US embassy cable - 05TAIPEI1919

UNCLAS SECTION 01 OF 03 TAIPEI 001919 
 
SIPDIS 
 
SENSITIVE 
 
DEPT PASS TO AIT/W 
DEPT FOR EAP/ TC 
 
E.O. 12958: N/A 
TAGS: ECON, PREL, ETRD, EINV, EWWT, CH, TW, Cross Strait Economics, Cross Strait Politics 
SUBJECT: CROSS-STRAIT ECONOMIC ROUNDUP - FIRST QUARTER 
2005 
 
REF: A) 04 TAIPEI 84, B) 04 TAIPEI 2592, C) 04 TAIPEI 
3323, D) TAIPEI 268 
 
 
Summary 
------- 
 
1. (U) During the first quarter of 2004, EVA Air and China 
Airlines (CAL) both made progress in establishing air cargo 
ventures in Mainland China.  The airlines also applied for 
permission to fly through PRC airspace on flights to Europe 
and other parts of Asia.  Taiwan's Investment Commission 
fined the Chairman of China's Semiconductor Manufacturing 
International Corp., Richard Chang, for alleged illegal 
investment in Mainland China.  Evergreen Group announced a 
major investment in Ningbo Harbor near Shanghai.  Taiwan's 
Financial Supervisory Commission also approved new Mainland 
investment categories for Taiwan financial institutions. 
(End Summary.) 
 
Travel and Transportation 
------------------------- 
 
2. (SBU) In an effort by Taiwan's air cargo leaders to take 
advantage of capacity shortages in the Mainland, EVA Airways 
on March 23 confirmed plans to work with Shanghai Airlines 
in forming an air cargo venture aimed at exports from 
northeast China.  EVA Air President K.W. Chang told AIT/T 
that EVA would transfer one MD-11 cargo aircraft to the new 
venture and take an active role in management.  EVA will 
have a 40-percent stake in the venture.  Earlier in the 
month, Taiwan's China Airlines (CAL) announced that it would 
finalize its long-delayed investment in China Air Cargo 
(CAC) in April or May.  CAL and CAC have been discussing 
this proposal since late 2002.  CAL will buy 25 percent of 
CAC's stock.  Both Taiwan and PRC authorities have approved 
the investment.  In addition, CAL reached an agreement with 
Hong Kong's Dragon Airlines on March 19 under which Dragon 
will rent a CAL cargo plane for one year to provide joint 
cargo service from Hong Kong to New York. 
 
3. (SBU) Both of Taiwan's major carriers, CAL and EVA, 
applied to Taiwan's Civil Aeronautics Administration (CAA) 
on March 6 for permission to overfly mainland China.  CAL 
wishes to overfly the PRC on flights to Frankfurt, New Delhi 
and Hanoi.  EVA would do so on flights to Paris.  In 2003, 
both CAL and EVA applied for overflight permission for 
flights to Europe during the Iraq war, but only one CAL 
flight actually passed through PRC airspace.  On April 25, 
EVA Air's Chang told AIT/T that the PRC had already granted 
overflight permission, but Taiwan's Mainland Affairs Council 
(MAC) had still not responded to the request.  Chang does 
not expect MAC to respond any time soon.  He speculated that 
some Taiwan government agencies fear that giving Taiwan 
airlines permission to overfly the PRC will lead PRC 
airlines to request permission to overfly Taiwan. 
 
4. (U) On March 15, MAC announced that Hong Kong and Macau 
Airlines Cathay Pacific, Dragon Air and Air Macau and travel 
agents would be required to provide MAC with the names of 
persons traveling from Taiwan to the PRC.  CAA gave the 
airlines until April 25 to begin reporting the passenger 
lists. 
 
Investment and Trade - SMIC... 
------------------------------ 
 
5.  (U) The Investment Commission of Taiwan's Ministry of 
Economic Affairs on March 31 fined Semiconductor 
Manufacturing International Corp. (SMIC) Chairman Richard 
Chang NTD 5 million and ordered him to withdraw his 
investment in the Mainland firm.  Chang is a former employee 
of Taiwan Semiconductor Manufacturing Co. (TSMC).  Two years 
ago, the IC attempted to investigate Chang's investment but 
was unable to find enough evidence that he had personally 
invested in the firm.  However, late last year SMIC released 
more detailed financial data in order to list on Hong Kong 
and U.S. stock exchanges, enabling the Commission to reach 
its decision.  Richard Chang is a U.S. citizen of Taiwan 
origin.  He has claimed that because he is a U.S. citizens 
Taiwan authorities have no jurisdiction over his investment 
activities. 
 
