TAICHUNG (Taiwan News) — For a week, the Kuomintang (KMT) has successfully hoodwinked the press into thinking that in 2022, they only ran a tiny, easily managed financial loss of NT$8.47 million (US$265,000) on a budget of just under NT$1.3 billion (US$40.5 million). The reality is that they lost about three-quarters of a billion New Taiwan Dollars (US$23.5 million), which is on top of years of massive deficits that could threaten the party’s very existence.
On Monday (Aug. 14), the Ministry of the Interior (MOI) released the 2022 financial reports of all political parties. I thought it would be useful to prepare a column on how political parties are funded and the government subsidy system, take a look at the financial situation of the three big parties, and see if I could find interesting differences in how each party allocated resources strategically in an election year. What I found was a far bigger story.
What little coverage was done on the topic largely focused on the NT$21.65 million (US$675,000) deficit run by the Taiwan People’s Party (TPP). In response to journalist questions, TPP Chair Ko Wen-je (柯文哲) laughed and stated the obvious about his fledgling party: “That the TPP has no money is news?”
It was in the KMT financial report under a section titled “other income” that I found a massive gaping hole accounting for about 58% of the party’s entire income. In the column labeled “explanation,” it noted that the income was dividends, but the party was not allowed to use this income against expenses by order of the Ill-Gotten Party Assets Settlement Committee (CIPAS).
In short, the KMT had no claim on this money but was counting it as income regardless. No one in the press noticed this, and simply reported the bottom line income and expense numbers with this included, creating the impression that the KMT’s finances were stabilizing after years of crippling losses, when that is very much not the case.
How this came about
In 2016, for the first time, the Democratic Progressive Party (DPP) swept into power, controlling both the legislature and executive branch. One of the first things they set out to do was pass The Act Governing the Settlement of Ill-Gotten Properties by Political Parties and their Affiliate Organizations (referred to hereafter as “The Act”).
When the KMT-led government arrived in Taiwan in 1945, they seized the assets of the Japanese colonial government's state-owned enterprises and then deported the hundreds of thousands of Japanese residing in Taiwan (many born here), and confiscated their property as well. Later, they took more property from locals, if and when they wanted, because there was not much anyone could do about it under an authoritarian regime.
A lot of what they seized remains the property of the government, but much was also apportioned to the KMT and favored organizations like the China Youth Corps and National Women’s League. The Act also covered two other political parties that fled China, the China Democratic Socialist Party and the Young China Party, both of which functioned as puppets and window dressing like those nine political parties operating today in the People’s Republic of China. Incidentally, the Young China Party still exists, though they no longer hold any seats at any level of government in Taiwan.
This made the KMT fabulously wealthy. For years, the international press referred to it as the “richest political party in the world.” The DPP, to their enormous frustration, could only muster a tiny fraction of the resources.
Once The Act was passed, no doubt the sounds of champagne bottles popping resounded throughout DPP headquarters that evening. Incidentally, the DPP headquarters is ironically situated in the Taipei district named for Chiang Kai-shek (Zhongzheng District), and on a street named after the old KMT-era name for Beijing (Beiping), so their address reads like old-school KMT nostalgia.
Living within their means
The Act put the KMT legally on the same footing as the other political parties in how they can raise and use funding. The ill-gotten assets were frozen by the government, and remain so today. The total is just shy of NT$100 billion (US$3.13 billion) so far, and more may be coming as it works through legal challenges.
Like the DPP, the KMT also had plenty of income from government subsidies, personal and business donors, membership fees, and the like. In spite of that, The Act seriously damaged the KMT financially.
Suddenly, the party had to live within its means and no longer had access to all the income generated by KMT-owned businesses and assets. The problem was, for loyal service to the party, the KMT gave many people cushy jobs as rewards, which one political scientist memorably described as “professional cigarette smokers and tea drinkers.”
Suddenly, they were not even close to being able to pay their bills and had to downscale fast. But in the short term, that only made things worse as they had to pay huge sums in severance fees and retirement funds.
Only itself to blame
The party only had itself to blame. They knew that the ill-gotten gains were deeply unpopular with the public and viewed as an unfair advantage, and the KMT had promised to do something about it for years, though for some reason never got around to it.
In 2006, knowing it would come eventually, then Chair Ma Ying-jeou (馬英九) arranged for the sale of the then KMT-owned Central Motion Picture Corporation (CMPC), the radio station Broadcasting Corporation of China (BCC), and the television station China Television Company (CTV), in hopes of keeping all three in friendly, pan-blue hands.
The Taipei District Prosecutors Office indicted him for the sales, accusing him of having sold the companies at prices below market value, causing the KMT a loss of NT$7.2 billion. Ma has been acquitted in the courts, though.
Still, the KMT did not prepare for The Act, in spite of knowing it was coming sooner or later. There was even speculation the venerable KMT was finally going to be taken down permanently, not by arms or at the ballot box, but by poor financial planning.
Fortunately for the KMT, they had a lot of rich friends and allies who donated or loaned money to keep the party afloat. For years, the party was kept solvent by ever-increasing debt.
The financial report also had another curious set of entries. Under both “assets” and “debt and losses,” they reported the exact same number: NT$20,217,522,639 (approximately US$633,420,000). However, under the entry “assets forbidden to use,” they listed NT$19.7 billion (US$617.2 million).
Hopes of averting bankruptcy
Clearly, the KMT is hoping that they will return to power and be able to overturn all of this. They would need to win both the presidency and a majority in the legislature to be able to pass legislation to do so. That is not likely to happen.
If the TPP holds the balance of power in the legislature, they might consider some sort of deal whereby the KMT gets enough back to cover their debt, but it is unlikely they would agree to hand the KMT back the wealth that could be used against them. And that is just a maybe.
Even if the KMT wins back power, anything they attempted to do would have to survive both court challenges and face the uphill battle of convincing the public that it was fair and legitimate. There is a fairly good chance that the courts will rule that this is already a done deal, the properties now belong to the state, and there is nothing the KMT can do about it.
If the KMT can not reverse this, it may end. Holding NT$19.7 billion (US$617.2 million) in liabilities, at some point, creditors are going to start thinking twice about underwriting the party, no matter how sympathetic they may be.
Rising interest payments may make it impossible to sustain the party no matter how prudently and effectively the party manages its finances.
Then one of the oldest political parties in the world will be bankrupt.
KMT reconstituted
They could try and regroup under another name. The name “Taiwan Kuomintang” is already taken. It is unclear if they would be able to get “Kuomintang” (國民黨) minus the “Chinese” in front of their Chinese name (中國國民黨, translated usually as “Chinese Nationalist Party”).
Starting a new party from scratch comes with many challenges, however. They could replicate the existing structure of the KMT, saving considerable time and effort, but they will be starting from scratch financially.
They will have lost access to the hundreds of millions in government subsidies based on the results of the previous election. They also would not have the ability to automatically nominate a candidate for president and would have to conduct a mass-scale signature drive to qualify.
It is unclear if they could retain the current party databases of donors, though they could probably recreate it from the memory of all the local party heads. They will also have to come up with the funds to open new offices and branches all across the country.
The big question would be, however, is this: How loyal would former KMT members and politicians be to this new entity under a new name, having lost the long historical pedigree of the party and not initially having the funds to operate properly or pay salaries and campaign marketing at the scale the party could before?
Update: some conversions and numbers updated
