This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 002011 
 
SIPDIS 
 
DEPT FOR EAP/TC 
DEPT PLEASE PASS AIT/W 
 
E.O. 12958: DECL: 05/03/2015 
TAGS: ECON PINR EINV PGOV PREL CH TW
SUBJECT: (U) TAIWAN BUSINESSES OPERATING IN THE MAINLAND 
(C-AL5-00385) 
 
REF: A. TAIPEI 1511 
     ¶B. TAIPEI 1781 
     ¶C. STATE 79033 
 
Classified By: AIT Director Douglas H. Paal, Reason 1.4 b/d 
 
Summary 
------- 
 
¶1. (C) AIT/Taipei offers the following information in 
response to ref C regarding PRC pressure on Taiwan 
businesses operating in the Mainland.  We have highlighted 
four examples of such pressure -- Chi Mei, Acer, Quanta, 
and Evergreen.  We also note that many firms report the 
same kind of difficulties for reasons that are completely 
unrelated to domestic Taiwan political affiliation.  Chi 
Mei is clearly an extreme case and meant to be an example 
to other Taiwan firms.  However, the PRC has applied less 
severe pressure broadly to many Taiwan businesses.  As a 
result of this strategy, the PRC has largely achieved its 
aim of silencing support among the Taiwan business 
community for President Chen Shui-bian and the Democratic 
Progressive Party (DPP).  We expect it to continue to apply 
this kind of pressure and for Taiwan firms to maintain 
their silence.  End summary. 
 
 
Responses to State 79033 Questions 
---------------------------------- 
 
¶2. (C) AIT/Taipei offers the following information on some 
of the specific questions asked in ref C: 
 
¶A. (C) Other than Chi Mei's Hsu Wen-lung, AIT/Taipei is not 
aware of any other Taiwan businessmen with operations in 
the Mainland, who have released statements denouncing 
Taiwan President Chen Shui-bian, the Democratic Progressive 
Party (DPP), Taiwan independence, or supporting the Anti- 
Secession Law (ASL) as a result of pressure from PRC 
authorities.  Some other businessmen and industry 
organizations have made favorable comments about the ASL, 
but we do not have any indication that the comments were 
motivated by overt pressure from the PRC.  Many observers 
have commented that in general Taiwan businessmen have 
responded to PRC pressure by keeping silent about political 
issues, and maintaining a distance from Taiwan's political 
parties. 
 
¶B. (C) Computer brand Acer's former chairman Stan Shih told 
the press on March 31 that he intended to resign his 
position as a presidential advisor to Chen Shui-bian to 
underscore his political neutrality.  This is likely a 
result of PRC pressure.  More information on this case is 
provided below.  We are not aware of any other examples of 
Taiwan businessmen resigning from presidential advisory 
posts due to pressure from the PRC.  Other pro-independence 
presidential advisors resigned in early March because they 
felt that Chen's 10-point consensus with the People's First 
Party (PFP) Chairman James Song betrayed the independence 
movement. 
 
¶C. (C) As one element of the PRC's "united front" tactics, 
the Chen administration sees pressure on Taiwan businessmen 
operating in China as a major threat to the DPP.  Combined 
with efforts to reach out to opposition parties and isolate 
Taiwan diplomatically, the Chen Administration sees the 
PRC's actions as what one Presidential Office official 
described as a "non-violent full-scale attack."  This 
perception drives the DPP's campaign strategy in recent 
elections to answer a perceived successful economic 
cooption of Taiwan's businesses by the PRC with Taiwan 
nationalism.  The Chen Administration views the Taiwan 
business community on the Mainland as generally supporting 
the Kuomintang (KMT) and its Pan-Blue allies. 
 
(C) However, most recently concern about pressure on Taiwan 
businessmen may be diminishing slightly.  Mainland Affairs 
Council (MAC) Chief Secretary Jan Jyh-horng told AIT/T that 
MAC perceives a less heavy-handed approach toward Taiwan 
investors.  He reported that in the weeks following the 
publication of the Hsu Wen-lung letter local officials in 
Fuzhou and Guangzhou had asked Taiwan businesses to sign a 
letter in support of the ASL.  MAC denounced these efforts, 
and later the request was withdrawn.  Jan speculated that 
PRC officials had assessed that the publication of Hsu Wen- 
lung's letter had hurt their cause because discussion in 
Taiwan had focused on the PRC pressure behind the statement 
instead of the statement's contents.  Jan told us that MAC 
would see attendance at the next MAC-hosted meeting of 
Taiwan investors as an indication of the current level and 
tenor of PRC pressure on Taiwan businesses.  The next 
meeting will be held around the Dragon Boat Festival in 
early June. 
 
¶D. (U) AIT defers to PRC posts on Beijing's view of the 
Taiwan business community. 
 
