Despite a common perception that Taiwan is well positioned to capitalize on China’s success because of a degree of shared Chinese heritage and culture, one-fifth of the Taiwanese companies operating in China could close down by the end of next month because of the harsher investment climate there, an expert in China affairs predicted yesterday.
Wei Ai (魏艾), an associate professor at National Chengchi University’s Institute of Southeast Asia studies, said that many Taiwanese companies operating in China, particularly those involved in labor-intensive manufacturing, were unlikely to sustain their operations after next month because of newly implemented labor contract laws, higher corporate income taxes and a soaring Chinese yuan.
Since last year, the corporate income tax for businesses located in China’s coastal cities has risen to 25 percent from the 15 percent preferential tax that was previously in place for foreign-invested companies.
In addition, Wei said, the yuan has appreciated 18 percent since July 2005, when the Chinese authorities reformed statutes governing currency exchanges.
“These factors have increasingly pushed Taiwanese companies to cut corners as their operating costs in China have continuously increased,” Wei said.
INCREASED INVESTMENT
The Ministry of Economic Affairs’ Investment Commission said that from 1999 to this year, Taiwanese investment in China had jumped from US$1.25 billion (NT$38.125 billion) to almost US$67 billion.
Steven Xu (�?�), chief representative of the Economist Group in China, forecast last week that China’s economic growth would reach 10 percent this year and 9 percent next year.
With Chinese savings rates holding steady at a staggering 50 percent and an excess of US$300 billion in liquidity going overseas annually, China is creating opportunities for neighboring countries including Taiwan, Xu said at an Economist Intelligence Unit meeting on Thursday.
OPPORTUNITIES
Taiwanese businesspeople in China are seen as extremely motivated to succeed in China as they possess great expertise in their respective business arenas, he said.
Xu sees great opportunities for Taiwanese insurance companies expanding into China. And since President Ma Ying-jeou (馬英九) was inaugurated, he sees far less political reservation and restriction on cross-strait relations.
But Chen Ji-ren (陳志仁), director of Nomura Research Institute’s (野村總合研究所), Taipei branch, said at the same forum last week that the key to success in China for Taiwanese companies lies not in business replication, but rather using local resources and strategic alliances to make businesses more nimble, as has been the case with Les Enphants Ltd (麗嬰房).
Chung Ji-Sun (張繼聖), a fund manager at the Uni-President Asset Management Corp (統一投信), said that Taiwanese business strategic positions in China should follow the demands of China’s 1.3 billion people, namely: businesses in telecommunications, transportation, food services, hotels and lodging, and construction, he said.
The yuan has gained 2.5 percent in the past three months as Beijing’s policy makers wanted a higher currency to fight inflation, which accelerated to 8.1 percent in the first five months while food related inflation has been over 20 percent.
Xu said that the food-related inflation problem this time around is very different from that of the 1980s, which contributed to the Tiananmen Square Massacre.
However, he said that China needs to solve the food-related problem for its 80 million Chinese citizens who are living below the poverty line.
Moreover, Xu said that the middle class is thriving in China and as a growing population, they are becoming more capable of withstanding the stresses of inflation.
The only serious negative effect of inflation is the fact that inflation is creating unprecedented class differentiation and division, he said.
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