China Balks at Taiwan, Bank Deal

Amid a diplomatic flap involving an American bank, China’s top finance official said Tuesday that Beijing opposes any ties between the government of archrival Taiwan and foreign investment firms also wishing to do business on the mainland.

Finance Minister Xiang Huaicheng said the Chinese government does not object to “unofficial commercial activities” by international financial institutions on Taiwan, the island Beijing considers part of its territory.

But if the companies “conduct official activities,” he warned, “then we oppose them. . . . As long as it does not involve political issues, then the government won’t interfere.”

Xiang’s comments were Beijing’s most explicit yet regarding a simmering dispute over its punishment of a major international bank, Credit Suisse First Boston, for its contacts with senior Taiwan officials in recent months.

The Beijing regime canceled two lucrative agreements between Credit Suisse and state-owned China Unicom after discovering that the bank had hosted Taiwanese finance officials on a promotional tour of Europe earlier this year.

The bank was axed from its role as lead underwriter for a China Unicom share issue in the U.S. next year. It also got dropped from its position as a financial advisor in helping to restructure China Unicom, the country’s second-largest telecom carrier.

The reprisals have drawn criticism from Taiwan’s supporters on Capitol Hill, who call it “economic thuggery.” But the dispute was apparently studiously avoided here in talks between Xiang and visiting U.S. Treasury Secretary Paul H. O’Neill.

“The political process on both sides is aware of this issue,” O’Neill told reporters Tuesday at a joint news conference with Xiang. “And frankly, I don’t see it as an issue of finance in the narrow sense. It’s an issue of how countries choose to organize themselves and deal with practices that they find not fully acceptable.”

O’Neill said he was confident the dispute would be resolved sensibly.

Some analysts believe Beijing’s move against Credit Suisse marks a toughening of its effort to isolate Taiwan from the outside world. Others speculate that it was an arbitrary bureaucratic step that underscores the dangers of mixing business with Taiwan and mainland China.

Whatever the motivation, the episode is a reminder that the main battleground on cross-straits relations has shifted from the military to the economic arena--at least for now.

It also exemplifies the tactics Beijing is using to draw Taiwan in closer to the mainland. It happily accepts billions of dollars in Taiwanese investment, including a joint exploration for oil in the Taiwan Strait and the purchase by Taiwan’s China Airlines of a 25% stake in the cargo operations of mainland carrier China Eastern.

At the same time, it tries to keep others away from Taiwan, except on its own, more restrictive terms.

“The people in Beijing are playing a very smart game,” said Richard Vuylsteke, executive director of the American Chamber of Commerce in Taipei. “China knows its market potential is huge, and it is using it to push companies around. It’s blackmail. And it’s working.”

Part of the headache for foreign companies is the uncertainty they must operate under. In Hong Kong, bankers and financial analysts argue whether Credit Suisse ought to have known it was crossing some informal line into forbidden territory by having contact with high-ranking Taiwanese officials.

Last March, the bank invited Taiwan’s finance minister, Yen Ching-chang, along with the chairman of the island’s Economic Planning and Development Council, to an annual investment conference in Hong Kong.

Then in July, Credit Suisse took executives from Taiwanese blue-chip companies and some senior Taiwan officials, including Yen, on a promotional tour with fund managers in Europe.

Beijing took exception. “This was not simply a commercial activity,” Xiang said. “They just wanted to influence international opinion about Taiwan’s regional government.”

Other American financial houses, including Goldman Sachs and Merrill Lynch, had similar tours planned this month in the U.S., Japan and Singapore.

But shortly after the Credit Suisse-organized European tour, both Goldman Sachs and Merrill Lynch pulled out of their commitments to Taipei.

Credit Suisse was punished for its involvement a few weeks later.

So far, the bank has been low-key in its response to Beijing’s cold shoulder.

“We’ve been doing business in China since the early ‘80s,” said Tom Grimmer, a spokesman for Credit Suisse in Hong Kong. “We have a lot of relationships we value. This is a serious matter, and we are treating it as such.”