TNAG-1621-FCO40-2235-Relations-between-Hong-Kong-and-China-1987 — Page 21

CODE 18-77

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H&D

Mr Rouse

Mr Masefield

Mr Fletcher-Cooke

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1. On 29 January Mr Rouse and I were given lunch by

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Mr Sheu Ke Sheng, Director of the Majestic Trading Company. His colleagues, Mr Frank Wu and Mr James Chu, were also present (but remained almost completely silent throughout the meal).

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2. Mr Sheu said that Taiwan's constant trading surplus and growing foreign currency reserves, and the consequent pressure from the two largest trading partners, Japan and the USA, were the major current concern. Virtually all barriers to trade with Taiwan had been removed, the only step that remained, which must come soon, would be revaluation of the Taiwan dollar. Meanwhile protective measures by the Japanese and Americans would lead to further efforts by Taiwanese exporters in the European Market. Despite the decline in certain domestic industries such as textiles and clothing (where Taiwan was squeezed between the protectionism of the developed world and the lower costs of the LDCs), shipbuilding and some other heavy industries (Korean and Japanese competition too strong), the electronics industry, especially on the consumer side, was growing so fast that there was little unemployment (around 2%). Shortage of fast skilled workers and low interest rates meant that lack of investment would put a brake on further growth. Taiwanese companies might well be looking for investment opportunities overseas, and further visits by development corporations such as Winvest who were in Taiwan last year would be welcome. The Republic of Ireland had been showing a keen interest in attractive Taiwanese investment. Only one company, Tatung, is currently established in the UK.

3. Discussing internal events in the PRC and the prospects for eventual reunification, Mr Sheu said that the step backward indicated by Hu Yaobang's resignation showed that Taiwan was right to "wait and see". It could not be ruled out that some arrangement might eventually be possible, but it would need much waiting first, and seeing what happened in Hong Kong. Meanwhile no difficulties were currently envisaged in Taipei about continuing to trade with Hong Kong after 1997. He refused to be drawn on the question of trade with the PRC now. Mr Sheu accepted that many features of the PRC system owed more to Chinese tradition than to communism.

102AAT

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