Greater Economic Freedom: So Why No Foreign Investment?

Greater Economic Freedom: So Why No Foreign Investment?
China Times editorial (Taipei, Taiwan, Republic of China)
A Translation
January 23, 2014

Summary: We are glad the FSC and Ministry of Economic Affairs are taking action. But other ministries must make an effort as well. We live in the present. We cannot rest on our laurels. We cannot cling to outdated concepts of manangement. Taiwan's economy is suffocating. This did not happen overnight. What exactly is the problem? The answer is clear.

Full text below:

The Heritage Foundation has released its 2014 Index of Economic Freedom. Hong Kong and Singapore were ranked 1st and 2nd in economic freedom. Australia, Switzerland and New Zealand were ranked 3rd, 4th, and 5th. The Republic of China was ranked 17th this year, up three places from last year. Much excitement ensued. But besides these indices, is there anything else the government should be looking at?

This index has been around for years. It is an important reference point for foreign investors. The Heritage Foundation uses four criteria in its annual evaluations: Rule of Law,   Limited Government, Regulatory Efficiency, and Open Markets. It evaluates the degree of freedom in the global economy according to ten criteria: property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Among the 185 economies evaluated, the US, which loudly champions liberalization, fell two ranks to 12th place. Britain ranked 14th. Germany ranked 18th. Japan ranked 25th. South Korea ranked 31st. The Chinese mainland ranked 137th. Taiwan's ranking rose to 17th, the best it has ever achieved. Since President Ma took office, Taiwan's ranking has risen 18 places. This shows that Taiwan's liberalization has had an effect.

Taiwan received a business freedom score of 93.9 points, and a trade freedom score of 85.8 points. But on labor freedom and freedom from corruption, it scored less than 60 points. A score of 80 points or more is classified as free, 70-80 points is classified as mostly free, 60-70 points is classified as mostly unfree, 60 points or less is classified as unfree. Our overall score of 73.9 points, and 17th place ranking, is 1.2 points higher than last year.

The Heritage Foundation report notes that Taiwan has an appropriate degree of economic freedom. Its overall score was among the highest in the world and other Asian-Pacific economies. Its overall freedom score was higher than last year. This was due mainly to significantly improved fiscal freedom and investment freedom. Fiscal freedom rose from 70th last year to 41st this year. Investment freedom rose from 56th last year to 46th this year. This was the fruit of the year long effort by the FSC and the Ministry of Economic Affairs to promote liberalization.

Taiwan has made substantial progress in its degree of freedom. So why are we still having trouble attracting foreign investments? In recent years, Taiwan has almost always ranked last among the Asian economies in foreign direct investment (FDI). As a result, people cannot feel the improvements. The overall economy continues to suffocate. Kuan Chung-min is the new chairman of the National Development Committee. He said that businesses feel the impact of economic freedom immediately, whereas the general public often do not, at least not in the short term. In the long term however, liberalization leads to increased employment and higher wages. Unfortunately, as John Maynard Keynes quipped, "In the long run we are all dead." We must consider the long-term lethal factors. We must make corrections. Only then can Taiwan's economy achieve a breakthrough.

Why are foreign investors not investing in Taiwan? Fiona Woolf, the Lord Mayor of London visited Taiwan on the 14th. She thinks Taiwan's financial regulations are too strict. Without good services and products, one cannot become an offshore RMB center. She recommended that the limitations be relaxed, especially for domestic, foreign, and international banks looking to provide investors with financial products and services. Therefore the first step must be liberalized financial services. These will eliminate the gap between domestic and foreign banking. They will enable domestic banking to achieve the same status as other financial centers. What was our government's response?  Officials said our government has made many efforts at financial liberalization. Many regulations have been relaxed. The professional edition of Taiwan's debt review process has been simplified. Cross-strait economic and trade exchanges between the two sids are close. This makes Taiwan suitable for the development of regional RMB business. The government's response was deeply disappointing.

The merger of Taishin and CHB remains stalled. Newbridge Capital became frustrated and went home. Carlyle's acquisition of ASE failed. Orion Investments' acquisition of Yageo was rejected. Private equity funds cannot receive fair and equitable treatment at home. If funds are suspected of having originated on the Mainland, the Investment Commission begins a witch hunt to track down the source. Entrepreneurs are required to show passports or ID cards. They find this intolerable. Foreign investors have concluded that we simply do not know the rules of the game. Too many agencies wield too much discretionary authority. A Wall Street Journal article last year said that investors have difficulty withdrawing their investments from Taiwan. This factor alone has prevented many new investments from coming in. In response to criticisms, Taiwan regulators sometimes impose unnecessarily stringent requirements. Management on Taiwan is opaque. The rules are uncertain.

Our financial sector regulations also need review. As we all know, the review of new financial products often takes over six months, after which they are often rejected. Penalties for financial institutions are often a way to force them to limit or cease operations. Entrepreneurs feel like the late lamented goose that laid the golden egg. Currently bank deposit spreads are narrow. Yields are flat, and remain in a prolonged slump. The capital market remains unsound. It remains unfavorable to interest rates, insurance products, and annuities. Many hoped the "free trade zone pilot program" would include financial sector liberalization. But the central bank has issued its "three noes." Financial services will not be liberalized. One. They may not offer NTD denominated commodities. Two. Their derivatives may not be linked to Taiwan interest rates and exchange rates. Three. Their portfolios may not include NTD denominated commodities. Given such rules, how can businesses grow? They may as well invest in Hong Kong or Singapore. Why bother coming to Taiwan?

