Tue, Sep 12, 2006 - Page 8 News List

Direct links a poison pill, not a panacea

By Su Lung-chi 蘇龍麒

At present, Taiwan's China-bound investment accounts for 71.05 percent of its total foreign investment. This is five times more than the amount invested in the British Virgin Islands, which is the second-largest recipient at 14.9 percent, and 19 times more than that invested in the US, which at 3.7 percent ranks third among destinations for Taiwanese foreign investment. Clearly, Taiwan's outbound foreign investment is seriously tipped in China's favor.

Once China's economy begins to falter, Taiwanese businesspeople's lack of understanding of the need to hedge their investments means that they will find it difficult to cope. If Taiwanese companies in China begin to fall apart at the seams, Taiwan's economy will also go down the tubes.

Although Japanese investments in China have increased in recent years, China only received 12.96 percent of Japan's total foreign investment in 2004, making it the fourth-largest recipient. Japanese foreign investment is being equally spread over different regions of the world. Clearly, Japanese companies have hedged their positions well, and unless there is an economic crisis of global scale, Japan's economy will not suffer because of political, economic or social disturbances in a few regions.

Japanese businesspeople clearly have a better understanding of the need to hedge their investments than their Taiwanese counterparts and therefore avoid putting all their eggs in one basket.

Many believe that since China has the largest population in the world, it is also the world's biggest market. However, a big population does not necessarily amount to strong consumption power. China's population accounts for 20.25 percent of the world's population, but its GDP only accounts for 4.35 percent of the world's GDP. It trails far behind the 25-nation EU, whose collective population accounts for 7.08 percent of world's population while its GDP accounts for 30.14 percent of global GDP. China is thus not one of the largest markets in the world.

This data proves two things: a large population does not translate into a large market, and the biggest markets in the world are the EU, the US and Japan, not China.

If Taiwanese businesspeople do not realize this simple fact, they will not be able to invest wisely.

Many also believe that Taiwan only stands to benefit from the opening up of direct transport links with China. However, according to a report released by the Mainland Affairs Council in 2003, the normalization of cross-strait transportation links would lead to an increase of China-bound investment by NT$280 billion (US$9 billion). The report also said that the number of China-bound tourists would increase by 2 million people, who would spend NT$60 billion, for a total of NT$340 billion.

If direct transport links are established, Taiwan could save NT$13.3 billion on air freight and NT$800 million in freight transport, for a total of NT$14.1 billion. This means that if cross-strait links are established, Taiwan will lose NT$326 billion a year.

Furthermore, a survey entitled "Taiwanese Businessmen on China-bound Investment" issued by the Chinese National Federation of Industries last year said that if direct transportation links are normalized, only 27.4 percent of Taiwanese companies would be willing to increase their investments in Taiwan, while 52.3 percent said they would increase their investments in China.

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