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Date: 2010-09-21
2010 MAPECT Cross-strait M&A and Private Equity Summit: Christina Liu, Minister of the Council for E
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
Luncheon Speech:
Christina Liu, Minister of the Council for Economic Planning and Development
The trends and future outlook for cross-strait trade
Christina Liu, Minister of the Council for Economic Planning and Development (CEPD), presented the luncheon speech on “The trends and future outlook for cross-strait trade.” Liu first outlined the current economic situation of Taiwan, offering her views as to how Taiwan has changed over the past few years in relations to the changes in the global economy. Liu also promoted the “Invest in Taiwan” initiative, specifically delineating the various efforts of the Taiwanese government to push for greater economic growth.
Over the past few decades, the Taiwan-China economic relationship was always a “one-way street.” Liu explained that “money flowed into China, but nothing came back [to Taiwan].” However, Liu asserted that this trend changed in 2008, when cross-strait relations turned from “a one-way direction into a two-way street,” adding that this change – brought forth with the signing of ECFA and MOU – is beneficial for Taiwan.
However, while ECFA was important to the cross-strait economic relationship, according to Liu, it is still only the first step on a path that will require more work. As the global economy continues to shift, the trends that emerge offer important insight as to how Taiwan needs to structure and implement its economic policies. Liu began by delineating the current trends that have emerged since the recent financial crisis and their implications. First, and perhaps most important for Taiwan, is the fact that “from the recent financial crisis, we can see that the entire global economy shifted to Asia, specifically China.” Second, in response to the crisis, Asian nations, starting from China and then followed by other nations like Australia, Taiwan, and Korea, have moved towards a tighter monetary policy. And third, from the outcome of the financial crisis, many have argued that “the West spent too flippantly, while the East spent too little … which created a very disproportionate and unbalanced situation.” This has led China to change its own economic policies, no longer relying on its exports and increasing its own domestic spending and consumption. Thus, according to Liu, regardless of whether it is Taiwanese capital entering China or Chinese capital entering Taiwan, the future investment policies in this post-ECFA era will all be influenced by these major global economic trends.
Liu then discussed the reasons for the slow flow of Chinese capital into Taiwan since the signing of ECFA in July 2010, attributing the situation to two main problems. First, Liu asserted that, with ECFA, there are many specific limitations and regulations in place that delineate with precision what Chinese investors can do in Taiwan. Consequently, there are numerous industries and businesses in which Chinese investors are interested in but are unable to invest. Second, still reeling from the recent financial crisis, many investors are still wary of making new investments, fearing that the world might fall into another crisis, especially with Europe’s current economic condition. However, Liu asserts that there should be more capital flowing into Taiwan by 2011.
Liu suggested two initiatives that the Taiwanese government must take to change this situation. First, Taiwan must be more open with Chinese capital with less restrictions and regulations. And second, Taiwan needs to let Chinese investors know the direction in which Taiwanese industries are headed. According to Liu, by offering a more stable and realistic projection of Taiwan’s future outlook, investors will be more willing to invest in Taiwanese industries.
Liu then described the CEPD-backed “Invest in Taiwan” initiative; “Invest in Taiwan” is Taiwan’s largest global investment promotion program that aims to attract foreign investment and capital into Taiwan. Through this initiative, CEPD has selected several of Taiwan’s most promising industries and projects to push and promote. Specifically, “Invest in Taiwan” features 12 “i-Taiwan” projects as the first principle focus of this initiative. These 12 priority public construction projects include the Taoyuan International Aviation City upgrade, the Kaohsiung Free Trade and Ecology Harbor, and various island-wide metro system projects. Liu further pointed to 20 other PE projects that are included in the “Invest in Taiwan” initiative, bringing the total to 32 investment projects that “Invest in Taiwan” is pushing for this “first wave of investment projects.” Liu added that the “Invest in Taiwan” initiative’s purpose is to “find what the futures for Taiwan’s industries are, […] package them, […] and then push these projects out for the market to see and decide for itself.”
Moreover, Liu expressed that the “Invest in Taiwan” initiative has also adopted a “twin-engine” model as it actively promotes both export and foreign investment. According to Liu, in the 1970s and 1980s, Taiwan’s economy was driven by strong foreign investments and domestic demand; however, in the last ten years, the Taiwanese economy has been mainly driven by exports, rather than foreign investments. At the same time, Taiwan’s GDP growth has largely depended on exports, while the domestic demand has remained unchanged. According to Liu, the implication is that while Taiwan’s 2010 Q1 and Q2 real GDP growth are at 13.71 percent and 12.53 percent, respectively, the Taiwanese base salary has not increased. Therefore, with the “twin-engine” model, “Invest in Taiwan” hopes to revive foreign interest in investing in Taiwan. As Liu asserted, when foreign capital enters Taiwan as investments, it not only decreases the unemployment rate, but it also increases domestic demand, government tax revenue, and the general health of the country’s economy. Both export and foreign investments used to drive Taiwan’s economy, Liu emphasized that now is the time to reignite foreign interest in Taiwan.
While Liu acknowledged that foreign investors do not necessarily have to invest in Taiwan, there are numerous factors that make it advantageous to do so. First, Liu pointed to Taiwan’s strength in “soft power” – which includes technical skills, business management skills, and general operational experiences. Liu asserted that Taiwan has been developing this “soft power” for the past 50 years and that “it is something that cannot appear overnight.” Second, Liu mentioned Taiwan’s recent global rankings on various reports as being indicative of its attractiveness to foreign investments. For instance, Taiwan ranked 13th, among 133 nations, in the 2010 Global Competitiveness Index Report issued by the World Economic Forum (WEF). And finally, Liu pointed to the myriad of changes in government policies and laws that ultimately make Taiwan more open towards foreign investments, stating that “the Taiwan today is very different from the Taiwan two years ago.” As Liu noted, “In the past two years Taiwan has allowed both cross-strait direct flights and Chinese tourists to visit.” Moreover, with the recent lowering of the business income tax from 25% to 17% - which is comparable to the taxes of Hong Kong and Singapore – Taiwan is making it easier for foreign investors to invest. All of these factors, coupled with Taiwan’s inherent historical ties with China, make investing in Taiwan a preferable choice.
Liu concluded by emphasizing the potential opportunities that Taiwan can obtain through greater government deregulation and the elimination of various obstacles to investments, especially with the vast China market only across the Taiwan Strait. Liu pointed to China’s film industry as a prime example. While China sets an annual foreign films quota within China, under ECFA, Taiwanese films are not limited by this law. Therefore, according to Liu, when there are numerous countries, including the United States, coming to Taiwan to see if they can cooperate with the Taiwanese film industry to enter the Chinese market, “this is where there is tremendous economic potential and opportunity for Taiwan.”
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