Taiwan opens door for Chinese investment

[June 30, 2009]  TAIPEI, Taiwan (AP) -- Taiwan has opened up key parts of its manufacturing and service sectors to Chinese investment as another barrier falls between the once bitter foes.

The new rules announced Tuesday are part of President Ma Ying-jeou's ambitious effort to move Taiwan's economy closer to that of China, and foster a dialogue aimed at ending six decades of mutual bitterness and distrust.

The two sides split amid civil war in 1949, and China continues to claim Taiwan as part of its territory. It has threatened war if Taiwan moves to makes its de facto independence permanent, but unlike his pro-independence predecessor, Ma has already pledged he has no intention of doing that.

Under the new Taiwanese rules, Chinese companies will be able to invest in 100 categories of local business, including computer components, cell phones, car making and building of resort hotels and commercial ports.

But Taiwan is keeping the semiconductor, flat panel display, solar panel making and communications sectors to itself, to safeguard the island's secrets, and maintain its technological advantages. Real estate development will not be open to Chinese companies, though their Chinese employees will be permitted to buy property for private use.

Chinese investments "with a military purpose" will be banned, as will those that could harm Taiwan's economic and financial development, according to a government statement.

No specific investment caps have been imposed but officials said the percentage of Chinese ownership in a Taiwanese firm will be subject to approval on a case-by-case basis.

The guidelines apply to all Chinese companies and to foreign firms in which Chinese ownership is 30 percent or more.

Under the new rules, mainland institutional investors will also be allowed to buy Taiwanese shares as long as the accumulated stock does not exceed 10 percent of a listed firm's total share value, the government said.

The new rules take effect immediately.

"We will start on a smaller scale and expand the scope when we see results of the (initial) investments," said Vice Economics Minister Deng Cheng-chung.

Despite the limitations, a substantial influx of Chinese capital is expected into the island. China has encouraged its businesses to invest in Taiwan, apparently viewing such investment as a chance to establish a foothold across the Taiwan Strait.

Until now, the trade and investment flows have been largely one way. Cumulative Taiwanese investment on the mainland since the late 1980s stands at more than $100 billion and trade -- mostly Taiwanese exports -- now exceeds $110 billion annually.

Since President Ma took office 13 months ago, he has pushed aggressively to cement closer economic ties and liberalized conditions for Taiwanese investment on the mainland. The two sides launched regular direct air and maritime links last December.

Fresh Chinese funds are expected to help stimulate Taiwan's economy, which shrank by a record 10.2 percent in the first quarter of 2009 from a year earlier.

Property developers say they expect upscale office rentals in Taipei -- currently lagging way behind those of Hong Kong or Singapore because of the sluggish local economy -- to shoot up as more Chinese enterprises set up operations on the island.

[Associated Press; By ANNIE HUANG]

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