Embarrassment of Taiwan’s riches

Press, 5 April 1989, Page 38

Embarrassment of Taiwan’s riches

Taiwan has emerged as Asia’s fastest-growing direct foreign investor and, after Japan, the biggest. Is this good or bad for the island?

The businessmen of Taiwan are broadening their horizons. Business and political caution once restricted their overseas investments to American property. Now, they are buying hotels in Hong Kong and Manila; setting. up factories in Malaysia and Thailand; and—despite official frowns —investing in joint ventures in China. In part, Taiwan’s businessmen are discovering what their Japanese counterparts already know: that rising wage rates, a rising currency and stiffer pollution controls are making Taiwan an expensive place to invest in. But there is another reason, too, for the start of the Taiwanese investment diaspora. The island has become too rich to remain insular. With only 20M people, Taiwan is the world’s 13th-largest trading nation. It has foreign-exchange reserves of $74 billion, the world’s highest after Japan’s. Exports have outweighed imports in every year since 1975. Last year, even including the $2.9 billion of gold bullion imported from America to make the books look less embarrassingly good (old Japanese trick that), the island’s trade surplus was around $ll billion. Taiwan’s trading partners threaten protectionism, and demand that the island let its currency rise further. Taiwan’s entrepreneurs see investment overseas as an escape route. But to where? America is the traditional favourite; at any one time, there are about 25,000

students from Taiwan in America. Those links lure a constant stream of Taiwanese investment to America, in everything from Formosa Plastic’s acquisition in 1980 of an ICI plant in Baton Rouge to the opening of yet another Chinese restaurant in Los Angeles. But some cannier Taiwanese listen to the new natter about the “Pacific century” and see better prospects nearer home. Two weeks ago, Pacific Electric Wire and Cable agreed to pay $106.4m for half of Hong Kong’s Conrad hotel development; last week, a Taiwan-based businessman, Mr Tan Yu, announced a s4oom plan to build a satellite city outside Manila. Yet, counting such activities is a matter of guesswork. The Ministry of Economic Affairs says approved overseas investment last year amounted to s2lBm, of which sl23m went to 42 projects in the United States. This is peanuts — even if the total is a supposed rise of 113% on the 1987 level. It is also a mega-underestimate. Thailand alone says that in 1988 it approved investment from Taiwan of ten times the alleged total — more than $2.1 billion. In the Philippines, which intends to open a please-invest-in-us office in Taipei, and Malaysia, approved investment from Taiwan last year is thought to have topped ssoom each. The confusion is explicable. Taiwanese firms may not invest abroad more than 40% of their

paid-up capital. Add to that the Taiwanese businessman’s contempt for transparent accounting, and the result is that big and small companies alike prefer to work through the network of overseas Chinese in order to avoid official scrutiny. One guess is that 80% of Taiwan’s investments in South-East Asia have been made illegally; another is that last year alone both legal and illegal investments in the region amounted to well over $3 billion. If true, Taiwan is nudging Japan as the leading provider of new private direct investment to South-East Asia. All of which activity—illegal or not —cheers Taiwan's government. Less pleasing, perhaps, is the enthusiasm Taiwan’s businessmen are showing for the Chinese motherland. Since the late President Chiang Ching-kuo first allowed Taiwan’s citizens to visit relatives on the mainland, personal and business links across the love-hate divide have grown apace. Statistics are often imprecise because direct business contact is still banned. But one Taiwanese newspaper reckons that 450,000 people from Taiwan visited China in 1988 and that almost 2,000 Taiwanese businessmen visited last year’s Canton trade fair. Taiwanese officials say indirect trade across the Taiwan Strait last year exceeded $2.5 billion—6o% up on the previous year’s figure, and that most of it came from Taiwanese exports. — Copyright The “Economist"