FDI and Taiwan

In her rambling manifesto (see post below), KMT presidential candidate Hung Hsiu-chu says Taiwan needs to be a better foreign direct investment (FDI) environment. Above data show FDI for Taiwan from 2006 to the present (source). If Hung plans to follow Ma policies for attracting FDI, then we'll have the same success we've had for the last seven years. As I noted two years ago, much of that FDI isn't really FDI -- it comes from the Carribean, Hong Kong, and Samoa. Probably much of it is recycled local money posing as "foreign money", and another big chunk is from China. This site notes that greenfield investments have fallen the last three years....
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Capital outflow, growth, investment: an eternal golden braid

Rift Valley near Ruisui.

Arguing that the government should get moving on the "free economic zones" , a commentary in the Taipei Times gave out some interesting figures on investment and growth:

....During the 1980s, Taiwan enjoyed an average annual growth rate of 7.7 percent. That figure fell to 6.4 percent during the 1990s and 4.4 percent during former president Chen Shui-bian’s (陳水扁) two terms.

A major reason for this slowdown has been declining investment in Taiwan. The average ratio of investment to GDP was 28 percent during the 1990s and 23.1 percent during Chen’s presidency. Since 2008, the investment rate has fallen further to an average of 16.9 percent.

The outflow of capital and talent is a more serious problem. In the past six years, there has been a net capital outflow of US$202.2 billion — an average of US$40.4 billion per year. The worst capital outflow so far was in 2012, at US$52.3 billion.

Taiwan’s net capital outflow for Chen’s terms was US$105.8 billion — an average of US$13.2 billion per year.

Note how under Ma the outflow to China has accelerated -- the strategy behind ECFA is to hollow out the island's productive capacity while positioning the move within the prevailing neoliberal economic framework. The reality is insignificant investment from China, massive outflows of cash to China, and no investment in Taiwan's future. The expenditures on the fourth nuclear plant were a complete waste; we could have been solarizing Taiwan with locally-made products, driving that globally-competitive industry higher, and giving the island's wind industry a huge boost with purchases of wind.

Are we getting a boost from foreign investment? AmCham reports regularly on foreign direct investment....

Approved foreign direct investment in Taiwan was US$5.56 billion last year [2012], higher than the US$3.81 billion in 2010 and US$4.96 billion in 2011, but much lower than that of Thailand, Vietnam, Indonesia, Hong Kong and Singapore, AmCham chairman Alan Eusden said.

In 2013 the score was just $4.9 billion in "foreign" investment, with 29.2% of that coming from the British islands in the Caribbean and another 7.7% from Samoa, for a total of 36% from those offshore tax havens. That "foreign" investment is likely recycled Taiwanese cash. Thus, a little over $3.1 billion represents cash from foreigners who wanted to invest in Taiwan.

What can Taiwan do to reverse these trends?
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Daily Links:

• Gwynn Guilford on the housing bubble in Taipei gets it largely wrong. To understand how housing bubble began, see this Panorama piece
• A defection to China threatens Taiwan's national security.
• Jobless rate falls below 4% to 3.91%, but new graduates enter market next month.

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[Taiwan] 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!

Investment Pact Protects Who?

AP writes on the investment pact signed Thursday...

The pact, which took two years to negotiate, offers investors from the two sides formal channels for dispute arbitration, while falling short of a Taiwanese demand that arbitration take place under international oversight. It is the 17th economic agreement between the sides since China-friendly President Ma Ying-jeou took office in Taipei in May 2008.

......

....But with this year's growth rate predicted to come in at less than 2 percent, broader tariff cutting and other trade promotion measures appear to have fallen short of Ma's promise that closer China ties would energize the Taiwan economy. The trade-reliant island is suffering from sagging demand for its trademark high-tech exports.

Chinese investment in Taiwan amounts to only about $300 million, far short of the more than $120 billion Taiwanese have invested in the mainland over the past 30 years. While the new pact could spur more Chinese investment in Taiwan, some restrictions aimed at preventing China's economic domination of the island remain in place.

Taiwan's opposition claims the new pact, like many of its predecessors, is helping to clear the way for increased Chinese economic influence on Taiwan, and setting the stage for an eventual Chinese political takeover of the island. That has been the ultimate goal of Beijing's Taiwan policy since the two sides split amid civil war in 1949.

........

But opponents point to Taiwan's continuing poor economic performance — its predicted 2012 GDP growth rate would make it one of Asia's most conspicuous economic laggards — as proof that Ma's highly vaunted China connection has failed to deliver the goods, and say the island needs greater balance in its trade ties.

No kidding.... not just the 2012 growth rate, but the economy hasn't gotten much help at all from China, certainly not like the golden days of CSB's latter years. With his usual mediocre luck, Ma seems to have both missed the best years of the China boom while getting hit by the Euro-American slump. Thus Taiwan's trade with China, Europe, and the US is all falling year on year, while with ASEAN Taiwan runs a trade surplus and trade volume is rising. Remember when Ma claimed we had to have ECFA in order to save our economy? We have ECFA, and growth is running 3-5% below what it was in the latter years of the CSB administration. This investment pact is years too late.

