Q: After being in office for over a year now, would the Premier please tell us what has left him with the deepest impression? And what kinds of challenges does the government currently face?

A: I've been in office for almost a year and a half now. During this time, many things have naturally affected me deeply. But the most deeply affecting has been the sincerity of concern of our compatriots for the affairs of the nation. Over the past year and a half, I've received an average of 600 letters a month sent to me personally, the overwhelming majority of which have offered constructive or critical suggestions for my work. What comes through between the lines is their sincere concern for the country, the government, and myself as an individual, a concern which gives me great encouragement. And no matter what the contents, I deal with these letters just as sincerely. Generally speaking, the more people are concerned about a country's affairs, the more rapidly that country will progress. This is not only the thing that has affected me most deeply, but is also the thing that has made me happiest in my busy life.

As to the challenges facing the government at present, I think the most important lie in three areas:

The first is that posed to us by the Chinese Communists. Our system based on the Three People's Principles, with its freedom, democracy, and equal distribution of wealth, has created on Taiwan a prosperous, flourishing society which contrasts sharply with the autocratic, impoverished Communist system. This contrast gives Chinese on the mainland the hope and strength to repudiate Communism, so the Communists absolutely refuse to recognize the existence of the Republic of China. On the one hand, they use all kinds of "peace offensive" tricks, while on the other, they threaten to invade us by force. This double-sided plot is aimed in the end at making us Communist. As a result, the goal of our national security policy is first to strike at the challenge of the Chinese Communists.

The second is the economic challenge. Over the past 40 years, the Republic of China on Taiwan, from the midst of the ruins of the Second World War, has built the world's 11th leading exporting nation, not an easy accomplishment. Constant changes in the world economy since 1980 have made it difficult for the economies of many industrial and newly industrialized countries to adjust and adapt. For example, increasingly strong protectionism and the increasingly serious polarity of the world economy have posed a very clear challenge to the present world economy. This challenge has already affected the stability and prosperity of the world economy and at the same time is also affecting the condition of our own economy. Besides reducing the tax burden, lowering interest rates, lifting restrictions on investment by foreigners and overseas Chinese, and accelerating public investment to stimulate the current investment climate, we must also pursue a policy of liberalization and internationalization to meet longterm trends in international economic development.

The third is the social challenge. Because the fast growth of our economy over many years has rapidly raised the income level and living standards of our citizens, it has led to a society in which certain instances of "getting out-of-line" have unavoidably appeared in value systems and moral standards. These instances, despite their appearance in a minority of individuals, still pose a challenge to our society. The government is right now attacking the problem at the root from both legal and educational angles. The Chinese, after all, are a people with a long spiritual heritage and a firm foundation in the family--we can work to overcome this challenge.

Q: Mr. Premier, you once stated you would rather have slow economic growth as long as economic order was built up. What are the government's operational principles in establishing economic order?

A: I did once say I would rather accept a short-term slowdown in economic growth as long as economic order was built up. The idea was to point out the government's resolve in maintaining economic discipline. Over 30 years ago, privately run enterprises took up just 15 percent of total production value, while the public sector had 85. With the development since then of our free economic system under the Principle of the People's Livelihood, the private sector's portion of total production value has risen to 86 percent while the public sector's has correspondingly declined to 14. It can be said today that we have an industrial system grounded in private enterprise. And so the way private enterprises are operated-- well or poorly--concerns the prosperity of the whole economy.

The government's responsibility is to create constantly a better investment environment and to safeguard economic discipline and order. In this environment and under these rules, industry, relying on its wisdom, strength, and courage, can compete freely and fairly, seek profits, and fulfill its social obligations. If the economic behavior of some of our citizens does not observe discipline and impairs order, even if they are just a tiny minority, it can lead to economic losses and social damage. We are naturally concerned about the shortterm state of the economy, but we are even more concerned about the long-term potential for economic development. And only a potential based in a society with a disciplined, ordered economy can develop. For over a year now, the government has been taking many steps, both direct and indirect, to revitalize economic discipline, steps which I believe will gradually establish a modernized economic order for the country.

