Cablegate: Southern Taiwan Kmt Leaders Positioning the Party - And

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1. (SBU) Summary: In a July 9 luncheon with DIR Young, prominent
local KMT leaders assessed the early stages of President Ma's
administration and blamed Ma's lagging poll ratings on the declining
stock market and rising prices. Participants hoped that Terry Gou's
Hon Hai electronics' major investment in Kaohsiung would bring the
city prosperity, but doubted that proposals to establish casinos in
southern Taiwan had much prospect for success. Noting their
interest in realizing the benefits of direct cross-Strait flights to
Kaohsiung, they suggested that if Mayor Chen leaned too far forward
on direct flights, she would alienate her core deep-Green
supporters. All agreed that Mayor Chen would run for re-election in
2010 if her health allowed. Although still two years away, the 2010
mayoral election stage is already shaping up to be a fierce battle
within both blue and green camps, as recent local KMT gains and DPP
setbacks have led both sides to believe that this coveted seat is up
for grabs. End summary.

Kaohsiung's KMT Titans: Looking to Mayoral Race
--------------------------------------------- ---

2. (SBU) During his July 9 visit to Kaohsiung, DIR Young hosted
lunch for several of Kaohsiung City's most prominent KMT officials -
powerful City Council Speaker Chuang Chi-wang, newly-minted
Executive Yuan (EY) Southern Taiwan Office CEO Luo Shih-hsiung,
two-time narrowly-defeated KMT Kaohsiung City mayoral candidate
Huang Chun-ying, successful Kaohsiung City KMT Party Chair Hsu
Fu-ming, and popular Legislative Yuan (LY) member Lee Fu-hsiung.
The KMT is enjoying a winning streak of sorts in Kaohsiung, as it
took three of five seats in the January 2008 LY election and Ma
Ying-jeou decisively beat Frank Hsieh in Kaohsiung during the March
2008 Presidential election. The KMT has high hopes that it can
retake this coveted mayoral seat in 2010, and both Chuang and Luo
reportedly are interested in running.

Presidential Politics: Assessing Ma

3. (SBU) Rehashing the outcome of the spring presidential election,
Speaker Chuang mentioned that Ma's success in Kaohsiung City was due
in large part to his effective campaign style. He promised the
economic changes people were seeking and connected with voters in
the south through his "long stay" program. The "long stay" visits
in particular allowed him to campaign as a person beyond his party
affiliation and were vital to his victory in Kaohsiung City, Chuang

4. (SBU) DIR noted that he had recently spoken to former President
Lee Teng-hui about the current political situation. Everyone agreed
that President Ma's nomination of Lee supporter and Taiwan
Solidarity Union (TSU) insider Lai Hsin-yuan as Mainland Affairs
Council Chairman was intended to be a goodwill gesture to former
President Lee. City KMT Chair Hsu noted that while Lee did not
openly support Ma in the last election, his TSU refrained from
endorsing Frank Hsieh and was thus friendly to Ma's campaign.
(Note: Lee came out at the last minute and announced he would vote
for Hsieh.)

5. (SBU) Alluding to Ma's difficulties with the Legislative Yuan
regarding his nominees to the Control and Examination Yuans, DIR
noted that some observers felt Ma was to blame because he failed to
win over legislators prior to the vote. Legislator Lee Fu-hsing
commented that he would not openly criticize Ma's handling of the
nomination process. He mentioned that he did, however, write a
letter to Ma expressing his disappointment.

Economic Troubles: Hoping for a Turnaround

6. (SBU) Several lunch participants suggested that President Ma's
"honeymoon" in southern Taiwan might be over, as people were growing
impatient waiting for the region's promised economic revitalization
to take shape. Speaker Chuang confirmed that the KMT's biggest
concern in Kaohsiung is the economy, which had thus far remained
stagnant. Chuang said that many of President Ma's supporters
invested in the stock market following the election, hoping from his
election promises that an economic turnaround was imminent. Until

TAIPEI 00001042 002 OF 003

the market improved, he speculated, Ma's approval ratings were
likely to continue declining.

