President Lai Calls for Taiwanese Unity, Chinese Stocks Fall, CCP Arrests Taiwanese Businessmen
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Welcome to China Insider, a podcast from the Hudson Institute's China Center. I'm Miles Yu, Senior Fellow and Director of the China Center. Join me each week for our analysis of the major events concerning China, China threat, and their implications to the U.S. and beyond. ♪

It's Tuesday, October 15th, and I'm Phil Hegseth alongside Hudson Institute's Miles Yu. We start this week with Taiwanese President Lai Ching-teh's Double Ten speech last week. That's Double Ten as in October 10th, which serves as Taiwan's National Day. President Lai used the speech to lay out his government's agenda going forward and called for a new level of cooperation behind a unified Taiwan.

Miles, who was actually in Taipei during the speech, explains the motivations behind the speech and the Taiwanese and Chinese reactions. Next, Miles details the dramatic rise and fall of China's stock market the last two weeks, and why the CCP's planned economy is losing trust both domestically and internationally. And how does that lack of trust manifest itself? Well, our third topic addresses just that, as Miles covers the detention of four Taiwanese business executives working at Foxconn in mainland China.

Alright, good morning. Well, actually, good evening, Miles. How are you? Thank you very much. And you should explain to the audience why there's a difference between good morning and good evening. Well, I'm here in the D.C. area, so it's morning for me. I still got my coffee. I think coffee would be the worst thing for you as it's real late in Taipei for you. I think you're traveling. You've been there for the weekend? Pretty much, yeah. Yeah. So you were there for some...

Interesting moments that I think are still unfolding. So excited to hear your thoughts as somebody who's on the ground during a lot of this. The first of which we can start with today is President Lai's Double Ten speech. So that's October 10th. I think it's an annual speech, but it's historically important. So Miles, why don't you give us the background for what the Double Ten speech is, what it represents, and then we can get into what President Lai actually went over. October 10th is the Taiwanese National Day.

we normally double 10.

Right, and we covered that last week a little bit too, how it rivaled national days. That's right, that's right. So the reason this is important for this year, every four years it's important because normally you would have a new president in the election year, this year 2024, and in January they held the president-elect. So President William Lai is the new guy,

And so the Taiwanese system is a little bit peculiar because the time between the election and the inauguration is unusually long, almost five months. So basically the inauguration took place on May 20th. And then...

He would make some kind of a celebratory speech at the inauguration normally, and he will basically say something very general about the orientation of the new government. For specific policies, for specific details, personal appointments in key positions, that's when he would announce all the stuff.

So it's kind of the opening speech for your administration in a way. That's exactly right. So after you form the government and you decided the main policies and you basically make a double 10 speech.

and an answer to the world and what your government is going to be doing and what you're trying to achieve. So this is kind of like a step to the union speech, but it's so important for Taiwan because this is the linchpin of global security. So much is at stake and important.

He wants to make sure that he want to express his political conviction and he wants to basically speak to his people. Also, he wants to make sure that China would not use any of the words he said or he would not say as excuse to provoke some kind of unnecessary military conflict. Well, and so what did he come out and say? I know it's...

He made some controversial remarks specifically about Taiwan's status and Taiwan's status in relation to China. So can you go over kind of what he stated? We'll talk about China's response, but also Taiwan's reaction. Go ahead and lay it out for us. I don't know why it's controversial. I mean, controversial falls into the narrative of mainland China and other spin doctors somewhere in the world. He said...

something that's very, very prosaic and normal, even though rhetorically very important. That is, on Taiwan's foreign policy, particularly its relationship with mainland China, there's absolutely nothing new. He has been saying this over and over again, and every president in the last 20-some years has said pretty much the same thing. That is, they want to maintain the status quo,

They want to be respected. They want basically China to give up its attempt to annex this nation. That's basically been the message of every president across the party aisles. So I don't think there's anything controversial there. China would always say,