Another issue the paper raises is investment from China to Taiwan. It's easy to look at that only in the context of China-Taiwan relations and blame, as the AP report does, investment restrictions. But I pointed out a couple of years ago when ECFA was still being "debated" that restricting FDI in its trade partners is a longterm policy of Beijing's:

The trade and foreign direct investment (FDI) figures are not encouraging either. Since 2004, tariffs between the two sides have been coming down, and Asean's trade deficit with China has widened. From 2000 to 2008, China-Asean trade grew sixfold to US$198 billion (S$280 billion). But Asean's trade deficit also widened five times to US$21.6 billion. Asean's cumulative FDI in China was US$52 billion in 2008. By comparison, China's FDI in Asean was just US$2.8 billion.

Total Chinese FDI in ASEAN is now over $10 billion. The FDI situation is complex because "Chinese" FDI can be many things:

China’s share may be higher than official home and host country data show as the example of Vietnam illustrates. As large amounts of Vietnamese FDI inflows originate from Hong Kong and the British Virgin Islands, Frost (2005) suspects significant further amounts of Chinese capital to be routed to Vietnam via these and other offshore financial centres. On the other hand, there are also reasons to assume that China’s share is overestimated in some host countries. During the field research in Cambodia and Vietnam we found that a number of companies that were identified and registered as mainland Chinese were in fact owned by a parent company from Hong Kong, Macao, or Taiwan. In some cases, these parent companies were established in mainland China and later moved to Hong Kong for reasons like taxes, logistics, or proximity to clients. In other cases, however, companies originated from Hong Kong or Taiwan and were incorrectly registered as mainland Chinese.

Recall also that in the glory days of the early 2000s when massive foreign investment in China was being touted, much of that "foreign" investment was Chinese money recycled through global offshore financial centers and reinvested as "foreign" investment in order take advantage of FDI investment benefits.

What about Korea? Well...(Asiaone):

South Korean statistics showed China's investment in its neighbor was US$3 billion last year, and was mainly in the tourism and entertainment industries. South Korean investment in China reached US$36 billion (S$45 billion) in 2011.

China has invested a lot more in South Korea, yet the same lopsided investment pattern shows up -- S Korea invests twelve times more in China than China does in South Korea. (Actually, if anything could motivate Taiwan to sell itself to China via FDI, it's the knowledge that China sends more FDI to Korea....ZOIKS! The Koreans are kicking our ass!)

So, looking at the overall Chinese investment situation in Taiwan and China's investments in other nearby small economies, it is hardly surprising investment in Taiwan is so low. After all, it's not like we have a booming economy here, with growth probably going to come in under 1% this year and inflation on the march, and it's not like China sends large allotments of funds overseas to nearby economies.

Two other points need to made. First, FDI in Taiwan must satisfy Beijing's political goals. This places an additional constraint on such FDI. Second, FDI in Taiwan, which ostensibly helps Taiwan's economy, actually conflicts with Beijing's longterm goal of hollowing out the island's economy and stealing its technology. Given the current economic growth in China and the cross-strait political situation, why should China want to invest in Taiwan unless furthers its political and technological goals?

This discussion of Chinese investment also hits on another issue: the housing boom here. Everyone talks about China's ghost cities and massive real estate boom. We're having an under-the-radar boom here in Taiwan -- it doesn't get any play in the global media, but here in Taichung building after building, estate after estate, new hotels, all going up in the best cargo cult style. Yet something like 40% of residences in Taichung are unoccupied and will probably never find buyers/renters. Think Chinese money will step in to prop up this bubble? LOL.

Finally, ETRC points out the obvious: Eighteen agreements in four years, what's next? What's next is obvious: the (open) political talks.
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Daily Links:

• Chinese "activists" land on Senkakus, provoke Japan. China says it will send warships to protect future expansionist "activists." What's the next step in this minuet? Washington sending a quiet warning to Beijing that it still recognizes and will act on the US-Japan security treaty?
• Tsai cleared up Yu Chang allegations. Remember that smear, just in time for the election?
• Excellent observations on the Hong Kongization of Taiwan

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[Taiwan] 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.

Chinese money inflows -- the game begins

Commonwealth magazine had a couple of good pieces this week on the growing Chinese presence in the property markets here in Taiwan....

Driving at 60 kph into the hills beyond the Beitou rapid transit station, the minibus negotiates a couple of mountain curves, passing the Kuo-Hua Golf Course in the district of Siaopingding before coming to a halt at the ongoing construction site of Nan Kuo Village, a mountainside luxury housing development with expansive sea views. The luxury villas overlooking the mouth of the Danshui River and Taipei 101 are going for NT$800,000 per ping (about NT$242,400/sq. meter), and with the smallest units covering 256 pings (a ping equals 3.3 square meters), entry into this community will set you back several million bucks. A number of Chinese clients have already ponied up, looking to become the new neighbors in Greater Taipei.


"Selling Taiwanese property to mainlanders is really just too easy," says one Chinese realtor. In Taiwan, you're not only buying a good living standard and good views, you're also buying rights to the land in perpetuity.


Relative to the residential property usage rights limits of 70 years in China and 99 years in Hong Kong, Taiwan's excellent system of individual property rights protections has become a major selling point since the opening of direct links and the subsequent signing of the Economic Cooperation Framework Agreement. And the newly wealthy Chinese merchant class does not shy away from high prices. To illustrate, initial sales of units in the Huang Hsiang F4 Building, a luxury residential complex along Songren Rd. in Taipei's Xinyi District that may fetch as much as NT$2.5 million per ping (about NT$758,000 per sq. meter), have been set aside for Chinese businesspeople.

