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The New Xiamen: Friend or Foe?


Xiamen's fate has been closely tied to Taiwan in recent history and now, at the heart of a new economic zone selling its Taiwan connection, the city is trying to come to grips with its role as the face of China's Taiwan policy.



The New Xiamen: Friend or Foe?

By Yi-Shan Chen, Chieh-Ying Chiu
From CommonWealth Magazine (vol. 409 )

When China's top negotiator with Taiwan, Chen Yunlin, arrived in Taiwan Nov. 3 for a five-day visit, he became the most senior People's Republic of China official to have ever set foot on the island. During his landmark visit, he signed agreements that opened direct shipping, aviation and postal links between Taiwan and China. Xiamen, as the Chinese city that is closest geographically to Taiwan, stands to be the biggest beneficiary of the pacts.

"The situation across the Taiwan Strait is critical to Xiamen," says Xiamen's vice mayor Huang Ling.

The city, whose fate is generally closely tied to the mood of Taiwan-China relations, has taken off in the past two years.

Xiamen's traditional center is concentrated on the western half of the island off China's southeastern coast on which part of the city sits. The eastern half, which was shelled from the nearby Taiwan-held island of Kinmen a half century ago, has remained generally desolate.

In the past two years, however, wide boulevards have sprung up in the eastern wasteland, with the municipal government investing in an exhibition center, an upscale hotel, and a software science park. Taxi drivers enjoy showing passengers a new secluded and tightly guarded community development in the area featuring high-end villas selling for NT$100-200 million.

These flourishing new commercial opportunities provide a stark contrast to the development limitations that previously held back Xiamen City and Fujian Province. Liu Guoshen, head of Xiamen University's Taiwan Research Institute, observes that in 1980, Xiamen, Shenzhen, Zhuhai and Shantou were the first cities to be designated special economic zones, with the Xiamen and Shantou zones targeted at resolving the Taiwan issue. The move reflected the central government's change in emphasis toward Taiwan at the time, which went from trying to subdue the island militarily to attempting to link up with its economy.

Over the past 30 years, however, the development in relations between Taiwan and China has been anything but smooth. So in 2003, Beijing introduced a new concept in its Taiwan policy – the idea of peaceful development of cross-strait relations. Liu believes that under this new framework, the central government more deeply appreciates Xiamen's status and utility as the main driving force in a new economic zone on the Taiwan Strait's western shores.

"Beijing realized that if Fujian could not blend together with Taiwan, then it would not be possible to talk about the peaceful development of all of China with Taiwan," Liu says.

Liu believes that these changes reflect China's growing self-confidence. With China holding an edge over Taiwan in cross-strait commerce and trade, President Hu Jintao and other Beijing leaders believe time is on their side, and therefore, the best approach to dealing with Taiwan is to promote economic integration.

"Xiamen is the front line of the Chinese communists' Taiwan policy," says Chang Jung-feng, a presidential national security advisor during the Lee Teng-hui administration and now director of Chung-Hua Institution for Economic Research's First Research Division, which focuses on China's economic development. He believes "peaceful development" is simply a repackaged version of Beijing's unification strategy and suggests that Hu will be willing to offer economic benefits to Taiwan in exchange for a cross-strait unification framework over the next four years, hoping to cement his historical legacy before he steps down in 2012. 

The Taiwanese government must carefully ponder its counter-strategy, Chang contends.

Based on its important role in China's Taiwan policy, Fujian Province proposed not long ago a "Western Shore Economic Zone of the Taiwan Straits" with Taiwan at the center of its sales pitch, and the project was formally included in the Communist Party's five-year plan three years ago. Xiamen, in effect, is being transformed into a pivotal port that will open new channels in China's cross-strait policy, a far cry from the days when Mao Zedong described it is as an "old bottle that could be thrown away at any time."

Major infrastructure projects have sprouted up on the site of this economic platform targeted at Taiwan. There are so many rail lines under construction in the "Western Shore Economic Zone" that not even Vice Mayor Huang knows exactly how many there are, with one completely new rail line expected to open every year beginning in 2008. The existing freeway network, spanning 1,200 kilometers, will be expanded to around 2,500 km in the coming five years.

The zone, centered in Fujian Province and extending north to Wenzhou in Jiangsu Province, south to Shantou in Guangdong Province and west to Jiangxi Province, encompasses nearly 80 million people – three and a half times Taiwan's population – and has a GDP that is half Taiwan's.   

