Sovereign funds have been repeatedly proposed in Taiwan, but they have been nothing but thunder. Just as the public was slowly losing interest, President William Lai (賴清德) announced on May 20, the first anniversary of his inauguration, that the government would establish a sovereign fund to create a national investment platform.
The sovereign fund would make full use of Taiwan’s industrial advantages, led by the government and in coordination with private enterprises, to invest globally and connect to major high tech markets, Lai said.
It is necessary to bolster the local supply chain and improve the industry’s ability to respond to changes. The government would enhance the functions of the National Development Fund to achieve industrial reconstruction, assist domestic industries and small and medium-sized enterprises in their transformation, upgrade and enhance the international competitiveness of industries and consolidate the foundation of domestic industries.
The president’s proposal comes at the right time, because it is necessary to make key investments at critical moments to pave the way for the next wave of economic growth. Due to the impact of US President Donald Trump’s tariff policies, Taiwan’s semiconductor and technology industries have to relocate overseas, hollowing out the domestic scene, while traditional industries are facing the effects of Chinese product dumping. Under the pressures of Trump’s tariffs and the appreciation of the New Taiwan dollar, it is urgent to guide the development of forward-looking fields and assist traditional industries to upgrade and transform through international investment. At this critical moment, it is a wise decision to plan a sovereign fund, make major investments, connect with international advanced technology markets and assist in industrial transformation.
Middle Eastern countries have also recently attracted artificial intelligence (AI) giants to invest through such funds, which means that the era of capital-driven development of advanced technology and industries has arrived. With the industrial chain’s technology drive and the capital drive of the sovereign fund, the chance to develop Taiwan’s forward-looking industries has increased a lot. Therefore, Lai established a sovereign fund to bolster the supply chain internally, and improve investment and layout globally externally, which is of great significance.
Although the establishment of a sovereign fund is necessary, how can it be operated to avoid the “black hand” of intervention and achieve efficiency?
First, sovereign funds must have a certain scale, and it is best that it be led by the private sector: For example, the funds for the highly efficient Singapore Temasek Fund and the Norwegian Sovereign Fund come from their governments, but are mainly operated by the private sector, which would reduce intervention and maintain neutrality.
Looking at the practices of other countries, the government and the private sector jointly invest, and the success rate of the private sector is much higher. The investment ratio could be 40 percent by the government (the funds come from foreign exchange reserves, excess taxes and are supported by the Ministry of Finance, which would issue bonds of about US$40 billion to US$50 billion), 40 percent by leading tech enterprises and 20 percent by financial institutions.
The private sector has a high investment ratio and plays a leading role. The chairman could be a credible person from the private sector, such as Taiwan Semiconductor Manufacturing Co founder Morris Chang (張忠謀), Acer Inc founder Stan Shih (施振榮) or Delta Electronics founder Bruce Cheng (鄭崇華). All investments and their performance would be transparently posted online to win the trust of the society. The government would supervise operations and track performance through the board of directors. Only when the government does not intervene in the leadership can it get rid of the burden of personnel, accounting and auditing, and avoid disputes with interest groups.
Second, only by giving equal weight to commercial investment and industrial policy could Taiwan meet the needs of industrial upgrades: When investing, 70 percent can be considered for commercial investment and 30 percent for industrial policy. The purpose of commercial investment is to get a higher rate of return, so as to pursue the recycling of funds. Meanwhile, the industrial policy operation mainly includes investing in forward-looking fields, such as AI, semiconductors, electric vehicles, robots, green energy and biotechnology, in leading international enterprises or those with potential and in venture capitals. It would also use financial advantages to lead investment directions, guide enterprises to return to Taiwan, attract high-level talent and acquire international companies. Moreover, it could accelerate the transformation of traditional industries, especially in linking AI, 5G, robots and other fields with traditional industries.
Third is the international layout of the service industry. It could assist in purchasing foreign channels or set up central kitchens to reduce the cost and barriers of entering the international market.
The performance evaluation of commercial investment and industrial policy investment should have different indicators. Commercial investment would focus on the rate of return and the recycling of funds, while industrial investment would mainly be on the promotion of advanced fields (such as bases of new start-ups, the number of listed companies, the promotion of unicorns and international acquisitions or mergers), the upgrading and transformation of traditional industries (the amount of investment in upgrading and transformation, and job creation) and the internationalization of the service industry (successful cases, overseas listings, etc).
With these goals, strategies, supervision, and fair and transparent mechanisms, Taiwan’s industrial layout would become more forward-looking, diverse and competitive, and it would lay the foundation for the next wave of economic growth.
Wang Jiann-chyuan is vice president of the Chung-Hua Institution for Economic Research.
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