KUNSHAN'S TAIWAN BUSINESS COMMUNITY

C O N F I D E N T I A L SECTION 01 OF 04 SHANGHAI 000102

SIPDIS

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DEPT FOR EAP/CM, INR/B AND INR/EAP

E.O. 12958: DECL: 2/14/2017
TAGS: EINV PGOV ELAB ECON EFIN CH TW
SUBJECT: KUNSHAN'S TAIWAN BUSINESS COMMUNITY

REF: 2005 SHANGHAI 1534

CLASSIFIED BY: Simon Schuchat , Deputy Principal Officer, ,
U.S. Consulate Shanghai.
REASON: 1.4 (b),(d)




1. (C) Summary: Taiwan business people (Taishang) appeared to
be thriving during a February 6 visit by Congenoffs to the
Taiwan enclave of Kunshan, located 50 kilometers west of
Shanghai. Although some local governments in China were
corrupt, the Kunshan government had been very supportive of
Taiwan investment. Difficulties included financing issues, the
lack of a direct RMB exchange mechanism, and confusing customs
practices. Interlocutors were frustrated with Taiwan politics
and complained that political issues were hampering economic
relations. One Taishang predicted that the KMT would win the
2008 Presidential elections because the DPP was mired in party
infighting. Interlocutors noted that Taishang were trying to
become more integrated with local Chinese and fewer firms were
bringing Taiwan staff to work on the Mainland. Despite this,
many from Taiwan still came to the Mainland in search of their
fortunes. End Summary.




2. (SBU) On February 6, DPO and Congenoffs traveled to Kunshan,
Jiangsu province to meet with Taiwan businessmen (Taishang) and
discuss economic, political and social issues. The visit was
arranged by the Kunshan Taiwan Business Association General
Secretary Zhou Zhihua. Mr.. Zhou is also the Vice-Principal of

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the East China Taishang Children's School which is a private
school that exclusively uses Taiwan educational materials and
teaching methods. Congenoffs visited Qi Yin Collateral Company,
Wei Jun Electronic Company, Chang Hwa Representative Office, and
Xin Bao (Sampo) Electronic Technology Company. Congenoffs also
attended a lunch with Kunshan Taishang.



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Supportive Local Government, Few Difficulties

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3. (SBU) Kunshan is a county-level city under the jurisdiction
of Suzhou municipality in Jiangsu province. It is located 50
kilometers from Shanghai. According to a People's Daily report
in September 2005, Kunshan is the richest county-level cities in
China. It has an official population of 650,000 (around 1
million according to unofficial estimates) and a GDP of
approximately USD 10 billion in 2005. Based on the unofficial
population estimate, the per capita GDP is 10,000 USD. In
comparison, using Shanghai's unofficial per capita GDP is 6,000
USD. There are currently around 2,600 Taiwan companies in
Kunshan and 60,000 Taiwan people are either working or
conducting business in the county. Most Taiwan companies in
Kunshan are IT-related manufacturers.




4. (SBU) All of the interlocutors appeared satisfied with the
local business environment. According to Zhou Zhihua, Taishang
were attracted to Kunshan because of the local government's
welcoming attitude. Zhou said the local government was very
cooperative and never said "no" to the Taishang. In his meeting
with Congenoffs, Qi Yin Commercial Finance Guarantee Company
Chairman Wen Shiming had a similar view of the local government
and noted that the people of Kunshan generally supported Taiwan
investment. According to Wen, the investment climate in Kunshan
was much better than that of other cities, particularly those in
Southern China. In other cities, local officials took bribes
but said nothing positive about Taiwan companies. This, he
opined, led many local people to believe that Taiwan investors
were taking land and profits away from the community.




5. (SBU) Wen, who has lived on the Mainland for over 19 years,

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said that financing issues were the most difficult aspect of
being a Taishang. It was not possible for people to directly
exchange RMB for Taiwan dollars. Taishang needed to go through
a cumbersome process to exchange money. In addition, Taishang
had difficulty getting loans from mainland banks as most of
their collateral was located in Taiwan. The fact that Taiwan
banks did not have permission to operate on the Mainland only
added to the problem.




6. (SBU) To assist local Taishang, Wen established his fully
foreign-owned, commercial loan guarantee company. Wen said this
was the first time mainland authorities had licensed such a
business. The company provided loan guarantees to Taiwan
businesses on a variety of commercial transactions with mainland
financial institutions. The company enabled Taishang to
leverage assets located in Taiwan. Wen noted, however, that his
company was not allowed to make loans or to receive deposits,
mainland authorities considered it a non-financial institution.
He was optimistic that there would be more progress in this area
and that Taiwan banks would be allowed to operate on the
Mainland in the near future.




7. (SBU) Chang Hwa Bank Representative Ji Rongnian was also
optimistic that there would be progress in the financial arena.
Chang Hwa Bank is a Taiwan bank, formerly state-owned,
headquartered in Taipei. Ji noted, for example, that his bank
on the Mainland now had corresponding banking relationships with
Taiwan banks. Chang Hwa has had a representative office in
Kunshan for nearly five years. The office stands largely empty
and Ji spent most of his time playing golf and attending
lunches. According to Ji, although Taiwan banks were not
allowed to operate on the Mainland, three banks currently had
representative offices. Chang Hwa opened up its Kunshan office
because one out of every nine Taishang in China lived in
Kunshan. In addition, Kunshan was close to Shanghai and Suzhou,
both of which had large concentrations of Taiwan businesses. Ji
hoped that Chang Hwa would be able to begin banking operations
this year. Economic relations seemed to be improving and there
was already an agreement for direct charter flights during the
Chinese New Year. The number of flights might increase to
weekly flights and there were rumors that Chinese tourists may
soon be able to visit Taiwan.




