In a bid to attract foreign investment for the Financial Supervisory Commission's (FSC) planned foreign currency-denominated stock exchange, Chairman Kong Jaw-sheng (龔照勝) led a delegation to an investor forum in New York on Oct. 13-14. Delegation members included government financial regulators and executives from the nation's leading companies.
But the FSC's move to find ways for companies with 30 percent Chinese capitalization to be listed on the international boarse has created divisions between it and the Mainland Affairs Council.
At the same time, the Taisheng Furniture Co -- Asia's largest wood furniture manufacturer and a Taiwanese firm that could potentially be be listed on the Taiwan Stock Exchange -- recently applied for its initial public offering (IPO) in Hong Kong. According to market sources, Taisheng Furniture raised around US$500 million in capital.
This clearly indicates that Taiwanese companies in China have lost patience with Taiwan's stock market, and Taisheng's action is a slap in the face to Taiwan's ambitions.
In the past, Taiwanese businesspeople in general would initially invest their own capital to establish a business in China and to manage working capital. Very few China-based Taiwanese businesses could finance their efforts with the aid of a loan from Taiwanese or Chinese banks.
Today, the scale of Taiwanese businesses is markedly different. After a decade of effort, Taiwanese companies based in China are today generally very successful and profitable. They boast operating scales generally 10 times larger than before, and much faster business expansion.
In fact, these successful Taiwanese businesspeople hope to list on Taiwan's exchange in order to conveniently gather capital from local financiers to further their expansion in China, boost awareness of their companies, and settle down in Taiwan by establishing their headquarters here.
For Taiwanese businesspeople in China, Taiwan is the best place to list their companies because they know the environment, and Taiwan's exchange offers the advantages of high liquidity and high price-earnings ratios. Although Taiwan is their priority, it is not the only choice. They can also apply to list in Hong Kong, Singapore, China or even the US.
Therefore, whether Taiwan can use its relative advantages to attract the capital of these businesspeople to set up and register their businesses in Taiwan becomes important. Otherwise, these businesspeople may be forced to register elsewhere.
Virtually all China-based Taiwanese businesspeople believe that listing their companies in Taiwan would create a win-win situation for them. And, only in this way will the government be able to attract them to return to Taiwan, and thus have the right to regulate them.
Over the past decade, more than 20 Taiwanese businesses have become Hong Kong-listed companies. Some widely known ones include Yue Yuen Industrial, Master Kong, Natural Beauty, Solomon Systech, Chia Hsin Cement Group, AKuP International Holding, Foxconn Electronics and others. About 40 Taiwan-owned enterprises have expressed intentions to apply for an IPO in Hong Kong, including, Taiwan Broadband Communications, Ultra Chip and Hsu Fu Chi Food Products Co. Some Taiwanese companies -- such as Uni-President Enterprises Corp, Giant Manufacturing Co, Hocheng Corp, Roma Ceramic Co and Want Want Group -- are also reportedly considering a Hong Kong listing.
Some securities firms even predict that by next year, about 100 Taiwan-invested companies will be listed in Hong Kong.
China has sufficient inflows of foreign capital, but it lacks an efficient financial system and investment targets. It is inappropriate to tackle the issue of attracting China-based Taiwanese businesspeople to return to Taiwan from the perspective of capital outflow and further limiting the amount of capital that can be invested in China.
As a result, Taiwan will be in a tough spot, competing against Chinese financial institutions and foreign banks in China that are willing to extend business development loans to Taiwanese businesspeople.
In addition, China is actively opening its share market to Taiwanese capital, and is encouraging Taiwanese firms based there to list. At present, only three Taiwanese companies are listed in China -- Tsann Kuen Group, King Refrigeration Industry and Globe Union Industrial. Long Fung Foods also plans to list there soon.
Nevertheless, Taiwanese businesspeople are still wary of China's market, so they have not responded with much enthusiasm.
If Taiwanese businesses in China were to list on the exchange back home, this would certainly help all Taiwanese people gain access to the benefits of their success. It would also build up Taiwan's financial market and contribute to making it a financial center for the Asia-Pacific region.
Last year, the government announced it would launch a program intended to make Taiwan a regional financial services center. Its goal is to increase the value of foreign investors' market holdings from 18.8 percent to 25 percent, and double the funds raised by foreign investors in Taiwan, establishing the nation as a money raising center.
The project's success will depend on whether quality firms based in China return to Taiwan, and the level of development in cross-strait commerce. This will provide more targets for investment, and attract foreign investors.
Recently, David Laux, chairman of the Taiwan Greater China Fund, and Peter Kurz, executive chairman of the Taipei branch of BNP Paribas, have both called for the removal of limits on investment in China, saying it is the only way to attract foreign investment.
The government should look at the issue of China-based businesses listing in Taiwan in a positive light, as it could greatly assist Taiwan's ambition to become an Asia-Pacific financial center. Over the past 15 years, Taiwan's rejection of direct links has given the advantage to Hong Kong, consolidating its position as a regional operations center.
The next one or two years will be critical. If Taiwan fails to attract China-based businesses to list here, it will lose its chance to establish itself as a regional financial center, once again giving the upper hand to Hong Kong and allowing it to continue in its role as the region's financial leader.
Tung Chen-yuan is an assistant professor in the Sun Yat-sen Graduate Institute of Social Sciences and Humanities at National Chengchi University.
Translated by Lin Ya-ti and Ian Bartholomew
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