DPP Chair Tsai Ing-wen's Interview with Bloomberg, Nov. 16, 2011

Tsai Ing-wen, the former academic seeking to become Taiwan’s first woman president, signaled she will avoid antagonizing China if elected after a predecessor’s push for independence led to eight years of tensions.

“I am not known as a provocative person,” Tsai, 55, who is bidding to return the Democratic Progressive Party to power after Chen Shui-bian left office in 2008, said in an interview in Taipei yesterday. “The DPP is a very different party now.”

Tsai has erased the lead of Nationalist party incumbent Ma Ying-jeou in a poll conducted by Taiwan’s largest cable-TV operator as a widening wealth gap and high property prices spur voter discontent. A win for Tsai in the Jan. 14 election would risk disrupting closer ties with China that helped power Taiwan’s recovery from the global recession.

China regards Taiwan, ruled separately since a civil war ended in 1949, as its own territory and was enraged when the DPP’s Chen pushed for recognition as a sovereign nation during his presidency. Tsai has eschewed talk of independence for the island of 23 million during her campaign, focusing on domestic issues and criticizing the pace of Ma’s push to forge closer economic links with China.

“Tsai is trying to set a moderate tone and distinguish herself from Chen Shui-bian,” said Douglas Paal, vice president for studies at the Carnegie Endowment for International Peace in Washington. “She knows outright bolts toward independence are no longer in the cards but she cannot afford to alienate fundamentalists.”

As president, Tsai would face the task of reviving a Taiwan economy that grew at the slowest pace in two years last quarter as the global recovery weakened, while handling relations with a rising economic and military power that has described her policies as “unacceptable.”

‘Sinner of 1,000 Years’

The former professor at National Chengchi University in Taipei, who has a doctorate in law from the London School of Economics, helped author the “state-to-state relations” doctrine for former President Lee Teng-hui in 1999 that led China to brand him “a rat” and “the sinner of 1,000 years,” and cut off dialogue with the island.

“A peaceful relationship would serve both sides,” Tsai said in the interview at the party’s campaign headquarters. “The DPP has transformed itself into a party that is more focused on social economic issues. The Chinese would have to understand this.”

China’s military had as many as 1,200 short-range ballistic missiles deployed opposite Taiwan as of December, according to an annual review by the U.S. Defense Department. China’s government has threatened to invade should Taiwan declare formal independence.

China’s Military

“The Chinese military build-up has become a concern for all the countries in the region,” said Tsai. “If China is a democracy, maybe we will be less concerned but it is not yet a democracy.”

U.S. President Barack Obama said in Australia yesterday that budget cuts won’t reduce the nation’s military commitment to the Asia-Pacific region. The U.S., which has a commitment to supply weapons to Taiwan for self-defense under a 1979 law, agreed in September to provide upgrades for the island’s fleet of Lockheed Martin Corp. (LMT) F-16 fighters. It rejected a request by Ma’s government to sell Taiwan more advanced F-16 jets.

“We always want to have more effective defense systems,” Tsai said. “It is not a matter of us trying to have a military confrontation with China but a matter of defending ourselves and increasing our leverage when facing China negotiations.”

Giving China Leverage

Taiwan’s security has regional ramifications, she said.

“Defending Taiwan is a matter for the Taiwan people, but it is also a matter for the rest of Asia because Taiwan is a democracy and nobody in Asia wants to see a democracy falling into the hands of a superpower which is not a democracy.”

Tsai contends that Ma’s push for closer economic links across the 130-kilometer Taiwan Strait risks giving China more political leverage over its former civil-war adversary.

“China shouldn’t be the only focus of our economic thinking,” Tsai said. “There is the rest of the world we have to deal with.” China, she said, “is still a place subject to a lot of uncertainty, and a source of uncertainty for many economies.”

Under Ma, 61, Taiwan relaxed trade, travel and investment restrictions, and ended a six-decade ban on mainland Chinese visitors to the island. The rapprochement helped economic growth rebound to 13.6 percent in the first quarter of 2010, the fastest pace in more than 30 years.

