest rate for inter-bank loans hit a record high of 19.75 percent per annum yesterday, and the average overnight rate rose to 11.475 percent from Monday's 10.281 percent---which in turn rose from 8.114 percent registered last Saturday, the China Post reported. Interest rates were all much higher than the target range of seven to 7.5 percent set by the central bank. Lee Sheng-yen, director general of the Banking Department under the central bank, said the central bank will manage to bring down the overnight interest rate to a level under 10 percent by releasing various types of funds into the banking system, the China Post reported. Because the central bank dumped U.S. dollars into the foreign exchange market to prop up the value of the New Taiwan dollar, the credit position of the local banking system became rather tight. After dumping the U.S. dollars, the central bank subsequently absorbed the equivalent amount of New Taiwan dollars from the banking system. Central Bank of China Governor Sheu Yuan-dong said yesterday the central bank will do anything to defend the local currency amid wild speculation on currencies in Southeast Asia. "The central bank will step in wherever there is any abnormal situation or speculation on the market," Sheu told a legislative session, the China Post reported. Yesterday, the local currency managed to rise NT$0.091 to settle at 28.495:1 against the U.S. dollar. See also: http://www.chinatimes.com/papers/ctimes/focus/86100808.htm Foreign investment: government might raise quota on foreign investment to brace NT dollar (Sources: Commercial Times and the China Post) The quota for foreign investment in Taiwan stocks may be raised this week to 30 percent from the current 25 percent, the Commercial Times reported yesterday. The paper quoted Vice Finance Minister Wu Chia-sheng as saying the quota may be hiked before Thursday. The paper said a hike would attract more foreign investment to Taiwan, which would increase the in-flow of U.S. dollars and take some of the speculative pressure off the New Taiwan dollar. It would also help to stabilize the stock market. (Note: the China Times is supported by paid-subscriptions. However, even if you have paid, you may not access an article directly from its URL; go to the front-page first at http://www.chinatimes.com and from there access the article)

REGIONAL

Kazakhstan: Muslim separatists not welcome there ( Kazakhstan supports Muslim crackdown ) An article from the October 7 issue of the South China Morning Post reports on stepped up commitment by Kazakhstan to fight Muslim insurgents who use their soil as a home base for activities in Xinjiang. Kazakh Defence Minister Muhtar Alteinbaev met with Premier Li Peng in Beijing this week. He also met with Chinese Defence Minister General Chi Haotian, who called for boosting military ties across the 1,700-kilometre border, the paper reports. China recently inked a deal with Kazakhstan to develop and purchase from the Central Asian nation's extensive oil reserves. Japan: report on China town in Yokoma ( Small but Swank ) Lucille Craft has written an interesting article on Yokoma's China town in the September issue of Asia Inc. She notes the concern among residents over losing their cultural identity and passing on their successful businesses to the younger generation. Her article also charts the growth of ethnic Chinese populations in Japan.

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