Mon, Jul 21, 2008 page12

• ANALYSIS: Easing restrictions on China-bound investment is a two-edged sword

  • By Crystal Hsu / STAFF REPORTER
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  Easing restrictions on China-bound investment could encourage local and foreign investors to set up headquarters in Taiwan or unleash a massive exodus of capital to China, analysts said last week.

  On Thursday, the Cabinet approved raising the cap on China-bound investment to 60 percent of a company’s net worth, from the current 40 percent, starting next month. Companies headquartered in Taiwan and multinational subsidiaries listed here will be exempted from the limit.

  Paradoxically, the opening is intended to encourage Taiwanese businesspeople in China to funnel their capital back to Taiwan — not the other way around — Council for Economic Planning and Development Chairman Chen Tian-jy (陳添枝) said.

  Under present regulations, corporations cannot freely deploy their capital once it is remitted to Taiwan, Chen said, adding that the new measures were part of the government’s objective of turning Taiwan into a regional financial hub.

  Wang Lee-rong (王儷容), a research fellow at the Chung-Hua Institution for Economic Research (中經院), said the relaxation would encourage Taiwanese companies in China to return and set up headquarters here.

  “Many Taiwanese firms in China run into a bottleneck in their development,” Wang said in a telephone interview on Friday.

  “They have expressed a desire to return and upgrade their business from command units here. Employees in China have a low sense of loyalty,” he said.

  Meanwhile, foreign and local investors seeking to enter the Chinese market will be willing to establish roots here, as restrictions on the movement of capital will soon be removed, Wang said.

  Others disagreed.

  Kenneth Lin (林向愷), an economics professor at National Taiwan University, said that the opening could result in more jobs lost to China as more firms will be allowed to move their assembly lines and capital across the Taiwan Strait.

  “The operational headquarters could end up being nothing more than empty shells,” Lin said, arguing that a favorable taxation system would be a better incentive than capital deregulation to attract investors to Taiwan.

  The government is also considering overhauling the tax system to make the distribution of wealth more equitable while fostering economic growth.

  Tsai Chi-yuan (蔡吉源), a researcher at Academia Sinica, said capital was vital to a nation’s economy and that Taiwan would suffer if industries move their capital abroad.

  “With firms allowed to invest more in China, the country will see rising unemployment and declining tax revenues,” Tsai said on Friday.

  “The government should adopt measures to attract investment in Taiwan instead,” he said.

  Roscher Lin (林秉彬), head of the National Association of Small and Medium Enterprises (中小企業協會), echoed those views.

  Roscher Lin said the opening would benefit large corporations that can afford to divide their capital between Taiwan and China while remaining competitive.

  But small and medium companies, which hire 77 percent of the nation’s labor force, may have to move across the Strait as well in order to stay in the food chain, taking job opportunities with them to China, he said.

  “The practice would sink the state coffers here,” he said. “The government should give serious thought to this scenario.”

  Proponents of deregulation, however, insist that legal barriers would prove futile in a world marked by increasing globalization as capital will seek to flow where it can maximize profits.

  Tang Ming-je (湯明哲), a professor of international business at National Taiwan University, said companies bent on moving to China can always circumvent restrictions and that there is little the government can do once capital flows abroad.

  “If firms set up headquarters in Taiwan, some jobs can be kept or created,” Tang said.

  Also See: Taiwan cannot play off China, US題

  Also See: Rethinking the moves to be closer to Beijing
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