Presented by: Thomas H. McGowan Russin & Vecchi Bank Tower, 9th Floor 205 Tun Hwa North Road

1. Choices and Challenges UpdateThe Tsai administration’s priorities and what the President is achieving? Presented by: Thomas H. McGowan Russin & Vecchi Bank Tower, 9th Floor 205 Tun Hwa North Road Taipei, Taiwan, R.O.C. Tel: 886-2-2712-8956 E-mail: THMcGowan@russinvecchi.com.tw

2. The Basic Question WHEN TSAI WAS ELECTED WAS What Can / Should Taiwan’s New Leadership Do In Order for Taiwan to Maintain Economic Success, Provide for its Citizens and Keep Control of Its Own Destiny, Taking into Account, Inter Alia, Cross Straits Issues ? The Honeymoon is Over but the Basic Question Remains the Same.

3. FACTS ON THE GROUND THE PRESIDENT CONTINUES TO FACE A LONG LIST OF SHORT TERM AS WELL AS STRUCTURAL CHALLENGES AND CONTINUES TO BE BETTER AT MANAGING THE LATTER THAN THE FORMER.

4. WHY • The Skill Set – Dr. Tsai was an experienced executive branch veteran with a legal, economic and administrate background and is a known commodity. • The Mind Set – Dr. Tsai has an academic and philosophical commitment to her own view of Taiwan. • The Forces at Play - A. The Mainland B. The Domestic Demographic Shift • The Need – For the government to make decisions and plan ahead so as to facilitate economic and social development via physical, governmental and people infrastructure.

5. THE PERSPECTIVE – SIX KEY PIECES • Taiwan History Defines Taiwan’s Place in the Commercial World • Island Economy • 17th/18th century “Pirate” Migration • Japanese Occupation • Post WWII KMT Migration • Recent Immigrants • Taiwan’s Economic Formula is Based on: • Import Substitution/Export Promotion • Supply Chain Management • Global Reach • Commercial Freedom • Innovation

6. THE PERSPECTIVE (CONT.) Government Cannot Direct Business but Can and Should Facilitate Business Taiwan is a Maturing Political Democracy Where Votes will be won (or lost) with Labor Law Reform, Pension Reform, Care for the Elderly and Infrastructure Development There are no Insurmountable Domestic Economic Obstacles to Taiwan’s Development. Taiwan’s Fundamental Problems are not Economic, but Political and Managerial There are External Economic Obstacles that Taiwan Cannot Control

7. EIGHT REALITIES ARE STILL THERE • THE PRC IS NOT GOING AWAY AND CONTINUES TO PROVE ITS ABILITY TO BE INTRANSAGENT • TAIWAN’S BUSINESS CULTURE AND ITS YOUNGER GENERATION HAVE AN INHERENT ABILITY TO VOTE WITH THEIR FEET • TAIWAN IS NOT GOING TO GET BIGGER OR MORE IMPORTANT IN THE WORLD • GOVERNMENT SOMETIMES NEEDS TO DO THINGS VOTERS DO NOT LIKE • THE UNEXPECTED CONTINUES TO OCCUR • There is definitely A stronger (AND GROWING) sense of Taiwan identity. • Taiwan has gained more than it lost on the international stage DURING THE MA ADMINISTRATION AND TSAI IS BEING MEASURED BY COMPARISON IN A MORE DIFFICULT ENVIRONMENT. • Taiwan does not NECESSARILY control its own political destiny. It needS otherS (read the u.s. and europe) to increase (i) the benefit to the Mainland of playing a global role and (ii) the cost to the Mainland of a forced change of the status quo AND THAT IS NOT HAPPENING

8. ELEVEN THINGS THAT TSAI IS TRYING TO DO 1. ManagING the Mainland relationship TO THE STATUS QUO AND not letting THAT RELATIONSHIP dominate THE AGENDA 2, ENGAGING IN Serious long term planning rather than reactive government BY Anticipating and managing “populist issueS of the day”, KNOWING WHEN TO ALLOW “VENTING” AND Co-opting popular movements 3. Pursuing Global Integration on all Fronts AND Increasing focus on the World Outside the Mainland 4. PURSUING LEGISTATIVE, REGULATORY AND JUDICIAL REFORM 5. Increasing Focus on HIGHER VALUE CHAIN R&D, Capital Intermediation and Continuing TAIWAN’S Key Role in Supply Chain Management AND FINANCING

9. ELEVEN THINGS THAT TSAI IS TRYING TO DO (Continued) focusing available resources into in-country INFRASTRUCTURE development Creating Opportunities (AND INCOME) for Young Folks PURSUING Quality of Life Issues Embracing a Taiwan identity without embracing an independence identity WATCHING THE BUDGET CO-OPTING THE PUBLIC appetite FOR ADDRESSING SOCIAL ISSUES

