Wednesday, September 30, 2009

KMT Administration set to ease restrictions on hi-tech investment in PRC

AFP has the call on this one:
The long-standing controls on investment in China are now under government review and could be relaxed before the end of 2009, Shih Yen-hsiang told parliament.

"The discussions will not take a long time. We expect there will be a conclusion before year's end," he said in response to a question from a lawmaker.

The lifting of restrictions referred to by Shih would apply to high-tech industries in particular, said Huang Hsien-lin, an economics ministry official.

The Commercial Times earlier on Tuesday reported plans by the ministry to allow Chinese investors to buy stakes in Taiwanese flat panel and microchip makers.

....

Local businesses are among the biggest foreign players on the mainland, with at least 80 billion dollars invested, but Taipei has imposed limits on high-tech firms fearing it could give China a technological advantage.

President Ma said in June his administration had been considering allowing Taiwan's semiconductor companies to set up plants on the mainland, introducing state-of-the-art technology.

The proposal was welcomed by local microchip makers, who have been pushing for a relaxation of controls under which they are permitted to invest only in mainland plants producing low-end, eight-inch microchips.
The article I've linked to below gives more information on one of the major hidden issues: State ownership of industry in China, and more importantly, a State strategy to retain and expand state control of industry and industrialization. Before readers wonder how successful this can be, the article points out that State-controlled firms are competitive with private enterprises. O brave new world....

We have already seen this state-business nexus in other forms, in Korean chaebol and Japanese kereitsu, and of course, the numerous Party-State businesses in Taiwan. I would argue that these are not positions on a spectrum but evolutionary variants that appear(ed) in different political-economic contexts. The CCP will not permit the Development State to be outcompeted by the private sector, when it can simply swallow any competition, or swamp it. State control of key industry is a hallmark of Confucian thinking on how the economy works (anyone remember that classic, Discourses on Salt and Iron?). Moreover, as the article below points out, this Development State functions to keep foreign firms in subordinate positions. And as everyone knows, China covets foreign technology.

The Ma Administration's position is that this state-run juggernaut really ought to be permitted to invest in Taiwan's technology firms, both in its telecom sector, and in its crown jewels. Perhaps such investment might be welcomed, if it could be shown that the there would be significant transfer of technology, capital, and management expertise from China to Taiwan, as has been the case in the past with US and Japanese investment in Taiwan. But quite obviously the flow is going to be in the other direction. And quite obviously, China wants to hollow out our industrial base, since it is the foundation of Taiwanese freedom.

The AFP report mentions Korea and Japan. It is not difficult to see what has happened to Korea even with its more limited investment, as this report from 2006 is already saying:
"A recent KOTRA survey of South Korean firms operating in China showed that half
believe they have lost their comparative advantage in technology."
One constantly hears from "centrist" KMT apologists that "other nations are investing in China" and "the KMT has a plan." I'm curious to understand how, if China is negatively impacting Korea's large and powerful technology sector, how sending even more of our hi-tech industry to China will enable Taiwan to raise incomes and productivity so living standards can rise further. If sending our industry to China will make us wealthier, let's send all our industry to China -- then we'll grow 15% a year! That's the KMT "plan" that I am always hearing about -- if Taiwan permits its hi-tech firms to move to China, the island's economy will expand.

Sure.

I'm going outside to build my runway now, waiting for those Chinese planes to land and discharge plenty of cargo.
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Daily Links
As mentioned above, Mucha Man over at Forumosa.com pointed me to this excellent paper that argues that:
Contrary to many other analysts, we do not view the dominant role of the state in China's industry (and, more generally, in China's economy) as a possibly necessary - albeit wasteful - evil, which will be superseded once the transition from a centrally-planned to a fully capitalist modern economy will be completed. We rather see it as a primitive, embryonic, ever-evolving but permanent form of strategic planning aimed at fostering industrial development, and as a key distinctive, structural, and pioneering characteristic of market socialism.
Will economic growth bring democracy in China? When the State owns all important industrial concerns one way or another? People have grown so used to Taiwan's freewheeling freemarket ways that they have forgotten that the KMT attempted to do much the same thing in Taiwan. In many ways, with the intimate connections between the Party-State and business, it did. Remember when cable TV was illegal and the bus companies were state-owned and private bus firms illegal? The Establishment Carnegie Endowment for Int'l Peace points out that Chinese savings are part of this strategy (also a feature of Taiwan's Miracle days). Kadeer plans to sue Taiwan's gov't. High court continues Chen's detention. BBC rings up another one: telling how Taiwan feels about 60th anniversary of PRC entirely from KMT POV. No mention that some people here might not have any connection to that.
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26 comments:

Anonymous said...

