Skip to content

Beijing Plays Politics with InvestorsThe Story of a Taiwan Businessman

Doing business in China is more than just business; political stance matters as well.

From Most Favored Guest to Least Welcome Businessman

Hsu Wen-lung, a 78-year-old Taiwan businessman, is known as the "Father of Taiwan Acrylic" and the "King of ABS (material for production of PC, home appliance and communication products)." In 2004, Forbes Magazine ranked him number six out of ten Taiwanese billionaires. Hsu founded Chi Mei Corporation in 1959, and by 1999, the corporation had become the largest manufacturer of ABS in the world. Hsu led the Chi Mei Corporation in starting its China adventure in 1991. His investment experience in China has had ups and downs and is a good example of the political pitfalls foreign investors may run into.

When Hsu began to invest in China in 1991, the country was isolated internationally and was offering lucrative business incentives to attract investment from Taiwan. The Communist government promised to separate business from politics and announced that political views would not intervene in cross-strait trade.

Hsu initially set up several plastic dyeing factories in Danyang in Guangdong Province, and Suzhou in Jiangsu Province. In 1996, he decided to put major investment in China and chose Zhengjiang (a city in Jiangsu Province) as the Polystyrene and ABS production site for Chi Mei. He also planned to set up Chi Mei Electronics factories in Shanghai and Ningbo before 2000.

Hsu is politically influential in Taiwan. He is a personal friend to two presidents of Taiwan, former president Lee Deng-hui and current president Chen Shui-bian. During Lee’s presidency, Hsu was his National Advisor. Now, Hsu is the Presidential Advisor for Mr. Chen. As a businessman interested in China’s market, Hsu used his influence as presidential advisor to convince the Taiwan government to be more lenient in its cross-strait trade policy. This helped to facilitate Taiwan investors in moving capital and factories to China. Hsu was welcomed on both sides of the Taiwan Strait, and his investments enjoyed a welcome environment on the mainland.

However, his business hit an unexpected political bump in 2000 when Hsu was labeled by Beijing as a "Green" businessman for his association with the pro-independence Democratic Progressive Party (DPP) in Taiwan. Hsu gave his support to Chen Shui-bian’s presidential candidacy in the 2000 race. Chen and the DPP won the election. However, due to the "Green" label, Hsu Wen-lung was "downgraded" from the most favored to the least welcome businessman in China. Consequently, Chi Mei Corporation started to have a lot of trouble on the mainland. Local authorities frequented Chi Mei’s factories under pretexts of account audits, fire safety inspections, and the like. Rumors were spread about shutting down Chi Mei’s plant in Zhengjian. Chi Mei’s suppliers started to cancel their contracts. Chi Mei’s financial loans were cut off. One of its senior managers was imprisoned, and the list goes on.
Why Such a Change in the Business Environment?

In the 1990s, Hsu and other overseas investors were needed to boost mainland China’s economy. The Chinese government treated those businessmen as most welcome guests, providing business incentives and a friendly environment. Things changed dramatically a decade later. China was no longer short of foreign capital but had to worry about how to cool down the overheated economy. At the same time, the Chinese government had made Taiwan a top issue in China to serve as a political scapegoat. The state-controlled media led the Chinese people to deeply resent Chen Shui-bian, who is for Taiwan independence.

Conditions were ripe for the communist government to pick on some Taiwan businessmen in order to set an example for others. When Chen Shui-bian won the Presidency of Taiwan in 2000, Beijing appeared shocked and angry. Because Hsu gave his support for Chen’s presidential candidacy, that qualified him as an "enemy" of the Chinese government and a prime target.

Hsu had little choice but to continue his business in China. With billions of dollars invested in China, it was too late for him to pull out. Yet, he would have to face more economic and political pressure from the government in the years to come.

Making a Political Statement to Save the Business

On May 25, 2004, two months after Taiwan’s President Chen Shui-bian was reelected as Taiwan’s president, China’s official news agency once again referred to Hsu Wen-lung as the "Green" businessman. Three days later on May 28, 2004, Hsu announced his retirement as president of Chi Mei Corporation. Chi Mei’s stock tumbled for six consecutive days and lost 18 percent of its market value.

