China investment cap ineffective: Wu

The policy that bans Taiwanese firms from investing more than 40 percent of their net value in China has come under intense scrutiny, with many government officials concluding that it has been ineffective in stemming the surge of China-bound investment over the last decade, a top China affairs official said yesterday.

Mainland Affairs Council (MAC) Chairman Joseph Wu (吳釗燮) said that the regulation, which was introduced in 1997, has not stopped China-bound investment from reaching 71 percent of the country's total outbound investment last year.

"Obviously the 40-percent cap set up in 1997 has failed to meet both the needs of the local industries and the government's goal of managing the flow of China-bound capital," Wu said at a forum held by the Taiwan New Century Foundation on how Taiwan can prepare itself for the hidden dangers of the Chinese economy.

Wu said that the government was currently reviewing the feasibility of the restriction, in the context of both allowing local industries to take advantage of the economic opportunities in China, and enhancing the industries' ability to diversify their investments in the global market.

Wu said there has been heated debate about the issue in the preliminary meetings for the upcoming Conference on Sustainable Economic Development scheduled for July 27 and July 28, and that the MAC was still soliciting opinions from businesses and academics.

In response to the threat by the Chinese National Federation of Industries to hold demonstrations in November if the government doesn't make progress on lifting the investment cap and ban on direct cross-strait air links, Wu said that the government is trying to find a balanced solution to the problem.

"Our consideration is not simply to lift the 40 percent investment cap. Rather, we are thinking about how to make the management of Taiwanese businesses' investment in China more effective, just and transparent," Wu said.

He added that the government's goal is to help Taiwanese people reach the cutting edge of their industries in the global market.

Wu said at the forum that the hidden dangers of China's economy are the widening gap between the rich urban cities on the eastern coast and the poor farming villages in the western hinterlands, increasing environmental pollution, rampant government corruption and the ever-more strict suppression of democracy.

Chang Ching-hsi (張清溪), an economics professor from National Taiwan University, told the forum that despite China's economic reforms and opening up to the world, its economy is still heavily controlled by the state, and that China still has a communist economic system.

Yang Chia-yen (楊家彥), an associate research fellow from the Taiwan Institute of Economic Research, said that the government should put more effort into upgrading the international competitiveness of the nation's human resources, expanding local service-based industries and upgrading the innovation capabilities of the manufacturing sector in order to fill the void left by the exodus of traditional manufacturers to China.