Premier Lin Chuan’s interview with Nikkei Asian Review (June 23, 2017)

Transcript of Premier Lin Chuan’s interview
with Nikkei Asian Review

June 23, 2017

(This transcript was translated from the Chinese and has been edited for length and clarity.)

 
Q1
NIKKEI ASIAN REVIEW:
The new government, which took office more than a year ago, has been promoting a number of policies, but with few results being seen to date. Indeed, a poll yesterday evening put satisfaction with the Tsai administration at 21 percent. Can you give a summary of the administration’s achievements in the past year?

PREMIER LIN CHUAN: The first thing I need to point out, in particular, is that different polls use different polling methods. So we don’t put complete faith in a single poll; we hope there will be some more objective data.

President Tsai Ing-wen and the team here at the Executive Yuan have been working hard to promote a number of reforms, and perhaps we can say that many controversies have arisen in the process. However, we still believe that many members of the public support these reforms.

Secondly, for some of the reforms introduced in the past year, perhaps the outcomes or results are not so apparent—the main reason being that major reforms require much more time. You need to be patient before you can see the results. But in terms of our main direction, we’ve basically got wide support from the public.

Let’s look at a few key items. From May 20, 2016 until the present, our reforms have been carried out in a number of different ways. Some demand participation and leadership from President Tsai. Most of those reforms involve branches parallel to the Executive Yuan. Pension reform, for example, is the remit of the Examination Yuan, while much of the work on judicial reform involves the judicial and administrative branches. So for those reforms, the Office of the President plays a much more important role. They’re not something the Executive Yuan has complete influence over; the Executive Yuan’s role is to provide necessary support.

As for reforms that can be pushed forward by the Executive Yuan alone, most are related to the financial, economic and social issues that President Tsai campaigned on before taking office on May 20 last year.

There are three key parts in President Tsai’s campaign platforms on finance and economy: innovation, employment, and distribution. Why these three parts? The main consideration is that in the past, most of Taiwan’s economic policies were about seeking economic growth, and in the process, we relied on trade to gain economic growth. But since the mid-1990s, Taiwan has seen a lot of its industries relocate across the Taiwan Strait, as well as to Southeast Asian nations, and after that happened, there have been fewer job opportunities in Taiwan. In fact, because of high overseas investment and industrial relocation, pursuing trade and economic growth won’t necessarily help increase domestic employment, nor will it help remedy situations such as low wages and unbalanced social distribution. We want economic growth, but we think it’s more meaningful to achieve it through innovation, employment and distribution.

From this perspective, you can actually see the efforts we’ve made in this direction since May 20 last year. Take innovation, for example: Taiwan’s information and communications technology (ICT) sector has been on a very firm footing for a long while now—but that sector notwithstanding, we need more new industries. So we proposed the “five plus two”—a total of seven—innovative industries policy, which will bring greater diversity and innovation to industrial development in Taiwan.

The most important of these seven industries is the “Asia Silicon Valley,” and the key thing about that, we hope, is to combine it with Industry 4.0 concepts and create a lot of other innovative sectors going forward, including smart industrial development, artificial intelligence, smart transportation and smart cities. We hope to bring these things about because they’re crucial to Taiwan’s future development.

The second industry is smart machinery. Taiwan already has an excellent machinery industry, so we hope to further advance development of that industry.

The third industry is green energy, especially wind and solar power. We think there are a few points of significance here. The first is that if we want to bring use of nuclear power in Taiwan to an end, we need to introduce alternative sources of power. And because we have problems with air pollution—especially in winter because of the prevailing wind, which makes the situation even worse—we’re not likely to rely too much on coal-fired power generation. Renewables are the better option, especially wind and solar power. Taiwan’s conditions for wind and solar power generation compare very favorably with the rest of the world, and so we hope to see substantial expansion in this area.

We also have national defense, and biotechnology, to round out the five major industries. In addition, there are two more very important industries that we’re currently putting extra effort into. One is new agriculture. Taiwanese farmers usually own relatively small tracts of farmland, so it’s difficult to produce things efficiently. In fact, the main part of farmers’ incomes now comes from non-agricultural activities; the percentage of their total incomes derived solely from farming is very low. In other words, the majority of farmers aren’t full-time farmers. If we hope to bring in younger full-time farmers, we’ll need to sort out a few land-related issues first, and then establish a new development environment. This is the key to new agriculture.

Then there’s the circular economy, which will assist in the development of high-quality industries and resolve our problems with pollution. The population density in Taiwan is very high, so people won’t tolerate excessive pollution generated as part of industrial production processes. Taiwan as a modernized country has to face the issue of environmental pollution. We can introduce the concept of the circular economy to manufacturing processes, reduce the use of raw materials and any kind of waste that burdens the environment, and make efficient use of them. Our long-term goal is to minimize the burden that Taiwanese industries place upon the environment by turning all of the waste generated in manufacturing processes into something of economic use or value, and recycling or reusing them.

So these are the key points involved in these seven extremely important industries, and in fact these are all industries that we hope will drive innovation. Innovation is very important.

Of course, innovation also involves the issue of talent, because innovation, at its heart, derives from talent. Without talent, there’s no innovation. So in terms of employment, we need to talk about nurturing talent or bringing in quality talent from overseas. Because employment needs to be improved not only through an increase in regular jobs, but also through an increase in high-paying jobs.

Taiwan has already been facing this issue of low wages for 20 years, and as industries have relocated, in general salaries in Taiwan have stagnated or even fallen. Now, if we hope to increase employment, especially the higher paying jobs, we’ll need to change the way we run our industries. Taiwan in the past has relied on cutting costs as a means of raising competitiveness. But going forward, we hope to raise added value to boost competitiveness. We need to provide more high-quality, high-paying jobs—that’s our policy objective.

As for distribution—well, naturally, a lot needs to be done, too.

Of course, the main thing is to create the necessary environment for the “five plus two” innovative industries.

But we can look at this from a number of angles. The first is to look at our legislation. To ensure that green energy can develop further here in Taiwan, we amended the Electricity Act at the end of 2016, liberalizing the development of green energy and creating new opportunities for the development of wind power. Indeed, if we look at offshore wind power along the west coast of Taiwan right now, it’s very possible that that area will become Asia’s largest offshore wind farm. In terms of onshore wind power, mainland China has done a lot—but it’s very possible that the offshore wind farms on Taiwan’s west coast will prove to be the best in Asia. We realize now, it seems, that almost all of the world’s most competitive wind power companies have come to Taiwan and applied for environmental impact assessments for specific offshore zones in hopes of garnering opportunities.

