Sun, Dec 04, 2005 - Page 8 News List

Blame local businesses, and not the government

By Huang Tien-lin 黃天麟

Even foreign companies are now getting embroiled in the local elections, with the pan-blue camp quoting a recent report by Merrill Lynch. The report stated that if the Democratic Progressive Party (DPP) fails to win a majority of the county seats, the market will react positively. It went on to explain that a defeat would force them to rethink cross-strait policy. Global Views Monthly also quoted Guy Wittich, chief executive officer of the European Chamber of Commerce, Taipei (ECCT) as saying that it was looking less and less likely Taiwan could become a transit hub for the Asia-Pacific region, an opinion trumpeted by pro-unification factions.

Taiwanese businesspeople want the government to relax regulations and allow them free rein to invest in China, and foreign investors would like to use Taiwan as a springboard into China, using the island when the need is there, and getting out the moment they no longer need it.

So can Taiwan become a transit hub? Far be it from me to throw cold water on the idea, but in recent years Taiwanese ports have seen a drop in the volume of cargo handled, with Kaohsiung falling in global rankings from third place to sixth last year, falling behind other Asian ports such as Shanghai, Shenzhen and Busan, South Korea.

Please, though, do not lay the blame at the feet of the government for holding back on direct flights -- if anyone should take responsibility here, it is those businesspeople who have relocated production to China.

Since production lines have been moved across the Strait there is little cargo left in Taiwan to handle, and with little cargo to handle, cargo ships are not likely to stop here, making instead for Shanghai and Shenzhen to pick up cargo produced there by Taiwanese businesses. Air freight was also hit badly following the move of high-tech manufacturing to China. It really has little to do with direct flights.

Having said that, we should also feel sorry for these foreign investors. This year qualified foreign institutional investors have poured more money into Taiwan's stock market than that of any other Asian country save Japan.

This money, however, cannot make up for losses made due to Taiwanese businesses setting up in China. At present the weighted share price index of the TAIEX is wavering around the 6,200 mark, and for the time being there is no light on the horizon.

Foreign investors are, after all, businesspeople, and the reason they are investing so heavily in Taiwan's stock market is that they want the value of their stocks to increase. They are hoping the government will do something to stimulate the stock market so they can pull out without making a loss. They are putting their hopes in direct flights and a relaxation in the government's current cross-strait policy, which explains Merrill Lynch's report.

The thing is, what businesspeople want is not always in the national interest. According to a government commissioned report, direct flights could save businesses between NT$14 billion and NT$20 billion in transportation costs annually.

However, it would also mean an almost two-fold increase in investment in China (worth around NT$320 billion), which would mean the economy would shrink. Taiwan would also be even less attractive as a transit or distribution center, and if one also takes into account the impact this will have on public security and national defense, it is clear the balance tips against Taiwan.

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