US embassy cable - 05TAIPEI673

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 000673 
 
SIPDIS 
 
DEPT FOR EAP/TC 
DEPT PLEASE PASS AIT/W 
 
E.O. 12958: DECL: 02/17/2015 
TAGS: ECON, EAIR, EWWT, ETRD, CH, TW, Cross Strait Economics 
SUBJECT: MINI-LINKS - SMALL IMPACT, BIG DREAMS 
 
Classified By: AIT Director Douglas H. Paal, Reason 1.5 b/d 
 
Summary 
------- 
 
1. (C) On a recent trip to Kinmen, econoff observed that the 
"mini-links" connecting the Taiwan-controlled islands of 
Kinmen and Matsu directly with the Mainland are bringing only 
limited benefit to the local economy.  Most passenger travel 
via the mini-links consists of Taiwan businessmen with 
investments in the Mainland briefly transiting Kinmen. 
Cross-Strait cargo shipments are made up mostly of gravel 
imports from the PRC.  Local officials and businessmen see 
tourists from the PRC as the islands' best chance for future 
economic growth.  Some hope, perhaps unrealistically, that 
Kinmen will receive up to a million PRC visitors per year. 
Officials have also been engaged with Xiamen officials on 
plans for a bridge to the Mainland and other infrastructure 
projects.  Government controls in both capitals are holding 
back these plans, illustrating once again that politics in 
Taipei and Beijing are the only things holding back more 
extensive cross-Strait economic activity.  End summary. 
 
2. (U) In 2000, newly elected President Chen Shui-bian 
announced the opening of the "mini-links," allowing 
passengers and cargo, subject to various restrictions, to 
travel directly by boat between Taiwan-controlled Kinmen and 
Matsu and Fujian province's Xiamen and Fuzhou.  Early on the 
mini-links were seen as an interim step toward full direct 
transportation links between Taiwan and the Mainland, but 
many have been disappointed by subsequent progress on 
cross-Strait economic liberalization.  During a late-January 
trip to Kinmen, the larger of the two islands, econoff 
observed that the mini-links have not yet proven to be any 
great boon to the local economy either. 
 
Cross-Strait Travel ) Just Passing Through 
------------------------------------------ 
 
3. (U) Traffic across the Taiwan Strait via the mini-links 
has increased dramatically since they began operations in 
January 2001.  Nearly 13,000 people used the mini-links in 
the first year of operation.  That number increased to almost 
29,500 in 2002 and more than 85,500 in 2003.  Last year more 
nearly 215,000 travelers used the mini-links.  Ni Zheng-tu, 
Deputy Director of the Kinmen County Harbor Affairs Bureau 
expects the rapid growth to continue with some 600,000 
mini-links travelers in 2005. 
 
4. (U) Use of the mini-links is limited to Kinmen and Matsu 
residents, Taiwan businessmen with investment in the 
Mainland, and PRC nationals visiting Kinmen and Matsu.  The 
vast majority of travelers are from the Taiwan side, 
accounting for 94 percent of travelers.  Of these only a 
third are Kinmen/Matsu residents.  Most of the travelers are 
Taiwan investors. 
 
5. (SBU) As a result of this transit traffic, the impact of 
mini-links travel on the local Kinmen economy has been small. 
 Most of the travelers pass through Kinmen without bringing 
any significant economic benefit to the region.  In fact, the 
transit through Kinmen is so brief that, despite the 
40-minute ferry ride to Xiamen, travelers can often go from 
Taipei to Shanghai transiting the mini-links in about the 
same amount of time as traveling via Hong Kong.  The Kinmen 
airport is working on new baggage handling services, which 
will make the transit even more seamless.  The only visible 
signs of economic benefit from this type of travel are the 
newly completed terminal and harbor administration offices 
and other ongoing infrastructure improvements at the 
passenger ferry harbor.  In addition, Kinmen Airport Director 
Wang You-ling told econoff that the Taiwan government has 
budgeted NT$ 2.8 billion (about USD 87.5 million) for airport 
improvements to bring the facility fully up to ICAO 
standards. 
 
Shipping ) Mostly Just Rocks 
---------------------------- 
 
6. (U) The impact from direct cargo shipping has also been 
very small.  Cargo shipping via the mini-links is restricted 
only to goods produced locally in Kinmen and Matsu or PRC 
goods to be consumed on the two islands.  The mini-links 
cannot be used to transship goods to and from Taiwan, unless 
they are goods for the personal consumption of Taiwan 
businessmen in the Mainland.  As a result, most ships sailing 
the mini-links route carry only passengers.  Moreover, most 
of the cargo ships carry only gravel and sand from the 
Mainland to Kinmen and Matsu.  Many other PRC goods that 
might find a market in Kinmen and Matsu cannot legally be 
imported, especially agricultural goods.  Smuggling of fruits 
and vegetables is a perennial problem on the islands. 
 