The development of wind power requires resources such as harbors and ships, not to mention the issue of connecting these power systems to the main grid, so these basic items of infrastructure need to be done quickly. We expect things to begin picking up two years from now. Then in four years’ time, Taiwan will see rapid growth in wind power, probably getting up to between 3 and 5 gigawatts. That should exceed the capacity of at least one, possibly two or more, nuclear power plants.

We also have solar power, and so on. All in all, we must improve the overall environment through amendments to the law.

We’re also carrying out a lot of deregulation with regards to human resources. Taiwan needs to do more to integrate research and development (R&D) resources and related industries—to integrate industry, academia and research agencies—so we recently amended the Fundamental Science and Technology Act, which we hope will facilitate the transfer of R&D from academia and research agencies to industry.

Furthermore, Taiwan’s Legislative Yuan has recently approved several important laws related to human resources—including a few experimental financial and business models from our financial regulatory sandbox, so that we’re now allowing those to operate in the open market.

Q2
NIKKEI:
Japan is currently promoting TPP-11 (Trans-Pacific Partnership of 11 countries), despite the United States having already withdrawn. For Taiwan, is the TPP still worth joining?

PREMIER LIN: We think that, of course, it’s still worth joining. Because after all, Taiwan still utilizes trade as its primary driving force for economic development, so opening up trade to the outside world is a must. And at the same time, we hope to do as much as we can to reduce trade barriers.

When we became a part of the World Trade Organization (WTO) system, that let us develop international trade in a much fuller sense, and we became extremely diversified. But with negotiations within the WTO being hampered, various countries then started to negotiate bilateral or multilateral free trade agreements on their own. In this respect, things have not been favorable to Taiwan, and the main obstacle is the other side of the Taiwan Strait. Mainland China, acting on its political rationale, influences other countries, hindering our signing of free trade agreements. This has generated economic and political problems between us and mainland China. Taiwan is still working to overcome these difficulties, and expects further opportunities to participate in multilateral or bilateral free trade agreements.

As for the TPP, Taiwan already expressed hope of acceding to the TPP during the first wave of membership applications. With the U.S. backing out, Japan has become ever more important. We’re very pleased to see Japan taking on the mantle of TPP promoter—and in the future, including Taiwan as a candidate for membership when considering further expansion of the TPP. We would be very pleased to have the opportunity to join this multilateral free trade bloc and to do more to open up markets.

Q3
NIKKEI:
So what kind of contribution would Taiwan make to the TPP?

PREMIER LIN: Firstly, if you compare Taiwan’s overall gross domestic product (GDP) or economic strength to the rest of the world, we’re still doing extremely well. Meanwhile, we also think that Taiwan’s markets are actually quite mature when it comes to the degree of openness. So we hope that, under mutually beneficial conditions, the trade liberalization that would come about through Taiwan’s TPP participation would yield economic benefits for everyone involved. Taiwan’s accession would definitely be a boon to the TPP.

Secondly, the TPP’s primary feature is that it would operate under relatively high-standard rules in terms of environmental protection and labor-related matters. In other words, we hope to see fairer trade. By this, I mean that this group of countries would not be generating pollution, relying on cheap labor or engaging in other unreasonable practices to enhance their competitiveness—things that lead to unfairness in international trade. That’s the fundamental spirit of the TPP.

In our opinion, this spirit would be a good thing for Taiwan, because whether it be labor conditions or environmental standards, we are all moving forward. So our accession to the TPP would help in achieving this goal—that is, a trend for prosperity through fair trade, exploiting neither labor nor the environment. So I think that Taiwan joining the TPP, in fact, would help achieve the goals of the TPP.

Q4
NIKKEI:
Taiwan is also involved with the Cross-Straits Economic Cooperation Framework Agreement (ECFA) and the Regional Comprehensive Economic Partnership (RCEP). At the moment, it seems as if there is no further progress on ECFA. What is the current situation? And will mainland China’s One Belt One Road project become an impediment to Taiwan’s international engagement?

PREMIER LIN: Taiwan aims to be open to all countries economically, and maintain good and diverse economic relations with the entire world. As we are a small economy, and rely on economic liberalization to achieve prosperity, we are happy to have robust economic ties with mainland China.

As such, Taiwan will not focus solely on joining one particular regional free trade bloc. We will give equal consideration to all options. We also hope to maintain excellent economic relations with mainland China, e.g., with regard to the previously signed ECFA or any further measures that reduce trade barriers. Anything that enhances mutual economic benefit is helpful.

In the past, we have seen resistance and opposition to ECFA among our people, which mainly stemmed from a concern that our economy could become overly dependent on one partner, as well as an aspiration to let Taiwan develop in a balanced manner. So that is why we stress that we want to maintain good economic ties with mainland China. We are also willing to continue talks with mainland China to find ways of further reducing trade barriers between the two sides and opening up our respective economies.

But at the same time, we also wish to have strong economic relations with other countries such as Japan, TPP members, the U.S., and EU nations, and to further reduce trade barriers. This is our basic position with regard to international trade.

Q5
NIKKEI:
The Democratic Progressive Party (DPP) government has consistently said it wants to reduce economic dependence on mainland China, and that is why the Executive Yuan launched the New Southbound Policy. What is the current situation in terms of lowering this dependence?

PREMIER LIN: Taiwan and mainland China share tremendous similarities in terms of culture and language. On top of that, mainland China has achieved high economic growth rates as a result of its market liberalization over the past three decades. It is therefore inevitable that Taiwan and mainland China develop close economic ties. This is a fact that should not be resisted.

Nevertheless, we hope that Taiwan does not foster economic ties with just one country or region, be it mainland China or any other. It cannot be that we only develop economic and trade ties with mainland China because of linguistic convenience and a shared cultural background, thereby neglecting the development of ties with other regions. In fact, many countries in Southeast Asia are similar to mainland China in terms of high economic growth rates. Yet with regard to language, communication is not as easy as with mainland China. That is why we have implemented the New Southbound Policy, to boost bilateral exchanges. Otherwise, our efforts to develop diverse international relations will come up short. Meanwhile, we have long had close complementary economic ties with Japan and the U.S., and we hope to further strengthen these ties.

