Tide turns in capital flow

Taiwan's tycoons are reining in 20 years of expansion on the mainland to invest at home, pressuring the central bank to stem gains in the local currency as strategists see it rising more than the yuan for the first time since 2007.

In the five months since President Ma Ying-jeou cut taxes and increased foreign-labour quotas to lure investment, 26 companies from Largan Precision's Chen Shih-ching to Kenda Rubber Industrial's Yang Yin-ming filed proposals to put US$5.9 billion to work locally, more than triple the amount for 2011, the Ministry of Economic Affairs says.

"We've been talking about Taiwan's industries hollowing out for 20 years, but this is starting to change," Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong, said. "Returning money will help boost the Taiwan dollar."

While Taiwan's central bank intervenes to curb any advance, the capital flows may bolster the island's dollar, which is forecast to appreciate more than the yuan after trailing for five years, surveys of analysts show. After strengthening about 20 per cent from its low in 2009 through last year, the currency has depreciated 2.2 per cent this year, Asia's third-worst performer after the yen and the South Korean won.

Kenda, the world's third-largest maker of bicycle tyres, and Largan, a supplier of camera lenses to Microsoft and Apple, are planning to build more plants in Taiwan after contributing to at least US$125 billion of investment by local companies on the mainland since 1991.

Corporate outflows to the mainland fell 17 per cent to US$10.9 billion last year, according to the Taipei-based Investment Commission.