China and Taiwan Get Along in One Way

The last time Beijing and Taipei had a major public spat, in 1996, the U.S. president dispatched destroyers to the Taiwan Strait and billions of dollars of nervous capital flowed out of the island nation to safe-haven deposits in Southern California.

Last week, things were very different. Chinese Premier Wen Jiabao, who was visiting Washington, and Taiwanese President Chen Shui-bian quarreled loudly at long distance. The U.S. president again stepped in, this time to warn Taiwan not to provoke China and to remind the world that U.S. policy supports the eventual, peaceful reunification of the mainland and the island.

But for all that, there was no flight of capital to banks in California. And the rhetoric quickly cooled down.

The reason: commerce. Politics aside, Beijing and Taipei seem to be getting along quite well. Investment capital continues to flow from Taiwan to China, and business dealings are growing ever more cooperative and productive, with Southern California serving as a major lubricant. (China is Los Angeles’ largest trading partner in terms of imports, and Taiwan is No. 4. Taiwan also buys more L.A. exports than China.)

In the last year, the Beijing government has allowed direct banking transfers between China and Taiwan, easing cumbersome restrictions that forced Taiwanese businesspeople to route transactions through Hong Kong. And Chinese banks now are applying to open four branches in Taiwan, says Paul Lo, chairman of Bank SinoPac, a Taipei-based bank that has seven representative offices in mainland China and an interest in a Shanghai bank through its U.S. subsidiary Far East National Bank of Los Angeles.

“Business is growing in many ways,” Lo says. He notes one amazing example: that there will be direct flights between China and Taiwan “for the Lunar New Year next February.”

Of course, Beijing should be accommodating. The largest “foreign” sources of direct investment in China are businesses and individuals in Taiwan, the island to which the forces of Nationalist China fled in 1949 after their defeat by Mao Tse-tung’s Communists.

Over the next half-century, Taiwan, employing a form of state-guided capitalism, built one of the world’s strongest economies, one that cranks out more than $300 billion every year in goods and services. Tellingly, the nation’s 22 million people generate almost one-third as much in economic output as the 1.2 billion people on the mainland.

So Taiwan was a natural to help out after 1979, when Premier Deng Xiaoping opened China to outside investment. By some expert estimates, Taiwanese businesses have since poured more than $100 billion into Chinese plants and equipment. As important, they also have sent across the strait industrial know-how and other expertise.

A spectacular example is Semiconductor Manufacturing International Corp., or SMIC, a giant fabrication plant for integrated circuits in Shanghai. Taiwanese capital played a major, if behind-the-scenes, role in building SMIC. Richard Chang, a leading figure in Taiwan’s semiconductor industry -- and a onetime top engineer of Texas Instruments Inc. -- organized and is chief executive of SMIC, which is applying to go public on the New York Stock Exchange early in 2004.

China is serious about modernizing its economy, and it can’t succeed without foreign capital. Right now, Beijing is ordering state banks, which have $250 billion to possibly more than $700 billion in bad loans, to sell those loans to international funds -- which will use money raised in Taiwan and other countries -- at less than 10 cents on the dollar, says Raymond Henze of TCW Group, the parent of Los Angeles’ Trust Co. of the West. The Chinese government will then replenish the banks’ accounts with good credits and prepare them to offer stock to the public on exchanges in Shanghai and elsewhere.

At the same time, Chinese companies are setting up operations in Southern California in auto and computer parts distribution, garment finishing and other specialties, notes K.Y. Cheng, head of international banking for East West Bancorp. The Chinese newcomers are following in the footsteps of Taiwanese firms, such as MTC Worldwide Inc., that over decades have built thriving distribution businesses in the San Gabriel Valley.

To be sure, brilliant business relationships and heavy capital investments won’t be worth the paper a yuan is printed on if political quarrelling between the mainland and the island boils over. “China has never let economic considerations overrule political criteria,” Richard Baum, a UCLA China scholar, points out.

But the growing commercial cooperation is powerful evidence that underlying trends for future relations are positive. So are the attitudes of the “overseas” Chinese living and working all over Asia and the U.S., says a Chinese businessman who asks not to be quoted by name. “Overseas Chinese don’t want [Taiwan’s Chen] to split Taiwan from China,” says the businessman. “They want to see gradual coming together.”

In many ways, they’re already getting their wish.

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James Flanigan can be reached at jim.flanigan@latimes.com.