The general public believes that our economy should not be excessively reliant on one particular partner, and wishes to see well-balanced development. We should not just develop ties with one partner, at the expense of ties with others. This would not be good for Taiwan, because Taiwan is an open economy that should set its sights on the entire world, not just one country or region.

Q6
NIKKEI:
In January this year, the Interchange Association, Japan changed its name, and Taiwan’s Association of East Asian Relations subsequently did the same. What was the meaning behind this?

PREMIER LIN: For Taiwan, this was a meaningful development, because Taiwan and Japan enjoy very close economic relations. People-to-people exchanges have long been very cordial, and interactions have been frequent. And there is a great deal of economic cooperation and complementarity between Taiwan and Japan.

However, we regretted that prior to May 20 last year, and at an earlier stage as well, Japan deliberately maintained a considerable distance from Taiwan when it came to various official interactions because of considerations related to its political relationship with mainland China. This served as a hindrance to the further development of economic ties between Taiwan and Japan.

That Japan has changed the name of its representative office in Taiwan signifies that the two sides are now willing to squarely face the political obstacles to bilateral economic development, and to resolve these problems. I think this is a very good sign. We believe that this change means that Japan is more willing to promote economic and trade exchanges with Taiwan.

Q7
NIKKEI:
What is your view on the strong protests lodged by mainland China over the aforementioned name change?

PREMIER LIN: We can understand that mainland China has many political considerations, but we believe that cross-strait issues should not be treated as a zero-sum game. Instead, a balance should be found that benefits both sides. At the same time, we hope that, through more exchanges of good will between Taiwan and mainland China, we can change the view that cross-strait ties are a zero-sum game.

Q8
NIKKEI:
Relations between Japan and Taiwan are excellent, because the people of Taiwan have been very friendly toward the people of Japan. However, Taiwan and Japan do share a complex history. Many Japanese people are concerned that the vandalization of the Yoichi Hatta statue earlier this year might become an obstacle in further advancing Taiwan-Japan ties. How do we tackle the problem?

PREMIER LIN: Taiwan and Japan have maintained very close relations due to historical reasons. Similarly, Taiwan also maintains close relations with mainland China because of historical reasons.

There exist diverse and divergent political views in Taiwan. Such diversity and divergence should be respected and tolerated in a democratic and open society such as Taiwan’s. We are therefore willing to build even better relations with Japan and mainland China, and hope that, through more exchanges, they can develop a greater understanding of Taiwan’s diverse society.

As for the vandalization of the Yoichi Hatta statue, this was a bad development from the perspective of a rational and modern democratic society. The vast majority of people in Taiwan believe that this behavior was inappropriate, and the vandal has been punished under the law.

The incident also demonstrated that, even though Taiwan is a diverse society, there are still people who act immaturely or hold immature views. We hope this incident does not get blown out of proportion, so as to avoid antagonistic sentiments. Instead, we hope that, through Taiwan’s exchanges with Japan and mainland China, we can foster greater mutual understanding and reduce conflict.

So I encourage Japan to further engage in close exchanges with Taiwan, to allow Taiwanese people of different views to better understand Japan and its people. Mutual interactions are good for both sides, and this is what we should work toward.

Q9
NIKKEI:
With regard to the issue of allowing imports of Fukushima food products, from your perspective, there are no scientific problems. Yet, we have not seen any further action. When can we expect to see further action? What is the timetable going forward?

PREMIER LIN: The controversy surrounding food safety in Taiwan concerns not only products from Japan’s Fukushima region, but also products from other countries.

The controversy over food safety has become a complex problem in Taiwan. It has more to do with certain blind spots in Taiwan’s food safety system and less to do with any single country or region.

The primary reason that the Taiwanese public has so many concerns over food safety stems from the fact that the government’s authority or credibility in this area is easily challenged. This also means that our government’s past efforts concerning food safety have not been sufficient.

When presenting scientific evidence concerning food safety, the government is often criticized, making it difficult to earn the people’s trust. These issues must be overcome. In other words, the government must be able to command respect as a scientific authority on food safety. This obviously involves further improving various mechanisms and procedures.

In terms of procedures, the first task in dealing with food safety is risk assessment, that is, to confirm whether there is actually any risk, and to ensure that the public trusts the assessments conducted by the government.

In addition to risk management, there is the issue of risk communication. Once scientific evaluations have found that there is no safety problem, we have to let people understand why the food product in question is safe. This involves risk communication.

We have seen similar controversies in the past, be it about beef imports from the U.S. or imports of various products from Europe. In future cases, we aim to further enhance risk assessment and communication procedures to create trust among our people. In the past, we successfully opened up our market to Canadian beef, but this was because there was less controversy surrounding this issue.

Of course, with regard to imports of Fukushima products into Taiwan, we have completed the relevant procedures concerning scientific evidence and risk assessment. However, we encountered tremendous difficulty in the area of risk communication. We have to further review this situation.

We cannot, and do not aim to, direct our efforts solely at Fukushima products. We have to establish risk communication procedures that are trusted by the general public and can be applied to all food safety issues in Taiwan. We must develop the ability to confront the next difficult challenge, and we are working hard to do so. Previously, in the process of risk communication concerning Fukushima food products, we held public hearings, which, perhaps due to political or economic factors, did not work out as well as we hoped. Therefore, we have to review our efforts and make structural adjustments, so that in the future, our risk communication―in terms of both procedures and the overall discussion of the topic―can put people’s worries to rest. This is the challenge we must face.

Q10
NIKKEI:
Will there be more public hearings?

PREMIER LIN: We do not intend to look at this as a single case. The purpose of our review is to improve our risk communication whenever a food safety issue arises in the future. We must establish a complete mechanism that is acceptable to all parties concerned. In the past, public hearings for risk communication were rarely held. Even though we held several such hearings, our approach at the time evidently still had problems. In addition, our society is still not very familiar with risk communication procedures, and many different opinions exist. Only when proper risk communication procedures have been put in place will the number of food safety controversies be reduced.

Q11
NIKKEI:
So is it fair to say that there is no timetable at the moment?

PREMIER LIN: There is no timetable. If we were to set such a timetable, people would suspect that we already had a goal in mind. And with a timetable, people would say we’re going to open up our market at the deadline no matter what, and the communication we engage in is not genuine. So we have to do it step by step.

