Taiwan Wealth Probe Shows Disdain for China-Style One-Party Rule

(Bloomberg) -- At the Palace, one of the most expensive residences in Taiwan’s capital, a uniformed attendant waits to greet visitors under an elaborate stone archway and swaying palm trees.

The plot of land, roughly the size of Rome’s Colosseum, housed the state-run broadcaster after Chiang Kai-shek’s Kuomintang fled the mainland in 1949 and established military rule that lasted until the 1980s. About a decade later, the party sold the plot to a private developer for about $300 million, outraging critics who said the proceeds should go to national coffers.

Last year, the KMT’s opponents -- President Tsai Ing-wen’s Democratic Progressive Party -- took power in the legislature for the first time since Taiwan embraced multiparty elections. It quickly passed a law seeking the return of state assets still in the KMT’s hands, including the $300 million from the Palace and other holdings worth more than half a billion dollars.

“Whether it’s the KMT or the DPP or even another party in the future, this should never happen again,” Wellington Koo, chairman of the administration’s Ill-gotten Party Assets Settlement Committee, said in an interview last month. “This is a way to strengthen our democracy. That is an important purpose.”

So far, there’s little sign that the assets probe will eradicate the China-friendly KMT altogether. A poll the party released in January found that its public approval exceeded Tsai’s DPP, which has struggled to improve deteriorating relations with China and to push forward pension reforms.

The bigger worry for Beijing is that the investigation shows just how much Taiwan and China are drifting apart politically even as they become more integrated economically. Beyond just recouping money, the probe into the KMT is dismantling the legacy of one-party rule that is still embraced by China’s Communist Party.

Single-party dominance of a government is “clearly a situation that people in Taiwan don’t want for themselves,” said J. Bruce Jacobs, an emeritus professor at Monash University in Melbourne, Australia. The KMT’s rule resulted in a complicated web of ownership over public assets that should now be unwound, Jacobs said. 

China considers Taiwan a province that should eventually be reunited with the mainland, by force if necessary. With a gross domestic product 30 times bigger than Taiwan, China has successfully leveraged its economic might to isolate the island on the world stage, making diplomatic ties contingent on the acknowledgment that they are part of the same country.

Read: Why Taiwan must walk a political tightrope with Beijing

While the U.S. respects this “One-China” principle, it’s also bound by law to defend against Chinese aggression against Taiwan. Polls show that most of Taiwan’s 23 million people oppose reunification. The DPP officially supports independence from the mainland, and the president has angered by Beijing by declining to explicitly endorsing the One-China concept.

Like China’s Communist Party, Taiwan’s KMT blurred the lines between party and government when it held power. Its four decades of authoritarian rule saw political opponents suppressed and assets confiscated during a period known as the White Terror.

The party also invested in industries spanning semiconductors to petrochemicals to financial firms through a separate company. Once regarded as the world’s wealthiest political party, the KMT’s current assets are valued at around $550 million, down from nearly $3 billion in the 1990s.

Koo’s committee froze the KMT’s accounts in August, effectively paralyzing the 105-year-old party. More than 700 employees went without pay and its retired workers couldn’t collect pension payments. This month, the KMT, which cost $15 million to operate last year, laid off about 40 percent of its staff. Creditors may soon start auctioning off assets, according to Gordon Chen, chairman of the KMT’s main investment holding company.

“If the purpose is to wipe out the biggest opposition party, it will leave the biggest stain on democratic development -- unseen anywhere in the world,” Chen said in an interview last month.

Some in the party, however, see an opportunity. Fewer staff members will make the party more reliant on political donations and volunteers for the 2018 municipal elections, according to party Vice Chairman Jason Hu. The KMT’s organizational structure may have pushed it “too far from the voter,” said Hu, who lost a bid for Taichung city mayor in 2014.

Past KMT leaders have called for selling off businesses, and a 2000 review under a DPP-led government recouped some assets. The law passed in August seeks the return of everything apart from donations, dues or election subsidies.

The KMT says that reopening investigation is unconstitutional and unfair. Proceeds from the Palace, for instance, helped cover a backlog of expenses from operating the state-broadcaster, according to Chen, the party chairman. The party is currently challenging the law in court.

Mainland Bonds

Alas, most of the KMT’s biggest treasures are either already in government hands or simply unattainable. Some $1.2 billion in gold-backed bonds -- purchased at the government’s request to finance the war with the Japanese and Communists -- are only redeemable if Taiwan reconquers the mainland.

The gold reserves that the KMT brought from Beijing are now parked at the central bank, while historical artifacts from the Palace Museum are under the government’s control.

Koo, who is leading the investigation for Tsai’s party, said he’d give up the museum pieces in return for Taiwanese statehood.

“That would be a great deal,” he said, chuckling.

To contact the reporter on this story: Debra Mao in Taipei at dmao5@bloomberg.net.

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Brendan Scott