DATE=8/20/1999 TYPE=BACKGROUND REPORT TITLE=TAIWAN-CHINA BUSINESS CONFIDENCE NUMBER=5-44105 BYLINE=STEPHANIE MANN DATELINE=WASHINGTON CONTENT= VOICED AT: INTRO: The military muscle flexing by China and Taiwan in recent weeks has caused the Taiwan stock exchange to take a roller coaster-style ride of losses and gains. V-O-A Correspondent Stephanie Mann reports on how international business confidence has been affected by the heightened tensions across the Taiwan Straits. TEXT: Taiwan President Lee Teng-hui's announcement in July that Taiwan and mainland China should treat each other as equal states provoked reactions on both sides of the Taiwan Straits and also around the world. China, Taiwan, and the United States have each conducted separate military exercises in recent weeks, and news reports have speculated on whether China might be preparing for further military action. Business analysts are watching the situation closely, but most don't expect actual hostilities to erupt. The analysts say so far they have not noticed international companies making changes in their Taiwan operations, but some firms are reviewing contingency plans. Prompted by fears that China might attack the island, Taiwan's stock exchange lost about 15 percent of its value from July into August, but then regained much of that in mid-August. Joseph Quinlan, senior international economist with the New York investment firm Morgan Stanley Dean Witter, says foreign investors are still attracted by Taiwan's relatively strong economy. // QUINLAN ACT ONE // A lot of investors are making the bet that China and Taiwan will pull back from the brink, and (they) are taking the dip in the Taiwan market as a buying opportunity, because the fundamentals of the Taiwanese stock market, particularly in the technology sector, are very good. // END ACT // // OPT // Mr. Quinlan says the timing of the Taiwan-China tension is not good, especially coming in the aftermath of the Asian financial crisis. // QUINLAN ACT TWO // Just when it seemed like Asia was settling down and the currencies were stabilizing, and we're seeing growth out of places like South Korea and Singapore and even Taiwan for that matter, you have a major flare-up across the straits. It not only involves China and Taiwan, but implicitly the U-S. So, it is a concern here on Wall Street, how this all plays out. // END ACT // Mr. Quinlan says many international companies still want to invest in Taiwan. But he says those afraid of the political risks hanging over the island may look instead to Singapore or South Korea as a safe place for their investments. // END OPT // Mr. Quinlan does not expect China to launch military action against Taiwan, but he says as long as the heated rhetoric and saber rattling continue, the possibility of a miscalculation - some kind of mistake - is high. And that concerns investors. // QUINLAN ACT THREE // So, the key issue here, if there is an escalation, would be: would Beijing prevent or prohibit or expropriate any of Taiwan's assets on the mainland? And then you've got a whole new ballgame to deal with and you do significantly raise the investment risk of owning Taiwanese stock. We're far from that, but that is an overhanging risk. // END ACT // The United States has put pressure on China and Taiwan to ease the tension. Mr. Quinlan says if the problem escalates, Japan may also press Taipei and Beijing to defuse the issue for the sake of commercial interests. He notes that Taiwan's economy receives a significant amount of international investment from the United States, Japan and Europe. And he says any military action would affect investment flows from multinational corporations. However, the president of the U-S-Taiwan Business Council, David Laux (pron: LOX), says most American companies with business in Taiwan are not too worried. He says some of his organization's 250 member companies have asked for his assessment of the issue. And Mr. Laux says he believes the tensions will abate. // LAUX ACT // The media has greatly exaggerated what is going on here, and that has contributed to a kind of feeding frenzy over this thing, which in itself has raised a lot of eyebrows and caught attention and caused more importance and more worry to be associated with it than it really deserves. // END ACT // // OPT // Some observers compare the current situation to 1996, when the United States sent aircraft carrier battle groups to the Taiwan Straits in response to China's firing of missiles off Taiwan. They say President Lee's declaration of state-to-state relations takes the issue beyond where it was then and is an implicit call for Taiwan's independence -- something Beijing has consistently said will provoke a response. Mr. Laux disagrees saying the current situation is not as tense as it was in 1996. // END OPT // And Mr. Laux says now is a good time for companies to invest in Taiwan and to be active in the Taiwan Stock market. // REST OPT // He says Taiwan survived the Asian financial crisis better than most other countries, and it is contributing to the rest of Asia's resurgence. He points out that Taiwan is the United States' seventh largest trading partner, with total trade of about 50 billion dollars. He says Taiwan buys almost twice as much from the United States as China buys. In addition, he says Taiwan's high- technology industry is the world's third largest producer of computers and offers great opportunities for investors. NEB/SMN/ENE/kl 20-Aug-1999 13:37 PM EDT (20-Aug-1999 1737 UTC) NNNN Source: Voice of America .