Taiwanese investment in China will help domestic firms bolster their competitiveness, and forcing them to stay in Taiwan will hasten their demise, analysts say.
Andy Xie, chief economist for Asia Pacific at Morgan Stanley Dean Witter, said yesterday that it is inevitable that Taiwan open up to China, particularly after Taiwan's entry into the WTO.
The mainland-bound excitement has now hit a fevered pitch intensified by almost daily reports of Taiwanese blue chip firms setting up shop in China.
That list of investors is topped by Wang Wen-yang (王文洋), the son of the Formosa Plastics Group chairman Wang Yung-ching (王永慶), who held a groundbreaking ceremony for his 8-inch wafer fab in Shanghai on Saturday.
Wang's partner includes Jiang Mien-heng (江綿恆) the son of China's president, Jiang Zemin (江澤民).
While it will take some time before China catches up with Taiwan in terms of technology, China could eventually duplicate Taiwan's strength in the semiconductor sector, analysts say.
According to figures released by the Ministry of Economic Affairs, Taiwanese investment in China in the first 10 months reached US$2.14 billion, up 94 percent from the same period last year, led mainly by the leading blue chip firms such as Via Technologies (
Inbound investment to Taiwan also grew by 102 percent year-on-year to US$6.59 billion in the first 10 months, though the bulk of that is related to the Taiwan High Speed Railway, which is now under construction.
Dong Tao, senior regional economist for CS First Boston, also believes that Taiwanese high-tech investment in China is an irreversible trend, thanks to China's massive domestic market.
"China is the second-largest semiconductor market," said Tao. "This kind of market is bound to attract investment."
Even the opposition KMT, which originally implemented the "go slow, be patient" policy, is now calling for a reversal of its China policy.
Former premier Vincent Siew (
Siew's opinion is perhaps a reflection of growing interest in China among Taiwanese businessmen, particularly given China's impending entry into the WTO.
While the economic interaction between Taiwan and China is intensifying, a range of issues still needs to be settled, analysts said.
Xie said that Taiwan must focus on creating an IT-backed efficient service sector -- via deregulation -- and develop such areas as chip design and telecommunications equipment manufacturing through specialization.
Finland is a good model for Taiwan, he says, in that the country has a highly successful technology sector.
"When the economy is rich, the manufacturing sector won't make you richer," Xie said.
While Taiwan's investments in China will help to create jobs in China not in Taiwan, Taiwanese companies are going to make money in China, which in turn will be included in Taiwan's GNP.
Analysts believe traditional Taiwan industries will face stiff challenges following their entry into the WTO as any refusal by Taiwan to open up its economy may force China to seek arbitration within the WTO framework.
WTO entry, however, will accelerate the migration of domestic electronics companies to China, analysts said.
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