CHINA SENDS BUYING MISSIONS TO TAIWAN

C O N F I D E N T I A L AIT TAIPEI 000711


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

E.O. 12958: DECL: 06/15/2019
TAGS: ECON ETRD EINV PGOV PREL TW CH
SUBJECT: CHINA SENDS BUYING MISSIONS TO TAIWAN

Classified By: AIT Director Stephen M. Young for reasons 1.4 (b)
and (d).


1. (SBU) Summary. A series of large trade missions from the
PRC have recently come to Taiwan to place significant orders
for products ranging from consumer electronics components to
agricultural products. These buying missions, according to
public and private sector experts, will likely give Taiwan a
limited economic boost in the short-term. At the same time,
Taiwan analysts believe they serve Beijing's long-term
political ends by signaling to the Taiwan populace that
China's economic growth can create benefits for the island.
End Summary

Buying Missions Target a Variety of Sectors
--------------


2. (C) The President and CEO of Taiwan's External Trade
Development Council (TaiTRA),Chao Yuen-chuan, recently told
us that completed and planned PRC buying missions to Taiwan
in May, June and July are in response to PRC Premier Wen
Jiabao's statement at the April 17-19 Boao Forum that China
should buy more products from Taiwan manufacturers.
According to Chao, the May 17 announcement by PRC Taiwan
Affairs Office Director Wang Yi of a new government policy
encouraging leading enterprises, particularly state-owned
enterprises, to purchase more products made by Taiwan firms
is in direct response to Wen's statement. (Note: TaiTRA is a
quasi-official trade promotion agency that receives
approximately 20 percent of its annual budget, about USD 20
million, from public resources. TaiTRA has established nine
trade offices in the PRC. It is completing some thirty
Mainland market survey reports, to be available by the end of
June for use by member firms. End Note.)


3. (SBU) Chao explained that PRC trade missions are normally
organized by the Straits Economic and Technological
Information Center, the China Trade Promotion Council, and
the Cross-Strait Economic and Trade Association (CETA). In
addition to these three, various industrial or commercial
associations as well as provincial governments also
occasionally organize trade missions.


4. (C) According to Chao, the PRC's Guangxi Autonomous
Region organized a trade mission that came to Taiwan May
22-27 at the invitation of the Taiwan Metal Products Industry
Association. Chao said the Guangxi trade mission committed
to purchase approximately USD 280 million in electronic
equipment, plastics, leather and textile products from more
than 150 Taiwan manufacturers. He added that the group
originally planned to buy about USD 170 million worth of
goods, but increased its purchase orders after meeting with
Taiwan producers.


5. (C) CETA and five PRC commercial associations in the
textile, light industry, consumer electronics and electrical
machinery sectors organized a buying mission that arrived in
Taiwan on May 30, according to Chao. TaiTRA arranged for the
members of this delegation to meet with more than 160 Taiwan
manufacturers, among them China Petroleum Corporation, Chi
Mei Optoelectronics Corp., and the Formosa Plastics Group.
Chao said the CETA-sponsored group included 28 enterprises
with government contracts to produce televisions for PRC
domestic consumption, primarily through a program that
provides rural consumers subsidies to purchase electronic
appliances. Chao estimated the group would place orders for
TV components worth approximately USD 1.9 billion, although
he commented that it would likely be several months before
the actual purchases are completed.


6. (C) Chao said the China Television and Video Industry
Association organized a buying mission that arrived in Taiwan
on June 1. The delegation includes eight of China's largest
television manufacturers that control about 70 percent of
domestic market share, according to Chao. He claimed the
buying mission is expected to place orders for approximately
USD 2.2 billion in flat panel screens, double the amount
originally planned, according to a press statement issued by
the delegation's head. Chao noted that the group would also
participate in a conference on flat panel technology
development.


7. (SBU) Reportedly, PRC Minister of Commerce Chen Deming,
will accompany a future Mainland trade mission to Taiwan,
although Chao said he had received no confirmation of this
from any of his counterparts in China. According to Chao,
there will be at least two future buying missions, targeting
automobile parts, machinery, agricultural products, and
medical devices. In addition, according to Chao, TaiTRA has
been invited to participate in the 2010 World Expo in
Shanghai, and is allocating NTD 700 million (approximately
USD 22 million) for the exposition.

Assessment of Impact Mixed
--------------


7. (C) Although the buying missions have received significant
media coverage in Taiwan, there is no consensus among experts
regarding their real economic impact. TaiTRA's Chao, for
example, claimed the buying missions would definitely aid
Taiwan manufacturers in the long-term, by giving them greater
access to the PRC domestic market and establishing commercial
relations with Mainland firms. According to the Vice
Chairman of Taiwan's Mainland Affairs Council, Fu Don-cheng,
the buying missions are a tool Beijing is using to improve
cross-Strait relations and enhance Taiwan residents' view of
the PRC. However, he added, the missions do clearly benefit
Taiwan businesses. Sophie Shih, Senior Research Fellow at
the Chung Hwa Institute for Economic Research, told us the
mission would have a small but discernible impact on Taiwan's
economy, although the long-term impact was uncertain.


8. (C) In contrast, Andy Wang, Chief Financial Officer for
leading flat panel manufacturer AU Optronics, was more
skeptical. According to Wang, Taiwan manufacturers,
particularly in the consumer electronics field, already have
well-established relationships with buyers in China. Wang
told us that the purchase of USD 2.2 billion worth of TFT-LCD
panels announced by the television and video industry
association buying mission is actually an aggregate of the
value of existing purchase agreements. Wang said the buying
mission was "staged" for political advantage to both the Ma
administration and the PRC.


9. (C) The view of business leaders in sectors not directly
involved in the buying missions is qualified. For example,
Leslie Koo, Chairman of the Taiwan Cement Corporation told us
recently that his firm is not benefiting from the PRC buying
missions. Taiwan Cement,s production is largely in the PRC,
and the company is not really a target for PRC goodwill
efforts. Koo said he believes, though, that the buying
missions are a good way of building trust and fostering
better business ties between Taiwan and the PRC. Similarly,
C.K. Liu, Chairman and CEO of TECO Electronic and Machinery
Co., Ltd., told us that he considers the buying missions
beneficial for the overall cross-Strait business climate,
encouraging a stronger sense of trust between Taiwan and PRC
businesses.

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


10. (C) We suspect that the "results" of such buying missions
are exaggerated, because, if past PRC practice holds, much of
it includes purchases that would have been made anyway,
rather than additional purchases. Hence, the marginal boost
to Taiwan's exports to the Mainland would be more limited.
Moreover, it is unclear if large buying missions like those
Taiwan has seen recently will continue in the future. Many
of our interlocutors opined that if the buying missions do
continue, it could create potentially significant economic
gains for Taiwan. At the same time, many expressed the view
that future missions would depend on continued improvement in
the cross-Strait political climate, rather than on the
sustained growth of domestic demand in China. End Comment.


YOUNG