Identifier
Created
Classification
Origin
05TAIPEI1080
2005-03-14 04:55:00
CONFIDENTIAL
American Institute Taiwan, Taipei
Cable title:  

CROSS-STRAIT - UNILATERAL ECONOMIC LIBERALIZATION

Tags:  ECON EINV EFIN TW CH 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001080 

SIPDIS

DEPT FOR EAP/TC
DEPT PLEASE PASS AIT/W

E.O. 12958: DECL: 03/11/2015
TAGS: ECON EINV EFIN TW CH
SUBJECT: CROSS-STRAIT - UNILATERAL ECONOMIC LIBERALIZATION
WILL SEND MESSAGE

REF: A. TAIPEI 278

B. TAIPEI 709

Classified By: AIT Director Douglas H. Paal, Reason 1.5 b/d

Summary
-------

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001080

SIPDIS

DEPT FOR EAP/TC
DEPT PLEASE PASS AIT/W

E.O. 12958: DECL: 03/11/2015
TAGS: ECON EINV EFIN TW CH
SUBJECT: CROSS-STRAIT - UNILATERAL ECONOMIC LIBERALIZATION
WILL SEND MESSAGE

REF: A. TAIPEI 278

B. TAIPEI 709

Classified By: AIT Director Douglas H. Paal, Reason 1.5 b/d

Summary
--------------


1. (C) In the positive atmosphere following the Lunar New
Year charter flights, recent moves by the Taiwan government
have suggested that it was on the verge of further
liberalization across a range of cross-Strait economic policy
areas. These include the creation of an offshore
dollar-denominated stock exchange aimed largely at Taiwan
investors in the Mainland; legalization of investment in the
PRC in more advanced semiconductor manufacturing, integrated
circuit packaging and testing, small screen TFT-LCDs, and
naptha crackers; as well as travel policy. The
Anti-Secession Law appears to have temporarily put a halt to
further progress in these areas. The speed with which
progress resumes could help signal the degree of the Chen
administration's commitment to pursuing a cross-Strait
dialogue after passage of the Anti-Secession Law. End
summary.

Window for Progress
--------------


2. (U) The December 2004 Legislative Yuan election results,
widely interpreted as a rejection of political extremism by
the Taiwan electorate, and successful negotiation of Lunar
New Year passenger charter flights created an atmosphere of
optimism in cross-Strait relations. In recent weeks, several
moves by the Taiwan government had suggested that there was
potential for more real progress on a range of cross-Strait
economic issues. In addition, to the competing proposals for
expanding cross-Strait charter flights offered by both sides,
the Taiwan government appears to have drawn closer to
implementation of various unilateral economic liberalization
measures.

Areas for Improvement...Finance
--------------


3. (U) On February 14, Taiwan's Financial Supervisory
Commission (FSC) announced plans to create a U.S.
dollar-denominated offshore stock market that would allow
Taiwan companies in the Mainland to list in a Taiwan market
and avoid caps imposed by the Taiwan government on Mainland

investment. Taiwan investors in the Mainland are eager for
such opportunities. It would contribute to Taiwan's efforts
to develop the financial sector and become a regional
financial center. On February 24, the FSC revealed that it
was nearing a decision to allow Chinese financial
institutions to set up representative offices in Taiwan. In
addition, Taiwan for months has had plans to implement a
pilot Renminbi exchange program on Taiwan-controlled Kinmen
Island just off the Mainland coast.

...Investment Policy
--------------


4. (C) As reported ref A, various Taiwan agencies had been
actively considering proposals to loosen Taiwan's
restrictions on semiconductor manufacturing investment in the
PRC. Taiwan's largest semiconductor firm TSMC had been
particularly vocal in advocating reform in this area.
Controversy surrounding Taiwan semiconductor manufacturer
UMC's close links to Mainland semiconductor firm He Jian had
increased pressure from some segments of the public to
liberalize the regulations that many accused UMC of
circumventing. However, as reported ref B, TSU politicians
recently used the threat of a rumored U.S. export control
"downgrade" to pressure the Chen administration into
maintaining current restrictions. Currently, Taiwan does not
permit investment that involves manufacturing chips with a
feature size finer than 0.25 microns. Our discussions with
Ministry of Economic Affairs (MOEA) Investment Commission
officials indicate that Taiwan has been looking at lowering
this limit to the 0.18 micron level or possibly even lower.


