SHANGHAI ACADEMICS: ARATS CHAIR VISIT TO TAIWAN A SUCCESS,

C O N F I D E N T I A L SECTION 01 OF 03 SHANGHAI 000503

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STATE FOR EAP/CM
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E.O. 12958: DECL: 11/19/2033
TAGS: PREL PGOV ECON PINR CH TW
SUBJECT: SHANGHAI ACADEMICS: ARATS CHAIR VISIT TO TAIWAN A SUCCESS,
BUT ONLY FIRST STEP IN LONG PROCESS

REF: A) TAIPEI 1564; B) SHANGHAI 256

CLASSIFIED BY: Christopher Beede, Pol/Econ Chief, U.S. Consulate
Shanghai, U.S. Department of State.
REASON: 1.4 (b),(d)




1. (C) Summary: Shanghai scholars view the recent visit to
Taiwan by ARATS Chair Chen Yunlin a "success" mainly for its
symbolism and for helping to "maintain momentum" in cross-Strait
dialogue. However, they see this visit as only the first "easy"
step in a long difficult process. Some scholars think Taiwan's
service and aviation industries will immediately benefit from
the agreements while others think it will take time for Taiwan's
economy to feel any impact. They believe the visit may have
given a slight boost to Taiwan President Ma Ying-jeous's
domestic political position, but the DPP protests raised
concerns in Beijing about Ma's political longevity and his
ability to bridge the Blue-Green divide. The scholars do not
think the agreements will provide much economic benefit for the
Mainland, at least in the near term, though the visit was in
line with Beijing's long-term goal of "peaceful development".
The visit laid the foundations for future talks on financial
issues and "economic normalization", the scholars said, and
though Beijing and Taipei will try to skirt sensitive political
issues for now, one scholar thinks the two sides are close to
agreement on Taiwan's participation in next May's World Health
Assembly (WHA). End summary.

Trip a "Success"
--------------

2. (C) Shanghai scholars all lauded Association for Relations
Across the Taiwan Straits (ARATS) Chair Chen Yunlin's visit to
Taiwan in early November, characterizing it as a "success".
Yang Jian, Research Fellow at the Shanghai Academy of Social
Sciences (SASS),said the visit was symbolically significant, as
this was the highest level visit ever from the Mainland. Hu
Lingwei, Research Fellow at the Shanghai Institute for East
Asian Studies, said the visit laid the foundations for future
exchanges and "reduced chances of miscommunication" in the
future. Both Yang and Wu Xinbo, Professor at Shanghai's Fudan
University, believe the visit helped "maintain momentum" in
cross-Strait dialogue.

But Only First Step
--------------

3. (C) Zhong Yan, Research Fellow at the Shanghai Institute for
East Asian Studies, views the visit as only the first "easy"
step in a long process. The establishment of direct links will
be followed by negotiations on institution-building, with
comprehensive agreements on political issues left to the end, he
said. Wu Xinbo also said the agreements signed during Chen's
visit, which included agreements on air and sea transport, were
only the first step (Ref A). He believes China seeks "economic
normalization" with Taiwan, noting that Taiwan currently limits
imports on over 2000 industrial and agricultural products from
China whereas China imposes no such limits on Taiwan products.
Wu thinks China will aim to have these restrictions lifted in
the future, and then pursue an "institutional economic
arrangement" with Taiwan, without which Taiwan would not be able
to take part in the ASEAN 10 plus 3 framework as it desires, he
said.

Who Benefits?
--------------

4. (C) The scholars were mixed in their assessment of economic
and political benefits of the agreements for both sides. Both
Yang Jian and Hu Lingwei think it will "take time" for Taiwan's
economy to feel the positive impact of the direct links, but
they were not clear about the economic benefits, if any, for the
Mainland. Yang, instead, spoke of the Mainland gaining
political capital from its show of "goodwill", "tolerance", and
"magnanimity" towards Taiwan. According to Yang, China was able
to show that "it will not forcefully push Taiwan towards
immediate resolution" of difficult political issues. Hopefully,
such gestures will convince the "light Greens" in Taiwan to
shift toward the center, he said.