I was just discussing the possibility this morning that the KMT strategy seems to be aimed at weakening Taiwan economically, to the point that Taiwan becomes completely reliant on China and people choose to be annexed out of an artificially manufactured economic necessity.

Weakening Taiwan and hurting Taiwanese for the simple goal of political unification. Fucking insane!

Robert Scott Kelly said...

That BBC article is a classic. What next: how the Brits currently feel about the Germans from a WWII POW survivor.

PS said...

QUOTE
Remember when cable TV was illegal and the bus companies were state-owned and private bus firms illegal?
UNQUOTE

Welcome to Britain until the mid-1980s!

Stefan said...

Organizations often appear to behave irrationally - but that can be caused by entirely rational actions on the organization's representatives. The core problem (no matter if it's a political organization or a private enterprise) is that the goals of the representatives are not the same as those of the organization.

So what's in it for the KMT when they ship Taiwanese technology to China? Nothing, but there is a lot to be gained for those KMT representatives negotiating the deal. Stock in companies, comfortable director positions etc.

Same for the companies actually moving to China - is it good for the company? Debatable, but it may very well pay off for the company executive who manages to reduce costs for the next two years. (Promotions, stock options etc.)

Anonymous said...

"A recent KOTRA survey of South Korean firms operating in China showed that half
believe they have lost their comparative advantage in technology."

This does not necessarily mean they lost their advantage due to investing in China, but could mean the Chinese are catching up. Which they are.

Was it Samsung that found Chinese copycats could reproduce their phones cheaper, better quality, and faster than their own factories? They tried to hire them, but no go.

Thomas said...

"This does not necessarily mean they lost their advantage due to investing in China, but could mean the Chinese are catching up. Which they are."

Think about what you just said. The government mandates that foreign enterprises can only enter into joint ventures and cannot buy more than 50 percent of shares. Chinese companies use these arrangements to steal technologies from their joint venture partners. Didn't the Danone-Wahaha case register on your screen? It became such a big deal precisely because investing in China often does result in company intellectual property being copied.

THAT is why the Korean companies have lost their advantage. And THAT is why the Chinese companies are catching up so quickly. They are not innovating brand new technologies, you know.

Anonymous said...

I understand that this is a KMT bashing blog, but just a reminder that it is Taiwanese industry that wants mainland investment restrictions relaxed. The DPP was not responsive to the desires of its constiuency in this regard, the KMT is being responsive.

Michael, are you suggesting that Taiwan's large technology concerns, many of whom are huge financial backers of the DPP, have not considered the issues you rasised, such as hollowing out Taiwan's economy and Korea's experience? Or are you suggesting that they did consider the issues but are not intelligent enough to see what you see?

Arty said...

I just love the analysis based on the wrong assumptions. Would easing the restrictions really change anything? There are ways to get around the restriction anyway, and companies are doing it at Taiwan's cost (one way is to move the headquarter to HK or Singapore). Also, if you are afraid of PRC buying off Taiwan companies' assets, you are already too late. PRC is already doing the exactly the same thing through her US partners e.g. Blackrock and Fortress. The whole thing is a non-issue!!!

If DPP and pro-green really worry about Taiwan's future, maybe they should look at why there is a huge drop-off of Ph.D. or higher degree earners from Taiwan in the top US institutes. Also, why only a few of them are returning to Taiwan especially the younger ones? As a small country, only technological or economic superiority (two are always linked) could be the balancing power to China. Yet, no one is paying attention, and either DPP (last eight years) nor KMT did anything.

