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November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

AsiaweekTimeAsia NowAsiaweek

MARCH 17, 2000 VOL. 26 NO. 10

The Curse Of 'Black Gold'
Lee Teng-hui's darker legacy may be a political culture riddled with corruption and gangsters

Cover: Stock Options
Still relatively rare in Asia, companies are likely to start giving employees equity as an incentive to work better and stick with the job. Thank the Internet
• Glossary: A quick guide to cashless collars and other terms
• Japanese Dream: It isn't hip to be a salaryman

Asiaweek Salaries Survey 2000
Jobs in the region and how much they pay

Taiwan: The race for president is too close to call. Whoever wins, the island and its relations with Beijing will never be the same
• Interview: Chen Shui-bian does not want war with China
• Black Gold: Of gangsters, vote-buying and political corruption
• Geopolitics: The influence of Taiwan's brand of democracy
Thailand: What the Senate election means for political reform
Malaysia: Behind a debate on special privileges for Malays
East Timor: Why Falantil members are now rebels without a cause
Viewpoint: Vajpayee masks the fundamentalist threat

The Net: A geek summit in Taiwan
Computing: Hong Kong's hidden software industry
Cutting Edge: Simulating real life

Cash: With $1 billion, San Miguel goes shopping
Marketing: Notebooks as status symbols in Asia
Interview: Krung Thai Bank head says changes are coming
Investing: Mining resource stocks for profit

People: A*Mei drops pop for the classics
Entertainment: The hot spot for survival docu-dramas
Health: Protecting against Alzheimer's disease
Newsmakers: Zhu Rongji lays down the line
Looking Back: Mourning South Korea's President Park

Whether Kuomintang candidate Lien Chan wins or loses the Mar. 18 presidential election, Taiwan's ruling party will fragment further. So says legislator Eric Chu Liluan, official campaign spokesman for the vice president. "This is a turning point for the KMT," says Chu, 38, a party youth leader and reformist. "Honestly, we have to accept people's criticisms, especially of our poor handling of hei-chin."

Literally "black gold," the term evokes bribery and gangsters - all too broadly embedded in Taiwan politics today. In the popular mind, it is also linked with the $6 billion in assets on which the KMT reportedly draws to buy votes. Lien vows to clean up the party if elected. But even if the VP loses, Chu says that he and other KMT youth-wing members will begin a purge of party elements responsible for hei-chin practices. "We are not stupid," says Chu, who is also a professor of accounting at National Taiwan University. "We need the votes - not the money."

Chu may be a fresh-faced do-gooder within the KMT, but there is little doubt that Taiwan politics will enter a new era when Lee Teng-hui relinquishes the presidency in May. The Nationalists began fragmenting seven years ago when the old guard, made up mostly of mainlanders, left to form the New Party. They were disenchanted with Lee's political style of pitting Taiwanese against China-born citizens. The split deepened recently when the KMT expelled former heavyweight James Soong Chu-yu - another mainlander - and dozens of his followers. And, as Chu predicts, more purges are likely as the party must overhaul itself in order to survive as a credible political entity.

The imperatives for reform are clear enough. With only 119 of 224 seats, the Nationalists hold a bare majority in the legislature. The opposition Democratic Progressive Party (DPP), which has 70 seats, has pledged that if it wins the presidency, it will investigate how the KMT accumulated such vast assets and return any ill-gotten gains to the people.

The ruling party's possessions, which last year yielded $261 million in net profits from equity investments alone, consist primarily of shares in seven major holding companies (see table). Most of these are highly profitable enterprises formerly owned by the state. The remaining assets are in the form of stakes in dozens of listed and privately held companies in Taiwan and abroad, including mainland China. Key stakes in these concerns were also held by prominent local families, which had grown rich and powerful under the patronage of the KMT regime.

Under the management of Liu Tai-ying, a close friend of Lee Teng-hui, the ruling party's assets more than tripled in the 1990s. A former business executive under industrialist Koo Chen-fu, Taiwan's chief negotiator with China, Liu holds a doctorate in economics from Cornell University. He assembled a team of global fund managers to invest the ruling party's money, which ended up in the local stock market as well as around the world.

