(U) TAIWAN BUSINESSES OPERATING IN THE MAINLAND

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 002011

SIPDIS

DEPT FOR EAP/TC
DEPT PLEASE PASS AIT/W

E.O. 12958: DECL: 05/03/2015
TAGS: ECON PINR EINV PGOV PREL CH TW
SUBJECT: (U) TAIWAN BUSINESSES OPERATING IN THE MAINLAND
(C-AL5-00385)

REF: A. TAIPEI 1511

B. TAIPEI 1781

C. STATE 79033

Classified By: AIT Director Douglas H. Paal, Reason 1.4 b/d

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


1. (C) AIT/Taipei offers the following information in
response to ref C regarding PRC pressure on Taiwan
businesses operating in the Mainland. We have highlighted
four examples of such pressure -- Chi Mei, Acer, Quanta,
and Evergreen. We also note that many firms report the
same kind of difficulties for reasons that are completely
unrelated to domestic Taiwan political affiliation. Chi
Mei is clearly an extreme case and meant to be an example
to other Taiwan firms. However, the PRC has applied less
severe pressure broadly to many Taiwan businesses. As a
result of this strategy, the PRC has largely achieved its
aim of silencing support among the Taiwan business
community for President Chen Shui-bian and the Democratic
Progressive Party (DPP). We expect it to continue to apply
this kind of pressure and for Taiwan firms to maintain
their silence. End summary.


Responses to State 79033 Questions
--------------


2. (C) AIT/Taipei offers the following information on some
of the specific questions asked in ref C:


A. (C) Other than Chi Mei's Hsu Wen-lung, AIT/Taipei is not
aware of any other Taiwan businessmen with operations in
the Mainland, who have released statements denouncing
Taiwan President Chen Shui-bian, the Democratic Progressive
Party (DPP),Taiwan independence, or supporting the Anti-
Secession Law (ASL) as a result of pressure from PRC
authorities. Some other businessmen and industry
organizations have made favorable comments about the ASL,
but we do not have any indication that the comments were
motivated by overt pressure from the PRC. Many observers
have commented that in general Taiwan businessmen have
responded to PRC pressure by keeping silent about political
issues, and maintaining a distance from Taiwan's political
parties.


B. (C) Computer brand Acer's former chairman Stan Shih told
the press on March 31 that he intended to resign his
position as a presidential advisor to Chen Shui-bian to
underscore his political neutrality. This is likely a
result of PRC pressure. More information on this case is
provided below. We are not aware of any other examples of
Taiwan businessmen resigning from presidential advisory
posts due to pressure from the PRC. Other pro-independence
presidential advisors resigned in early March because they
felt that Chen's 10-point consensus with the People's First
Party (PFP) Chairman James Song betrayed the independence
movement.


C. (C) As one element of the PRC's "united front" tactics,
the Chen administration sees pressure on Taiwan businessmen
operating in China as a major threat to the DPP. Combined
with efforts to reach out to opposition parties and isolate
Taiwan diplomatically, the Chen Administration sees the
PRC's actions as what one Presidential Office official
described as a "non-violent full-scale attack." This
perception drives the DPP's campaign strategy in recent
elections to answer a perceived successful economic
cooption of Taiwan's businesses by the PRC with Taiwan
nationalism. The Chen Administration views the Taiwan
business community on the Mainland as generally supporting
the Kuomintang (KMT) and its Pan-Blue allies.

(C) However, most recently concern about pressure on Taiwan
businessmen may be diminishing slightly. Mainland Affairs
Council (MAC) Chief Secretary Jan Jyh-horng told AIT/T that
MAC perceives a less heavy-handed approach toward Taiwan
investors. He reported that in the weeks following the
publication of the Hsu Wen-lung letter local officials in
Fuzhou and Guangzhou had asked Taiwan businesses to sign a
letter in support of the ASL. MAC denounced these efforts,
and later the request was withdrawn. Jan speculated that
PRC officials had assessed that the publication of Hsu Wen-
lung's letter had hurt their cause because discussion in
Taiwan had focused on the PRC pressure behind the statement
instead of the statement's contents. Jan told us that MAC
would see attendance at the next MAC-hosted meeting of
Taiwan investors as an indication of the current level and
tenor of PRC pressure on Taiwan businesses. The next
meeting will be held around the Dragon Boat Festival in
early June.