P.S. The best Taiwan University only offers 40,000 including bonus a year (less than some top post-doc salaries) and 200k start-ups for a new professor in science. Do you know even the 2nd tier University in the US offer at least 1.5 to 2 times that amount. Plus the entire approval process took at least 6 months, the position have to be approved by the department, the university, and then the ministry of education? Who will come back to Taiwan if they can find a job in the US? Do you know even China pays more than that? As for cutting edge technology, do you know it is a lab from China generated the first iPS cells derived mice while other two labs in the states also did it at about the same time. In addition, China has billions set aside to recruit 1000 top Chinese scientists from the states and EU (slow start but a lot of young and real big name Chinese scientists have moved back together with their scientific know how and technologies that have not yet been discovered or developed).

Michael Turton said...

I understand that this is a KMT bashing blog, but just a reminder that it is Taiwanese industry that wants mainland investment restrictions relaxed. The DPP was not responsive to the desires of its constiuency in this regard, the KMT is being responsive.

Yes, this is just a KMT bashing blog. We don't ever think substantively about anything here. LALALALALA!

*sigh*

Believe it or not -- here's a revolutionary idea -- the constituency of the DPP or the KMT isn't just businessmen.

Michael, are you suggesting that Taiwan's large technology concerns, many of whom are huge financial backers of the DPP, have not considered the issues you rasised, such as hollowing out Taiwan's economy and Korea's experience? Or are you suggesting that they did consider the issues but are not intelligent enough to see what you see?

How about neither (a) nor (b). Can you see a (c) there out of this false dichotomy you've proposed?

Michael Turton said...

The best Taiwan University only offers 40,000 including bonus a year (less than some top post-doc salaries) and 200k start-ups for a new professor in science. Do you know even the 2nd tier University in the US offer at least 1.5 to 2 times that amount. Plus the entire approval process took at least 6 months, the position have to be approved by the department, the university, and then the ministry of education? Who will come back to Taiwan if they can find a job in the US? Do you know even China pays more than that?

Why yes arty, I know that. I work in a university here. I've even blogged on the fact that Taiwan's universities are among the worst in the industrialized world (are they better in Korea? I don't know.). It's a severe problem, and it is getting worse.

Now where is the friction against change coming from? Hint: the entrenched MAs now in their 50s and 60s are generally not Greens. Hint: what is the function of the university system in Taiwan?

Also, do you have statistics on Taiwanese returnees vs immigrants in US universities?

The economic future of Taiwan is not a "non-issue" but one that involves everyone on the island.

Michael Turton said...

BTW, any of you commenters are welcome to show how sending our hi-tech industry to China will raise our living standards and make our economy grow faster.

Michael Turton said...

Plus the entire approval process took at least 6 months, the position have to be approved by the department, the university, and then the ministry of education?

Do you mean the approval process for returned profs, or for foreign profs?

Robert Scott Kelly said...

Anon wrote:

"Michael, are you suggesting that Taiwan's large technology concerns, many of whom are huge financial backers of the DPP, have not considered the issues you rasised, such as hollowing out Taiwan's economy and Korea's experience? Or are you suggesting that they did consider the issues but are not intelligent enough to see what you see?"

While I hate to answer a question with a question this one just begs for it. Anon, is it possible that the lesson you have taken from the past two years of economic meltdown is that business leaders always make wise decisions?

Anonymous said...

OK, let's assume these companies wish to invest in China will lose their technology to their Chinese partners.

So what? Its their money, and their risk to do this. That is why we call it "free" market capitalism.

These companies are not "Taiwan's" anymore than they are UC Berkeley's or Stanford.

Now, if they are state-owned Taiwanese companies, then fine, the government should have control.

BTW, if the argument is going to be that every country must protect their industries from ever moving anywhere, then most of huge progress in the world economy due to trade would simply vanish.

Why protect chip fabs rather than shoe factories? Chips are basically a commodity anyways.

Michael Turton said...

So what? Its their money, and their risk to do this. That is why we call it "free" market capitalism.

These companies are not "Taiwan's" anymore than they are UC Berkeley's or Stanford.


I love the way that posts like this bring out the doctrinaire free market religionists and the ignorant.

Dude, where on earth do you think the chip fabs came from in the first place?

But never mind the long and continuing government involvement in the chip industry.

Let's instead ask why the gov't must directly own them in order to craft policies that keep them in Taiwan.

