LIEN, SOONG VISITS - TAIWAN BUSINESS LEADERS

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002202

SIPDIS

DEPT FOR EAP/TC
DEPT PLEASE PASS AIT/W

E.O. 12958: DECL: 05/16/2015
TAGS: ECON PREL CH TW
SUBJECT: LIEN, SOONG VISITS - TAIWAN BUSINESS LEADERS
QUIET, INVESTORS OPTIMISTIC

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

Summary
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1. (SBU) Few Taiwan business leaders have reacted publicly
to the visits of opposition party leaders Lien Chan and
James Soong to the PRC. In private, their reaction has
varied broadly from enthusiastic optimism to frustrated
skepticism. The Taiwan Stock Market has shown some gains
recently that may be due in part to the visits. However,
other factors have also played a significant role, and any
gains due to cross-Strait factors may be short lived.
There has been a stronger impact on food and tourism
industry stocks. It will take more concrete progress on
cross-Strait relations that involves Taiwan's ruling
Democratic Progressive Party (DPP) before we see a more
vocal reaction in the business community and more permanent
gains in the stock market. End summary.

Business Leaders
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2. (U) The response in Taiwan's business community to
recent cross-Strait developments, particularly the visits
of Kuomintang (KMT) leader Lien Chan and Peoples First
Party (PFP) leader James Soong to the PRC, has been quiet.
Most business leaders have not commented publicly on the
events. Notable exceptions include Formosa Plastic Group
Chairman Wang Yung-ching, who told the press after the Lien
visit that he did not see any noticeable changes in the
development of cross-Strait relations as a result of the
visits. Powerchip Chairman Frank Huang, on the other hand,
told reporters that he believed the Lien and Soong visits
had reduced cross-Strait tensions and showed more
flexibility from Beijing. Some business leaders have
continued calls on the Taiwan government to further
liberalize cross-Strait economic relations. In a May 9
breakfast meeting with Premier Frank Hsieh, the leaders of
Taiwan's major industrial associations reportedly called on
the Taiwan government to seek a consensus on cross-Strait
issues and expand economic liberalization.


3. (C) Privately, reaction from members of the business
community has ranged broadly from enthusiastic optimism to
frustrated skepticism, some probably colored by political
inclinations as well as a reasoned assessment of the impact
of the visits. Just after the Lien visit, Chairman of
Yulong Motors Ken Yen was very enthusiastic about the
potential results in a meeting with AIT/T. He noted Lien
had received a warm welcome and that the people of Taiwan
were emphasizing the desire to keep the status quo and not
push for independence. Earle Ho, Chairman of Tung Ho Steel
and Chairman of the Chinese National Federation of
Industries (CNFI),more recently told AIT/T that it was
still too early to tell what kind of positive economic
impact there might be as a result of the two visits. He
will travel to the PRC the week of May 16 and hopes to have
a better understanding of prospects for real progress after
visiting Beijing. Chinese National Association of Industry
and Commerce (CNAIC) Deputy Secretary General George Lin
had a similar reaction, indicating he needed more time to
assess the reaction of association members. Tsai Horng-
ming, Deputy Secretary of CNFI, was much more negative on
the prospects for progress. He foresaw no concrete results
from the visits and called them nothing but political
games. Tsai added that he did not understand why the U.S.
supported these visits.

Market Reaction
--------------


4. (U) Taiwan markets appear to have shown some positive
reaction to the Lien and Soong visits. The Taiwan Stock
Exchange TAIEX index rose 223 points, or 3.9 percent, from
its close on April 25, the eve of Lien's departure for the
PRC, to its close May 13, the day of Soong's return to
Taiwan. U.S. markets and other markets in the region that
often closely track the Taiwan Stock Exchange did not
perform as well during the period. In the U.S., the Dow
Jones Industrial Average lost ground, while the NASDAQ
composite gained only 1.3 percent during the period. In
Asia, Hong Kong's Hang Seng Index gained only 0.8 percent
and the South Korean market index declined.

5. (C) However, some analysts believe that recent overall
increases in the stock Taiwan market are due primarily to
other factors. Chen Miao, Senior Economist at the Taiwan
Institute of Economic Research (TIER) and Huang Wen-jur,
Senior Consultant at SinoPac Securities, both told AIT/T
that they believed that positive economic and market
performance in the U.S. was a major factor. SinoPac's
Huang also pointed out the strong influence of foreign
portfolio investors and the decision of Morgan Stanley
International Capital to add nine companies to its Taiwan
Standard Index and increase the weight of Taiwan stocks in
its international index at the end of May. Moreover, the
Taiwan market index continues to be down from March and
early April. Even March 15, the day after the PRC's
passage of the Anti-Secession Law, the TAIEX closed at
6063.48 -- higher than it's May 13 close.


6. (U) There appears to have been a more decisive reaction
among stocks in the food and tourism industries as a result
of the PRC's announcements that it would liberalize
agricultural imports from Taiwan and Mainlander travel to
Taiwan for tourism. Food industry stocks rose 5.9 percent
during the April 25-May 13 period. Tourism stocks were up
16.6 percent. A smaller increase for transportation stocks
-- up just 1.2 percent -- suggests that investors may be
less optimistic about the chances for progress on direct
transportation links. (Note: AIT will report septel on the
potential impact of the PRC proposals for agriculture and
tourism. End note.)

Comment - Waiting for More
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7. (C) The muted public response in the business community
is not unexpected. PRC pressure on Taiwan investors in the
Mainland such as Chi-Mei's Hsu Wen-lung has caused many
business leaders to emphasize their political neutrality
back in Taiwan as evidenced by Acer founder Stan Shih's
recent decision to resign as one of President Chen Shui-
bian's advisors. More importantly, as many have observed,
these meetings are unlikely to have a significant effect on
the economy or cross-Strait trade and investment until the
Taiwan government gets involved.


8. (C) In addition, the apparent positive stock market
reaction may turn out to be short lived. We are likely to
see some price corrections as real economic results fail to
materialize from these positive political developments. If
the PRC and DPP move closer to a dialogue or the DPP and
opposition parties can achieve a consensus on how to
approach cross-Strait relations, then we can expect to see
more long-term gains in the stock market as well as a more
vocal and enthusiastic response from business leaders. End
comment.
PAAL