Many problems still exist in our risk communication mechanism and procedures. That is also why in the past issues pertaining to food imports have been so difficult. In the past, we did not have a very mature mechanism. We hope to first establish such a mechanism. In the process of establishing this mechanism, we should follow due procedures, and not confine ourselves to fixed timetables; that would be very dangerous.

Q12
NIKKEI:
Following the termination of diplomatic relations with Panama, will Taiwan’s free trade agreement (FTA) with that country remain in effect?

PREMIER LIN: Panama is the first country that has signed an FTA with us to terminate diplomatic relations. This has a political dimension as well as an economic one. From an economic perspective, it will not have a big impact on the real economy, because Panama accounts for less than 0.1 percent of Taiwan’s total trade. Due to the small amount of trade with Panama, the impact to our real economy will be almost negligible. Of course, that is not to say that the impact will be completely nonexistent, after all, the two countries do enjoy zero tariffs on certain exports to each other.

If the FTA were to be terminated in the future, the zero-tariff regime would end as well, which would create some impact on companies engaging in bilateral trade, both Panamanian and Taiwanese companies. Even though this impact would be very small, it is there, and certain people would be affected. Of course, this impact could be said to be a loss for the two peoples, and is something we will pay attention to.

There is also the political dimension. How should we view this situation? What is the political significance of countries, who have previously signed an FTA, terminating such an agreement? Taiwan still aims to maintain an open economy, open to the greatest possible extent to countries across the globe, whether large or small. As long as markets are opened up in a reciprocal, mutually beneficial, and equal manner, Taiwan believes that this is meaningful. So we do not wish to see a reduction in the degree of openness as a result of the termination of an FTA. This is the message we intend to disseminate on the political front. But we must also consider what our two countries’ respective political positions will be, now that Panama has terminated diplomatic relations with us.

Panama no longer shares diplomatic relations with Taiwan, but what will be its attitude toward investment and trade, as well as other forms of engagement, with Taiwan? If it takes an amicable stance, of course the FTA can be extended in other ways and the transition will naturally be smooth. If Panama takes a passive or even negative approach, then our considerations will be different. Basically, Taiwan would like to view this question from the perspective of economic openness, with the premise that there must be a foundation of parity and reciprocity.

Q13
NIKKEI:
There have been some media reports that more countries will terminate diplomatic relations with Taiwan following the severance of diplomatic ties with Panama. What are your thoughts on this?

PREMIER LIN: Cross-strait communication has been difficult since May 20 last year, resulting in excessive inflexibility on several issues on the part of mainland China and undermining friendly cross-strait ties in the long-term future. Mainland China deployed its economic clout to manipulate Panama’s diplomatic partnership with Taiwan. So long as it pursues this approach, there will indeed be a certain degree of risk and difficulty in our relations with diplomatic allies.

Mainland China will continue to push this policy as long as it finds it effective. So the question is what substantive impact this strategy will have on Taiwan. The main impact is that we may have fewer diplomatic allies, but we already have very few allies. We must point out that economic and substantive foreign relations are of greater importance. Under the present circumstances across the Taiwan Strait, it is crucial that we show everyone that Taiwan will not bow to such pressure despite the loss of diplomatic partners and the threat of more such losses. These tactics will only cease when everyone understands that Taiwan’s mainstream opinion will not waver in the face of mainland China’s relentless pressure and efforts to sever Taiwan’s diplomatic relationships with allies.

Q14
NIKKEI:
To be more concrete, some people say that Taiwan’s relations with the Vatican and Nicaragua are at risk. Is that true?

PREMIER LIN: Any one of our diplomatic allies could be mainland China’s next target. We do not rule out any possibility, but neither will we comment as to which country would definitely be the next target. We are pleased to maintain solid relations with each and every one of our diplomatic allies. While there may be speculation, or comments based on certain facts, they are not necessarily correct. But it would be inappropriate for us to respond to or speculate on them.

Q15
NIKKEI:
Mainland China has consistently employed the carrot-and-stick strategy toward the government and people of Taiwan. Will this succeed as a united front tactic? Some say that it angers the people of Taiwan and has widened the rift between the Taiwanese people and mainland China. Others argue that it brings Taiwan and mainland China closer together. What do you think?

PREMIER LIN: I believe that if mainland China attempts to terminate the ROC’s relations with its diplomatic allies as a united front tactic, it is not making a very wise move. The so-called 1992 consensus that mainland China refers to is the “one China principle.” People in Taiwan have diverse views on what exactly this “principle” entails. Some say that it alludes to “one China, respective interpretations” while others suggest that it denotes “only one China and the same interpretation.” The views differ.

But how does mainland China demonstrate this “one China principle”? It asserts that the severance of diplomatic relations between the ROC and Panama is a manifestation of this “principle,” which indicates that, for mainland China, the “one China principle” constitutes bringing about the demise of the Republic of China. If so, it will be unacceptable to the majority of the Taiwanese people. It will also put an end to the wishful thinking of some people here—that this “one China” could be subject to respective interpretations.

I believe that the great majority of people in Taiwan cannot accept mainland China’s attempts to ensure the “one China principle” by pushing for the severance of the ROC’s official relations with its diplomatic allies, because it would mean that under the “one China principle” the Republic of China does not exist. How then could there be “one China, respective interpretations”?

This explains why those who uphold the 1992 consensus of “one China, respective interpretations,” as well as those who absolutely refuse to accept the 1992 consensus, consider mainland China’s approach toward realizing the “one China principle” to be unbeneficial to cross-strait relations.

Q16
NIKKEI:
Survey results announced last night showed that the termination of Taiwan-Panama relations was the main reason for the drop in approval ratings for President Tsai. Is this an indication that mainland China’s moves to cut off Taiwan from the international community may undermine the confidence of the Taiwanese people?

PREMIER LIN: As I just said, Taiwan has an open and pluralistic political system. We have people of different political beliefs. However, I am confident that most Taiwanese people do not agree that a diplomatic blockade of Taiwan is the right thing to do. They will believe even more strongly that mainland China’s approach is unacceptable; as such, I don’t think that the majority of the Taiwanese people will waver in their political stance. Of course, everyone has his or her own opinion; media reports and even opinion polls come from sources with different political perspectives and positions. All this should be taken into consideration.

