Taiwan and China signed a bilateral investment protection agreement in August last year, but the latest dispute between a Taiwanese investor and its Chinese landlord over a department store in Chengdu, Sichuan Province, has cast doubt on the effectiveness of this agreement. The issue has also weighed on the cross-strait service trade agreement which Taipei and Beijing signed last month and is pending legislative review and approval.
According to a statement issued by the Far Eastern Group on Tuesday, the Pacific Department Store’s Chunxi branch in Chengdu was seized and shut down by its Chinese partner and building owner Chengshang Group on Monday. Although the Taiwanese conglomerate is scheduled to close the store by the end of this year after failing to renew a lease agreement, Chengshang Group’s move caught many by surprise. Moreover, the Chinese firm has reportedly informed the department store’s tenants of its intention to operate the store after kicking out the Taiwanese investor.
Far Eastern Group has reported the dispute to Taiwanese and Chinese authorities to help resolve the issue, but the lockout continues. The Ministry of Economic Affairs and the Straits Exchange Foundation said they have sought assistance from China’s Taiwan Affairs Office and the Association for Relations Across the Taiwan Straits to help safeguard the interests of the Far Eastern Group, but the fate of the store falls under the jurisdiction of the local government in Chengdu.
The Far Eastern Group also has a dispute with its Chinese landlord in another store in Dalian, Liaoning Province. These incidents bring to mind the management dispute between Taiwan’s Shin Kong Mitsukoshi Department Store and its Chinese partner, Beijing Hualian Group, over their Beijing joint venture in 2007, when the store’s Taiwanese staff were suddenly removed from their positions, with some even being detained by the Chinese partner for allegedly taking bribes. Last year, Shin Kong sold its 50 percent stake and pulled out of the joint venture.
Disappointment understandably prevails in some quarters in Taiwan at the thought of the investment protection agreement, as it has fallen short of government claims that it would provide stronger institutionalized protection for Taiwanese businesses’ property rights, management rights and personal safety in China. Not surprisingly, anger and suspicion have greeted the cross-strait service trade pact, with many concerned that the opening of various service sectors would only result in investment losses to Taiwanese firms.
According to a survey conducted in May by a local association, nearly 50 percent of those polled said they were not satisfied with the effectiveness of the investment protection agreement, while about 60 percent said they felt the government was not well prepared to deal with commercial disputes in China. None of the business disputes have been dealt with under the cross-strait dispute settlement mechanism since the investment protection agreement took effect in February.
Business disputes per se are not what people should fear, since conducting business in a foreign country always carries risks. What they should be afraid of is if authorities on both sides of the Taiwan Strait decide to deal with the Far Eastern Group’s dispute outside the institutionalized mechanism because of political pressure, as the case involves a well-known Taiwanese conglomerate and the issue has attracted wide public attention. What will happen if the next dispute involves smaller Taiwanese businesses that are less well-known to the public and are unlikely to gain media attention? What should these companies do if they do not have strong personal connections in China?