Currencies

[Amaunet]

Taiwan Dollar Rises on Optimism China Ties May Thaw (Update1)

Dec. 13 (Bloomberg) -- Taiwan's currency rose after President Chen Shui-bian failed to gain a majority in parliament, limiting his ability to push through policies that may worsen relations with China.

The Taiwan dollar gained as much as 0.5 percent after the opposition Nationalist Party and its allies won 114 seats on Dec. 11, compared with 101 for Chen's Democratic Progressive Party and its backers in the 225-seat parliament. Stocks fell, led by Cathay Financial Holding Co., on concern other initiatives from Chen, such as a banking bailout, may be weakened or hampered.

Polls before the vote showed the two sides were neck and neck, raising concern Chen would be able to gather support to change the constitution and to drop ``China'' from the names of state companies. China, which sees the moves as attempts for independence, has said it may reunify the island by force.

``People are taking a breather from worrying about relations with China,'' said Albert King, who oversees the equivalent of $10 million as chief investment officer of Prophet Capital Inc. in Taipei. ``We won't have to worry about Taiwan changing its legal status until the next legislative elections'' in three years, he said.

Pending in parliament is Chen's $18 billion special military spending bill, which opposition lawmakers have vowed to cut in half. The measure seeks to buy arms from the U.S., the biggest supplier of military equipment to the island though it recognizes China in diplomatic circles. China often protests when the U.S. sells arms to Taiwan.

Markets

The Taiwan dollar gained 0.2 percent to NT$32.402 against its U.S. counterpart as of 2:39 p.m. The local currency has climbed 4.8 percent this year. The benchmark Taiex index fell 32.74, or 0.6 percent, to close at 5878.89 in Taipei.

Chen has been seeking more money from lawmakers to clean up bad loans at Taiwan's 49 banks and more than 300 local loan cooperatives. Soured assets totaled NT$651 billion ($20 billion) at the end of September. Chen originally sought NT$1 trillion. Opposition lawmakers said in October that they would pass a bill for NT$220 billion, less than a quarter.

Before the parliamentary vote, Chen, 53, also pledged to seek a referendum to change the island's constitution before his second four-year term ends in 2008. Without enough backing in parliament, he won't be able to push through the measure, which China sees as another attempt to seek independence.

China's official Communist Party newspaper People's Daily said today that the outcome of Taiwan's parliamentary election shows the island's voters reject Chen's pro-independence stance, His hopes have been ``shattered,'' the newspaper said in a commentary.

Popularity

Chen's popularity fell to a record after his party and its allies failed to gain a majority in parliament, Taiwan's United Daily News reported, citing its own survey. Chen's approval rating dipped to 34 percent, the lowest since he first took office in 2000, according to the Taipei-based newspaper, among the three biggest in Taiwan by circulation.

Chen's approval rating was down 7 percentage points from before the Dec. 11 parliamentary election, the newspaper said today. About 51 percent surveyed were dissatisfied with him, a record, it said. About 44 percent expect relations with China to improve, and 16 percent say ties may deteriorate, it said.

``Beijing will probably demonstrate more good will and confidence toward the people of Taiwan,'' said Chang Wu-ueh, a professor of China Studies at Tamkang University in Taipei. ``For now, China won't have to worry about Taiwan changing its name and writing a new constitution.''

Chen, 53, has been blamed for deteriorating relations with China, Taiwan's biggest export market. He also faces slowing growth in Asia's fifth-biggest economy, a banking system riddled with bad loans, a record budget deficit and national debt exceeding NT$3 trillion.

Flights

Taiwan Semiconductor Manufacturing Co. and other companies, with more than $100 billion invested in China, regard good relations with the mainland as critical to profit and expansion.

China and Hong Kong accounted for about 36 percent of the island's exports in November, helping fuel an economy expected to grow to $315 billion this year.

``A litmus test for China's attitude toward Taiwan is if the mainland will be willing to talk about charter flights for the Lunar New Year holidays in February,'' Chang said.

Airlines shares gained on hopes better ties with China could lead to the start of direct flights with the mainland. China Airlines, Taiwan's largest carrier, rose 1.1 percent to close at NT$18.40. Smaller rival EVA Airways Corp. climbed 2.7 percent to NT$15.10.

Direct flights would cut a five-hour trip through third countries to about 90 minutes and pare cargo costs. Chen said he would seek ``stable cross-Strait relations'' in a speech on Dec. 11 after his party failed to gain a majority in the vote.

Taiwan's 10-year bonds rose on speculation the government will need less debt as the special military spending may be cut by lawmakers. The 2.625 percent bond maturing September 2014 rose 0.2152, or NT$215.2 per NT$100,000 face amount, to 101.5901 as of 2:39 a.m. in Taipei. Its yield fell 2.5 basis point to 2.439 percent in Taipei, according to Gretai Securities Market.


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