Taiwan to Buy Stake in China Carrier

China and Taiwan took another symbolic step toward better relations Wednesday when the island’s state-owned China Airlines signed a deal to buy a stake in the cargo arm of Shanghai-based China Eastern Airlines.

The agreement marks the first time a Taiwanese airline has agreed to invest in a mainland carrier. No direct flights exist across the Taiwan Strait between the mainland and the island, which China considers a renegade province.

The two sides sealed the pact at a closed-door ceremony at an airport hotel here. China Airlines will buy 25% of China Cargo, a division of state-owned China Eastern, one of the mainland’s top three domestic passenger carriers. Neither company revealed details, mindful that final approval of the deal is still needed from both governments.

“I am very optimistic about the future of cross-strait relations,” Harris H.Y. Wang, the Taiwanese company’s chief representative in China, said after the signing. “This is a very good beginning.”

Timing was critical for the deal. Negotiations collapsed last year after Taiwan elected pro-independence President Chen Shui-bian. They picked up again last week after Chen lifted long-standing restrictions against investment and trade with the mainland. The move was widely seen as an attempt to shore up the island’s sagging economy.

But political tensions remain a stumbling block. Beijing insists that Taiwan accept the principle of “one China” before there can be any talk of direct postal, telecommunication and transportation links.

China has shown no mercy to anyone who appears to treat Taiwan as a separate country. Beijing punished a Swiss investment bank last week, barring it from future China deals because the company hosted Taiwanese officials on European investment tours.

Other major international banks reacted by severing potential business contacts with Taipei for fear of losing access to the lucrative China market.

High-profile China-Taiwan joint ventures, however, continue to unfold, following the investment stampede into China through indirect channels. China National Offshore Oil Corp., the mainland’s third-largest oil producer, is seeking a partnership with Taiwan’s Chinese Petroleum Corp. Taiwan Power Co. is planning to buy fuel from the mainland.

Both sides hope the airline deal signals a breakthrough in cross-strait transportation. Currently, any flight between Taipei and Shanghai must make a stop in Hong Kong. The obligatory detour is a financial drain on business travelers. But if relations normalize, direct flights will be inevitable, first for cargo, then passengers.

China Eastern offers its new Taiwanese partner access to the fast-growing but largely untapped China market, which could easily skyrocket after Beijing joins the World Trade Organization, which is expected to occur by early next year.

“We are an early mover; we do intend to use it to build our market share and increase our future competitiveness,” said Luo Zhuping, a China Eastern spokesperson.

In return, China Airlines will provide its mainland counterpart with an infusion of cash and expertise. China’s cargo shipping industry is in its infancy. China Cargo, the country’s only freight carrier, has just three planes.