Q17
NIKKEI:
The DPP government wants to maintain the status quo in Taiwan’s substantive relations with mainland China, but faces relentless pressure from mainland China. Could you summarize cross-strait political developments over the past year? When Taiwan and Panama terminated their diplomatic relationship, President Tsai called for a reevaluation of the cross-strait situation. Some regard this as a change in the president’s attitude. Could you elaborate on this?

PREMIER LIN: I think that the president made this statement mainly because cross-strait relations must be reviewed constantly. We have done our part to maintain the status quo, but any change made on this foundation deserves our attention. This does not imply a shift in our position on the status quo. The people of Taiwan have many different standpoints on future cross-strait developments. If we are to accommodate all of these diverse views, then maintaining the status quo is the best way to avoid confrontation. This basic tone and strategy will not change. However, if anything should happen, it will be essential for us to reassess the situation while upholding the main principle.

Q18
NIKKEI:
The U.S. would like Taiwan to increase its defense budget to 3 percent of its GDP, but Taiwan has yet to reach this target. With your government seeking to bolster Taiwan’s military strength, when do you think this target can be achieved?

PREMIER LIN: We will not seek to achieve a 3-percent target just for the sake of doing so. Our defense spending will be allocated so that it truly benefits our national defense. Making unnecessary investments or spending considerably on military personnel in order to reach the 3-percent target may not help enhance our defense capability. We will consider our national defense needs. Taiwan’s biggest issue is the difficulty in procuring advanced weapons. We should invest more resources to address this matter, but this is not something we can achieve promptly. For example, Taiwan needs submarines, superior submarines, but neither Japan nor any other country will sell us advanced submarines. The question is not how much we are willing to spend but whether we can purchase the items we need.

Prior to May 20 last year, we affirmed to visitors from U.S. think tanks that there could be an increase in Taiwan’s defense budget, but only in areas we want to address. We will not blindly increase our investments in armaments unless they are for appropriate items. However, we will definitely support any budget that will bolster our national defense.

Of course this leads to another question: How can we ensure Taiwan’s defense? We must take another path. Perhaps we cannot fully rely on external procurements to acquire the advanced weapons we need because there are too many uncertainties. Taiwan must be able to develop its own defense industry. In other words, if we have our own defense industry, then we can build the type of defense capability we need in asymmetric warfare.

Taiwan previously developed indigenous defense fighters, which were considered advanced at the time, but some of the components were not manufactured at home. If we can raise the percentage of self-sufficiency in both production and maintenance, it will help boost our defense industry.

This is why national defense is one of the five major innovative industries we are promoting. With government support, we aim to nurture the local defense industry, particularly with regards to warships and aircraft. Of course this requires tremendous effort, for it involves the management of classified personnel, development of strategy, technology, and so on. We hope to make adjustments in these areas. If we have a powerful defense sector, then defense spending will be more than just a consumption item because it would stimulate growth in other industries as well.

We hope that our expansion of defense spending will lead to industrial upgrading, which requires commitment on our part. Given our difficulty in acquiring military armaments from abroad, what is most important to us is how to maintain Taiwan’s defense capability and accord special attention to asymmetric capabilities. Taiwan must develop its own model; it cannot completely rely on other countries.

Q19
NIKKEI:
This brings us to Taiwan-U.S. relations. Since the telephone conversation between President Trump and President Tsai at the end of last year, the situation has undergone several changes. The North Korean issue has become increasingly serious and the U.S., with its need for mainland Chinese assistance, has developed closer relations with Beijing. What are your views on these developments? How will they affect Taiwan?

PREMIER LIN: In terms of economic relations, the United States remains Taiwan’s most important partner country. It has been very friendly toward Taiwan over the years. I am confident that the North Korean situation will not bring substantial change to such a solid relationship.

Of course we understand that the U.S. must also maintain stable relations with mainland China in order to safeguard regional security. We believe that the U.S. will be able to achieve a balance in this regard. As a matter of fact, it has repeatedly expressed hope that the two sides of the Taiwan Strait maintain the status quo and engage in dialogue on a peaceful foundation. In that regard, our position is consistent with that of the U.S. We also hope that mainland China will realize that cross-strait relations can only improve when mutual trust is built through good will dialogue.

Q20
NIKKEI:
How are the U.S. arms sales to Taiwan proceeding?

PREMIER LIN: The U.S. will continue to review Taiwan’s military needs and arrange to proceed with its arms sales to Taiwan.

Q21
NIKKEI:
According to reports, the U.S. has listed state-of-the-art F-35 fighter jets and Terminal High Altitude Area Defense (THAAD) systems among its sales items to Taiwan. Could you discuss this?

PREMIER LIN: What does Taiwan need to ensure its defense? This should be given serious thought because mainland China’s strategy is different from ours. Taiwan is not interested in attacking; it needs defense. What types of weapons best serve our defense needs? Which are most economical? This is more important.

U.S. arms sales to Taiwan should conform to these requirements. We will let the military experts decide whether the F-35 fighters and the THAAD missile system that you mentioned meet these requirements. Of course the various sectors of society have many ideas and expectations. We will present a proposed list of selected weapons that best serve Taiwan’s interests for consideration by the U.S. Before these discussions are completed, any speculation is uncalled for.

Q22
NIKKEI:
Regarding Taiwan-U.S. relations, Panama is generally considered to be in America’s backyard. Therefore, there is concern that in order to enlist support from Beijing in dealing with Pyongyang the United States tacitly allowed Panama to cut diplomatic ties with the ROC and establish diplomatic relations with mainland China. Others feel that the fact that many senior-level positions have remained vacant at the U.S. Department of State has given mainland China the opportunity to advance its position, thereby causing U.S. influence in Central and South America to wane by the day. Both scenarios spell bad news for Taiwan. In your opinion, has Panama severed diplomatic ties with Taiwan because the U.S. stance has changed with regard to Taiwan’s maintenance of diplomatic ties with other countries? Or because the U.S. is paying less attention to this matter now? We fear that if Panama did this because Washington gave tacit permission to Beijing, Taiwan’s position in Central and South America would be weakened.

PREMIER LIN: Those two scenarios are just speculation, complete hearsay. I don’t feel any particular need to respond to them. The U.S. still maintains very good relations with Taiwan, and such scenarios are unlikely. Of course, any comments regarding the United States should be directed to the U.S. for response. However, we do not think that Washington has any specific strategy in mind. The U.S. has long supported our maintenance of diplomatic ties with Central and South American countries, and we are confident that Washington’s stance remains the same.

