China Watch: Slowed China-Taiwan Trade Talks Have Investors on Hold

NEW YORK (TheStreet) -- It was supposed to be a red-letter year for China's economic engagement with Taiwan.

The island's most China-friendly president in history had won re-election, and both sides followed this event by pledging to tear down more trade and investment barriers as a prelude to any political agreements between the two old enemies.

But red flags are beginning to fly instead. Although both sides wax optimistic about more agreements in the pipeline, momentum has at least slowed on deals that would cut import tariffs and allow more investment in Taiwan from the other side.

The slowdown could be just a pause as China grapples with its own leadership transition later this year, but it could portend something chillier, such as China demanding political concessions that Taiwan doesn't want to give.

For now, the small number of companies in China and Taiwan that have gained from earlier trade deals is waiting for the next move.

So are some major publicly traded companies in Europe and the U.S. that see profits from the trend of warmer China-Taiwan relations but need reassurances that trend will continue.

Negotiators from the two sides are supposed to meet in Taipei before the end of June. Yet no date has been set, and their skeletal agenda covers investor protection accords, but nothing that actually rips down barriers.

The barriers were built very high before 2008, when Taiwan was talking about de jure independence from China to consummate about six decades of self-rule. China claims sovereignty over Taiwan and had threatened to use force if Taiwan veered too far toward legal independence.

After 2008, with sabers dropped, Taiwan's incumbent president turned icy relations into a sudden flow of trade, transit and economic deals. His government has gradually let mainland Chinese firms buy shares on the Taiwan Stock Exchange and make direct investment in Taiwanese companies. The two sides also opened 558 direct flights and allowed millions of mainland tourists to visit the island just 100 miles away.

Those deals steadied Taiwan's China Airlines (2610.TW) and EVA Airways (2618.TW) as China flights suddenly went from zero to 10% of their business.

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