TAIPEI - Richard Chang, founder and CEO of
Shanghai-based
Semiconductor Manufacturing International Corp
(SMIC), nicknamed "the father of China's
semiconductor industry", received an award for his
contribution to China's high-tech development from
China's President Hu Jintao last March.
Chang's contributions to China - the
investments in three semiconductor factories in
Shanghai, Beijing and Tianjin - mean that he
has in effect burnt his bridges to his home of Taiwan, as
Taiwanese are forbidden to
invest in the mainland's semiconductor sector.
Taiwan's Investment Commission, which oversees
overseas investments by Taiwanese businessmen, had
fined SMIC some US$500,000 by the end of November,
and demanded the company withdraw its investments
in China immediately. In response to the
government's move, Chang expressed his
determination to remain in China. He submitted an
application to give up his Taiwanese citizenship
over the summer.
Taiwan's tense ties with
China have put the government in a dilemma over
how to handle Taiwanese businesspeople's ambitions
for the Chinese market. Increased oversight by
Taiwan of investments in China from early 2005 has
led to a new phenomenon: Taiwanese passport
holders cutting their ties with Taiwan. Chang's
case is typical, although higher-profile than
most.
According to figures from China's
Ministry of Commerce, 66,466 Taiwanese companies
have invested in China, with investments totaling
$41.52 billion by the end of September 2005. This
doesn't include investments via Hong Kong and tax havens,
investments from which hit $47.9 billion by July
2005. Taiwan's Central Bank, meanwhile, estimates
Taiwan's China-bound investments at $60 billion to
date.
In 2001, Taiwan replaced the
ineffective "No haste, be patient" policy on
mainland investments with a "proactive
liberalization with effective management" policy,
which restricts Taiwanese investments in China to
40% of a company's asset value. Regulations ban
more than 100 kinds of industries from investing
in China at all, although the government has been
reviewing the restriction on wafer packaging and
testing services, as well as naphtha cracking
plants, for more than a year. However, the
Investment Commission failed to make any
significant move on implementing the new policy
until it announced its decision to fine Chang
$170,000 for his Shanghai factory this April.
"Looking into these investments is like
stirring up a hornet's nest," said a senior
financial consultant, who spent decades in Hong
Kong assisting Taiwanese businessmen's investments
in China but spoke on condition of anonymity. "By
doing so, the government is forcing these
businessmen to cut their ties with Taiwan."
Aside from Chang, the "effective
management" policy has also resulted in some
businessmen, such as Tsai Juei-chen, former
chairman of the Shanghai-based Grace Semiconductor
Manufacturing Corp, and Felix Chen, former
chairman of Rechi Precision Co, the world's
third-largest compressor maker, staying away from
Taiwan. In the meantime, Hsu Chien-hua, who heads
China-based He Jian Technology, which is believed
to be associated with Taiwan's United
Microelectronics Corporation, was fined $65,000
and barred from leaving Taiwan for his investment
in China.
Felix Chen has been accused of
accounting abuses and illegally investing in China
more than 40% of Rechi's asset value. The local
prosecutors' office issued an arrest warrant and
listed Chen as wanted at the end of November, even
though Chen claimed his health doesn't allow him
to make long-distance trips. Meanwhile, Tsai has
been fined some $65,000 for investing in Grace. As
part of their struggles, Chen published a
half-page statement in local newspapers, saying,
"I have violated only the outdated regulations,
but I'm not involved in any illegal affairs,"
while Tsai filed a lawsuit against the Investment
Commission. The courts, however, ruled against
them both this summer.
"In my opinion,
this is political persecution," Chen said in an
interview from Beijing with Taiwan's Business
Weekly. But Huang Chin-tan, the executive
secretary of the Investment Commission, defended
his department's moves, arguing: "We would have
been accused of neglecting our duties if we failed
to do anything."
According to an annual
survey conduced by the Taiwan Electrical and
Electronic Manufacturers Association, which
interviewed 2,073 Taiwanese companies operating in
China, an increasing number of Taiwanese companies
have invested in China via island tax havens and
Hong Kong since 2004, and more of these Taiwanese
companies' China operations have become
economically larger than their activities in
Taiwan. "Almost all of these companies are
investing in China more than 40% of their Taiwan
companies' asset value," said Samuel Kuo, chairman
of the Taiwan Businessmen Association of Dongguan
and the Lacquer Craft Manufacturing Company, who
conducted an initial public offering (IPO) on Hong
Kong's stock market under the name Samson Holdings
last month due to the 40% ceiling.
As of
the end of last month, 38 Taiwanese companies had
listed on Hong Kong's stock market, including the
maker of China's most popular instant noodles,
Master Kong, Taiwan's top-three computer producer
Quanta Computer, and Taiwan's No 1 high-tech
manufacturer Foxconn Electronics Inc.
China-based Taiwanese businessmen have
been feverishly raising funds to expand their
China factories since 2000. The ruling Democratic
Progressive Party administration reacted in its
2001 Economic Development Advisory Conference
(EDAC) by vowing to help these businessmen raise
funds through an alternative offshore bourse. But
after four years, the proposal for the offshore
bourse is still under discussion, and Taiwanese
businessmen are lining up to raise funds in the
Hong Kong, Singapore and mainland China stock
markets to avoid the 40% ceiling. "The current
regulations are slack. The main issue is we want
to protect these Taiwanese headquarters from being
harmed by their Chinese branches once their China
investments fail," said Huang Chin-tan from
Taiwan's Investment Commission.
Gary
Chang, senior consultant at the Taipei-based
Advanced Capital Financial Advisory, noted that
holding IPOs in Hong Kong or Singapore has been
difficult for Taiwanese businessmen, since
investors in those places had little knowledge of
their companies. Meanwhile, in a bid to stimulate
Taiwan's economy, President Chen Shui-bian has
announced a plan to hold a second EDAC sometime
next February. Chien Chuan-deng, deputy director
of the Mainland Affairs Council's department of
economic affairs, suggested recently that the 40%
ceiling would be reviewed at the conference.
Richard Chang's application to give up his
Taiwan citizenship was rejected by Taiwan's
Ministry of the Interior last September. His
lawyer has brought his case to the ministry's
Committee of Appeal, but the Ministry of Economic
Affairs' request to provisionally seize Chang's
property for his failure to pay the fine has been
effective since October. Chang's lawyer declined
to comment on his case. In a statement issued
shortly after his application was rejected, Chang
noted, "Some Taiwanese authorities have been
restricting and persecuting us for our development
on the mainland, and I feel quite a bit of
disappointment about that." He emphasized that he
was "a US citizen but grew up in Taiwan".
Gary Chang of Advanced Capital said a
change in thinking was needed, citing the example
of Taiwanese notebook manufacturers who started to
shift their production to China in 1998 before
China developed its own notebook industry, leading
those companies to dominate the global market.
"The concept should be 'Made by Taiwan', instead
of 'Made in Taiwan'," he said. "SMIC has been
developing in China for only five years, but it
will threaten Taiwan's semiconductor companies
very soon."
Without a doubt, the stakes
for Taiwan are high and getting higher. According
to a survey conducted by the Taipei-based
Commercial Times, the 2004 annual turnover of the
top 1,000 China-based Taiwanese companies was
$24.4 billion, equal to almost a quarter of
Taiwan's GDP. Reviewing the trend, Samuel Kuo, who
closed his company's last factory in Taiwan in
2001, said, "Do we want politics or [economics]?
This is a question that deserves more thought."
Ting-I Tsai is a Taipei-based
freelance writer.
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