Trade between Taiwan and mainland China and investment in the mainland by Taiwan companies, both of which have soared in recent years, continued to grow strongly during the first two thirds of 1993. But in the absence of direct trade across the strait ? most passes through Hong Kong ? statistical evidence of this growth is patchy and sometimes contradictory.
According to Hong Kong customs statistics, indirect trade between Taiwan and China during the first eight months totalled US$5.66bn ? an increase of 21 per cent over the same period last year. The value of goods coming into the mainland via Hong Kong was US$4.96bn, up 26 per cent, whilst the value going to Taiwan via the colony slipped 5 per cent to only US$701 m.
The official added that the increase in two-way trade, while still strong, slowed somewhat from the previous growth rate of more than 30 per cent realised in previous years. He attributed the slightly slower growth to credit-tightening. measures implemented by China which have resulted in a more cautious approach by Taiwan-investing companies.
The figures show that trade between China and Taiwan during the first eight months of the year accounted for 5.2 per cent of Taiwan's total international trade of US$108.5bn during the period. If accurate, this would represent a sharp drop in the share achieved during the period last year, which was reported by Taiwan's Board of Foreign Trade (BON 1) to be in excess of 7.2 per cent and by other sources to be as high as 12 per cent.
Taiwan's exports to the mainland consist largely of industrial raw materials, textiles, man-made fibres, machinery, electronic components and plastics. Leading. the list of products in the other direction are herbal medicines, mushrooms, tobacco, cotton, feathers and eels.
Textiles have held a leading, position in Taiwan's trade with the mainland from the beginning of trade between the two sides. But the market weakened in early 1993 due to the devaluation of the Chinese currency and the impact of austerity measures introduced by Beijing. Analysts say the market could close even further as China tries to produce more textiles to meet local demand.
One part of this sector which remains strong is non-woven fabrics. Taiwan producers say that non-woven fabrics will account for a quarter of China's textile market by the year 2000 as opposed to only 10 per cent now. China's demand for synthetic leather also remains strong with Taiwan makers reporting a sales growth of 11.75 per cent to mainland customers during the first eight months of 1993.
Running a close second to textiles is industrial machinery, a sector which continues to grow in China despite poor performances in the industrialised world. Textiles and machinery are also central to a growing three-way trade between China, Taiwan and Japan. In this set up, Japan supplies Taiwan with machinery and raw materials, Taiwan ships semi-finished goods to the mainland for further processing and assembling, and China then exports the finished products to Japan.
The government in Taiwan is moving to make trade between the two sides easier, although the pace is slow and directives are often contradictory. In early 1992 BOFT announced it was revoking the ban against Taiwan companies participating in trade shows held in China.
In practice, however, the ban continued because the cabinet-level Mainland Affairs Council (MAC), the body officially charged with formulating Taiwan's China policy, refused to agree to its lifting.
Under new guidelines for conducting business in mainland China, the ban is to be lifted and Taiwan companies will be allowed to engage in a range of activities in China including launching commodity and service promotions, conducting business surveys, studying manufacturing technology and collecting related information, and engaging in commodities and services transactions and related activities approved by the appropriate government authorities.
Also in October, the China External Trade Development Council (CETRA), Taiwan's largest trading organisation, announced that it would formally open a distribution network in Beijing on October 28. CETRA secretary general Mr Augustin Liu revealed that the organisation planned to establish similar networks in at least 20 other Chinese cities in order to assist Taiwan-based mainland businesses market their products.
The decision by CETRA to begin operations in China is seen by many in Taiwan as having considerable significance. Whilst the organisation promotes itself as a private body, its Funding comes from the budget of the Board of Foreign Trade and most of its ranking. officials are appointed by the Taiwan government.
In yet another move, the MAC announced a partial end to Taiwan's ban on advertisements for mainland Chinese products and services. Under the ban, anyone convicted for advertising such products faced a prison sentence of one year and a fine of up to US$18,000. "The council is currently drafting regulations as to the kind of advertisements that can be published," said Mr Tung Yumin of the council's economics section.
Investment in mainland China by Taiwan companies remains strong with the Investments Commission of the Ministry of Economic Affairs approving nearly 9,000 investment projects worth US$2.83bn in the first ten months of 1993. Shanghai emerged as first choice as a site for investment during the period, followed by Dongwan, Shenzhen, Xiamen and Guangzhou.