D. (U) AIT defers to PRC posts on Beijing's view of the
Taiwan business community.


E. (C) In general, Taiwan businessmen are reluctant to
discuss political problems they may face in the Mainland
because they fear it will exacerbate those problems and
depress stock prices. Examples of the problems that
businessmen have faced in the PRC due to their political
activities include repeated questioning by PRC authorities,
excessive auditing, increased tax liability, fines and
unusually zealous or arbitrary enforcement of regulations,
such as environmental regulations. (Note: Taiwan local and
national officials sometimes employ similar means to apply
political pressure on Taiwan firms. End note.)
Businessmen and other observers have not described to us
any positive economic incentives offered by the PRC for
political reasons -- except for the elimination of
unnecessary difficulties.


F. (U) According to press reports that identify a DPP
source in the Legislative Yuan, Economic Affairs Minister
Ho Mei-yueh's husband works in Guangzhou for a Mitsubishi
affiliate in the chemicals industry. Ho has not publicly
identified her husband's employer but told the press that
he was assigned to work in Guangzhou directly from Japan,
not through the Taiwan affiliate.


G. (C) AIT will forward by e-mail to EAP/TC confidential
information provided by the Ministry of Economic Affairs
Investment Commission on firms that have applied to the
Taiwan government to invest in the Mainland.


H. (C) Within the ASL or the PRC's consensus with KMT Vice
Chairman P.K. Chiang, there are several measures that
target specific sectors in Taiwan. Agriculture stands out
because it would benefit economic interests in southern
Taiwan that have traditionally supported the DPP and
President Chen Shui-bian. Other sectors that would benefit
from these proposals include the fishing industry, finance,
and transportation, in addition to Taiwan investors in the
Mainland. Comment: However, the entire Taiwan economy
increasingly depends on its economic links with the
Mainland. Even modest steps to improve cross-Strait
economic relations will appeal broadly across the entire
Taiwan business community. End comment.

Examples of Political Pressure...
--------------


3. (C) The following are four examples of Taiwan businesses
(Chi Mei, Acer, Quanta, and Evergreen) that have faced
problems in their Mainland operations due to the political
views of the firms' chairmen/founders.

Chi Mei
--------------


4. (C) In early April, 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
(reported ref B). 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, according to the
executives, Hsu Wen-lung's decision to issue his statement
came only after Beijing signaled 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. Chi Mei executives noted that,
once Hsu had decided to issue his statement, Beijing had
signaled its approval with confirmation that Hsu had been
approved for a visa to visit Hong Kong. Chi Mei now plans
to expand its operations in the Mainland with a TFT-LCD
assembly plant.

Acer
--------------


5. (C) In March, Acer's then President of International
Operations T.Y. Lay told AIT/T (reported ref C) that Acer
had previously experienced difficulty in its Mainland
operations due to the politics of its founder Stan Shih.
Lay 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. As noted above, Shih
announced in late March that he would resign the post of
presidential advisor to underscore his political
neutrality. Currently, Acer is actively expanding its
operations in the Mainland and aims to double its revenue
from China this year. (Note: Lay now heads Acer's Mainland
operations out of Beijing. End note.)

Quanta
--------------


6. (C) Jason Lin, Deputy Spokesman of notebook computer
manufacturer Quanta, recently confirmed to AIT/T that
Quanta had been the target of some political pressure from
the PRC. Lin said that in early 2004 before Taiwan's
presidential election Quanta's founder and chairman Barry
Lam had publicly said that he hoped Chen Shui-bian would be
re-elected. According to Lin, Lam's true political
preferences tend toward support of the Pan-Blue camp, and
he had misspoken while trying to be courteous to President
Chen at a public event. As a result of these comments, Lin
said that Quanta was subjected to excessive questioning by
PRC officials, but no concrete sanctions were imposed.
Quanta explained the circumstances of Lam's comments to PRC
officials, and Lin believes the PRC authorities accepted
this explanation. Lin reported that Quanta still
occasionally encounters difficulties with PRC central and
local government officials depending on the current state
of cross-Strait relations and other local factors.
However, Lin does not believe that the most recent problems
are specifically aimed at Quanta for any domestic Taiwan
political affiliation. Quanta now assembles nearly all of
its notebook computers in the PRC.