Q23
NIKKEI:
Previously you mentioned that mainland China has been leveraging its economic might to engage in various activities with Taiwan’s diplomatic allies, thereby putting great strains on Taiwan’s diplomatic ties. In the future, what tools or methods can Taiwan adopt to ensure the maintenance of its good relations with diplomatic allies? In Taiwan, some feel that since maintaining diplomatic relations with allies can consume a lot of energy, perhaps the administration should consider focusing more on maintaining substantial economic ties with other countries—is this something the administration is pursuing?

PREMIER LIN: Your second point is exactly right. This really is important for Taiwan. Although many countries do not have diplomatic relations with our country, many of them do engage in close and frequent interaction with us. Taiwan’s substantive participation in many initiatives is also very strong.

Taiwan is an open economy that aims to foster good relations with all countries in the world, and the severance of diplomatic relations does not mean we are unable to maintain good relations with them. This is important to our future. It would be great if we could form diplomatic relations with more countries, and we will do our best to this end. However, it would be inappropriate to simply focus on official foreign relations and neglect other forms of substantive relations.

Of course, the maintenance of diplomatic relations is still a crucial task in our foreign relations. We cannot just give up. Even if mainland China continues to use its vast political or economic power to cut off our foreign relations with diplomatic allies, we will not become frustrated or change our minds. To use such tactics to influence or change our approach toward cross-strait relations is a miscalculation. It would be mistaken to believe that such tactics could change Taiwan or weaken the people’s faith in their government. Such views are overly inflated and lack substance. We hope that mainland China can understand that any attempt to make our allies switch their diplomatic recognition will not help but will only have a negative impact on the development of cross-strait relations.

Q24-26
NIKKEI:
Regarding cross-strait relations, this year marks the 20th anniversary of Hong Kong’s handover to mainland China. The people of Taiwan have seen up close how the relations between Hong Kong and mainland China have evolved over time and have made certain evaluations. How do you think the people of Taiwan feel now about Hong Kong’s handover to mainland China? When Hong Kong was handed over to mainland China in 1997, Deng Xiaoping initially committed to giving Hong Kong the privileges of the “one country, two systems” principle—which in fact was a concept raised by Beijing for reunification with Taiwan—and promised the territory free election of its chief executive. From the changes over the past 20 years since the handover, one can see that Beijing has in fact failed to honor this commitment. The people of Taiwan might believe that Hong Kong has obtained various forms of economic benefits, such as more tourists or greater investment inputs from mainland China. Also, Hong Kong’s stock exchange and real estate markets, together with its retail industry, have all benefited. But some people may have noted that political freedoms in Hong Kong have been restricted. From your perspective in Taiwan, how do the people of Taiwan feel about whether mainland China has honored its commitments to Hong Kong? What do they think about the changes since the handover?

PREMIER LIN: Let me start by responding to the latter part of your question. Before 1997, Hong Kong’s prosperity can be attributed to its free economy and rule of law. These were the primary drivers of Hong Kong’s prosperity. In other words, whether an economic body can be prosperous and competitive depends on the economic body’s own efforts. If its system is unsound and it loses human resources, its competitiveness will falter. One cannot just rely on the infusion of economic resources from outside to improve one’s economy.

After World War II, the United States continuously provided aid to underdeveloped countries. However, not every aid recipient was able to aptly utilize these economic resources to realize economic growth. Situations in some countries actually worsened despite such aid. This proves one thing—a country’s growth is dependent on its own efforts. Thus, Hong Kong’s prosperity depends on whether it can maintain the integrity of its system as well as its competitive economic position, and not on constant external economic inputs. External aid may add some icing to the cake but cannot really change a country’s basic structure. The peoples of all countries, including Taiwan, must remember one thing: we cannot totally depend on one single regime—whether it’s the United States, mainland China or Japan—to ensure our prosperity. Taiwan’s prosperity rests in our own hands. That’s what I need to explain and emphasize first.

Thus, Hong Kong is the source of its own problems. Its past prosperity stemmed from its open economy and the rule of law. Facing the current external environment, whether Hong Kong can continue to maintain its rule of law and open economy is clearly of the utmost importance. Of course, the pursuit of democracy is the inevitable result of social progress. We must bear in mind that mainland China is an authoritarian system and that the adjustment from an authoritarian system to a democratic one cannot happen overnight. Much time will be needed for its transformation.

Demands from people in mainland China and Hong Kong grow by the day. Just as in Taiwan after May 20 last year, our government has strived hard to make changes for the better, yet the people remain unsatisfied with the pace of reform, thereby creating great challenges for the government. We hope that mainland China will give greater thought when handling Hong Kong issues, so as to minimize social upheaval. When contemplating Hong Kong issues, mainland China probably also takes note of the pace of its own domestic democratization and liberalization. These tasks are certainly fraught with difficulties, but I feel that Hong Kong must be allowed to maintain the fundamental advantages of its social system in order to ensure its future. I truly believe that the people of Taiwan pay close attention to such issues when observing the developing relations between Hong Kong and mainland China.

Q27
NIKKEI:
Let’s talk about another big issue—mainland China’s maintenance of domestic stability, and what they plan for the future. Do you foresee any political changes following the 19th National Congress of the Communist Party of China in light of the recent series of news leaks? Everyone is waiting to see if Xi Jinping will tighten controls, and then there’s the matter with the CEO of the Anbang Insurance Group…

PREMIER LIN: Cross-strait relations are under the remit of President Tsai. I’m not in a position to answer.

Q28
NIKKEI:
What I’m asking for is your general observation and not about cross-strait relations. That is to say, could you give us your opinion on what direction mainland China’s political trends could take in the near future? This isn’t about cross-strait relations, but just a simple inquiry. From your perspective as premier, how do you see mainland China developing in the future?

PREMIER LIN: We hope in the future mainland China will become a society that is more peaceful and rational, more diversified, and more in tune with international trends.

Q29
NIKKEI:
Regarding Taiwan’s economic recovery, last year when you took office, Taiwan’s economy wasn’t that strong but it has been recovering gradually. Is this mainly because mainland China’s market has been recovering? How does the Executive Yuan assess Taiwan’s economic recovery?

