TAIWAN BUSINESS LEADERS ON ECONOMIC POLICY

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 003321

SIPDIS

SIPDIS

STATE PASS USTR
STATE FOR EAP/TC,
USTR FOR STRATFORD AND ALTBACH,
USDOC FOR 4431/ITA/MAC/AP/OPB/TAIWAN/JDUTTON
USDA/FAS FOR SHEIKH/MIRELES

E.O. 12958: DECL: 07/06/2016
TAGS: ETRD ECON PREL PGOV TW
SUBJECT: TAIWAN BUSINESS LEADERS ON ECONOMIC POLICY


Classified By: AIT ACTING DIRECTOR ROBERT WANG FOR REASONS 1.5 (b),(d)


1. (C) Summary: AIT Director Young hosted a lunch with
business leaders to discuss their views on economic issues.
The group complained the leadership of the anti-Chen
demonstrations are driven by ulterior motives. They favored
the authorities setting the rules to promote a positive
business environment, though clearly did want the authorities
picking out winners under an 'industrial policy.' The group
viewed cross-Strait relations as the key issue for economic
policy and wanted more freedom from Taiwan regulation to
pursue opportunities in China. One member called for a more
thorough and consistent program to develop infrastructure to
support the business environment. End Summary.


2. (U) AIT Director Young hosted a lunch September 22 to
discuss economic issues with prominent Taiwan business
representatives. The guests included Morris Chang, Chairman
of Taiwan Semiconductor Manufacturing Corporation, Matthew
Miao, Chairman of Mitac, Nita Ing, Chair of Continental
Engineering Corporation, Tsai Hong-tu, Chairman of Cathay
Pacific Bank, and Yen Ching-chang, Chairman of Fuhwa
Securities. AIT attendees included Deputy Director Wang and
the Economic and Commercial Chiefs.

Government & Industrial Policy
--------------

3. (SBU) The principal topic revolved around interaction
between government officials and Taiwan's business community.
Miao suggested he missed the good old days 15 years ago when
he could confidently take visiting foreign business partners
to meet top Taiwan officials and be sure the officials would
paint a coherent, supportive vision of how business and
government could work together to provide a stable business
environment. Chang and Ing took exception to the cozy
relationship described by Miao, both saying the current
situation where the government sets the rules and stays out
of picking winners and losers is a much improved business
climate. Chang noted that while it is true the government
picked a winner in semiconductors, it also picked some losers
in its implementation of an industrial policy. Ing said the
construction sector, for example, is much better off with the
government on the sidelines and not trying to dictate policy.


4. (SBU) Yen, from his perspective as a former finance
minister, generally defended the government's role in
shepherding the financial sector through the Asian Financial
crisis in relatively unscathed fashion. Tsai noted that the
banking industry is generally highly regulated wherever it is
located. Yen and Tsai seemed to be siding with Chang and Ing
as they argued the authorities should move ahead with mergers
and acquisitions in the financial sector as soon as possible.
Yen said he sharply disagreed with recent statements from
senior politicians supporting continued government ownership
and control of Mega Financial Holding Co. Tsai saw M&A
activity as the only way for his bank (and associated
financial services firms) to get big enough to be able to
operate regionally. Chang summed up this part of the
conversation by saying Taiwan should follow a policy of
"active non-intervention" as practiced in Hong Kong in the
1990s.


5. (U) Note: During a Financial Sector seminar hosted by
the ROC-USA Business Council on September 25, participants
identified 'overbanking', or too many banks, as Taiwan's
number one issue in the financial sector. Seminar
participants called on the authorities to develop the
appropriate environment to allow and promote mergers and
acquisitions to move forward in the sector. Dr. Hu
Sheng-cheng, moderator for the seminar panel and Chairman of
Taiwan's Council of Economic Planning and Development (CEPD),
responded by saying the authorities were preparing a

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follow-on plan to the 2nd State Financial Reform Plan and
would issue it shortly, possibly as early as Wednesday,
September 28.

Infrastructure Wanting
--------------

6. (SBU) Miao complained Taiwan has failed to provide and
upgrade infrastructure to support Taiwan's modern economy.
He lauded Nita Ing for ushering in a new era with the
upcoming High Speed Rail line connecting Taipei in the north
to Kaohsiung in the south, but bemoaned the lack of progress
in other areas like telecommunications and water treatment
and supply. On telecoms he advocated for the removal of
Chunghwa Telecom's virtual monopoly power in making it
difficult for new entrants to the market to get access to the
"last mile" of connectivity to homes and businesses. He said
he wanted the ability to invite private firms to offer the
kind of services he wanted to operate his global company in
an efficient manner. Miao did not get a chance to talk about
his views on water supply, but Taiwan's water supply issues
are well known and there is a bill in the Legislative Yuan
calling for major water projects to be constructed.

Cross-Strait
--------------

7. (SBU) The table agreed with Chang's contention that the
crux of the issue for Taiwan's economic policy is relations
across the Strait. While Chang himself noted that probably
90% of Taiwan firms that want to be in China are already
there despite existing restrictions, the negative attitude of
the authorities on cross-Strait liberalization makes it more
challenging than it needs to be to conduct business. (Note:
A survey published on September 25 by Taiwan's Electrical
Engineering Association reports that 60 percent its members
want to expand their existing investments in China. End
note.) All of the firms represented at the table want to
conduct business, to a greater or lesser extent, across the
Strait and believe Taiwan policy is holding companies back
from taking advantage of linguistic and cultural ties with
China that would make Taiwan a natural gateway for doing
business with China.


8. (SBU) Miao suggested Taiwan should be more pragmatic and
less dogmatic in its relations with the Mainland. He cited
Singapore as an example in that despite separating from
Malaysia in 1963, Singapore has always positioned itself to
conducting business with Malaysia. The lunch guests seemed
to feel Taiwan has missed out on a number of very profitable
business opportunities in the Mainland due to Taiwan policy
stances. Chang summed it up by saying while Taiwan's
cross-Strait policy was not "colossal stupidity" it was
certainly "stupidity."

Business View of the Political Demonstrations
--------------

9. (C) Away from the group, Chang (and others) were highly
critical of the ongoing anti-Chen demonstrations and calls
for him to step down. They believed that all of the leaders
of the anti-graft and other demonstrations had ulterior
motives in pursuing the demonstrations. This group would, of
course, oppose any calls for island-wide strikes or efforts
to shut down the international airport for the planned
celebrations on October 10 for the national day.
WANG