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Go South: Taiwanese follow the
money
By Matthew Smith
TAIPEI
- For Taiwanese investors, it has been a month-long ride
down memory lane. Speaking at a meeting of domestic
business leaders in late July, President Chen Shui-bian
reiterated the government's "Go South" policy, which
encourages domestic businesses to invest in Southeast
Asia instead of going west and investing in China. His
argument was clear: over-dependence on the China market
is dangerous for Taiwan's political and economic
security, and ultimately will hurt the interests of
those who invest too heavily there.
The attempt
to stem what seems to be an irreversible tide of
increasing economic interdependence with China probably
makes sense from the point of view of domestic politics,
and has a certain amount of validity from the economic
perspective as well. But it would be unrealistic to
expect either a renewed flood of Taiwanese capital into
Southeast Asia or a sudden revulsion for investing in
China among Taiwan's business community as the result of
the renewed government policy.
There is little
room for doubt about whether economics or cross-Strait
politics is the prime motivator behind Chen's
proselytizing of Southeast Asia as an alternative
Promised Land for manufacturers seeking lower costs.
"It's a case of deja vu," says economist Damian
Gilhawley of KGI Securities. "Its main purpose is
political, to encourage local businessmen to invest in
Southeast Asia and not to put all their eggs in one
basket - mainland China."
"Go South" was first
promulgated by former president Lee Teng-hui in the
early 1990s, long after many Taiwanese corporations had
already gone south and invested in Southeast Asia's
emerging economies. Starting in the 1980s, Taiwan
manufacturers gradually expanded their investment in the
region for many of the same reasons that currently make
China such an attractive destination - lower land, labor
and other manufacturing costs relative to an
increasingly affluent Taiwan. While it is unclear how
much influence Lee's policy had on the trend, two-way
trade between Taiwan and the Association of Southeast
Asian Nations (ASEAN) member countries grew by double
digits almost every year throughout the 1990s,
culminating in record bilateral shipments valued at
US$39 billion in 2000.
Of course, the
relationship has been about more than just trade. With
80-90 percent of outbound investment slated for
industrial development, Taiwanese companies have played
an extremely important role in the development of ASEAN
manufacturing economies. Official figures only give an
indication of the real level of investment, but
statistics from Taiwan's Ministry of Economic Affairs
(MOEA) show that government-approved investment in
Singapore, the Philippines, Indonesia, Thailand,
Malaysia and Vietnam totaled $6.5 billion as of July
2002. Joseph Chou, director general of the Economic
Processing Zone Administration under the MOEA, says that
between one-quarter and one-half of Southeast Asia's
manufactured exports can be attributed to
Taiwan-invested companies operating there.
If
money can't buy love for Taiwan, it certainly seems to
garner a certain level of unofficial respect. Former
president Lee's "go south" announcement and a "golf
diplomacy" trip to Southeast Asia in 1994 signaled that
Taipei's economic biceps could be used to expand its
political elbow room on the international stage despite
Beijing's strong pressure to tighten it. Two weeks ago,
Taiwanese Vice President Annette Lu made the point again
when she visited Indonesia. Known in Beijing as "the
Scum of the Chinese Nation" for her outspoken views on
Taiwan's sovereignty, Lu found herself trapped in an
airport lounge in Jakarta for a few hours before giving
up the attempt to visit the Indonesian capital, and
instead flying on to Bali.
It seemed like a
victory for Beijing, and opposition politicians in
Taiwan lost no time in attacking the Chen administration
for bungling the trip, but Lu got the last laugh.
Indonesia is a major supplier of liquefied natural gas
(LNG), and Taiwan is seeking to purchase a reported $12
billion worth of the product. With that deal on the
table, and the potential to discuss an agreement that
would end a ban on new Indonesian laborers entering
Taiwan, Indonesian officials overcame their initial
shyness. A few days after being hurried out of town by
her worried hosts, Lu got her reception in Jakarta.
The vice president's successful trip to
Indonesia also emphasized another reason investing in
Southeast Asia makes a certain amount of business sense
for Taiwan. Even in the absence of political ties, the
Taiwanese government can offer its investors in
Southeast Asia a certain level of informal protection,
which it most decidedly cannot do in mainland China. If
the carrot-and-stick approach fails to work, Taiwan can
always take disputes with ASEAN nations to the World
Trade Organization, which it joined on January 1.
Solving problems with mainland China in the same manner
will be more complex, since Beijing says any trade
disputes it has with Taiwan are internal by nature and
cannot be resolved under the WTO framework.
There are other economic factors that might make
investing in Southeast Asia a wise move. Certainly, the
region's robust domestic markets make it attractive.
"Although these countries are all suffering from the
export downturn, a lot of them are benefiting from
domestic demand," notes economist Gilhawley. Yet he
agrees that the appeal of the Chinese market will
continue to prove to be irresistible for Taiwanese
investors.
The mainland's geographic proximity
and cultural and linguistic similarities make it the
natural choice for manufacturers seeking to lower costs
and increase their competitiveness. Furthermore,
Taiwan's investment ties with China already dwarf those
it has formed with Southeast Asia. Although putting an
exact number on Taiwanese investment in China is
notoriously difficult because of the common practice of
channeling funds through Hong Kong and overseas tax
havens such as the British Virgin Islands, estimates of
the total amount range from $50 billion to $100 billion.
To put it into perspective, that figure represents
roughly one-sixth to one-third of Taiwan's gross
domestic product last year. And it is only set to keep
growing, as analysts say that 50-60 percent of all
overseas investment by Taiwan corporations and
individuals is now being funneled into China.
Taiwan business leaders see little reason for
that trend to change. Fubon Financial Holdings Co, one
of Taiwan's largest financial groups, has been doing
business in Southeast Asia since the 1980s, with a focus
on providing property insurance to Taiwanese
manufacturers there. As a financial-services provider,
Fubon has followed the overseas migration of Taiwan's
manufacturing industries. "We moved there because we
have to follow the footsteps of our clients," says
Daniel Tsai, co-chief executive officer of Fubon along
with his brother Richard.
Tsai says Fubon will
continue to expand its operations according to the needs
of its customers. Currently he sees a lot of opportunity
in Vietnam, where Taiwanese textiles suppliers have
found fertile ground for offshore production. But the
focus remains on in the People's Republic of China, and
Fubon is seeking to boost its presence there through
representative offices in Shanghai and Xiamen and
partnerships with Chinese insurers. "We see even more
immediate and more realistic opportunities in the PRC,
because God knows how many Taiwanese companies are
already operating there," says Tsai.
In the
final analysis, no amount of government cajoling will
tarnish the mainland's appeal for Taiwanese investors,
who don't need a Horace Greeley to persuade them to go
west. To some extent, they will continue to "Go South,"
but profit, not politics, will be the most important
factor behind their investment decisions.
(©2002
Asia Times Online Co, Ltd. All rights reserved. Please
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