All of the above are manifestation of an unfree economy. They hinder Taiwan's progress. They are responsible for Taiwan's lost opportunities. We are glad the FSC and Ministry of Economic Affairs are taking action. But other ministries must make an effort as well. We live in the present. We cannot rest on our laurels. We cannot cling to outdated concepts of manangement. Taiwan's economy is suffocating. This did not happen overnight. What exactly is the problem? The answer is clear. How can we remedy the situation? How can we provide domestic industry with greater opportunities for growth? How can we renrew international and foreign investors confidence? These are all questions worth pondering.

社論－經濟自由度進步 外資為何不來
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中國時報 本報訊 2014年01月23日 04:09

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美國傳統基金會公布2014年全球經濟自由度報告，港、星蟬聯前兩名，澳洲、瑞士、紐西蘭分別為三、四、五名。我國今年排名17，比去年進步3名。在欣喜之餘，在這些指標的背後，還有什麼值得政府參考的地方？

這份排行榜，行之有年，往往成為外商投資的重要參考。傳統基金會每年透過市場開放、法治水準、政府干預及監管效能等四大範疇，評估全球經濟體的自由程度；當中包括財產權、廉潔度、政府開支、財政、營商、勞工、貨幣、經貿、投資與金融等10項自由度的評比。在被評比的185個經濟體裡，倡議自由化最力的美國退步兩名居第12，英國第14，德國第18，日本25，南韓31，中國大陸137。台灣排名升至第17，是有史以來最好的排名，自馬總統上任以來已進步18名，顯示台灣在自由化已取得成效。

台灣在商業自由的分數為93.9分、自由貿易的得分為85.8分，但勞動自由、免於貪腐卻低於60分。這項自由度指數80分以上代表自由，70到80分代表大部分自由，60到70分大多數不自由，而60分以下代表不自由。我國整體分數為73.9分，排行第17名，與去年相比分數增加了1.2分。

傳統基金會的報告指出，台灣有適當的經濟自由程度，總分也高於全球和亞太地區其他國家的水準。整體自由度得分比去年提高，主要是金融與投資自由度有顯著改善，金融自由從去年第70升至41，投資自由從第56升至46，這與金管會、經濟部近一年努力推動自由化有關。

但是台灣自由度排名大幅進步，何以我國的招商引資仍成效不佳？以至於外人直接投資（FDI）近年在亞洲中幾乎敬陪末座，造成現在民眾沒有感覺，整體的悶經濟？新掛牌的國發會主委管中閔說，經商環境是否自由，企業感受強烈，短期內也許民眾感受不到，但長期而言，自由化最後一定會反映在就業機會與工資的成長上。但誠如凱因斯講的「長期而言，我們都死了」。我們還必須檢討長期來的致命因素，經過修正，才能讓台灣的經濟能有所突破。

為什麼外資不來台灣，倫敦金融城市長吳斐娜14日訪問台灣的話很有代表性。她認為台灣當前對金融法規限制還是過嚴，若沒有好的服務及產品，難以發展成人民幣離岸中心。她建議現在法規的限制要鬆綁。特別是想要為投資者提供金融商品及服務的境內銀行、境外及國際銀行，所以台灣的第一步是讓金融服務部分更自由化，來消除境內跟境外的鴻溝，達到跟其他金融中心一樣。對此我們官員的回應只有：台灣在金融自由化方面做了許多努力，許多法規多已鬆綁，專業版的寶島債審核流程已簡化；由於兩岸經貿往來密切，台灣適合發展區域性人民幣業務。這樣的回答，真是令人失望。

其實從台新彰銀的合併案迄今無解、新橋投資鎩羽而歸、凱雷收購日月光失敗到遨睿收購國巨的被駁回，私募基金在國內無法得到一個公平公正的對待。而投審會對於來台投資的資金，可能有大陸色彩，動不動就要追查資金來源，或要業者提供護照等身分證明，讓業者不堪其擾。外資普遍認為我們的遊戲規則不清楚，主管機關有太多的行政裁量權。《華爾街日報》去年底有篇文章指出投資者發現，他們難以從台灣成功退出投資，這一因素已經阻止新投資的進入；也藉此批評台灣監管機構有時會提出不必要的嚴格要求，台灣的管理是不透明、規則不確定。

另外，我們的主管機關對於金融業的管制，尤該檢討。眾所周知，對新金融商品的審查，不僅審核時間經常達半年以上，還常常打回票。對金融機構的處罰，也常是以限制或停止業務為手段，令業者覺得是殺雞取卵。而台灣目前銀行存放利差狹窄，收益曲線長期低迷且平躺，無法健全資本市場功能，不利利率、保險產品及年金財務規畫的業務發展。而之前寄望「自由經濟示範區」納入金融業，大幅開放。但央行提出「三不」原則，即開放之金融業務，一、不能涉新台幣計價商品；二、衍生性商品不以連結台灣利率及匯率為標的；三、投資組合不涉新台幣計價商品。加了這些條條框框，我們的業者如何發展？投資人在香港、新加坡做就好了，何必來台灣？

以上種種，在在都是經濟不自由的表現，阻礙台灣的進步，喪失台灣的機會。很高興看到金管會、經濟部已經動起來，但其他部會也需有更多的努力。在現在的時代，不能因為過去的榮耀，而延用舊思維來管理。台灣的悶經濟，不是一天造成的，問題出在哪裡？已很清楚。如何亡羊補牢，讓國內業者有更多的發展機會，讓國際外資重拾對台的信心，值得相關單位深思。