He's a separatist. Every president elected by Taiwanese people has some element of being separatist. So no matter what you say, what you not say, you will be the enemy of China. That's basically what it is. So what is new, however, is in President Lai's speech this year,

that he recognized the sacrifices made by the opposition party, the KMT, the Nationalists, who fled mainland China after being defeated by the Communists in 1949 and came to Taiwan, and 75 years later, they're still here. What he's trying to say here is that, you know what, I'm representing the DPP, the Democratic Progressive Party, and that is what we normally call the Green,

The KMT International Party from mainland is known as the Blue and for almost 20 years, the KMT and the DPP, the Blue and the Red,

I'm sorry, the blue and the green are absolutely hit each other. It was the opposite. They were very, very partisan toward each other. But now President Lai recognized sacrifices by the

forefathers of KMT who came to this country and made Taiwan their home. So what he was trying to say is that, hey, I recognize the 1911 revolution. I recognize the Battle of Kimoi in 1949 that basically eliminated the Chinese invading forces that tried to take over the Taiwanese-held island of Kimoi and Machu.

And he said that was a very heroic move. But then you are not menenders. You're not anybody from any parts of China. You are Taiwanese now because you have built, contributed to your life, sacrificed everything for a free and independent Taiwan. And Taiwan is your motherland. Taiwan is your country. That is a very, very soothing message for people in Taiwan who are from a different political and historical backgrounds. And the interesting thing is,

His tone for national unity, his call for national unity is also sort of echoed by the fact that the MC, the master ceremony of the Double Ten celebration, which involves a lot of praise and the performance of arts and scenes and dances, is the president of the Legislative Yuan, which is a

controlled by the blue. Mr. Han Guoyu was deeply blue, and he was the host of the event. And he said something very similar to what President Lai said. He said, you know, Republic of China is your state, is your country, and the beautiful island of Taiwan is your home.

So basically they recognized, listen, this is the country and this is our home. And many of the political opposition leaders were also on the dais and of the parade of the ceremony. It is a really remarkable beginning, I think, of what's supposed to be a very unified nation.

Hmm. That's fascinating. And I also find that as I read more and get to know kind of your expertise and do my own digging, the history of Taiwan's political parties, just the KMT and the DPP and just how this was all formed and the civil war in 49, all this, I would love to just do a history lesson episode with you at some point. And maybe we just need to do that because we can't dive into all of it here, but it's fascinating that Lai, so his target audience was really reunification countries.

not reunification, but unification of Taiwan under the Republic of China. How did the CCP react to that? They can't be happy about a unified Taiwan seeing their homeland as Taiwan. Yeah, I mean, this is actually very, very comic and tragic as well. Even though President Lai's speech is about promoting domestic unity of all political parties,

And there's nothing provocative about the cross-strait relationship. The Chinese government reacted with violence and bullying and absolute intransigence. I mean, like what happened during the inauguration in May, this time they also waited three days. And so on Monday morning, three days after the speech,

they conducted a around Taiwan military drills and that was very, very threatening and destabilizing and menacing. So obviously people in Taiwan were outraged, but then this kind of stuff happens so often. So outrage basically dissipated within like an hour or so. Government protested and we had all day meeting here. The meeting went on without any glitch. It was,

you know, rarely anybody pay any attention to this. As a matter of fact, whenever the Chinese government conducts some menacing drills against Taiwan, surrounding Taiwan with the aircraft and the ships, the Taiwan stock market would go up. And just like what happened in the past, on Monday when China conducted a whole day military drills of intimidation, Taiwan's stock market went up

And interestingly, the Hong Kong stock market went down. Yeah, that's a perfect transition actually into the stock markets in China. So last week, I think it was last week or maybe the week before, there was a huge stock jump in China. Actually, the government announced some economic reforms that were supposed to bolster the economy. And there was a big reaction. The stocks jumped. But last week, they did the reverse. Big fall. And so can you talk about, Myles,

Kind of what the rise and the quick fall of China's stock markets just in the last couple weeks, what fueled the rise and the fall? China is officially a socialist country and communist country. The fact that it has a stock market system is kind of really weird and bizarre. In and of itself is an oxymoron. China has two major stock exchanges. One is in Shenzhen, another one is Shanghai. Somehow there is a special arrangement, so Hong Kong stock market is also connected to this two system.

