As a result of Economic Development Advisory Conference (EDAC,
Active opening is a pre-condition in the mind of the business sector for Taiwan's development into a global operations and services center. The only question is whether the Taiwanese government will be able to truly accomplish "effective management."
Active opening is the opening up of flows of manpower, goods, and capital. It entails the removal of all barriers erected by Taiwan.
This "active opening" will necessarily cause Taiwan to skew further toward China, as capital tends to gravitate toward the most popular and active market.
A losing alliance
On Aug. 27, Guangdong Provincial Governor Lu Rueihua (
This strategic alliance of Hong Kong and Guangdong has resulted in an outflow of US$120 billion from Hong Kong to the Pearl River Delta. The amount of foreign capital flowing from Hong Kong to the Shanghai services sector may very well exceed US$60 billion.
According to a study on worldwide business competitiveness conducted by the World Economic Forum, Taiwan's ranking moved up from 10th place last year to seventh place this year. Interestingly, Hong Kong has slipped from seventh place to 13th place in the same period. One might wonder, why hasn't the strategic alliance between Hong Kong and Chinese industries, under which Hong Kong utilizes Guangdong's cheap labor, land, and manufacturing costs, resulted in a win-win situation, Instead of causing Hong Kong to trail Asia's other "four little dragons" in economic growth.
The reason is simple. After the business merger between Hong Kong and China occurred, virtually the entire manufacturing sector left Hong Kong, with only the services sector remaining. The result has been major damage to the economic growth of Hong Kong, placing the territory in a rather tenuous position.
With Hong Kong's manpower, technology and capital flowing into China, Hong Kong's business competitiveness is declining every year. Hong Kong's financial operations center, once the heart of Asia, is now being replaced by Shanghai.
Hong Kong Chief Executive Tung Chee-hwa (
At the beginning of the third quarter this year, Hong Kong's exports were still suffering declines. The Hong Kong government is falling increasingly into debt, causing delays to a hoped-for economic revival.
A nation's economy is closely linked with its governmental system. The political goals of democratic countries are the attainment of economic development and the well-being of the population. In contrast, the goals of communist countries are to develop national defense systems and maintain social order. Mineo Nakajima, president of the Tokyo University of Foreign Studies, pointed out that, after Hong Kong's handover, it has performed worse every year in terms of economic development. He added that the "one country, two system" is the main cause for the problems in Hong Kong's economy. He also warned that Taiwan has a group of individuals and parties advocating China's "one country, two systems" approach, stirring concern that, without strong faith and determination in a "Taiwan first" policy on the part of Taiwanese, Taiwan's economic decline will continue. Sooner or later, Taiwan will be engulfed by China, he said. Hong Kong's investments in China involve much more than business interests. They have much to do with interactive political and economic issues.
European and American firms investing in China are mostly large enterprises. They know the strategies on market penetration. Therefore, they often keep their business units in China independent from their mother companies in terms of management, finance and personnel. Some of these independent strategic business units (SBUs) take the form of branch companies. Taiwanese and Hong Kong firms are mostly small- and medium-sized firms. The Chinese firms in which they invest are virtually one in the same with the mother companies. Their relationships with their mother companies are far different than those of SBUs and their mother companies. In addition, these small- and mid-sized firms lack well-coordinated management systems and are therefore unable to draft effective investment plans regarding their China investments or research and predict the China market. Without adequate financial plans, and not knowing how to forge alliances with local Chinese firms or promote effective management, they blindly rush to China based on sheer enthusiasm for investing in China and delusions about the prospects of procuring higher profits through lower costs.
Not a simple exchange
The economic relationships linking China and Taiwan are much more than just simple investment relationships. In the future, they will continue with a backdrop of complicated "one China" political and economic interactions. The cross-strait tensions are unlikely to ease as a result of Taiwanese businessmen's investments in China or Taiwan's new "active opening, effective management" policy. China indicated long ago during the Chiang Kai-shek (
China is gradually transforming from a planned communist economy into a market economy. This transformation depends entirely on foreign investment. Foreign capital flows into China are a result of China's 1.2 billion-person market, cheap land and cheap labor.
So far, between US$500 and US$600 billion have flowed into China in a mad rush to set up manufacturing plants. According to PRC law, foreign manufacturers must export 70 to 80 percent of their products. Therefore, virtually all the products thereby manufactured have been exported to the US market. US firms have thus helped China procure more than US$100 billion in foreign reserves.
The Chinese stock market has suffered a 15 percent decline beginning in the third quarter of this year. The value of stocks being traded on the Shanghai and Shenzhen stock markets has dropped by 700 billion yuan. The fortunes of the Chinese stock markets have always been constrained by Beijing's financial and economical policies and closely tied to its attitude regarding the economy. The structure of the B-share market reflects the Chinese government's intent to have more foreign capital flow into the market, so as to fill up the holes dug by state-owned enterprises. Furthermore, accounts of the conditions of publicly traded firms are difficult to ascertain.
Some firms are basically shams, with the structure of stock ownership highly irregular. State-owned enterprises make up a disproportionately large share of the market, giving a small minority control of the market. The stock market, therefore, does not operate on market mechanisms. Rather, it merely serves as a means by which foreign capital is drawn. The fall in stock prices is a result.
At a time when the policy of active opening was about to be implemented, the Sept. 11 terrorist attack on the US occurred. The US stock market suffered devastating declines, causing investors' assets to devalue, consumption to dry up and investment to wither. The US will remain in an economic recession for some time to come. The economies of those countries exporting to the US, including Japan, South Korea, Taiwan, Hong Kong, Singapore and China, will also, in turn, decline.
China's export competitiveness has declined in the third quarter of this year. In addition to China's economic environment, Taiwanese businessmen planning to invest in China must additionally take into consideration China's political environment.
Taiwanese businessmen investing in China typically strategize as individual economic units. They believe they will miss out on opportunities and will become less competitive unless they invest in China. Their underlying strategy is short-term, however. Besides, it is unlikely that their business productivity and competitiveness will increase significantly as a result of their investments in China.
It is also by no means guaranteed that they will be successful in China. Just exactly how many Taiwanese businessmen investing in China today are actually making money? Only about 25 percent, the other 75 percent are losing badly. Worse yet, their financial losses become loan defaults for banks in Taiwan, making it impossible for many of them even to return to Taiwan.
Due to the Sept. 11 terrorist attacks, the economic recession in East Asia is likely to continue until July of next year. The World Bank has pointed out that the delay in recovery means fewer jobs and lower family incomes. China's economic growth has declined from 7.3 percent last year to 4.6 percent this year. Taiwan's economy has also entered a recession. As a result of Chen's refusal to accept the "one China" principle, Beijing does not want to see his administration enjoy a legislative majority after the year-end legislative elections. Therefore, China has opted to support the pan-blue camp.
Complicating the situation, Chinese President Jiang Zemin (
All this should alert Taiwanese about the uphill path they are facing. It is critical to support the Chen administration in the year-end elections, so that it will have the backing of a legislative majority to attain political stability, revive the nation's economy and safeguard the welfare of the people of Taiwan.
Lee Chang-kuei is the president of the Taipei Times and a professor emeritus at National Taiwan University.
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