What will be the effects? The article notes that since Hong Kong since its partnership agreement with Beijing, the property market has soared, with per-ping land prices tripling or more. Even after the US financial industry wrecked the world economy, the Hong Kong property market has continued to routinely set records, fed by Chinese demand. The second article notes how Chinese investment is already at work in Taiwan:

They have penetrated the computer and electronics, optoelectronics, banking and property markets, adding a new variable to Taiwan's competitive environment and quietly entering the lives of Taiwan's people. The online games children play, the houses and hotels we live in, our neighbors, the media we are exposed to and even our jobs – could all be under the shadow of Chinese ownership.


Since Chinese investment in Taiwan was liberalized in July 2009, the Ministry of Economic Affairs' Investment Commission has approved 120 Chinese investment projects with pledged investment of US$140 million as of the end of February.


The US$12.2 billion invested by Taiwanese businesses in China last year was nearly 100 times that amount (and cumulative Taiwanese investment there is nearly 1,000 times the amount). The numbers appear lopsided, but China's investment in Taiwan is actually far greater than the nominal figures would suggest. Through their use of a global network of subsidiaries and affiliates, Chinese enterprises have grabbed stakes in Taiwan in many different sectors, including those that have yet to be legally opened to Chinese investment.


A number of big Chinese corporate names have entered Taiwan through affiliates in third countries (taking stakes of less than 30 percent). Many made plays of this nature even before investment permit regulations for Chinese investors were issued in 2009. Lenovo invested through the PC department of IBM Netherlands. Alibaba established a presence through its Singapore subsidiary, and telecom services provider Huawei Technologies Co. set up a Taiwanese branch office through its Hong Kong subsidiary.

The effects on Taiwanese firms have yet to be felt. There has also been Chinese money quietly flowing into the property development now going on in Taichung, I have heard from two independent sources. Dunno if that is true. But it is clear that Taiwan's investment regulations and restrictions are easy to skirt and Chinese are pros at doing so. For years Chinese firms took money out China and funneled it through the Caribbean to return it to China as "foreign investment" and receive the tax breaks for being "foreign".
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Daily Links:

• ISS passes visible at night from Taichung for early May.
• Steve Yates, former Asia official in the Bush Administration, interviewed on TVBS
• Open letter signatories rip Ma Administration for response, bogus investigation of them.
• Statistical study suggests that during the Cold War the White House leaked info on secret coups to Wall Street so it could benefit by speculating on US firms.

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[Taiwan] 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.

Sinotruk to build bus assembly plant in Taiwan

From the China Times via Taiwan Today, news about a Chinese state-owned vehicle maker that wants to build a bus assembly plant in Taiwan:

According to the officials, state-owned China National Heavy Duty Truck Group Co. Ltd. has fixed its sights on establishing a bus assembly plant in the Changhua Coastal Industrial Park in west central Taiwan.

The state-owned enterprise, also known as Sinotruk Group, plans to invest NT$5 billion (US$158.7 million) in establishing the factory. The project, if approved, would represent the largest investment in Taiwan by a mainland Chinese company since the government opened the island up to mainland investment in July of last year.

MOEA officials stated that top executives of Sinotruk visited Taiwan late last year to study the planned investment project and that the company is currently carrying out a more detailed assessment of the plan.

The kicker is at the end of the article:

The officials pointed out that Taiwan’s bus market is nearly saturated, so most of the buses produced at the planned factory in Changhua would be exported to the U.S. and Southeast Asia.

The higher value of “made in Taiwan” products compared to “made in China” goods was an important factor in Sinotruk’s decision to move to set up a production plant on the island, the officials said.

The investment is nice, but does not do much for the island's technology base, since it is merely an assembly plant with the high value technical work done elsewhere. Sinotruk was actually founded in 1935 under the KMT government based on an earlier automobile firm in Jinan, Shandong.
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[Taiwan] 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!

Shocked-I-Tell-You Events

Happiness is an office decorated with my daughter's paintings.

I was shocked, I tell you shocked, to learn that Premier Wu Den-yih, back before he received his promotion to his current exalted state, traveled to Bali Island in Indonesia with a prominent Nantou gangster back in December, as the pro-Blue CTI reported (quickie translation from Google, slightly cleaned up):

根據周刊報導，吳敦義任職國民黨秘書長期間，曾偕妻子蔡令怡與中部黑道大哥江欽良，共赴印尼渡假盛地峇里島五日，同行者還包括南投縣長李朝卿、議員李增全、竹山鎮紫南宮主委莊秋安、草屯鎮代表會主席林焜熠夫婦。由於江欽良仍在假釋期，且自十餘歲出道累積逾30項的犯案前科，令人高度質疑吳揆力挺查緝黑道的決心。

According to a Next Weekly reports, when Wu Den-yih was KMT Secretary General, he and his wife and central Taiwan triad leader Jiang Qin Liang, went to the Indonesian resort island of Bali for five days while traveling, together with Nantou County Magistrate Li Zhaoqing, Mr Li Zeng-Quan, Chushan Town Purple Palace Chairman Zhuang Qiu-An, and Mr Lam Kun-Yi of the Tsaotun Township Council and their wives. As Jiang Qin Liang was still on parole from a ten year sentence, with a record of 30 previous convictions for various offenses....

A spokesman said on behalf of Premier Wu that he had gone there to gain ideas for tourism. Clearly, to attract so august a crowd, Bali Island must have many lessons for land-locked Nantou.

