Kaong-yuan on President Enterprises' Mainland Sprint

A. It seems that President's mainland investment has been a bit slower than that of other enterprises. I feel that President is a large business and a public company so we have to be particular about sticking to the regulations. Also, because I am still a member of the Central Committee of the Kuomintang, I cannot but cooperate with government policy.

It was only after the government decided last year to open up indirect investment on the mainland to more than 3,300 kinds of industry that President made active moves. The three cases for mainland investment were all formally approved by the Investment Commission of the Ministry of Economic Affairs.

In August last year I received an invitation from Jung I-jen, chairman of the board of the mainland's CCITT and deputy-chairman of the mainland's National People's Congress, and led a delegation of top-level executives from Tainan on a one-week inspection tour of Peking, Tsinan and Shanghai. This was my first visit to the mainland.

In January this year I also went to those places on the mainland where Taiwanese investment is greatest, such as Amoy and Canton. My feelings were that industry in these places is already quite developed as well as being close to Hong Kong. So there was no need for us to rush into investing there. Because food industries need to be situated close to either their markets or supplies, we chose Peking, Shanghai and Sinkiang, for instant-noodle, animal-feed, and tomato factories.

In fact, two years ago, President was selling milk powder, fruit juice and instant noodles to the mainland via Hong Kong but with very little profit due to the mainland's poverty and lack of foreign exchange. Nevertheless, I have always felt that foodstuffs are essential items; whether poor or rich, everyone has to eat. When President started up on Taiwan more than twenty-five years ago, the average income here was no more than US$300. Now the mainland is exactly the same. Because of this, President can use its "Taiwan experience" on the mainland. Then again, there are some 1.2 billion people on the mainland--a quarter of the world--nobody can overlook such a huge market for foodstuffs.

It is also true that investment in the food industry is not like that in other industries, because different life styles and particular tastes are especially important. We have a great advantage in the mainland on this point, with everybody being Chinese. We do not need to adapt but can just take our existing products and have ready market demand.

Q. We often hear news of Taiwan-mainland joint investments going bust or being cheated. How were the three partners President is investing in selected? How much were the Communists involved?

A. They did not force us into anything. Everything was discussed many times. After making the selections we still had to get the approval of the Communist authorities. The three targets of our investment (ed: Peking Provisions Board, Shanghai Hsinfeng Animal Feed Factory, and Sinkiang International Trust Company) are all public-sector enterprises. Yet this choice is not due to any need to supply their requirements but because the mainland economy has only been open for a decade so private enterprises are still to small for the kind of investment made by a large company like President.

Q. I heard that there are three conditions for your mainland investments, including no restrictions on the proportion that must be exported, stable prices for raw materials and autonomous procurement of raw materials.

A. With their present lack of foreign exchange, the mainland originally stipulated that the proportion of exports for all companies with outside investment must reach 70 percent. But I stressed to them that earning currency from exports sounds good, but in fact what the mainland really gets is only the tiny part of the price which makes up the wages. Another aspect is that with the mainland's one-child policy, everyone wants to buy the best things for their only child to eat and with the mainland food industry not sufficiently advanced, the amount spent on imported foods is likely to rise. The price of these imported goods, however, is 100 percent foreign exchange! Why not exploit the mainland's abundant agricultural products and bring in the technology and management of Taiwan's food industries? In this way not only can people's demands be satisfied but foreign exchange can even be saved. They listened to this and understood the reasoning, so President's present investment is not restricted by the export proportion regulation.

Another thing that I honestly told them was that it is very difficult to export food products. President has worked hard for twenty years and today exports only make up about 2 percent of our overall operations. This is so for many enterprises. The mainland regulations are fixed and the contracts signed, but the targets cannot be achieved; a report is made and the reasons spelled out and domestic sales requested, but the mainland side will not comply. I again stressed that business is for the profit of both sides. It is just the same with President's tomato factory in Sinkiang, which plans for 100 percent exports but which does not need their regulations. Businessmen can work it out for themselves!

Q. What about raw materials?

A. As for raw materials, take the tomato factory in Sinkiang. We are using the same method as our present contract system in Taiwan. We agree on a good purchasing price with the local farmers. When they calculate how much profit they can make from growing tomatoes, of course they are willing to grow them.

In fact, establishing the tomato factory in Sinkiang is not ideal, but the wages of Taiwan's tomato growers are too high and the prices go up every year. Our profits get lower and lower, but if we did not operate the plant, then we would have to dump perfectly good machinery. We had wanted to move to Thailand but tomato farming needs a lot of water and there was not enough there and none could be extracted from wells, so we gave up. Although Sinkiang is remote, it is seven or eight days by train to Shanghai or Tientsin for export. There is plenty of water there and land and labor is cheap. Overall costs are not even half of what they are in Taiwan. Moreover, the weather in Sinkiang is excellent and produces premier worldclass tomatoes, so it is still worth it. If we are successful, we might try Hami melons and grapes.

Q. President's present investment activity, internationalization and diversification in Canada and the US is all very obvious. Under these conditions, what place will mainland investments occupy in President's future operations?

