President Chen Shui-bian (陳水扁) came up with a new slogan yesterday during a meeting with foreign guests -- "Investment first, economy first, Taiwan first." With a sluggish economy, unemployment on the rise and capital flowing to other countries, Chen finally appears to have realized that one cannot govern by ideology alone and that the only way out is for Taiwan to build-up its economy.
But a new slogan doesn't count for much unless it is backed up by concrete government policies. Hopefully, "Invest in Taiwan" will become a real priority for the government. The realization something has to be done may have come a little late, after precious time and resources have been wasted. But it is better to get on the right path late than remain in a torpor, expending energy only on internal power struggles.
The government is facing an uphill economic battle with China, which is luring investors by dangling cheap labor, raw materials and land prices as well as potential post-WTO accession market opportunities. Even Minister of Economic Affairs Lin Hsin-yi (林信義) has admitted that "China has an irresistible, magnetic pull." The "no haste, be patient" policy hardly put a dent in the capital outflow across the Taiwan Strait. The Mainland Affairs Council is set to modify that policy to "proactive openness, effective management." The government also plans to gradually allow Taiwanese businesses to set up notebook PC, six-inch wafer, PVC and other petrochemical plants in China. Taiwan's business migration will only escalate after the trade and economic doors between the two sides are flung wide open.
In the government's policy framework, effective management means balancing the capital flow by allowing Chinese investment in Taiwan and establishing a system that encourages capital to flow back here. But the idea of wooing Chinese investment is a Damoclean sword. To offset the capital outflow, Taiwan will need up to US$6 billion (NT$192 billion) in Chinese capital every year. But if that amount were to actually materialize, Taiwan would find itself facing Hong Kong's predicament -- its economy completely in Beijing's grip.
The idea of a capital redirection mechanism isn't bad. But even the Chi Mei group, one of the most Taiwan-conscious conglomerates, has invested a total of NT$1.5 billion in China. Shi Guangsheng (石廣生), China's minister of foreign trade and economic cooperation, has said that Chi Mei is making good money in China. But we have yet to see the company send any of its profits back to Taiwan.
Ministry of Finance statistics show Taiwanese businesses had remitted a total of NT$122.8 billion to China by the end of the third quarter of last year -- a number that stands in stark contrast to the NT$700 million that had been sent back to Taiwan. The ministry's figures are only the tip of the iceberg. According to estimates by the Central Bank of China, more than US$75 billion (NT$2.48 trillion) has been remitted through private channels -- an indication that most Taiwanese businesses take advantage of legal loopholes to remit their money. The key to the success of the capital redirection system will be whether it can prevent businesses from evading the regulations.
If the government truly wants to combat the addictive allure of the China market, it should focus on improving Taiwan's investment environment. It could, for example, speed up the establishment of export processing zones, help businesses with land acquisition, improve the infrastructure and provide incentives for businesses to stay. Taiwan could also try to work out a division of labor with China and become a business, R&D and financial center while letting China take up the manufacturing and processing functions. This is the only real way to keep businesses in Taiwan -- by being proactive, not by organizing yet another task force or conference to review policy, or devising yet another slogan.