Identifier
Created
Classification
Origin
05TAIPEI1781
2005-04-14 22:44:00
CONFIDENTIAL
American Institute Taiwan, Taipei
Cable title:  

CHI MEI FOUNDER STATEMENT DICTATED BY BEIJING

Tags:  PREL ECON PGOV ETRD CH TW 
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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 001781 

SIPDIS

DEPT FOR EAP/RSP/TC
DEPT PASS AIT/W
/
FROM AIT KAOHSIUNG BRANCH OFFICE

E.O. 12958: DECL: 01/25/2015
TAGS: PREL ECON PGOV ETRD CH TW
SUBJECT: CHI MEI FOUNDER STATEMENT DICTATED BY BEIJING

REF: A. TAIPEI 1511

B. TAIPEI 1438

Classified By: ROBERT W. FORDEN, AIT KAOHSIUNG PRINCIPAL OFFICER.
REASON: 1.4(B/D).

SUMMARY
------

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001781

SIPDIS

DEPT FOR EAP/RSP/TC
DEPT PASS AIT/W
/
FROM AIT KAOHSIUNG BRANCH OFFICE

E.O. 12958: DECL: 01/25/2015
TAGS: PREL ECON PGOV ETRD CH TW
SUBJECT: CHI MEI FOUNDER STATEMENT DICTATED BY BEIJING

REF: A. TAIPEI 1511

B. TAIPEI 1438

Classified By: ROBERT W. FORDEN, AIT KAOHSIUNG PRINCIPAL OFFICER.
REASON: 1.4(B/D).

SUMMARY
--------------


1. (C) Chi Mei Group senior executives confirmed to AIT/K
that the text of Chi Mei Founder Hsu Wen-lung's March 26
statement in support of "one China" had been dictated in full
by Beijing authorities and Hsu had not requested nor
negotiated any changes to the text. They said Mainland
authorities had "harassed" Chi Mei's China operations for
over a year with tax audits, pressure on Chi Mei customers in
China to change suppliers, and other disruptive measures.
However, Hsu Wen-lung's decision to issue his statement came
only after Beijing signalled that China was prepared
substantially to step up its campaign against Chi Mei, that
no further Chi Mei investments in China would be allowed, and
that there was a possibility that Chi Mei employees in China
might be arrested. They noted that, once Hsu had decided to
issue his statement, Beijing had signalled its approval with
confirmation that Hsu had been approved for a visa to visit
Hong Kong. End Summary.

BEIJING DICTATED TEXT TO HSU WEN-LUNG
--------------


2. (C) The text of Chi Mei Group Founder Hsu Wen-lung's
March 26 statement (ref B) in which he expressed support for
Beijing's position on "one China," was dictated in full to
Hsu by Beijing authorities and had been approved by Chinese
President Hu Jintao himself, Chi Mei Group Vice Presidents
Jack Lin and C.H. Hsu told AIT/K. Lin and Hsu, who are both
close to Hsu Wen-lung -- C.H. Hsu is Hsu Wen-lung's cousin --
said the text of the statement had been conveyed to Hsu
Wen-lung via Li Kunliu, Vice Chairman of the Revolutionary
Committee of the Chinese Kuomintang (Mingge),who was Chi
Mei's principal intermediary with the Chinese leadership.
While Hsu's close advisors had discussed how to negotiate
with Beijing to revise and soften the text, Hsu had decided
that he would sign the text and issue the statement without

any changes, since Hsu said, "that is what Beijing wants."
Chi Mei officials would not confirm speculation over whether
the timing of Hsu's statement, appearing the morning of the
March 26 mass rally in Taipei, was dictated by Beijing.

CHI MEI HAD HOPED BEIJING'S PRESSURE WOULD EBB
-------------- -


3. (C) Hsu's decision to issue the statement, which
contradicted everything Hsu had stood for in his
long-standing support for Taiwan independence, had been very
difficult and had come only after it had become apparent that
Chi Mei's future viability was threatened, the Chi Mei Vice
Presidents told AIT/K. Chi Mei's operations in Mainland
China, including small ABS resin, plastics and chemical
production facilities, had come under increasing pressure
from Mainland authorities over the past year. Arbitrary "tax
audits", creation and enforcement of regulations that caused
severe disruption to Chi Mei operations, and Chinese pressure
on Chi Mei customers to drop Chi Mei as a supplier, had taken
their toll. However, Chi Mei's Mainland China subidiaries,
which employed only 400 people, remained small compared to
its worldwide operations with over 20,000 employees and USD 6
billion in net annual sales. Chi Mei had hoped the
harassment of its Mainland China operations would ebb with
time or could be resolved. In 2001, after Chen Shui-bian had
been elected Taiwan President with outspoken support from Hsu
Wen-lung, Chi Mei had been harassed with a series of tax
audits by Chinese authorities, but after paying hefty
"fines," the harassment had tapered off. With Chen's
re-election in March 2004, again with support from Hsu, the
harassment had returned, but this time Mainland authorities
had refused to negotiate with Chi Mei, despite many attempts
Chi Mei representatives had made throughout 2004.

