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Rules relaxed on China investment

"The government's new trade policy imposes no cap on China-bound investments, signifying that a historic new era in cross-strait trade has arrived." Tsai Ing-wen, chairwoman of the Mainland Affairs Council PHOTO: CHIANG YING-YING, TAIPEI TIMES

The Executive Yuan yesterday approved the relaxation of restrictions on investments in China, easing the 5-year-old "no haste, be patient (戒急用忍)" policy promulgated by former president Lee Teng-hui (李登輝).

At yesterday's Cabinet meeting, the ceiling which capped China-bound investments at US$50 million per project was lifted, said Tsai Ing-wen (蔡英文), chairwoman of the Mainland Affairs Council (MAC).

"The government's new trade policy imposes no cap on China-bound investments, signifying that a historic new era in cross-strait trade has arrived," Tsai said.

She added that the former trade policy had failed to effectively bar industries from making investments in China via other indirect channels and that, therefore, relaxation of the rules was inevitable.

She said that MAC statistics showed that, until the end of September, Taiwan had invested a total of US$19.2 billion in China through 24,000 transactions. Chinese reports quoted by the MAC, on the other hand, put the figure at US$27.5 billion with another US$23.7 billion promised on paper by Taiwanese investors.

Minister of Economic Affairs Lin Hsin-yi (林信義) yesterday said that the new policy would come into effect "no later than Jan. 1."

Upholding the new policy's goal that industries should keep their "roots" in Taiwan but "branch out" globally, Tsai said measures would be implemented to monitor capital flow to China and manage the risk of doing business there.

According to Tsai, the limit on China-bound investments by individuals and small and medium-size enterprises on a cumulative basis would be adjusted from NT$60 million (US$1.77 million) to NT$80 million (US$2.35 million).

For companies listed on the stock exchange, their use of capital will also be deregulated.

A "simple review" would also be made within one month for investment projects with a value of less that US$20 million while a "case-by-case review" by a 17-member review board would be made for projects exceeding that amount.

The board, to be headed by Vice Minister of Economic Affairs Steve Chen (陳瑞隆), will comprise five industrialists, six government officials and five economic experts, Lin said, adding that the first meeting would be held on or around Nov. 20.

Lin added that the government would clearly specify which industries may move operations to China and which would be forbidden from doing so.

"In principle, any industry related to the country's military defense, security or infrastructure will be forbidden to invest in China," Lin said. He added that the review board would soon formulate a list of such "banned industries."

When asked specifically whether 8-inch wafer foundries, notebook computer makers and upstream petrochemical industries would be allowed to invest in China, Lin said the decision had yet to be made by the board.

The Cabinet yesterday said offshore banking units of the domestic banking industry will be allowed to conduct business with China's financial institutions, encouraging Taiwanese investors there to repatriate funds to Taiwan.

"The deregulation will be made providing that dispute arbitration, debt security and risk management systems are well established," Tsai said, adding that measures would be put in place to prevent double-taxation of earnings already taxed within China.

Taiwanese companies will, in addition, be able to invest directly in China without having to establish subsidiary companies in a third country as the former regulations stipulated for investments over US$1 million.

Meanwhile, a "dynamic review mechanism" will be set up to modify the policy on a yearly basis, tailoring it to macroeconomic indicators related to investment across the Strait. The Ministry of Economic Affairs is also to have have a significant say in future modifications to the policy.
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