Current Policies and Prospects on Cross-straits Economic Exchanges

CB: In your opinion what has been the major driving force for investment between Taiwan and China and what do you anticipate as being the trends moving forward?

LTS: Many people in Taiwan have chosen to invest in China based on economies of scale. At the same time, the market mechanisms also serve as an important factor. In the early days, low cost labour and land in China as well as lax environmental regulations were the main reasons for attracting Taiwanese investors in China. Recently, however, some Taiwanese businesses have chosen to invest in China based on demand from their foreign clients. Also, China has gradually evolved from the world factory to the world market. Therefore, its huge and fast-growing internal demand is another reason for Taiwanese businesses to invest in China.

Nevertheless, after China promulgated its new employment contracts law and implemented the tax integration policy, all foreign businesses in China, as well as Taiwanese companies, have started to encounter similar difficulties. Therefore, some businesses have begun to search for other possible investment destinations, such as North Korea and Vietnam that offer similar conditions to that of China.

CB: What is your advice to those watching developments following the election? Should they take a “wait and see” approach?

LTS: The government understands the challenges that Taiwanese business people in China face, so we would like to offer some help. We hope our business people can consider other options for investment destinations, including both in Taiwan and other countries. In this context, the recent measures introduced by the government were designed to encourage Taiwanese businesses operating in China to return to Taiwan to invest or to upgrade their businesses so they can lay a more solid foundation for their businesses.

Furthermore, we would like to provide assistance for those Taiwanese businesses in the traditional industries that went to China in the early years to better their organizations so they can be more prepared when facing the challenges of operating in China.

Considering many Taiwanese business people didn't obtain permission from the government prior to their investment in China, this can result in serious tax issues for them once they decide to return to Taiwan. The government included solutions for them in the newly-introduced measures and in this way, under the guidance of the government, when returning to Taiwan for post-registration, they don't have to worry about tax evasion and related issues. And they have the promise from the government that their cases won't be referred to the tax inspection agencies.

In the area of finance, what we need now is a memorandum of understanding (MOU) for financial supervision with China, We will continue to use our existing channels to urge China to sign the muchneeded MOU.

CB: What more needs to be done in order to further encourage cross straits investment?

LTS: We hope China can be more open and more encouraging for their people to invest more in Taiwan. For example, our government made it possible for Chinese people to purchase properties in Taiwan as early as four years ago. However, till now there have been only four officiallyapproved cases. The main obstacle is that China does not include Taiwan on its list for their people to conduct overseas investment in real estate, so their people cannot use “investment” as their purpose for remitting money to Taiwan. Also, China imposes strict restrictions on the remittance of money for its people. Although last year the Chinese government increased the allowable amount of money to be remitted from China to Taiwan from US$20,000 to US$60,000 per person per year, the amount is still too little for people who would like to invest in real estate in Taiwan. Obstacles of this sort often reduce the effectiveness of Taiwan's effort in opening up to China.

Another example to illustrate this problem is people-to-people exchange. Although Taiwan opened up for Chinese tourists to travel to our offshore islands, including Kinmen and Matzu, as early as six years ago, till now China only allows their government officials or retired civil servants to travel to those islands. Therefore, the number of people traveling from Taiwan to China has long exceeded that of people traveling from China to Taiwan. This is a good example to demonstrate that there are significant differences in cross-strait policies of the two sides.

CB: In your opinion, what is the key to the success of businesses operating between Taiwan and China?

LTS: To succeed, of course, the strength and capability of a company are very important, but good understanding of the business environment in China is also essential. The business environments and ideas of the two sides are very different in nature. Whether China's social values are compatible with corporate values is an important issue, and this is particularly important if Taiwan businesses hire local Chinese people at the management level. Many management issues derive from the lack of understanding of the said differences. Some Taiwanese businesses people who ignored or were unaware of the difference paid a heavy price in the end.

Second, businesses must know that as every (business) environment changes, so do the incentives they offer, be it low costs or lax environmental policies. China's admission to the World Trade Organization has resulted in some adjustment in those incentives in order for China to be in step with other member states. Therefore, it's important for businesses to grow and adapt over time.

The third issue is the types of business and industry you are in. China used to welcome businesses from the manufacturing industry to invest in so they offered various incentives. But now they don't need such industry anymore and are chasing more high-end sectors, such as electronics, so businesses in the traditional industries would be forced to withdraw. Usually it's very difficult for a business to predict and address this issue, so if a business is well-prepared, it is more likely to survive and even enjoy a stable growth.

CB: What sort of advice would you offer President-elect Ma Yingjeou and what sort of challenges do you anticipate he will face, given your experience of having worked in the government sector?

LTS: This is a politically sensitive question. I don't think I can comment on the challenges he will face on his behalf. I am sure President-elect Ma has a very competent team comprising of many experts on crossstrait issues and studies. Also, I have no doubt the he is fully aware of the challenges. The current administration is going to be replaced by the new one on May 19, so all I can say is that we respect the election platform he proposed during the campaign period. How to negotiate with the Chinese government and how to put his promises to the voters into practice will be something that he and his team need to work on. Personally I don't have any comment in this regard.