US embassy cable - 05TAIPEI2950

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 002950 
 
SIPDIS 
 
DEPT PASS TO AIT/W 
DEPT FOR EAP/TC 
 
E.O. 12958: DECL: 07/08/2020 
TAGS: CH, ECON, EINV, ETRD, EWWT, PREL, TW, Finance, Cross Strait Economics, Cross Strait Politics, Transportation, Trade 
SUBJECT: CROSS-STRAIT ECONOMIC ROUNDUP - SECOND QUARTER 
 
REF: A. A) TAIPEI 268 
 
     B. B) TAIPEI 1919 
 
Classified By: DKEEGAN 
 
 Summary 
------- 
 
1. (U) During the second quarter of 2005, Taiwan 
semiconductor manufacturer United Microelectronics 
Corporation (UMC), which is under investigation for its 
affiliation with PRC semiconductor firm He Jian, called on 
the government to speed up its investigation into the case. 
The Taiwan Provincial Farmers Association (TPFA) came under 
criticism from the Mainland Affairs Council (MAC) for its 
trip to the PRC to discuss fruit export issues.  Cross-Strait 
visitor exchanges showed some signs of slowing briefly after 
the PRC,s passage of the Anti-Secession Law, but high 
profile visits continued.  Taiwan airlines expanded the use 
of cross-Strait routes through South Korea.  End summary. 
 
Investment: UMC Case Update... 
------------------------------- 
 
2. (U) United Microelectronics Corporation (UMC), which is 
under investigation by the Hsinchu County Prosecutors for its 
affiliation with PRC semiconductor manufacturer He Jian, ran 
a large advertisement on June 22 in several Taiwan dailies 
calling on the government to speed up its investigation into 
the case and bring charges if any against the firm,s 
management as quickly as possible.  It also announced that 
Chairman Robert Tsao would resign no later than 2007 or 
earlier if he is convicted of crimes related to the He Jian 
case.  The announcement pointed out that UMC stockholders 
approved He Jian,s proposal to give UMC a 15-percent stake 
in the Mainland firm as compensation for &management 
advice8 already provided.  Therefore, according to UMC, 
there should be no basis for allegations that UMC,s 
management violated the interests of shareholders.  In the 
announcement, UMC also noted that Tsao would decline another 
term as one of President Chen,s National Policy Advisors to 
ensure that UMC,s case is handled without political 
influence. 
 
3. (C) Investment Commission Deputy Executive Secretary Emile 
Chang (strictly protect) told AIT/T that the Commission has 
the authority and evidence to fine UMC for the illegal 
transfer of patents to the Mainland affiliate.  However, 
according to Chang, the Minister of Economic Affairs Ho 
Mei-Yueh is looking for ways to help UMC resolve the legal 
case without major sanctions.  He said the Commission is 
waiting for instructions from the Mainland Affairs Council 
(MAC) on how to proceed.  He claimed that MAC had been unable 
to provide instructions because it was waiting for guidance 
from Taiwan,s National Security Council (NSC).  When asked, 
AIT/T NSC contacts bristled at the notion that other agencies 
were waiting for instructions from the NSC.  They pointed out 
that the case was a judicial matter and was being handled by 
the Hsinchu Prosecutors Office. 
 
Formosa Plastics Group Investigation... 
--------------------------------------- 
 
4. (U) In other investment-related developments during the 
quarter, Taiwan press reported in late June that Formosa 
Plastics Group,s (FPG) had begun construction on a RMB one 
billion hospital in Xiamen.  However, Taiwan,s Investment 
Commission revealed that it had not received an application 
for approval of the project as required under Taiwan law for 
investment in PRC hospitals.  The Investment Commission will 
investigate the project and requested that FPG explain its 
involvement. 
 
