MINI-LINKS - SMALL IMPACT, BIG DREAMS

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 000673

SIPDIS

DEPT FOR EAP/TC
DEPT PLEASE PASS AIT/W

E.O. 12958: DECL: 02/17/2015
TAGS: ECON EAIR EWWT ETRD CH TW
SUBJECT: MINI-LINKS - SMALL IMPACT, BIG DREAMS

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

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


1. (C) On a recent trip to Kinmen, econoff observed that the
"mini-links" connecting the Taiwan-controlled islands of
Kinmen and Matsu directly with the Mainland are bringing only
limited benefit to the local economy. Most passenger travel
via the mini-links consists of Taiwan businessmen with
investments in the Mainland briefly transiting Kinmen.
Cross-Strait cargo shipments are made up mostly of gravel
imports from the PRC. Local officials and businessmen see
tourists from the PRC as the islands' best chance for future
economic growth. Some hope, perhaps unrealistically, that
Kinmen will receive up to a million PRC visitors per year.
Officials have also been engaged with Xiamen officials on
plans for a bridge to the Mainland and other infrastructure
projects. Government controls in both capitals are holding
back these plans, illustrating once again that politics in
Taipei and Beijing are the only things holding back more
extensive cross-Strait economic activity. End summary.


2. (U) In 2000, newly elected President Chen Shui-bian
announced the opening of the "mini-links," allowing
passengers and cargo, subject to various restrictions, to
travel directly by boat between Taiwan-controlled Kinmen and
Matsu and Fujian province's Xiamen and Fuzhou. Early on the
mini-links were seen as an interim step toward full direct
transportation links between Taiwan and the Mainland, but
many have been disappointed by subsequent progress on
cross-Strait economic liberalization. During a late-January
trip to Kinmen, the larger of the two islands, econoff
observed that the mini-links have not yet proven to be any
great boon to the local economy either.

Cross-Strait Travel ) Just Passing Through
--------------


3. (U) Traffic across the Taiwan Strait via the mini-links
has increased dramatically since they began operations in
January 2001. Nearly 13,000 people used the mini-links in
the first year of operation. That number increased to almost
29,500 in 2002 and more than 85,500 in 2003. Last year more
nearly 215,000 travelers used the mini-links. Ni Zheng-tu,
Deputy Director of the Kinmen County Harbor Affairs Bureau
expects the rapid growth to continue with some 600,000
mini-links travelers in 2005.


4. (U) Use of the mini-links is limited to Kinmen and Matsu
residents, Taiwan businessmen with investment in the
Mainland, and PRC nationals visiting Kinmen and Matsu. The
vast majority of travelers are from the Taiwan side,
accounting for 94 percent of travelers. Of these only a
third are Kinmen/Matsu residents. Most of the travelers are
Taiwan investors.


5. (SBU) As a result of this transit traffic, the impact of
mini-links travel on the local Kinmen economy has been small.
Most of the travelers pass through Kinmen without bringing
any significant economic benefit to the region. In fact, the
transit through Kinmen is so brief that, despite the
40-minute ferry ride to Xiamen, travelers can often go from
Taipei to Shanghai transiting the mini-links in about the
same amount of time as traveling via Hong Kong. The Kinmen
airport is working on new baggage handling services, which
will make the transit even more seamless. The only visible
signs of economic benefit from this type of travel are the
newly completed terminal and harbor administration offices
and other ongoing infrastructure improvements at the
passenger ferry harbor. In addition, Kinmen Airport Director
Wang You-ling told econoff that the Taiwan government has
budgeted NT$ 2.8 billion (about USD 87.5 million) for airport
improvements to bring the facility fully up to ICAO
standards.

Shipping ) Mostly Just Rocks
--------------


6. (U) The impact from direct cargo shipping has also been
very small. Cargo shipping via the mini-links is restricted
only to goods produced locally in Kinmen and Matsu or PRC
goods to be consumed on the two islands. The mini-links
cannot be used to transship goods to and from Taiwan, unless
they are goods for the personal consumption of Taiwan
businessmen in the Mainland. As a result, most ships sailing
the mini-links route carry only passengers. Moreover, most
of the cargo ships carry only gravel and sand from the
Mainland to Kinmen and Matsu. Many other PRC goods that
might find a market in Kinmen and Matsu cannot legally be
imported, especially agricultural goods. Smuggling of fruits
and vegetables is a perennial problem on the islands.


7. (SBU) Kinmen Customs Office Director Lin Tun-sung told
econoff that cargo shipments to the Mainland are very small
because in general goods produced in Kinmen and Matsu are too
expensive to find a broad market in the PRC. The two islands
have very little industry with the exception of a distillery
producing Kaoliang, a popular sorghum liquor. According to
Kinmen County Deputy Commissioner Yang Zhong-quan, the
Kaohliang distiller has established two sales offices in the
Mainland to increase exports. Customs Officer Director Lin
added that customs and inspections procedures for
transshipping goods to Taiwan businessmen in the Mainland are
too cumbersome so very few goods move via that route. He
hopes that MAC will liberalize the restrictions on goods that
can be transshipped via Kinmen.

