The Chinese government has excluded the Swiss-owned bank Credit Suisse First Boston from a US$10 billion sale of Chinese company shares in an apparent move to punish the bank for helping Minister of Finance Yen Ching-chang (
The Credit-Suisse incident shows that the so-called "manufacture in China but process orders and do R&D, logistics and procurement in Taiwan" model is not feasible. It also shows the high risks facing Taiwanese banks entering China.
In fact, Beijing's move was to be expected. This author has repeatedly warned that it is not feasible to move production to China and keep logistics and R&D in Taiwan. It takes a massive amount of capital to build production facilities which, once built, don't move. But operations, like logistics and order-processing, can be moved overnight from Taipei to Shanghai once Beijing makes the demand. Who would dare procrastinate? Not Western companies, much less the Taiwanese.
Personnel, computers, mobile phones -- all these can be moved any time. Think about it. Will Beijing still let you process orders in Taiwan but carry out production in China by remote control after Taiwan has pumped its key production and capital resources into China? It only takes common sense to make a judgment on this. But business incentives cause people to lose their wisdom. The "westward march" clamor has prevailed both before and after the Economic Development Advisory Conference.
Also, the idea of building national security on the back of economic globalization is feasible only under certain conditions -- one of which is that Taiwan's economy must not be shackled to China's. Unfortunately, Taiwanese businesses both large and small are moving in the other direction.
Over the past 10 years, Taiwan has poured US$100 billion in investments into China. "March west" theorists apparently don't think it's enough. They blame the government for causing busi-nesses to lose opportunities.
Strangely enough, South Korea only invested US$106 million in China from January to May this year. At the same time, the closure of South Korean-owned factories and the withdrawal of South Korean capital from China amounted to US$101 million. So the nation's the actual net investment was only US$5 million.
But what about Taiwan? Taiwanese invested more than US$5 billion in China in the first half of this year alone (including the capital that entered China via the US, Hong Kong and Singa-pore). At a single meeting on Aug. 31, the Ministry of Economic Affairs' Investment Review Committee approved 17 applications for investment in China totaling US$152 million.
Is it that the South Korean businesses are so foolish that they are slow to take up positions in China? Why has South Korea managed to survive without going to China? It is interesting to note that South Korea, which has not boldly marched into China, posted economic growth of 8.8 percent last year, 3.7 percent in the first quarter of this year, and 2.7 percent in the second quarter.
In comparison, Taiwan, which poured US$10 billion into China last year and another US$5 billion in the first half of this year, saw a negative economic growth rate of -2.37 percent in the second quarter.
In tackling the global economic slowdown, South Korea's strategy has been to solidify its foundations and reduce investments in other countries. Taiwan is doing exactly the opposite,with its businesses demanding greater access to China.
Taiwan Stock Exchange Chairman Lin Jong-hsiung (林鐘雄) said recently, "It's absurd to say we can devise a mechanism to let capital flow back here." In fact, all this talk of a capital flow-back mechanism, of "doing R&D in Taiwan, manufacturing in China" is simply building castles in the sky. It was all cooked up to rationalize the "march west" policy.
Easing restrictions on investment in China will bring only result in the hollowing out and marginalization of Taiwan's economy. Once China has absorbed enough of Taiwan's capital and industries, once Taiwan's economy has been gutted, one order -- even one insinuation -- from Beijing will bring down all those fantasies about procurement centers, supply chain headquarters, orders and logistics and capital flow-back mechanisms.
If Beijing's recent move has inadvertently awakened the people of Taiwan and their policymakers, if it has caused them to abandon unrealistic fantasies and given them a thorough understanding of the need for effective management of investments in China, then that will be one big silver lining to the dark clouds over Taiwan.
Huang Tien-lin is a national policy advisor to the president.
Translated by Francis Huang
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