Taiwan flings open door to investing in China

Late-summer recommendations by business advisory panels are seldom the stuff of history. But in the 52-year-old estrangement between China and Taiwan, this one could be.

Yesterday, Taiwan's stock market jumped, and business leaders hailed Taiwan President Chen Shui-bian's acceptance of an aggressive plan to bolster trade and investment with China. The policy could be a significant step toward integrating the proud island and the Chinese mainland - a tense political relationship that US officials consider the No. 1 security risk in the Pacific.The move is part of a regional trend toward investing in China at the expense of other low-cost producers, such as Indonesia and Thailand.

The "active opening" policy announced Sunday, say analysts, is also the most substantial goodwill gesture by President Chen since he took office last year - running on a platform of independence from China.

If China accepts the plan, it could lead to the first opening of direct interchange - air traffic, cargo shipments, and telecommunications - between the two sides since 1949. Taiwan's plan would lift the current ban on infrastructure and advance technology ventures, and remove the current cap of $50 million on any single investment made in China.

Chinese officials have cautiously given positive signs - seeing direct links between the two sides as favorable to their own hopes to eventually unify with Taiwan, which China views as a "renegade province." Beijing has said any formal declaration of independence by Taiwan will bring a military response from China - although in the past year, Beijing has adopted a "soft offensive" toward Taiwan, stressing cultural and trade ties.

"China has always welcomed the 'three links' with Taiwan [air, cargo, telecom], and we desire these links to expand," says Tian Jing, a spokesman for the State Council of Information in Beijing. "But we want to see what actions Taiwan will now take as a result of this proposal. We want to see more details."

China's dilemma is that it has required Taiwan to accept a "one China" policy as a precondition for opening direct transport and telecommunications links. Whether China would seize the opportunity offered by Taiwan and agree to conduct "talks about talks," while also allowing direct links to proceed, Beijing officials would not say.

For Taiwan, the investment opening has risks. Since 1996, Taipei has adopted a "go slow" policy on interchange and trade with China - fearing the behemoth mainland will overwhelm Taiwan's economy, culture, and political institutions, and de facto force unification. Taipei has stated that Taiwanese investment in China is unprotected, should the two sides enter open hostilities.

Yet, Taiwanese business leaders have steadily increased trade with China. Since a rapprochement began in the mid-1980s, Taiwan investors have poured an estimated $70 billion into the mainland, attracted by low labor and land costs, and a common language and culture. By conservative estimates, more than 30,000 Taiwan factories or Taiwan-invested factories are operating on the Chinese mainland, creating at least three million jobs in China. Currently, mainland investments are made via third countries.

So, the new plan is viewed by many as a simple expansion of a "wink and a nod" policy that is already bringing China and Taiwan closer, at least economically.

Both sides want to increase trade and commerce, but without compromising half-century-old claims left over from China's civil war and the separate political identities they have achieved.

Chang Wu-yeh, a cross-strait-relations scholar at Taiwan's Tamkang University, says that the move was part of an inevitable trend. The consensus reached by the Economic Development Advisory Conference is representative of a consensus of Taiwan's 23 million people. As such, it should have a considerable sway on officials in China. "China should have a more practical response to this [gesture]," Professor Chang says. "When the people lack a consensus, it's much easier for China to use that to its advantage."

In some ways the plan suggests Taiwan - whose economy is now in the doldrums - should bend to new economic and competitive realities in East Asia.

At a time when US and Japanese markets are sputtering, China's cheap-labor, manufacturing-base economy is continuing to expand at an 8 percent clip, acting like a large magnet for investment in the region. Corporations in Hong Kong, Japan, South Korea, Singapore, and Taiwan - continue to set up in China, with a number of Asian "tigers," like Indonesia, Thailand, and Malaysia losing out.Yesterday, for example, Taiwan's largest computer chipmaker, Taiwan Semiconductor Manufacturing Co. - announced it would for the first time "launch operations on the mainland."

"If Chinese authorities provide incentives like tax breaks ... and high-tech personnel and water and electricity, and our competitors take advantage of these," says Morris Chang, owner of Taiwan Semiconductor, "we would lose our competitive edge if we did not follow suit."

Until last year, Taiwan was ruled by the Nationalists or Kuomintang, who under Chiang Kai-shek fled to Taiwan after losing a civil war to the Chinese Communists in 1949. In 1996, then-President Lee Teng-hui instituted the trade restriction called "no haste, be patient policy" with China.

Along with removing the $50 million cap, the new policy would allow Taiwanese banks on the mainland, and tourists from China, to enter Taiwan. (Under Chinese policy, Taiwanese banks can open three years after establishing official status on the mainland, officials in Beijing said.)

One possible sticking point for China is the figure of the Taiwan president. Chen was elected in the spring of 2000 as a pro-independence leader, and Chinese officials have yet to establish direct communications with his government, and have only recently been allowed even to speak his name in public.