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 SIPDIS 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 SIPDIS 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