Identifier
Created
Classification
Origin
09AITTAIPEI674
2009-06-09 09:09:00
CONFIDENTIAL
American Institute Taiwan, Taipei
Cable title:  

TAIWAN PREPARES TO ALLOW PRC INVESTMENT

Tags:  ECON EINV ETRD PREL PGOV TW CH 
pdf how-to read a cable
P 090909Z JUN 09
FM AIT TAIPEI
TO SECSTATE WASHDC PRIORITY 1707
INFO CHINA POSTS COLLECTIVE
AMEMBASSY WELLINGTON 
AMCONSUL CHIANG MAI 
AMCONSUL HO CHI MINH CITY 
NATIONAL SECURITY COUNCIL WASHINGTON DC
DIA WASHINGTON DC
DEPT OF TREASURY WASHINGTON DC
JICPAC HONOLULU HI
USPACOM HONOLULU HI
DEPT OF COMMERCE WASHINGTON DC
SECDEF WASHINGTON DC
CIA WASHINGTON DC
DEPT OF AGRICULTURE WASHINGTON DC
C O N F I D E N T I A L AIT TAIPEI 000674 


STATE FOR EAP/TC
STATE PASS USTR FOR STRATFORD AND ALTBACH, TREASURY FOR
OASIA/WINSHIP AND PISA, NSC FOR LOI, COMMERCE FOR
4431/ITA/MAC/AP/OPB/TAIWAN,USDA FOR FAS/OCRA RADLER AND
BEILLARD; FAS/OSTA FOR BLUM, HAMILTON, AND SHNITZLER;
FAS/ONA FOR BERTSCH AND FAS/OFSO FOR WAINIO

E.O. 12958: DECL: 06/08/2019
TAGS: ECON EINV ETRD PREL PGOV TW CH
SUBJECT: TAIWAN PREPARES TO ALLOW PRC INVESTMENT

REF: TAIPEI 670


Classified By: Economic Chief Hanscom Smith for reasons
1.4 (b) and (d).

C O N F I D E N T I A L AIT TAIPEI 000674


STATE FOR EAP/TC
STATE PASS USTR FOR STRATFORD AND ALTBACH, TREASURY FOR
OASIA/WINSHIP AND PISA, NSC FOR LOI, COMMERCE FOR
4431/ITA/MAC/AP/OPB/TAIWAN,USDA FOR FAS/OCRA RADLER AND
BEILLARD; FAS/OSTA FOR BLUM, HAMILTON, AND SHNITZLER;
FAS/ONA FOR BERTSCH AND FAS/OFSO FOR WAINIO

E.O. 12958: DECL: 06/08/2019
TAGS: ECON EINV ETRD PREL PGOV TW CH
SUBJECT: TAIWAN PREPARES TO ALLOW PRC INVESTMENT

REF: TAIPEI 670


Classified By: Economic Chief Hanscom Smith for reasons
1.4 (b) and (d).


1. (C) SUMMARY. In early July, Taiwan plans to open its
economy to PRC investment for the first time. Although
Taiwan is by some measures the largest external investor in
Mainland China, Taiwan has cited national security grounds in
banning virtually all PRC investment in its own economy.
Taiwan is tentatively slated to open portions of its
manufacturing, service, and construction sectors to the PRC
starting in early July, and is also preparing immigration and
other related measures to facilitate Chinese investment.
High technology and other sensitive sectors, however, will
not be opened to PRC investors. END SUMMARY.


2. (SBU) At then end of 2008, according to Taiwan data,
Taiwan hosted cumulative foreign direct investment (FDI) of
USD 102.3 billion, the equivalent of 26% of GDP. The U.S. is
the largest foreign investor in Taiwan, with USD 21 billion
in total investment, followed by the Netherlands, at USD 16.8
billion, British Caribbean territories, at USD 16.6 billion,
and Japan, at USD 15.8 billion. For tax purposes, many EU
member countries opt to invest in Taiwan via the Netherlands.


