Taiwan's economy has deteriorated rapidly in recent years and is now in the doldrums. The issue of investment from China, long been considered taboo, has been revived. Demands for Taiwan to be opened to such investment are increasing. Many businesses hurt by shrinking investment and markets are pinning their hopes on Chinese investment.
On the other hand, it's ironic that when the Hong Kong media recently reported that China will invest several hundred million US dollars in Taiwan's stock market, the government reacted hastily, saying that there was tight safety net to stop such investment from "subverting" Taiwan. Why be so afraid of investment of a few hundred million US dollars -- which could bolster a stock market that has not been helped by government funds investing hundreds of billions of NT dollars?
In reality, investment from China would be no guardian angel, but it also would not be a devil. If the "no haste, be patient" policy were adjusted and the Chinese market used to develop Taiwan's economy, then opening Taiwan to Chinese investment would be a natural development. Looking at the reality of cross strait relations, however, I'm afraid that there's a great deal of self-deception implicit in the excessive expectations or fears regarding the short-term effects of such investment.
The short-term direction of Chinese investment could be observed from two angles: China's officialdom and the private sector. For China's officials, political issues are more important than economic ones. It seems that other issues have to be put aside until such a time as Taiwan has agreed to the "one China" principle and the debate whether cross-strait relations is a domestic issue or a so-called "special state-to-state" relationship has been solved. However, if Beijing were to agree to put political issues aside and restart negotiations regarding secondary economic issues, then maybe the three links and related issues should be given priority over the question of investment.
Regardless of what one may think, investment in Taiwan is not the most important issue for China. Unlike Hong Kong, Taiwan is not part of the "one country, two systems" model, so why should China spend money and effort re-energizing Taiwan's economy? Doesn't a dried-up Taiwan, regressing by the day, better fulfill Beijing's hopes for peaceful unification?
Some people are concerned that Beijing will invest in Taiwan in order to destroy its economy. This is a possibility. If we take a dispassionate approach, however, China's activities towards Taiwan are of a long-term nature. Do they really need to make a reckless move right now, when Taiwan's political and economic situation has deteriorated to the point of utter confusion, with political parties blaming one another and spewing invective in their attempts to find a scapegoat? China will certainly be more relaxed watching the fire and smoke from the other side.
China's officials can of course restrict the direction of private investment to a large degree. Regardless of the proportion of stock rights, businesses in China must be interested in investing in Taiwan. Around the time Hong Kong was reunited with China, many businesses in China followed official policy and invested in the territory's stock and real estate markets. Overall they made huge profits and, therefore, a will to invest in Taiwan must exist. Restraint due to Beijing's attitude is one reason that they dare not enter Taiwan. Another is the doubt and anger over discrimination under Tai-wan's laws. As long as there is a multitude of restrictions on the movement of capital and people, it can be estimated that a majority of China's busi-nesses will be hesitant to enter the market.They are likely to keep a wait-and-see attitude even if Taiwan partially opens for investment from China.
There are definitely no big obstacles to investment in Tai-wan's stock market for the small minority of companies which have obtained the tacit approval of China's authorities, and which can decide on their investments for themselves. They may already have been investing for years, and may even be sitting on paper losses just like their "Taiwanese compatriots."
Compared to the vibrant real estate market in China and its position vis-a-vis China's stock markets, Taiwan's real estate market is worse off than its stock market. Its slump is widespread and long-lasting. The minority of investors from China are most likely to maintain a wait-and-see attitude towards real estate. May-be they will use the low market to pick up some landmark office buildings at rock-bottom prices, but it is very unlikely that they will engage in large-scale investment or construction. In the final analysis, we have to look at what businesses do, and when local construction companies don't like the market, the interest of Chinese investors cannot be that high.
Compared to the possible hesitation of Chinese investors, the reactions of Taiwan's government and private sector are much more interesting. Government departments have always maintained a conservative attitude towards China in their day-to-day exchanges. They are even more conservative facing the issue of investment from China. Even if they are forced into a partial opening, they will set up a lot of obstacles.
However, since opening up for Chinese investments is similar to the establishment of the small three links and the opening to PRC tourists, the decision can be made unilaterally by Taiwan without any negotiations between the two sides. It can also provide
considerable propaganda value. Control is largely in Taiwan's hands. Even though the significance of opening up to Chinese investment rates far below direct links or other issues, its implementation is still given preference.
Thinking in the private and business sectors is entirely different. Stock market investors are hoping for new capital to bring life back into the market, while real estate dealers are hoping to arrange the purchase of their properties. The end result would be the same, a bail-out from China. The question is how much investment there will be if the political stalemate between the two sides remains. If Taiwan's economy does not pick up, how much willingness will there be among Chinese investors to pick up the baton?
The strange thing is that, even though the expectations of busi-nesses and investors are too high, the topic of investment from China is one in which many parties still have high hopes. The hype created by these expectations may be-come a self-fulfilling prophecy, actually rallying people and bringing the stock and real estate markets back to life, indirectly initiating the revival of the economy.
It is really not necessary to bestow so much political and economic significance on opening up Taiwan to investors from China. Rather than seeing the move as part of cross-strait relations, it would be healthier to see it as one further step towards the liberalization and internationalization of Taiwan's economy. I would cite the observation of Taiwanese businessmen in China that, "In Shenzhen, they use policies to attract business, in Shanghai they use economic strength and in Kunshan they rely on service." In the end, we still have to ask ourselves what Taiwan is relying on to attract business and capital.
Tchiang Tcheng is an associate professor in the department of international business, Soochow University.
Translated by Perry Svensson
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