Taiwan Firms Speed Up Move Into China

Reuters ^ | 8-4-02 | Kirby Chien

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TAIPEI (Reuters) - The Taiwan government's pleas to businessmen to slow their investment rush into China have fallen mostly on deaf ears, and even state-controlled firms under pressure to toe the official line are seeking a greater stake on the mainland.

Competition to survive, made more intense since both China and Taiwan entered the World Trade Organization, overrides political considerations for Taiwan's formerly protected industries.

Last week, one day after President Chen Shui-bian again urged Taiwan businessmen to diversify investments away from the mainland, Taiwan's China Steel Aluminum Corp (CSAC) confirmed it planned to invest in the promising China market by year end.

"Wherever there is money to make, we will go there," CSCA Chairman Chi Yu-kin, said in an interview with Reuters. He also cited the mature and saturated local market for the move.

The company is a wholly-owned unit of China Steel Corp, the island's largest steel firm that is still some 40 percent government owned.

Such a plant would cost US$60-$72 million to build, which would make it the largest investment by a Taiwan state-controlled firm in China to date. The deal has been approved by Taiwan authorities and now awaits the thumbs up from the host country.

While the investment of state firms is small compared with the estimated $100 billion that private Taiwan investors have poured into China since the late 1980s, the trend seems likely to survive anything short of armed conflict.

"They have to go. If you want to survive you have to be global, and China is a part of the global economy," said Daniel Chen, the chief economist for Sinopac Holdings.

TAIWAN FIRMS PRESSURED

Taiwan state firms have had to bide their time to sidestep the political stalemate between Taipei and Beijing, rivals since the Chinese civil war ended in 1949.

There was a further reminder of the political pitfalls for Taiwan companies in China on Saturday, when President Chen backed a referendum on independence from China. His move is certain to anger Beijing, which considers Taiwan a part of China, and marks a hardening of Chen's China policy since being elected in 2000.

Yet the island's businessmen -- under pressure as the economy struggles to recover from its worst ever recession last year -- have increasingly voiced criticism of the government's cautious investment policy toward one of the fastest growing economies in the world.

From sugar and petroleum products to telecommunications and other commercial ties with China, Taiwan is rapidly pulling down barriers and opening its markets to comply with WTO mandates.

On Friday, Taiwan officially ended a half-century ban on direct investments in China, a move allowing Taiwan companies to lower costs and cut bureaucratic red tape.

Liberalization is spurring companies of all kinds to step up their investments in China. After lagging their counterparts in the private sector, Taiwan' state-run or quasi-state firms have been busy looking for opportunities in the fast-growing China market.

In May, Taiwan's state-run Chinese Petroleum Corp (CPC) and the mainland's state China National Offshore Oil Corp (CNOOC) signed a landmark $25-million pact to jointly explore for oil, one of the boldest moves to tear down obstacles to bilateral trade and investment.

A month later, CSCA's parent China Steel said it was considering a T$4 billion magnesium plant on the mainland.

CPC has been aggressively exploring investment opportunities to cope with rising competition since 2000 when the government allowed a private company to enter the island's oil market, ending the oil giant's decades-old monopoly.

Late last year, the mainland's China Eastern Airlines and state-run China Airlines signed a deal to sell a 25 percent stake in its cargo unit to Taiwan's.

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