War Talk in Taiwan Is Business as Usual

The island's president has issued a provocative challenge to China, but the local tycoons are taking the latest flap in their stride

By Bruce Einhorn

Taiwanese executives such as K.Y. Lee, chairman of LCD panel producer AU Optronics, had every reason to be furious with their politicians the first week of August, 2002. After all, the island's businessmen had been counting on easing tensions between Beijing and Taipei, with some even believing that the two longtime rivals were entering a new stage that might finally allow for the opening of direct transportation links between the island and the mainland.

Given that Taiwanese have invested more than $50 billion in China -- and that the People's Republic is increasingly the key to the future of the Taiwanese economy -- such a détente would provide welcome relief for companies struggling to recover from the U.S. tech collapse.

Then President Chen Shui-bian opened his mouth and changed everything. On the first weekend in August, Chen spoke via satellite to a Tokyo gathering of Taiwanese who want the island to formally declare its indepence from China. While it has been clear for decades that Taiwan is a de-facto country, both sides have long stuck to the pretense that the island is a part of China. Beijing has threatened to attack Taiwan if its government were to issue a declaration of independence.


  Chen comes from the proindependence Democratic Progressive Party, many of whose core members intensely dislike and distrust the Communist leadership and want to see an independent Republic of Taiwan. Playing to his audience of hard-core independence advocates, Chen said the island's lawmakers should consider authorizing a referendum to allow the Taiwanese people to decide their fate.

That infuriated Beijing, and spooked investors (see BW, 8/26/02, "President Chen: Taiwan's Angry Man"). The Chinese government made ominous-sounding statements, and the Taiwan stock index plunged.

Yet Lee, speaking to analysts and reporters in Taipei on Aug. 7, seemed to take the fuss in stride. "I don't see any trouble happening," he calmly replied when I asked him whether he thought it was wise for Chen to make his comments. "The [Chinese] government is still very probusiness. They welcome Taiwanese investment."


  Why so confident? Because the Taiwanese have seen this sort of thing before. Indeed, Taiwan's presidents -- including Chen and his predecessor, Lee Teng-hui -- seem to spar with China every year or two. Angry words fly across the Taiwan Strait -- and sometimes much more than words, with Beijing not resistant to test-firing missiles in the island's direction in order to emphasize China's irritation.

Still, "Based on past experience, I don't think anything will happen," said Lee. Others share his confidence. Hermit Hwang is vice-president and general manager at BenQ, a sister company of AU Optonrics. Lee is BenQ's chairman, too. When I asked Hwang about the furor, he was similarly sanguine. The two sides were at odds over Chen's comment. But, said Hwang with a smile, "this is not the first time." BenQ has major assembly operations in China. Had the hostile words affected business at all? "We checked," Hwang said. "Production is ongoing. We don't see any hassle or risk."

Of course, that can quickly change, especially if the political situation deteriorates. China is in the midst of a sensitive leadership transition -- with Jiang reportedly growing reluctant to follow through with a planned transfer of power to Vice-President Hu Jintao at the upcoming Communist Party congress -- and there's a chance that Beijing's leaders might want to take a slap at Chen, just to show that he can't take advantage of them. That might mean threatening Chinese military exercises in the East China Sea, similar to those Beijing staged when it was annoyed with former President Lee.


  Taiwanese businesses are nothing if not resilient, though. They're accustomed to the ups and downs of the political relationship, knowing that economic ties continue to move forward. Or, in the words of Hwang's colleague Jerry W. T. Wang, BenQ's vice-president for marketing, "Business is business."

He's got a point. Consider this news that came out on Aug. 9, less than a week after Chen's provocative speech. The Taiwanese government announced it was pushing ahead with new rules finally allowing the island's semiconductor manufacturers -- including the world's top foundry, Taiwan Semiconductor Manufacturing Co., and No. 2 United Microelectronics Corp. -- to invest in chip fabs in the mainland. At the same time, the government said it would consider allowing investors from China to buy property in Taiwan.

That's the cross-straits relationship. One day, the talk is about war; the next, about business. With the huge amount of money now at stake, the latter might ensure that the former doesn't happen. Taiwanese and mainland leaders may chose to trade insults, but Taiwanese and mainland companies just want to trade.

Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online

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