Wed, Oct 15, 2003 - Page 2 News List

Top US envoy puts China down

FLIP SIDE Therese Shaheen said that the Chinese economy had many problems and its reliance on Taiwanese brains and capital would probably only increase

AP , TAIPEI

A top US envoy to Taiwan warned yesterday that China's economy has severe problems and if the communist giant wants to succeed, it will need Taiwan's help.

American Institute in Taiwan (AIT) Chairperson Therese Shaheen's address at a business luncheon in Taipei was extremely unusual because she strayed from the official speech text, which was bland, technical and uncritical of China.

American envoys usually stick closely to the approved script so as to avoid making comments that might upset the prickly, complex relations between the US, China and Taiwan.

But the brassy, outspoken Shaheen is a former businesswoman, not a diplomat trained in caution like her predecessors at the Washington office of the AIT.

This is Shaheen's first trip to Taiwan since she was appointed last December..

In her speech to the American Chamber of Commerce in Taipei, Shaheen argued that China's economy is overrated in many ways and has serious problems. She tried to bolster her case with a flurry of statistics and observations:

-- With a GDP of US$1.2 trillion, China's economy is still just one-quarter the size of Japan's.

-- Between 170 million and 250 million people are unemployed in China. "On the high end, this is two times the size of Japan's" population, she said.

-- Unprofitable, inefficient state-owned enterprises aren't privatizing fast enough. "It's causing a lot of problems in the rust belt, especially in provinces adjacent to Korea," she said.

Shaheen qualified her comments by saying, "I'm not predicting the collapse of China. I'm just talking about the downside. I don't believe it's talked about enough."

After her speech, she said that many in Washington are becoming less enamored with China and are reconsidering the country's economic future. She said the observers didn't want to overestimate China like they did the former Soviet Union.

Shaheen said that China was like the emperor in the Emperor's New Clothes fairy tale. In the story, the naked emperor says he's wearing new clothes and the public blindly goes along with it, afraid to disagree.

"The emperor, the People's Republic of China, if it is going to succeed, it needs the help of its No. 1 tailor, Taiwan," she said.

Shaheen said that Taiwan might be the largest foreign investor in China, ahead of America and Japan.

She said that:

-- 60 percent of all the semiconductors produced in China are made by Taiwanese-invested firms.

-- 70 percent of all China-made electronics goods are manufactured by Taiwanese companies.

-- Taiwanese firms invested US$4.3 billion in China last year, while investing US$1 billion in the rest of the world.

Taiwan shouldn't worry that the economy is hollowing out because of the heavy investing in China, she said. Taiwan has sound fundamentals and is the world's 16th largest economy, she said.

"It's the fifth largest economy in Asia, including Australia," she said. "It's bigger than most of our NATO allies."

Shaheen said she didn't expect any breakthroughs in Taiwan-China relations until after the presidential election next March. After the vote, she expected Taiwan would negotiate an end to the ban on direct flights and shipping with China.

"They'll want to work something out because money talks," she said.

Previously, Shaheen was the president and chief operating officer of US Asia Commercial Development Corp, a Washington-based firm whose specialties include joint ventures, mergers and capital investment.

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