Normally, what happens is the stock market is sucked into the savings of average Chinese. And foreigners are not actually allowed to buy what are called the A shares. So foreigners are only allowed to buy what are called the B shares, which is significantly smaller than A shares. So a lot of Chinese people...

put their money into the stock market. And the stock market, because of lack of information and because of a lack of transparency, so the market has lost its appeal. That's why stock market in recent years have gone down by a significant amount, something like some 60 to 70 percent. So the stock market is very, very bad for Chinese, for the A-shares.

Now, of course, consumers' confidence overall, in addition to stock market, has gone down dramatically as well. Because of the COVID zero policy, because of the unpredictability of Xi Jinping's policies, so people just don't want to do anything risky anymore.

and people do not want to buy stock and do not want to spend money to buy durable goods. That's really created the problem we now know as deflation. Prices dropped and the factory closed their shops and that also bring in a higher unemployment rate. So in order to stimulate this market situation in China, about 10 days ago, the Chinese government announced a major package of plans

That basically says that Chinese government is going to allow state owned banks to lend money to people and they can use that money to buy stocks. And this is really, really basically gambling. It's a state sponsor, almost illicit gambling. So because of that, everybody going to get cheap money from the Chinese banks and they're putting the stock, not really create the hike.

And overnight, Chinese stock market just shot up as much as like 20%. Yeah, John, it was big. Yeah, this created a national craze for stock market. Everybody virtually overnight becomes a speculator on the market.

So people who have no interest in playing stocks right now jump into it. Keep in mind- Also, just to jump in, was it strategic or is the timing coincidental that that was announced and the jump happened and it was all surrounding Golden Week right around China's National Day? Oh, that's partly related. I mean, people do not want to sort of spend money on something that they're not sure anymore.

And this created a stock market rally for a couple of days. What's really interesting is because of the suddenly available money from the bank,

at low interest. People go there to borrow money to play in the stock market. And they use the stock market holding to borrow more money from the bank. The bank is willing to do that kind of stuff. This is basically Ponzi scheme. And many people, like college kids, they cannot really afford to buy any stock. All of a sudden, they jump in the stock market in debt.

Hoping the market will go up within a couple of days. Yes market went up dramatically, but then suddenly it crashed it crashed very badly and the people feel cheated and a lot more people are in debt right now now this kind of policy is Full-hearted and really really on that market the same thing happened in 2015 that time market crashed and

as well because of the wild speculation, the wild availability of cheap money. So that is in a real sense, I mean, half of the nation is just full of gamblers. And that's why the A share is now in big trouble. And incidentally, international capital did not fall for this kind of a trick at all.

While this Chinese A share went up, Wall Street remained unmoved, unfazed, and basically it's very stable. There is no dramatic craze. There is no dramatic move either way. It's been rather stable. So that's why people in the know understand the game. The game is that the Chinese government is running out of ideas. So they start to work on bad ideas.

Well, is that kind of the explanation for why it didn't last? People could just eventually saw through the facade of this? Yeah, I think that definitely is the case. But more importantly, because people just couldn't believe this is true. And so there's a lot of hesitation and speculation and suspicion. Ultimately, it's a lack of transparency, lack of market mechanism that causes this kind of up and down quickly.

Chinese economy is large, it impacts the world. So did these kind of stock rise and falls, do they impact the global market or is the global market just smarter than this to know that these kind of things, since they're government backed and government fueled, it's just going to be an up and down, they don't get involved? As I alluded to earlier, I mean, there's a very big impact on global market, which is actually very interesting because it could point to something that's bigger than just this sheer reality. And that is this,