10. HOW IS SHE DOING The Needed Elements The Obstacles Success So Far

11. PRC RELATIONSHIP Needed Elements • Low Key Non Provocative Approach • Passive Aggressive Towing the Line • External Help The Obstacles • Mainland’s Position Uncontrollable and (Maybe) More Negative than Expected • Impact of Non Taiwan Issues such as Economic Downturn in PRC • Unreliable U.S. Policy (Strengthens Mainland Chinese Influence) Success So Far • As Expected But Far From Resolved and the Game Has Changed • Go South is Not the Magic Solution (More on This Latter)

12. MANAGING POPULIST ISSUES AND AVOIDING REACTIVE GOVERNMENT Needed Elements • Co-opting the newer parties into a DPP coalition – and keeping them there • Open communication with the public • Making “Signature Projects” succeed THE OBSTICALS • Overly optimistic expectations • Political immaturity Success So Far • Fairly good Job of co-opting KMT legacy issues • Struggling with signature projects (Labor Reform and Pension Reform) • Still Reactive (bus accidents) but sometimes in a positive ways (Mega AML Issue)

13. GLOBAL ECONOMIC INTEGRATION Needed Elements • Refocus on Importance of Inbound Foreign Business • Reaching out to Natural Constituencies – Japan and Southeast Asia • Knowing Who Your Friends Are – Hint! Solve the Pork Issue • Posturing for TPP Membership The Obstacles • Friends are Unreliable and no More TPP • Domestic Constituencies with Vested Interests • Mainland’s Growing Role Success So Far • Inbound Foreign Business Focus is Sporadic • Go South is more Professional This Time Around but a Long Shot • U.S. has Changed the Playing Field

14. ELEMENTS OF GO SOUTH TO CONSIDER • Diversification of Markets and Sources of Supply is Good (But Involves Reversing Ma’s Overly Mainland Focused Policies and the Draw of the Mainland Market • Not a Short Term Proposition • Already a Significant Investor • There Must be Something In It for the Target Countries • Not in Taiwan’s Control (Mainland “Countermeasures”; Not a Member of ASEAN)

15. LEGISLATIVE, REGULATORY AND JUDICAL REFORM Needed Elements • Control of the Legislative Process • Sustained Effort and Keeping the Public Bought In The Obstacles • Public Impatience (or disinterest) • Vested Interests Success So Far • Struggling to Exploit Natural Majority (Labor Reform) • Skeptical Public (Judicial Reform)

16. ECONOMIC DEVELOPMENT Needed Elements • Focus on Financial Services • Understanding and Facilitating Emerging Industries • Open Architecture The Obstacles • Tending to Over Regulate and Micro Manage • Business Impatience Success So Far • Good Question • Focus has been on Green Energy and New Technologies

17. PHYSICAL INFRASTRUCTURE Needed Elements • Political Will • Realistic Focus • Sustained Effort The Obstacles • Vested Interests • Not In My Backyard Success So Far • Green Energy Projects are Moving Forward • The Rail Line to the Airport is Open (Sort Of)

18. HUMAN INFRASTUCTURE Needed Elements • Convincing Business Owners of the Value of Human Resources • Education Reform • Career Creation The Obstacles • Youth Impatience • Income Inequalities • Perception of Stagnation Success So Far • “Labor Reform” was a Step Backwards • Not Seeing Meaningful Focus on “Wage Gap”

19. QUALITY OF LIFE Needed Elements • Prioritization • Education • Financial Resources (see “Watch the Budget Below”) The Obstacles • Tending to focus on what is popular instead of what is good • Over expectations Success So Far • Moving at its Own Pace

20. TAIWAN IDENTITY Needed Elements • Understanding the Demographic • Focus on the Pragmatic and Realistic • Redefine the Paradigm • Patience and Balance The Obstacles • Populist Politics and Social Movements Getting Out of Control Success So Far • Renewed Focus on Recent Immigrants • Ill-gotten Party Assets • Pension Reform

21. THE BUDGET Needed Elements • Staying Focused on What is Important • Getting to “Pay as You Go” for Medical Care, Retirement Funding and Public Utilities The Obstacles • The Public Expectation that Everything Should Be Free (or At Least Cheap) Success So Far • Pension Reform is a Challenge (seen as “KMT Legacy” Issue) • Medical Care and Pension Reform are on the Agenda • Fighting Bus Fare Hikes is Counter Productive

22. THE SOCIAL ISSUE CARD Needed Elements • Open Public Dialogue • Reading the Pulse • Political Will The Obstacles • Public Emotion • Loss of Agenda Control Success So Far • I would not have guessed that marital equality would have gained this high of a profile • Focus on Recent Immigrants

23. LAST THOUGHTS (FOR NOW) • The government started with five domestic priorities being dealing with low salaries, uneven distribution of income, youth unemployment, pension reform and energy supply; we see visible actions on the latter 2 but less so on the first 3 • Cross straits is largely “status quo” to negative. • The economic priority is to facilitate business by making the infrastructure (human, regulatory and physical) work rather than to try to direct business. I am not sure that this is happening. • Social issues are self defining • The global stage has changed and not for the good. • There have been no grand successes (or total disasters) so “give the Lady a chance”

24. CONCLUSION