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Shirley Yam

'I'd better switch to another phone operator. I don't want my cell phone tapped.' 
That was the response of a veteran Taiwan journalist when I told her about China Mobile's acquisition of a stake in the island's third-largest mobile phone company. 
Well, journalists are super-sceptical. And the fact is you don't need to own a phone company in order  to tap into a conversation on a mobile phone.  
But her response largely summed up the political sensitivity of the ground-breaking deal and, therefore, the hurdles it will face in getting the approval in Taiwan.
To the Taiwanese, opening up the island to communist investment is all about succumbing to economic reality. There is limited, if not zero, mutual trust. The fear of economic invasion in place of political invasion remains.
Will the island's regulator consent to the deal, which, strictly speaking, contravenes existing law? 
'I don't think they would go ahead if there is no reasonably good chance of approval,' said a source close to the deal. 
And I can see it's been a calculated effort.
First, the timing could not be more strategic. 
The deal was announced three days after the high-profile signing of the cross-strait accord that promises to remove Taiwan's ban on mainland investment on the island. 
 'The [cross-strait] agreement will be blown up if the first deal between two business entities after the signing is not allowed,' said the source. 'That will send a message that nothing is allowed.'
This is the last thing President Ma Ying-jeou - who has made the inflow of mainland money into the island's staggering economy one of his key election pledges - will want to see. 
It is true that the legislation to remove the ban will take two more weeks.  So, the deal's timing leads to the criticism of 'jumping the gun'. 
But that's a small price to pay if such a mega deal can manage to push the line further before everything is set. Taiwanese regulators have said they plan to keep the telecommunications and banking industries closed to mainlanders.
Who else could pull this off better than a heavyweight like China Mobile, the largest state-owned phone operator  on the mainland, in a HK$4 billion deal that is the largest direct investment in the island's history. 
Second, let's look at the partner. 
China Mobile has been looking for a Taiwan partner for more than a year. It has talked to almost everyone in the game, including Chung Hwa Telecom and Taiwan Mobile, both with bigger market shares than Far EasTone.
China Mobile chairman Wang Jianzhou said he chose Far EasTone for the 'international vision and style' that the two managements share. The source said China Mobile picked a partner based on 'pricing and strategy'.
What both skipped over is the partner's political connections. Far EasTone's owner, Douglas Hsu, is perhaps the best 'local guide' China Mobile  could find in navigating through Taiwan's choppy political waters.
Mr Hsu is  an icon of what the local media call  xin cheng shang (new politician-cum-businessmen). He belongs to the third generation of a business family that fled to Taiwan with the Kuomintang. 
He grew up with many of the current KMT leadership. 
Yet, when  the Democratic Progressive Party's then leader, Chen  Shui-bian, was elected president, Mr Hsu had Chen's wife inaugurate  one of his hotels. Later he was charged with bribing Mrs Chen but was eventually acquitted.
His political skill and connections are perhaps best summarised in his donation to the 2008 presidential election - NT$20 million and NT$40 million to the DPP and KMT, respectively, via 35 of his subsidiaries, to abide by election restrictions. 
This is  a man who knows which doors to knock on and what songs to sing. Sources confirmed that the deal was sounded out with Taiwan's leadership before it was inked. 
Third, the deal is structured to fit the rules and the culture. 
China Mobile is buying  12 per cent of Far EasTone. That makes it the second-largest shareholder of the mobile phone operator. But it is dwarfed by  Mr Hsu's 45 per cent  stake. 
'Hopefully, it will be less politically sensitive,' a source said.
Besides, instead of acquiring the stake directly, China Mobile is doing this via a fully controlled subsidiary in Taiwan. Many will see little regulatory difference in that, but in Taiwan it does matter.
Here are two illuminating cases. When Hong Kong-incorporated but mainland-owned Legend Group acquired IBM's personal computer division in 2004,  IBM's Taiwan arm suddenly became mainland-controlled,  stirring up much controversy.
The solution? Control of the Taiwan business was put into a firm in Holland, and Legend acquired full control of the latter. 
A similar incident happened with the Industrial and Commercial Bank of China in 2007. It acquired 20 per cent of South Africa's Standard Bank, becoming its largest shareholder. So the Taiwanese asked what to do with the branches of Standard Bank, which had been on the island since the 1980s.
The solution? Its bank regulator announced that a 'foreign bank and insurer' with no more than 20 per cent mainland ownership would continue to be allowed to operate branches in Taiwan.
These examples tell how  technicalities provide an excuse for Taiwanese officials to justify a deviation from the ban. 
Fourth, there is the  sweetener. While the Taiwanese fear  they will be squeezed out by their mainland counterparts, this deal includes  strategic co-operation that promises 'to bring the mainland market to the island's hard- and software talent.'
Having said that, nothing is for sure when it comes to politics. 
'It's a very complicated [approval] process in Taiwan. The system is not transparent, and many vested interests will be at play,' said the source.
But we can be sure about one thing - this is only the beginning. Sit tight and enjoy the spectacular  adventure of mainland China forging into Taiwan.




Politically sensitive deal is designed to succeed