FORMOSA PLASTICS CONFIRMS STUDY OF CHINA SITE

FORMOSA PLASTICS CONFIRMS STUDY OF CHINA SITE

Formosa Plastics Corp. is considering a US$7 billion petrochemical investment in southeastern China, possibly via an offshore unit, despite official discouragement and earlier denials by the company.

Formosa, Taiwan's largest privately held conglomerate, hopes the proposed naphtha cracker and associated production facilities will make up for long delays in getting permission to expand at home. Naphtha is a petroleum product used to make petrochemicals.In the past two weeks, several local papers have reported sightings of Wang Yung-ching, Formosa's chairman, in Xiamen, a special economic zone in Fujian province just across the strait from Taiwan.

Those reports, and speculation that he is there to finalize the deal, are not true, according to C.T. Lee, senior vice president of Formosa.

He told The Journal of Commerce Mr. Wang is in the United States and that Formosa hasn't yet made a final decision on the China deal. "That is still under planning," he said late last week.

It's understood Formosa wants to build 28 plants in Xiamen, perhaps using its Singapore subsidiary to get around Taiwan's official policy against direct investment in China.

The project would be undertaken with another Taiwanese conglomerate, Tuntex Group, and Indonesia's Sanlin, according to sources here.

A 2,500-acre site is said to have been earmarked in Xiamen, a port city formerly known as Amoy. The Chinese side is reported to have promised a three- year waiver of taxes and a 50 percent cut in income tax for three years after that.

Like Formosa, Tuntex officials have stated they won't invest in China until the government here changes policies that prohibit direct investment. Chen Yu-hao, Tuntex chairman, has said, however, that he is considering a move into China.

Though there has been a considerable thaw in relations recently, it's not clear when the Taiwanese government might revise its investment rules.

A national affairs conference due in June, called to evaluate Taiwan's changing political needs, almost certainly will focus on the investment and trade issues.

Taiwan-China trade is conducted largely through Hong Kong. It was worth about US$3.5 billion last year, according to government and private estimates.

Formosa hasn't made any secret of its interest in China, though it may in part be a ploy to force the government here to press ahead with petrochemical plants bogged down by local environmental opposition.

A referendum last week in Kaohsiung, the site proposed for Taiwan's fifth cracker, produced a 60 percent "no" vote. Nonetheless, it will go ahead

because national interest must take precedence, Hse Kuo-an, deputy economics minister, declared.

Residents in the district have blockaded the main gate of state-owned China Petrochemical Corp.'s plant there for three years to protest the proposed expansion. They fear the NT$15 billion (US$600 million) cracker will add to pollution.

Formosa's heavy hints about moving into China sparked a political storm, but also may prove helpful to the government in formulating policy.

A survey in March by Taipei-based Commonwealth magazine showed more than 70 percent of business professionals believe the government should open up direct trade with China. About 90 percent feel the investment climate in Taiwan has worsened over the last two years.

Mr. Wang and Mr. Chen are only part of a growing band of local entrepreneurs trying to invest overseas while maintaining corporate roots in Taiwan. All complain of a soured climate at home.

Formosa is building a US$1.7 billion cracker plant at Point Comfort, Texas, a site chosen after plans to build it in Taiwan were stymied.

Mr. Lee said once it is finished next year, the complex will begin producing high-density polyethylene, polypropylene and ethylene glycol.

A plant owned by Formosa group subsidiary Nanya Plastics in South Carolina will begin producing polyester fiber in two years, according to Mr. Lee.