On July 7, President Chen Shui-bian (陳水扁) announced that he would ease restrictions on foreign investment in the stock market. This included relaxing the qualifications of "qualified foreign institutional investor" (QFII), cancelling the US$3 billion limit on each QFII in the stock market and removing the restrictions requiring QFIIs to remit money into the country within two years of their investment application's approval.
This is a giant leap for the government in promoting economic liberalization. Unfortunately, the Cabinet's response causes us to worry about whether Chen's announcement is yet another economy-boosting slogan that is sensational but superficial.
For years, the central bank has restricted foreign investment because it worried that the free flow of foreign capital could affect the stability of the stock market or the effectiveness of the government's monetary policy. Foreign investors believe that Taiwan's market has not been completely liberalized. As a result, the Taiwanese companies benchmarked on Morgan Stanley Capital International (MSCI) indices can not really increase their weightings, while the total extent of foreign investment in the country has steadily declined.
Opening up to foreign investment was a consensus reached by the ruling and opposition camps at the Economic Development Advisory Conference (EDAC) a few years ago. But the Cabinet delayed implementing this policy because it worried that it could bring Chinese capital into the stock market or destabilize the foreign-exchange market.
In fact, the principle by which an economic society survives and prospers is to face challenges squarely, to bring in new competitors and to coexist and prosper. Judging from the president's announcement, the spirit of this policy is to replace the conservative attitude that exaggerates national security to the maximum with a more aggressive and rational one in response to the inevitable risks of the country's economic liberalization.
The Cabinet plans to regulate Chinese capital through legislation, as well as to negotiate with foreign investors whenever the foreign-exchange market is unstable. But it never mentioned its admin-istrative responsibility in delaying the EDAC's conclusions. I can't help but wonder if these the only methods the government can think of? Shouldn't the Cabinet's stance on the issue and its decision-making efficiency also be reviewed?
Learning from South Korea's transformation after the 1997 financial crisis, we know that only a liberal financial-security market with multiple overlapping interests can effectively attract capital, bringing in new management systems and strategic thinking, while avoiding being manipulated by specific forces.
At first, the IMF's demand for South Korea to financially reform was condemned. However, after South Korea's market was opened, such transparency has attracted capital from around the world. Nearly-bankrupted enterprises were able to bring in the latest management techniques and technologies. Moreover, the nation's improved international image and the fruitful results of developing the Chinese market have stirred up a new wave of "South Korea fever."
A social consensus has been reached that we must strive to boost the economy. However, under the highest principle of economic liberalization, the government will discover that only when slogans such as "boosting the economy" are no longer reasons for it to relax the various restrictions will foreign capital flow into the country. At that time, the economic vitality of Taiwan's society will be completely expressed.