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Taiwan Allows Chinese Investment in Technology Sector

Monday, June 13th, 2011

Taiwan’s announcement, at the beginning of the month, to allow Mainland China to invest in its technology sector is another step forward following the implementation of the ‘strait talks’ that explored a mutually beneficial trade agreement which might overcome decades of political antagonism.

The establishment of the Economic Cooperation Framework Agreement, or the ECFA, on which most trade preferences are being developed, is a revitalizing road map for the development of the region.

The global recession of 2008-09 and the need for immediate solutions led to the development of stronger and better trade relations between the two neighbors. Those at the helm of Taiwan’s administration have charted a new economic growth plan by allowing China to invest in Taiwan in selected sectors. Close to 192 items were offered for trading in non-sensitive sectors, such as automobiles and plastics. Taiwan has been a regular investor on the mainland with close to a US$200 billion amount, while China has been able to invest US$140 million in the island. This bias in investment is likely to be reduced following the March 7th economic reforms.

Taiwan’s Ministry of Economic Affairs (MOEA) announced the following allowances: the manufacturing industry will allow 42 percent of mainland investments, followed by 42 percent in the services industry, while 24 percent in the public construction sector will be opened for investments from China. However, most of the sectors are now open to Chinese investment despite high profile dissidence over the sensitive high-tech sector. The concerns of threats to national security are now being derided, however. Investments in routine automobile and plastic sectors are vital to China’s manufacturing prowess, as without Taiwan’s plastics, it would not be able to sustain the low cost pricing or higher quantum of productivity.

However, Taiwan is allowing foreign as well as Chinese investments following stringent rules that are to ensure the Taiwanese industry is well-protected. Across most sectors a maximum of 10 percent stake in the island companies and up to 49 percent in joint ventures in the new technology sector has been set. 100 percent fully owned Chinese ventures are not possible under the present investment rules. The overall give-and-take situation between the two countries has led to a symbiotic relationship and has brought greater growth potential to the region.

The scenario of mutual development opportunities between the two is definitely the way forward. However, Taiwanese ventures in China have not made any spectacular progress. Experts believe this is largely due to the wrong business models that Taiwanese have adopted in their mainland ventures. The handful of successes that some of the Taiwanese subsidiaries have had in the mainland show profits are possible with the right business model. In fact, some of these are amongst the highest patent applicants in China, helping China reach the coveted international milestone of maximum number of patent applications being submitted.

Even at the peak of the mutual relationship, Taiwan remains cautious with the technology sector as it wants to minimize the possibilities of all technology leaks, however.

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