Taiwan must focus on economy to survive

Following the further opening of Taiwanese investment and trade with China last August, investments have been pouring into China. The government is unable to stem the steady increase in capital flowing into China, at best succeeding only in slowing the rate of increase. By now, over 50,000 Taiwanese businesses have invested over US$100 billion in China. Investments have expanded from traditional to high-tech industries and the trend shows investments growing in size.

A typical example of this is the investments by Wang Yung-ching (王永慶), chairman of Formosa Plastics (台塑), and his son Winston Wang (王文洋) in everything from traditional industries to wafer manufacturing. The younger Wang's investment in wafer manufacturing is putting great pressure on domestic manufacturers.

Recently, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電) have been very active. TSMC chairman Morris Chang (張忠謀) has been criticising the years of restraint under the "no haste, be patient" policy, while UMC has back-pedalled on plans for a large wafer foundry in Tainan. Instead it is planning a plant in the Suzhou Industrial Park in Jiangsu Province. It also is planning to build a 12-inch wafer plant in Singapore with US-based Advanced Micro Devices Inc (AMD).

Taiwanese high-tech companies are busy positioning themselves in China. Even though they say that this is only one link in their overall global positioning, investments in Taiwan have not increased accordingly -- rather, they have fallen. A further hollowing out of Taiwanese industry seems inevitable.

In a speech on Jan. 31, US Trade Representative Robert Zoellick predicted that China will become the world's largest producer of IT hardware within the next decade and challenge Tai-wan's position as the center for semiconductor manufacturing.

Judging from the competition between Taiwanese semiconductor manufacturers investing in China, however, Taiwan will be surpassed by China within five years -- after the government allows eight-inch wafer manu-facturers to move to China -- if authorities cannot implement an effective system of controls. If Taiwan does not develop more advantageous and more competitive industries, we will suffer an even deeper economic crisis and face even higher unemployment.

The development of TSMC, UMC and other high-tech busi-nesses have all been encouraged by the government through the Industrial Technology Research Institute (工業技術研究院) and industrial parks, which have invested tens of billions of New Taiwan dollars. TSMC and UMC are the two most competitive Taiwanese wafer manufacturers in the global market. Now they are competing to get out of the country.

So what is the problem? Since the government's substitution of the "no haste, be patient" policy by the "active opening and effective management" policy last November, overseas investment and capital outflow pressures have increased by the day. Even though the government is fighting "black gold" politics and improving public security and the financial situation, the problem with companies investing in China is that they leave debt and unemployment in Taiwan.

So where does the problem lie? Has the investment environment in Taiwan really deteriorated so far? Are there really no investment opportunities in Taiwan? Is China really a money-making paradise?