As to "establishing a modernized economic order," I must add a few practical footnotes. Our economy has already changed from the economic form of a developing country to that of a newly industrialized one and is now changing into that of a developed country. During such a transition period, industry, in a normal economic order, may display three conditions. One is that each firm will work to adjust and adapt to the new environment. Another is that firms that cannot or should not operate will be eliminated. The third is that new investment opportunities and new firms will increase. Although some companies closed down from January to October of this year, over 18,600 new ones were registered, total capitalization increased 5.2 percent, and 40 percent more investment by foreigners and overseas Chinese was approved compared with the same period last year. Furthermore, this new investment is all in technology and capital-intensive industries or in modern service industries. We don't deny that the economy is not as good this year as last. But that our economy can still develop its potential at a time when the whole global economy is not good can perhaps be of some consolation.

Q: The government actively promotes the decentralization of export markets. But with the NT dollar pegged to the US dollar, the US dollar's appreciation against European currencies last year meant a rise in the NT dollar against the same currencies. Our products thereby lost their competitive strength in the European market, and our export trade was further concentrated on the U.S. Under these circumstances, some people feel the government's monetary and fiscal policies lack flexibility. Please explain.

A: This is not completely a question of policy flexibility. Economic problems should be studied in an economic light. Decentralization of trade, for instance, not only can decrease trade frictions but also can help open up new markets. The government has constantly been working in this direction. Our efforts were quite successful during the 1970's in fact, lowering the proportion exported to the U.S. of our total exports from 41.7 percent in 1971 to 36.1 in 1981. But after 1982 the proportion exported to the U.S. gradually increased again. The main factors were, on the one hand, the more rapid growth of the U.S. economy compared to the Europeans', which correspondingly sharpened the Americans' demand for imports, and on the other, the appreciation of the US dollar against European currencies during the same period. The recovery of the U.S. economy in 1984 was especially rapid, with real economic growth reaching 6.8 percent, but the average growth rate of the nine major European countries was just 2.5 percent. This made exports to the U.S. from other countries around the world particularly vigorous, with the rate of increase in exports reaching 26.4 percent. The rates for West Germany, France, Denmark, the Netherlands, Sweden, and Belgium were around 35 to 36 percent. Italy reached 46 percent, and Spain, 55.9.

The appreciation of the US dollar against European currencies is due to complex reasons, but the comparative exchange rates of all currencies are, in the final event, determined by the international market and can't be controlled by our economic policies. Since there is no way to change the rates, we naturally have no way to "make the NT dollar appreciate against the US dollar but depreciate against European currencies." In other words, even if the NT dollar were devalued, this would be a devaluation against all foreign currencies and couldn't solely be vis-a-vis the Europeans'. As a result, devaluation could indeed increase exports to Europe but it would at the same time also increase those to the U.S. It would still be hard to achieve the goal of decentralization and could further enlarge our balance-of-trade surplus with the U.S.

The exchange rate is the price of foreign currencies, and the factors which go into its making are complicated. As a result, the rate is best left determined by market forces. Since our country moved to the controlled flexible floating exchange rate system in 1979, the rate of exchange has in principle been decided by market forces with reference to changes in the rates of a "basket" of foreign currencies. The NT dollar is not at all "pegged" to the US dollar. In fact, the scope of changes in the price of the NT dollar against the US dollar has ranged between 40.66 and 35.85 since 1979. Comparing June 1985 with 1980, the US dollar appreciated 30 percent against the currencies of the U.S.'s major trading partners, but the NT dollar increased just 2.7 percent against those of our 9 major partners.

Decentralization of export markets must mainly be achieved through cooperation by the private sector, trade measures, keeping up with market conditions, and meeting market demands. The efforts of our government in this area--especially establishing trade units in European countries, relaxing restrictions on European banks opening branches in our country, holding various exhibitions, encouraging overseas investment and factory building, and constructing the World Trade Center--have all helped in market decentralization.

Q. The Communists ask us to hold peace talks on the one hand while on the other they threaten to use force against Taiwan or blockade it. After years of construction, our political system is quite vigorous and our society is gradually growing more diverse. We maintain trade, scientific, and cultural relations with over 140 countries around the world, but because our government adopts a policy of no compromise, no negotiations, and no contacts to resist the "united front" tactics of the Communists, we have been misunderstood by the international community as stiff-necked conservatives. What is the Premier's view?