5. (C) Other industries have also been targeted for
liberalization. Many firms have expressed interest in
investing in integrated circuit (IC) packaging and testing
facilities, small-size TFT-LCDs, and naptha crackers. Taiwan
has a strong position in the global packaging and testing
market. Packaging and testing currently accounts for about
15 percent of Taiwan's semiconductor industry revenues.
However, with the rapid growth of the semiconductor industry
in the PRC, Taiwan firms that observe the Taiwan regulations
are being left out of this key segment and foreign firms are
taking advantage of opportunities in the Mainland.
Similarly, Taiwan has demonstrated strong competitiveness in
the TFT-LCD industry, and moving less advanced manufacturing
technologies, such as small-size screens, to the Mainland
would help Taiwan firms maintain an advantage. Mainland
Affairs Council (MAC) contacts had indicated for months that
Taiwan liberalization of IC packaging and testing and small
TFT-LCDS panels was imminent. Investment in naptha crackers
has been restricted to date because of the size of the
investment required. However, Taiwan's petrochemical
investment in the PRC has seen rapid growth and naptha
crackers are a logical next step for Taiwan firms to expand
their Mainland presence.

...and Travel
--------------


6. (U) The Bureau of Immigration announced on February 24
that tourists from the Mainland could visit Taiwan
individually instead of only as part of a group tour. Other
proposals exist for further expansion of tourism
opportunities, including through the "mini-links" that
connect the islands of Kinmen and Matsu with the Mainland,
and relaxation of regulations governing travel to Taiwan by
PRC employees of Taiwan and multinational firms.

Hostage to the Anti-Secession Law
--------------


7. (C) The PRC's proposed Anti-Secession Law appears to have
at least temporarily closed this window of opportunity for
further cross-Strait economic liberalization. As Mainland
Affairs Council (MAC) Senior Secretary Lee Li-Jane explained,
proponents of liberalization continue to push MAC to further
relax cross-Strait economic policies, but opponents of
liberalization have ramped up their efforts and the pressure
on MAC is intense right now. MAC contacts have been
reluctant to discuss various specific proposals until the
final text of the Anti-Secession Law is clear. Ministry of
Economic Affairs Investment Commission Executive Secretary
Huang Chin-tan told econoff that all investment
liberalization plans are on hold now. He is hopeful that the
delay won't be long.


8. (C) Chinese National Federation of Industries Deputy
Secretary General Tsai Horng-ming predicts that the delay on

SIPDIS
cross-Strait economic liberalization measures will be brief.
He pointed out to econoff that the attention span of the
media is short and the public is forgetful. Institute for
National Policy Research Executive Director Lo Chih-Cheng
agreed that the delay for further unilateral liberalization
as well as bilateral efforts such as charter flights could be
very short. He emphasized that the duration will depend on
the response of the Chen administration. If it is able to
moderate its reaction and prevent a strong counter-response
from the PRC, the two sides may avoid a vicious cycle that
would wipe out the positive atmosphere of a month ago and
force cross-Strait relations into a longer slump.

Comment ) Taiwan's Message
--------------


9. (C) The momentum for improved cross-Strait relations in
February was real. Taiwan's leadership must consider its
next steps cautiously or risk squandering that momentum. The
PRC's recent unilateral offer to move toward opening its
market to Taiwan agricultural goods suggests that it wants to
mitigate the harsh negative reaction to the Anti-Secession
Law from the international community and offer positives
incentives for dialogue even as it appears to draw a harder
line. Similarly, unilateral economic liberalization measures
on the part of Taiwan could play a more important role in the
cross-Strait dialogue in the coming months. Consciously or
not, the Taiwan government will send a message on its real
intentions with regard to the cross-Strait relationship in
the wake of the Anti-Secession Law by the speed with which it
resumes implementation of some of these unilateral measures.
If allowed to proceed with minimal delay, these types of
measures would increase the credibility of the Chen
administration's openness to enter a dialogue with the PRC,
even if the heat of Taiwan's rhetoric rises. End comment.
PAAL