8. (SBU) Wei Jun Electronic Company Chairman Su Laide was less
optimistic about charter flights. He said it would take another
one to two years before there would be weekly direct charter
flights between the Mainland and Taiwan. He has lived in China
for ll years and opened a factory in Kunshan because most of his
suppliers and customers were in nearby Suzhou. For Su, the most
challenging aspect of working in the Mainland was dealing with
local leaders. In most other places one only needed to please
the customer, but in China one must also please local leaders.
One must find ways to help leaders rise up in the system by
improving the local economy and increasing jobs. The Mayor of
Kunshan when he arrived 11 years ago has now been promoted all
the way up to be a Vice-Governor of Jiangsu. Like Wen, Su
complained about the difficulties Taishang had in raising funds
in China.




9. (SBU) Sampo Electronic Technology Vice President David Chou
also noted financial issues as the biggest problem in doing
business on the Mainland. In particular, he complained about
limits imposed by the Taiwan government on Taishang investment.
Currently, Taishang could only own 40 percent of a mainland
company. Chou also noted that it was difficult to deal with
mainland customs practices, which he said were far more
complicated than those of Taiwan. He was pleased overall with
the local government and said that Sampo opened a factory in
Kunshan specifically because of local government assistance.
Sampo also had production facilities in Suzhou, Dongguan and
Tianjin. Interestingly, Chou felt that the business environment
in Dongguan was not as good as it was in Kunshan.



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10. (SBU) On labor issues, Chou said Sampo had no problem
attracting skilled labor, including from Kunshan and from other
cities and provinces. The average salary ranged from USD 130 to
USD 150. Because many of the factory's workers came from
outside the area, Sampo provided dormitories. Chou estimated
Kunshan's real population was 1 million of which half came from
elsewhere. Chou also mentioned that Sampo's Kunshan factory
employed 1,300 workers, only four of which were from Taiwan.
This ratio of Taiwans to Mainlanders was below the average of
other Taiwan factories.



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Comfortable Living

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11. (SBU) All of our interlocutors appeared to be very
comfortable living in Kunshan. They had access to four Taiwan
TV channels and were up on the latest political developments in
Taiwan. As noted above, there was even a school that catered to
the children of Taishang. The East China Taishang Children's
School provided a Taiwan education to its approximately 580
students. All of the interlocutors appeared to have done well
on the Mainland. According to Su, many Taiwan enterprises in
Kunshan were profitable and had grown two to three times since
they began operations in Kunshan.




12. (SBU) Wen noted that Taishang were trying to become more
integrated into the local community. They were selling off
residential property that had previously been used exclusively
for Taiwan employees. The Kunshan Taiwan Business Association
(Tai Xie Hui) was also encouraging Taishang to live among the
local people and not to live in exclusively Taiwan communities.



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Taiwan Politics: Leave Us Alone

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13. (C) Our interlocutors appeared to be happy with the local
government and their life in Kunshan, but many expressed
negative views on the Taiwan government and life in Taiwan. Wen
complained that it was impossible to de-link political issues
from economic issues. The tense cross-Strait political
relationship had a negative impact on the economic relationship
and politicians were distorting economic issues to gain votes.
Wen put all of his hopes on the KMT winning the 2008
Presidential election. He believed it would be impossible for
the DPP to win the elections as it would be difficult to find a
candidate to unite the various factions within the DPP. Chen
Shui-bian was able to unite all of the factions because when he
first came to power he was able to trick people into thinking he
was a good leader. Wen explained that there were four different
"kings" in the DPP at present. Annette Lu and Frank Hsieh
represented the independence faction, while Su Tseng-Chang
represented the more moderate reform faction. The last king was
Yu Shih-kun and he was closely connected to Chen Shui-bian. All
four "kings" needed to cooperate for the DPP to retain power.
This was impossible and the KMT would win the 2008 election,
whether Ma Ying-jeou was the candidate or not.




14. (C) Su was also frustrated with Taiwan politics. Taiwan
needed to fix its internal problems, which included the economy
and the education system. However, politicians were not
focusing on these issues and did not have any good plans to fix
Taiwan's problems. It was ridiculous waste of both time and
money that he could not fly directly to Taiwan. He was

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particularly upset with changes to the Taiwan educational
system, in which students only studied Taiwan's history. There
was no real difference between the Taiwan people and the people
on the Mainland and students should learn about the history of
China. He said that he did not plan on going back to Taiwan for
the Chinese New Year as he no longer felt comfortable in Taiwan.
Su avoided answering directly whether he was an indigenous
Taiwan person (bendi ren) or whether his family migrated to
Taiwan when the KMT left the Mainland (waisheng ren). He noted,
however, that the vast majority of the people of Taiwan had
emigrated from the Mainland at one point or another.




15. (C) Both Wen and Su were also non-committal about whether
Taiwan people would be willing to live beneath "the communist
flag." Su acknowledged that currently it would be difficult for
Taiwan people who enjoyed freedoms not found on the Mainland, to
live under a communist government, but noted that the Mainland
was now on the road to economic development. Wen avoided this
question and simply said that Taiwan people did not want to be
ruled by outsiders. He recalled the KMT take-over of Taiwan and
noted that many people still remembered the 2/28 incident.




16. (C) Our interlocutors noted that it was very difficult for
young people in Taiwan to get jobs. Sampo Vice President Chou
said that it was not difficult for them to recruit people to
come to the Mainland as people in Taiwan had "no choice" but to
try to find work elsewhere. Both Wen and Chou noted, however,
that Taiwan companies were bringing fewer staff from Taiwan.
Wen said that a company could hire 10 local people for every
person it brought from Taiwan. Wen said, nevertheless, Taiwan
people were still coming to the Mainland. The Mainland was a
big market, and many Taiwan business people found success there.
JARRETT