Democratic Progressive Party (DPP) Legislator Hong Chi-chang (
Hong's reasoning was that a lot of Taiwanese businesses are now investing in China through a third country as a way to circumvent this investment limit.
Hong said that relaxing the 20 percent cap to 40 percent would allow China-based Taiwanese businesspeople to legally invest their profits in Taiwan. The following day, he even placed a large advertisement in a newspaper, asking readers: "Is it wrong to bring money back to Taiwan?"
The answer should probably be: "Yes, it is wrong." When the Carlyle Group made an offer to acquire Advanced Semiconductor Engineering (ASE) last year. Hung believed the strict upper limits for Taiwanese companies investing in China made ASE look for investors outside Taiwan.
Hong thus decided to join Chinese Nationalist Party (KMT) and People First Party legislators in requesting that the legislature amend the law and asking Taiwanese to clearly recognize "the long river of the international economy."
Facts emerged, however, proving that this is not the case, and the merger between ASE and Carlyle also went up in smoke.
Will a relaxation in investment restrictions really prompt China-based Taiwanese businesspeople to bring their money back? "Bringing money back" should mean that more money flows back than flows out of Taiwan. Hong's grand ideas, sadly, are wrong. His argument is the same as that made by politicians and industrialists promoting a move to China and pro-unification academics: That the absence of direct links is what causes businesses to move to China, while opening direct links will result in China-based Taiwanese businesspeople investing in Taiwan.
But a survey conducted by the Chinese National Federation of Industries among China-based Taiwanese businesspeople shows that the opening of direct links will result in China-bound investments increasing 1.94 times more than the increase in investments in Taiwan, and that China-bound capital outflow would increase by NT$300 billion annually. A direct cross-strait link evaluation conducted by the Mainland Affairs Council reached similar conclusions.
This shows that the idea that direct links will attract China-based Taiwanese businesses to return to Taiwan is just a smokescreen used by pro-unification politicians and businesspeople who want to promote unification through economic means.
This is a very dangerous idea. As soon as the Chinese investment restriction is relaxed, about 20 percent of the net capital of Taiwan's listed corporations will immediately flow to China. This will promote China's overall industrial standards, improve China's industries and create new demand that will later translate into new pressure for the Taiwanese government to further loosen its restrictions on investments in China.
Taiwan will be drained of capital and the government's "Big Warmth, Big Investment" plan will become an empty slogan.
For national security reasons and to diversify business risk, the Taiwanese government applies a 40 percent cap to companies with a net value of less than NT$5 billion, 30 percent for companies with a net value between NT$5 billion and NT$10 billion, and 20 percent for companies with a net value of over NT$10 billion.
These restrictions have been in place for many years and have served as an effective measure to keep key industries -- such as the wafer foundry and flat panel makers -- in Taiwan. These are akin to the regulations in the Banking Act (
Is the 40 percent cap -- or 20 percent cap for companies with a net value exceeding NT$10 billion -- too harsh? If we look at international companies such as Samsung in South Korea, Toyota in Japan, General Motors in the US, or Philips in the Netherlands, none of them have invested more than 20 percent of their net value in China. Remember that these are on friendly terms with Beijing.
It is understandable that those promoting eventual unification with China want Taiwan to invest more in China. But to hear someone who professes to safeguard Taiwan's sovereignty promote "unification through economic means" is rather unusual. We should not allow ourselves to be deceived by the misleading notion that lifting the investment cap would encourage China-based Taiwanese businesses to repatriate their capital.
DPP members advocating investing in China should get a clear understanding of the fact that capital outflows from Taiwan to China has reached 4 percent to 6 percent of Taiwan's GDP, and makes up 71 percent of Taiwan's total foreign investment. As a result, Taiwan's domestic investment rates continue to hover below 20 percent.
China is a big market and it is understandable that Taiwanese businesspeople would want to participate in it. But they should not overindulge. Taiwan's GDP makes up 0.75 percent of global GDP, but by overestimating our strength and allowing ourselves to be blinded by money, Taiwan is responsible for half of the total foreign direct investment in China.
Huang Tien-lin is a former national policy adviser to the president.
Translated by Lin Ya-ti
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