Evergreen
--------------


7. (C) Evergreen Group, the transportation conglomerate
that includes Evergreen Marine Transport and EVA Air has
also reportedly faced difficulty in its Mainland
operations. Evergreen has long had connections with Chen
Shui-bian, who once did legal work for the group. However,
a few years ago the group publicly cut off political
support to the DPP. In November 2003, Group Chairman Chang
Yung-fa criticized President Chen for not supporting direct
shipping links with the Mainland. In March 2004 Chang
publicly supported the KMT's Lien Chan in the presidential
election and urged Evergreen employees to vote for him. In
May 2004, Chen dropped Chang as a presidential advisor.
Since then the group has been successful at dramatically
expanding its Mainland operations. In June 2004, Chairman
Chang visited the PRC and toured harbors in Dalian and
Pudong, Shanghai. This year its Italian subsidiary was
approved to invest in two berths in Ningbo Harbor near
Shanghai. In addition, the PRC authorized the same
subsidiary to open a branch office in Shenzhen, the first
for a Taiwan shipping firm.

Other Problems
--------------


8. (C) Many observers point out that Taiwan firms operating
in the Mainland frequently encounter difficulties with PRC
officials that are not related to Taiwan political
affiliation. Tsai Horng-ming, Deputy Secretary General of
the Chinese National Federation of Industries (CNFI) noted
that the problems many Taiwan firms encounter in the
Mainland are the result of local PRC political issues, not
central government pressure to oppose pro-independence
forces in Taiwan. Quanta's Lin noted that many of the
difficulties Quanta had faced seemed to have been caused by
local government efforts to improve their fiscal situation.
He also commented that some pressure is directed at Taiwan
firms in general depending on the state of cross-Strait
relations with no bearing on whether the firm is perceived
to be a Pan-Blue or Pan-Green supporter.

Limited Action, Broad Pressure
--------------

9. (C) It appears that the case of PRC pressure applied to
Chi Mei's Hsu Wen-lung is the extreme in PRC treatment of
Taiwan investors in the Mainland in that the firm was
subjected to real economic consequences. Micky M.C. Chen,
Chairman of the Taiwan Businessman Consulting Group, told
us that Hsu was targeted as an example because of Chi Mei's
size and his vocal support of Chen. CNFI's Tsai cited the
Chinese proverb "kill the rooster, scare the monkey" to
explain the PRC's strategy of using Chi Mei as a high
profile example. Both believe that the PRC has rarely used
real economic sanctions like those used against Chi Mei to
pressure Taiwan businesses because of Taiwan political
affiliation.


10. (C) Nevertheless, AIT/T contacts in Taiwan confirm that
the PRC authorities regularly question Taiwan firms on
their political activities, remind them or the consequences
of supporting Taiwan independence, and ask that they
publicly reject independence. As Chinese National
Association of Industry and Commerce Deputy Secretary
General George T. Lin described, PRC authorities try to
"knock on the door" of all Taiwan investors in the Mainland
to secure support for their political agenda. As noted
above, MAC's Jan described examples of PRC authorities
asking large groups of Taiwan businessmen to sign an
endorsement of the ASL.

Comment - Big Impact
--------------


11. (C) With limited use of real sanctions, but broad
application of pressure, the PRC has managed to achieve
many of its aims. Taiwan firms are now very reluctant to
advertise any political affiliation, much less support for
the Pan-Green camp. The PRC has managed to force high-
profile Taiwan businessmen to actively distance themselves
from the Chen administration. Many Taiwan businessmen feel
they must compete in the Mainland market to survive and are
willing to sacrifice political principles to do so. PRC
authorities are aware of this. Hsu Wen-lung's letter shows
that they are willing to use this leverage. However, if
the observations of MAC's Jan prove correct, the PRC may
have come to realize that it cannot push to far. We expect
a continuation of this measured application of pressure on
Taiwan businesses. We also expect Taiwan firms to comply
with very minimal public protest as they continue to expand
their presence in the PRC. End comment.
PAAL