Sun, Nov 27, 2005 page8

• China investment restrictions work

  • THE LIBERTY TIMES EDITORIAL
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  Since early this year, foreign investors have poured more money into Taiwan's stock market than any other stock market in Asia, with the exception of Japan's. As of this month, foreign investors have contributed over NT$400 billion (US$11.9 billion) to the nation's stock market. This month alone, the influx of foreign capital into the market has reached more than NT$140 billion, a record high for a single month.

  Strangely enough, just a couple of weeks ago the nation's pro-China media was warning the government, quoting foreign financial analysts who argued that if the government did not push ahead with opening the three direct links with China and lifting the investment ceiling for Taiwanese companies in China to 40 percent of their asset value, foreign investors would eventually abandon Taiwan for China. They said that it looked as though the nation would go down the tubes if it insisted on prioritizing its sovereignty over everything else.

  In fact, foreign investors have yet to withdraw their capital from Taiwan, even though the government has yet to eliminate restrictions on Taiwanese businessmen investing in China or negotiate with Beijing over regular cross-strait direct flights. On the contrary, foreign investors have been putting more money into Taiwan. Last year, foreign investors injected a total of NT$283.9 billion into the nation's stock market. This year, they have already far exceeded that amount. Interestingly enough, between January and August, foreign investors injected US$11.5 billion into Taiwan's stock market; at the same time they only invested US$800 million in South Korea's stock market.

  These statistics indicate that although the media believes the nation's economic outlook is dismal, Taiwan is still a top investment target for foreign investors. Evidently, the pro-China media outlets were ignoring the facts and pursuing their own interests when quoting some foreign investors' criticisms of Taiwan's China policy.

  If we analyze the portfolios of foreign investors we find that last year they invested NT$283.9 billion in Taiwan Semiconductor Manufacturing (TSMC, 台積電), China Steel Corp (中鋼) and Chunghwa Picture Tubes (華映). This month, foreign investors have also focused on buying shares of TMSC, AU Optronics Corp (AUO, 友達光電) and United Microelectronics Corp (UMC, 聯電). It seems that when looking for companies to invest in, foreign investors still prefer Taiwanese firms that are based in Taiwan.

  The government has yet to totally lift restrictions on chip companies that want to set up plants in China. Despite this, TSMC, the leading player in the industry, is not being ignored by foreign investors. AUO and China Steel have similar characteristics, for they have both kept most of their production lines in Taiwan.

  If foreign investors' criteria for selecting investment targets are based on profitability, we have to consider why the companies willing to stay in Taiwan are proving to be more profitable and able to keep up with industry changes.

  There are 694 listed companies in Taiwan. Only one or two companies have continued to perform well after relocating to China. Shares of the majority of companies that have moved to China are trading at or below their face value -- not the sort of thing that foreign investors are interested in.

  In addition, traditional industries that have been able to stand out are those that face partial bans on expanding into China, Formosa Plastics Group being a good example. Although the Formosa Plastics Group, just like TSMC, has invested a great deal of money in China, the amount accounts for a small proportion of its overall investment in Taiwan, and remains in a controllable range.

  In other words, the government's reluctance to allow naphtha cracker plants to set up branches in China has not swayed investor confidence in Formosa Plastics Group, but instead guaranteed a profit.

  The major weakness of Taiwanese businessmen working in China is that they have fallen into the "China fever" trap -- a result of a "greater China complex." Company owners have to travel to various regions in China throughout the year rather than focus on their business operations in Taiwan. Meanwhile, jumping onto the China bandwagon leads to lower prices for products, which can place an industry or an enterprises in a disadvantageous position.

  In retrospect, the government's decision to restrict wafer foundries from moving to China in 2002 seems like a major factor behind the continued profitability of chip manufacturers such as TSMC, and why foreign investors still regard them as top investment targets.

  Former president Lee Teng-hui (李登輝) recently pointed out that "a nation's leader should not be influenced by superficial phenomenon presented in a news report. He or she should take the needs of the people into account and act accordingly."

  A pro-China Chinese-language newspaper recently ran a headline that said "Foreign companies will abandon Taiwan if the government continues to forbid Taiwanese enterprises from investing in China."

  But, contrary to expectations, those forbidden industries have turned out to be foreign investors' favorites.

  This all goes to show that Lee's remark was well-founded. After all, foreign companies and media outlets are pursuing own interests and the government should never submit to their will. Rather, it should consider the nation's sustainable development and map out a policy based on the needs of all of the nation's industries.

  TRANSLATED BY DANIEL CHENG
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