A: I still remember over 10 years ago before President Nixon made his first trip to the mainland how the Chinese Communists reissued Mao's essay "On the Spirit of the Chungking Talks." A passage there indicates that "no negotiations" was a form of diametrical struggle in the past while today "negotiations" are also a form of diametrical struggle. This passage clearly shows how the Communist regime regards negotiations as just the application of another tactic of struggle. Although the men at the top have changed, the nature of the Communist party itself cannot. Looking back on the history of the Communist party, where have their negotiations ever been made in good faith? When have they ever kept the promises they made in negotiations? When have they not used negotiations as a pretext to achieve their goal of "overcoming the army without a fight"? In other words, the Communist regime uses negotiations as a trap for its enemies. The Communists chant the slogan of peace talks on the one hand and on the other they say they don't reject the use of force against us. With these pretexts, if negotiations aren't a trap, then what are they?

We "negotiated" with the Communists over 30 years ago, and the result was the fall of the mainland. Ten years ago Vietnam "negotiated" with the Communists and the result was the fall of Vietnam. Today, Hong Kong is walking down that same painful path, also after "negotiations." Since for over half a century of its history, the ROC has suffered from the calamity of the Communists, we understand them best and are not apt to forget the lessons of history and fall into their traps again. As to misunderstanding by the international community, if they aren't forgetful of their history then they don't understand the nature of Communism. This misunderstanding is very dangerous for world peace.

In responding to the first question, I already mentioned that the Three People's Principles is a system absolutely superior to Communism. The free, democratic, prosperous, and happy lives enjoyed by the 17.9 million Chinese on Taiwan are precisely the hope of the billion Chinese on the mainland. Any concessions we make to the Communist regime are a loss of hope for our mainland compatriots, sapping their strength and resolve to oppose Communism. And so our appeal to unify China under the Three People's Principles is not just an empty slogan but a means to hearten all of our mainland compatriots with the achievements we have made in promoting the Three People's Principles. Only under the flag of the Republic of China and based on the system of the Three People's Principles can the Chinese people enjoy lives of democracy, freedom, and prosperity and establish a peaceful, harmonious, and happy society.

Q: After taking office as Premier, you put forward 14 key construction projects to raise our quality of life and you expressed the hope that within six years per capita income could reach US$6000. These goals rather emphasize economic construction, but some people feel that there are also some non-material problems in our society today--such as breaking rules and regulations and a decline in public spiritedness. What can practically be done to solve these problems, from the sides of both the government and the people?

A: I mentioned in my answer to the first question that one of the challenges we face today is a kind of "getting out of line" that can occur in a society undergoing change. But any nation and any society has its bright side and its dark side as well. Comparatively speaking, our social order is not worse than many other industrialized countries. What we are concerned about today is how, during the process of our society's transformation and while our citizens pursue their economic lives, we can uphold our traditional ethical, spiritual, and moral concepts and fuse this into a harmonious and modern industrial society.

I admit that the mental construction of a perfect society is harder work than material construction and may progress more slowly. But we must make an effort, and this effort is very important. The importance the government attaches to this aspect and its resolve can be seen from its earlier 12 key construction projects up to the 14 key projects currently underway.

As to what can be done by the government and the people, every element of society actually has a responsibility. Concretely speaking, besides a respect for our nation's laws, I think that the following points are extremely important:

● Promote the movement for the revival of Chinese culture, especially the propagation of the philosophies of Confucius and Mencius.

● Ethical and moral norms are implanted during education at home and in the schools. Parents and teachers should influence young people by their teachings in both word and deed.

● Although the scope of social education is very broad, mass media have the greatest power for influence.

● The edifying influence of culture and leisure activities can purify the spirit.

● The business world, the religious world, and the intellectual world all have social responsibilities.

Q: Some people think that certain problems in today's society are due to a lack of understanding by the average person of the nation's long-term goals for development. Would the Premier please discuss this point?

A. Society is dynamic and is constantly changing. So problems may arise in any society, at any time. We should seek for an answer to each problem by studying the problem itself. If it is said that problems in society are "due to a lack of understanding by the average person of the nation's long-term development goals," then that is illogical and inaccurate.

But if you ask what our nation's long-term development goals are, I think there are three, and they are just what we are engaged in pursuing.

