Breaking up (with China) hard to
do By Ting-I Tsai
TAIPEI - The Taiwanese company Paragon
Electronics has produced more than 4 million
electric fans at its Shenzhen factory, in the
mainland's Guangdong province, since
it opened in 1989. But in January, the factory's
2,000 Chinese employees took to the streets to
demand the company pay four months in overdue
wages. The protest ended up with the arrests of
eight workers. About two months later, another
Taiwanese-invested factory, owned by Compex, which
produced outdoor furniture, unexpectedly closed
after its Taiwanese managers left China
without notice,
leaving some 3 million yuan (US$370,924) in unpaid
salaries and 300 million yuan in loans. The hasty
nature of the two companies' departure, and they
fact they wanted to leave at all, is a reflection
of the changing dynamics of China's economic
system.
Taiwanese were the first to see
the opportunities in the 1980s as China opened up
its economy. Some 66,400 Taiwanese companies have
been approved to operate in China, about a quarter
of them small and medium-sized manufacturing
enterprises based in the Pearl River Delta area.
This year alone, Taiwan's government has approved
$44.8 billion in Chinese investments.
However, the rush to set up shop in
Guangdong has stretched the province's human,
energy and security resources, forcing up prices
and creating a more risky operating environment.
According to Guangdong Province's statistics
bureau, the province is short 1 million workers
and 6.26 million kW of electricity. And based on a
survey of 2,073 Taiwanese companies operating in
China this year conducted by the Taiwan Electrical
and Electronic Manufacturers Association,
Guangdong's high corruption and crime rates have
also resulted in Dongguan and Shenzhen being
listed as high-risk investment areas.
While there is no data on the
number of factories that have closed as a result
of worsening conditions, customs figures show that
Guangdong has slipped from the nation's leading
exporting province to just eighth. Luo Huai-jia,
an executive director of the Taiwan Electrical and
Electronic Manufacturers' Association, said around
20% of the area's 4,000 Taiwanese manufactures
have already withdrawn from the area, or would
soon have to. An estimated 600 Taiwanese
manufacturers, including Paragon and Compex, have
pulled out of Shenzhen in the past two years
alone.
Taipei-based accountants and
economists have suggested that Taiwanese
enterprises are slowly shifting toward China's
Bohai Sea area in the northeast, while those who
are seeking cheaper labor are looking at Vietnam.
According to the Ministry of Economic Affairs,
Taiwan's investments in Vietnam increased from
$321 million in 2003 to $469 million in 2004 and
reached $7,629 million total as of this June. Few
of these businessmen, however, are considering
returning to Taiwan, observers suggest.
Liu Fang-rong from the Friendly Business
Group, a Shanghai-based consultancy that advises
more than 2,000 Taiwanese investors on mainland
operations, noted that those companies intending
to do domestic trade in China would move inland to
get closer to their markets, but foreign-trade
companies had no choice but to seek alternative
locations for cheaper production costs.
Importantly, operating in Southeast Asian
countries also allows them to avoid various US and
EU quotas on Chinese exports.
Whatever the
reasons for their evacuation, many companies are
choosing to burn their bridges to China to avoid
onerous regulations and payments. "None of my
clients has ever gone through any liquidation
process," Liu said, suggesting Taiwanese
businessmen frequently withdraw their capital via
underground channels, since going through any
liquidation process would mean having to pay taxes
that they were exempted from as long as their
enterprise continued to operate. A Taipei-based
legal consultant, who refused to be identified but
gives classes on how to properly withdraw capital
from China, agreed, saying: "Lots of [Taiwanese
businessmen] simply leave when their factories
fail to make profits, as they are afraid they may
be arrested once they return to China to deal with
any problems." Both said that no reliable figures
were available on the scale of the problem.
Disinvesting from China can be a tortuous
and expensive process, involving multiple
government approvals, the repayment of tax breaks
and forfeiture of machinery. "The main problem is
local governments simply don't approve anything,"
said the legal consultant who declined to be
identified, adding that many businessmen didn't
mind leaving the machinery behind because it was
not worth very much. However, taking such a step
generally makes it impossible to return to China
in the future.
Anna Lu, an accountant with
KPMG, criticized Taiwanese businessmen for lacking
social responsibility, noting that it was easy for
Taiwanese businessmen to wire several hundred
thousand US dollars of capital out of China, then
claim bankruptcy without the government knowing
about it. "There are reasons Taiwanese businessmen
are not so welcome anymore," she said.
Taiwan's Straits Exchange Foundation said
it had received numerous requests for help in
withdrawing capital from China over the past few
years. In response, it had provided three
workshops around Taiwan this summer, attracting
some 200 Taiwanese businessmen. Shih Fang-ming,
accountant at Hamber Consulting Service, said,
"Lots of Taiwanese businessmen [excitedly poured]
capital into China, but didn't think of how to
withdraw their capital until difficulties
increased for their operations in China."
Ting-I Tsai is a Taipei-based
freelance writer.
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