CPC/CNOOC Cooperation... 
------------------------ 
 
5. (U) Taiwan,s China Petroleum Corp. on June 28 announced 
plans to cooperate with the PRC,s China National Offshore 
Oil Company (CNOOC) to explore oil fields around the northern 
portion of the central line of the Taiwan Straits.  A draft 
of the cooperation pact was submitted to MOEA for approval. 
In 2002, the two firms had cooperated in exploring oil fields 
around the southern portion of the central line. 
New Tsingtao Brewery in Taiwan 
------------------------------ 
 
6. (U) On June 13, Taiwan,s Sanyo Whisbih Group, the Taiwan 
distributor for the PRC,s Tsingtao brand beer since 2002, 
announced that its NT$ 3 billion (USD 93 million) Tsingtao 
brewery in Taiwan was complete.  This is the first brewery in 
Taiwan to produce a Mainland brand beer.  Tsingtao Beer has 
become Taiwan,s second best selling beer after Taiwan Beer, 
with a 12 percent market share.  With the additional capacity 
of the new brewery, the group hopes its market share will 
increase to as high as 25 percent this year. 
 
Trade: Fruit Exports and Dumping Investigations 
--------------------------------------------- --- 
 
6. (U) The KMT-dominated Taiwan Provincial Farmer Association 
(TPFA) sent a nine-member delegation led by Chairman Liu 
Chuan-chung to the PRC on June 22.  The group met with the 
PRC,s Cross-strait Association on Trade Exchanges (CSATC) in 
Beijing to discuss technical issues related to Taiwan fruit 
exports, including certificates of origin, customs clearance 
and quarantine procedures.  The delegation told Taiwan press 
and Taiwan,s Council on Agriculture that it did not sign any 
agreement or reach any consensus with PRC interlocutors.  The 
Mainland Affairs Council (MAC) has stressed on more than one 
occasion that the Taiwan External Trade Development Council 
(TaiTRA), not TPFA, is the only agency authorized by the 
Taiwan government to negotiate fruit export issues with the 
PRC.  On July 3, MAC issued a press release responding to PRC 
press reports that TPFA and CSATC had reached a consensus on 
fruit export issues.  MAC pointed out that this would be a 
violation of Taiwan law and called on TPFA to provide further 
explanation. 
 
7. (U) During the quarter, the PRC initiated two dumping 
investigations aimed at Taiwan exporters.  On April 13, the 
PRC announced that it would investigate allegations of 
dumping by Taiwan spandex exporters.  More than 58 percent of 
Taiwan,s spandex exports go to the PRC.  Taiwan is the 
PRC,s fifth largest supplier after S. Korea, Japan, 
Singapore and the U.S.  On June 7, the PRC announced it would 
investigate dumping charges against Taiwan and Japanese 
polybutylene terephthalate (PBT) resin exporters.  In 2004, 
the PRC accounted for 65 percent of Taiwan,s global PBT 
exports.   According to Taiwan,s Bureau of Foreign Trade, 
this is the ninth dumping investigation case conducted by 
Mainland China against Taiwan.  The PRC also announced on May 
31 that it would impose antidumping tariffs of 7.2 to 14.4 
percent on unbleached kraft liner/liner board exports (used 
primarily to make boxes) to the PRC by three Taiwan paper 
companies after an investigation initiated in March 2004. 
 
Exchanges: ASL Briefly Slows Pace but Visits Continue 
--------------------------------------------- --------- 
 
8. (U) In the weeks following the PRC,s passage of the 
Anti-Secession Law on March 14, several events underscored 
the Taiwan government,s effort to slow cross-Strait 
exchanges.  On April 10, MAC temporarily banned reporters 
from the PRC,s Xinhua News Agency and the People,s Daily. 
MAC accused the two PRC central government media outlets of 
filing unbalanced reports that did not help the people of 
Mainland China better understand Taiwan.  MAC also announced 
on May 30, that five delegations of Mainland exchange 
visitors had been forced to leave Taiwan during April and May 
for various reasons such as staying longer than authorized 
and engaging in unauthorized activities. 
 