Out walking the pet chicken in front of an apartment complex in Linkou as the stray dogs look on hungrily.

When last we heard from the High Speed Rail on this blog, the government was taking it over as the system was unable to service its debts. The government takeover was necessary to get the political leverage so that the state banks would re-do the loans at a lower rate. Sure enough, the news came out today that the government banks had agreed to refinance the loans...

The Taiwan High Speed Rail Co. (THSRC) yesterday secured a total of NT$ 382 billion in loans from a bank consortium at an average interest rate of 1.8%, helping to relieve the firm from its heavy financial burden. The THSRC also pledged to assist the state-owned shareholders to obtain more than half of the seats on the THSRC board, which is scheduled to be reshuffled next week.

An official pointed out that the bank consortium consisted mainly of eight state-owned banks, including the Bank of Taiwan and the Land Bank of Taiwan, but the bank consortium intended to solicit the participation of several private banks. According to local media, some private banks, including Taipei Fubon Bank and the Chinatrust Commercial Bank, have shown interest.

The comment about the HSR company helping government-connected people get a seat on the board reminds me of this article on China's burgeoning private equity muscle. Private equity firms typically invest in companies in which they see a gap between current management's ability to make money and their own assessment of the potential of the firm. They then chuck out the previous underperforming management, bring in experienced pros to run the companies, and sell off the firm after a few years at large profits, which are repaid to the original private equity investors.

This business has largely been the domain of westerners but China now has the money to begin focusing on Taiwan's listed corporations. Once they have purchased shares it will be easy to install pro-China lackeys, or Chinese themselves, on the boards (Taiwan shareholders typically don't vote). I'm sure you'll be shocked to find that economic relations are not apolitical, despite the claims of thoroughly clueless futurists. Economist Peter Chow wrote a great piece in the Taipei Times the other day on some of the really deep issues involved in moving closer to China.

Screen capture from Taipei Times the other day. Impersonators of Sun Yat-sen and Chiang Kai-shek with a local political candidate.

Quote of the week: I had my students do pro/con essays on the topic of living together, and one male dolefully informed me that one of the disadvantages of cohabiting is that "you must be honest" with your partner.

Those of you into trivia can answer this one which appeared on H-Asia:

I wonder if anybody knows about Hollywood films on Taiwan or Taiwanese issues produced in the 1950s-60s. Is there any equivalent of ‘Sayonara’ or ‘The World of Suzie Wong’ set in Taiwan? There have been many studies on the culture during the Cold War and the American representation of Asia, but I haven’t come across anything specifically addressing Taiwan, therefore I would be grateful if anybody can kindly let me know.

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Daily Links
Sad to learn Taiwan lost 400 historic puppets in warehouse fire. Taiwan What's Up says foreigners will soon enjoy lower tax rates. Slightly lower. Over at China Beat there is a reallllly great post on the reconstruction of Hsiaolin Village by Paul Katz. Finally, don't miss this excellent interview with one of the architects of the Taiwan health care system in the NY Times.
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[Taiwan] 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!

Taiwan Opens to Investments from China

The biggest cheerleader for a Ma Ying-jeou victory in the 2008 presidential election was the finance industry, and at last they are getting what they wanted as the government is planning to let Chinese investments into Taiwan. Ting-yi Tsai at WSJ has the call:

Many people in Taiwan fear China could use its economic might to influence the island politically. The opposition Democratic Progressive Party said it will to push for a referendum on the trade deal with the mainland. "Taiwan is losing its economic autonomy and is likely to become another Hong Kong," said Chiu Tai-san, a former legislator with the Democratic Progressive Party and previous vice chairman of the Mainland Affairs Council, which overseas Taiwan's China policy. Hong Kong, a former British colony, reverted to Chinese rule in 1997 and has increasingly found prosperity as a service and logistics center for the Chinese economy.

But foreign businesses -- whose investment in Taiwan has been declining in recent years -- are welcoming the trend. Normalization "is upgrading Taiwan's economic strategic position," says Jerry Fong, an official with the European Chamber of Commerce Taipei.

One focal point of Chinese investment has been the Taipei 101 office tower, which when it opened five years ago was the world's tallest building. Built to be an icon of Taiwan's progress, the 509-meter jade-color tower was largely a white elephant, with almost half of its office space empty. Now representatives from major Chinese companies such as Lenovo Group Ltd., Sinosteel Corp., and Tiens Group Co. occupy the high-profile address. The building is now 80% occupied.

Anticipation of more Chinese renters has helped lift average rental rates in the area around Taipei 101 by 5% to 10%, says King Chiao, president of Hsin-Yuan Business Rehouse Co., a Taipei office brokerage.

The tower's shopping areas are now busy with shoppers from across mainland China. In the first six months of this year, the number of visitors to Taipei 101's observation deck rose 30% from a year earlier, almost all because of Chinese tourists, says Michael Liu, a spokesman for the building.

Beijing has been eager to use its economic clout to woo the island's population. China claims Taiwan as part of its rightful territory and aims to eventually bring it under Chinese control. Chinese President Hu Jintao has publicly encouraged Chinese enterprises to invest in Taiwan.

Reading between the lines, it is easy to see where most of the benefits from Chinese investment will fall: Taipei, the island's finance and real estate center. The government does not appear to be making any effort to spread the wealth. Given that the avowed purpose of Chinese investment is to annex the island, concentrating it in Taipei simply places the investment in an area already fervently pro-KMT -- essentially wasting its hearts-and-minds effect. Good.