3. (C) Taiwan first allowed investment in China via third
countries in 1989, and has allowed direct investment in the
PRC since 1992, with some restrictions. Since much Taiwan
investment in China actually takes place through Hong Kong,
the Cayman Islands, the British Virgin Islands, and other
jurisdictions, it is difficult to gauge the exact amount of
Taiwan investment in the Mainland. Official Taiwan figures
put the level at approximately USD 75.6 billion, although the
actual amount is likely well in excess of USD 100 billion.
On national security grounds, Taiwan has banned Chinese

investment, although an undetermined amount of PRC capital
has reached Taiwan through other jurisdictions. The Taiwan
business community has long been anticipating official
relaxation of Taiwan's ban on investment from the PRC, its
largest trading partner. On April 29, for example, the
Taipei stock exchange surged 6% in the wake of reports that a
Chinese telecommunications firm planned to buy a stake in
Taiwan's FarEasTone telecom group. (NOTE: Although Taiwan
has allowed PRC qualified domestic institutional investors,
or QDIIs, to trade stocks in Taiwan, our TAIEX contacts say
Chinese investment in Taiwan stocks is pending completion of
a Taiwan-PRC securities MOU.)


4. (C) During a June 4 meeting with Econ Chief, Mainland
Affairs Council (MAC) Vice Chairman Fu Don-cheng said Taiwan
is scheduled to announce the opening of its economy to PRC
investment in late June, and that such investment will be
allowed from early July. Separately, MAC contacts told us
that restrictions on Mainland investment will end on July 1.
According to Fu, approximately 30% of Taiwan's manufacturing
sector, 20% of the service sector, and 15% of the
construction sector will be opened to PRC investment. Fu did
not, however, have more specific details as to exactly which
portions of each sector will be available for Chinese
investment. He did note, however, that significant parts of
the telecom sector will be placed off-limts, and that the
FarEasTone investment announced in April will not in fact be
approved. The Executive Secretary of the Ministry of
Economic Affairs' Investment Commission, Fan Liang-tung, also
told us the telecom deal will not be approved.


5. (C) In a recent meeting, Hwang Jung-chiou, one of three
Vice Ministers of Economic Affairs, told us that Chinese
investors will be allowed to own up to 100% of companies in
some manufacturing sectors, but that PRC investments in the
service and public construction sectors will be regulated on
a case-by-case basis. In addition to portions of the telecom
sector, he explained, PRC investment will also be prohibited
in the semiconductor, integrated circuit (IC) design, IC
packaging/testing, and other senistive sectors. According to
the Investment Commission's Fan, Mainland investment will not
be allowed in sectors dominated by one or two firms. He
estimated that investment in public construction projects
will be limited to between 30 and 50 percent of the total
cost of the project, but added that such investments would be
assessed on a case-by-case basis. Another requirement being
considered, according to Fan, is requiring annual reports to
the Investment Commission by investing companies with at
least NTD 80 million (USD 2.5 million) capitalization.


6. (C) Fu said Taiwan is also planning to implement
immigration and other related measures designed to facilitate
PRC investment. In general, he explained, Chinese investors
will be treated in a way similar to other "foreign"
investors. He noted that although Taiwan has allowed PRC
nationals to buy real estate since 2002, only a handful of
such transactions have occurred given what Fu described as
Chinese reluctance to allow that type of investment. Fu
explained that Taiwan now plans to allow PRC nationals to buy
both residential and commercial real estate. To avoid a
housing bubble, however, Chinese nationals will not be able
to transfer ownership, or "flip", houses within the first
three years after purchase. According to Fu, Taiwan will
allow Chinese "white collar" investors to live in Taiwan for
one year, with an option for extending until up to six years.
Given political sensitivities over unemployment, however,
work permits for Chinese investors will not be issued until
after Taiwan's local elections in December.


7. (C) In April, Minister-of-state for Economic Affairs Chu
Yun-peng resigned after a media expose documented his
repeated personal travel during working hours. Chu, whose
portfolio included cross-Strait issues, recently told us that
Chinese investment will only be allowed via a "positive list"
format that explicitly identifies which sectors are open to
the PRC. Chu cautioned that the Ma administration has done
relatively little preparatory work on associated measures
such as how to handle immigration and residency procedures
for Chinese investors, and asserted it will be "a very long
time" before Taiwan actually sees any Chinese investment.


8. (C) COMMENT. Assuming it is implemented as planned in the
near future, Chinese investment will help ease Taiwan's
current economic downturn, the worst in its history. While
some fear PRC investment could erode Taiwan's economic
sovereignty, many in the Taiwan business community are eager
for an infusion of Chinese cash. Mindful of public concerns,
the Ma administration appears to be pursuing a calibrated
strategy that opens job-rich sectors such as manufacturing
and construction while keeping high technology and other
economic "crown jewels" off limits from Chinese capital. END
COMMENT.


WANG