Zhang Mingqing, spokesman of the Taiwan Affairs Office of China’s State Council issued a statement: "China doesn’t welcome those who make money on the Chinese mainland but support ‘Taiwan Independence’ when returning to Taiwan." Hsu’s retirement as president in 2004 did not stop harassment of Chi Mei because, as the chairman of the board, Hsu was believed to still have strong influence on business decisions. So, the Chinese government imposed more demands.

On March 26, 2005, less than a year after Hsu’s retirement from Chi Mei, Xinhua News Agency published an open letter from Hsu stating that he favored a "One China" policy and that "Taiwan independence could only lead Taiwan to war and drag people to disaster." However, it is widely believed that Hsu shifted his political stance due to pressure to save Chi Mei Corporation in China, which is valued at US$3 billion in total investment.
Hsu’s close friend and former president Lee Deng-hui observed that the turn of events reflects that the Chinese government is beginning to pressure China-based Taiwanese business people. "As his friend, I can understand why he says such a thing," Lee said. "Hsu’s statement is at the expense of his own reputation and for the sake of over 100,000 people working for him in China because he doesn’t have any other choice."

Taiwan’s Vice President Annett Lu said that the statement released by Hsu is "a white paper written by others," that is, Mr. Hsu was asked to sign the statement prepared by the Chinese Communist Party. According to Taiwan’s China Post report on May 11, 2005, Wang Xin-nan, a Democratic Progressive Party legislator, told the reporter that Hsu had shown him the letter the day before it was published, saying the contents were dictated by Beijing. Hsu said if he failed to do what he was told to do, the business group would fall, affecting thousands of workers and shareholders. Hsu had to sacrifice his personal honor in order to save the business. Hsu himself did not officially comment on the report.

Surviving Communist Politics

Beijing’s attempt to tie allegiance to the communists’ "one-China policy" with investment opportunities in China impacts many Taiwanese businessmen. There are currently 400,000 to 600,000 Taiwanese entrepreneurs with permanent residence in China. Their total investment is around US$60 billion and accounts for 50 percent of total overseas investment in China.

Taiwan authorities have issued many warnings on investing in China and ask entrepreneurs to diversify their investments and shift them to other countries. Some Taiwanese entrepreneurs have started to pull their investments out of China. Many are hoping that after China joins the WTO, conditions will change. Others are undecided and waiting because it is too costly to pull out their investments.

Hsu’s case has prompted many pro-Democratic Progressive Party (Green) Taiwanese entrepreneurs to keep a low profile on their political views and to pay attention to political boundaries. During Taiwan’s presidential general election in 2004, many would not talk publicly about the election, and almost all Taiwanese entrepreneurs said in public that they were pro-Blue (as opposed to pro-Green). On those sensitive days, many pro-Green entrepreneurs, fearing trouble, postponed their trips to China. According to a 2002 survey conducted by the Chinese Professional Management Association of Taipei, the tense cross-strait environment is the biggest concern among Taiwan’s entrepreneurs.
In addition to being sensitive to political boundaries, Taiwanese entrepreneurs also face a worsening business environment, including ever-changing business policies, unexpected local taxes and fees, arbitrary tax investigation, shortage of water and electricity, increased interest rates, and the pressure of appreciation of the yuan. For example, in order to attract entrepreneurs and investment, China implemented all kinds of tax deduction programs. However, once the political atmosphere changed, the government reversed its policy and the tax departments started to investigate "tax evasion."

In a July 1, 2004 report, Taiwan’s Liberty Times quoted a statement by Gao Weibang, the Director of the Association of Victimized Taiwanese Investigators in China, that at one time it was estimated that nearly 1,000 Taiwanese entrepreneurs were imprisoned in China for tax evasion.

Had Hsu Wen-lung known that one day he might be the victim of China’s unpredictable, politicized business policies, he might not have advocated for easing trade with China.

Lukun Yu is a financial analyst in New York.