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Viewing cable 07TAIPEI403, Taiwan Determined to Prevent PRC-Linked Investor from

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Reference ID Created Released Classification Origin
07TAIPEI403 2007-02-16 06:36 2011-08-23 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY American Institute Taiwan, Taipei
VZCZCXRO9738
RR RUEHCN RUEHGH RUEHVC
DE RUEHIN #0403/01 0470636
ZNR UUUUU ZZH
R 160636Z FEB 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 4177
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEHOO/CHINA POSTS COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
UNCLAS SECTION 01 OF 02 TAIPEI 000403 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
STATE FOR EAP/ TC, EAP/EP 
COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/LMOGHTADER 
USTR FOR STRATFORD, ALTBACH 
 
E.O. 12958: N/A 
TAGS: EWWT EINV ECON PREL CH TW
SUBJECT: Taiwan Determined to Prevent PRC-Linked Investor from 
Taking Over Shipping Company 
 
 
1. (SBU) Summary: On February 9, the boards of two state-controlled 
shipping companies, Taiwan Navigation and Yang Ming Marine, voted to 
swap stocks in order to prevent privately held Chinese Maritime 
Transport from taking control of Taiwan Navigation's board.  Chinese 
Maritime's chairman has close ties to the PRC.  The firm has called 
the swap illegal.  However, on February 15, Taiwan financial 
regulators fined its chairman for failing to report the firm's 
acquisition of stock in Taiwan Navigation.  The case shows the 
serious concern Taiwan authorities have about the possibility of an 
investor with close ties to the PRC taking control of a 
state-controlled enterprise.  End summary. 
 
2. (U) On February 9, 2006, the boards of directors of Taiwan 
Navigation Company and Yang Ming Marine Transport voted to swap 
stock.  Taiwan Navigation traded 51.57 million of its shares for 
69.63 million shares of Yang Ming at a 1 to 1.35 ratio.  Both Taiwan 
Navigation and Yang Ming are shipping companies controlled by the 
Taiwan authorities. Before the stock swap, the Taiwan authorities 
owned 27 percent of Taiwan Navigation and approximately 35 percent 
of Yang Ming.  Taiwan Navigation operates 30 ships, focusing on 
near-sea bulk commodity shipping.  Yang Ming owns 79 vessels with 
generally longer routes and more container shipping. 
 
3. (U) Taiwan's Ministry of Transportation and Communications (MOTC) 
ordered the swap to maintain control of Taiwan Navigation in the 
face of a takeover bid from Chinese Maritime Transport.  Chinese 
Maritime is a Taiwan-registered company reportedly 67 percent owned 
by John Peng of Hong Kong.  It operates five bulk cargo vessels.  In 
just over a year, Chinese Maritime had acquired a 28.9 percent stake 
in Taiwan Navigation to become the largest shareholder.  MOTC 
ordered the swap after Chinese Maritime requested seats on Taiwan 
Navigation's board of directors, including the power to appoint the 
chairman.  The stock swap raised the Taiwan authorities and Yang 
Ming's combined ownership in Taiwan Navigation to 41 percent. 
Chinese Maritime's stake was diluted to 25.7 percent.  Subsequently, 
Yang Ming purchased additional stock in Taiwan Navigation to raise 
the total stake controlled by the Taiwan authorities to nearly 49 
percent. 
 
4. (U) Some media reports have speculated that the authorities took 
action because of Peng's support for the Pan Blue opposition and 
close links to the PRC.  Peng is a brother-in-law of CCP Political 
Consultative Council Vice Chairman and former Hong Kong Chief 
Executive Tung Chee-hwa.  In addition, Peng has close connections 
with other senior PRC officials, including Shanghai Deputy Mayor Hu 
Yenchao.  Taiwan law prohibits almost all investment in Taiwan from 
PRC sources. 
 
5. (U) In response to the swap, Chinese Maritime took out half-page 
ads in two Taiwan business dailies calling the stock swap illegal 
and against the interests of shareholders.  Chinese Maritime argued 
that a more appropriate swap ratio would have been 1 to 1.5.  The 
firm called other shareholders to join it in requesting an 
investigation by Taiwan's Financial Supervisory Commission (FSC). 
The FSC indicated that it would look into the swap. 
 
6. (U) Initially, Chinese Maritime announced that it would spend 
NT$1.6 billion (US$49 million) to raise its stake up to 37 percent 
and seek more funding to further raise its stake.  It also said it 
would seek support from smaller shareholders to challenge the 
control of the Taiwan authorities.  However, on February 15 after it 
had become apparent that Peng would not be able to top the 
authorities' 49-percent stake; he told the press that he would keep 
his stock because all parties agreed on Taiwan Navigation's future. 
 
7. (U) On February 15, the FSC revealed that it had fined Chinese 
Maritime's Peng NT$240,000 for failing to properly report Chinese 
Maritime's acquisition of its stock in Taiwan Navigation.  Chinese 
Maritime purchased the stock through subsidiaries that are private 
companies not subject to the same reporting requirements as Chinese 
Maritime.  However, the FSC pointed out that Taiwan law required 
Chinese Maritime to report the purchases. 
 
7. (SBU) Comment: The Taiwan Navigation case illustrates two 
characteristics of Taiwan's economic policy.  It shows the 
determination of the Taiwan authorities to prevent an investor with 
links to the PRC from taking control of a state-controlled 
enterprise, even when it does not violate regulations that restrict 
PRC investment in Taiwan.  The Chen administration's "active 
 
TAIPEI 00000403  002 OF 002 
 
 
management" of cross-Strait investment in cases like this suggests 
an arbitrary and not entirely transparent policy.  The case also 
suggests that the Taiwan authorities only half-heartedly support 
continuing privatization.  It raises the question of why the 
authorities need to maintain controlling interest in two commercial 
shipping companies.  End comment. 
 
YOUNG