Taiwan May Relax Investment Rules to Compete with China

By Perris Lee Choon Siong | July 25, 2006

The Taiwan government may allow a number of companies to invest more in rival China but will not grant an overall relaxation of its investment restrictions, a senior government official said.

Taiwan plans to hold a two-day economic forum in Taipei starting Thursday that will bring together more than 100 government officials, scholars, lawmakers and business leaders to plot a course for future economic development.

The business community wants the government to relax its limits on investment in China so their businesses can stay competitive in the mainland and global markets. A few business leaders had threatened to walk out of the forum if authorities refused to meet their demands.

But Hu Sheng-cheng, chairman of the Council for Economic Planning and Development which is organizing the forum, said authorities hope to prevent a big jump in China investments. Any relaxation of the rules should come gradually to avoid a sharp impact on the economy and worsen the unemployment problem, he said.

The forum is aimed at “seeking solutions to the long-term structural problems facing the economy,” Hu said in an interview with Dow Jones Newswires.

“The government will not announce a (big) opening of the investment rule for all companies,” he said. But “Individual companies can seek special approval if their investment has hit the legal ceiling. We will give conditional approval to companies that meet certain criteria.” He declined to give specifics.

Currently, Taiwan companies with a net worth below NT$5 billion (US$150,000; euro120,000) can invest up to 40 percent of that amount in China. The limit is 30 percent for companies with a net worth up to NT$10 billion (US$300,000; euro240,000).

Taiwan and China split amid civil war in 1949. China still sees self-governing Taiwan as part of its territory, and vows to retake it if the island seeks to make its de facto independence permanent.

To date, Taiwanese have poured US$100 billion to US$150 billion into China to take advantage of the country’s cheaper labor costs.

In 2005, Taiwanese investment in China accounted for 71 percent of the island’s overall investment abroad, and the island’s exports to China and Hong Kong together accounted for 38 percent of its total exports, according to the Cabinet-level Mainland Affairs Council.

The council proposed setting up a fund to help companies invest more in the oil-rich Middle East and other countries to reduce the island’s reliance on the Chinese market.

Early this month, President Chen Shui-bian said Taiwan companies’ growing investment in China has taken a toll on domestic investment.

“The government mustn’t close its eyes to these warning signs, and should more actively come up with measures to respond,” he said.

Hu said the economic forum this week will also tackle other issues such as financial reforms, environment protection, and fiscal reforms. The forum’s conclusions will serve as guidelines for government policy, he said.

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