US embassy cable - 05TAIPEI2202

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002202 
 
SIPDIS 
 
DEPT FOR EAP/TC 
DEPT PLEASE PASS AIT/W 
 
E.O. 12958: DECL: 05/16/2015 
TAGS: ECON, PREL, CH, TW, Cross Strait Economics, Cross Strait Politics 
SUBJECT: LIEN, SOONG VISITS - TAIWAN BUSINESS LEADERS 
QUIET, INVESTORS OPTIMISTIC 
 
Classified By: AIT Director Douglas H. Paal, Reason 1.4 d 
 
Summary 
------- 
 
1. (SBU) Few Taiwan business leaders have reacted publicly 
to the visits of opposition party leaders Lien Chan and 
James Soong to the PRC.  In private, their reaction has 
varied broadly from enthusiastic optimism to frustrated 
skepticism.  The Taiwan Stock Market has shown some gains 
recently that may be due in part to the visits.  However, 
other factors have also played a significant role, and any 
gains due to cross-Strait factors may be short lived. 
There has been a stronger impact on food and tourism 
industry stocks.  It will take more concrete progress on 
cross-Strait relations that involves Taiwan's ruling 
Democratic Progressive Party (DPP) before we see a more 
vocal reaction in the business community and more permanent 
gains in the stock market.  End summary. 
 
Business Leaders 
---------------- 
 
2. (U) The response in Taiwan's business community to 
recent cross-Strait developments, particularly the visits 
of Kuomintang (KMT) leader Lien Chan and Peoples First 
Party (PFP) leader James Soong to the PRC, has been quiet. 
Most business leaders have not commented publicly on the 
events.  Notable exceptions include Formosa Plastic Group 
Chairman Wang Yung-ching, who told the press after the Lien 
visit that he did not see any noticeable changes in the 
development of cross-Strait relations as a result of the 
visits.  Powerchip Chairman Frank Huang, on the other hand, 
told reporters that he believed the Lien and Soong visits 
had reduced cross-Strait tensions and showed more 
flexibility from Beijing.  Some business leaders have 
continued calls on the Taiwan government to further 
liberalize cross-Strait economic relations.  In a May 9 
breakfast meeting with Premier Frank Hsieh, the leaders of 
Taiwan's major industrial associations reportedly called on 
the Taiwan government to seek a consensus on cross-Strait 
issues and expand economic liberalization. 
 
3. (C) Privately, reaction from members of the business 
community has ranged broadly from enthusiastic optimism to 
frustrated skepticism, some probably colored by political 
inclinations as well as a reasoned assessment of the impact 
of the visits.  Just after the Lien visit, Chairman of 
Yulong Motors Ken Yen was very enthusiastic about the 
potential results in a meeting with AIT/T.  He noted Lien 
had received a warm welcome and that the people of Taiwan 
were emphasizing the desire to keep the status quo and not 
push for independence.  Earle Ho, Chairman of Tung Ho Steel 
and Chairman of the Chinese National Federation of 
Industries (CNFI), more recently told AIT/T that it was 
still too early to tell what kind of positive economic 
impact there might be as a result of the two visits.  He 
will travel to the PRC the week of May 16 and hopes to have 
a better understanding of prospects for real progress after 
visiting Beijing.  Chinese National Association of Industry 
and Commerce (CNAIC) Deputy Secretary General George Lin 
had a similar reaction, indicating he needed more time to 
assess the reaction of association members.  Tsai Horng- 
ming, Deputy Secretary of CNFI, was much more negative on 
the prospects for progress.  He foresaw no concrete results 
from the visits and called them nothing but political 
games.  Tsai added that he did not understand why the U.S. 
supported these visits. 
 
Market Reaction 
--------------- 
 
4. (U) Taiwan markets appear to have shown some positive 
reaction to the Lien and Soong visits.  The Taiwan Stock 
Exchange TAIEX index rose 223 points, or 3.9 percent, from 
its close on April 25, the eve of Lien's departure for the 
PRC, to its close May 13, the day of Soong's return to 
Taiwan.  U.S. markets and other markets in the region that 
often closely track the Taiwan Stock Exchange did not 
perform as well during the period.  In the U.S., the Dow 
Jones Industrial Average lost ground, while the NASDAQ 
composite gained only 1.3 percent during the period.  In 
Asia, Hong Kong's Hang Seng Index gained only 0.8 percent 
and the South Korean market index declined. 
5. (C) However, some analysts believe that recent overall 
increases in the stock Taiwan market are due primarily to 
other factors.  Chen Miao, Senior Economist at the Taiwan 
Institute of Economic Research (TIER) and Huang Wen-jur, 
Senior Consultant at SinoPac Securities, both told AIT/T 
that they believed that positive economic and market 
performance in the U.S. was a major factor.  SinoPac's 
Huang also pointed out the strong influence of foreign 
portfolio investors and the decision of Morgan Stanley 
International Capital to add nine companies to its Taiwan 
Standard Index and increase the weight of Taiwan stocks in 
its international index at the end of May.  Moreover, the 
Taiwan market index continues to be down from March and 
early April.  Even March 15, the day after the PRC's 
passage of the Anti-Secession Law, the TAIEX closed at 
6063.48 -- higher than it's May 13 close. 
 
6. (U) There appears to have been a more decisive reaction 
among stocks in the food and tourism industries as a result 
of the PRC's announcements that it would liberalize 
agricultural imports from Taiwan and Mainlander travel to 
Taiwan for tourism.  Food industry stocks rose 5.9 percent 
during the April 25-May 13 period.  Tourism stocks were up 
16.6 percent.  A smaller increase for transportation stocks 
-- up just 1.2 percent -- suggests that investors may be 
less optimistic about the chances for progress on direct 
transportation links.  (Note: AIT will report septel on the 
potential impact of the PRC proposals for agriculture and 
tourism.  End note.) 
 
Comment - Waiting for More 
-------------------------- 
 
7. (C) The muted public response in the business community 
is not unexpected.  PRC pressure on Taiwan investors in the 
Mainland such as Chi-Mei's Hsu Wen-lung has caused many 
business leaders to emphasize their political neutrality 
back in Taiwan as evidenced by Acer founder Stan Shih's 
recent decision to resign as one of President Chen Shui- 
bian's advisors.  More importantly, as many have observed, 
these meetings are unlikely to have a significant effect on 
the economy or cross-Strait trade and investment until the 
Taiwan government gets involved. 
 
8. (C) In addition, the apparent positive stock market 
reaction may turn out to be short lived.  We are likely to 
see some price corrections as real economic results fail to 
materialize from these positive political developments.  If 
the PRC and DPP move closer to a dialogue or the DPP and 
opposition parties can achieve a consensus on how to 
approach cross-Strait relations, then we can expect to see 
more long-term gains in the stock market as well as a more 
vocal and enthusiastic response from business leaders.  End 
comment. 
PAAL