On May 8, the Ministry of Economic Affairs opted to conditionally allow domestic enterprises to indirectly invest in mainland China, though the plan still needs to pass the Mainland Affairs Council and discussion by cabinet officials. This announcement was welcome news for business.
In recent years the investment weather vane has turned at surprising speed. Labor-intensive industry has gone heavily into Southeast Asia, Central and South America, or even to the mainland. On the other side, service and higher tech industries have been rushing to bring in "partners."
Pessimists see deindustrialization in the ROC Optimists believe this is a good opportunity for the nation's industrial up-grading. Below are the highlights of a talk with John C.I. Ni, director general of the Industrial Development and Investment Center of the Ministry of Economic Affairs, about these subjects.
Q: What is the government's policy toward investment? Are there any main principles?
A: The government encourages domestic and foreign investment. Basically, it should be compatible with Taiwan's future economic development.
Domestically, we should continue to up-grade the industrial structure, and import the hardware and software for higher value added products. At the same time it is hoped we can improve research and development in these products. We want to move from being OEM (original equipment manufacturer) to ODM (original design manufacturer). Abroad, we will try to invest to grasp technology, acquire raw materials, establish sales channels, and lower costs.
Q: Which area is the leader in our investment abroad? Why?
A: The U.S. has become the world's biggest host country to investment. It is also number one for the ROC Over the past years many students from the ROC have stayed in the U.S. This makes it more convenient for friends or relatives to invest there. Add to this the interest of Chinese in land and real estate.
Q: Should other areas become more and more important?
A: Yes. In Europe, because the unified market will be established in 1992, ROC businesses will perhaps heavily increase investment. In West Germany, seven companies have branch agencies. Though most are sales, these could develop into assembly or manufacturing. In the past year, four companies have invested in Holland. The Irish Republic and France are also interested in more ROC investment.
For Taiwan, overseas investment has just begun. One or two years ago there were 75 ROC private investors in South Africa; now there are more than 160.
The U.S.-Mexican border has attracted investment because it is close for sales in the U.S. and therefore promises fast growth. Already five ROC enterprises plan to invest there. There are also investors for Central America and the Caribbean.
Also, because of the depreciation of the U.S. dollar, ROC investment in the U.S. is up. After the GSP is removed, this trend will continue.
Q: Many labor-intensive enterprises are moving to Southeast Asia. Will this create deindustrialization?
A: I'm not worried. If the government and business work hard, and allow Taiwan to have a stable environment, everyone will still make investments in even higher level products, and downstream and labor-intensive products can move to Southeast Asia. Our substantive relations with these countries have gone up with economic development.
In 1988, our investment in the Philippines, Thailand, Malaysia, and Indonesia exceeded US$200 million. Compared with 1987, the rate of growth has increased a great deal.
Q: What about investing in the mainland?
A: Already over half a million people have gone to the mainland since the opening up of family visits. Many have been businessmen.
From the government's position, to maintain the greater benefit of the ROC, direct trade and investment with the mainland are still prohibited.
From a purely commercial view, the investment climate there is not ideal. Even the Japanese have been cautious, and U.S. and European investment has been limited. If the mainland was such a good place to invest, the Japanese would have gone there long ago, right? Some say wages are low, but there are other costs. Public facilities are inadequate, electricity is often shut off, transportation is inconvenient, and the government and people have a viewpoint different from that in the free world.
Q: What about the mainland market?
A: Coca-Cola also believed there was a market in the mainland, and established a factory; but ultimately they failed. Taiwan has a per capita income of over US$6,000, and has a certain consumption capacity. The mainland only has an income of US$300-400. How can you expect people to buy cola?
Q: What are the biggest difficulties met by investors going abroad?
A: Language, understanding of the laws, and banking and finance are all problems.
At home it was only necessary to have one or two people who could speak English. Abroad, the factory managers, the engineers, and the foremen must all speak the local language. If one is not clear about the local laws, it will be hard for the factory to operate normally. Investors must prepare well, and develop an "international mind" in the company. They should especially attend investment seminars. Going abroad to have a look is still not as good as meeting high-ranking persons at seminars.