Going on behind the scenes, a staffer at a local law office said to me the other day, is a constant and dizzying flow of revised and new regulations aimed at facilitating Chinese residence and economic activities, with little public oversight or discussion. Indeed, the changes are so rapid, broad, and numerous, that they are impossible to keep track of. Taiwan is undergoing fundamental, probably irreversible change, that is being kept out of the public eye.

192 industries were opened on June 30th:

John Deng, deputy minister of the MOEA, pointed out that mainland companies can begin applying immediately to the ministry for the establishment of subsidiaries or branches on the island. They can also set up subsidiaries in Taiwan through a third region.

In the manufacturing industry, automobile, motorcycle, rubber, plastics and textile companies can now receive Chinese investment money, as can companies in computer peripherals, home appliances and passive electronic components sectors. However, herbal, construction, liquid crystal display panel and wafer foundry companies remain off-limits to mainland investment.

As for the service industry, retailers and wholesalers of daily necessities will be permitted entry, as will aviation and shipping enterprises. Mainland companies can invest in type II telecommunications businesses, but maximum ownership is limited to no more than 50 percent.

Mainland investors will be allowed to invest in infrastructure projects, but are prohibited from bidding for construction contracts. Investment in civil aviation terminals and facilities is limited to public areas such as aviation halls, boarding and luggage areas, and other non-restricted areas. Ownership of aviation terminals and ports will also be limited to no more than 50 percent. The minimum requirement for investment in ports is set at a range between NT$1 billion (US$30 million) and NT$2.5 billion.

Military-related mainland enterprises are prohibited from investing in the island. In addition, mainland enterprises are not allowed to invest in monopolies or in businesses that could affect national security. Enterprises with capital in excess of NT$80 million, and which have received investment money from the mainland, will have to file annual financial statements.

The 50% restriction is probably pure fig leaf. Recall that the pro-KMT TVBS television news channel was/is 100% owned by Hong Kong Chinese, half legally up to the 50% limit, the other half through a dummy corporation located in the Caribbean. It is difficult to imagine that these limits will be adhered to by Chinese investors or enforced by our Chinese nationalist ideologue president and his Chinese nationalist party.

In addition to permitting investment from China in dozens of industries, the government is also loosening restrictions on cross-strait remittances:

The Financial Supervisory Commission under the Executive Yuan announced June 30 that effective immediately, individuals or businesses remitting money to the mainland are not restricted to providing financial assistance or donations to friends and relatives. Instead, remittances will be regulated by negative listings, so that any purpose that the government has not prohibited will be allowed.

.....

According to FSC statistics, cross-trait remittances (outward plus inward remittances) passed NT$10 trillion for the first time in 2008. Over the past four years, the annual increase has averaged 34 percent. An official with a large-scale remitting bank predicts that with the great loosening of transfer restrictions, there could be a more than 50 percent increase this year, which means that cross-strait remittances could approach NT$15 trillion, more than Taiwan’s yearly gross domestic product.

So... investment flows from China, increased remittances -- the finance industry is going to be awash in cash.

The government also announced today that Taipei and Beijing have reached preliminary agreements on ECFA:

The entire agreement is less than 10 pages in length, and covers such general topics as the lowering and abolishing of tariffs, trade in services, trade in goods, mechanisms for solving disputes, and an appendix detailing tariff-free sectors, Huang said.

The two sides have finished studying the preliminary agreements and have started a further round of negotiations, he added.

The director-general made his remarks in Taipei while attending an industry forum in a summit between business leaders from Taipei and Beijing. He was asked to give a report on the possible content and strategies to promote a cross-strait economic cooperation framework.

Things are moving very rapidly....

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[Taiwan] 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!

Thoughts on WHA Observer Status and the Nanjing Talks

WHA observer status....Taiwan News reports on DPP Chairman Tsai Ing-wen's comments:

Opposition Democratic Progressive Party Chairwoman Tsai Ing-wen stated that the invitation issued by the World Health Organization (WHO) to Taiwan under the name of "Chinese Taipei" to attend the annual World Health Assembly meeting in Geneva this May "as an observor" had "abandoned" Taiwan's sovereignty and "lacks substantive meaning."

Speaking with reporters after the weekly meeting of the DPP Central Standing Committee, Tsai said that the letter sent by World Health Organization Director-General Margaret Chan to "Chinese Taipei" Department of Health Minister Yeh Ching-chuan on Tuesday "appears to be a one-time invitation and the basis in WHO regulations for the invitation to attend the WHA as an observer is unclear."

Moreover, Tsai noted that Yeh was only referred as a "doctor" and that Taiwan is to be referred only as "Chinese Taipei," not as Taiwan or the Republic of China. The DPP chairwoman also observed that the letter did not mention the May 2005 secret memorandum of understanding (MOU) signed between the WHO Secretariat and the People's Republic of China which requires all WHO contacts with Taiwan to take place through Beijing's Ministry of Health under a "one China framework."

Tsai stated that if Chan's letter represented an "one time invitation and if the question of sovereignty remained darkly clouded, this invitation will lack substantial meaning."

"Any claim by the Ma government that takes this event as a diplomatic victory due to its policy of diplomatic truce will be a grave exaggeration and extremely inappropriate," said the DPP chairwoman, who added that "we do not yet know what was traded to gain this invitation."