Dreaming of a PRC Tourist Invasion
--------------


8. (SBU) With so little benefit from Taiwan business transit
travel and cargo shipment for local markets, Kinmen business
circles and officials place their hopes for future economic
prosperity on expanded tourism. In September 2004, Fujian
province legalized tourism travel to Kinmen and Matsu for
Fujian residents. The first tour groups began traveling to
the islands in early December, but to date their numbers have
been negligible. Only three tour groups totaling 55 visitors
have visited Kinmen under the new policy. Chairman of the
Kinmen Tourism Development Association Yang Yin-hsiun
complained that the application is too complicated and
approval takes too long. He claimed it took MAC an average
of 45 days to approve each of the tour groups that visited
last year. Ho Jin-liang, Chairman of the Kinmen County
Travel Agent Business Association pointed out that MAC meets
only twice a month with other concerned agencies to consider
PRC-Kinmen tourism applications.


9. (C) Ho also told econoff that the PRC liberalization of
tourism for Fujian residents was politically motivated. He
believes that the PRC announcement was intended to help
Kinmen's Pan-Blue legislator Wu Cheng-dian win reelection.
He complained that the PRC had no transparent criteria for
authorizing Kinmen travel agents to arrange PRC tourism
travel. According to Ho, Kinmen officials proposed 16 travel
agents, but the PRC approved only seven.


10. (SBU) Nevertheless, expectations remain high. Yang of
the Tourism Development Association speculated, perhaps
unrealistically, that annual Mainland visitors could
potentially reach the level of one million visits per year.
Deputy Commissioner Yang had similar hopes. He pointed out
13 million Mainland tourists visit Fujian province each year.
He commented that even if only 10 percent of those visitors
made the trip to Kinmen it would bring huge benefits to
Kinmen's economy. Yang argued that MAC should extend
mini-links travel to foreign visitors as well, noting that an
easy side-trip to the PRC would make Kinmen an attractive
travel destination for international travelers. (Comment:
Econoff observed that travel services in Kinmen do not yet
meet standards many international tourists would expect. End
note.)


11. (U) To facilitate this kind of travel, banks in Kinmen
are prepared for liberalization of New Taiwan
Dollar*Renminbi currency exchange on the island. In
September 2004, MAC announced that Kinmen banks would be
permitted to exchange Renminbi on a trial basis. However, it
has not yet implemented the plan. Two of Kinmen's three bank
branches have been approved to provide these services. They
have already completed preparatory testing, inspection and
personnel training. At the Land Bank branch, the Renminbi
has even been added to the currency exchange rate board, but
no exchange rate appears yet.

More Big Plans
--------------


12. (SBU) In other areas of cross-Strait economic activity,
Kinmen is waiting for further liberalization of Taiwan
government restrictions before charging ahead with big plans.
Kinmen County Public Works Bureau Director General Chen
Chia-hsin briefed econoff on unofficial discussions with
Xiamen on a bridge to link the two municipalities. In 2000,
officials from both sides presented six proposals for a
Kinmen-Xiamen bridge at an academic conference. In November
2003, officials attended what Chen described as a preparatory
meeting on one of the bridge proposals. However, according
to Chen, MAC refused to permit Kinmen representatives to
attend a follow-up meeting in December 2003.


13. (SBU) Kinmen is also studying plans to acquire fresh
water from the Mainland. At current levels of growth, Kinmen
officials estimate that water requirements will exceed the
island's supply by more than 25 percent in just 6 years.
Kinmen Waterworks Superintendent Weng Tzu-pao told econoff
that county officials have discussed proposals with Mainland
counterparts and have identified a preferred water source and
route for an overland and submarine pipeline. Future plans
include water pipelines on the proposed Kinmen-Xiamen bridge.
Further progress on the project will require MAC approval.

Comment ) Waiting on Taipei and Beijing
--------------


14. (C) Even for the local economies of Kinmen and Matsu, the
economic impact of the mini-links has been small. However,
they continue to fuel big dreams in various fields. Even the
local college, the National Kinmen Institute of Technology,
is working on joint programs with Mainland universities and
an executive MBA program for Taiwan investors on the
Mainland. Many of these big plans have so far been
frustrated by the narrow scope of the mini-links and slow
progress on cross-Strait economic liberalization.
Nevertheless, pervasive cross-Strait interaction and serious
preparations in Kinmen once again show that politics in
Taipei and Beijing are the only things holding back much more
profound cross-Strait economic activity. End comment.
PAAL