TAIWAN BUSINESS COMMUNITY ALREADY PREPARED FOR PRC

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 001511

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DEPT FOR EAP/TC
DEPT PLEASE PASS AIT/W

E.O. 12958: DECL: 03/29/2015
TAGS: ECON EINV TW CH
SUBJECT: TAIWAN BUSINESS COMMUNITY ALREADY PREPARED FOR PRC
PRESSURE

REF: A. TAIPEI 1437


B. TAIPEI 1438

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

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


1. (C) Taiwan's business community agrees that Chi-mei's Hsu
Wen-lung issued his pro-"one China" statement March 26 due
entirely to PRC pressure. However, it also agrees that the
statement will not affect the level or growth of Taiwan
investment in the Mainland. Taiwan investors had already
learned to keep their political opinions quiet and will
continue to do so. In general the impact on Taiwan's
business community has not been great. Nevertheless, this
latest incident underscores the PRC's increasing ability and
willingness to use economic interests to influence Taiwan
investors politically. End summary.

They Made Him Do It
--------------


2. (C) AIT/T's contacts in Taiwan's business community almost
uniformly agree that Chi-mei founder Hsu Wen-lung's
pro-"one-China" letter printed in the Economic Daily News on
March 26 (ref B) was written entirely due to PRC pressure and
does not reflect his own opinions. Yu Long Motor Co.
Chairman Ken Yen told us that the Hsu letter was clearly
orchestrated by the PRC. One contract described Hsu's
motivation the letter as "Beijing holding a gun to his
head." Another local commentator speculated that the only
words in Hsu's statement that he actually wrote were the
characters of his own name. Powerchip Chairman Frank Huang
has stood out in telling the media that he did not believe
that Hsu had been threatened by the PRC. However,
Powerchip's Spokesman Eric Tang privately gave AIT/T a
somewhat different interpretation. He said that ultimately
Hsu was a businessman and the future of his business depended
on China. Nowell Chernick, the head of Calvary Asset
Management in Taiwan believes that Hsu was probably under
intense pressure from Chi-Mai's senior management as well,
who likely urged him to take this kind of step in order to
end PRC disruption of Chi-mei's Mainland operations.

Still Heading West
--------------


3. (C) Business community contacts also agree that PRC
political pressure will not slow Taiwan investment in the
Mainland. Chinese National Federation of Industries Deputy
Secretary General Tsai Horng-ming told AIT/T that he believes

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that the level and growth of Taiwan's investment in the PRC
would not be affected at all by Hsu's statement. Taiwan
Semiconductor Manufacturing Company Director of Market
Analysis Justin Wang suggested that the PRC's political
pressure on Hsu would have minimal impact on Taiwan
investment and expects the overall trend of better
cross-Strait relations to improve the environment for Taiwan
investment in the Mainland. Wang noted that this trend was
interrupted by the PRC's passage of the Anti-Secession Law,
but like many other observers he expects it to resume within
a few months.


4. (C) Calvary's Chernick also observed that like many other
Taiwan firms Chi-mei needed to be in the PRC. Chi-mei's core
business has been petrochemicals, and much of its Mainland
investment is in that industry. Recently it has shifted much
of its focus to the TFT-LCD industry and is now one of the
world's top five TFT-LCD panel manufacturers. Chernick
pointed out that if Chi-mei wants to continue to grow in
either of these industries it must expand in China as its
competitors Formosa Plastics and AU Optronics have. The
Chi-mei example shows how Taiwan firms across a range of more
traditional and high-tech industry need to invest in the
Mainland to grow.

But Keeping Quiet
--------------


5. (C) Nevertheless, Taiwan's investors have taken note of
PRC pressure and appear to be altering their behavior
accordingly. Acer President of International Operations T.Y.
Lay told AIT/T that Acer had already learned to keep quiet
about politics. He recalled that after Taiwan President Chen
Shui-bian named former Acer Chairman Stan Shih a presidential
advisor at the beginning of Chen's first term, Acer's
operations in the Mainland were disrupted on several
occasions. The PRC also rejected one of Shih's visa
applications. As a result, Acer and Shih have been very
cautious about any appearances of political activity.
Chernick observed that no major Taiwan business chief could
afford to be in China's bad graces. As Powerchip's Tang put
it "if you want to do business in the Mainland, don't touch
politics."

Comment ) What's Next?
--------------


6. (C) While some in the Chen administration fear that this
latest move by the PRC may be a sign of a renewed campaign to
pressure Taiwan businesses (ref A),most of AIT/T's business
contacts seem to have taken the news in stride. One observer
called it a political event not an economic one. Market
analysts seemed more focused on the impact of the March 26
demonstration rather than the Hsu statement. Firms operating
in the Mainland have already heeded warning from the PRC and
keep their political opinions safely hidden if they tend to
be pro-Green or pro-independence. Regardless of whether the
Hsu statement is a sign of more pressure to come, the PRC has
already been effective at silencing opposition among Taiwan
firms invested in the Mainland.


7. (C) In addition to its possibly impact on Taiwan
investment in the PRC or the political activities of Taiwan's
business leaders, the Hsu statement is also notable for once
again underscoring the shifting balance in economic influence
across the Strait. The PRC continues to seek investment from
foreign sources including Taiwan, but is increasingly willing
to use that investment as a tool for political ends.
Moreover, Taiwan firms now need to be in the PRC to survive,
and even the most pro-independence business leaders may be
susceptible to the PRC's influence. End comment.
PAAL