As the months roll by, the public is still waiting to hear the details of a planned economic cooperation framework agreement (ECFA) with China.
The benchmark TAIEX has jumped 49.2 percent this year on ample liquidity, but a sudden pullback of more than 3 percent last Monday 〞 on speculation that the government could delay signing an ECFA until next year 〞 suggested that investors were looking for an excuse to take a breather, especially considering that economic fundamentals have not motivated the high stock valuations of late.
It could also indicate that investors are watching the ECFA discussion with baited breath, even though the pact＊s details remain a mystery.
The TAIEX fell 239.04 points, or 3.53 percent, to 6,530.82 on Monday, then climbed 108.59 points, or 1.66 percent, the next day following comments by Premier Liu Chao-shiuan (?欳哱) and other government figures at a meeting with business leaders. The government said preparations for inking the pact were proceeding as planned.
The fuss surrounding the ECFA has been amplified by the fact that the government has not completed a study on the potential impact or made public the content of the proposal.
It has, however, said that an ECFA would secure tax cuts from China for Taiwanese businesses, in addition to other benefits, including investment guarantees, deregulation of the service sector and protection of intellectual property rights.
Whether talks on the ECFA should be included on the agenda for the fourth round of cross-strait negotiations this year is for the government to decide. What should concern investors is not how soon the pact will be inked, but what it consists of and whether it will be implemented effectively.
Investors have overlooked the fact that the ECFA has political implications as well. In terms of discussing the ECFA with the public, the government does little more than emphasize its urgency. Investors should not be satisfied. Until the government reveals its vision for the pact, it will remain impossible to speculate on the potential positive and negative effects.
Unfortunately, Liu, Minister of Economic Affairs Yiin Chii-ming (窇??), Minister of Finance Lee Sush-der (燠扴肅), Council for Economic Planning and Development Chairman Chen Tain-jy (?氝皉) and Financial Supervisory Commission Chairman Sean Chen (?喳), who attended Tuesday＊s breakfast meeting with representatives of the Chinese National Association of Industry and Commerce, seem uninterested in anything but the benefits for large corporations.
Despite the government＊s cheer, it remains unclear what effect an ECFA would have on domestic unemployment, small and medium-sized enterprises and local industries.
With bullish sentiment gaining momentum on the stock market following better-than-expected second-quarter reports by many US and local companies, investors should feel comfortable increasing their holdings.
They should not, however, let a vague understanding of the government＊s plans for an ECFA lead them to misjudge investment priorities. The ECFA is not only a bone of contention between the two major political camps; industrial and business groups are equally divided.