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Beijing's rhetoric could hurt its economy

China's recent hardline warnings to those it considers to be pro-Taiwan independence businesspeople could boomerang because it has damaged people's confidence in that country's investment environment, academics and entrepreneurs said yesterday.

"China's harsh attack has affected Taiwanese companies' intention and confidence to invest in that country," said Hsu Sung-ken (許松根), an industry economist at the Academia Sinica.

"Beijing's move did not do any good to cross-strait relations," Hsu said. "That move should serve more as a symbolic meaning because China cannot afford to lose these investors."

As the cross-strait tensions rise, Beijing recently outlined a tougher stance toward China-based busi-nesspeople, especially those who use the money they make in China to support Taiwan independence. Media reports mentioned Hsu Wen-long (許文龍), founder of Chi Mei Corp (奇美實業).

State-run media followed that warning up with stories last Thursday saying Beijing could impose economic sanctions on Taiwan to paralyze the economy here within two months.

Beijing's harsh position could only backfire, said Chen Po-chih (陳博志), chairman of Taiwan Thinktank (台灣智庫).

"China's actions are characteristics of a dictatorship," Chen said, adding that China's economic take-off in recent years has made the "conceited imperialist" more arrogant.

"Taiwanese businessmen should be able to get a clear understanding of the country's true color now," he said.

But this nation's economic dependence on China is unlikely to dramatically decline anytime soon.

According to statistics provided by the Investment Commission, China took a whopping 53.7 percent share of Taiwan's outbound investment last year -- US$4.6 billion -- compared with 35.8 percent in 1997 and just 9.5 percent in 1991.

For the first four months of this year, outbound investment in China totalled US$1.74 billion, accounting for 65.7 percent of the total, the commission said.

Some regard this rapid rise in China-bound investment as an evidence of new business opportunities, but Chen said it is worrisome because Taiwan is overly dependent on China and its businesspeople should diversify their investment plans.

"Taiwan's investment in China has taken 4 percent of gross domestic production [GDP]) while the US' and Japan's investment in China accounted for 0.05 percent and 0.06 percent of their GDP, respectively," said Chen, who was chairman of the Council for Eco-nomic Planning and Development in President Chen Shui-bian's (陳水扁) first administration and is now an economic adviser to the president.

China has been the largest investment destination of Taiwan's outbound investment for years.

But in light of tension drifting into business sector, the local business community urged Chinese authorities to separate politics from economics, especially at a time when China's investment environment is declining due to power rationing, price hikes and a tightening on financial lending.

"We do not want political concerns to affect cross-strait economic exchanges, because this is not beneficial to either China's economy or cross-strait relations," said Luo Huai-jia (羅懷家), executive director of the Taiwan Electrical and Electronic Manufacturers' Association (電電公會).

Taiwan's government has long stressed the importance of market diversification. The Bureau of Foreign Trade and the Taiwan External Trade Development Council have been encouraging Taiwanese companies to shift their overseas investment fronts from China to Russia, the Czech Republic, Kazakhstan, India and Eastern Europe, in addition to Southeast Asia, to help lower investment risks.

Eyeing an educated and inexpensive labor market and access to the massive European market, some high-tech companies, including Hon Hai Precision Industries Co (鴻海) and Asustek Computers Co (華碩), have set up factories in the Czech Republic and are considering further investment there.

While the government talks about diversification, the Taiwan-based foreign business community, however, is encouraging deeper economic ties with China.

The American Chamber of Commerce in Taipei (AmCham) said last week in its 2004 White Paper that Taiwan's status as a regional economic hub would be in jeopardy without direct transportation links across the Taiwan Strait.

Multinational companies here are facing increasing difficulties in carrying out a regional business plan from Taiwan without direct transport connections with China, AmCham said.

This is forcing them to relocate senior executives for Greater China operations from Taiwan to Singapore, Hong Kong or Shanghai, it said.
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