VZCZCXRO7857
RR RUEHGH RUEHHM
DE RUEHIN #1370/01 1690639
ZNR UUUUU ZZH
R 180639Z JUN 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 5671
INFO RUEHBK/AMEMBASSY BANGKOK 3727
RUEHBJ/AMEMBASSY BEIJING 6916
RUEHBY/AMEMBASSY CANBERRA 4537
RUEHHI/AMEMBASSY HANOI 3330
RUEHML/AMEMBASSY MANILA 0081
RUEHGP/AMEMBASSY SINGAPORE 6927
RUEHKO/AMEMBASSY TOKYO 8861
RUEHWL/AMEMBASSY WELLINGTON 1810
RUEHGZ/AMCONSUL GUANGZHOU 0340
RUEHHM/AMCONSUL HO CHI MINH CITY 0100
RUEHGH/AMCONSUL SHANGHAI 1164
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 TAIPEI 001370 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR, STATE FOR EAP/TC,USTR FOR STRATFORD AND 
ALTBACH, TREASURY FOR OASIA/LMOGHTADER 
 
E.O. 12958: N/A 
TAGS: ECIN ECON ENIV ETRD PREL TW
SUBJECT: TAIWAN BUSINESS TELLS AIT FOCUS IS ON CHINA MARKET 
 
¶1. (SBU) Summary:  AIT Director Young hosted AIT Chairman 
Burghardt and USTR del to lunch on June 14 with Taiwan 
business representatives.  As in the past, the businesses 
emphasized their need to be active in the China market in 
order to be globally competitive. They are concerned about 
the prospects for creating jobs in Taiwan and a growing 
wealth gap.  They urged the authorities to pay more attention 
to developing strong services industries.  The hi-tech 
businesses do not anticipate any impact on them from the 
U.S.-Korean FTA.  The businessmen all complained about 
Chinese companies unilaterally altering the terms of existing 
contracts.  End Summary. 
 
¶2. (U) AIT Director Young hosted a lunch in honor of AIT 
Chairman Raymond Burghardt on June 14.  The visiting USTR 
delegation consisting of Timothy Stratford, Assistant USTR 
and Eric Altbach, Deputy Assistant USTR also attended.  The 
Taiwan guest list of prominent businessmen consisted of 
Morris Chang, Chairman of Taiwan Semiconductor Manufacturing 
(TSMC); Nelson Chang, Vice Chairman, Chia Hsin Cement & 
Chairman of International Community Radio Taipei (ICRT); 
Arthur Chiao, Chairman, Winbond Electronics & Chairman, 
Taiwan Electrical and Electronics Manufacturers Association 
(TEEMA); Frank Huang, Chairman, Powerchip Semiconductor Group 
& Chairman, Taiwan Semiconductor Industry Association (TSIA); 
Jason Lin, Chief Executive Officer of Uni-President Group; 
and Daniel Tsai; Chairman and Co-CEO, Fubon Financial Holding 
Co.  Also attending on the AIT side were Daniel Moore, Chief, 
Economic Section; and Greg Wong; Chief, Commercial Section. 
 
Taiwan Firms Focused on China 
----------------------------- 
 
¶3. (SBU) All of the Taiwan firms represented at the lunch 
have a large and growing interest in the China market. 
Morris Chang said China's growth rate is very attractive and 
is what makes it necessary for his company to serve the 
market from a small manufacturing presence within China 
rather than strictly from offshore platforms.  He reiterated 
his previous public calls for Taiwan to open up to business 
with China.  Chang noted that his investment in China is 
small relative to TSMC's overall assets, but it isn't a 
market that can be ignored.  Frank Huang of Powerchip, also a 
semiconductor manufacturer like TSMC, observed that though he 
has a license to set up a semiconductor wafer fab in China, 
he is not moving ahead with that just yet.  However, he is 
making certain optical devices in China.  Chang, Huang and 
Winbond's Arthur Chiao (Winbond is also involved in 
semiconductor manufacturing) all noted that Taiwan 
restrictions on technology transfers to China sharply limit 
what they can do in China. 
 
