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Taiwan's Lee Teng-hui sees yen as key to common currency in E. Asia

TAIPEI, April 28 Kyodo

(EDS: SECOND IN SERIES OF INTERVIEWS WITH GOVERNMENT LEADERS, EXPERTS ON PROPOSED EAST ASIAN COMMUNITY)

Taiwan's former President Lee Teng-hui sees the need for Japan to lead efforts to create regional integration in East Asia through a yen-based common Asian currency system and regional technology exchanges, while noting the challenge that China's strong sense of nationalism poses toward this end.

''Japan needs to think of a common Asian currency system based on the yen,'' Lee, 81, told a recent interview with Kyodo News, linking the creation of a stable currency under Japanese leadership to the steady growth of Asian economies.

A stable currency is important given that most Asian countries are export-led, according to Lee, who served as president from 1988 to 2000, the last four years as Taiwan's first popularly elected president.

To achieve such East Asian integration, Lee said Japan can capitalize on its great capital strength and technology in the region and Taiwan its expertise and accomplishment in the development of devices such as semiconductors and liquid-crystal displays.

''Japan, by promoting further cooperation with newly industrialized economies like Taiwan and South Korea, could create innovative technology and spread this to third countries,'' he said.

Lee, who was educated at Kyoto Imperial University, the predecessor of the current Kyoto University, and is known as a Japanophile, urged Taiwan to ''strengthen cooperation with Japan, be it in terms of investment in China or investment in Southeast Asia.''

Asian countries share a common goal of enhancing economic development, but Lee pointed out that China's strong nationalistic perspective could challenge this goal since this kind of mindset does not quite give room for ''compromise'' within the context of creating an integrated Asian model.

''China is trying to forge a free trade agreement with the Association of Southeast Asian Nations, but ASEAN is also competing with China in terms of foreign capital inflow,'' Lee said.

''If China brings in more foreign capital by way of its cheap labor and land, ASEAN will find it hard to compete,'' he said.

Lee cited as one issue the possible surplus of agricultural labor due to the influx of foreign agricultural products as a result of China's membership to the World Trade Organization.

He also mentioned the growing problem of nonperforming loans of banks, and social issues, such as environmental pollution and a shortage of resources, which China would have to face in the future.

''The Chinese government is trying to ease social instability through its strict information control and at the same time creating an illusion to the world that China, with its WTO membership, has entered into free trade,'' Lee said, adding that Beijing is seeking an influx of capital and market expansion.

Beijing is also unlikely to easily accept the international demand to raise the value of the yuan, the Chinese currency, he said.

While cross-strait concerns remain, trade and economic relations have improved over the years, as more and more Taiwan semiconductor, computer and other technology-related firms -- which serve as the backbone for Taiwan's economy -- shift their production sites to China.

China's efforts to enter into free-trade negotiations with the ASEAN countries comes at the same time as it is exerting efforts to draw Hong Kong and Taiwan into an free trade-styled Closer Economic Partnership Arrangement as part of what Chinese trade officials say is the formation of a so-called ''Great Chinese economic zone'' in the East Asian region.

Taiwan, in an attempt to eliminate excessive reliance on China, inked its first free-trade agreement in August last year with Panama, with whom it has diplomatic ties. It is also hoping to be more active in the American market under the initiative of the Free Trade Agreement of the Americas.

But industry analysts believe Taiwan would find it difficult to steer away from China's plan for a Chinese economic zone, given mounting calls within Taiwan's financial circles to achieve direct cross-straits links as soon as possible for cost-cutting reasons.

Tensions remain between China and Taiwan, most recently highlighted by Taiwan's plan to enact a new constitution that would go into effect in 2008. China has reacted to this with displeasure, saying it is a possible step to independence.

Since the civil war of the 1940s, China has viewed Taiwan as a renegade province that should be brought back into the fold, by force if necessary. It has threatened to attack Taiwan if Taiwan declares independence.

Lee said Taiwan needs to take a soft stance on China, as it is not easy to dispel the historical perspective of the Chinese people that Taiwan is part of China and reconcile the different views over Taiwan's sovereignty.

''It is not necessary to declare Taiwan's independence but we need to move towards 'normalization,' such as by changing the old Constitution to match the current situation of Taiwan,'' he said.

Amid concerns that China's economic growth and increased military power could tip the balance of forces in the Asia-Pacific region, Lee called for the creation of a defense network using the U.S.-made Patriot surface-to-air missile air defense system.

''China would oppose it, but it can't be helped'' if it is to protect one's country, Lee said, referring to the envisioned missile shield among Japan, South Korea and Taiwan.

The United States, under the Taiwan Relations Act, has pledged to defend Taiwan if it is attacked by the mainland. Washington recognizes Beijing as China's sovereign government but has been maintaining unofficial relations with Taiwan.

According to Lee, the Taiwan Strait is a ''strategic transit point'' and underscores the need to maintain cross-strait peace and stability.

''If anything happens (here), Japan would also be affected,'' he said.

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