Shut out

PUBLISHED : Sunday, 06 November, 2011, 12:00am
UPDATED : Sunday, 06 November, 2011, 12:00am


On a mountaintop north of its capital, Taiwan has begun a new and perilous experiment - the construction of the island's first residential skyscraper aimed at investors from the mainland. Even before the ground is broken, 20 units have been sold.

Mainland money and people have poured into property markets around the world - from Hong Kong to Honolulu, from Toronto to St Tropez - in a trend that accelerated when the financial crisis of 2008 brought down prices in developed countries. But Taiwan has remained the great exception. The island has made its rules so restrictive that mainland investment, in property and other sectors, is minimal and no mainlander can live here legally unless they are married to a Taiwanese.

'If mainlanders buy property here, they are not allowed to live in Taiwan,' says James Chu Shi, director-general of the Hong Kong and Macau Department of Taiwan's Mainland Affairs Council. 'If they are working in a mainland firm, we will give them a one-year visa. Mainland students must leave after they graduate and tourists return after they finish their visit.

'Taiwan is a small country and our land is a very precious asset. Our policy is not to encourage mainlanders to buy property for speculative purposes,' he says.

This is the great paradox of Taiwan. Since he took power in May 2008, President Ma Ying-jeou has improved cross-strait relations in a way no other leader has done, opening direct air, sea and postal links and signing 15 economic and trade agreements. It has led to the biggest flood of mainlanders onto the island since 1949, when Chiang Kai-shek brought 1.3 million civilian and military followers with him. Since mass tourism between the two began in July 2008, more than 3.5 million mainlanders have visited Taiwan.

The two economies are integrated as never before, with China (including Macau and Hong Kong) accounting for 40 per cent of Taiwan's exports and most of its trade surplus. The mainland is home to US$200 billion in Taiwanese investment, employing 14 million workers. About two million Taiwan people, 9 per cent of the island's population, live on a long-term basis in the mainland.

However, the people and government of Taiwan are not as welcoming. They see mainlanders as the Trojan horse of the 'peaceful unification' President Hu Jintao spoke about in his speech in Beijing on October 9, on the 100th anniversary of China's 1911 revolution.

'Taiwan people will not accept the 'one country, two systems' model of Hong Kong and Macau,' Chu says.

Opinion polls regularly show an overwhelming majority in favour of the status quo. A survey by Taipei's National Chengchi University in September found 1.4 per cent wanted unification at once, 5.6 per cent independence at once and the rest were in favour of the status quo, although 10.9 per cent wanted unification eventually.

Since Taiwan opened its property market to mainlanders in 2005, they have bought just 45 units, due to restrictions placed on such sales. Any application must be approved by the mainland's Association for Relations Across the Taiwan Straits and Taiwan's Straits Exchange Foundation. Chu says Taiwan would disqualify anyone who held a senior post in the government, Communist Party or People's Liberation Army.

'The PLA has many firms in Hong Kong and elsewhere. We ban people with links to such companies.'

If a potential buyer wins approval from these bodies, he can borrow no more than 50 per cent of the purchase price, cannot live in his property for more than 120 days a year and cannot sell it for five years.

'We want to prevent speculation,' says Chu.

Despite this, Wantong, one of the mainland's largest developers, purchased a 29,700-square-metre site located on a mountain 340 metres high overlooking the Tamsui river. In a joint venture with Nanguo Construction, a local firm, it is constructing three buildings, two with 276 apartments each on 29 floors and a third containing a clubhouse, a spa and a business centre. One of the skyscrapers, Wantong Taipei 2011, is aimed at mainland buyers. At the end of August, it invited clients from Beijing, Shanghai and Xiamen to see the plan and sold 20 units, at about NT$180,000 (HK$46,000) per square metre. Construction will begin this month and the units will be ready in early 2014. Before they can take ownership, though, the buyers of the 20 units will have to go through the approval procedure.

'Taiwan offers property rights in perpetuity, good transport and a good living environment,' says Hong Lun, head of the joint venture. 'Villas here are better than those in Sanya [on Hainan island]. In future, Taiwan will become the first choice of rich people in the mainland.'

The homebuyers may be purchasing the units because they want to spend a few weeks each year in a scenic place overlooking the river and mountains. But their properties will be in a remote location, with fierce winds and a long drive down a winding road to shops, restaurants and the Taipei subway system.

More probably, they - like Hong - are betting that, if Ma wins a second four-year term in January, cross-strait relations will further improve and the restrictions will ease. The big developers and construction companies are powerful in Taiwan and major donors to Ma's Kuomintang party. They will lobby to relax the rules, arguing the new capital will boost the property market and contribute to gross domestic product growth; they will have a stronger case if the market weakens and economic growth slows.

