Taiwanese Business Wants To Storm The Mainland

A $3 billion Formosa Plastics proposal will be a key test case

The chairman of $10.7 billion Formosa Plastics Corp., Y.C. Wang, has big plans for China. As head of Taiwan's largest private company, he recently asked his government for approval to build a $3 billion power plant across the Taiwan Strait. That may be just for openers. Speculation is rife that the tough, secretive Wang also aims to build a huge petrochemical complex in China. "The power plant is just a kernel," says one financial analyst in Taipei.

Whatever his grand designs, Wang is stepping up pressure on Taiwan's government to improve ties with China. With both sides cooling their angry rhetoric since March--when Beijing fired missiles near Taiwan and the U.S. Seventh Fleet sailed in--Wang and other Taiwanese executives are pressing Taipei to let them expand economic links with China. "Businesspeople are strongly testing government policy," says David Yu, vice-president of International Investment Trust Co., which runs a Taiwan mutual fund.

President Lee Teng-hui is already showing signs of accommodation. In recent weeks, Taipei has announced a series of measures aimed at improving ties. On July 1, Taipei opened the door to more categories of imports from China via Hong Kong and other channels. The government also eased travel restrictions on Chinese executives. Last month, it gave the O.K. to Taiwanese brokerages to set up research offices in China. And it is going to allow insurance companies to invest there.

OIL ACCORD. Another big step forward was the late June visit of Wang Guixiang, chairman of Beijing-based China National Aviation Corp. CNAC last spring gained effective control of Hong Kong Dragon Airlines Ltd., which will start flying to Taiwan next month. Wang, who is also chairman of Air Macau, visited Taipei to complete ticketing agreements with China Airlines Ltd. and Eva Airlines Corp., which will issue tickets to the mainland on Air Macau flights from Taiwan via the Portuguese enclave. That skirts the ban on direct air links. Other state-sector companies are talking, too: The government-owned oil companies of Taiwan and China recently inked a small but politically significant $1 million joint venture to explore for offshore oil in the Pearl River basin.

Taiwanese business leaders are hearing reassuring words from their own government. From Lee on down, officials are arguing for reunification in the long term. Taipei, for example, says it has retreated from its campaign to get into the U.N., a move that would be anathema to Beijing. Instead, many believe the government will focus on attempts to join economic organizations such as the World Bank and the International Monetary Fund.

The Formosa Plastics proposal is a key test of how far Lee's government is willing to go. In 1990, Lee talked Wang out of building a sprawling $7 billion petrochemical plant in China, persuading the tycoon to build it in Taiwan instead. Today, Taiwanese officials fret that a flood of other corporations would follow Wang to the mainland. "This is [still] negative from a political point of view," says Koong-Lian Kao, vice-chairman of Taiwan's Mainland Affairs Council, a Cabinet-level post. A big outflow of investment could prompt Taiwan "to lose our bargaining power" with China, he adds.

Other companies are pressuring the government as well. Asia Cement Corp., a subsidiary of Far Eastern Group, will apply in July to build a $240 million cement factory in China. The company hopes to add a second phase that could cost up to $200 million. Many companies are becoming more open about their investments in China. As of June, 76 companies filed applications to the government disclosing a total of $1.3 billion indirectly invested in China, up from 41 companies in February. Altogether, the Taiwanese have set up more than 30,000 small and midsize businesses on the mainland.

Opening up big-ticket investments could beef up the island's financial markets. Formosa Plastic's stock has jumped 50% in the past month, buoyed by investors bullish about mainland prospects. Overall, the Taipei stock market is up 40% since February, as optimism increases on cross-strait ties. Investment bankers argue that while Taiwan will experience a short-term outflow of capital by big companies investing in China, international financial institutions will plow money into Taipei stocks perceived as good "China plays," preventing any capital crunch.

For now, at least, Taipei and Beijing have agreed to test the limits of how closely they can knit together their economic interests. There will still be points of friction, to be sure. The two are skirmishing over whether South Africa, the last major country to extend official diplomatic recognition to Taipei, will switch to the mainland. But that is a minor-league spat compared with the threat of war just months ago.

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