Short version (1) it's only for this year, a one-time invite easily rescinded if a pro-Taiwan government comes to power (and the meeting begins on May 18, two days before the first anniversary of Ma's inauguration... lucky coincidence for the Prez); (2) we're "Chinese Taipei"; (3) obviously secret deals were made -- adamantly denied of course -- what were they?

That's the official negative reaction. Let's look at perhaps some positives. The Taipei Times says:

Participating in the WHA ­meeting as an observer means Taiwan would have no voting rights in the assembly or at the WHO. Observers are granted speaking rights at the WHA meeting, but can only attend the meetings and committee sessions held during the annual two-week assembly.

Yeh said that WHA observer status would ensure Taiwan has direct contact with the WHO in exchanging information to protect public safety and would enable Taiwan to share its expertise in public sanitation and disease prevention with other countries.

A very perspicacious friend of mine noted that this is incredibly important for Taiwan. Being able to network will enable Taiwan to set up exchanges with developing nations that want its medical expertise. In South America some nations have been asking for this for a decade, putting quiet pressure on Beijing to tamp down its irrational and provocative anti-Taiwan policies so that other nations can get the benefits of networking with our world class health professionals. Many of the health workers in these nations have been cultivated through programs erected by MOFA to bring professionals from less developed nations to Taiwan for cooperation, efforts that have paid off in increased profile for Taiwan in the world. WHA observer status means little as far as clout in the world, but could mean much in increased support for The Beautiful Island.

A concession here: Dr. Chan, head of the WHO, invited the "Department of Health", an entity that the PRC has long denied has any existence. So it is progress of sorts. "Chinese Taipei" is no big deal, we participate in many organizations under that moniker. It isn't ideal, but it could have been worse. It would be better if we had a pro-Taiwan government in power, one we could trust not to sell out the island, but that's life....

Let's not forget -- there is strong public support for participation in international organizations. The DPP did much to foster this while in office, some of it frankly manipulative, but some of it in response to the authentic yearning for international recognition alive in the public here. This public support put the KMT into a corner, a corner constructed for it partly by previous pro-Taiwan DPP policies. The DPP may be down, but not all of its successes can be reversed or rendered hollow.

One interesting thing about WHA observer status: Ma is playing it up, as Tsai predicted, as a great triumph of his "diplomatic truce" policy and of course, as evidence of China's "goodwill." The reality is that the announcement, which has been in the works for some time, was probably timed to cover up the fact that the CCP pwned the KMT at the recent cross-strait Nanjing talks. Taiwan News has the call -- every word is chewy good:

The talks began last Saturday with an unseemly embrace by SEF Chairman and KMT vice chairman Chiang Ping-kun of ARATS Chairman Chen Yunlin, but the real atmosphere was actually set by the purposeful "coincidence" of the SEF-ARATS talks, held in Nanjing at Beijing's suggestion, of massive celebrations marking the 60th anniversary of the liberation of the former Republic of China capital by the Chinese Communist Party's People's Liberation Army on April 22, 1949.

Although downplayed by pro-KMT media, this transparent political humiliation was followed by a diplomatically cordial drubbing by the Beijing side.

For example, ARATS turned down various requests by the SEF side, such as Taipei's plea to increase the flights for Taiwan airlines in "golden routes" such as between Taipei and Shanghai and instead graciously expanded flights between Taipei and "hot spots" like Nanchang and Hefei instead and added northward routes that passed only through PRC air control zones to emphasize the "domestic" character of cross-strait air routes.

Moreover, in response to the KMT government's urgency to initiate talks on a cross-strait economic cooperation framework agreement (ECFA), the Beijing side excluded the ECFA from discussion for the fourth Chiang-Chen "negotiations," evidently pending the offer of further concessions by the Taipei side.

Last but not least, the PRC side showed that it treated the SEF-ARATS talks as "normal negotiations" by leaking a draft but unsigned set of agreements to the official Xinhua News Agency and thus forcing the Taiwan negotiators to sign Beijing's version or threaten not to sign the agreements, a risk that the KMT side lacked the political courage to take.

As noted in a previous editorial, the underlying strategy of the CCP toward the KMT is reminiscent of the declaration made by the late Soviet Union dictator Joseph Stalin on April 5, 1927 in the midst of the Chinese "national revolution" that Chiang Kai-shek and the KMT "have to be utilized to the end, squeezed out like a lemon, and then flung away."

The other day Taiwan News similarly noted:

For example, the touted "breakthrough" agreements that opened direct cross-strait commercial marine and air links both denigrated Taiwan's status by treating such routes as "domestic" through the exclusion of foreign carriers and thus also harmed Taiwan commercial interests by excluding the vast majority of Taiwan-owned ships which fly foreign flags of convenience and by refusing to extend "fifth freedom" or onward passage rights for even Taiwan airlines.

....

For example, the failure to include onward flight rights in the new pact will reduce Taiwan into a "commercial air dependency" of the PRC, whose airports will gain control over the lion's share of lucrative "hub" onward connections. Given the widespread claim that Taiwan is rich in capital but short on "investment opportunities" (at least for myopic Taiwan investors), the influx of PRC state-owned companies, with the assistance of local proxies, will be able to use the maximum of 30 percent ownership to secure effective managerial control over Taiwan companies and their technology or knowhow in most economic fields, including telecommunications and news media, snare public works contracts and channels for patronage, and, with investments in hotels and travel companies, secure control over the bulk of renminbi spent in Taiwan by Chinese tourists.

