VZCZCXRO8202
RR RUEHCN RUEHGH
DE RUEHGZ #0219/01 1030917
ZNR UUUUU ZZH
R 130917Z APR 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0408
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0155
RUEHBJ/AMEMBASSY BEIJING 0283
RUEHCN/AMCONSUL CHENGDU 0091
RUEHHK/AMCONSUL HONG KONG 0127
RUEHGH/AMCONSUL SHANGHAI 0093
RUEHSH/AMCONSUL SHENYANG 0091
RUEHIN/AIT TAIPEI 0071
RUEAIIA/CIA WASHDC 0138
RUEKJCS/DIA WASHDC 0134

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 
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¶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