Because Taiwan has been sheltered from mainland money, its property prices are lower than those in Hong Kong, Beijing, Shanghai, Guangzhou and secondary cities such as Xiamen and Fuzhou. This makes it a prime target for those with spare money looking for bargains.

The restrictions reflect political fears and a desire to prevent speculation amid public anger over rising property prices. Since 2008, prices in Taipei have risen 25 to 30 per cent, buoyed by Taiwanese buyers living overseas. Last year, Ma's government cut the gift and estate tax from 50 per cent to 10 per cent, resulting in a flood of money from expatriates.

Incomes, however, have not kept pace. According to official figures, wages have been static for eight years, in part because so many factories and businesses have migrated abroad, especially to the mainland. Many firms keep only core departments, such as design, research and development and finance, at home while moving production offshore.

While unemployment remains relatively low at 4.7 per cent, salaries have not increased. A family on a 'low' income of NT$28,000 a month needs 17.5 years worth of salary to buy an apartment of average size in Taipei; one on a 'middle' income of NT$58,000 needs 14.2 years. The international standard is seven years. People are forced to live in containers or subdivided apartments.

The inability to buy a house is a major factor contributing to Taiwan's birth rate being the lowest in the world.

Chen Jun-hong, a property agent at Yung-Ching Real Estate in central Taiwan, says the restrictions have been effective in keeping out speculative money.

'The main reason [for the restrictions] is the fact that high property prices are the No1 concern of the public and we are close to an election,' he says. The island will hold presidential as well as legislative elections on January 14.

'We must not copy the Hong Kong example and open the property market,' says Liang Ying, a Taipei schoolteacher. 'There, prices have gone out of the reach of a young couple, even if both are working. The government must protect us from mainland money. In doing favours for Taiwan, Beijing has a political agenda. We must be vigilant.'

The Taiwanese government uses a similar logic in its policy towards investment by mainland firms in Taiwan. As of the end of August, this had reached US$147 million in total, a fraction of the overseas investment that is flooding out of the mainland and around the world. The money has gone into electronics, shipping, banking and aviation, with mainland firms such as Air China, China Southern and China Eastern - which offer direct cross-strait flights - setting up Taiwan offices.

'In approving such investment, we consider whether it hurts Taiwan's national security, industrial competitiveness or takes away job opportunities in Taiwan,' says Gao Shian-quai, secretary general of the Council for Economic Planning and Development. 'We treat investment from the mainland differently to that from other countries because of the political issues. We have to take other factors into account.'

Two mainland banks - Bank of China and Bank of Communications - have applied to open offices in Taipei, with approval expected in the first quarter of next year.

'Chinese banks are all state-owned. The Industrial and Commercial Bank of China is the biggest [lender by market value] in the world,' Chu says. 'If we opened the sector freely, it would not be difficult for China to buy all the Taiwanese banks. So we set conditions.'

Mainland firms are allowed to buy commercial property in which to operate their businesses.

'We welcome white-collar management to come [from the mainland],' Chu says. 'We give them a one-year visa and then they can apply for an extension.'

But mainland labourers are banned from working in Taiwan. Instead, it employs tens of thousands of Indonesians, Thais, Filipinos and Vietnamese to work in factories and the construction industry and as domestic helpers - jobs that local people do not want.

The largest group of mainlanders on the island are the 300,000 women who have married Taiwanese men. In most cases, they met their spouses while the latter were working in the mainland.

Under the Democratic Progressive Party (DPP), which was in power for eight years up to 2008, these wives were treated differently to other foreign wives: they had to wait longer for work permits and identity cards - and they complained bitterly about this discrimination. The architect of that policy was Dr Tsai Ing-wen, who is running as DPP presidential candidate in the January election.

Chu says the Ma government has corrected this inequality: 'We feel sorry for that. We believe that those who marry Taiwan people should be regarded as Taiwanese and have the same rights as wives from Japan and other countries.'

For many people, the recent changes are most evident in the thousands of mainland tourists who have arrived since July 2008. In 2009, their number was 930,000, last year it was 1.6 million and this year it is expected to reach two million. The mainland has displaced Japan as the No1 source of tourists to Taiwan.

Initially, mainland visitors could come only in organised groups. Since July, residents of Beijing, Shanghai and Xiamen have been allowed to come as individual tourists, subject to conditions.

Lin Mei-fang, who works in a five-star hotel in Taipei that has received many such guests, expresses a common reaction.

'The mainlanders have a different accent and use different vocabulary to us. They speak in a blunt and direct way, which we do not. Sometimes they spit and are vulgar. They have different customs; I do not say one or the other is better. When I went to the mainland and said, 'Good morning', or 'How are you?', they did not respond. That is their custom. A mainlander in a Taipei shop criticised one of the staff, saying, 'I could buy this shop.''

