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Date: 2010-09-21
2010 MAPECT Cross-strait M&A and Private Equity Summit: Specialist Discussion
2010 MAPECT Cross-strait M&A and Private Equity Summit:
The new post-ECFA era of cross-strait investment and its opportunities
Monday, September 20th 2010
ShangriLa’s Far Eastern Plaza Hotel
201 Tun Hwa South Road, Section 2, Taipei 106, Taiwan
Specialist Discussion:
A trend analysis of the M&A market and the opportunities for cooperation in Mainland China and the Asia-Pacific region
The first Specialist Discussion Panel was chaired by Jaclyn Tsai (蔡玉玲), Senior Partner at Lee, Tsai & Partners (理慈國際法律事務所). The panel consisted of Jim Tsao (曹宸綱), managing director in the Hong Kong office of Unitas Capital Pte Ltd., and MAPECT Chairman C.Y. Huang (黃齊元), who replaced Jimmy C. Kiang (江家駿). The topic was “A trend analysis of the M&A market and the opportunities for cooperation in Mainland China and the Asia-Pacific region.”
JACLYN TSAI – INTRODUCTION
Tsai began the panel by addressing the importance of this topic, stating that “today, our section is special, because once there is a policy [ECFA] that has been signed, we need to look towards the next step and find a realistic outcome for this.” Tsai continued to describe her personal interest in this matter. Since joining IBM in 1991, Tsai has been carefully observing cross-strait relations and its developments. And by 1992, Tsai described how she “saw Taiwan lose its economic advantages and benefits.” However, the recently signed ECFA presents a turning point in Taiwan’s history; Tsai asserted that “ECFA is an opportunity for Taiwan to catch up.”
JIM TSAO
Tsao began his segment with a simple analogy delineating Taiwan’s economic development in the past decade. He asserted that “before ECFA, whether it was ten years or 15 years, while the entire world – particularly Asia – was moving towards the same goal, doing the same things, Taiwan was blocked ... with all the action going on inside, Taiwan remained on the outside.” Tsao added that these past ten years have been extremely bad for Taiwan.
Drawing from his experience, particularly at Unitas Capital, Tsao further illustrated the important direction in which Taiwan is headed in this post-ECFA era. Formally J.P. Morgan Partners Asia, Unitas Capital is one of the largest private equity funds in Asia, having invested in 28 companies since 1999, managed funds amounting to US$4 billion, and opened branches all around Asia, including those in Australia, Hong Kong, China, and Korea. While Unitas Capital has been actively expanding throughout Asia, Tsao noted that “in the end, all of the work at these international branches focused once again on China.” This, as Tsao asserted, illustrates the importance of China on the regional and global economy – one in which Taiwan seemed absent.
Moreover, Tsao further showed the disadvantages this exclusion has brought to Taiwan by using Edwards, a company in which Unitas Capital had invested, as an example. Edwards is a leading supplier of integrated solutions for the manufacture of microelectronic devices, including flat panel displays and semiconductors. While Edwards was previously based in England, Unitas Capital sought to bring it to Asia where production costs were lower. Tsao reported that Unitas Capital decided to invest in Korea, instead of Taiwan, because the company was unsure whether or not their products could be sold to China and the rest of Asia without tariffs. Tsao asserted that “while the rest of the world was discussing and signing free trade agreements, Taiwan was still debating domestically whether or not join at all.”
With the signing of ECFA, Tsao states that Taiwan is heading once again in the right direction. However, Tsao warns that ECFA is only the first step in a long-term move towards getting back on the global economic market, saying that “there are still a lot to be done, so ECFA is not the end.” Tsao further added that “as ECFA is a long-term policy, the results cannot be immediately seen in 12 months, or even 24 months.” But Tsao reasserts the ultimate benefits that Taiwan can reap from this agreement in the long-run.
Tsao concluded that while private equity rates have diminished due to the recent financial crisis, global private equity activity is still highest in Asia. Tsao added that the global “dry power” – capital that has yet to be invested – totals over US$ 1 trillion. Thus, this offers Taiwan a prime opportunity to re-establish its place globally.
C.Y. HUANG
Huang, on behalf of Jimmy Kiang, spoke on the topic of China’s foreign investment development, a threat and an opportunity. Huang began by quickly introducing Kiang, who is the Senior Financial Advisor of Bright Food Group (光明食品). Huang added that Bright Food Group’s recent buyout of New Zealand’s Synlait illustrates the recent rise in foreign investments by Chinese businesses, stating that “when looking at this trend – the act of going outside of China and actively merging with foreign companies – one can have many feelings towards this. Depending on how you look at this, this is both an opportunity and a threat.” Huang further added that “while everyone in the world wants to work with China, everyone still wonders whether this is a threat or not.”
In Taiwan, Chinese foreign investment is a paramount issue. Huang asserted that “everyone sees Chinese capital as a danger, feeling that because of the amount, Chinese capital may just completely consume Taiwanese industries.” However, Huang stated that there are still numerous obstacles in place, citing Beijing Enterprises Group’s Kingtig Group as an example. Currently in Taiwan, the food and agricultural industries have not been opened to Chinese investors, forcing Kingtig to find an indirect manner to invest in Taiwan. But Huang stated that these “cross-strait business partnerships still require time to develop.” Moreover, Huang added that cross-strait economic development has slowed down recently because of the upcoming elections in Taiwan. These all hinder potential Chinese investments in China.
Huang concluded with this sentiment: “In the future, Taiwanese people must understand the reality of China’s capital and Chinese foreign investments, and we must see this as an opportunity rather than a threat and to take the necessary steps to find these opportunities.”
JACLYN TSAI
Tsai added to Huang’s previous point, stating that before ECFA was signed, companies, like Beijing Enterprises Group, had to establish off-shore companies, particularly in Hong Kong, in order to invest in Taiwan. But now in this post-ECFA era, many are able to invest directly in Taiwan, noting that one of Taiwan’s strengths is in the strength of the small-to-middle sized enterprises. Tsai noted that Taiwan’s small-to-middle sized businesses have a lot of techniques and a lot of potential.” Moreover, Tsai asserted that Chinese capital offers a good solution to the wholesale and distribution problem that many small-to-middle sized Taiwanese businesses face in China. Thus, as Chinese capital entering Taiwan is currently at its highest, this “creates a good platform for Taiwanese businesses to benefit.”
C.Y. HUANG
Tsai then asked about the strengths that Taiwan possesses vis-à-vis the global investment market and the different areas on which Taiwan needs to improve. Huang acknowledged Taiwan’s geographic position as an advantage for Taiwan, stating that Taiwan’s position at the doorsteps of China allows “foreign companies and industries to enter China via Taiwan and Chinese companies to expand globally through Taiwan.” Huang asserted that “Taiwan can be an Asian-Pacific hub, a platform, and a spring board to jump into China.”
Huang further advanced the idea of the “Nike check,” using Nike’s distinguished logo as a metaphor for how Taiwan has become a “spring board into China” for Japan. Huang asserted that currently Japan has been investing the most into China through Taiwan. As Japanese capital moves into China through Taiwan, the path forms Nike’s “check” logo. Huang utilized this metaphor to explain that Taiwan must move away from the idea of a purely Taiwanese market and acknowledge that Taiwan needs to become the “Greater China hub.”
As for why Chinese companies would use Taiwan to expand globally, Huang stated that, for Taiwan, management is a strength. And that, “while China has money, they are not as strong in their management abilities.” Huang concluded that this is the area where Taiwan can come into play and help the Chinese companies expand globally.
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