cylin

Taiwan Investment in China Facts, Issues, and Prospects: 

Taiwan Investment in China Facts, Issues, and Prospects Presented at USC Asia Conference Seoul, Korea October 28-30, 2004 Dr. C. Y. Lin USC Professor Emeritus Chairman A Fubon Financial Company

Slide2: 

Straight line is the shortest distance between two points. Is it correct? Correct mathematically. But, it does not apply to Taiwan/China situation

Taiwan v.s. China: 

Taiwan v.s. China 2 2 Table 1. Basic facts about China and Taiwan

Slide4: 

Shanghai Hong Kong Figure 1. Maps of China and Taiwan 台北 Taipei

Cross-Strait Trade: 

Cross-Strait Trade The trade amount has increased rapidly from US$15.1 billion in 1993 to US$46.3 billion in 2003. The cross-strait trade as a percentage of Taiwan total trade has increased from 9.3﹪in 1993 to 17.1﹪in 2003, nearly doubled. During this period, China’s trade has increased from US$195.7 billion to US$851.5 billion. The cross-strait trade as a percentage of China’s trade remains stable, 6-8﹪.

Slide6: 

Figure 2. Cross-Strait Trade Source: Cross-Strait Economic Statistics Monthly US$ Hundred Million Ratio Total Cross-Straits Trade Cross-Straits Trade as share of China Total Foreign Trade Cross-Straits Trade as share of Taiwan Total Foreign Trade

Taiwan Investment in China: 

Taiwan Investment in China It is difficult to figure the actual amount of Taiwan investment in China because many investments go unreported to the government. Official record shows a total investment of US$34.3 billion between 1991 and 2003, while unofficial estimates range from US$ 100 billion to US$150 billion.

Changes in Investment Behavior: 

Changes in Investment Behavior Steady increase in number of investment and scale of investment Optimistic about investment in China Medium and large scale companies have invested in China

Slide9: 

Table 2. Taiwan Investment in China Source: Cross-Strait Economic Statistics Monthly Unit: US$ Billion (1-6)

Slide10: 

Table 3. Average Scale of Taiwan Investment in China (a): New Application , (b): Retroactive Source: Ministry of Economic Affairs, R.O.C.

Slide11: 

Diversification of Industries Invested Expanding from traditional manufacturing to service industries, including insurance, tourism, and business service Share of service industry Prior to 1995 5.26﹪ 1995-1999 7.96﹪ 2000-2003 8.23﹪ Shifting from labor intensive to capital and technology intensive industries

Slide12: 

Extending from investment in coastal areas to interior, such as Beijing, Sichuan and Northeastern region

Slide13: 

Changes in Business Strategies Adopting strategic alliance and joint ventures Developing related industries into satellite systems or clustering in a region Creating own brands in addition to OEM/ODM

Slide14: 

Changes in Business Strategies Moving operation headquarters to China Developing chain-stores, particularly in food, IT, and communication industries Changing competitive advantage from cost reduction to human resource development, e.g. recruiting graduates from top-rank universities

Slide15: 

Localization of Business Operations Hiring local management staff Extending business functions from production to R&D and marketing Residing in China instead of commuting cross-strait

Risks faced by Taiwan Investors in China: 

Risks faced by Taiwan Investors in China Market risks Changes in governmental policies and economic environment due to entering WTO. According to a survey, 65%of Taiwan investors in China fear this kind of risk. Severe competition from local private business companies that are improving, growing, and expanding 80% of Taiwan investors are concerned with this competition. Piracy and lack of intellectual property protection

Slide17: 

Financial Risks Banking systems not easy to fully access Lack of integrity, poor credit system, unreliable financial statements Foreign exchange control Appreciation of RMB

Slide18: 

Operational Risks Logistic problems Tax problems Legal problems Shortage of electricity, water

Slide19: 

Physical Risks Increasing number of incidents occurred during the last ten years. Incidents include physical harm, missing persons, and deaths. 1994 30 deaths 1998 64 deaths 2002 91 deaths Political Risks

Conclusion: 

Conclusion In short, Taiwan and China have a very strange relationship. Politically, they are at odds. Economically, people in Taiwan and China work closely to trade and invest actively. Taiwan investors in China are facing various risks and difficulties. Some of them are common to investors from all countries, others are unique to Taiwan investors. Hopefully, the risks and difficulties will be lessened in the future as China amends its policies and improves its administration.

Conclusion: 

Conclusion Taiwan investment in China has been increasing steadily in the last decade. We believe this trend will continue because more and more Taiwan investors see the comparative advantage and market potential in China.

Slide22: 

Thank You