9. (U) In response to MAC requests, TaiTRA announced on April 
14 the cancellation of its participation in several PRC trade 
exhibitions, including the May 23 Beijing International 
Technology Trade Fair.  Subsequently, many Taiwan firms 
cancelled their participation in the Beijing Technology Fair 
as well.  Although Taiwan firms had reserved about 60 booths, 
only 35 of them were actually used.  According to media 
reports, twenty-five of those were occupied by PowerChip, 
whose Chairman Frank Huang, was a co-host of the event. 
Reports indicated that only five Taiwan firms participated in 
the event. 
10. (U) Nevertheless, in addition to the high profile Lien 
Chan and James Soong visits, cross-Strait exchanges 
continued.  One highlight was the May 31-June 3 Computex 
Taipei, the world,s second largest computer show.  According 
to the Taipei Computer Association, the host for the event, 
more than 1,000 Mainland high-tech personnel attended the 
show, including senior executives from Lenovo, Beijing 
Founder Electronics, TCL Corp. and Datang Microelectronics 
Technology, one of the PRC,s largest IC design houses.  The 
show was preceded by a May 26 PRC visit by a Taipei Computer 
Association delegation to meet with Ministry of Science and 
Technology officials.  After the meeting, the two sides 
announced plans to cooperate on developing RFID logistics 
applications. 
 
11. (U) Important visits in the financial sector included a 
May 21 visit to Taiwan by Vice Chairman Wang Jun of the China 
International Trust and Investment Corporation (CITIC) Group, 
the state-owned conglomerate that oversees the Chinese 
government,s international investments.  Wang met with 
officials of the Financial Supervisory Commission and 
Taiwan,s Central Bank of China as well as executives of 
major financial holding companies such as Fubon, Tai Shin and 
First Financial Holding Co.  On May 26, Taiwan Securities 
Association (TSA) Chairman Chien Hung-wen visited Beijing and 
met with Zhuang Yixin, Chairman of the Securities Association 
of China (SAC), to discuss cross-Strait liberalization of 
securities markets. 
 
Transportation and Travel: South Korea and Mini-Links 
--------------------------------------------- --------- 
 
12. (U) Two Taiwan airlines increased cross-Strait air travel 
options via South Korea during the quarter.  On June 13, 
China Airlines (CAL) and Korean Air jointly announced that 
they would increase the frequency of Taipei-Seoul flights 
from 9 flights to 18 per week.  CAL and Korean Air both use 
these flights to provide service from Taipei to seven 
mainland cities -- Beijing, Shanghai, Qingdao, Shenyang, 
Tianjin, Xuhan and Jinan )- in conjunction with PRC 
airlines.  TransAsia Airways on June 30 announced that it 
would begin twice weekly service from Taipei to Cheju, South 
Korea, which would connect to onward flights to Dalien, 
China, on the PRC,s Southern Airlines.  Far East Air 
Transport Corp. already offers connections to Shanghai via 
Cheju with the PRC,s Eastern Airlines. 
 
9. (U) The PRC,s Xiamen Airlines made an effort to promote 
international travel via Xiamen Airport for residents of 
Taiwan-controlled Kinmen Island.  On April 4, Deng Dongtao, 
Vice President of Passenger Service for Xiamen Airlines, led 
a delegation to visit Kinmen and signed a letter of intent 
with 11 Kinmen travel agents to promote such travel.  In 
addition, Taiwan-controlled Matsu Island saw its first group 
of tourists from Fujian since the liberalization of Fujian 
resident travel to Kinmen and Matsu implemented by Fujian 
Province in December 2004.  On June 27, the 86-member group 
arrived in Matsu for a three-day trip.  Interest in travel to 
Kinmen has also been low since last year,s liberalization 
measures were implemented; to date only some 2,000 Fujian 
residents have visited Kinmen. 
KEEGAN