More Than One Restriction Needs to Be Relaxed
China Times Editorial (Taipei, Taiwan, ROC)
July 16, 2008
Limits on mainland investment have been in place for over 11 years. This week, after Minister of Economic Affairs Yin Chi-ming reports to President Ma Ying-jeou, the Executive Yuan is expected to formally relax restrictions. The relaxation will be of considerable magnitude. This means the government is willing to lift restrictions, to give businesses more space, and to allow Taiwan to compete directly with the mainland. Such courage and self-confidence should be affirmed. Next, the government should ascertain Taiwan's role in the cross-Strait division of labor, and improve Taiwan's investment environment and competitiveness.
Even more importantly, in addition to relaxing restrictions and lifting limits on investment in the mainland, the government must change the mindset that imposed these controls and restrictions in the first place.
Government has basically confirmed that it will adopt its previous "regressive approach." The 40% ceiling for net business investments on the mainland will be relaxed to 60%. But businesses with operational headquarters on Taiwan will be exempt from any limits. This provision means that in practice most medium and large-scale businesses will be nearly free of all limits on maximum investment. Future restrictions on business investment in the mainland, will apply mainly to specific industries based on technology restrictions.
Cross-Strait investment policy over the past few years was the result of a series of links in a chain. Basically, high tech and other highly capitalized, large scale industries, were prohibited or restricted from investing in the mainland from early on. This includes the petrochemical, automotive, and semiconductor industries. Later on, after repeated appeals from industry insiders, they were gradually opened up. In terms of funding, the government used the regressive approach. The ceiling was set at 40% of total net worth. All restrictions and controls originated from concerns over capital outflows. They hoped that restrictions on enterprises would increase investment in Taiwan, and simultaneously prevent the mainland from acquiring Taiwan's capital and technology, from making rapid progress, and from posing a threat to Taiwan.
Over the past 10 years, these policies must be adjudged a total failure. They inflicted no damage upon the mainland, but enormous damage upon Taiwan. The mainland enjoyed rapid double-digit growth and progress. It received 50 to 60 billion US dollars a year in foreign direct investment. Its economy and technology has progressed to the point where it is already able to implement better environmental protection and labour conditions.
What about Taiwan? Did it benefit? Excessively harsh and unreasonable restrictions on certain types of investments led to a loss of mainland development and growth opportunities for Taiwan-based enterprises in the automotive, petrochemical, and semiconductor industries. Because the government lifted restrictions at a snail's pace, Taiwan-based businesses missed these precious opportunities. Instead, small and medium-sized traditional industries that the government never paid any attention to, were not subject to such limitations. They benefitted from the mainland's growth and became large scale enterprises.
The 40% restriction on total investment, hobbled the development of businesses on the mainland. Even the development of industries with no technological relationship to national security, such as department stores and the food industries, were strangled to death by these restrictions. Many Taiwan businessmen with successful developments on the mainland needed additional capital for expansion. . To raise this capital they had to list on the stock market. But due to the 40% ceiling on investments they could not list on the TAIEX. So they listed in Hong Kong, Singapore or on the mainland. Those who understand capital markets know that given today's globalization, wherever a business lists, that's where its roots are. Where it sets up factories is secondary. The government imposed a 40% ceiling on investments on the mainland, thinking it could force businesses to sink their roots on Taiwan. Instead, the result was everyone was uprooted, forced to go to Hong Kong, Singapore, and the mainland and sink their roots there. One link in the chain links to the next. Together they strangled these businesses to death. Taiwan's economy is now on life support. Capital markets have atrophied. What is such a policy, but the height of absurdity?
The government should also relax existing restrictions on various industries. Apart from a small number of industries and technologies that have a real impact on national security, restrictions on the rest should all be lifted. Frankly, we don't see how housebound bureaucrats, who sit in their offices, far from the marketplace, who have never had to compete for their survival, are qualified to make decisions on behalf of those fighting on the frontlines, competing in the global economy. Who are they do decide which investments or technologies may be transferred to the mainland, or that the time is not right for any particular investment. The government should not be so lacking in confidence. it should not assume that any relaxation will lead to a mass exodus. The government recently announced its intention to allow businesses to build 12" wafer plants on the mainland. The response of Taiwan manufacturers was that they would wait for the appropriate time to make any such investments. Obviously, these industries have their own considerations and timing.
Based on government's dismal record in "managing" business investments, and its controlling and restrictive mindset, we ought to say "No more!" The government should focus on rebuilding Taiwan's investment environment and enhancing its competitiveness. It must improve or upgrade the infrastructure, the government's administrative efficiency, the legal system, tax rates, human resources, and even the environment. If it does a good job, businesses will naturally want to stay.
For businesses, liberalization means they are no longer bound hand and foot. It means they have more opportunities, and also more challenges. Isn't that true for government as well?