In 2009, Taiwan opened specific industries to Chinese investors. Two years later, further deregulation allowed investment in Taiwanese companies through equity participation and joint ventures.
However, in the past decade, Beijing has used China’s rapidly growing economic clout to influence democracies around the world. It is time to review the legal underpinnings of Taiwan’s capital markets to safeguard the nation’s security and economy.
The government must review all relevant legislation, including the Measures Governing Investment Permits to the People of the Mainland Area (大陸地區人民來台投資許可辦法) and the Regulations Governing Permission for People From the Mainland Area to Invest in Taiwan (大陸地區之營利事業在台設立分公司或辦事處許可辦法).
Related financial regulations are also overdue a review.
Any reform must pay special attention to Beijing’s “Made in China 2025” strategy and “Thousand Talents” program, which are intended to gain control over advanced technologies and sensitive information to make China the world’s leading economic and technological power.
The approval process for foreign investment must prevent Chinese capital from covertly entering the market. This requires reform in three areas:
First, mergers involving Chinese and other foreign investors must be scrutinized from a national security perspective. At present, Chinese capital is treated separately from overseas Chinese and foreign capital: Strict standards are applied to Chinese capital, while foreign capital is generally welcomed.
As international capital flows change rapidly, there are numerous examples of Chinese capital entering Taiwan routed through third countries. This loophole could be closed if all foreign investment were reviewed with regard to national security.
Second, review and supervisory authorities must be beefed up. Although the Investment Commission and the Financial Supervisory Commission have tried to use all their means to control Chinese investments, compared with the US, their tools are too few and their powers of investigation too limited.
The commissions’ means of investigation should be reinforced so that, like their US counterparts, they are able to proactively investigate cases. This could include vetoing or restricting investment, prohibiting access to sensitive information and key technologies, and issuing strong penalties for violations.
Third, laws and regulations must be reviewed for loopholes. Foreign competitors can enter the market and legally purchase sensitive information, or they can obtain this through channels such as technical cooperation.
Even if investment review is robust, if regulations governing technical cooperation is loose, loopholes remain.
Currently, not all foreign investment in Taiwanese companies holding sensitive technology or information are included in the review process.
Another example is the Foreign Trade Act (貿易法). Although it provides administrative and criminal penalties for illegal exports of strategic advanced technology, it lacks a provision for corporate criminal liability, while also limiting the legal remit to “goods and the intellectual property rights of goods.”
The act should be widened to include regulations on software, technology and design.
Today’s enemies no longer limit their activities to military invasions, but carry out silent attacks on economies, capital markets and data. The open nature of capital markets present a soft target. The government must fundamentally reform laws and regulations to protect the nation’s core competitiveness.
Carol Lin is a professor at National Chiao Tung University’s Graduate Institute of Technology Law. Pan Shu-hsien is a lawyer.
Translated by Edward Jones
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