Investment has flowed into China from Taiwan for over 20 years – but following Beijing and Taipei’s agreement to allow mainland investment on the island, expect the tide to change.
China Mobile was one of the first companies to jump in the water, agreeing to purchase a 12% stake in Taiwan telecom firm Far EasTone for US$525 million in late April. Sinosteel subsequently pledged to open a representative office on the island.
“There seems a greater political willingness now to accept a higher involvement of Chinese capital in the Taiwanese economy,” said Joseph Lau, an economist with Credit Suisse in Hong Kong.
The Taipei stock market reacted favorably to the news, and well it might: Taiwan’s economy is undergoing slow structural decline and foreign investment is needed to prevent its hollowing out, Lau said.
Business and politics
Beijing has a major incentive to invest as well. “Big mainland corporations are already looking for opportunities overseas,” said Tony Phoo, an economist with Standard Chartered in Taipei. “Taiwan is one of those opportunities.”
These opportunities come with political baggage, though. In mid-May, Yiin Chii-ming, Taiwan’s economics minister, at least delayed and at worst derailed the China Mobile-Far EasTone deal, saying that telecomunications would remain off limits to mainland investors for the time being. Yiin listed 65 less sensitive industries that are open to investment, such as automobiles and textiles.
“They just want it to be a more gradual process rather than a big bang kind of a thing,” Phoo said.
Cross-strait negotiations are continuing on a number of issues, notably regarding the creation of a Taiwan dollar-renminbi exchange system as well a framework to allow financial services providers to operate on both sides of the strait. Taipei has also been pushing for a free-trade style agreement between Taiwan and the mainland.
But the tentative progress means the positive vibes that filtered so readily into the stock market will take time to filter into reality.
“The more visible impact of deepening economic ties with China in terms of the real economy is a 2011 onward story,” said Sharmila Whelan, senior economist at CLSA in Hong Kong. “It’s going to take time to negotiate to get approvals from both sides.”