The imminent financial services memorandum of understanding (MOU), which even KMT lawmakers have warned will result in "Money Out" of Taiwan, will offer the PRC's giant state banks channels to control over even more Taiwan capital and access to up-to-date inside financial information on Taiwan companies and any citizen who has a credit or finance card, access which will undoubtedly be utilized for political as well as commercial purposes.

Moreover, the obvious "quid pro quo" that Beijing will overtly or covertly demand for an agreement to "fight cross-strait crime" and any grudging assistance in sending "economic criminals" back to Taiwan will be "reciprocal" assistance in securing the "return," expulsion from Taiwan or control of political dissidents, perhaps painted as "terrorists," such as advocates of Tibetan independence or Chinese democracy.

Last but not least, the insistence by Ma and the KMT government that these agreements have nothing to do with "politics" or Taiwan's sovereignty means that no "firewalls" will be set in place to prevent PRC interests from expanding political influence in Taiwan in the pattern of the China Resources Group and the Xinhua News Agency in Hong Kong.

Far from showing the strength of Ma's diplomacy, the recent WHA and Nanjing talks displayed the utter dependency of the KMT on the CCP. The agreements give China control over key cross-strait markets, ratified by the KMT because it desperately needs something, anything, to show its cross-strait policies are a success. Foreigners who trumpeted the advent of the KMT should take note at their exclusion -- these markets belong neither to them nor to Taiwan, but solely to China. Asian nations may give lip service to the free market religion, but at heart they are atheists. When state-backed Chinese firms come calling for Taiwan companies -- is a telecom deal imminent? -- foreign firms will be out in the cold too. But at least they will be able to fly conveniently from the Taiwan SAR directly to China on their way out of here.....

Much praise to Taiwan News for its great run of editorials lately. You can almost measure the political status of the island by the quality of Taiwan New's editorials -- as the threat to Taiwan rises, so does the asskicking quotient of their work. Good work, guys.

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[Taiwan] 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!

CNA: Ma will not permit hot money speculators from China

The Central News Agency (CNA) offers parts of an exclusive interview with President-elect Ma on the China money issue:

President-elect Ma Ying-jeou said Friday that he will propose anti-speculation legislation that will prevent Chinese investors from trying to make quick profits in the local real estate market.

Ma said in an exclusive interview with the Central News Agency (CNA) that his government will seek to normalize economic relations between Taiwan and China while maintaining Taiwan's national security and dignity.

As an example, Ma said his government would allow Chinese investors to invest in Taiwan's real estate market but also pass supplementary measures to prevent speculators from manipulating the market to make quick gains.

Under the measure, Chinese investors will not be allowed to resell the properties they buy in Taiwan within five years after making the purchase, he said.

Ma also warned that speculative capital might come not just from China but also from Southeast Asian countries and said the new government will take action against any speculative moves.

A law that prevents investors from "the mainland area" as Ma refers to it, from engaging in speculation, shows a number of currents in Taiwan society -- the idea that China needs to be restrained is something that the KMT hacked on the DPP for. And something that nations around China routinely engage it. It also shows ghosts of an underlying agrarian, or perhaps Confucian, horror of mercantile speculation. Taiwan's land use laws are rigid and appear to be primarily aimed at enabling local development and concrete firms to make big bucks putting up hideous cookie cutter concrete pestholes. One wonders how the laws will need to be revised.... last month a group of tycoons lead by the owner of Hong Kong's Phoenix TV visited Taiwan to see what the pickings were real estate wise, and there was one in November of 2007 as well.

This China Post article also explains why so many in Taipei are praying for real estate investment from China:

Feng explained that following the previous Chinese New Year, local Taiwan banks announced that they would stop lending money to buyers of apartments smaller than 20 ping (66 square meters). With the subprime crisis expanding worldwide, Taiwan banks have also learned to be careful when lending money, she said, noting that buyers of small apartments usually face more financial constraints.

"Taiwan people still want to invest in the housing market," she went on, "but they are waiting for the right moment."

Last Tuesday, Yeh Kuo-hua, a manager in charge of the luxury housing department of Yungching Real Estate Co., said that not only had the number of transactions in Taipei City and Taipei County shown a substantial decrease, but the prices of the luxury housing units sold in October also dropped about 5 percent.

Taiwan is already open for Chinese real estate investment, beginning in 2002, all that is required is a permit application. In other words, the framework, including restrictions, already exists, and was required by the WTO. One wonders how the WTO would view a law that discriminated against Chinese investors -- and if Ma and Beijing will slide around by saying WTO doesn't apply because the two sides are "One Country." Finally, what investor would want to buy a property that he couldn't sell when he pleased -- and why would other potential buyers support a law that took properties off the market for years at a time? Probably the government will install a "case by case" fig leaf -- looking at "speculative" sales on a case by case basis -- which will, like all such Taiwan regulations, have no teeth and permit anything to happen in practice.

For those interested, China Information, put out by the China Center at Leiden University, hosts an article on Taiwan's opening to China under the WTO rules out just this year.

[Taiwan]

China Investment Policies -- Meeting in the Middle

Forbes came out with a couple of articles that highlight how close the DPP and KMT policies are on China investments. First, there was a very short article on Frank Hsieh, now Chairman of the DPP, who said:

The government should ease regulations on China investments as soon as possible, subject to national security considerations, the Commercial Times reported, citing Frank Hsieh, the presidential candidate of the ruling Democratic Progressive Party (DPP).