Smaller in area than Kinmen, Xiamen is still expanding. Two bridges connecting the city to the mainland, the 8.6-km Jimei Bridge and the 10-km Xinglin Bridge, have been built over the past two years and are expected to open to traffic this year. An underwater tunnel connecting the city to the Xiang'an section of the Torch Hi-tech Industrial Development Zone northeast of Xiamen Island, where AU Optronics has a plant, will be open to vehicles next year. 

With the improvement in traffic, the extension of its territory, and the extra support it has received as the focal point of China's Taiwan policy, Xiamen has become the hot destination for a new wave of Taiwanese financial and high-tech companies investing in China.

A New Taiwanese Financial Hub

According to a 2008 survey by the Taiwan Electrical and Electronic Manufacturers' Association (TEEMA) on investment risk in China, Xiamen was named by Taiwanese high-tech companies as the fifth most-likely Chinese city in which they would invest, trailing only Suzhou, Kunshan, Ningbo and Shanghai. Service companies had Xiamen ranked sixth as a potential future destination, behind Shanghai, Chengdu, Suzhou, Beijing and Shenzhen.

China's desire to make Xiamen the front line of its Taiwan policy is most clearly reflected by the financial sector, epitomized by Taiwan-based Fubon Financial Holding Co.'s purchase of a stake in Xiamen City Commercial Bank through subsidiary Fubon Bank (Hong Kong). There is speculation in banking circles that the acquisition was encouraged as early as three years ago by incumbent China Banking Regulatory Commission chairman Liu Mingkang. 

Xiamen was home to China's first Taiwan Street, christened by the late head of China's Association for Relations Across the Taiwan Straits, Wang Daohan. The headquarters of the first Taiwanese business association center in China has its address here.

Today, at No. 90 Hubin South Rd., a new hub of Taiwanese commercial activity has sprung up, in a high-rise office complex filled with Taiwanese financial firms. A joint venture between Taiwan Life Insurance Co. and Xiamen C&D Corp., called King Dragon Life Insurance Co., is located on the building's 27th floor, while the 24th floor is home to Taiwan-based President Securities Corp.'s representative office and the Xiamen Sales & Service Dept. of Cathay Life Insurance Co.'s Fujian branch. The edifice now houses the most concentrated assembly of Taiwanese financial service providers in all of China.

Looking to AUO

About an hour's drive to the northeast of the city is the Xiang'an section of the Torch Hi-tech Industrial Development Zone, the "hot" location for the latest wave of Taiwanese high-tech companies investing in China.

A big map of the zone hanging in the office of the zone's deputy director, Wang Chengjia, shows AU Optronics' facility at the center of the park, surrounded by more than 50 of its suppliers. Taiwan-based Teco Electric and Machinery Co. has begun production there, and the world's biggest LCD-monitor supplier, Taiwan-based AOC, has broken ground on a new facility.

"We also almost had Chunghwa Picture Tubes and Xiamen Overseas Chinese Electronic Company invest here, but in the end, they decided not to," Wang says.

Pointing to another section of the Torch development zone located in Xiamen's Haicang district, west of Xiamen Island, Wang identified land reserved for the Foxconn Group's planned US$3 billion industrial city that will accommodate 100,000 workers and occupy a 600-hectare plot, six times as big as AUO's cluster.

"We officials kid among ourselves that in the past, Fujian and Xiamen relied on Dell for 10 years of sustenance. Now the entire province looks to Xiamen, and Xiamen relies on AUO. In the future it will look to the Foxconn cluster," Wang says. 

AU Optronics (Xiamen) Corporation managing director CC Tsai says his company chose Xiamen primarily because the future customers of TFT-LCD panels – television manufacturers – are concentrated down China's southeastern coast in the Pearl River Delta north of Hong Kong. Shunning Guangdong Province for a number of reasons, AUO still needed to find a location with convenient shipping facilities and acceptable costs.

Large-screen television panels eat up a great amount of space when packed for shipment, and only small volumes can fit into a container, meaning freight costs become a critical factor in any cost calculation. AUO liked Xiamen because it has convenient sea and air hubs, and will be the Chinese port closest to Taiwan when direct shipping links begin, allowing the company to bring in parts and semi-assembled goods from Taiwan cheaply. Also, compared to the two hours needed to get to Shanghai from Suzhou – another prime destination for high-tech enterprises – goods can be trucked from the Torch development zone to port in Xiamen in less than an hour.

"Considering our turnover, if goods are on the water for two fewer days, that has a huge impact on our cash flow," Tsai says.

Low in Cost, Short of Talent

With shipping costs so crucial to the equation. AUO may have considered setting up shop near its customers in the Pearl River Delta.

