HALF TIME: WHAT IS THE SCORE AND WHAT ADJUSTMENTS DOES COACH TSAI NEED TO MAKE

1. HALF TIME: WHAT IS THE SCORE AND WHAT ADJUSTMENTS DOES COACH TSAI NEED TO MAKE 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 questionWHEN THE GAME STARTED WAS What Did the Tsai Team Need to Do In Order for Taiwan to Maintain Economic Success, Continue Nation Building, Provide for its Citizens and Keep Control of Its Own Destiny, Taking into Account, Inter Alia, Cross Straits Issues ? It is Now Half Way Through the Term and the Question Remains the Same.

3. FACTS ON THE GROUND PRESIDENT TSAI HAS FACED A SERIES OF SHORT TERM AS WELL AS STRUCTURAL CHALLENGES AND HAS BEEN BETTER AT MANAGING THE LATTER THAN THE FORMER.

4. WHAT WE HAVE SEEN • The Skill Set – Dr. Tsai’s experience as an executive branch veteran with a legal, economic and administrate background has been apparent. • The Mind Set – Dr. Tsai’s academic and philosophical commitment to her own view of what Taiwan is and should be has remained unphased. • The Forces at Play - A. The Mainland B. The Domestic Demographic • The Net Result – Some successes and some failures and more to be done.

5. THE FIVE KEY FIRST HALF MEASURES Government Cannot Direct Business but Can and Should Facilitate Business Taiwan is a Maturing Political Democracy Where Votes are won (or lost) on issues such as Labor Reform, Pension Reform, Declining Birth Rate and Infrastructure Development There are no Insurmountable Domestic Economic Obstacles to Taiwan’s Economic Development. Taiwan’s Fundamental Domestic Problems are Political and Managerial There are External Obstacles that Taiwan Cannot Control Nation Building may be the New National Defense

6. SEVEN HALF TIME REALITIES THAT WILL NOT CHANGE IN THE SECOND HALF • THE PRC IS NOT GOING AWAY AND CONTINUES TO PROVE ITS ABILITY TO BE INTRANSAGENT AND, INCRESINGLY, AGGRESSIVE • TAIWAN’S BUSINESS CULTURE AND ITS YOUNGER GENERATION HAVE AN INHERENT ABILITY TO VOTE WITH THEIR FEET AND, FOR SOME, THERE IS A RISK OF A WILLINGNESS TO COMPROMISE ON PRINCIPLE TO ACHIEVE ECONOMIC GAIN • TAIWAN IS NOT GOING TO GET BIGGER OR MORE IMPORTANT IN THE WORLD • GOVERNMENT SOMETIMES NEEDS TO DO THINGS VOTERS DO NOT LIKE • There is definitely A stronger (AND GROWING) sense of Taiwan identity AND MAINLAND EFFORTS TO BELIttlE THAT IDENTITY ONLY STRENGTHEN IT. • Taiwan does not control its own DIPLOMATIC 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 • THE US IS NOT A RELIABLE PARTNER

7. THE FIRST HALF GAME PLAN WAS 1. ManagE the Mainland relationship TO THE STATUS QUO AND not let THAT RELATIONSHIP dominate THE AGENDA 2, ENGAGE 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. PursuE Global Integration on all Fronts AND Increase focus on the World Outside the Mainland 4. IncreasE Focus on HIGHER VALUE CHAIN R&D, Capital Intermediation and Continuing TAIWAN’S Key Role in Supply Chain Management

8. THE FIRST HALF GAME PLAN WAS (Continued) focus available resources into in-country INFRASTRUCTURE development CreatE Opportunities (AND INCOME) for Young Folks TO DEVELOP HUMAN INFRASTRUCTURE PURSUE Quality of Life Issues SUCH AS LOW INCOME HOUSING EmbracE a Taiwan identity without embracing an independence identity CO-OPT THE PUBLIC appetite FOR ADDRESSING SOCIAL ISSUES

9. THE UNEXPECTED The Mainland Upped the Pressure to Isolate the Government, Attract Business and Diminish Global Space More Than Expected There Was No Great Unexpected Crisis Greater Focus on Declining Birth Rate Issues Battle With Old Guard KMT For Control of Higher Education Infrastructure

