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Experts: Chen's Second Term Unlikely to Provide Economic Boost - 2004-05-19

As Taiwan President Chen Shui-bian prepares to begin his second term in office, market analysts do not expect any major improvements in the island's key economic relationship with China.

China has long been critical of President Chen Shui-bian, accusing him of seeking formal independence for the island, which China sees as part of its territory.

Because of this, Taiwanese investors are not expecting access to China's booming markets to improve during President Chen's second term in office, which begins Thursday.

Peter Sutton, the head of research at investment bank CLSA Taiwan, says that other than continuing reforms to increase banks' access to capital, most investors do not believe the Chen administration will provide much of a boost for the economy.

"I think the markets have got relatively low expectations of the government for economic policy with the exception of the financial sector reform," he said.

Mr. Sutton says some restrictions on trade with China may ease during President Chen's next four years in power, but that fully open economic links with the mainland are unlikely. Currently, ships and planes cannot travel directly across the Taiwan Strait. Cargo and passengers must route through another destination, which means higher costs and longer travel times.

National Chengchi University professor, Ho Szu-yin, says longstanding tensions between President Chen and leaders in Beijing could end up hurting Taiwan's economy.

Mr. Ho, who previously served as an advisor to the opposition Nationalist Party, says difficult relations between the two sides could cause political uncertainty, which would scare away investments.

"Business confidence is extremely important, and if the government cannot raise the level of business confidence here, then Taiwan may suffer [from] some insufficient investment," he said.

But Peter Sutton notes that, as influential as government policies sometimes can be, they are not the deciding factor in how a free-market economy like Taiwan fares.

"What really matters in Taiwan is what business people are doing, not what the government is doing. It's not like China where the government is the focus of the economic development program," he said.

He says that as a trading economy, Taiwan is heavily dependent on the global economic environment, and that the key to the island's prosperity lies in how the world does as a whole.

Taiwan's main stock index has fallen about 15 percent since the elections in mid-March. Investors were rattled in part by a long dispute over the election results - Mr. Chen won by just 30,000 votes. The High Court has recounted the votes, at the insistence of the opposition, and will release a final tally in the coming weeks.