BUSINESSWEEK ONLINE : AUGUST 14, 2000 ISSUE
INTERNATIONAL -- ASIAN COVER STORY

A Tale of Two Political Allegiances
Taiwan companies in China tread a fine line, with unpleasant consequences if they offend

Officials from mainland China made a demand that Acer Group Chairman Stan Shih couldn't say no to. They asked him to affirm his support of its One-China policy, which calls for Beijing's sovereignty over Taiwan, and to denounce the island's moves toward independence.

In the past eight years, Acer has invested $200 million in China, and it has more than 8,000 employees there. The group expects to sell 180,000 notebook and laptop computers in the country in 2000, twice the number sold last year, and it has been taking market share away from Compaq and IBM. Soon, says J.T. Wang, chairman of Acer Sertek, the company's mainland marketing arm, it will be the No. 3 seller of personal computers in China.

HEAVY INVESTMENTS. Acer also has two Chinese manufacturing sites -- one in Suzhou, in Jiangsu province, the other in Guangdong's Zhongshan city -- and a software development center in Shanghai. Hence, it had to answer Beijing's questions about its loyalties extremely carefully. "We responded by saying we are politically neutral, and we are pro-One China, and we suggested that [business people] should not be pro-[Taiwanese] independence," says Wang.

Shih also assured the Chinese that Acer donated no money to the pro-independence Democratic Progressive Party (DPP) and affirmed the PC maker's neutrality in all elections. Wang says: "This position and explanation was totally acceptable to China's government."

Acer has been careful to be a good corporate citizen on both sides of the strait, the executive notes, using only legal channels to invest its money in China and adhering to the go-slow policy that limits Taiwanese investment in the mainland.

But when Shih became an economic adviser to Taiwan President Chen Shui-bian, who heads the DPP, Acer was forced to take sides and explicitly back the One-China policy. Shih's assurances were successful, says Wang. "I think we are satisfied with the meeting [with the Chinese officials] and the development of business after that meeting."

POLITICAL PRESSURE. However, while business in the mainland is returning to normal for Acer, the same cannot be said for Chi Mei, an unlisted Taiwan company that makes durable plastics used in computer casings and auto parts. It operates a factory near Nanjing and has minority shares in five smaller Chinese companies. In all, the company has sunk $200 million in the country.

The group's chairman Hsu Wen-Lung is a longtime supporter of President Chen, and Beijing is making Chi Mei suffer for it. According to a company official, 20 tax inspectors descended on its factory in May and scoured the company's records. They then threatened the manufacturer's Chinese customer: "If you buy from Chi Mei, you will be scrutinized by tax collectors," the executive says, quoting Chinese officials.

He links the sudden surveillance to the company's political allegiance: "During the election, Chi Mei supported Chen Shui-bian, but Chen was not the one mainland China supported."

The problems continue for the manufacturer. It once took Chinese officials two to three days to approve its raw-material imports at customs, but now, it takes a week to 10 days, he notes. As a result of the harassment, Chi Mei is rethinking its future in the country. "This will affect our plans in China for sure," the executive says. "It hurts our efficiency. We have no idea how long it will continue."

By Brent Hannon in Taipei

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