First, we must achieve victory in the competition between Communism and the Three People's Principles. During these 30 or so years, short in the perspective of history, the ROC on Taiwan, relying on the Three People's Principles, can compare favorably with any country in its achievements in economic construction. Chinese history has never seen such prosperity and abundance. Of course, new problems often arise, problems which we are currently engaged in solving. The income of our citizens today is 10 times that of Chinese on the mainland under Communism. Ours has increased over the past 30 some years over 20-fold; theirs, just tripled. So the facts prove that the Three People's Principles have already defeated Communism. But the victory we demand is to cast off Communism from the Chinese mainland completely and to let the Three People's Principles be carried out in every corner of China.

Our second goal is to provide the basic prerequisites for a modern industrialized nation. Last year, 50.6 percent of our total production value was attributable to industry, 43 percent to the service sector, and just 6.4 percent to agriculture, already forming the structure of a modern industrialized nation. And the policy we are now pursuing of economic liberalization and internationalization is strengthening our role in the world economy. So we believe we can enter the ranks of the developed countries within this century.

Our third goal is to build a rich and an ethical society. Modern society pursues two main goals: one is progress; another is harmony. The motive force behind progress is the pursuit of wealth. But even if people are well off, if they lack viable moral standards, then unrest and criminal behavior may arise. So we must set up a stable, ethical, harmonious society in which wealth is evenly distributed. When I mentioned previously certain problems with values that may take place during the course of our society's transformation, I stressed the importance of reviving our country's traditional culture and raising the level of culture and education. The purpose lies just here. I am very pleased that many of our sociologists and economists are focusing on this problem, studying it, discussing it, and making their findings known to the public. I believe our society is moving day by day toward a peaceful and happy future.

Q: Which of the Executive Yuan's programs does the Premier believe will have the most far-reaching effects on our nation's development?

A: A government's actions are not just responsible to its people but also to that nation's history, so the administration of a government is made both for today and for tomorrow. A nation's long-term development begins with today. Today's construction, a drop at a time, paves the way for the nation's long-term development. I just indicated our three main goals for long-term development, towards which we are striving. These efforts, at the same time-- from policy-making to implementation--all have short-term, mid-term, and long-term plans, which are adjusted to adapt to changes in the objective conditions of our environment, both domestic and foreign.

As a result, it is difficult to clearly mark out which of the government's projects are designed to solve a current problem and which have long-range consequences. For instance, in our easing of restrictions on the establishment of private universities, the near-term effect will be to increase the opportunities of our citizens to receive a higher level education. The long-range function is for private and public schools to share in the responsibility of training talent. Our pilot program of farmers' health insurance has some 100,000 farmers participating this year, but the program may gradually be broadened to the entire farming population after a year. The "Clean-Sweep Campaign" was aimed at removing the "social cancer" of hoodlums and gangsters, while the passage of the Statute for Punishment and Clearing of Hoodlums was designed to thoroughly secure the public safety. Since last year, we have begun to invest NT$800 billion (US$20 billion) in the 14 key construction projects. The aim is to provide some basic construction for the nation, to spur social and economic vitality, and to raise our citizens' quality of life. At the same time we are using this large-scale public investment to spur demand in the domestic market, thereby speeding up economic growth. Each of the programs has a profound effect on our nation's long-range development. For instance, the key projects related to industry are all in basic industries or energy development, while those related to transportation belong to Taiwan's greater transportation network. The health-care policy paves the way for a future national health-insurance system. The public parks project aims at safeguarding the environment, advancing the realms of culture and leisure, and, most importantly, preserving precious resources and a lovely living environment for future generations.

Q: The recent elections received a great deal of attention here and abroad, with varying evaluations of the results. What is the view of Premier?

A: To carry forward the spirit of democratic constitutional government, the government always hopes to conduct elections well and to achieve the goals of fairness, justice, and openness. It is undeniable that with the formulation of the Election and Recall Low an environment of fair competition has been created. Of course it is unavoidable that there should still be a few problems. Continued improvements will be made with experience. The campaigns in this year's local elections reflected everywhere the vigorous development of our citizens' democratic politics. At the same time, the voters' ballot-casting tendencies and their ardent attention at political rallies clearly reflect the interest of our citizens in politics and their rational attitude. This is gratifying. I hope all 191 of those elected will strive in a selfless way for local development and live up to the hopes and trust the voters have confided in them. From this experience, I believe the elections early next year for county heads, township chiefs, and county councilmen and those at next year's end for national assemblymen, legislators, and members of the Control Yuan will show even more progress.