7. (SBU) Asked if Terry Gou's planned Hon Hai investment in
Kaohsiung would help to alleviate the City's economic and
unemployment woes, CEO Luo commented that Hon Hai would bring its
own highly trained engineers to Kaohsiung and would thus not create
employment opportunities for blue collar workers. Luo noted,
however, that if Hon Hai also decided to build a factory in
Kaohsiung County, as some were suggesting would happen, more jobs
could be created. He added that Hon Hai was considering relocating
its transshipment operations from Vietnam to Kaohsiung - a move that
would be an economic shot in the arm for both the harbor and the
city. Hon Hai's mainland subsidiary, Foxconn, was currently the
largest exporter in China and had an enormous amount invested in its
Vietnam operations. If the firm were to move its transshipment
center to Kaohsiung, the KMT would score a major victory in the
south that would translate into political capital for future

8. (SBU) Regarding the proposal to build casinos in Penghu, CEO Luo
noted that a Penghu referendum on the issue had passed with over
fifty-percent support and predicted that casinos would indeed be
coming to Penghu. Speaker Chuang, however, doubted that any casino
company would agree to invest in Penghu given the competition from
nearby gambling centers like Macau. He suggested that Kinmen would
be a better location for casinos given its proximity to the PRC and
greater potential to attract PRC tourists.

Cross-Strait Links: Applauding Direct Flights
--------------------------------------------- -

9. (SBU) Lunch participants agreed that the KMT in Kaohsiung needed
to capitalize on the opening of direct cross-Strait fights. Speaker
Chuang noted that the DPP and Kaohsiung City Mayor Chen were in a
quandary regarding these flights. Chen had already been criticized
for not doing more to promote Kaohsiung tourism in the PRC - a
misstep that some say explained why Kaohsiung did not receive any
direct flights on the first day of service. However, if Chen were to
throw her full support behind the flights, she would risk losing the
support of deep-Green backers wary of drawing closer to the
Mainland. Taking advantage of this dilemma, Speaker Chuang and CEO
Luo both said they would visit Guangzhou on July 18 with a
delegation from the Development Bureau to encourage tourism to
Kaohsiung. This issue was likely to be key in the early stages of
the Kaohsiung mayoral race, they suggested.

10. (SBU) The group concurred that the biggest draw attracting
Mainland tourists to come to Taiwan was not the island's
infrastructure but rather its culture and vibrant democracy. They
recommended that tours be set up to highlight these aspects of
Taiwan, for example by taking tourists to visit Kaohsiung's City

2010 Mayoral Race: Vetting DPP Candidates

11. (SBU) On possible DPP candidates for the 2010 Kaohsiung mayoral
race, all agreed that Kaohsiung City Mayor Chen Chu would likely run
for a second term. As evidence, they pointed to her choice of Huang
Chao-huei, a seasoned campaign organizer, to be Civil Affairs Bureau
Director. They related that they had already seen Huang's influence
in Mayor Chen's sit-in to protest delays in Kaohsiung's proposed Pop
Music Center. They also believed that DPP Kaohsiung County
Magistrate Yang Chiu-hsing was interested in running as he had
recently bought a house in Kaohsiung City. However, they agreed
that Yang was more influential in Kaohsiung County than in Kaohsiung
City and that he would face stiff competition from incumbent Mayor
Chen. Lunch participants also revealed that another rumored
contender, former acting DPP Mayor Chen Chi-mai, would probably not
run after all, as he was more interested in a Legislative Yuan

12. (SBU) Lunch participants added that Frank Hsieh, still
influential in Kaohsiung City politics, remained a force in the DPP.
They suspected that he may be waiting to replace DPP Chairperson
Tsai Ing-wen at the end of her term. They pointed out that in a
recent TV interview, Hsieh declared that he might be forced to

TAIPEI 00001042 003 OF 003

return to politics in order to protect his political interests - a
move that would put Tsai in a difficult position. They also
speculated that Tsai would be a leading contender for the DPP's 2012
presidential ticket, along with former 2008 DPP Vice Presidential
candidate Su Tseng-Chang.


13. (SBU) The KMT faces a difficult political challenge in
Kaohsiung. As Speaker Chuang explained to DIR, Ma's "long stays"
resonated with southern Taiwan voters who responded to his message
of economic regeneration in the south. The local KMT is eager to
translate Ma's campaign promises for Kaohsiung into reality, but
only in a manner that scores political points for the KMT and not
the DPP. Meanwhile, the DPP and Mayor Chen can place the blame on
Ma's administration if it fails to meet local voters' high
expectations in the near term, and they can even claim credit for
central government largesse. With Mayor Chen possibly facing a
bruising primary challenge within the DPP, local KMT officials hope
that a strong candidate leading a unified local party will clinch
victory for them in 2010. However, the KMT's recent electoral
successes in the city and the DPP's setbacks have encouraged a host
of potential KMT mayoral aspirants, and even at this early stage,
the KMT field is getting very crowded. End comment.



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