But Su Chin-jun, general manager of Jiayuan Technology Company, which manufactures precision machinery in the Torch development zone, explains, "The Pearl River Delta is too crowded." At the same time, monthly wages for graduates of Xiamen University are about 2,000 renminbi per month, about half the pay level of graduates in Shanghai and Guangzhou, and Xiamen's ports are not as busy as those in Guangzhou, so shippers can usually book vessels with more advantageous shipping times and space allocations.

Almost all Taiwanese businesses that have invested in Xiamen, however, complain that the area has not proven attractive enough to lure top talent. In AUO's case, Tsai discovered that Xiamen's appeal to outsiders is limited. Local residents constitute only 30 to 40 percent of the employees in its Suzhou plant, but 70 percent of those working in its Xiamen factory. As a consequence, AUO must recruit new employees year round.

One Taiwanese general manager of a company that moved from Shanghai to Xiamen was even asked by his son, now in the second grade, "Dad, why have you moved to Xiamen? Is it because you couldn't find a job in Shanghai?"

One Taiwanese manager in the animation field observed that the difficulty in finding talent in Xiamen reflects the bubbles that have been created in many of China's emerging high-tech industries. All of China's provinces are scrambling to attract the optoelectronics, animation and IC design sectors, stretching talent thin, and the shortage will likely continue until the high-tech bubbles in many areas burst, allowing some return to normalcy in recruiting.

In the short-term, though, Xiamen's companies will still depend on local employees, and Taiwanese investors need to be prepared for this. Enterprises have to cultivate their own talent, "but the advantage is that employee turnover is relatively low," the manager says.

Many Xiamen residents have misgivings about the area's high pace of development in recent years, worried that unbridled construction will hurt Xiamen's reputation as one of China's most livable cities. They fear that over the long-term, continuing development could destroy the one asset the city can proudly sell to lure outside talent.

Xiamen's people often boast of their civilized nature. The city is the only one in China, for example, to have banned motor scooters. They also take pride in their city being the first in China to ban smoking in public places and the only one where bus passengers willingly give up their seats to the elderly, the disabled and pregnant women.

In recent years, however, Xiamen has undergone a physical transformation, with whole sections of earth being moved to make way for construction. Those living in Haicang are often startled in the middle of the night by the sound of "firecrackers," which are in fact explosives blowing open a nearby hill. Privately, city residents call the major proponent of this unbridled construction, Xiamen City Council secretary He Lifeng, "Crazy He."

The hectic pace of development actually spawned an environmental protest, rarely seen in China, in Xiamen in June 2007. Some 50,000 to 60,000 people took part in a march, billed as a "stroll," protesting the planned construction of a p-xylene plant by the Xianglu Group. Playing on fears that production of the chemical could pollute the area's air, the campaign actually succeeded in forcing the project, which had already been approved by the central government, to be relocated. To a certain extent, the movement reflected Xiamen residents' antipathy toward big infrastructure or investment projects. 

Where's the Beef?

Xiamen residents may be interested in preserving their environment and quality of living, but Taiwanese-invested businesses are more concerned that while the Xiamen special economic zone has been hyped as a special outpost of China's Taiwan policy, it offers them very few advantages. 

According to TEEMA's survey, Xiamen may have been ranked highly as a potential investment site by high-tech and service businesses, but its overall attractiveness has declined from 16th in 2005 to 29th today. Fujian and Xiamen officials are hoping for a breakthrough, but Beijing has stressed balanced development and offered few policies that actually offer preferential benefits to the area or Taiwan. 

Taiwan Research Institute director Liu describes the existing situation between Fujian and Beijing as a game of chess, with the two players looking for a win-win relationship. The central government faces a dilemma in trying to figure out how much authority it can delegate to Fujian and may worry that if it does empower Fujian authorities to act freely, the move may shake the structural stability of Chinese society as a whole. Thus, the two sides still must communicate in finding a proper balance.

The "Western Shore Economic Zone," which is playing up its Taiwan angle, remains a weapon in the arsenal of China's central government, rather than in Xiamen's hands. In fact, from Zheng Chenggong (Koxinga), the anti-Qing fighter who was forced to retreat from Fujian to Taiwan in 1662, to the shelling between Xiamen and Kinmen in 1958, to the recent opening of the three links between Taiwan and China, Xiamen's fate has generally been dictated by modern Chinese history.

Now, this land is waiting for its next historical mission.

Translated from the Chinese by Luke Sabatier

Chinese Version: 新裝廈門 是敵是友?