BTW, if the argument is going to be that every country must protect their industries from ever moving anywhere, then most of huge progress in the world economy due to trade would simply vanish.

Yes, because what I mean is that every industry must be protected everywhere. It's like, when I advocate national park conservation, I mean every square inch of land on earth ought to be in a national park.

PS said...

Yes, because what I mean is that every industry must be protected everywhere. It's like, when I advocate national park conservation, I mean every square inch of land on earth ought to be in a national park.

So Taiwanese chip firms setting up fabs in Thailand, Vietnam and so on would be less problematic? The benefits wouldn't be going to China, but Taiwanese workers would still lose out.

$ is going to go where the labor is cheapest / most able and so it can get the best return. It benefited HK, S Korea and Taiwan, and now it's moving elsewhere and lifting many people out of poverty.

I live in Taiwan and I wish things were different, but I don't see how the island's industrial base can remain unaffected - even with all the tariffs and laws that could be imposed - in the face of China, India, Thailand, Vietnam, and so on.

As for China wanting to keep foreign firms in subordinate positions - well, foreign firms and China have some history. I don't think they want to get fooled again.

Anonymous said...

Wow, reading all the anonymous blue wisdom here about how nobody has the right to whine about moving technology to China should make it obvious that the US is anti-business and anti-free market by not selling and/or manufacturing F-16's in China.

Arty said...

Now where is the friction against change coming from? Hint: the entrenched MAs now in their 50s and 60s are generally not Greens. Hint: what is the function of the university system in Taiwan?

Really, last time I checked NTU medical school is really green, so are some of the professors (I know some of them). Even progressive political stands have nothing to do with their decisions when they realized that the policy changes are going to be bad for them. So what did DPP did during the eight years about Taiwan's higher education? Relax the entrance rules for M.D.s so Chen's son in law can practice in NTU hospital (giggles).

The economic future of Taiwan is not a "non-issue" but one that involves everyone on the island.

Let me clarify, debating about an unenforceable law(policy) is a "non-issue."

Also, do you have statistics on Taiwanese returnees vs immigrants in US universities?

Unfortunately, I can't find it. The ones I found either lump China and Taiwan together or China alone. However, I think I can count the graduate student connected to Taiwan in one hand during last ten years of my career in three different institutes (Ph.D., post-doc, faculty). While the numbers of Chinese graduates, I can't even keep track of because they are all over the place.

Do you mean the approval process for returned profs, or for foreign profs?

I think it is the same approval process for all "National" university for new incoming faculty. You know the REAL University in Taiwan! The Ministry of Education has to award the professorship or something like that!

Anonymous said...

"Dude, where on earth do you think the chip fabs came from in the first place?"

http://inventors.about.com/od/istartinventions/a/intergrated_circuit.htm

Hmmmm, people trying to make money? Sure, they are selling them to the US air force. I see no mention of Taiwan. Can you explain to me how the chip became to be a special prerogative of Taiwan to make but not the USA or China? If Taiwan is correct to halt the export of its industry to China, should the USA have done the same?

"Yes, because what I mean is that every industry must be protected everywhere. It's like, when I advocate national park conservation, I mean every square inch of land on earth ought to be in a national park."

OK fine. Then define the size of your park and the reasons you include chips and not other industries in said park. Also, explain how Taiwanese shoe workers are not as critical as Taiwanese fab workers. I mean, you seem to be arguing that the state should decide which Taiwanese job is critical and which is okay to send to China.

Anonymous said...

Professor Salary

Arty's argument ignores US taxes (at least double, more if depending on bracket) and the fact that Taiwan's cost of living is only half of the US (depending where in Taiwan and where in the US of course). Being a professor is also actually cool in Taiwan. While people dismiss you in the US, people in Taiwan give too much respect to professors. But it's appealing for prospective professors.

"I've even blogged on the fact that Taiwan's universities are among the worst in the industrialized world (are they better in Korea? I don't know.). It's a severe problem, and it is getting worse."

You have? Maybe the average university, but the top universities? They have a lot of problems, but they churn out some pretty decent research, especially in medicine and chemistry lately. I personally think National Taiwan University is highly competitive with US schools in many fields, especially the engineering ones (EE, Compsci).

