The Democratic Progressive Party (DPP) is going to hold a debate on lifting the restrictions on cross-strait economic and trade exchanges. For the manufacturing industry, this debate has come too late.
It seems that the Taiwanese public believe in the myth that investing in China has become a must for all countries. Many think that the nation's sluggish economic performance over the last decade and the reason why it trails behind other advanced economies is because it opposes this global trend. They further believe that South Korea's economic success, which has surpassed Taiwan's in recent years, is a result of the former's investments in China.
Taiwan's policy of moving westward toward China was initiated by former president Lee Teng-hui (李登輝) in the early 1990s. Not until after 1996 did Lee change this to a "no haste, be patient" policy. But it was easier to adopt an opening-up policy than to scrap it. Despite the government's imposition of restrictions on China-bound investment in wafer foundries and infrastructure and although Taiwanese statistics show that investments from 1996 to 1999 were much lower than those from 1992 to 1995, Chinese statistics still show NT$7 billion (US$215.8 milliion) in accumu-lated investments in the period from 1992 to 1999, implying that the restrictions were ineffective.
When President Chen Shui-bian (
As of 2004, Taiwan's capital investments in China had reached an accumulated US$55 billion, or more than 65 percent of its foreign investments. This compares with South Korean investments in China of less than US$13.2 billion, or a mere 22.98 percent of its foreign direct investments as of last year.
According to the OECD's Handbook on Economic Globalization Indicators, the more concentrated a nation's foreign investment is, the lower is its level of globalization. Taiwan has thus effectively lowered its level of globalization as a result of excessive investment in and trade with China.
Fortunately, up to 90 percent of information-technology (IT) products produced with Taiwanese investments in China are exported to other nations, rather than concentrated on domestic sales. Therefore, investing in and exporting to China is only one part of Taiwanese businesspeople's globalization operation strategies.
What draws our attention to South Korea is that 25.72 percent of its foreign direct investment went to the US, compared with Taiwan's 9.8 percent. According to IMF's estimates, a reasonable investment rate for Taiwan would be at least 23.8 percent of its GDP, a standard that Taiwan met prior to 2000. But records show that from 2001 to 2004, Taiwan's overall investment rate was less than 23.8 percent, despite large-scale Taiwanese investments in China, and in 2003 it even dipped to 16.9 percent.
Not only was this far below South Korea's average of more than 29 percent, but it was also lower than the percentage posted by the US, Japan and France -- all mature economies.
Increasing investments in the US give Taiwanese businesses a better grasp of industrial developments, while investments at home help upgrade Taiwan's technical competencies. But by letting investments in China crowd out investments in the US and Taiwan, the only victory Taiwan can claim over South Korea -- aided by cheap Chinese labor -- is in the low-margin original equipment manufacturing (OEM) business.
When it comes to global brands and technologies, Taiwan has been utterly defeated by South Korean companies such as Samsung, LG and Hyundai.
Just like Lee's "no haste, be patient" policy in 1996, Chen's adoption of an "active management" policy has little significance for the manufacturing industry, because Taiwanese businesspeople on both sides of the Taiwan Strait plan their industrial deployment based on the principle of comparative advantage. For example, 80 percent of the IT industry's manufacturing is already taking place in China, while Taiwanese businesspeople in the integrated circuit and liquid crystal display industries have not displayed much interest in further investments in China.
There are two reasons why Taiwanese businesspeople invest in China: One is they know how to take advantage of China's cheap labor. The other is that since Taiwanese businesses are much smaller in scope than South Korean businesses, do not get full support from the government and are under pressure from US brands, they can only compete by becoming leading international OEM providers
However, over the past 15 years, South Korea has excelled over Taiwan in promoting its own brandnames and technologies because of its focus on strengthening its own base and marching west, while Taiwan has lost this battle owing to its "boldly head west" policy. These are the facts. Regrets are useless and debating about it is too late.
This also means that a debate over the "direct links" policy is meaningless, because the main reason for opposing that policy was that it would encourage more domestic manufacturing firms to invest in China.
There are three issues that we should discuss today.
First, South Korean and Japanese firms with large-scale investments in China are shifting their focus to Vietnam, India and other countries. Taiwan should follow this trend in its quest for globalization.
Second, many Taiwanese companies with high gross profits are already increasing their investments in Taiwan and in the US.
Third, with the pressure on export-oriented firms to invest in China diminishing, the question we have to deal with next is the growing attraction of China's internal demand on Taiwan's service and distribution industries.
Lin Cho-shui is a Democratic Progressive Party legislator.
Translated by Lin Ya-ti
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