7. (SBU) Kinmen Customs Office Director Lin Tun-sung told 
econoff that cargo shipments to the Mainland are very small 
because in general goods produced in Kinmen and Matsu are too 
expensive to find a broad market in the PRC.  The two islands 
have very little industry with the exception of a distillery 
producing Kaoliang, a popular sorghum liquor.  According to 
Kinmen County Deputy Commissioner Yang Zhong-quan, the 
Kaohliang distiller has established two sales offices in the 
Mainland to increase exports.  Customs Officer Director Lin 
added that customs and inspections procedures for 
transshipping goods to Taiwan businessmen in the Mainland are 
too cumbersome so very few goods move via that route.  He 
hopes that MAC will liberalize the restrictions on goods that 
can be transshipped via Kinmen. 
 
Dreaming of a PRC Tourist Invasion 
---------------------------------- 
 
8. (SBU) With so little benefit from Taiwan business transit 
travel and cargo shipment for local markets, Kinmen business 
circles and officials place their hopes for future economic 
prosperity on expanded tourism.  In September 2004, Fujian 
province legalized tourism travel to Kinmen and Matsu for 
Fujian residents.  The first tour groups began traveling to 
the islands in early December, but to date their numbers have 
been negligible.  Only three tour groups totaling 55 visitors 
have visited Kinmen under the new policy.  Chairman of the 
Kinmen Tourism Development Association Yang Yin-hsiun 
complained that the application is too complicated and 
approval takes too long.  He claimed it took MAC an average 
of 45 days to approve each of the tour groups that visited 
last year.  Ho Jin-liang, Chairman of the Kinmen County 
Travel Agent Business Association pointed out that MAC meets 
only twice a month with other concerned agencies to consider 
PRC-Kinmen tourism applications. 
 
9. (C) Ho also told econoff that the PRC liberalization of 
tourism for Fujian residents was politically motivated.  He 
believes that the PRC announcement was intended to help 
Kinmen's Pan-Blue legislator Wu Cheng-dian win reelection. 
He complained that the PRC had no transparent criteria for 
authorizing Kinmen travel agents to arrange PRC tourism 
travel.  According to Ho, Kinmen officials proposed 16 travel 
agents, but the PRC approved only seven. 
 
10. (SBU) Nevertheless, expectations remain high.  Yang of 
the Tourism Development Association speculated, perhaps 
unrealistically, that annual Mainland visitors could 
potentially reach the level of one million visits per year. 
Deputy Commissioner Yang had similar hopes.  He pointed out 
13 million Mainland tourists visit Fujian province each year. 
 He commented that even if only 10 percent of those visitors 
made the trip to Kinmen it would bring huge benefits to 
Kinmen's economy.  Yang argued that MAC should extend 
mini-links travel to foreign visitors as well, noting that an 
easy side-trip to the PRC would make Kinmen an attractive 
travel destination for international travelers.  (Comment: 
Econoff observed that travel services in Kinmen do not yet 
meet standards many international tourists would expect.  End 
note.) 
 
11. (U) To facilitate this kind of travel, banks in Kinmen 
are prepared for liberalization of New Taiwan 
Dollar*Renminbi currency exchange on the island.  In 
September 2004, MAC announced that Kinmen banks would be 
permitted to exchange Renminbi on a trial basis.  However, it 
has not yet implemented the plan.  Two of Kinmen's three bank 
branches have been approved to provide these services.  They 
have already completed preparatory testing, inspection and 
personnel training.  At the Land Bank branch, the Renminbi 
has even been added to the currency exchange rate board, but 
no exchange rate appears yet. 
 
More Big Plans 
-------------- 
 
12. (SBU) In other areas of cross-Strait economic activity, 
Kinmen is waiting for further liberalization of Taiwan 
government restrictions before charging ahead with big plans. 
 Kinmen County Public Works Bureau Director General Chen 
Chia-hsin briefed econoff on unofficial discussions with 
Xiamen on a bridge to link the two municipalities.  In 2000, 
officials from both sides presented six proposals for a 
Kinmen-Xiamen bridge at an academic conference.  In November 
2003, officials attended what Chen described as a preparatory 
meeting on one of the bridge proposals.  However, according 
to Chen, MAC refused to permit Kinmen representatives to 
attend a follow-up meeting in December 2003. 
 
13. (SBU) Kinmen is also studying plans to acquire fresh 
water from the Mainland.  At current levels of growth, Kinmen 
officials estimate that water requirements will exceed the 
island's supply by more than 25 percent in just 6 years. 
Kinmen Waterworks Superintendent Weng Tzu-pao told econoff 
that county officials have discussed proposals with Mainland 
counterparts and have identified a preferred water source and 
route for an overland and submarine pipeline.  Future plans 
include water pipelines on the proposed Kinmen-Xiamen bridge. 
 Further progress on the project will require MAC approval. 
 
Comment ) Waiting on Taipei and Beijing 
--------------------------------------- 
 
14. (C) Even for the local economies of Kinmen and Matsu, the 
economic impact of the mini-links has been small.  However, 
they continue to fuel big dreams in various fields.  Even the 
local college, the National Kinmen Institute of Technology, 
is working on joint programs with Mainland universities and 
an executive MBA program for Taiwan investors on the 
Mainland.  Many of these big plans have so far been 
frustrated by the narrow scope of the mini-links and slow 
progress on cross-Strait economic liberalization. 
Nevertheless, pervasive cross-Strait interaction and serious 
preparations in Kinmen once again show that politics in 
Taipei and Beijing are the only things holding back much more 
profound cross-Strait economic activity.  End comment. 
PAAL