10. THE ANALYSIS AND ADJUSTMENTS What Was Needed 2. What Happened 3. The Adjustments (or not )

11. PRC RELATIONSHIP What Was Needed • Low Key Non Provocative Approach • Passive Aggressive Towing the Line • External Help What Happened • Tsai Stayed the Course • Mainland Was More Negative and More Aggressive than Expected • Unreliable U.S. Policy and Growing Global Mainland Chinese Influence The Adjustments • Shrug Off the Set Backs • Do Not Try to Challenge the Mainland’s Strengths • Do Not Expect External Help • Stay the Course • Focus on Nation Building Issues

12. MANAGING POPULIST ISSUES AND AVOIDING REACTIVE GOVERNMENT What Was Needed • Keeping the newer parties in a DPP coalition • Open communication with the public • Making “Signature Projects” succeed What Happened • Fairly good Job of co-opting KMT legacy issues • Mixed results with signature projects (Labor Reform vs Pension Reform) • The Least Visible (Judicial Reform/AML) Made the Most Progress The Adjustments • Stay the course on ill-gotten assets and pension reform • Rethink/replace “Labor” reform with “career opportunities” reform • Win the 2018 elections

13. GLOBAL ECONOMIC INTEGRATION What Was Needed • 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 What Happened • Inbound Foreign Business Focus was Sporadic and Too Narrow • Go South was more Professional This Time Around but Still a Long Shot • U.S. Isolation and Mainland Ascendency Changed the Playing Field Adjustment • Expand Focus on Inbound Business Beyond Green Energy • Think Global Constantly • Do Not Let Cross Straits Drive the Agenda

14. ECONOMIC DEVELOPMENT What Was Needed • Understanding and Facilitating Emerging Industries • Open Architecture • Focus on Financial Services What Happened • Good Question, Jury is Still Out • Focus has been on Green Energy and New Technologies

15. PHYSICAL INFRASTRUCTURE What Was Needed • Political Will • Realistic Focus • Sustained Effort What Happened • Green Energy Projects are Moving Forward • Low Cost Housing is Making Progress • High Speed Rail is Making Money Adjustments • Expanding Beyond Energy • Rethinking Defense Budget and Where the Money Should Be Directed

16. HUMAN INFRASTUCTURE What Was Needed • Convincing Business Owners of the Value of Human Resources • Education Reform • Career Creation What Happened • “Labor Reform” was Wrong Headed and a Step Backwards • Not Enough Focus on Education Reform and Career Creation Adjustments • A Focus on Career Development and Income Levels of Younger Population and Skilled Immigrants • Taking Birth Rate Problems Seriously and Focus on Solutions beyond More Babies • Building An Attractive Civil Society Environment

17. QUALITY OF LIFE What Was Needed • Prioritization • Education • Financial Resources What Happened • Moved at its Own Pace Adjustments • Step Up the Focus • Make Efforts More Visible

18. TAIWAN IDENTITY What Was Needed • Understanding the Demographic • Focus on the Pragmatic and Realistic • Redefining the Paradigm • Patience and Balance What Happened • Renewed Focus on Recent Immigrants • Progress With Ill-gotten Party Assets and Other Legacy Issues Such as Academia Control • Mainland Belittlement of Taiwan Identity Adjustments • Shrugging Off the “Insults” • Do Not Set Yourself Up to Fail • Let the Identity Evolve

19. THE SOCIAL ISSUE CARD What Was Needed • Open Public Dialogue • Reading the Pulse • Political Will What Happened • The Public has Driven the Agenda • Loss of Agenda Control Adjustments • Maintain the Momentum and Win Elections • Pushing the Envelope (Marriage Equality, “Me Too”, Death Penalty)

20. RANDOM CLOSING THOUGHTS • The government started with five domestic priorities being dealing with low salaries, uneven distribution of income, youth unemployment, pension reform and energy supply and has maintained that focus • Cross straits relationship is not good but Taiwan must avoid “woe is me” reaction. • Economic success (of failure) will be driven by the private sector • Social issues are self defining • The global stage has changed. • There have been no grand successes (or, save for Labor Reform), total disasters. • The best national defense may be a functioning democratic social society with a self awareness and self identify

21. CONCLUSION