As for finance, because the Ministry of Finance and the Central Bank have approved domestic banks setting up branches overseas, in the future business financing will be more convenient. In fact the First Commercial Bank has already set up branches in Southeast Asia, Europe and the U.S., and our Export-Import Bank has overseas financing. But the reason these are not much used is that investors don't go through government channels. I regret that many businesses bury their heads in their own affairs, and don't pay attention to the help the government offers.
Q: What is the attitude of host countries toward the ROC?
A: Our foreign reserves are the second highest in the world. Every country regards us as an "honored guest." And no country will "kill the goose that lays the golden egg," and neglect to give foreign investors security guarantees.
Q: For industrial upgrading, foreign invest ment and technology transfer in Taiwan is one way. You have said that the ROC has the best investment climate. What supports your view?
A: As of 1988, total accumulated foreign investment in the ROC reached US$8.5 billion. In 1985, we approved US$660 million in investments, US$770 million in 1986, and in 1987, US$1.4 billion. Although it fell to US$1.18 billion in 1988, this is still higher than 1986. Isn't this proof?
The ROC has a stable political environment, high-quality manpower, an ethic of hard work, good public facilities, and a broad consumer market. Every year a high rate of technical personnel enter society. Over the last forty years we have laid an industrial base, so the parts industry is sound. And government R&D can be shared by domestic and foreign investors. Last year imports rose faster than exports, so you can see the consumer power is large.
Q: What are the biggest problems at the current stage of economic development?
A: Last year our growth rate was only 7.33%. Japan, Korea, and Singapore were all higher! Our economy, society, and politics are transforming at the same time, so we face greater challenges. But Europe, the U.S., and Japan all overcame them, and there is no reason we can't.
In a stage of adjustment, foreign businesses are most worried about violence in the factory. They are also concerned about the arbitration stipulations in the Labor Standards Law.
Recently the head of the Australian commercial office warned us, "It'll never work if you take the Australian path!" Originally in Australian law arbitration was conducted by elected representatives. For the sake of votes in the next election, they were biased on behalf of labor. This caused investors to be unwilling to invest. They recommend the English model; if there is a dispute, it is more fair to take it to the courts.
Today, we want to promote a "win, win, win situation." That is, investors are willing to invest, workers have jobs to do, and the government can benefit. The Labor Standards Law must be fair and reasonable; only then can it win approval from labor and management. I am optimistic, because most people in our society want to work. And the young generation is even better educated. I have confidence to pass the baton along, to let the next generation do even better.
[Picture Caption]
In a high tide of investment in both directions, Taiwan has shown unprecedented vitality. Europe is one of the targets for ROC investors. (photo by Arthur Cheng)
John C.I. Ni, director general of the Industrial Development and Investment Center, is optimistic about the investment horizon for the ROC (photo by Wei-chang Wang)
Labor-intensive industry from the ROC has flocked toward Southeast Asia and Latin America.
In the export processing zone of the Dominican Republic, one factory after another has appeared. Many of the owners are Taiwan entrepreneurs.
The U.S. is the major host country for ROC investment, and Chinese "power" in the U.S. is not small, with a large number of emigrants and overseas students there. The photo is of the Chinatown in Houston, Texas. Everywhere are the signs of Chinese people.
The Dutch flower industry is the best example ot the ROC importing superior farming techniques. (photo by Arthur Cheng)
Labor-management disputes are one of the concerns of other countries' investors vis-a-vis the ROC
In a high tide of investment in both directions, Taiwan has shown unprecedented vitality. Europe is one of the targets for ROC investors. （photo by Arthur Cheng）
Labor-intensive industry from the ROC has flocked toward Southeast Asia and Latin America.
In the export processing zone of the Dominican Republic, one factory after another has appeared. Many of the owners are Taiwan entrepreneurs.
The U.S. is the major host country for ROC investment, and Chinese "power" in the U.S. is not small, with a large number of emigrants and overseas students there. The photo is of the Chinatown in Houston, Texas. Everywhere are the signs of Chinese people.
The Dutch flower industry is the best example ot the ROC importing superior farming techniques. （photo by Arthur Cheng）
Labor-management disputes are one of the concerns of other countries' investors vis-a-vis the ROC.
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