Xiamen Taiwan Scholars Concerned about Chen's Next

C O N F I D E N T I A L SECTION 01 OF 02 GUANGZHOU 001051

SIPDIS

SIPDIS

STATE PASS USTR
STATE FOR EAP/CM, EAP/TC

E.O. 12958, DECL:09/17/2017
TAGS: PREL PGOV ECON EINV TW CH
SUBJECT: Xiamen Taiwan Scholars Concerned about Chen's Next
Moves, Taiwan Investors Shifting Strategies



1. (U) Classified by Consul General Robert Goldberg, Reason
1.4 (b/d)


2. (C) Summary: A Xiamen-based scholar of cross-Strait
relations told Congenoffs that mainland scholars are
concerned that Chen Shiu-bian might take more provocative
steps after a referendum on UN membership. He questioned
U.S. influence over Chen and said that China would be able
to work with either Ma Ying-jeou or Frank Hsieh. In
addition, cross-Strait scholars, business leaders and
officials in Xiamen explained that changing policies and
investment conditions would encourage more high-tech and
high value-added Taiwan investment in the area while
causing labor-intensive investment to move elsewhere. End
summary.

Chen Shui-bian and the UN Referendum -- What Comes Next?
-------------- --------------


3. (C) Scholars at Xiamen University's Taiwan Research
Institute (TRI) are concerned about what Taiwan President
Chen Shui-bian and his Democratic Progressive Party (DPP)
might do next after a proposed referendum on membership in
the UN. Li Peng, Assistant Director of TRI, told
Congenoffs September 7 that scholars view the UN referendum
as a very serious issue. He commented that some scholars
in Beijing and Shanghai believe it has touched the "red
line" set by the Anti-Secession Law. Arguing that Chen is
motivated by the desire to leave a political legacy, Li
emphasized the period between Taiwan's March presidential
election and the end of Chen's term in May as particularly
dangerous. If the Kuomintang's Ma Ying-jeou wins the
election, Li said, Chen might take even more provocative
steps, believing that the DPP had lost because it failed to
appeal to its pro-independence base. Li expressed concern
that, if Hsieh wins, Chen might take additional steps to
preserve his own personal legacy, noting that Chen had
already been pushing Hsieh to more clearly express support
for independence.


4. (C) At the time of the meeting, Li indicated that the
mainland's cross-Strait scholars were focused on analyzing
the exchange between Hu Jintao and President Bush at the
APEC summit in Sydney. He said the Chinese government was
not satisfied with the U.S. reaction to Chen's proposed UN
referendum. He noted that many mainland scholars are
reconsidering the U.S. government's influence on Chen Shui-
bian and his administration. There is growing doubt that
the U.S. can exercise adequate control over Chen; if the
U.S. cannot rein Chen in, Beijing might have to abandon
working with Washington and take more decisive action on
cross-Straight matters.

Ma and Hsieh -- Little Difference
--------------


5. (C) Li told us that Beijing would be willing to work
with either Ma Ying-jeou or Frank Hsieh. He pointed out
that if Ma wins, Beijing would have fewer concerns about
Taiwan independence. However, he also noted that Beijing
would have difficulty with Ma's support for democratization
in the mainland and his interest in building international
space for Taiwan. It would also be a challenge to work
directly with the president of the Republic of China within
the "one-China" policy. In addition, Li speculated the DPP
would push harder for independence as an opposition party
and make it more difficult for Ma to proceed with further
cross-Strait opening. If Hsieh were elected, Li expected
him to support further economic opening, including charter
flights and expansion of tourism. Emphasizing that it was
too early to predict, Li said he thought Hsieh's chances
looked better at the moment.

Investment Moving Up the Value Chain or Out of Fujian
-------------- --------------


6. (C) During separate meetings with Congenoffs, scholars,
Taiwan business leaders, and officials at Xiamen's Taiwan
Affairs Office (TAO) all commented on shifting trends in
Taiwan investment in the area. Huang Ruxu, the vice chair
and secretary general of the Xiamen Taiwan Business
Association (TBA),told us that Taiwan investors in the
Xiamen area were uncertain about the future. He
highlighted three factors that had caused export-oriented
investors to rethink their strategies -- lower value-added

GUANGZHOU 00001051 002 OF 002


tax (VAT) rebates, higher property taxes and higher wages.
Xiamen TAO Deputy Director General Wang Mingshui dismissed
the impact of the VAT reduction but indicated that land and
labor shortages were making it harder for Taiwan companies
to expand in Xiamen.


7. (C) Tang Yonghong, an economics professor at TRI,
explained that as a result of these changing conditions,
coastal areas like Xiamen would continue to see more
capital- and technology-intensive investment from Taiwan.
However, labor-intensive investment would tend to move to
other areas with lower wages. He identified Chongqing and
Chengdu as hot spots for Taiwan investment in western China
and noted that some investors had moved their factories to
Vietnam. TAO's Wang acknowledged that some Taiwan
investors had moved elsewhere, but emphasized the trend of
Taiwan firms in Xiamen shifting to higher technology and
higher value-added products. He cited the example of a
Taiwan investor in Xiamen who used to make frames for
eyeglasses but had recently expanded production to camera
lenses for cell phones. TBA's Huang told us that some
companies had tried to shift their focus toward the
domestic China market, but had found it difficult. He
estimated that only 20 percent of those companies had been
able to earn substantial profits from local sales.

More Taiwan Youth in Xiamen
--------------


8. (C) The cross-Strait scholars, business leaders, and
officials we met in Xiamen all mentioned the increasing
number of Taiwan young people moving to the area. TAO's
Wang explained that these young people were coming to find
jobs, work in family-owned businesses, or study. Huang
said the Taiwan Business Association had started organizing
social events to help young people network and meet
potential mates from Taiwan. TRI's Li commented that
increasing numbers of Taiwan young people living in the
mainland would change Taiwan impressions of China and
contribute to cross-Strait peace and stability. However,
these activities would not advance the cause of unification
in the short or medium term. He believes these students
and job seekers come to China as part of the broader trend
of globalization. According to Li, they see China as one
option just like Japan and the United States.

GOLDBERG