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SCMP Reporter

BEIJING has spent as much effort reassuring Taiwanese investors as it has putting pressure on the 'renegade' Lee Teng-hui administration.

  Despite the apparent war clouds hovering over the Taiwan Strait, President Jiang Zemin has issued an order to reassure Taiwanese businessmen that political clashes should not be linked with business.

  Chinese officials responsible for Taiwan Affairs have hosted gatherings in cities and provinces where Taiwanese businessmen are concentrated, to try to relieve their anxieties.

  One representative of a Taiwanese organisation in Hong Kong said: 'To use businessmen to pressurise [Taiwan] politicians and to use the public to pressurise the [Taiwan] Government are the methods often used by Beijing to influence Taipei.

  'Beijing definitely is stepping up its united-front effort on Taiwan companies in the mainland.'    However, the idea that economic relations and political hostility can be separated may be optimistic.

  Sources said Beijing has issued a circular to remind local officials to be aware of possible social problems, such as large-scale unemployment, if Taiwanese investment is withdrawn.

  Taiwanese companies are already among the biggest investors in China. Figures show that since 1987, 20,000 plants have been set up by Taiwan in China, companies which contributed more than US$15 billion (about HK$116 billion) to the mainland. Figures complied by the Chinese Government show the contractual amount stood even higher, at US$25 billion.

   Despite Beijing's fence-mending, statistics in July and August have revealed that Taiwanese investment in China seems to have been hard hit by the deteriorating relations.

   According to the statistics of the Investment Commission of Taiwan's Ministry of Economic Affairs, proposals to invest in China approved in July were worth US$8.6 million, 1.67 times more than the same period last year.

  Yet in August, not only did the number of projects proposed decrease, the total value of the approved projects also dropped sharply to US$6.3 million, 68 per cent less than the same period last year.

  Fu Tung-cheng, director of the Economic Department of the Mainland Affairs Council, which is under Taiwan's Executive, said: 'It may be too early to judge the impact of Beijing's missile tests and the recent tension between Beijing and Taipei. Available statistics demonstrated that the missile tests had more explicit impact on Taiwan companies' direct investment plans than on bilateral trade.

  'However, if cross-strait tension continues, bilateral trading could also be in jeopardy,' he said.

  Kao Chin-yen, chairman of President Enterprise, a food conglomerate with US$150 million invested in China, called for a suspension of investment in the mainland when China announced a second series of missile tests in early August.

  One company, UB Office System, has just completed a feasibility study to start its first direct investment project in China. It wants to build a factory in central China producing furniture for both the domestic and foreign markets. However, the plan was put on hold after the missile tests.

  'Business never likes political instability. Despite those political feasts hosted by Chinese officials, Taiwan businessmen still lack a sense of security,' said Thomas Lee, managing director of UB's Hong Kong branch office.

  The sense of insecurity grew in the wake of rumours that Beijing had decided to stop Taiwanese investors withdrawing money from China.

  Liu Zhentau, chief of the Economic Bureau at the Taiwan Affairs Office of the Chinese State Department, was quick to deny the rumour. But he admitted there would be a 'normal decrease' of Taiwanese investment in the mainland.

  Fujian and Guangdong used to be the most popular provinces for Taiwanese companies. In 1993 and 1994, however, Shanghai emerged as favourite.

  As Taiwan companies became more cautious in mainland investment, Shanghai was seen to be one of the most hard-hit cities.

  'The incentives for Taiwan companies to invest in China diminished. Some of them put their plans to rent offices on hold and some even aborted their plans for new plants,' said Yeung Kam Hoi, company secretary of Pudong Development Holdings, which represents a Taiwan company in Hong Kong. His company has invested in 16 sites in Pudong, including office towers, industrial development areas and service apartments.

     'We do not fully rely on Taiwan investors to rent our offices and service apartments. Our strategy now is to actively approach Hong Kong and other foreign investors as well,' Mr Yeung said.

  It is unlikely that Taiwan companies will cut off all investment in the mainland, but many executives, such as Richard Wu at Kingtel Company and Shih Hui-tse at Wei Chuan Food Corp, said they would be more conservative in future.

   Their sentiments are understandable, but it is doubtful whether they are willing to turn their backs entirely on the massive potential market in China.

  'The China market is 60 times [the size] of the Taiwan market. The food industry in Taiwan has already reached saturation point and the way out is the China market.' Mr Shih said.

  Wei Chuan started investing in China only two years ago and has set up seven joint ventures with mainland firms in cities like Fuzhou, Guilin, Wuhan and Beijing, involving about NT$400 million (about HK$112 million).

  'The government has not persuaded Taiwanese investors to shift their money from the mainland to other places,' said Mr Fu of the Mainland Affairs Council.

  'We believe the presence of Taiwanese companies in the mainland and the consistency of bilateral economic relations will help soften the tension between two sides and contain the crisis.'   Since 1987, when cross-strait trading and investment began, Taiwanese businessmen have lobbied intensively for an investment-protection agreement with China, covering intellectual property rights, the legal protection of contracts and setting up a framework for business disputes arbitration.

   But negotiations have been on hold after the two non-government organisations responsible for cross-strait affairs were put out of action with the souring of bilateral ties. There is no sign of an early resumption of talks.

  In spite of the Taiwan Government's 'Go South' policy, which encouraged companies to diversify their investment in other Asian countries instead of focusing on the mainland, Taiwanese investment in the mainland still makes up over 25 per cent of the island's overseas direct investment. The 'Go South' programme may now gather more momentum. Cross-strait tension is one reason. But the main factor could be the disappearance of some of the competitive advantages of doing business in China.

  China's three-year-old austerity programme and the tightening of the tax system and labour laws have all added to the costs of production in China and weakened Taiwan companies' profits on the mainland.

  Large Taiwanese enterprises were about to enter the mainland market when cross-strait relations took a nose dive. They may be hit more seriously than smaller businesses by the weakening of ties.

  These cash-rich enterprises may now wait and stay on the sidelines until after the Taiwanese presidential election next March.

  In the meantime, some may turn to Latin American or other Asian markets for business.



Business hit by the war of words