Sunday, March 18, 2012

Taiwan to Liberalize Investment in Crown Jewel Firms by China

WSJ laconically reported:
The person, who asked not to be named, told Dow Jones Newswires the new rule--which will require final approval from the Cabinet--would allow Chinese investors to own up to a 50% stake in any Taiwanese tech firm, from 10% currently. The new rule would apply to companies including flat-panel and semiconductor manufacturers, the person added.
There's precious little investment from China in Taiwan, especially compared to the massive monies that Taiwanese have pumped into China, and even less into the tech sector. The move is ostensibly to permit Taiwan's capital-hungry firms to receive injections of lucre from China. Yet the pattern so far has been that there is no quid without a political pro quo from Beijing....

Another issue here is that approvals of such investments would likely be on a case-by-case basis. Readers will recall that back in 2009 Taiwan telecom giant FarEastOne inked a deal to sell a 12% share to a ginormous China firm, but the deal was never approved. I blogged on it at the time, citing an excellent piece by J Michael Cole on the Chinese firm's close ties to the government and state security entities.

It appears likely that the KMT Administration might promulgate such a law in order to appear as if it is doing something, but in fact throw up bureaucratic obstacles to concrete realization of the law. Even if the Ma government is sincere about letting Beijing's firms invest in Taiwan's tech sector, the turning over of a large chunk of a local crown jewel to Beijing may well spark the kind of public outcry that would kill the deal. If Beijing is smart its first investment will not be large and the usual connections to state security and investment firms will be lacking.
Don't miss the comments below! And check out my blog and its sidebars for events, links to previous posts and picture posts, and scores of links to other Taiwan blogs and forums! Delenda est, baby.


Tom said...

To be fair, when investment is lopsidedly from Taiwan to the Mainland, then if political relations chilled Taiwan would lose more, relatively speaking. Chinese investment into the island would create stakeholders on both sides of the strait for a conciliatory approach in cross-strait relations.

Michael Turton said...

That may be true.


B.Y. said...

"Chinese investment into the island would create stakeholders on both sides of the strait for a conciliatory approach in cross-strait relations."

Most people would argue there already has been a conciliatory approach to the cross-strait relations on the part of Taiwan due to the largely one-way investment direction at the moment. An interesting question is whether allowing more Chinese investment into Taiwan will give Taiwan more bargaining power if and when both sides are ready to take up political negotiations.

Feiren said...

Really? I am under the impression that the influx of Chinese capital is long-delayed and after this latest round of liberalization, the floodgates will open. A lot of the investment will come from offshore jurisdictions like the Cayman islands. We'll see.

Okami said...

Aren't the industries they're allowed to invest in loss making ones with outdated tech? I was under the impression that DRAM and LCD companies were infamous for losing money. I've heard both are falling being the S. Koreans from what I've read.

Anonymous said...

"and the usual connections to state security"

In China all firms are connected to state security. Which Chinese firm is going to tell Chinese security "you can't do that"? They can and do whatever they want.

"massive monies that Taiwanese have pumped into China"

"Taiwan's capital-hungry firms"

If they didn't send "massive monies" to China they wouldn't be so capital-hungry!

B.Y. said...

"If they didn't send "massive monies" to China they wouldn't be so capital-hungry!"

You're assuming their investments are totally without merit, which is not a tenable position. Some investments must have succeeded. The fact a firm is looking for new capital is by no means an absolute indicator that it failed in its past investments. There many reasons that a firm is looking for new capital, e.g. need to meet increasing competition in existing markets, to develop new products and/or to break into new markets. It's not uncommon for a very successful firm to look for new capital.

Anonymous said...

The problem with all this talk about mutual stakeholders, etc. is that we are talking about two entities that are unbelievably different in size. Economically, Taiwan's economy is only a blip for China.