Sun, Mar 05, 2006 page8

• Mapping out financial strategies

  • By the Liberty Times editorial
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  A few days ago, Vice Premier Tsai Ing-wen (蔡英文) met with the Taiwan Solidarity Union legislative caucus for talks on the nation's financial and economic strategy. After the meeting, the caucus relayed Tsai's ideas, saying that the government was looking, amongst other things, at ways to stimulate the stock market and encourage investment flows from Taiwanese businesses in China back to Taiwan. A spokesperson for the government's Financial Supervisory Commission said that further research was necessary before the commission would have details of how this was to be implemented.

  We do not object to the idea of the government's wanting to encourage investment flows back to Taiwan as a major cog in its economic development strategy. However, we would remind them that they should not seek to gain investment flows from Taiwanese businesses already investing in China at the expense of its basic policy for the effective management of investment in China and prioritizing investments in Taiwan.

  In the past, pro-unification writers and media have maintained that it is better to encourage investment flows back into Taiwan than to waste resources on management measures that run counter to the market, and they have used this as a smoke screen for their efforts to undermine the "effective management" policy. This has forced the government's hand in how it implement its policy, effectively reducing the "Taiwan first" strategy to a mere slogan and thus bringing it to an early death.

  Superficially, encouraging investment flows back into Taiwan sounds tempting because it doesn't suffer from the problems that afflict effective management of Taiwanese investments in China. But this is just a way of pulling the wool over the eyes of the Taiwanese people. It is also exactly what the blue camp wants, and why all the politicians are going in this direction. The idea of Taiwan as a regional operational hub and inducing Taiwanese businesses in China to list on the Taiwan stock exchange, are all products of this way of thinking.

  The biggest flaw in the investment flows idea is that it obscures the significance of effective management of Taiwanese investment in China. Logically speaking, investment flowing out is a precondition to it being able to flow back in again: If the government wishes to encourage a flow of investment in Taiwan from Taiwanese investment in China, it has to set up favorable conditions for Taiwanese businesses to invest in China in the first place. Seen in this way, the policy can be equated with encouraging investment in China.

  The actual amount of money flowing out is many times the amount flowing back, but although the government's attempts to encourage companies to set up operational headquarters in Taiwan is bearing fruit, and despite the considerable tax incentives offered, more and more enterprises are investing in China.

  The idea of Taiwanese businesses getting listed on the Taiwan stocks and securities market is also based on this kind of thinking, although this is an even clearer incentive to move to China. Under the current system, Taiwanese businesses can be listed in Taiwan irrespective of whether they are located at home or abroad so long as they conform to certain standards. And if a company put Taiwan first, the 40 percent ceiling on investment abroad should not be too limiting, and there would be no need for any other incentives.

  Taiwan is not Hong Kong, nor is it New York: It has a hostile neighbor harboring the intention to invade. Therefore, any policy arrived at by the government should take into account considerations of national security, and this includes economic security.

  Pro-unification elements may say that internationalization will keep China from making any rash moves, but it pays not to forget that we heard little more than a whimper from the international community when China passed the "Anti-Secession" Law last year, due to the political and economic power that China holds.

  Unless China actually revokes its claims to Taiwan, the idea of an international bourse in Taiwan will dissipate into thin air, and Taiwan's investments in China will become a weapon through which pressure can be applied to Taiwan to accept the idea of "one China, two systems."

  While there is no doubt that stimulating the stock market would make it easier for businesses to raise capital, it should be remembered that the state of the stock market is merely a window on the state of the economy itself: You can't stimulate the stock market in the absence of economic growth. The relaxation of laws and regulations following the transition of political power in 2000 have made all kinds of illicit transactions possible.

  Although foreign capital finds its way into Taiwan, even more capital is leaving the country. Without economic growth, it is impossible to stimulate the stock market, and we continue to underperform against other East Asian stock markets amid never-ending complaints. This is evidence that the economy must be built from the ground up, and that there are no shortcuts. Short-term speculation is not the way to succeed in the long term, and the only way to stimulate the stock market is to revive the economy as a whole.

  Not much time remains of President Chen Shui-bian's (陳水扁) term in office, but two years still leave room for further action. Focusing on return flows is not the way to go, and stimulation of the stock market can only be an effect, not a cause. The government should stop relying on empty slogans and repeating old mistakes. Hopefully, Premier Su Tsen-chang (蘇貞昌) will stick to fundamentals and implement the spirit of giving priority to investment in Taiwan outlined in Chen's New Year's address and actively managing investment in China. This is the only way to revitalize Taiwan's economy, consolidate the trust of the people in the Chen administration and fulfill the wishes of the people of Taiwan.

  Translated by Paul Cooper and Perry Svensson
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