Taiwan fails to lure mainland
investors By Jens Kastner
TAIPEI - Taiwan has gradually opened up to
investments from China since 2009. Relaxations
have been hugely controversial over concerns that
the former arch-enemy would use its money as a
means to achieve backdoor unification. But as of
today, a noteworthy flow of Chinese foreign direct
investments (FDI) toward Taiwan is conspicuous by
absence. Aggregated they had only reached some
US$150 million at the end of last year, a Lilliputian
amount compared to 2011's
total foreign investments in Taiwan of $9.53
billion. The Taiwanese government's red tape is
not the only reason for the disappointing figure.
Those who have $150 million to spare could
afford a fancy office tower on top of a Taipei
subway station; or a massive cement factory in
some Taiwanese backwater town; or two dozen
topnotch helicopters. Anyway, $150 million is
petty cash for China, the world's largest foreign
exchange reserve holder with reserves as high as
$3.2016 trillion, especially when considering that
it's assessed Beijing would do almost anything to
pocket Taiwan.
A comparison with other
countries' FDI on the island makes the
insignificance of the sum even clearer: Taiwan's
largest investor last year, with investments worth
$2.15 billion, were the Americans, while the
Singaporeans came in second at $1.02 billion,
followed by the Japanese at $0.97 billion. And in
China, about 80,000 Taiwanese enterprises have
invested with value totaling some astronomic $80
billion.
To make China inject cash into
their economy, the Taiwanese implemented two waves
of opening. Both of which were largely spurned.
In 2009, Chinese FDI was allowed in 192
items that were not considered sensitive, such as
textiles, garments and clothing accessories,
electronic components, computers, mobile phones,
automobiles and plastics. As the industries
involved were competitive, low profit or mature,
this opening only brought in some $140 million.
But when in March last year, panels and
semiconductors together with 40 other sectors were
put on the list, the amount was predicted to grow
dramatically.
Chinese TV brands would form
strategic alliances with LCD panel firms in Taiwan
in order to stabilize their component supply,
while the Taiwanese firms in turn would be able to
afford technology upgrades to compete against
rival South Korea, economists and officials
predicted back then. They said the Chinese would
put up with rules such as the one that prohibits
them from having board control over their
Taiwanese partners, or the one that only allows
them to acquire a maximum 10% stake in existing
Taiwanese technology companies.
Decisively
belying this optimism, what was meant as a
landmark relaxation only made the tiny difference
of $10 million. As an outcome as surprising as
embarrassing, Taiwan has not attracted any Chinese
investment in anchor sectors, such as panels and
chips, since.
Whether the Chinese will be
more tempted to invest in the island's financial
sector is left to be seen. In January, Taipei
allowed banks from across the strait to acquire
stakes in Taiwanese banks and financial holding
companies. According to the new rules, qualified
Chinese lenders may take up to a 5% stake in a
single Taiwanese bank or financial holding
company, but collectively their shares may not
exceed a 10% ceiling. China Construction Bank
(CCB) and Industrial and Commercial Bank of China
(ICBC) are rumored to harbor interest but have not
filed applications to date.
Furthermore,
under present rules, Chinese lenders are allowed
to open one branch each in Taiwan. Applications by
the Bank of China and the Bank of Communications
to upgrade their representative offices in Taipei
to branches were recently approved of. China's
third and fifth-largest lenders by asset are now
authorized to invest $40 million and $51 million,
respectively.
An announcement on a third
wave of opening to Chinese FDI is expected in
March. Taiwanese officials indicated that Chinese
firms will be allowed to build subways, roads and
stations, among other infrastructure, but that
their funds will still be banned in the property
market to prevent speculation. It is furthermore
relatively certain that neither will enterprises
operating fixed networks and telephone services be
allowed nor that restrictions on advertisements by
Chinese companies will be relaxed.
In
interviews with Asia Times Online, economists shed
light on why China's firms don't take the bait.
According to them, it's not only the island's
rigid regulators who deserve the blame.
"The lacking of investment incentive is
the main reason and strict regulations is the
second one," said Peter Wang Yu-Ter, an economist
at Ming Chuan University in Taipei. "This might be
bad for Taiwan's economic development. But
political factors are usually taken into account
in any affairs between China and Taiwan."
The omnipresent political component in
Taipei's decision-making comes about because the
unification-wary among the Taiwanese fear that
Beijing wants to control the island's economy via
FDI while at the same time locking up Taiwan's own
capital and talent in the mainland's.
Hong
Honigmann, professor at National Tsing Hua
University, pointed at yet more reasons for the
absence of monetary windfall. He weighed in that
according to the textbooks of economy, FDI tend to
flow from developed countries into developing
ones. "So if China invests in Taiwan, it could be
called an adverse current."
Hong
furthermore emphasized that a cross-strait
investment agreement has yet to be signed, and
that "FDI usually come along with flows of
personnel and services, all of which being
obstructed by Taipei when dealing with China."
A cross-strait investment agreement has
despite intense negotiations failed to materialize
as Taipei requests international arbitration which
Beijing opposes as it would imply Taiwanese
statehood. As indicated by Hong, obtaining
Taiwanese visas is far more complicated for
Chinese citizens than for nationals from Taiwan's
other major FDI sources.
Ronald A Edwards,
a specialist on China's political economy at
Tamkang University in Taipei, singled out
restrictions on the purchase of land as a major
turn-off as well as significant political risks.
"Any sudden massive influx of investment
from the mainland is bound to cause a political
reaction in Taiwan that works against further
investment and possibly also against mainland
Chinese investors' chances to obtain the returns
on their investment," Edwards said.
"Also,
with Taiwan's presidential elections cycles being
only four-year periods, there's the scare of
possible roll backs of investment-related
agreements should the DPP [anti-unification
Democratic Progressive Party] take over the
administration."
In far-away Vancouver,
Yves Tiberghien, a China expert and associate
professor at the University of British Columbia's
Department of Political Science, argued that
investments in Taiwan don't fit with China's FDI
patterns anyway.
"Chinese outward FDI is
mostly seeking to get natural resources, financial
firms, or some industrial firms in Western powers.
There is not much in Taiwan that Chinese firms
cannot already have in the mainland. So, it could
be mainly that - a question of demand."
Also Hu Sheng-Cheng, an economist at
Academia Sinica, Taiwan's most renowned research
institution, presented an intriguing explanation
for China's lackluster investments.
He
said that the presidential and legislative
elections held in mid-January, in which Ma
Ying-jeou of the Beijing-friendly Kuomintang (KMT)
won re-election, showed that Beijing achieves its
objectives without having to waste money on little
lucrative investments in Taiwan. Shortly before
the polls, a number of Taiwanese entrepreneurs
active in China publicly endorsed the
Beijing-friendly cross-strait approach of Ma, a
move that likely contributed a good deal to his
win.
"If mainland China wants to control
Taiwan's economy, all it has to do is pressuring
the big Taiwanese companies in China. They don't
even have to come here investing for this," Hu
said.
He concluded on a disturbing note.
According to him, while China spurns investing in
Taiwan's technology firms and their likes, it will
be much more interested in the financial sector.
"Through the banking pipeline, the
mainland can obtain detailed information about
Taiwan's economic operations; this, and not FDI,
will enable them to directly control Taiwan's
economy."
Jens Kastner is a
Taipei-based journalist.
(Copyright
2011 Asia Times Online (Holdings) Ltd. All rights
reserved. Please contact us about sales,
syndication and republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