¶E. (C) In general, Taiwan businessmen are reluctant to 
discuss political problems they may face in the Mainland 
because they fear it will exacerbate those problems and 
depress stock prices.  Examples of the problems that 
businessmen have faced in the PRC due to their political 
activities include repeated questioning by PRC authorities, 
excessive auditing, increased tax liability, fines and 
unusually zealous or arbitrary enforcement of regulations, 
such as environmental regulations.  (Note: Taiwan local and 
national officials sometimes employ similar means to apply 
political pressure on Taiwan firms.  End note.) 
Businessmen and other observers have not described to us 
any positive economic incentives offered by the PRC for 
political reasons -- except for the elimination of 
unnecessary difficulties. 
 
¶F. (U) According to press reports that identify a DPP 
source in the Legislative Yuan, Economic Affairs Minister 
Ho Mei-yueh's husband works in Guangzhou for a Mitsubishi 
affiliate in the chemicals industry.  Ho has not publicly 
identified her husband's employer but told the press that 
he was assigned to work in Guangzhou directly from Japan, 
not through the Taiwan affiliate. 
 
¶G. (C) AIT will forward by e-mail to EAP/TC confidential 
information provided by the Ministry of Economic Affairs 
Investment Commission on firms that have applied to the 
Taiwan government to invest in the Mainland. 
 
¶H. (C) Within the ASL or the PRC's consensus with KMT Vice 
Chairman P.K. Chiang, there are several measures that 
target specific sectors in Taiwan.  Agriculture stands out 
because it would benefit economic interests in southern 
Taiwan that have traditionally supported the DPP and 
President Chen Shui-bian.  Other sectors that would benefit 
from these proposals include the fishing industry, finance, 
and transportation, in addition to Taiwan investors in the 
Mainland.  Comment: However, the entire Taiwan economy 
increasingly depends on its economic links with the 
Mainland.  Even modest steps to improve cross-Strait 
economic relations will appeal broadly across the entire 
Taiwan business community.  End comment. 
 
Examples of Political Pressure... 
--------------------------------- 
 
¶3. (C) The following are four examples of Taiwan businesses 
(Chi Mei, Acer, Quanta, and Evergreen) that have faced 
problems in their Mainland operations due to the political 
views of the firms' chairmen/founders. 
 
Chi Mei 
------- 
 
¶4. (C) In early April, Chi Mei Group senior executives 
confirmed to AIT/K that the text of Chi Mei Founder Hsu 
Wen-lung's March 26 statement in support of "one China" had 
been dictated in full by Beijing authorities and Hsu had 
not requested nor negotiated any changes to the text 
(reported ref B).  Mainland authorities had "harassed" Chi 
Mei's China operations for over a year with tax audits, 
pressure on Chi Mei customers in China to change suppliers, 
and other disruptive measures.  However, according to the 
executives, Hsu Wen-lung's decision to issue his statement 
came only after Beijing signaled that China was prepared 
substantially to step up its campaign against Chi Mei, that 
no further Chi Mei investments in China would be allowed, 
and that there was a possibility that Chi Mei employees in 
China might be arrested.  Chi Mei executives noted that, 
once Hsu had decided to issue his statement, Beijing had 
signaled its approval with confirmation that Hsu had been 
approved for a visa to visit Hong Kong.  Chi Mei now plans 
to expand its operations in the Mainland with a TFT-LCD 
assembly plant. 
 
Acer 
---- 
 
¶5. (C) In March, Acer's then President of International 
Operations T.Y. Lay told AIT/T (reported ref C) that Acer 
had previously experienced difficulty in its Mainland 
operations due to the politics of its founder Stan Shih. 
Lay recalled that after Taiwan President Chen Shui-bian 
named former Acer Chairman Stan Shih a presidential advisor 
at the beginning of Chen's first term, Acer's operations in 
the Mainland were "disrupted" on several occasions.  The 
PRC also rejected one of Shih's visa applications.  As a 
result, Acer and Shih have been very cautious about any 
appearances of political activity.  As noted above, Shih 
announced in late March that he would resign the post of 
presidential advisor to underscore his political 
neutrality.  Currently, Acer is actively expanding its 
operations in the Mainland and aims to double its revenue 
from China this year.  (Note: Lay now heads Acer's Mainland 
operations out of Beijing.  End note.) 
 
Quanta 
------ 
 
¶6. (C) Jason Lin, Deputy Spokesman of notebook computer 
manufacturer Quanta, recently confirmed to AIT/T that 
Quanta had been the target of some political pressure from 
the PRC.  Lin said that in early 2004 before Taiwan's 
presidential election Quanta's founder and chairman Barry 
Lam had publicly said that he hoped Chen Shui-bian would be 
re-elected.  According to Lin, Lam's true political 
preferences tend toward support of the Pan-Blue camp, and 
he had misspoken while trying to be courteous to President 
Chen at a public event.  As a result of these comments, Lin 
said that Quanta was subjected to excessive questioning by 
PRC officials, but no concrete sanctions were imposed. 
Quanta explained the circumstances of Lam's comments to PRC 
officials, and Lin believes the PRC authorities accepted 
this explanation.  Lin reported that Quanta still 
occasionally encounters difficulties with PRC central and 
local government officials depending on the current state 
of cross-Strait relations and other local factors. 
However, Lin does not believe that the most recent problems 
are specifically aimed at Quanta for any domestic Taiwan 
political affiliation.  Quanta now assembles nearly all of 
its notebook computers in the PRC. 
 
