Editorial: China investment not straighforward

Wang Yung-ching (王永慶), chairman of the Formosa Plastics Group (FPG, 台塑), Taiwan's biggest conglomerate, has denied recent rumors that his group is planning a new NT$400 billion investment in China's petrochemical industry. Wang has also stressed that he will not go against Taiwan's government regulations concerning China investment.

Even if Wang's denials are true, the rumors themselves are an ill omen for Taiwan.

The KMT's half-century of rule has trained Taiwan's businessmen in resourcefulness. Evading government regulations is child's play for them. Most Taiwanese investors in China do follow the legal investment procedures. They can always find a back door when the government refuses to open the front gate.

Ten years ago, FPG planned to invest in a petrochemical project in Haichang (海滄) in China's Fujian Province. The investment was blocked by the Taiwan government; which allowed FPG to develop the Sixth Naphtha Cracker (六輕) project as a payoff.

So does FPG leak word of large-scale China investment to twist the government's arm into providing better investment conditions back home? Perhaps not, but it could. And how does the government deal with these suspicions?

After all, as Taiwan's industrial leader, FPG's investment decisions can have a major impact on Taiwan's economy. FPG's departure for China -- at a time when traditional industries are leaving Taiwan in droves due to dim economic prospects -- would certainly have a major impact, of which the company itself cannot but help be aware.

For Taiwan, business investment in China involves national security, given Beijing's military threats and its attempt to use Taiwan businesses to provide leverage for a push for unification. The government, has to strike a balance between national security and economic freedom.

Today, it is not so difficult to raise funds in the international capital market. The government can only try to persuade businesses not to use Taiwanese shareholders' money as a wager in their China adventures. The government can make it more difficult for businesses to invest in China, but it cannot actually stop them from doing so.

Many believe the three direct links (communications, transportation and commerce) across the Taiwan Strait will benefit Taiwanese businesses enormously. This is in fact an illusion. The fact that all other countries enjoy direct links with China has not made it easier to take their capital to China, much less to make money there.

The new government is now trying to readjust the "no haste, be patient" (戒急用忍) policy. However, we believe abolishing this policy will do nothing to help Taiwanese business operations in China, but instead may greatly increase economic risks.

China's political, economic, legal and social structures present countless traps for foreign investors, including those from Taiwan. One example is the miserable failure of a Singaporean industrial zone project in Jiangsu Province -- a pet project of Lee Kuan Yew's (李光耀) -- due to vicious competition from the local government there, and this despite Lee's close relationship with the Beijing leadership and his self-proclaimed understanding of Chinese culture and society.

It is only natural for businesses to go to wherever they can be more competitive. However, it would be irresponsible for the Taiwan government not to take precautions against a country opposed to a free economy and antipathetic to democracy.