PREMIER LIN: This last year, Taiwan’s economic indicators have been positive, whether in terms of exports, economic growth, or employment. However, I must stress that this does reflect international economic trends and that these manifest external economic trends include in particular the impact of mainland China’s improved economic indicators. Thus, I don’t consider that Taiwan’s economic growth since May 20 of last year can be fully attributed to the measures implemented by the new administration. The results of our hard work over this last year will need time to bear fruit.

However, there is a more fundamental trend that started in the mid-1990s—Taiwan’s economy started to slide, a bit like Japan’s. I’m not so sure about Japan’s situation, maybe we were a few years behind them. Japan’s situation started five or 10 years before us. In the mid-1990s, Taiwan’s economy began to steadily fall, coupled with a lack of investment. The biggest reason for this problem was that investors placed their capital overseas. Meanwhile, direct foreign investment in Taiwan dried up. Taiwanese investments moving abroad is not necessarily a bad thing, as many industries need to become more international. Thus, Taiwan started investing abroad just to grow globally. If companies want to become more international, this step is inevitable. However, Taiwan hasn’t attracted enough foreign investment to compensate for the investment going overseas. As a result, Taiwan’s biggest task at hand is to attract new investment.

In addition, mainland China has attracted talent from Taiwan, but we too need to attract new talent to Taiwan. We have to reverse Taiwan’s brain drain. The flow of human resources must be two-way. That is our greatest challenge. Therefore, our most urgent task is to attract foreign investment and human resources to Taiwan. Only if we accomplish both can we maintain the potential for Taiwan’s growth.

Next, we have to reduce the uncertainty surrounding investments, because reducing risk is a precondition to promoting investment. Major changes in government policy, an opaque regulatory system, or a failure to follow international practices closely can create barriers or add uncertainty to investments, so we must make every effort to conform to international standards and minimize uncertainty. Our policymaking must follow this major direction.

This is why lately we have been striving to join the TPP. Even though many people have expressed concern about the future of the TPP since the U.S. withdrew, we will work hard to finish our preparations to join it as before. We have finished drafting amendments to six or seven laws, which are currently under review by the Legislative Yuan. Such amendments aim to put us on the same wavelength with the rest of the world and reduce barriers to investment. In the meantime, we will do our utmost to make sound policies that stabilize the investment environment. For instance, people here worry that once we stop using nuclear power, there won’t be enough energy. Such uncertainty and risks must be addressed. Will Taiwan’s environmental pollution, water shortages, and other such issues create uncertainties for investors? We must rectify such systemic problems.

For example, one major uncertainty in the investment environment in Taiwan in the past has been the environmental impact assessments (EIA), which can drag on for many years without conclusion. I doubt any investor could accept a situation where a decision on his or her investment is not forthcoming for many years. So we have said to the Environmental Protection Administration (EPA) that it’s fine if they make the EIA standards more stringent, but they must give a very clear-cut explanation, in a short period of time, as to the likelihood of the project passing the assessment. The EPA is currently reforming the EIA system, amending basic laws and regulations. Since May 20 last year, the EPA has limited the number of EIA hearings for any given project to three, and always made a decision, whether that’s pass or fail.

What we are hoping is that, by starting to reduce uncertainty, we can show people in Taiwan that doing so is absolutely necessary for us to attract investment. Once an investment is made, it generally takes two to three years for the results to show. The same is true for the investments in wind power that we just talked about; there is a lot of investment now, with possibly more than NT$1 trillion (US$32.9 billion) to come, but we will not see the results for another four years or so. 

Q30
NIKKEI:
Will Taiwan suffer from the same persistently low growth rate problem that Japan has? Taiwan has already joined the ranks of developed countries, and the problems it faces are now different as a result. Do you think Taiwan can overcome these problems? Taiwan’s GDP growth rate in 2016 was only 2 percent when its people have grown accustomed to seeing 6, 7 or 8 percent. The public might be dissatisfied with such low growth, so how will you cope with this low rate?

PREMIER LIN: Taiwan’s economic growth rate has been on the low side since the year 2000, when it hovered around 3 or 4 percent. It’s been under 2 percent for a while now. A rate of growth less than 2 percent really is relatively low for Taiwan, and I think it’s unsatisfactory. We still hope our economic growth can maintain a basic level of momentum. However, there is still some distance between Taiwan and Japan in terms of gross national income and the degree of economic maturity. I think it’s reasonable for us to hope to achieve a better rate of economic growth.

But as I emphasized earlier, achieving a good level of growth is by no means our only goal. We are also looking to boost innovation, create more job opportunities, and ensure the more equitable distribution of resources. The reason we are looking to secure a special budget for our forward-looking infrastructure program is our desire to come up with a long-term plan that ensures a more equitable distribution of resources in Taiwanese society. Although the railway construction we have proposed has come under criticism, there are many areas where we lag behind compared to Japan. 

Q31
NIKKEI:
But some of Japan’s railways are losing money…

PREMIER LIN: This is the direction in which we need to push. While we want to provide better public services, we must also be able to accept the costs. Basically, a lot of transportation infrastructure face the same problem—since public transport benefits society as a whole, projects can’t be considered purely in financial terms. This is true for all countries.

If Japan wants to maintain its rail services—of course it comes at a price, but it can do so in the most effective way. It’s worthwhile for us to take stock of some measures Japan has recently adopted to improve the operational efficiency of its railways, including the privatization model. Perhaps there is room for Taiwan to do even more, and for Japan, too. Regardless, we want public infrastructure to be the catalyst for both public and private investment in Taiwan, for better economic growth, so as to spur balanced development across society.

Q32
NIKKEI:
The TAIEX closed above 10,000 points this year, which we observe was a result of the Apple effect. Some people say that, although Taiwan’s economy has looked pretty robust since May 20 last year, it is over-reliant on Apple. The same can be said of Taiwan’s semiconductor industry and the other big-cap stocks, including the Taiwan Semiconductor Manufacturing Co., that have powered the market. What is your opinion about the composition of Taiwan’s economy? With the semiconductor industry, is it the case that graduates from Taiwan’s top schools always opt for the semiconductor industry? Do you think that more can be done to develop other industries in terms of work force distribution?

PREMIER LIN: Firstly, we shouldn’t treat human resources as a zero-sum game, as if one industry gains at the expense of another. We need to encourage labor mobility, and attract even more foreign talent to Taiwan. This is a fundamental principle. 