Chinese economic performance, the Chinese stock market right now is in a league of its own. It has very little to do with the global market and global stocks. And that is the truth. And I think people should start to think that

the market within the Chinese system is already decoupled from much of the rest of the world and therefore there's very little leverage China will still have on international capital. Not only international capital, most of Chinese who have money in China are trying their ways, all kinds of ways to get out of China. And that's why the capital flight is a really big deal. Ultimately it's about the Chinese communist system unable to

synchronize with the international free trade system. That's the cause of the Chinese economic woes. Yeah. Well, and that, again, leads perfectly into our third topic in terms of just not being able to trust China with transparency in international business. And we saw last week four executives from Foxconn, which is a Taiwanese-owned company,

were arrested in China. So Miles, I think there's a little bit to unpack here. First, what is the connection between Taiwan and China in terms of economic ties and Taiwanese companies in China? Taiwanese investment in mainland China has been a major engine for China's economic takeoff in the last quarter of century. So before COVID,

Taiwanese investment, out of all Taiwanese overseas investment account for a very big portion of the Taiwanese overseas investment. Something like 80 to 85% of all Taiwanese investment are in China, which is a really dominant trend. Now, China began to act crazy and to crack down on free market. So Taiwanese

businesses were hit really bad. So now very few people in Taiwan are interested in investing in China at all. So China's market remains remarkably unattractive to Taiwanese business. These statistics are very stark. After COVID, the Taiwanese investment in China dropped so much that the last quarter of 2023, only 11% of Taiwanese overseas investment

went to China. That is a drop from some 80%. Now, this quarter, the immediate quarter, the Taiwanese government had this statistic that shows only 8.7% of all Taiwanese overseas investment went to China.

So that trend continues to go down. So it's very interesting to see what a robust economic connection relationship has absolutely gone sour. One of the many reasons is because the Chinese government do not treat Taiwanese businessmen fairly equally. They look at the Taiwanese business investment in mainland China as a pawn, some kind of bargaining chip to adversely influence Taiwanese politics. So they keep harassing them.

And right now, they're beginning to harass Taiwanese businessmen's personnel directly. As you mentioned in your lead to this story, four of Foxconn's employees in China were arrested and the charges were very unclear. Now, Foxconn is not one ordinary Taiwanese enterprise. Foxconn is the main maker of the main components of Apple. As a matter of fact,

Foxconn operates the world's largest apple assembly factory.

in the world, in Zhengzhou, Henan province. So this is such a big hit for the Taiwanese company. And of course, it's also sending a warning to Apple because Apple is now beginning to sort of divest from China. Not totally, but they're developing plan B. And now if you crack down on Foxconn, Apple's entire business operation in China will be in jeopardy. Maybe this is obvious, but is all this tied together? I mean, you saw...

you know, lies, speech, double 10, uh, talking about unification of Taiwan. If that,

This all seems related. If they become more unified, shift more towards the West, it would make sense that China would be less trustworthy with business professionals and business ties with Taiwan in China. So do you see more of this on the horizon, or is this an isolated incident? No, I mean, this is not isolated at all. This fits into a pattern, not just against Taiwanese beings, but against all international corporations in China. Everybody's trying to get out.

Only a few years ago, over 80% of Taiwanese investment went to China. But now it's only a little bit over 8%. So that drop by more than 10 fold is a very telling story. I mean, it just tells China's economic reality and China's political reality, how important that is. And I think pretty much like China wants to be decoupled from the rest of the world. Where is all that coming from?

Taiwanese business going instead? Mostly went to Southeast Asian countries. Okay. Like which in particular? You see a dramatic rise in Taiwanese investment in countries like Vietnam, Malaysia, and Indonesia. Okay.

Well, I think as we showed today, these three topics are all very intricately intertwined in terms of timelines, importance, and storylines. I appreciate you staying up late and joining me early in the morning. Miles, travel safe. Thank you for your expertise. And thanks for reporting from on the ground with us this week. Thank you very much. And glad to be with you as always. Thank you for listening to this episode of China Insider. I'd also like to thank our executive producer, Philip Hegseth.

who works tirelessly and professionally behind the scenes for every episode to make sure we deliver the best quality podcast to you, the listeners. If you enjoy the show, please spread the word. For Chinese listeners, please check our monthly review and analysis episode in Chinese. We'll see you next time.