A. Last year President spent more than US$330 million acquiring America's third-largest biscuit manufacturer, Wyndham Foods, which we plan to have making a profit this year. This was President's first overseas acquisition. Because Wyndham already had a distribution network and market in the US, President can now use these channels to export there. If we had just relied on our own efforts to open up exports, we might not even have achieved this result after twenty years. So we consider that it was worthwhile.

As for the Canadian investments in shopping centers and hotels, this is only quite small. The second generation of President salesmen who emigrated to Canada wanted to use the company's reputation and invited a number of Taiwanese immigrants to invest in the project. President only put about NT$100m into this plan, but because we selected good land in Vancouver, its value alone has increased two or three times in value.

Although the government and industrial circles are stressing "internationalization," frankly speaking--and I do not know about other industries--because the food industry must follow the tastes people are used to, internationalization is not easy. Moreover, because internationalization first requires personnel and President has for a long time been a domestic enterprise, our personnel on this side are very few. So we cannot move too quickly.

The mainland is not the same. Everyone is Chinese and problems of taste and language are smaller, so this market will be more and more important.

Q. You attach that much importance to the mainland market. Do you really mean to say that you are not afraid of the Communists changing their policies or of the political risks?

A. Of course we are also worried that the Communists might confiscate our money. But looking at the ten years of openness on the mainland, they have already tasted the delights of economic reform. Even if they wanted to go back down the closed road, there is no way they could do it. I do not know about politics, but I am sufficiently optimistic about the economy.

Q. Some People are worried that with the use of cheap and abundant mainland labor, some of our labor-intensive industries will transfer investment and set up factories on the mainland which could influence the speed of our own industrial upgrading. They are also worried that when the mainland has absorbed our technology and capital, in the future they can turn around and destroy Taiwan's native industries. What is your view?

A. I think that is worrying too much. Not every kind of industry can upgrade and automate. Taiwan's land and labor is so expensive now that there is no way our tomato planting can compete on the world market. If this kind of industry does not move to the mainland then it can go to Southeast Asia. Otherwise it will not survive.

As for whether the mainland industries, once they have gotten big and strong, can turn around and destroy Taiwan's industries? Not necessarily. If we do not go to the mainland, then the Japanese and Koreans can go and the mainland will advance. Then again, we ourselves will not stay still but will advance in the same way. Will not the Japanese, Europeans and Americans also come to invest in Taiwan? We need not be too worried.

Moreover, national reunification is our ultimate aim. Is it not good if investment by enterprises in the mainland can help them a little and let the masses there understand Taiwan's contribution?

Q. Finally. can you talk about your feelings about taking on the post of chairman of the Shanghai-Taiwan Business Association.

A. Actually, this position was most unexpected. Because with already more than twenty companies having informed the Ministry of Economic Affairs of an intention to invest in the mainland, only the shoe, plastics and electrical goods manufacturers associations have established associations for investment in the mainland. The Ministry of Economic Affairs hopes that there can be area associations. At present Taiwan business associations in places like Shenzhen and Amoy have all been established under the leadership of the Communists, who have supplied the chairman or deputy chairmen. It was only this situation that led Ho Chun-i, general-secretary of the Federation of Industry to want me to prepare a Taiwan business association for the Shanghai area and see what happens.

This association already has more than thirty founding members, with new members constantly being enlisted. It is planned to formally establish the association on October 4. Investing in the mainland has emerged from darkness into light. Using our united strength to strive for rights and profits can only be a good development overall.

[Picture Caption]

President Kao Ching- yuan has the reputation of a model businessman. Sending his troops to the mainland has drawn a lot of attention.

The eleven-year history of President's chain shops has changed the form of traditional groceries.

President's various departments of flour, oil, food, seafood. . . have expanded by nearly one a year. (photo by Lin Chun-hung)

Getting closer to raw materials is one of the strategies President Enterprises is following in investing in the mainland. Its tomato plant is situated in Sinkiang, where the water, raw materials and labor are all plentiful. Shown is a market in Sinkiang. (photo by Hu Ying-hwa)

Peking's population of nearly 10,000,000 and its abundant labor force make it an attractive market and the site of President's future instant-noodle factory. (photo by Li Chung-en)

The huge development at-Putong, Shanghai, will be a center of manufacturing.

Taiwanese businesses are to establish their first independent trade association here.

(Photo by Chou Kuo-wei)

The eleven-year history of President's chain shops has changed the form of traditional groceries.

President's various departments of flour, oil, food, seafood. . . have expanded by nearly one a year. （photo by Lin Chun-hung）

Getting closer to raw materials is one of the strategies President Enterprises is following in investing in the mainland. Its tomato plant is situated in Sinkiang, where the water, raw materials and labor are all plentiful. Shown is a market in Sinkiang. （photo by Hu Ying-hwa）

Peking's population of nearly 10,000,000 and its abundant labor force make it an attractive market and the site of President's future instant-noodle factory. （photo by Li Chung-en）

The huge development at-Putong, Shanghai, will be a center of manufacturing. Taiwanese businesses are to establish their first independent trade association here. 　（Photo by Chou Kuo-wei）