Building cross-strait ties a tall order for Taipei

Taiwan sees mixed results as it travels the path of reform of economic and social mainland links

PUBLISHED : Saturday, 06 October, 2012, 12:00am
UPDATED : Saturday, 06 October, 2012, 4:45am

The world's second-tallest building, Taipei 101, is always looking for tenants as rents rise and its strict green policies, such as warmish air-con settings, daunt some would-be renters.

Ten of the 90 tenants in the central Taipei tower - second in height only to Dubai's Burj Khalifa - are from the mainland. Among them are the Bank of Communications and China Petroleum & Chemical Corp.

"They are an important target for us," Taipei 101 assistant vice-president and spokesman Michael Liu said. "As our government opens up, there will be more and more of them."

The tenant roster reflects the mainland's willingness to do business in Taiwan following 18 agreements signed in the past four years. It also shows Taiwan's eagerness to keep exports competitive and shore up a sagging service sector.

But Taipei 101 tells only half the story. Deals between Taiwan and the mainland do not affect much of the island's thirsty US$430 billion-plus economy that seeks the other side's business to stay globally competitive.

Agreements came after decades of icy political tension that squelched trade, transport links and economic relations.

Previous island leaders feared making any deals with Beijing.

When President Ma Ying-jeou took office in 2008, the government changed course.

Today his administration even sidesteps criticising Beijing's competing claims to the group of disputed East China Sea islets it calls the Diaoyus. Both have bashed Japan, which controls the islands it calls the Senkakus, and last month warded off boats from the mainland and Taiwan.

"My assessment is that closer ties between Taipei and Beijing are a net positive for the people of Taiwan, both today and over the long term," said Ralph Cossa, president of the think tank Pacific Forum CSIS in the United States. "The creation of a more politically stable cross-strait environment also encourages investors looking at doing business."

The first move came right after Ma took office in 2008 with an initial round of regular, direct Taiwan-mainland flights, which now total 558 a week. Passengers used to transit in Hong Kong or Macau, adding time and money to trips.

Chen Yang, from Zheijiang province, now gets Taipei-Shanghai flights from a small airport in central Taipei instead of trekking an hour to the island's main international airport and then transferring. Permit rules had also eased, he said while waiting for a flight. "In the past it was hard to travel, hard to get documents," said Chen, who works for a medical equipment firm near Taipei. "Now you get an air ticket and the rest is OK."

Direct flights, once barred for security reasons, ushered in the first regular arrivals of mainland group tourists. The island has logged 4.3 million group tours and last year opened to independent tourists, creating a further 125,000 itineraries as of August. Mainland tourists have spent NT$362.7 billion (HK$96 billion), Taiwan's Tourism Bureau says.

Taiwan airlines have made much of that money, along with mid-range hotels and restaurants connected to local travel agencies recognised by mainland counterparts.

In 2010, the two sides pulled closer with the signing of an economic co-operation framework agreement. The deal cut import tariffs on about 800 items, mostly made in Taiwan. Those items were dubbed an "early harvest", as the two sides said they would eventually meet again to add 5,000 to 6,000 more items.

Exporters of machinery, bicycles and petrochemicals have saved money on the lower tariffs, though some find the mainland's rising labour and material costs have offset those gains.

Separately, Taiwan has slowly opened doors to mainland investors, letting them buy up to 10 per cent of most listed firms and allowing direct investment in 408 items. Mainland investors parked US$122 million in Taiwan in the first seven months of the year, and the island government expects US$200-400 million for the whole year. To help that total, which would exceed 2011, the two sides in August approved a pact offering legal protection to investors from both sides.

Economists believe mainland investors will buy shares of undervalued Taiwanese banks or globally known hi-tech firms. A few may accept build-operate-transfer infrastructure projects that Taiwanese developers do not want.

But many Taiwanese workers and businesspeople say they see no change since 2008, adding importance to changes that are still in the pipeline, such as new tariff cuts and investment liberalisation in Taiwan.

"Currently there are still many hurdles and I don't see the economy has changed or is prepared to change," said Cheng Cheng-mount, chief economist with Citigroup in Taipei. "People don't show any excitement toward cross-strait development."

Tariffs cuts so far cover relatively few items, while tourists use just a handful of hotels and agents. Remaining investment caps and strict case-by-case government oversight in Taipei deter major stock purchases and private deal-making, said C.Y. Huang, chairman of the Taiwan Mergers & Acquisitions and Private Equity Council.

Shen Ya-ching, vice-president of Green Tour in Taipei, lines up buses and plans routes for independent mainland tourists. She is frustrated as she breaks even only on trips for more than 10 people.

Solo travellers need little other assistance because they speak Mandarin and do much of their planning through mainland travel agents. "They don't need to go through a local agent," Shen said. "All we need to do is give them a ride."

Once off the bus, some mainland tourists buy just a few souvenirs or daily necessities such as kitchenware that are hard to find at home. Others do loads of mall shopping. Still others just window shop.

Mainlanders make up 50 per cent of the shoppers at the year-old Chun Shui Tang tea leaf shop in the Taipei in-town airport departure hall. Sadly most of them just look and leave, staffer Lin Pei-chiu said. Group tourists shop outside the airport, she said, while independent tourists haven't reached critical mass. The best customers are independent travellers from Japan and Taiwan.

"Mainland tourists mostly buy what they need somewhere else and might just make up for something they couldn't get when they come here," Lin said.