Taiwan set for Chinese invasion - of investors

Chinese investors stand to get a lot in return. “If [Chinese investors] can plug into HTC or Chimei, that would be a big coup, because they are industry leaders and doing well at this moment,” says Jack Huang, Taipei-based partner in the business law firm Jones Day. HTC makes smartphones and Chimei Innolux does flat panels for televisions screens.

Boon for non-Chinese investors, too?

Today, the European Union is Taiwan’s top foreign investor, followed by the US. Foreign investment totaled about $9.5 billion in 2011, up about 30 percent from 2010. Investors from other countries would find Taiwanese firms all the more attractive if Chinese capital raised their overall values, analysts say.

“There is a whole lot of pent-up capital sitting on the sidelines ready to pounce on Taiwan companies,” says Bill Wiseman, chairman of the American Chamber of Commerce in Taipei. “The companies here are extremely profitable, and frankly a lot of them are undervalued.”

In that vein, US rating company Business Environment Risk Intelligence (BERI) found in December that Taiwan's investment environment ranked third in the world, Taiwan’s nonprofit institute the National Policy Foundation said.

A BERI score of 73 put Taiwan in the same spot as Norway and behind only Singapore, in first place, and Switzerland, the foundation said in a statement. BERI measures risks related to government policy, currency exchange rates, and doing business in general.

Financial risk will remain low in Taiwan as long as China does well, allowing the island to pull away from reliance on more volatile export markets such as Europe and the US, says Tony Phoo, economist with Standard Chartered in Taipei. Frenzied infrastructure spending also makes the island more attractive to investment.

“The health of the Chinese economy is going to have increasing impact or role,” Mr. Phoo says. China isn’t slipping now, but it could. “For Taiwan to open up and be attractive to foreign investors is a positive, but that brings about a need to manage risk.”

China kept from defense sector

Chinese investment also increases the island's exposure to Chinese political influences. Beijing hopes economic sweeteners will eventually lure Taiwanese voters toward political unification, experts say.

“If China’s direct investment becomes too much, the problem becomes how to evaluate possible interests and challenges,” warns George Tsai, a political scientist at Chinese Cultural University in Taipei.

Taiwanese officials say they will protect the island’s most sensitive sectors, such as defense and prized high-tech items, as they add new direct investment categories. Stock market investors from China will also be barred from buying majority shares, though the economic affairs ministry said they eventually will be allowed investments above the current 10 percent cap on a case-by-case basis.

Mainland Chinese have invested $170 million in Taiwan to date. Taiwanese investors have already parked some $150 billion in China due to earlier liberalization. Taiwan and China are talking separately about dropping import tariffs on 11,000 items, says Phoo.

Taiwanese businesses are already seeing returns. Taipei-based Evergreen Marine, the world’s fourth-largest marine shipper, expects volumes to grow 3 to 4 percent through 2020.

“Looking ahead, though currently the world economy is slowing down mainly due to uncertainties in Europe and US markets, the emerging markets led by China and its surrounding neighbors are still relatively energetic in supporting trade activities,” company President C.J. Wang said in an e-mail interview.

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