Chinese tourist numbers jumped 68 percent to 1.63 million last year, overtaking Japan as the island’s biggest source of visitors and spurring hotel groups including Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. (HOT) to expand.

China Trade

Last year, the government signed its first trade accord with China, the Economic Cooperation Framework Agreement, which will cut tariffs and increase access to services including banking, insurance and securities.

Tsai said the ECFA will need “constant review” and any changes will follow the “democratic process.” Tsai rallied more than 100,000 people to oppose the accord in 2009, which Ma’s administration said will help create more than 260,000 jobs and boost economic growth by 1.65 to 1.72 percentage points annually.

The island’s benchmark Taiex stock index has slumped 18 percent this year after investors pared bets on emerging markets. The Taiwan dollar has weakened about 6 percent since reaching a 13-year high in May. The Taiex fell 1.5 percent as of 11:32 a.m. local time today, while the Taiwan dollar weakened 0.1 percent to NT$30.225.

Tsai Rebuilds

Tsai has rebuilt the DPP’s popularity, which slumped during Chen’s second term. The former president was re-elected narrowly in 2004 after surviving an assassination attempt that his opponents said was faked. He was later jailed for corruption. Ma defeated DPP candidate Frank Hsieh by 58 percent to 42 percent in 2008.

Ma’s lead against Tsai has evaporated, a poll by the Taipei-based TVBS Poll Center showed yesterday. The two were tied at 39 percent, compared with 38 percent for Ma versus Tsai’s 34 percent on Oct. 15. The margin of error was 2.7 percentage points, according to a press release. James Soong, chairman of the People First Party, had 9 percent support, down from 15 percent, the statement said.

“It’s an extremely close election,” said Bonnie Glaser, a China specialist at the Center for Strategic and International Studies in Washington. “The biggest problem is that the mainland associates Tsai Ing-wen with the state-to-state doctrine. So they are very suspicious of her.”

Wealth Gap

A spokesman for China’s Taiwan Affairs Office said in August that cross-Strait negotiations would be “impossible to continue” if Tsai’s policies are implemented.

While cross-Strait relations are at their warmest in six decades under Ma, a widening income gap and surging home prices have eroded support for his administration. Household income adjusted for inflation was lower in 2010 than in 2000, even as the economy was 46 percent bigger. The average price of an existing home in Taipei was a record NT$571,000 ($18,900) per ping, equivalent to 36 square feet, in September, according to Sinyi Realty Co. (9940), the island’s biggest real-estate brokerage.

Tsai blamed the government’s decision to cut the inheritance tax for exacerbating wealth inequality and said she would introduce social housing programs.

“Ma and his campaign team fail to sell on domestic issues,” said Shih Cheng-chuan, a professor of international affairs at Tamkang University in Taipei. “People don’t feel the benefits of the double-digit economic growth.”

Taiwan Native

Taipei-born Tsai, the youngest of four children, has emphasized her local ethnic roots. By contrast, Hong Kong-born Ma leads a party that retreated to Taiwan in 1949 after being pushed out of the mainland by Mao Zedong’s advancing Communist forces.

Tsai, who cites former U.K. Prime Minister Margaret Thatcher and former U.S. President Ronald Reagan among global leaders she admires, said the election of Taiwan’s first woman president would set an example for China.

Women play a bigger role in Taiwanese politics, accounting for 10 of 48 ministerial-level cabinet posts in the island’s government, compared with four out of 35 for China’s State Council.

“This means we have overcome the historical burden that women aren’t supposed to go out to work and compete with men in society,” she said. “People in China should be inspired.”

To contact the reporters on this story: Chinmei Sung in Taipei at csung4@bloomberg.net; Matthew Brooker in Hong Kong at mbrooker1@bloomberg.net

To contact the editors responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net; Adrian Kennedy at adkennedy@bloomberg.net

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DPP Chair Tsai Ing-wen's Interview with Bloomberg, Nov. 16, 2011