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Cross-strait investments set to widen

"With more Taiwan-based firms and capital heading for China, the nations annual GDP growth is unlikely to exceed 3 percent in the future."

Hsu Kuo-an, an analyst at Capital Securities

Taiwan's recent easing of China-bound investment could lead to an exodus of domestic enterprises especially after Beijing's entry to the WTO, analysts say.

Taiwan's faltering economy, already battered by slowing global demand, may sink deeper into a slump as more businesses shift their operations to China, they warn.

"We had already seen many businesses moving their manufacturing bases to China over recent years for lower labor and land costs," said Capital Securities Corp (群益證券) analyst Huang Chih-lung.

China's WTO entry is generally expected to create myriad business opportunities.

Already, about half of the 600 listed companies on the TAIEX have investments in China.

"China's enormous market potential and greater access to the global markets after its WTO accession will only draw more investment from Taiwan," said economic professor Liu Pi-chen (劉碧珍) of National Taiwan University.

"Big business groups in particular are expected to speed up their investment plans in China," which had been long stalled by the "no haste, be patient" policy, she said.

Under the policy imposed in 1996, Taiwan companies were banned from making a single investment project worth more than US$50 million as well as high-tech and infrastructure projects for fears of economic over-reliance on the mainland.

The Taipei government earlier this month scrapped the ban and allowed direct investment to the mainland for the first time since the two sides were split in 1949.

Encouraged by the removal of the ban, Taiwan's leading food giant Uni-President Enterprises Corp (統一企業) plans to increase its capital expenditure in China next year by up to NT$1.5 billion (US$43.48 million), three times higher than that in Taiwan.

Taiwan's largest microchip maker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which had said it would not invest in the mainland over a short period of time, also seems to have jumped on the bandwagon. The company is to open an office in Shanghai to prepare for its investment there.

Some analysts fear, however, that the Taiwan economy may be bled dry since the technology industry represents nearly 50 percent of exports, which accounted for half of the country's GDP.

Unlike their counterparts from Japan and the US, some Taiwanese technology giants, such as First International Computer Inc (大眾電腦) and Hon Hai Precision Industry Co (鴻海精密), even set up research and development bases in China.

"This is what really worries me," Huang said.

About twice as many Taiwanese exporters had already expressed willingness to increase their investments in China than in their home island after both sides join the WTO, according to a survey conducted by the Ministry of Economic Affairs in June.

The poll found around 25 percent of exporters plan to expand China-bound investment after Beijing and Taipei became WTO members -- nearly double the number of respondents who said they would increase their investment at home.

Some 1,600 exporters were surveyed, accounting for about 40 percent of the export industry.

"With more Taiwan-based firms and capital heading for China, the nations annual GDP growth is unlikely to exceed 3 percent in the future," said Capital Securities analyst Hsu Kuo-an (許國安).
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