Taiwan's average annual investment in China decreased from NT$3.138 billion (US$95 million) between 1993 and 1999 to NT$2.981 billion in 2000 after President Chen Shui-bian (陳水扁) liberalized trade with China. This decline cannot be explained by either the ban on direct transport links across the Taiwan Strait or the 40 percent investment cap on China-bound investment. For some competitive hightech Original Equipment Manufacturers (OEM), these restrictions do not affect their ability to move to China.
Hon Hai Group, for example, has 140,000 employees in China and just a few thousand managerial and research employees at its headquarters in Taiwan. Although Hon Hai has relocated all of its production facilities to China, it has not hit its 40 percent investment ceiling. That's because OEMs like Hon Hai have high annual capital turnover rates of at least five or six times their equity. As a result, these firms have high working capital requirements of up to 70 percent of equity, but invest just 30 percent in plant. As long as operating costs are booked in Taiwan, their investments in China will never hit the 40 percent cap.
If they repatriate profits, they can set them against the 40 percent cap. In other words, the 40 percent cap essentially means nothing to these companies.
This is why the Investment Commission approved record levels of investment in China in 2004, yet executed investments in China hit a record low in 2005.
In contrast, semiconductor manufacturers have extremely high equipment costs up to 70 percent of equity. But because the industry is so technology intensive, manufacturing costs in Taiwan are actually lower than in China. As a result, Taiwan's foundries are in no rush to go to China. Japan's Elpida Memory Inc, for example, chose to set up fabrication facilities in Taiwan as part of a joint venture with Powerchip Semiconductor Corp instead of heading to China and cooperating with Semiconductor Manufacturing International Corp there. There is simply no need to impose a 40 percent investment cap on semiconductor companies.
While opening direct transportation links or relaxing the 40 percent investment cap won't have much effect on the high tech industries Taiwan badly wants to keep, maintaining these restrictions hurts Taiwanese manufacturers in traditional industries who started out dependent on domestic markets like cement, glass, food, paper and rubber.
Former national policy adviser Huang Tien-lin (黃天麟) claims that I am only concerned about Taiwan's high tech industry and that I do not value traditional industries. This is not the case. Former president Lee Teng-hui (李登輝) was the first one to neglect traditional industries during his presidency and in my new book, Community (共同體), I have criticized him for doing just that.
Huang also argues that the 40 percent investment cap is not an issue because firms can increase the amount they can invest in China by increasing their capital. In reality, though, the 40 percent cap applies to companies with a net value of less than NT$5 billion. The investment cap on companies with a net value between NT$5 billion and NT$10 billion is 30 percent, while companies with a net value of over NT$10 billion are limited to just 20 percent. Taiwan's traditional manufacturers, moreover, have saturated the nation's domestic markets. There is no space left for them to increase capital and production domestically.
It should also be kept in mind that when OEM tech manufacturers like Hon Hai move to China, they tend to move all of their production facilities. But traditional manufacturers don't need to close their existing facilities in Taiwan when they enter the Chinese market. The 40 percent investment cap doesn't restrict firms that do leave, but it does, rather perversely, hold back traditional manufacturers who will stay. Investment restrictions should therefore be applied based on industry characteristics rather than having a 40 percent investment cap that applies across the board.
The ban on direct transportation links with China is another paradox. The ban was originally imposed out of fear that the direct links would undermine Taiwanese identity. Yet during the 1990s, when cross-strait trade was expanding the fastest, Taiwanese identity was strengthening with equal vigor. In less than 10 years, people supporting a separate Taiwanese identity increased from less than 10 percent to around 45 percent. At the same time, those who said they wanted to unify with China fell from 65 percent to 35 percent. These polling results demonstrate the fallacy of the proposition that Taiwanese investment in China weakens the Taiwanese independence movement.
Lin Cho-shui is a member of the Democratic Progressive Party and a former legislator.
Translated by Michael Fahey
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
In an article published on this page on Tuesday, Kaohsiung-based journalist Julien Oeuillet wrote that “legions of people worldwide would care if a disaster occurred in South Korea or Japan, but the same people would not bat an eyelid if Taiwan disappeared.” That is quite a statement. We are constantly reading about the importance of Taiwan Semiconductor Manufacturing Co (TSMC), hailed in Taiwan as the nation’s “silicon shield” protecting it from hostile foreign forces such as the Chinese Communist Party (CCP), and so crucial to the global supply chain for semiconductors that its loss would cost the global economy US$1
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
Sasha B. Chhabra’s column (“Michelle Yeoh should no longer be welcome,” March 26, page 8) lamented an Instagram post by renowned actress Michelle Yeoh (楊紫瓊) about her recent visit to “Taipei, China.” It is Chhabra’s opinion that, in response to parroting Beijing’s propaganda about the status of Taiwan, Yeoh should be banned from entering this nation and her films cut off from funding by government-backed agencies, as well as disqualified from competing in the Golden Horse Awards. She and other celebrities, he wrote, must be made to understand “that there are consequences for their actions if they become political pawns of
RSS