Taiwan to free up China investment

Economic woes mean Taipei must free up investment in China

Taiwan looks set to lift its cap on investment in mainland China to ease the pressure of the economic slowdown affecting the island.

The proposal, formulated by a key advisory committee, suggests lifting the $50m limit for a single investment and ending restrictions that force Taiwanese companies to route funds through another territory, usually Hong Kong.

Direct transport, commercial and postal links could be restored for the first time since 1949, according to a statement from the cabinet level Mainland Affairs Council.

In addition, Chinese tourists may be permitted to visit Taiwan.

From boom to bust?

The investment limits were imposed in 1996 by then-president Lee Teng-hui to try to ensure investment went into building up Taiwan's own economic base.

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At that time Taiwan's economy was one of the strongest in Asia, supported by the long US boom and its strength in high-technology products and components.

Now, though, Taiwan's economic trials mean it must seek a rapprochement with China despite the risk that capital flight could hit the ailiing economy hard.

The ongoing global slowdown has hit Taiwan hard, with unemployment hitting record highs in June and exports - normally Taiwan's strong point - down 28% for the year to July.

Industrial output for June fell 11.2% year-on-year, the worst slide since 1975.

Change of plan

The policy shift came out of a weekend meeting of the recently-formed Presidential Economic Development Advisory Council, made up of academics, government figures and businesspeople.

Following that meeting, the Mainland Affairs Council said that the existing "go slow" policy on investment in the mainland needs to be relaxed.

Instead, it advised Taiwan should try "active opening" of mainland trade and investment, along with offshore banking mechanisms to ensure money earned from the mainland will flow back to Taiwan.

Financial institutions should be allowed to set up shop on the mainland as well, the council said.

Looking for easier ways across the Taiwan Strait

The move was welcomed by Wang Yung-ching, head of Formosa Plastics, the island's largest conglomerate, who said it would finally open the door for Taiwanese business to capitalise on the investment opportunities being grabbed by Western countries in China.

Tensions

Taiwan's economic difficulties are also the catalyst for politically sensitive moves to free up transport and communications links.

Any shift on that front will only come from bilateral talks between Taipei and Beijing after the two sides join the World Trade Organization, likely to happen later this year.

Taipei agreed to the limited restoration of shipping links in January 2001 from two small islands just of the mainland coast.

But talks on more substantial transport links have been hampered by political tensions between the governments in Beijing and Taipei governments, which both claim to be the legitimate government of China.

Relations have been further strained since presidential elections last year saw the Kuomintang Party lose power for the first time since the island broke away from the mainland in 1949.

The winner, the Democratic People's Party candidate Chen Shui-bian, sold himself as a supporter of a free-standing Taiwan, in contrast to the Kuomintang's traditional self-image as the true government in exile of a united China.

China, seeing this as a challenge to its "One China" policy, has given him the cold shoulder ever since.

But WTO accession will have to come first, as will December's Taiwanese elections, ahead of which new pro-independence forces are emerging.

Former Kuomintang president Lee Teng-hui is backing a new party, the Taiwan Solidarity Union, which also backs Taiwanese sovereignty.

The Kuomintang still control a majority in parliament. Mr Lee's support for the TSU could help win over Kuomintang supporters disgruntled by the party's unification-led stance.