High on the agenda should be relaxing the provision that caps China investments at 40 pct of a company's net worth and allowing local financial institutions to open shop on the mainland, Hsieh said in his capacity as acting chairman of the DPP.

Hsieh's position, readers may recall, is opening to China on a "case-by-case" basis. Forbes has a much, much longer article on the KMT's position, in which Chairman Wu argues that the KMT can prevent capital flight by opening even more to China:

Wu said the KMT is also ready to do away with the current provision capping China-bound investments by local companies at 40 pct of their net worth.

In its place will be a control regime patterned on the system developed by the US to regulate the export of technologies deemed crucial to national security, he said.

'We believe only the right policy can help [dissuade capital flight and] retain capital here,' he said. 'Capital always finds places where it can best preserve value and the highest possible return.'

Currently, China-bound investments are mostly capped at 20-40 pct of a company's net worth; higher net-worth companies have lower ceilings

Note that these are exactly the same positions: both argue for a case-by-case basis. Neither will restrain the flow of investments to China, since review systems in Taiwan rarely (1) have serious teeth or (2) are strictly enforced. It seems that both parties are signaling that business can do what it wants. However, rising labor costs in China may deflect investment elsewhere, to Vietnam, for example. India is often mentioned as a possible destination, but infrastructure there doesn't match China's.

Meanwhile Forbes has a little blurb that gives an authoritative estimate for the size of Taiwan's investments in China that is much greater than I had realized:

No matter which side wins, the money that the Taiwanese have taken offshore -- estimated by Morgan Stanley to be as much as $207 billion in capital outflow between 2000 and the end of the third quarter in 2007--should start to come home. This is a lot of money relative to the $625 billion market value of the Taiwanese stock market.

$207 billion -- a sum equal to about 2/3 of Taiwan's GDP. Sheesh!

Finally, Wendell Minnick over at DefenseNews.com has an excellent article on Ma Ying-jiu's cross-strait policies and defense issues.

[Taiwan]

Investment Medley

Asia Times has a long study of India's growing strategic and financial engagement with East Asia. A highlight:

India needs to add as much as US$500 billion in investment into its infrastructure and Japan, Singapore, South Korea and Taiwan have expressed interest in diversifying their investment beyond China. South Korea is India's ninth-largest source of foreign investment, with Korean companies such as Daewoo, Hyundai, Samsung and LG having a significant presence in India. POSCO is investing $12 billion to construct an integrated steel plant in Orissa in India's single-largest inward investment. Meanwhile, Singapore has emerged as India's seventh-largest source of foreign investment with Temasek Holdings making significant investments in India's financial, pharmaceutical, logistics and information technology sectors.

There have also been a number of Japanese investments in India, most notably in New Delhi's metro subway system and Maruti. The Japanese government and corporate sector will also provide one-third of the funding for the $100 billion, 1,500 kilometer Delhi-Mumbai freight and industrial corridor, which is to begin construction in 2008 and be completed by 2012. Discussions are also proceeding on reaching a bilateral currency swap agreement between India and Japan. India is already the leading recipient of Japanese aid, receiving over $1 billion in 2005.

Numerous infrastructure projects also serve to tie India closer to East Asia. India is participating in the UN Economic and Social Commission for Asia and the Pacific initiatives for an Asian Highway Network and the Trans-Asian Railway Network. Discussions are also proceeding on reopening the World War II-era Stilwell Road linking India's Assam state with China's Yunnan province through Myanmar. This follows the reopening of a direct overland trade route along the Nathu La Pass on the border between Sikkim and Tibet in July 2006 after 44 years.

Meanwhile, Taiwan's diversification from China to Vietnam and elsewhere is continuing apace. The China Post notes:

E-United Group, one of Taiwan's leading conglomerates, is planning to build a town in Vietnam for one billion U.S. dollars that will include hospitals, schools, golf courses and business, the Economic Daily News reported Monday.

The group is targeting about 500 hectares of land (1,235 acres) near Hanoi for the investment which will use the company's experience deployed at a similar project in Kaohsiung, southern Taiwan, the report said.

The Kaohsing-based group, whose core business is steel making, also runs a university, a high school and an elementary school and manages property development businesses. Vietnamese authorities hold a positive attitude towards the planned investment, the report said.

Taiwan is Vietnam's largest foreign investor, according to a Taipei Times report from earlier this year:

Ke, who led institute officials to Vietnam for a fact-finding trip in January, said that Vietnam has witnessed ever-expanding economic growth over the past several years, averaging 7 percent to 8 percent annually.

He also cited International Telecommunications Union data that shows Vietnam registered the world's second-highest growth in the telecommunications industry in recent years, behind only China.

He attributed Vietnam's success mainly to the country's abundant human resources.

Taiwan, which remains the largest investor in Vietnam, will benefit by continuing to increase its investment, Ke said.

Pham said that Vietnam, a relative "newcomer" to high-tech manufacturing, hopes to strengthen exchanges with Taiwan in this regard.

As of the end of last November, Taiwanese firms had channeled US$8.13 billion into Vietnam, constituting 13.74 percent of all foreign investment in Vietnam, the institute's data showed.

Onward to India!

[Taiwan] [Vietnam] [India]