The reason Taiwan’s semiconductor industry can attract so many people is because it’s highly competitive. This competitiveness doesn’t stem from Apple’s products. Rather, Apple’s products have given Taiwan’s competitiveness a chance to shine. If one day Apple’s products are no longer so popular, then others will take their place. When that happens, those manufacturers will also look to Taiwan for its competitiveness.

Since Taiwan has a very good industrial supply chain in this area, it’s possible for any kind of ICT product to be manufactured here competitively, and for any brand to associate itself with Taiwan in the future. We believe this is the main reason our ICT industry is an international player today. Of course we will maintain this competitiveness. Though we need people to move into other industries, we won’t let it occur at the expense of our ICT industry. We will continue to support it, and hope it continues to grow even stronger. We want to see the industrial supply chain become even more comprehensive.
 
We also want to see other industries grow as well. The “five plus two” innovative industries we talked about earlier are exactly the kind of industries that we wish to see become as competitive as the ICT industry. Once these industries have been established, because they are new, they will spur fresh investment and remedy the problems of economic slowdown and inadequate investment I just mentioned. They will enable us to have an even more diversified economy that doesn’t rely on a single given industry. So if our ICT industry declines at some point, then Taiwan’s economy as a whole won’t be too affected.

Looking back, the boom and bust cycle in the ICT sector really has affected Taiwan’s economy in the past. We can only reduce these sorts of fluctuations once other competitive industries emerge. This is a key strategy for Taiwan. Naturally, we also need to open up in the process, and attract foreign talent and give these people the opportunity to thrive here. 

As such, we need to steer the conversation towards our industries complementing one another. For instance, it would be a significant and mutually beneficial policy for both our countries if we could get more Japanese professionals to come to Taiwan and help us connect with industries in Japan. I think there are loads of opportunities for industries in Taiwan, Japan, the U.S., and other countries to help one another since Taiwan’s manufacturing productivity is very high. In fact, Japan has missed many good opportunities to cooperate with Taiwan, as is the case with display panels. Japan’s panel industry missed the chance to align itself with Taiwan, which dented the international competitiveness of both our countries in this domain. And if the two industries had come together, I’m sure it would have created a powerful and competitive alliance. Our DRAM industries also had a great opportunity to integrate, but Japan dropped the ball, and even though Taiwan was keen, it was powerless to do anything. As a result, Micron Technology Inc. emerged as a key player. The state of the DRAM industry in both Japan and Taiwan would probably be even worse today if it weren’t for Micron.

So there is definitely plenty of room for both Japan and Taiwan to spur investment and growth by integrating our competitiveness and industrial supply chains. In fact, back in the 1950s, 60s, and 70s, our countries enjoyed a high degree of industrial integration. Taiwan imported large quantities of industrial machinery and products from Japan, and once manufacturing began in Taiwan, we were able to generate many of our own export opportunities. 

At the time, Taiwan’s biggest trade deficit was with Japan. Most of the things we imported were from Japan, while we had our largest trade surplus with the U.S. So our manufacturing links with Japan gave us the ability to produce things that we exported to the U.S. On the one hand this increased Japan’s trade surplus with Taiwan, and on the other it reduced Japan’s trade surplus with the U.S. So it was a really positive cooperation strategy.

In recent years, however, the possibility of adopting this strategy has diminished, it would seem. I think there are still opportunities for cooperation, but they will come in the form of more personnel exchanges between our sides. We all need to further open up our markets, because it will be difficult if we are overly protective. Since neither Taiwan nor Japan can be entirely self-sufficient, we have to rely on trade to drive growth. Japan and Taiwan have so many complementary technologies and manufacturing abilities, and Taiwanese workers have been recognized as among the world’s most productive. So why can’t our industries cooperate? It’s a real pity. As such, I believe we should actively seek out the type of investment opportunities that integrate Taiwanese industries and attract foreign talent, and that create a manufacturing base in Taiwan. This manufacturing base will then benefit those nations from which the foreign talent flows, boosting their industrial output. This is the outcome we want to see.

Q33
NIKKEI:
Is the government thinking of initiating talks with Japan? Could you talk about some possible avenues for cooperation?

PREMIER LIN: This needs to be discussed at different levels. It boils down mainly to familiarity between industries. In the past, a lot of Taiwanese industries had very close ties with their Japanese counterparts. For example, many older Taiwanese businessmen can speak Japanese. But the fact that the number of Japanese speakers has dwindled is affecting our cooperative ties. The reason Taiwan is currently promoting the New Southbound Policy is to encourage talent exchanges with Southeast Asian countries. I think Japan and Taiwan should spend more time creating avenues for talent exchanges. Greater opportunities for cooperation will only come about once that happens.

Q34
NIKKEI:
Regarding the next wave of TPP talks, which countries have already begun consultations with Japan? 

PREMIER LIN: I think that’s a question for the Japanese government.

Q35
NIKKEI:
Is it true that a certain foreign company is moving its wind power operations in Asia from Shanghai to Taiwan?

PREMIER LIN: Business operations are best left for the companies to explain. But I believe wind power in Taiwan will capture the attention of many countries around the world in the future, and there will be substantial results.

Q36
NIKKEI:
We hear Denmark is also in discussions with Taiwan about wind power?

PREMIER LIN: I’m sure there are many businesses that are extremely eager to exploit Taiwan’s market, and are doing so with optimism and vigor.

Q37
NIKKEI:
We’ve also heard that some foreign private equity funds are looking for cooperation partners in Taiwan.

PREMIER LIN: We are willing to work with all reputable international businesses, but it will take three to four years of effort before we see any positive results.

Q38
NIKKEI:
So foreign investment in Taiwan’s wind power could reach more than NT$1 trillion?

PREMIER LIN: If everything goes smoothly, this could be the case. The potential capacity for wind power generation in Taiwan is at least 10 gigawatts, possibly more, while one nuclear power plant produces less than 2 gigawatts, so wind actually has enormous potential. Moreover, wind power is a very reliable source of electricity supply in the winter, when air pollution in Taiwan is very serious. Wind power will reduce the number of coal-fired power plants, which is ideal. I understand that Japan has some impressive wind power technology. If possible, we’d like to see Japan enter the wind energy market in Taiwan.