Michael Turton said...

http://inventors.about.com/od/istartinventions/a/intergrated_circuit.htm

Hmmmm, people trying to make money? Sure, they are selling them to the US air force. I see no mention of Taiwan. Can you explain to me how the chip became to be a special prerogative of Taiwan to make but not the USA or China? If Taiwan is correct to halt the export of its industry to China, should the USA have done the same?


Dude, look up the history of semiconductors and chips in Taiwan one of these days.

Again, this is retarded. Where did I say the chips are the "special perogative" of Taiwan?

And if you can't see the difference between chip fabs and shoes.....

Michael Turton said...

You have? Maybe the average university, but the top universities? They have a lot of problems, but they churn out some pretty decent research, especially in medicine and chemistry lately. I personally think National Taiwan University is highly competitive with US schools in many fields, especially the engineering ones (EE, Compsci).

That's their function, turning out research. Now what about things like collegiality among profs, cross-disciplinary work, theoretical work, education, administration....

Michael Turton said...

I mean, you seem to be arguing that the state should decide which Taiwanese job is critical and which is okay to send to China.

You mean, which industries and technologies are critical and which can be let go. Quit wasting my time with this twisting.


The Other Anon (can you guys use nom-de-plumes so we can distinguish you all?)

I think it would be less problematic to set up in Vietnam or Thailand, which do not want to annex us and which lack the capability to wholesale strip Taiwan of its technological know-how. I wouldn't like it.

The China problem may well be intractable -- factor equalization on a global scale. But I'm noticing that the pro-"China move" side has no idea how they are going to go about keeping Taiwanese living standards up.

PS said...

The China problem may well be intractable -- factor equalization on a global scale. But I'm noticing that the pro-"China move" side has no idea how they are going to go about keeping Taiwanese living standards up.

Yeah - this is the problem everywhere in the world that was developed before [say] 1990. How are Europeans and American's going to keep up their living standards with outsourcing and a more competitive China, India, Vietnam, and so on? [Plus debt] I think it is pretty intractable, unless basic support for free trade is abandoned - but it's EU and American firms that are aiding these moves. No one's going to pay someone in America $30 an hour for something they can get done just as well elsewhere for $10.

That said, Taiwan is at the right end of the spectrum, and in some ways ideally placed to take advantage of China becoming the economic / cultural attractor in the region [obv. with a lot of caveats].

I come on here and seem to split hairs and talk shit, but this is a great blog and I'm in broad sympathy with it's views, I just see the problem as an intractable one.

Arty said...

Arty's argument ignores US taxes (at least double, more if depending on bracket) and the fact that Taiwan's cost of living is only half of the US (depending where in Taiwan and where in the US of course). Being a professor is also actually cool in Taiwan. While people dismiss you in the US, people in Taiwan give too much respect to professors. But it's appealing for prospective professors.

Well, believe what you want. You must think that we can't do math. It is true that AVERAGE cost of living in Taiwan is about half of the US? However, do you really want to live the AVERAGE lifestyle in Taiwan? Even after tax, we are still making 1.5 times the gross amount of the AVERAGE Taiwan professors. If you are in the top 1%, the differences are even greater. Last year (or two years ago) a young UCSD professor (with Chinese last name) made over 5 million that year with bonuses because he actually produced something worth a lot more money.

Taiwan universities maybe still doing okay but they are losing fast without new talents, but according to you they are fine, so be it.

Stop looking at the technologies that you already have and worry about someone is going to steal it, but creates new ones and new opportunities.

Anonymous said...

"I think it would be less problematic to set up in Vietnam or Thailand, which do not want to annex us and which lack the capability to wholesale strip Taiwan of its technological know-how. I wouldn't like it."

This is acceptable position to me. (I was one of the previous anons)

If it is a matter of national security, and not simply economic nationalism, then fine. I may still disagree with you that it is a matter of security, but at least there is a position.

Oh, and since I bet Taiwan's government somehow funded or subsidized these companies, there is that as well.

However, one of my criticisms was the idea that China was stealing technology from Koreans, or whoever - seriously, you guys need to realize China is full of very smart people - sure, some crooks too, but their technological edge is often earned not stolen.