Evergreen 
--------- 
 
¶7. (C) Evergreen Group, the transportation conglomerate 
that includes Evergreen Marine Transport and EVA Air has 
also reportedly faced difficulty in its Mainland 
operations.  Evergreen has long had connections with Chen 
Shui-bian, who once did legal work for the group.  However, 
a few years ago the group publicly cut off political 
support to the DPP.  In November 2003, Group Chairman Chang 
Yung-fa criticized President Chen for not supporting direct 
shipping links with the Mainland.  In March 2004 Chang 
publicly supported the KMT's Lien Chan in the presidential 
election and urged Evergreen employees to vote for him.  In 
May 2004, Chen dropped Chang as a presidential advisor. 
Since then the group has been successful at dramatically 
expanding its Mainland operations.  In June 2004, Chairman 
Chang visited the PRC and toured harbors in Dalian and 
Pudong, Shanghai.  This year its Italian subsidiary was 
approved to invest in two berths in Ningbo Harbor near 
Shanghai.  In addition, the PRC authorized the same 
subsidiary to open a branch office in Shenzhen, the first 
for a Taiwan shipping firm. 
 
Other Problems 
-------------- 
 
¶8. (C) Many observers point out that Taiwan firms operating 
in the Mainland frequently encounter difficulties with PRC 
officials that are not related to Taiwan political 
affiliation.  Tsai Horng-ming, Deputy Secretary General of 
the Chinese National Federation of Industries (CNFI) noted 
that the problems many Taiwan firms encounter in the 
Mainland are the result of local PRC political issues, not 
central government pressure to oppose pro-independence 
forces in Taiwan.  Quanta's Lin noted that many of the 
difficulties Quanta had faced seemed to have been caused by 
local government efforts to improve their fiscal situation. 
He also commented that some pressure is directed at Taiwan 
firms in general depending on the state of cross-Strait 
relations with no bearing on whether the firm is perceived 
to be a Pan-Blue or Pan-Green supporter. 
 
Limited Action, Broad Pressure 
------------------------------ 
¶9. (C) It appears that the case of PRC pressure applied to 
Chi Mei's Hsu Wen-lung is the extreme in PRC treatment of 
Taiwan investors in the Mainland in that the firm was 
subjected to real economic consequences.  Micky M.C. Chen, 
Chairman of the Taiwan Businessman Consulting Group, told 
us that Hsu was targeted as an example because of Chi Mei's 
size and his vocal support of Chen.  CNFI's Tsai cited the 
Chinese proverb "kill the rooster, scare the monkey" to 
explain the PRC's strategy of using Chi Mei as a high 
profile example.  Both believe that the PRC has rarely used 
real economic sanctions like those used against Chi Mei to 
pressure Taiwan businesses because of Taiwan political 
affiliation. 
 
¶10. (C) Nevertheless, AIT/T contacts in Taiwan confirm that 
the PRC authorities regularly question Taiwan firms on 
their political activities, remind them or the consequences 
of supporting Taiwan independence, and ask that they 
publicly reject independence.  As Chinese National 
Association of Industry and Commerce Deputy Secretary 
General George T. Lin described, PRC authorities try to 
"knock on the door" of all Taiwan investors in the Mainland 
to secure support for their political agenda.  As noted 
above, MAC's Jan described examples of PRC authorities 
asking large groups of Taiwan businessmen to sign an 
endorsement of the ASL. 
 
Comment - Big Impact 
--------------------- 
 
¶11. (C) With limited use of real sanctions, but broad 
application of pressure, the PRC has managed to achieve 
many of its aims.  Taiwan firms are now very reluctant to 
advertise any political affiliation, much less support for 
the Pan-Green camp.  The PRC has managed to force high- 
profile Taiwan businessmen to actively distance themselves 
from the Chen administration.  Many Taiwan businessmen feel 
they must compete in the Mainland market to survive and are 
willing to sacrifice political principles to do so.  PRC 
authorities are aware of this.  Hsu Wen-lung's letter shows 
that they are willing to use this leverage.  However, if 
the observations of MAC's Jan prove correct, the PRC may 
have come to realize that it cannot push to far.  We expect 
a continuation of this measured application of pressure on 
Taiwan businesses.  We also expect Taiwan firms to comply 
with very minimal public protest as they continue to expand 
their presence in the PRC.  End comment. 
PAAL