Friendly relationship

PUBLISHED : Monday, 16 April, 2012, 12:00am
UPDATED : Monday, 16 April, 2012, 12:00am


Little more than four years ago, Taiwan's government was toying with ways to declare itself legally independent of China, its long-time political foe. At the same time, rivals such as South Korea and countries in Southeast Asia were gaining on Taiwan through trade deals with the mainland to reach into more of its massive consumer market and US$7 trillion economy.

Taiwanese President Ma Ying-jeou dropped the sabre-rattling of decades past to make deals with the mainland. His re-election in January for another four years, both sides say, will lead to new accords on tariff cuts and a warming of the investment climate that has stopped mainland money from entering Taiwan.

'We believe that, given Taiwan's competitive advantages and its position in the region, and some key industries, the medium and longer-term prospects for the economy are positive,' says the 700-member European Chamber of Commerce Taipei.

In his term from 2008, the president set a course to open 558 direct flights per week between Taiwan and the mainland, just 160km away, up from just a trickle of ceremonial flights. His government also arranged to drop import tariffs on 800 items and let more than 3 million mainland tourists into the island where virtually none had trod before.

Taiwan, already the world's 19th-largest economy with a gross domestic product of US$431 billion last year, has raked in millions of dollars from these deals.

Leaders in Beijing hoped the links would endear Taiwan to the mainland, leading to unification. The two sides have been separately ruled since Chiang Kai-shek's Nationalists lost the Chinese civil war of the 1940s and fled to Taiwan. China still claims sovereignty over Taiwan.

Taiwan's earlier push for independence had made deals with the mainland all but impossible.

In Ma's second term, the two sides will study a pact that cuts tariffs on 5,000 items bound for Taiwan and another 6,000 headed the other way, says Taipei-based Standard Chartered economist Tony Phoo. Listed Taiwanese firms that save money from lower tariffs will see share prices go up, he says.

Beijing and Taipei also aim to sign mutual investment protection agreements by the end of June. The central government fears that without such a deal, a shift in Taiwan to an anti-Beijing opposition party leadership could threaten any investments.

Mainland businesses have invested US$170 million in Taiwan to date, the Economic Affairs Ministry says.

Taiwanese want the same sort of pact to guard against trademark piracy and legal disputes on the mainland, where up to 1 million people from the island live for business purposes. They have invested more than US$150 billion there.

The protection pacts will open doors to relaxed investment rules in Taiwan.

Mainland-qualified investors can buy up to 10 per cent of a Taiwanese company's shares without special permission. Last month, the island's government raised those caps for purchases of stocks in liquid crystal display and semiconductor firms. Investors will be able to buy more than the usual limit of 10 per cent, but short of a controlling stake, subject to a case-by-case review.

Mainland investors will gladly go for Taiwan's hi-tech or machinery sectors, its top two by export value, says Jack Huang, Taipei-based partner with the business and finance law firm Jones Day.

'Taiwan sectors such as hi-tech, IC [integrated circuit] and machinery precision equipment can be profitable for mainland investors,' Huang says. 'If they can plug into HTC or Chimei LCD or BenQ, that would be a big coup because they are industry leaders and doing well at this moment.'

BenQ makes digital cameras, projectors and camcorders, while Chimei Innolux manufactures flat panels and HTC has a world brand following for smartphones.

An opening of foreign direct investment that has expanded to 247 business categories since 2009 will also press forward. Economic Affairs Minister Shih Yen-shiang told a legislative committee in Taipei that the island planned to open another 161 categories. Taiwanese firms expect no trouble in finding investors, and mainland money could stoke interest from firms outside the region.

'The Taiwanese are the ones who really care about productivity. You've got thousands of companies,' says Bill Wiseman, chairman of the 500-company American Chamber of Commerce in Taiwan.

Property purchases have been restricted to stop an asset bubble from expanding after land prices rose by an average of 8.65 per cent last year.

But property purchase and other business may also get easier for mainland investors, says Lai Shin-yuan, Taiwan's top mainland policymaker.

She says Taiwan could eventually allow outright mergers and acquisitions. 'We regularly examine the rules for Chinese investors and, when conditions are mature, private equity barriers may ease, little by little,' Lai says.