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Taiwan set for Chinese invasion - of investors

Taiwan's economy is poised grow significantly this year as the island relaxes barriers to investment from its old rival, mainland China. 

By Correspondent / April 26, 2012

A general view of buildings in Taipei's prime district in seen in this file photo.

Nicky Loh/REUTERS/File


Taipei, Taiwan

Taiwan’s economy, the world’s 19th largest, is poised to grow significantly this year as officials open pipelines to new investment from China, capitalizing on an old political foe that has recently agreed to talk business.

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Economic planners on the manufacturing-intensive island raised stock market investment caps on certain high-tech firms last month. They said they would later increase the 247 categories of business that are open to Chinese foreign direct investment (FDI), meaning they can pay directly into a Taiwanese company in exchange for a portion of any profits. 

Going a step further, Taiwan’s top China policymaker, Lai Shin-yuan, says the government is studying when to let China’s wealthy investors pursue mergers and acquisitions (M&As). And Chinese investors may one day find it easier to buy real estate in Taiwan, provided they need the property for routine business, not speculation.

The taps are expected to begin flowing from June after the two sides sign agreements offering first-ever legal protections to each other’s investors. The opening marks a major diplomatic embrace for the two rivals, a relationship long seen as a dangerous flashpoint in Asia

“The signing of the [accord] will be the first step. After that we will see a progressive lifting of investment caps,” says Wai Ho Leong, regional economist with Barclays Capital in Singapore. “My sense is that this will unlock M&A flows from China into Taiwan and, along with it, also substantial amounts of FDI flows.”

Independence talk dulled trade

Before 2008, presidents in self-ruled Taiwan advocated the island’s formal independence from China, enraging the communist leadership and making trade or investment deals all but impossible. China has claimed sovereignty over Taiwan since the Chinese civil war of the 1940s and wants eventual reunification.

While Taiwan stood its ground, Beijing negotiated trade deals with South Korea and countries in Southeast Asia, hurting Taiwan’s export competitiveness as its rivals got a piece of China’s economy, now No. 2 in the world with a GDP of about $7 trillion.

But Taiwan President Ma Ying-jeou set aside political differences after taking office in 2008 to establish trade, transit, and tourism links with China, ties worth billions of US dollars to the island economy. Mr. Ma was reelected this year with pledges to pick up the momentum.

Growing economic ties also reduce the risk of war, Taiwan's government has argued. As late as 2005, officials in Beijing said they would strike Taiwan if the two sides could not unify through peaceful means. But Beijing has not repeated the threat since Ma took office, signalling a record low in tensions over the past six decades.

“The so-called peace dividend from China will only continue to grow following President Ma’s re-election,” says Chang Ching-I, chief investment officer with HSBC Global Asset Management in Taiwan.

New capital from China would buffer Taiwan’s stock market whenever the island’s exports slow during economic downturns in Europe or the US. Inflows would particularly lift the island’s best firms, in turn raising employment at home and sales overseas. 


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