Under pressure from the DPP, the Nationalist hierarchy has pledged to put the assets into a trust, run by professional managers. But critics say that won't be enough. "The party should go one step further," says Lien supporter James Jin, a leading television commentator and publisher of Business Weekly, Taiwan's top business magazine. "We believe the party should return the assets to the country." Jin's logic is simple: years ago, when the KMT was virtually synonymous with Taiwan, it was understandable that the party should have assets of its own. Back then, the Nationalists often used the money to build infrastructure or to start key businesses that the private sector wasn't interested in. The seminal Hsinchu industrial park, for example, was initially funded from KMT coffers. But with the party's lock on total power now a thing of the past, says Jin, Nationalist assets should be turned over to the public.

Over the past decade, those assets have served the KMT more than Taiwan. The party, which began political reforms in the late 1980s allowing multi-party elections, reportedly began buying votes to ensure its members won polls. But what made Taiwan politics really controversial was that the KMT allegedly used gangsters to buy the ballots. (The party has denied such charges.) "They would give you money in one hand and tell you to vote for so and so. Then with the other hand, they would show you the gun beneath the vest, in case you had other ideas," claims Li Ao, presidential candidate of the New Party. The going price, reportedly, was up to NT$2,000 ($66) per vote. But the gangsters evidently began wising up: Why be intermediaries when they could run for election themselves? According to lawmaker Chu, at least 10% of the Legislative Yuan and 25% of local assemblies are linked with triad gangs. "Lee Teng-hui's top achievement is his democratic legacy," says Chu. "But his failing is that he never stopped the darker side of democracy."

Money Machine
KUOMINTANG equity investments*
Year Total Net Profit
1999 $2.29b. $261m.
1998 $2.23b. $395m.
1999 $2b. $542m.
1996 $1.6b. $286m.
1995 $1.4b. $240m.
1994 $1.36b. $307m.
1993 $712m. $173m.
*Not including real estate and other fixed assets owned by the party

Central Investment Co.
Kwang Hua Investment Co.
Central Motion Pictures Corp.
Hua Hsia Investment Co.
China Broadcasting Co.
Central Daily News
China Daily News
Source: KMT Investment Management Committee and China Development Corp.

Nor is the KMT alone in its supposed underworld links. The DPP is also alleged to have members with triad backgrounds. Vote-purchasing became so prevalent that even the opposition ended up doing it. (The DPP admits to having only $1 million in assets, most of it from donations.) What makes the ballot-buying legacy even more sinister is that not all of the money comes from party coffers. The party will contribute only in key races, says a former legislator, forcing many candidates to pay out of their own pockets. This, adds the ex-lawmaker, leads to further corrupt behavior once the politicians win, as they may want to recoup their money by taking cuts in public-works projects in their constituencies. In fact, many such projects are subcontracted out by companies linked to lawmakers, says the onetime legislator. "I just bought a $1-million house in California - with cash," he says gleefully.

Another tactic attributed to the KMT is to get companies in which it invested to support its candidates in elections. According to an employee at a Taipei hotel belonging to a major KMT-invested group, the owners not only required workers to show up at rallies, but also to vote for the party's nominees. "Otherwise we'll lose our jobs," says the employee. "But it's a lot better these days. We need only attend the rallies, not vote for the Kuomintang. We can pick whomever we want."

People like Chu want to change the hei-chin electoral subculture. "The top layer of society believes that Lien Chan is honest and he can step out of the shadow of Lee Teng-hui," says the lawmaker. "Most of the people around Lien are reformers." Whoever wins the presidency, Chu goes on, this reformist faction will strive to be the dominant force in the KMT. "We would like the party to be more clean," he says, adding that the pro-reform forces, if they succeed in gaining control of the party, may return KMT assets to the public. "If we lose to the 'black-gold' faction, then the people will win for us [in future elections by throwing them out]," Chu says. "I am not worried."

Other leading presidential hopefuls - notably the DPP's Chen Shui-bian and independent Soong - have also vowed to curb hei-chin. But the entrenched interests, with their extensive clout and reach, will not be so easily dislodged. The reformers have a tough fight on their hands.

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