BUT BEIJING THREATENED TO "UP THE ANTE"
--------------


4. (C) Signals from Beijing that China was prepared to step
up even further its campaign against Chi Mei, that no future
Chi Mei investments in China would be approved,
not-too-subtle hints that Chi Mei employees in China might
face arrest for "illegal" activities, and the passage of the
Anti-Seccession Law (ASL) had forced Chi Mei founder Hsu
Wen-lung to rethink his position, Lin and Hsu said. At the
same time, Chi Mei Group Executives had been troubled by how
Chi Mei's development strategies in the ABS plastic resins
and TFT-LCD industries would suffer if Chi Mei were further
locked out of the China market and could not follow its
competitors who were actively expanding Mainland China
production facilities. Chi Mei's intermediaries with the
Chinese leadership had indicated that, with the passage of
the ASL, Beijing had begun to divide Taiwan companies into
"enemies" and "friends." They told Chi Mei that the only way
it could remove itself from the enemies list would be for Hsu
Wen-lung to publicly repudiate his support for Taiwan
independence and for Chen Shui-bian and to support Beijing's
position that there is only one China and Taiwan is a part of
it, Lin and Hsu told AIT/K.

BEIJING RESPONDS WITH VISA APPROVAL
--------------


5. (C) Beijing had responded quickly to Hsu's decision to
publicly repudiate his long-standing views and support
Beijing's one-China position, Lin and Hsu said. After his
decision to issue the statement, but a few days before it was
published, Beijing had approved for the first time in many
years a visa for Hsu to visit Hong Kong. Hsu had applied for
the visa to attend a concert in Hong Kong which one of his
charitable foundations had sponsored. While Hsu had opted
not to take the trip after all, it was seen as a signal that
Hsu's decision had met Beijing's requirements.

CHI MEI MOVES TO CAPITALIZE ON ITS NEW CHINA OPPORTUNITIES
-------------- --------------


6. (C) With Hsu Wen-lung's statement issued and his
retirement from active management of the Chi Mei Group
complete, Chi Mei has immediately moved to capitalize on its
new opening in China. Only days after Hsu's statement was
published, Chi Mei applied for Taiwan government approval of
a proposed USD 2 million investment to establish a new
logistics firm in eastern China. Chi Mei plans to use this
new entity to begin procuring parts and materials for LCD
television production to feed into its production facility in
the Tainan Science Park. This sourcing of inputs to Chi
Mei's LCD television production from Mainland China is
expected to expand signficantly and help Chi Mei lower costs
to make it more competitive in the extremely competitive and
lucrative flat-screen television market. Separately, Chi Mei
Group has also just announced plans to raise some NTD 47
billion (around USD 1.5 billion) through a bond issue for a
new TFT-LCD fabrication plant in Taiwan. The announcement of
the bond issue, not coincidentally, also came right after
Hsu's statement was published.

SACRIFICED FOR HIS EMPLOYEES
--------------


7. (C) Chi Mei Vice Presidents Jack Lin and C.H. Hsu told
AIT/K that Chi Mei's employees understand and appreciate the
sacrifice Hsu Wen-lung has made for them. Hsu's decision to
issue the statement had come as a surprise, but they
understand the pressure he was under. No one, they said,
believed Hsu had changed his views in any way. Those closest
to him knew that it had taken tremendous courage for him to
publicly disawow his views and that he had only acted because
he saw a real threat to the financial well-being of his
20,000 employees, to the viability of the company he founded,
and to the physical security of his 400 employees in China.

COMMENT -- "KILLING THE CHICKEN TO SCARE THE MONKEY"
-------------- --------------


8. (C) Hsu's apparent complete capitulation to Beijing came
as a major surprise to most in Southern Taiwan. Hsu's
companies had suffered for some time from Beijing's publicly
stated dislike for Hsu and his support of President Chen and
Taiwan independence. While Hsu had toned down his public
support for independence in recent years in an attempt to
lower his profile vis-a-vis Beijing, most in Southern Taiwan
saw Hsu as someone who had accepted that he would pay a
certain cost for staying true to his ideals. In AIT's
private meetings with Hsu over the past several years,
including only a few months ago, Hsu signalled no change in
his views that Taiwan remained culturally and ethnically
distinct from China and should remain politically independent
of China as well. While he had accepted that direct trade
and other links with China were economically necessary for
Taiwan, he saw no contradiction between his support of an
independent Taiwan and his interest in doing business in and
with Mainland China. It appears, however, Hsu finally
reached a point at which he found the price of his views too
high.


9. (C) It remains to be seen whether Beijing is using Hsu
Wen-lung as an example to warn other Taiwan investors to stay
clear of politics, i.e., as the Chinese saying goes "killing
the chicken to scare the monkey." If so, the message has
been received. As ref A reported, most Taiwan investors in
China have already accepted that the price of doing business
in China is keeping a low profile in Taiwan's domestic
politics as well as on cross-Strait issues. However, most
still are active in providing major funding to Taiwan
political parties, both Pan Green and Pan Blue. Beijing's
success in getting one of Taiwan's most intransigent
pro-independence businesspersons to dance to Beijing's tune,
suggests that the same tactics could be employed to push
other Taiwan companies to withdraw even low-profile financial
support for causes or politicians in Taiwan that Beijing
opposes.

FORDEN
PAAL