¶4. (SBU) Chang noted that outside of his hi-tech business and 
Daniel Tsai's banking business, other Taiwan industries had 
little in the way of restrictions on relocating to China.  He 
suggested that Taiwan industries interested in relocating to 
Mainland China had already done so.  Fubon Chairman Tsai 
confirmed that his banking business is completely shut out of 
China due to Taiwan regulations and acknowledged that this 
restriction is a major impediment to growing his banking 
business and developing regional expertise and capability. 
(Note:  Fubon bought a Hong Kong Bank several years ago and 
uses it both to train its staff in international banking 
operations and to provide some banking services in China. 
End Note.) 
 
¶5. (SBU) Jason Lin said that Uni-President, the 
second-largest seller of instant noodles in China, along with 
a variety of other food products, views China as a very large 
and diverse market.  It must be viewed as at least six 
separate markets, he said, because of the wide-ranging 
differences in tastes in different areas.  For example, the 
people in Chongqing have very different preferences for their 
noodles than do the people in Shanghai.  He emphasized that 
the China market is not "one-size fits all."  (Note: 
Uni-President's business faces little in the way of 
 
TAIPEI 00001370  002 OF 002 
 
 
restrictions on the Mainland, other than the 40% investment 
cap imposed by Taiwan.  End Note.) 
 
¶6. (SBU) Winbond's Chiao noted that in addition to 
semiconductors, he also runs a steel plant, making mostly 
stainless and other specialty steel, and a cable and wire 
manufacturing businesses.  He said that currently the 
semiconductor business is doing fine, but that the steel side 
of his interests is really growing very rapidly.  He 
attributed most of this rapid growth to demand in China for 
infrastructure projects.  He said he is supplying a great 
deal of cable for bridge construction and wire for 
electricity lines. 
 
Don't Like Some Chinese Practices 
--------------------------------- 
 
¶7. (SBU) There was a general discussion on the topic that 
Chinese companies unilaterally alter the terms of contracts. 
AUSTR Stratford noted the issue is of concern to U.S. firms 
and the entire table recounted their own version of the 
issue.  Huang suggested that this kind of practice by Chinese 
firms was a factor in his reluctance to put a wafer-fab 
facility in China.  Another example cited was a U.S. marketer 
of television sets having completely shifted production away 
from joint ventures and Chinese firms to using Taiwan firms 
that completely manage the entire manufacturing and 
distribution process.  The U.S. firm had gotten fed up with 
inconsistent quality, delivery and lack of responsiveness by 
Chinese firms. 
 
Economic Problems in Taiwan 
--------------------------- 
 
¶8. (SBU) Looking to Taiwan's future prosperity, Morris Chang 
said he was most concerned about the need for job creation 
and the growing wealth gap.  He said for his hi-tech 
business, conditions are very good, but that for many in 
Taiwan their prospects are declining, as evidenced by the 
growing wealth gap between the top and bottom earners in the 
economy.  Nelson Chang agreed with this assessment as did 
Frank Huang.  Nelson emphasized the need for creating 
good-quality jobs in Taiwan while Frank Huang observed that 
conditions in southern Taiwan are declining.  He said that 
areas south of Taichung, formerly home to many of the 
industries which have shifted to the Mainland, are 
increasingly difficult places to do business.  When asked 
about operating in the Southern Taiwan Science Park, Huang 
replied that he didn't even want to establish plants there. 
Daniel Tsai suggested Taiwan should pay more attention to 
development of service-sector jobs, noting a government 
effort started in 2004 by the Council for Economic Planning 
and Development (CEPD) had shown little in the way of 
results.  Tsai added that Taiwan should not only focus on 
developing financial services, but also boost development of 
other services industries. 
 
KORUS-FTA 
--------- 
 
¶9. (SBU) When asked about the potential impact on Taiwan 
firms of the Korean-US Free Trade Agreement, the hi-tech 
representatives immediately said there would be no impact at 
all on them.  There seemed to be general agreement there 
would be little or no impact around the table with the 
notable exception of Jason Lin.  He said of course Taiwan 
should be concerned about the potential impact, though he did 
not specify any direct impact on his own firm's operations. 
COMMENT - These last comments contrast sharply with the 
Taiwan government's strong emphasis in the negative impact of 
KORUS.  Although this is admittedly a small sample, it leads 
to some suspicion that the government's emphasis is more of 
roundabout way to push for their political goal of an FTA 
here, rather than reflecting a strong sentiment within the 
business community. 
YOUNG