Mon, Sep 06, 1999 page4

• KMT's assets under the microscope

  PUBLIC SALES The effort by the KMT to divest itself of some of its corporate holdings has revived debate over the blurred line between the government and the party during the martial law years, and whether the companies belong to the party or to Taiwan's taxpayers

  • By Vicky Tien / CONTRIBUTING WRITER
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  On Aug. 9 of this year, China Television Company (中國電視公司, CTC), was granted a public listing on Taiwan's stock exchange.

  The listing, marked by a gala event attended by soap opera stars and lion dancing, was the first by Taiwan's three terrestrial television companies, and was part of efforts aimed at privatizing government-controlled media.

  But CTC's public listing also represents another kind of effort: that of the KMT (which had been a major investor in CTC), to divest itself of corporate interests ahead of possible legislation to limit, if not ban, investments by political parties.

  

  China Television Company president Chiang Feng-chi, left, and board chairperson Cheng Shu-min, right, are joined by actors from the station's various programs on July 9, 1999, to celebrate the firm's listing on Taiwan's stock market.

  PHOTO: LIBERTY TIMES

  The Question of Ownership

  Analysts are voicing concern over what they say is a growing trend by the KMT to push its subsidiary companies into going public. They say such moves will only make it more difficult to solve a major historical problem -- the question of whether or not the KMT's holdings are in fact public property.

  "CTC is not owned by the KMT," said Chang Chin-hsi (張清溪), professor of economics at National Taiwan University.

  "But it has been licensed through government application ever since the time Taiwan was under one-party rule," he said, referring to the gray area that for decades existed between the government and the KMT.

  Chang said the circulation of CTC stocks on the open market would complicate efforts to take back what some say ultimately is public property.

  He pointed out there are two motives for KMT subsidiary companies to go public.

  "One is to exchange the stock for cash, and the other is to sell the assets that it [the KMT] grabbed from the public years ago."

  In addition to the CTC, the party has also announced plans for the China Broadcast Company (中國廣播公司) and the Central Film Company (中央電影公司) to go public in the near future.

  The licenses for all three KMT-affiliated companies -- all of them profitable -- are granted by the government.

  Moreover, both China Broadcasting and Central Film have major land holdings in Taiwan -- holdings which are now under dispute amid allegations the companies have been taking over or buying land from the government for many years at below market prices.

  "KMT-controlled media enjoyed decades of huge profits because of their monopoly of the market. But times have changed. Since the media market was deregulated in the mid-1990's, the KMT companies have felt the pinch from severe competition," says Liang Yung Huang (梁永煌), editor in chief of Wealth Magazine (財訊月刊) and a long-time researcher on KMT corporations.

  These shrinking profits, he says, may be one of the motives behind the KMT's push to sell its media stocks.

  In fact, the KMT has earned a lot already from private sales of CTC stock to specific buyers over the past two years.

  In order to meet the requirements for going public, the KMT reduced its share in CTC from 50 percent to 45.9 percent (including its main holding company and subsidiaries) in 1997 and 1998.

  Those sales earned the KMT a net profit of NT$ 740 million, according to 1998 financial statements.

  "One of Taiwan's largest syndicates"

  However, some good may come from the KMT's drive to list its subsidiaries on the Taiwan stock exchange.

  Going public should ultimately bring the financial details of these subsidiaries into the open, said New Party lawmaker Lai Shih-pao (賴士葆), and put the operations of these companies under public scrutiny.

  But Lai also believes the KMT will inflate the financial performance of the listed companies in order to "cheat the public of their money from the stock market."

  Because of the KMT's monopoly on political power in Taiwan in the decades after 1945, its businesses prospered, including gas, steel, construction, electronics, media, banking and securities firms.

  The party even invested in columbariums, or businesses storing funerary urns.

  The 1998 financial statements from the KMT's seven corporate holding companies show total assets of NT$147 billion, with net profits of NT$12.2 billion, and a net worth of NT$68.3 billion.

  These seven holding companies have investments in a total of 282 companies, including 31 in which they hold at least a 50 percent share.

  These statistics show the KMT has become one of the largest syndicates in Taiwan. Many of the party's businesses were established in the early years of the KMT's rule in Taiwan, when the national economy was under a strict regulatory regime. For example, the Guang Hwa Investment Company (光華投資), one of the seven holding companies, invested in 12 gas companies across Taiwan (although 1995 statistics showed only six remain on their list).

  All 12 gas companies were joint ventures with the Vocational Assistance Commission for Retired Servicemen (退撫會), which is under the control of the Executive Yuan.

  In 1994, when the KMT released the financial records of the holding companies for the first time, it revealed there were 41 ventures the party had invested in along with a government-body or company. The number of such joint ventures was reduced to about thirty last year.

  In addition, KMT subsidiaries gained subsidies or commissions from government revenues for many years.

  However, some less than profitable operations were off-loaded -- to the government. In 1995, two debt-ridden KMT subsidiaries -- the Central News Agency and the overseas department of the China Broadcast Company -- reverted to government control, at an annual cost to taxpayers of NT$300 million, according to government reports to the Legislative Yuan.

  Meanwhile, the seven holding companies have remitted a total annual surplus to the party of about NT$5 billion This abundance of capital, say analysts, has ultimately contributed to the maintenance of the KMT's political status in Taiwan.

  Future limitations

  But that largesse could one day be a thing of the past. During the 1996 bilateral National Development Conference, the KMT and DPP reached a consensus "in principle" on restricting investments by political parties. Although there has been little done since then to change this consensus into reality, the prospect of such limitations is obviously influencing KMT-affiliated corporations in their efforts to win public listing.

  The KMT is facing a crisis -- as it gradually loses political power it is facing increasing challenges and restrictions on its businesses, such as the passing of the Government Purchase Law (政府採購法) in 1998. So the KMT has begun diluting the ownership of shares in its subsidiaries, while still maintaining control over the companies.

  The most obvious and significant example is that of the China Development Industrial Bank (中華開發工業銀行), whose KMT-held shares have been reduced to a mere 0.16 percent in recent years.

  However, while KMT corporate heads claim the bank is no longer a party subsidiary, it's unrealistic to say the KMT has lost control over it, says Liang Yung Huang.

  "Its CEO is still Liu Tai-ying (劉泰英), the chief of the KMT's business arm," said Liang.

  Pushing its subsidiaries to go public is basically a form of "dilution," which will make things difficult in future disputes over KMT-run corporations, said Lai Shih-pao, who advocates banning investments by political parties altogether.

  "Legislating such laws, however, will not be easy," Lai said.

  The ultimate solution to solving such disputes, say opposition figures, is a change in the political control of the government, said Chang Chin-hsi, who is also an economic advisor to the DPP's presidential candidate, Chen Shui-bian (陳水扁).

  Chang said the assets of KMT corporations should be regarded as public properties and should be confiscated -- an opinion shared by Chen, who has said he would take action if elected president.

  "Such political problems can only be solved through political means," Chang said.
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