Waiting for Godot? Or Just Plain Waiting? Xiamen Waits

UNCLAS SECTION 01 OF 02 GUANGZHOU 000219 SENSITIVE SIPDIS STATE FOR EAP/TC, EAP/CM E.O. 12958: N/A TAGS: ECON EINV ETRD EWWT EAIR PREL PGOV CH TW SUBJECT: Waiting for Godot? Or Just Plain Waiting? Xiamen Waits for the Benefits of Direct Cross-Strait Links (U) This document is sensitive but unclassified. Please protect accordingly. Not for release outside U.S. government channels. Not for internet publication. -------------- Summary -------------- ¶1. (SBU) Direct cross-Strait air and sea links have arrived, but many in Xiamen are still waiting for the economic benefits. Officials at Xiamen's port say you don't have to look far; the benefits are already here, especially for Taiwan companies that want to export to China. However, Taiwan investors in Xiamen note that although it is now easier to travel to and from Taiwan, they have seen limited benefits so far, given the global economic downturn and other changes (VAT rebates, the Labor Contract Law) that have hurt Xiamen's investment environment. Cross-Strait scholars in Xiamen and the city's Taiwan Affairs Office say the benefits will come in the long-term. One scholar argued that because the Taiwan electorate expects more immediate benefits, Ma Ying-jeou may need to move more slowly on further cross-Strait opening ahead of the next round of elections on the island so as not to appear to be promising more than can be delivered. End summary. -------------- Xiamen Port Sees Major Benefits -------------- ¶2. (SBU) Xiamen port officials claim direct shipping links have already produced concrete benefits and have strengthened Xiamen's position as the mainland's gateway to Taiwan. Chen Yiduan, the port's Chief Administrator, said direct links had already cut shipping costs 50% for Taiwanese firms that export agricultural products, building materials and other products to the mainland market. He said direct links would further enhance shared cultural and linguistic ties that have stimulated cross-Strait trade and economic growth in Xiamen. ¶3. (SBU) Chen rejected concerns that direct links could diminish Xiamen's advantage as one of the "mini-links" ports that had already provided shipping links to the Taiwan-controlled island of Kinmen as some have argued. He said reduced costs from direct links only enhanced the competitiveness of Xiamen's port because the "mini-links" benefited only certain categories of Taiwan firms. He also downplayed the whole notion of competition among ports as zero-sum, stressing that each port had its niche and competitive advantage and Xiamen's was in trade with Taiwan. Xiamen could still win out over Tianjin, Shanghai or others when it comes to cross-Strait shipping because of cost and distance, he said. ¶4. (SBU) Chen asserted that the port's current infrastructure is sufficient for projected growth over the next five years, adding that it was currently at just half capacity. Although the Xiamen port has recently seen an 8% decline in volume, Chen blamed this on the economic downturn and expressed confidence that the second half of 2009 would be stronger. Chen added that direct links and closer cooperation with the port authority's counterparts in Taiwan had helped improve the port's operations, particularly in the area of environmental protection. -------------- Taiwan Investors Not So Optimistic -------------- ¶5. (SBU) Some of Xiamen's Taiwan investors (or "Taishang") disagree with Chen's optimistic assessment of the benefits of direct links. Hudson Wang, the owner of seven area factories that produce everything from sneakers to baseball bats to barbeque grills, primarily for export to the United States, said direct links did not provide direct benefits for his firm. He noted, however, that business travel is easier now and speculated that depending on the type of product involved direct links may have facilitated shipping from Guangzhou or Shanghai. But he did not see a similar benefit for most manufacturers operating out of Xiamen. ¶6. (SBU) John Hsu, vice chairman of the Taiwanese Chamber of Commerce Xiamen, said that the cost of doing business in Xiamen had increased considerably and direct links would not automatically spur a new wave of Taiwanese investment in and around the city. According to Hsu, firms that have already established a base of GUANGZHOU 00000219 002 OF 002 operations are likely to continue in Xiamen and to continue diversifying, much like Wang's firm. ¶7. (SBU) Hsu emphasized the near-term effect of the global economic downturn on Taiwan investors in Xiamen. He said that all sectors had been hurt except for the catering industry and bakeries. Only one or two firms have been forced to shut down, according to Hsu, but many had downsized, one cutting employment from 10,000 to 1,500. He noted that Xiamen factories were already seeing more difficult economic conditions before the global financial crisis led to a dramatic decline in export orders, highlighting the impact of factors such as rising raw material costs, reduction of value-added tax rebates and the Labor Contract Law. He was skeptical that shifting focus to the domestic Chinese market would be a viable option for many Taiwan-invested firms who have seen their export markets shrink. ¶8. (SBU) A Xiamen City Commercial Bank (XCCB) executive also indicated that he hadn't yet seen any significant benefit from direct links for his business. Fubon Bank, a Taiwan company, took over XCCB six months ago through its subsidiary in Hong Kong, becoming the first Taiwan company to hold a major stake in a mainland bank. The XCCB executive said that growth for banks usually lags the flow of passengers and trade, so the establishment of direct links could still bring benefits to XCCB in the future. In the meantime, Fubon is focused on building its presence in the mainland market ahead of other Taiwan banks that will likely follow with further cross-Strait economic opening. -------------- Scholars Also See Little Benefit So Far -------------- ¶9. (SBU) Taiwan scholars at Xiamen University's Taiwan Research Institute echoed the views of Taiwan investors, adding that because of the global economic downturn, the impact of direct links to date has been more psychological than tangible. One scholar attributed this to Taiwan's "reluctance to allow more mainland firms and investors direct access to various sectors of its market." Other academics in the group discussion pointed to increases in cross-Strait agricultural trade, tourism and finance as promising but said that the benefits from direct links would likely be long term. ¶10. (SBU) One scholar theorized that Taiwan President Ma Ying-Jeou was using direct links as part of a larger "structural framework" to gradually build closer relations with the mainland. But he said there was a gap between Ma's administration and the electorate, who "don't get the bigger picture" of the long-term cross-Strait relationship. Since many Taiwan voters expect immediate benefits from direct links and will complain if they do not materialize, this places Ma Ying-Jeou's overall strategy of managing relations with the mainland at risk. The scholar argued that Ma, eyeing elections later this year, could not get too far ahead of voters. As a result, he predicted that there would be a slowdown in further cross-straits developments. -------------- Xiamen TAO: More Time Needed -------------- ¶11. (SBU) Officials at the Xiamen Taiwan Affairs Office (TAO) agree that the benefits to Xiamen will be long term. Though direct flights hold great potential for the city, more time is needed before this potential can be realized, said Wu Shunbin, the Xiamen TAO's deputy director. He lamented that the number of flights leaving Xiamen for Taiwan was so limited. Xiamen has only two round-trip flights to Taiwan a week, which, according to Wu, is not nearly enough to meet market demand. He also complained that flights must still pass through Hong Kong airspace; Wu hopes that both the frequency and routing options will be expanded over time. He believes that full flights carrying thousands of passengers daily will have the biggest impact in solidifying people-to-people relationships across the Strait. GOLDBERG