'Mainlanders have only recently become rich,' says Laing Hsiu-jun, a civil servant, as he watches Chinese tourists buy Dior, Chanel and other luxury-brand goods in a Taipei 101 store. 'As they say, you become rich and then you think about helping the poor. Taiwan people behaved the same way 20 years ago - they went abroad, were boorish and flaunted their wealth.'

Lin Ming, a waiter in a Kaohsiung hotel, says he feels angry when mainlanders say Taiwan belongs to China. 'This is the propaganda they have been told for many years. We avoid these topics. I welcome the renminbi [the people's money] but not the renmin [people].'

Wang Li-hsiu, a tour guide on the roof of Taipei 101, one of the most popular sites for mainland visitors, says: 'They speak loudly and are hard to manage. They often leave the group. They make political comments, that we are all of one family. We do not like it but cannot say anything. Japanese visitors avoid them and come in the evening.'

The big-spending habits of these visitors have been an enormous boost to the economy. They have transformed the fortunes of Taipei 101, at 509 metres the world's second-tallest building, after Dubai's Burj Khalifa. The skyscraper cost HK$15 billion to build; after it opened, in November 2003, the building was struggling to pay back the enormous cost of construction. The arrival of mainlanders pushed up demand for its retail stores and enabled the owner to raise the rents. The complex now houses the largest concentration of luxury stores in Taiwan, with more than 200 brands represented.

Last year, retail sales in Taipei 101 reached NT$9 billion, of which mainlanders accounted for 15 per cent. One mainlander spent NT$10 million on a diamond, a record purchase: more than 3,000 mainlanders have spent at least NT$1 million each here.

In the three years to July, mainlanders spent a total of NT$215 billion in Taiwan. Their contribution was a major factor in boosting Taiwan's GDP growth last year to a 24-year high of 10.88 per cent.

Many sectors of the economy have benefited - hotels, restaurants, shops, markets, beauty salons, hospitals and plastic surgeons. The island's private hospitals offer medical check-ups and operations conducted by Putonghua-speaking staff.

There are, of course, Taiwanese who welcome more than just mainland money.

'They are people,' says Carol Ann Chang, a journalist. 'We go and settle in the mainland. We should not have a small-island mentality. We have a government, a police force and a legal system in which I have faith. They have established rules that govern the entry and behaviour of these people.

'The two sides are just getting to know each other. We need a period of transition to understand each other. We need rules during this period. The mainlanders have lived under a one-party state for so many years; they need time to change, step by step.

'Not all of them are bad or ill-behaved.'

Chu says that, initially, the government was worried about overstayers and the potential threat to national security. 'But only three out of 100,000 tourists overstayed.'

Those who are caught are returned to the mainland.

In September, the start of the academic year, Taiwanese universities opened their doors to mainland students for the first time. About 1,500 have enrolled.

'The policy of the Ma government is simple,' Chu says. 'We welcome good policy, are opening the education market and increasing understanding. We want to plant democratic seeds in the [students'] minds.'

Fierce opposition from the DPP to allowing mainland students in, however, forced the government to impose restrictions far more prohibitive than those on other foreign students. Mainland students must make a deposit of 100,000 yuan (HK$121,000) as proof of their financial security. They may not study in fields related to national security. They cannot work full or part time, on or off campus. If they lose their student status because they have deferred matriculation, are suspended or marry a Taiwan citizen, they must leave the island within 10 days. Those who have completed their studies must leave within one month. Students from other countries can stay and work if they find an employer willing to hire them and they are free to marry local people.

Under these conditions, Taiwan will not attract a large number of mainland students, despite the fact its universities face a severe shortage of applicants because of the island's falling birthrate. The restrictions fly in the face of the government's objective of turning Taiwan into an education hub for Asia and attracting foreign talent into its companies. Since mainlanders speak Putonghua, the language of edu- cation in Taiwan, they should be the natural target of its universities.

'We feel sorry about the restrictions,' Chu says. 'They are the result of a political compromise. Probably, after two or three years, people will not worry too much and we will relax them.'

As political campaigns intensify ahead of January's elections, cross-strait relations will become an increasingly hot topic. But there is consensus between the political parties on maintaining these restrictions.

The parties and the public see Hong Kong and Macau as examples of what not to do. Since their return to China, both have witnessed a large inflow of mainland people and money, which has aided their economies, sharply increased their property prices and brought a new supply of human talent. But it is changing the nature of their societies, making them less distinct and more like cities in the mainland. That is the meaning of 'reunification'.

This is something Taiwan wants to avoid. It is willing to sacrifice a measure of economic growth in order to keep its identity. Whoever wins in January will face the complex and challenging job of engaging with the mainland while maintaining this separate identity.

Facing the world's second-largest economy, which is armed with the biggest foreign-exchange reserves, and having 1,500 missiles aimed at him, the president will need the wisdom of Solomon.