Although China has been widely accused of creating an oversupply that its own demands and the global market can not handle, China's trade with the world has been expanding and it has been adopting a more aggressive attitude toward the economy.
In addition, foreign investors have been investing large sums of money in China, in order to capitalize on the booming economy by producing goods for export. There is no question that, since China's accession to the WTO, it has been able to strengthen its trade competitiveness and attract foreign direct investment (FDI) from Taiwan and other countries.
In light of the current economic scene, it would seem that a slowdown in China's economy is not going to happen any time soon.
With this in mind, it is only logical that companies from around the world should continue to invest in China and assist with the expansion of trade.
But the history of large economies has shown that no nation is able to expand its economy indefinitely.
One important lesson to be learned is that it is necessary for businesses to diversify their investments. In the case of China, this advice is especially useful because its economy has been growing for some time now and by now it looks like one great big bubble.
In addition, many countries in Asia have been seeking to improve their trade competitiveness and investment climate. Smart investors should not focus only on China, but should take a look at opportunities in other Asian countries that may provide better returns and serve as insurance.
Taiwan is an excellent example a country suffering from an infatuation with investing in China. Businessmen from Taiwan have played significant roles in driving trade growth in China and fueling its rapid economic growth.
But some Taiwanese businessmen know all too well that there is a need to diversify foreign investments. As a result, many of these wise investors have broadened their horizons, some choosing another rising star -- Vietnam.
Taiwan's investment there is ranked the highest among all the countries investing in Vietnam. It stands to reason that many businessmen see it as an excellent spot for investing.
Vietnam's economy was expected to get a sharp boost from joining the WTO, and see its economy growing faster than before.
China has had the same experience and it makes sense to expect a similar rapid rise in Vietnam.
It would be prudent for investors to open their eyes and invest in places other than China -- such as Vietnam -- so as to diversify their source of capital. Vietnam's economy shows great potential for growth.
Data on trade shows that Taiwan has been Vietnam's fifth-largest trading partner since 2005.
In addition, Taiwan is the ninth-biggest destination for Vietnam's exports and No. 3 in terms of the origin of its imports.
With abundant natural resources, Vietnam is poised as one of the most promising emerging markets. With a population of approximately 84 million, the quality and efficiency of its human resources are impressive according to Taiwanese investors already operating in Vietnam.
The country launched economic reforms in 1986 and has opened its market slowly but surely ever since. The reforms have helped Vietnam transform itself from a conservative economy to a market-driven one. Starting from the 1990s, Vietnam's significant real GDP growth, booming job market, decentralized economic environment, and increasing per-capita income have attracted the attention of businessmen all around the world.
Although Vietnam started its economic reform in the 1980s, the turning point that brought Vietnam and the world economy closer was when the US declared normal trade relations with Vietnam in 2001. Since then, Vietnam has seen the benefits of globalization. Taiwanese businessmen who started their operations in Vietnam in the late 1990s have capitalized on the rapidly globalizing Vietnamese market.
When it became a member of the WTO on Nov. 11 last year, Vietnam became even more attractive to foreign investors. Although Taiwan is currently the biggest investor in Vietnam, its dominant status there is not expected to last for very long.
The main reason is that more and more foreign investors have expressed strong interest in Vietnam's economy.
More FDI is expected to continuously flow into Vietnam in the near future. Taiwan isn't the only country betting on the rising economy of Vietnam.
A survey conducted by the Taiwan Institute of Economic Research (TIER) last year indicated that Vietnam is one of the emerging economies with the most potential in the world.
TIER surveyed 3,000 of the largest companies in Taiwan to identify emerging economies the companies felt had the most potential.
It is a fact that globalization and regional economic integration have become two major factors affecting world economies, and obviously this includes Taiwan and Vietnam.
Globalization speeds up capital flow, promotes cross-boundary exchanges and invites greater competition, which can only help the local economy develop. Globalization has actually reorganized the global economic and trade structure in a way that has encouraged FDI.
In response to greater competition, FDI has been used by the business sector to drive development and expansion.
Furthermore, regional economic integration has been presented as having two dimensions: institutional-driven and market-driven integration.
The institutional-driven dimension comprises regional trade agreements, preferential arrangements, free-trade agreements (FTA), and customs unions. Among them, the FTA is the main form driving all regional integration, which means that FTAs and FDI could be closely related.
Taiwan's investment abroad has grown rapidly since the 1980s. The reasons that Taiwanese companies invest overseas include coping with increasing domestic labor costs and the need to stay competitive as compared to foreign firms. In the 1990s, many Taiwanese companies selected Southeast Asia as the target of investment. However, the East Asian financial crisis and China's booming market have diminished Taiwanese investment from this area to China. In spite of that, Taiwanese FDI in emerging markets such as Vietnam is significant.
Taiwanese investment in Vietnam has encouraged the flow of tens of billions of US dollars in capital, created millions of new job opportunities, transferred technology and know-how, promoted Vietnamese industrial development, enhanced Vietnamese export capacity, promoted bilateral trade and changed Vietnam's social structure.
Following the example of the Subic and Clark economic model, Taiwan could seek the possibility of building an economic "corridor" in Vietnam. This economic corridor would serve as a channel for exporting Taiwanese products to ASEAN economies. Taiwan can establish business organizations in Vietnam to strengthen its business relations abroad. The next step for Taiwan is to seek an FTA with Vietnam.
Darson Chiu and Chen Ho are associate research fellows at the Taiwan Institute of Economic Research.
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