TSMC... 
 
SIPDIS 
------- 
 
6. (U) On March 19, TSMC (Shanghai) Company Limited 
announced that it plans to expand its Mainland presence by 
establishing a design service center with a staff of 40. 
TSMC (Shanghai) released recruitment advertisements seeking 
 
SIPDIS 
layout, circuit design and computer aided design (CAD) 
technicians.  TSMC will soon submit its application to 
Taiwan's Investment Commission for approval. 
 
Evergreen Group... 
------------------ 
 
7. (U) Evergreen Group via its Italian shipping subsidiary, 
LLoyd Triestino China Limited (LT), signed a joint 
investment contract in January with the PRC's Ningbo Harbor 
near Shanghai to invest in two container berths.  Evergreen 
Marine Corp. officials told AIT/T that the investment 
totaled USD 250 million.  According to media reports, the 
Italian subsidiary will own 50 percent of the venture. 
Earlier, the Group had invested in some berths in Shenzhen. 
Evergreen also announced on April 10 that the PRC approved 
its plan to set up a marine shipping branch office in 
Shenzhen through the Italian subsidiary.  Evergreen is the 
first Taiwan marine shipping company to set up such a branch 
office in the PRC. 
 
8. (U) On January 1, Taiwan Salt, which is 40 percent 
government owned, revealed that it had applied for Taiwan 
approval to invest in the Mainland.  To avoid high Mainland 
duties, Taiwan Salt plans to set up a subsidiary in Shanghai 
for packaging and marketing its cosmetics products.  Many 
state-controlled enterprises are restricted from investing 
in the PRC. 
 
9. (U) Taiwan Cellular Corp. (TCC) announced in January that 
it would establish its first PRC customer service company in 
Dalian.  TCC and its mainland partner each own a 50-percent 
stake in the newly established company.  Later, TCC 
announced that it would set up another customer service 
technology office in Xiamen for paging and service 
consultation. 
 
10. (U) Taiwan's Board of Foreign Trade announced February 
18 that it would lift the ban on imports from the PRC for 16 
product categories.  These include small refrigerators; TV 
signal boosters; and several wireless IT components, such as 
USB adapter, printer adapter, and LAN access point.  After 
this latest round of trade liberalization, more than 78.3 
percent of product categories listed in the Taiwan tariff 
schedule can be imported from the Mainland. 
 
Finance 
------- 
 
11. (U) During the quarter, the Financial Supervisory 
Commission (FSC) approved two new categories of investment 
in the PRC by Taiwan financial institutions.  On February 
14, the FSC announced that Taiwan securities firms could 
invest in PRC securities companies.  However, these PRC 
firms are not permitted to provide services to individuals 
or enterprises in Taiwan.  On March 3, the FSC also 
announced that financial holding companies' overseas 
subsidiaries could apply to establish representative offices 
in the PRC.  Immediately after the Bureau of Monetary 
Affairs released the application procedures for such 
investment on March 18, Fubon Financial Holding Company made 
public its plans to set up a representative office in 
Dongguan via its Hong Kong subsidiary. 
 
Exchanges 
--------- 
 
12. (U) The Chairman of the Taiwan Farmers Association 
(TFA), Gu Yuan-jun, told Taiwan's local press on March 15 
that he planned to visit Beijing to talk about promoting 
Taiwan's fruit exports.  The PRC has offered to open up its 
agricultural markets to Taiwan imports.  According to Gu, it 
has also offered to set up a Taiwan fruit-trading center in 
Shanghai.  Chairman Gu said that the TFA planned to set up 
three Taiwan agricultural trade centers in Shanghai, Beijing 
and Guangzhou. 
 
13. (U) In what the press called an unplanned meeting, Fu 
Don-Cheng, Director of the MAC Economic Affairs Department 
met on February 28 with Dai Xiaofeng, Director of the 
Exchanges Bureau of the PRC's Taiwan Affairs Office TAO on 
the Taiwan-controlled island of Matsu.  The two were 
visiting Matsu separately to observe the operations of the 
mini-links.  According to media reports, the two discussed 
several cross-strait issues, including cooperation on 
criminal investigations, cargo transportation, and 
agricultural trade. 
 
PAAL