Electronics and electrical appliances led in investments for the period, accounting for US$382m or 13.4 per cent of all investment. In second place was plastics (US$352m) and food and beverages (US$291m).
From August, however, the number of new investment applications declined in each of the consecutive months. According to Mr Ricky Kao, Director General of the MOEA's Industrial Development and Investment Center, the willingness of Taiwan companies to resume investing in mainland China a will depend largely upon measures taken to cool China's economy, the pace of tax reforms and further liberalisation of the mainland market.
Company owners in Taiwan say that the ambivalence shown by the Taiwan government is another major reason for the recent fall off in investments. The government has repeatedly reversed regulating investment policy in China and officials frequently contradict one another in public. The latest example came when Vice Economics Minister Mr Yang Shih-chien met reporters on November 10. He said that the government had no plans to change its policy under which investment applications are approved or rejected depending on whether the industry involved is one which has been approved for investment? a so-called 'positive list'.
Mr Yang's remarks contradicted an announcement made only days earlier 111(y economics minister Mr Chiang Pin-Kung, who said the government would begin approving all applications in which the industry involved was not on a "negative list" of those specifically banned. Mr Chiang added that "the government will actively grant whatever . assistance and guidance are needed to facilitate mainland investments by local enterprises". This contrasts with Mr Yang s later statement that the government would not provide assistance to Taiwan companies investing in mainland China.
When asked to name factors which would contribute to a resurgence in investment in China, most Taiwan company owners place a coordinated government investment policy near the top of their list. A major incentive to Taipei to implement such a policy is its desire to become a full member of the General Agreement on Tariffs and Trade (Gatt). The government is thought to believe that its chance of gaining full membership will be enanced significantly if cross-strait trade restrictions are relaxed.
One of the most closely watched of Taiwan's current investment projects is that of Ching Feng Group. Ching Feng, which through its San Yang Industrial Company is one of Taiwan's largest motorcycle manufacturers, will inaugurate an 85 per cent-owned assembly plant in Xiamen, Fujian province, in 1994. The new plant will produce 30,000 motorcycles in its first year with annual output planned to reach 500,000units by the end of three years.
Another Taiwan motorcycle maker, Kwan Yang Ind. Co., plans to build a plant in Hunan, with an initial annual production capacity of 100,000 units.
Among the largest investment projects approved in 1993 were two by Walsin-Lihwa Electric Wire & Cable Corporation which will invest US$230m to set up a plant to produce electric wires and cable. In a second project the company invested US$234m in a joint venture with a US firm to manufacture steel in China.
Another large Taiwan company involved in a joint venture in China is Taiwan Glass joint Corp. which will invest US$36m in a project to build a glass production facility near Qingdao. Total investment in the new company, Qingdao Float Glass, is projected to reach US$83m. Taiwan Glass, along with its partners Pilkington of the UK, Nippon Sheet Glass and Nomura / Jafco of Japan, and US-based American International Group, will form the Taiwan Glass China Holdings Ltd, which will own 90 per cent of Qingdao Float Glass. The new plant is expected to come on stream in 1995 with an annual capacity of 130,000 metric tons of float glass.
Among the textile investments approved in 1993 is one by the Formosa Tafetta Company which will spend US$25m to set up a plant making umbrella fabric. Over 98 per cent of Taiwan's umbrella makers have shifted production to China.
Taiwan's ceramics industry is following the lead of textiles, shoes and toys. Of Taiwan's ceramics makers, 80 per cent have relocated to China.
Electronics manufacturers are also making the move. Many which have facilities in Malaysia ? formerly the preferred offshore investment site ? are considering moving to China in response to reports that electronic products produced in Malaysia are to be removed from the US general system of preference.
Not to be outdone, service companies are beginning to make their mark. In one of the first of such moves, the Kaohsiung City Bus Company has applied for permission to invest US$3m to set up a long-distance public transport company based in Shanghai. In another boost to the service sector, the MAC agreed to allow privately owned cram schools to set up branches in China. More than 3,200 such schools are currently registered in Taiwan offering classes in subjects ranging from home economics and art to engineering.
With the potential of the service sector virtually untapped, and with the government in Taiwan expected to continue to move toward eliminating trade barriers in its effort to win Gatt membership, Taiwan's two-way trade with China and its investments in the mainland are both expected to post strong showings in 1994. *