5. (C) Zhong Yan and Wu Xinbo think there will be some
near-term economic benefits for Taiwan. Zhong noted that Taiwan

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firms with factories in the Mainland will be able to export
their products from more ports in the Mainland, allowing them to
reduce transportation costs. In addition, because direct
flights between Taipei and Shanghai will no longer have to fly
over Hong Kong airspace, significantly reducing flight times,
many Taiwan firms may move their back-office and service
functions from the Mainland back to Taiwan, he speculated (Ref
B). This would result in more service jobs in Taiwan but would
cause the loss of service jobs in the Mainland since only
factories would remain, Zhong added. According to Zhong, the
agreements helped advance Taiwan's ultimate goal of becoming an
HR and logistics center for the Asia-Pacific region. Wu Xinbo
thinks the immediate beneficiary of the agreements will be the
aviation industry, since direct flights would reduce costs by
one-third, he estimates. Unlike the other scholars, however, he
is less optimistic about the long-term benefits for Taiwan's
economy which, he noted, is closely interlinked with the United
States, Japan, and other struggling markets. "This (agreement)
alone cannot solve Taiwan's economic problems," Wu stated.


6. (C) The scholars believe the visit may have helped Taiwan
President Ma Ying-jeou's domestic political standing in the
short-term, but only slightly if at all. Any long-term
political gain depends on the economic impact of the agreements,
the scholars said. Wu Xinbo thinks that, even if Taiwan's
economy does not improve substantially over the next few years,
Ma can still point to overall progress in cross-Strait relations
as part of his legacy.

Impressions of DPP
--------------

7. (C) Yang Jian thinks the visit helped unite Taiwan's
opposition Democratic Progressive Party (DPP). Though internal
struggles in the party were evident earlier this year,
especially leading up to the Taiwan presidential election in
March 2008, the visit helped galvanize the opposition, he said.
Hu Lingwei disagreed, saying the DPP protests were only led by
"local DPP legislators" who do not command island-wide support.
He noted how the main DPP leaders, like Tsai Ying-wen, did not
condone the violent protests since she understands that the
majority of Taiwan people want "rational, peace-minded" leaders.
Wu Xinbo thinks it was good that Chen Yunlin was able to see
first-hand the difficult domestic situation Ma faces. On the
other hand, though, Chen probably came away appalled by the
"disorderly behavior (of the protestors) and immaturity of
Taiwan democracy," Wu said.

Next Steps
--------------

8. (C) Chen's visit set the agenda for future bilateral talks,
said Wu Xinbo. According to Zhong Yan, discussions covering
financial and banking issues are next on the agenda, and an MOU
on these issues will be signed "by early next year." The
scholars agreed that any agreement on sensitive political
issues, like international space, will be postponed until much
later, both Hu Lingwei and Wu stating that "it is not the right
time" to discuss these issues. However, Wu was fairly
optimistic that both sides are "close to reaching an agreement"
on Taiwan's participation in the World Health Assembly (WHA)
next May under the nomenclature "Chinese Taipei". He also
thinks Beijing might make some symbolic gesture on the security
front by, for example, reducing the number of missiles in
Fujian, though he acknowledged this was pure speculation.

Mainland's Concerns
--------------

9. (C) According to the scholars, the Mainland views
cross-Strait relations from a long-term perspective, and Chen's
visit was successful in promoting Beijing's goal of "peaceful
development". However, Beijing's current concerns are that a)
Ma might not remain in office beyond 2012; and b) Ma may become
too demanding in order to boost his domestic position, according
to Yang Jian. In this regard, Yang said the DPP, ironically, is
helping Beijing since "Ma would be even more demanding" if he
did not face any domestic opposition. Wu Xinbo thinks scenes of
violent protest during the visit raised concerns in Beijing
about whether Ma will be able to eventually narrow the gap
between the Blue and Green camps.

On Chen Shui-bian's Arrest

SHANGHAI 00000503 003 OF 003


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10. (C) None of the scholars expressed surprise at former
Taiwan President Chen Shui-bian's recent arrest on corruption
charges. Wu Xinbo flatly stated that "Chen is obviously corrupt
and should be jailed." The only question is whether or not Ma
will pardon him, something which could help bridge the gap with
the Greens but would also alienate some members of the KMT, he
added.

Comment
--------------

11. (C) The general feeling among the Shanghai scholars is that
the visit's primary aim was to boost Ma Ying-jeou's domestic
position. Though they were pessimistic that Ma would be able to
bridge the Blue-Green divide, they sounded hopeful that the
"light Greens" would be convinced of the Mainland's "peaceful"
intentions and eventually swing the political pendulum in Ma's
favor. The scholars' views, especially Yang Jian's comment
about the Mainland's "magnanimity" and "tolerance", radiated a
sense of confidence that the current trajectory of cross-Strait
relations is in line with Beijing's long-term plans. On the
economic front, it remains to be seen what impact the agreements
will have on the many Taiwan businesses based in the Shanghai
area. (To be reported septel).
CAMP