Firms Risk China's Wrath Over Taiwan Deals

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Firms Risk China's Wrath Over Taiwan Deals

By Clay Chandler Washington Post Foreign Service Wednesday, September 5, 2001; Page E01

SHANGHAI, Sept. 4 -- Beijing has issued a veiled warning that foreign firms risk losing out on business opportunities in China if they interact directly with government officials from Taiwan.

In a meeting with foreign reporters in Beijing on Monday, Zhu Bangzhao, spokesman for China's Foreign Ministry, said Beijing is opposed to "any official exchanges or contacts" with representatives of the Taiwanese government and also disapproves of contacts that have "official characteristics."

Zhu said Beijing has no objection to companies engaging in "unofficial, people-to-people economic exchanges with Taiwan." But, in language that created concern among investment bankers, Zhu said China's government would not tolerate "countries that have diplomatic relations with us undertaking any exchanges of an official nature with Taiwan."

Zhu's comments today came in response to questions about a Wall Street Journal report that Beijing recently dropped Credit Suisse First Boston, a Swiss investment bank, from lucrative underwriting deals because bank executives participated in two overseas investment promotion conferences that included senior Taiwanese government officials.

According to the report, the Chinese government attempted to punish CSFB by dropping the firm from a list of investment banks chosen to share in underwriting multibillion-dollar stock offerings for two state-owned giants, China Unicom Group Ltd., China's second-largest mobile phone provider, and China Aluminum. CSFB has declined to comment on the situation.

House Majority Whip Tom DeLay (R-Tex.) last week accused China of attempting to weaken Taiwan's already struggling economy by frightening away global investment banks whose help the island needs to attract investors.

Goldman Sachs Group Inc. and Merrill Lynch & Co. recently backed out of Taiwan investment promotion tours. Taiwanese officials complained that the two firms caved in to pressure from Beijing. Officials from the two banks declined to comment.

Zhu prefaced his remarks today with the assertion that Beijing's position on Taiwan is "very clear cut." His comments stirred consternation among executives at many foreign banks and brokerages, some of whom said the CSFB flap has them wondering whether they must scale back existing contacts with Taiwan to remain in Beijing's good graces.

Harsh words from China's top securities regulator have added to that anxiety. On Monday, the Financial Times quoted Zhou Xiaochuan, head of China's Securities and Regulatory Commission, as saying foreign investment banks helping to promote Taiwan's government were guilty of "political misconduct."

Zhou said strictly commercial deals involving Taiwanese businesses were acceptable, according to the Financial Times. But he also warned that "if it goes against the very principle [Beijing's "one China" policy] and treats Taiwan like a country [or] as a government . . . we must show some kind of dissatisfaction."

Privately, Western investment banking executives rail against Beijing's hardball tactics as arbitrary and short-sighted. Some asserted today that statements by Zhu and Zhou have only hurt China by reinforcing investor perceptions that China is a financial backwater in which government leaders see nothing wrong with attempting to use the stock market as a foreign policy tool.

But the foreign bankers have refrained from attacking Beijing's leaders openly for fear of antagonizing an important client. China's equity markets have grown this year even as stocks elsewhere in the world have floundered. Last year, new share offerings by Chinese companies totaled an estimated $40 billion.

http://www.washingtonpost.com/ac2/wp-dyn/A42717-2001Sep4?language=printer

-- Martin Thompson (mthom1927@aol.com), September 08, 2001


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