Q: Figures show that the number of woman candidates elected as members of the provincial assembly in the recent election is the largest in the assembly's history. This reminds us of the many outstanding women who are contributing their efforts to the development of our country in every walk of life. Could the Premier please discuss what women can do for the country?

A: In the process of modernization, the position of women in our country is more and more important. They are not only virtuous wives and mothers at home but are also taking on many other constructive roles in society. I believe that the contributions of our female compatriots to the present development of our country should be affirmed and praised by all.

As educational opportunities for women have sharply expanded over the past 30 years, their employment rate has risen accordingly. Statistically, the female proportion of graduate and undergraduate students has risen from 12.9 percent in 1952 to 41 percent in 1983, while the percentage of women who work has increased from 33.1 in 1965 to 42.1 in 1983. And the percentage of government workers who are women has risen from 23.8 in 1977 to 31.5 in 1984.

Today, women have already made an outstanding record in education, business, culture, athletics, politics, medicine, and other fields, enough to prove that Chinese women, outside of their responsibilities to the family, are increasingly more important in other positions and roles directly contributing to society.

Q: The reaction to the recent adjustment in corporate income taxes has been extremely favorable on all sides. What was your reasoning?

A: The drop in private investment in recent years is intimately related to the growth of the economy. Increases in consumption can stimulate for a time. But only an increase in investment can spur long-term economic growth.

So the government must take some fundamental steps. First, it must push the 14 key construction projects and other public works. Second, foreign investment is important. It not only can supplement a deficiency in domestic investment but can spur related domestic industries. For example, raw materials spur industry; finished products spur components; and so forth. So any unnecessary restrictions on foreign investment should be opened up. The third step is tax reduction.

With this latest adjustment, the maximum rate for personal income tax will be reduced from 60 to 50 percent and for corporate tax from 30 to 25. The hope is to stimulate the willingness to invest.

Q: Many of our readers are overseas Chinese and Chinese students studying abroad. The cover story of the September 2nd issue of Newsweek reported on the all-out efforts of Teng Hsiao-p'ing and the Communist leadership to draw in overseas Chinese in the hopes of getting their talent and capital. Is the government taking any steps to respond to this new situation?

A: The economy of Communist China is caught in the dilemma of change without change, so they make this play for overseas capital and talent. As we all know, Communism is materialist, and the Chinese Communists are thoroughly materialminded. If they can get any advantage from you today, they'll do all they can to "rope you in"--and then toss you off like an old shoe tomorrow when they think you're of no more value. So drawing people over to their side for the Communists is a scheme and a trick to hoodwink and deceive. Actually, the Communists underestimate the wisdom and judgment of our overseas compatriots. The reason why our overseas compatriots in the free world have the high levels of achievement in scholarship and in enterprise that they do is because they are living in an environment of freedom, democracy, and fair competition. The vast majority of them have a deep awareness of the Communists' behavior patterns and of the poverty and backwardness of Communist society. I don't think they will easily be "roped in" by the Communists.

Our Founding Father, Dr. Sun Yatsen, once said, "The overseas Chinese are the mothers of the Revolution." Since its inception, the Republic of China has been bound up with overseas Chinese. Our work in overseas Chinese affairs is basically to serve the overseas community. We encourage overseas Chinese students to return here to study. Over 80,000 have done so from 1951 through last year.

Next, we welcome overseas Chinese and Chinese scholars residing overseas to come back and visit, to let them understand, study, or discuss how Free China has progressed, what the government has done, and what it plans to do. After they get to know the investment environment, they may consider coming back to invest or work. Investment by overseas Chinese up to the present already totals US$1.2 billion. Last year, over 1300 experts returned home here to take part in all areas of government and private endeavor, and over 14,000 people came here to settle.

Our work in overseas Chinese affairs has many areas which still need to be strengthened and improved, and we are working hard to do so. The Chinese who live in Free China consider themselves to be eternally one with the Chinese who live in foreign lands, and so the door to the homeland is always open. And I would like to take this opportunity to give my best to all your magazine's readers, both at home and abroad.