Sat, Aug 02, 2003 - Page 8 News List

Investment policies misguided, dangerous

By Lai Chen-chang 賴振昌

President Chen Shui-bian (陳水扁) reportedly wants to allow China-based Taiwanese businesses whose annual revenues exceed NT$10 billion (US$291 million) to be listed on the nation's stock market, in an effort to boost the domestic economy and encourage capital inflow. This is an attempt to entice overseas Taiwanese businesses to set up operation centers here. If the policy is passed, however, it may significantly affect the operation of the capital market, crowding out capital for domestic investment.

Although the nation was transformed from a capital-importing country in the 1940s and 1950s into a capital-exporting one, domestic investment is insufficient due to the economic downturn in recent years. Hence, the government encourages local companies to issue American depository receipts (ADRs) in order to make up for the lack of money through foreign capital. A plan to allows China-based Taiwanese businesses to attract domestic capital is inappropriate because it contradicts the domestic demand for capital.

A company takes numerous factors into consideration when establishing an operation center, including market, transportation, production, regulations and environment. The source of capital is just one of these factors.

Unless regulated, permission for China-based Taiwanese businesses to be listed on the TAIEX may not be equivalent to their establishment of headquarters here. Such companies may not set up business headquarters in this country, but they could attract more domestic capital and take it abroad. This would be disadvantageous for the development of the nation's capital market.

Taiwanese businesspeople in China are fully aware of the high risk of investing there. When they decide to invest in China, they mostly try to raise funds by borrowing from banks -- not making investments with their own money. If their investments in China succeed, then both they and the banks are happy. If the investment fails, it is the banks that are landed with more bad loans. This is also why local banks' non-performing loan ratios are so high.

Domestic banks have long suffered from the huge debts left behind by China-based Taiwan-ese businesses. Yet while the banks are striving to reduce their bad loans, the government wants to open another channel for these Taiwanese businesses, allowing them to raise funds in the nation's capital market once again. This will turn the "liabilities" on their businesses' financial statements into "assets." However, such actions may hollow out Taiwan's capital market.

As for the goals of attracting China-based Taiwanese busi-nesses to set up operation centers in this country to stimulate the economy, and encouraging inflow of capital, this is simply wishful thinking.

Lai Chen-chang is an associate professor at National Taipei College of Business.


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