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It's Business as Usual
Taiwan's China investments are growing

The 100-Day Itch:
Why Chen Shui-bian's honeymoon as president is over, and what he mu st do to restore credibility
'Let's Meet, not Holler': So says the DPP chief about China
Politics of Compromise: Will Chen break promises?

In mid-August, a group of mainland Chinese business executives made such a stink at a Chicago hardware fair that most attendants were left perplexed and appalled. After seeing Taiwan's red-and-blue flag hang among many others in the exhibit hall, the Chinese delegation tore down their exhibits, slammed their merchandise on the floor, stomped on them and stormed out of the American Hardware Manufacturers Association event. All that was left in their empty booths were typed statements issued by Chinese government officials: "The erroneous decision by the show organizers runs counter to the United States government's 'one-China' policy and offers Taiwan authorities a stage to create two Chinas."

In Taipei, officials are shrugging off the incident. In fact, they are continuing with their plans to accelerate business with China. In September, 28 of the island's top bankers will visit the mainland to explore the possibility of opening branch offices there. The government has drafted laws that will liberalize restrictions once preventing Taiwan banks from entering the mainland, even though some 40,000 Taiwan enterprises now operate factories in China. Beijing may be kung fu-fighting, but Taipei is responding with tai chi.

The Chen administration is reversing the years of the "go slow, no haste" policy of previous president Lee Teng-hui, who feared that Taiwan would become an economic hostage of China if it grew too dependent on the mainland for business. Despite Lee's efforts, Taiwan companies have parked more than $40 billion in China, roughly 40% of its total foreign investment. China is now Taiwan's third-largest trading partner, buying 17% of Taiwan's exports and sourcing 4% of the island's imports. "Trade benefits both sides," says Lin Yi-fa, deputy minister of economic affairs. "It helps improve cross-strait relations." Ministry officials are currently even discussing lifting some restrictions that have prevented Taiwan companies from setting up high-tech manufacturing operations or building infrastructure projects in China.

Chen may have been an "independence" activist, but it's clear that he realizes it is almost impossible for the island to sever ties with China. Instead, the approach is to move even closer to the mainland and gain the trust of Beijing's leaders in order to create the maximum room for Taiwan's long-term survival. On top of lifting certain investment restrictions, Taiwan's Ministry of Education has gone one step further. It recently approved the establishment of Taiwan curriculum schools in China, allowing the formation of long-term Taiwan communities on the mainland. Within months of the announcement, Taiwan business groups in Guangdong and Shanghai have already begun building schools that eventually will allow more Taiwan expatriates to relocate their entire families to China.

But it's not all smooth sailing for Taiwan companies in China. The tale of Evergreen Marine, a giant shipping company, is cautionary. After Chen came to power in May, mainland officials threatened to shut down Evergreen's mainland operations. Customs officers deliberately held up thousands of Evergreen's containers by "throwing a book of regulations" at the company, checking that every item shipped carried the proper documents. Evergreen container ships were not only unable to pick their cargo on time but the company's thousands of mainland-based Taiwan customers were unable to ship on time, causing havoc throughout supply chains worldwide.

Such was the price Evergreen had to pay for chairman Chang Yung-fa's membership in Chen's "national advisory council," a group of about a dozen Taiwan tycoons who endorsed his candidacy. From the end of March through end of May, mainland officials made life difficult for those tycoons with mainland investments. When Stan Shih, chairman of top computer company Acer, visited China, he found that officials who normally rushed to invite him to private banquets shunned him instead. Shortly afterward, "inspectors" descended upon Acer's factories in Guangdong and Shanghai searching for "irregularities." Only after months of apologizing, lobbying and pledges of further investments on the mainland did officials stop the harassment. "Business is now back to normal," Yuanta Securities analyst Eric Lai says of Acer. "Plans for a new plant in [China] will continue." Working in Shih's favor, as far as Beijing is concerned, is that he has distanced himself from Chen. "He deliberately doesn't go to Chen's events," says Lai. "[The tycoons] will just have to be more careful about getting involved in politics in Taiwan."

Taiwan and China both need each other: Taiwan the mainland's plentiful supply of inexpensive labor and its potentially huge market, China the investment. Sheen Ching-jing, chairman of Taiwan conglomerate Core Pacific Group, says he believes that Chen — once an ardent anti-China maverick — may end up leading Taiwan closer to the mainland. "I was in Beijing having drinks with top officials of the Ministry of Foreign Trade just before the election," says Sheen, who has known Chen for years. "They asked if Chen would declare independence. I said he wouldn't. I said Chen only used 'independence' as a weapon against the Kuomintang. I told them not to be anxious. The key is to first build more economic ties. In today's era, any good leader must focus on economics, and that includes China's leaders." Money talks best.

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