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Cap on China investments ineffective, economists say

The government should continue to relax restrictions on China-bound investments, although 85 percent of TAIEX-listed companies have not been deterred by the government's capital ceiling on investment in China, economists said yesterday.

Taiwanese companies are barred from investing more than 40 percent of their capital in China.

"The government's 40 percent cap on China-bound investment is reasonable. However, the policy is inefficient as constrained companies will still find ways to break the rule," Chou Ji (周濟), an economics professor at Shih Hsin University, said by telephone yesterday.

"Whether Taiwanese companies will be capped by the Chinese investment ceiling is not the major issue. The government needs to liberalize investment restrictions and let companies decide the investment value for themselves, so that they will not feel constrained," Chou said.

A poll by National Central University last year found that 85 percent of 640 TAIEX-listed companies had not been constrained by the investment cap, investing less than 40 percent of their capital in China by of the end of 2006.

The poll also found that 488 companies -- 76 percent -- had branched into China.

Chen Tien-jy (陳添枝), an economist at National Taiwan University, shared Chou's views, but said the government had to prevent the emigration of Taiwan's IT industry, which was hurting the nation's global competitiveness.

While opening up to China, domestic employment opportunities must also be protected, Chen said.

The poll found that the concrete, rubber and automobile industries had all extended their investments to China, followed by the plastics industry, with 90 percent of plastic firms tapping the Chinese market.

The investment value of Taiwan-listed companies in China was estimated to have accumulated to NT$703.1 billion by the end of 2006, with the IT industry accounting for the largest share at 56.62 percent, or NT$398 billion, of the total investment value.

However, the total investment value of NT$703.1 billion only accounted for 42.8 percent of the government's investment cap in China, at NT$1.64 trillion, the report said.

Aside from a few large listed companies, the majority of listed firms that had exceeded the cap on China-bound investments were small and medium-sized enterprises, the report found. So whether the investment cap would cause operating difficulties for listed companies was debatable, it said.
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