Taiwan Leader’s Remarks Cause Stocks to Tumble

Taiwan’s stock market and currency tumbled Monday on fears that President Chen Shui-bian’s call for a vote on independence would prompt China to revert to its 1990s strategy of military intimidation.

Chen’s remarks were made Saturday to pro-independence activists of his party. He said the island nation and mainland China were “one country on each side,” and backed a referendum on formal independence.

Chen’s government downplayed the importance of his comments. But investors fled Taiwanese shares Monday, driving the main stock index down 284.22 points, or 5.8%, to 4,636.67, its biggest one-day percentage decline in 21 months.

The Taiwan market had been one of the world’s best performers in the first four months of this year. But at Monday’s close the main index was at its lowest level since Nov. 30 and is down 16.5% year-to-date. That’s still a better performance than the U.S. Standard & Poor’s 500 index, which is down 27.3% this year.

China, in its first official response, said Chen will “bring catastrophe” to Taiwan. “We warn the ... Taiwan forces to back off from the precipice,” Li Weiyi, a spokesman for a Cabinet-level China agency responsible for Taiwan relations, told reporters.

Beijing has said many times in the past that it would retake Taiwan by force if the island declares independence.

“I’m not expecting a war, but the market fall is going to reflect the increased anxiety of people,” said James Chen, a money manager at Fu Hwa Investment Trust Co.

Worsening ties between Taiwan and China worry investors because Taiwan has become economically dependent on the mainland. Taiwan companies have more than $20 billion invested in mainland factories, and China this year overtook the U.S. as the biggest market for the island’s exports.

“Why say it?” Formosa Plastics Corp. Chairman Wang Yung-ching said of Chen’s remarks. “This is unexpected and unnecessary. Restoration of direct links with China are now hopeless.”

The Taiwan dollar fell as much as 0.7% on Monday, ending at 33.95 per U.S. dollar. It has weakened from 32.8 per dollar July 18.

Chen ended 50 years of Nationalist Party rule with his upset victory in the 2000 presidential election. Although his Democratic Progressive Party advocates independence for the island, Chen has downplayed the sensitive issue in repeated appeals for talks with China’s leaders.

Taiwan’s policy toward China “hasn’t changed,” said Tsai Ing-wen, chairwoman of Taiwan’s Mainland Affairs Council. “Taiwan has been seeking stable cross-strait relations and will continue to try to restore dialogue with China.”

The Taiwan market’s dive Monday reverberated in other Asian markets. Hong Kong’s main share index fell 1.3%, the South Korea composite index slumped 3.6% and the Singapore Straits Times index fell 1.8%.

But in Japan the Nikkei-225 index was off just fractionally to 9,704.93.