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Thursday, 6 December, 2001, 12:23 GMT
Taiwan targets Chinese business prospects
Hi-tech goods, on sale in Taipei
China offers cheaper labour, rent and utilities
By Michael Bristow in Taipei

The appetite of Taiwanese firms for investment in China shows no sign of letting up now both have been accepted as members of the World Trade Organisation (WTO).

The island is believed to have invested at least $60bn in China since the communist state opened up to the outside world in 1978, and there are currently about 50,000 Taiwanese companies with a foothold on the mainland.

These figures are now expected to rise. Restrictions which limit business between the two will be relaxed, allowing more Taiwanese firms to invest in China.

But how much more will be invested will also depend on political factors.

Bitter dispute

The two governments are presently locked in a bitter dispute over Taiwan's status and this could hamper efforts to build greater ties between the two.

Taiwanese firms initially invested heavily in China mainly because it offered them cheaper labour, rent and utilities.

But, over the last few years, there has been another reason for moving to the mainland.

"The emergence of strong local demand in China is now just as important as reduced costs," said Cynthia Chyn, a consultant at IT research unit the Market Intelligence Centre.

Teething problems

She said WTO entry meant the long-term prospects for Taiwanese investors were good, although there would be short-term problems, such as continued corruption in China.

A girl selling hi-tech goods in Taipei
More of these items look set to be made in China
"The economic relationship between the two will now become more normal. Our government still has a lot of regulations on investment and trade, but they will be relaxed," added Chou Tein-chen, an economics professor at the National Taipei University.

Taiwanese firms have been pushing their government for some time to ease restrictions on investment in China and improve ties between the two.

The island is currently in the grip of its worst recession in its modern history - unemployment is now more than 5% - and many businesses see further investment in China as a way of getting out of the slump.

Desperate for direct flights

Joseph Chen is deputy-secretary general of the Chinese National Federation of Industries, which represents 80,000 firms. He said companies wanted improved ties between Taiwan and China.

"We have a lot of money invested in China and want better links, but it is something which cannot be settled by the private sector. It needs the government to step in."

Many feel improved links with China, particularly direct flights, is the critical issue.

They say without these, many Taiwanese firms might have to choose between being based in China or Taiwan.

Watching and waiting

Taiwan President Chen Shui-bian has taken a pragmatic approach to dealing with the mainland, despite expressing pro-independence sentiment before he was elected last year.

He recently scrapped a US$50m ceiling on single investments in China and, just before parliamentary elections on 1 December, gave the go-ahead for Taiwanese firms to manufacture certain hi-tech products on the mainland.

The president's party, the Democratic Progressive Party, consolidated its grip on power in the elections last week, and many business leaders believe it will now be easier for him to push through other similar policies.

However, it is not clear how far he will go, as consultant Cynthia Chyn points out.

"Right now, everybody is watching to see whether the government will further open the door to allow more investment in China."

See also:

11 Nov 01 | Business
Taiwan joins China in WTO
10 Nov 01 | Business
China admitted to WTO
23 Nov 01 | Talking Point
What mysteries of life intrigue you?
05 Dec 01 | Asia-Pacific
China warns Taiwan against independence
30 Nov 01 | Business
Taiwan speeds up investment reform
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