Taiwan's China Trade and Investment To Continue Growing in 2004

Trade between Taiwan and mainland China reached an estimated record of US$50 billion in 2003, despite the outbreak of severe acute respiratory syndrome (SARS), and the island's government trade officials expect the figure to continue growing this year.

Two-way trade across the Taiwan Strait in the first 10 months of last year amounted to US$46.63 billion, a growth rate of 29.4% over the same period of 2002. Taiwan's exports to the mainland topped US$39.59 billion, up 28.7%, and its imports from China totaled US$7.04 billion, an increase of 33.5%. Taiwan was left with a surplus of US$32.56 billion in cross-strait trade for the period.

The island's investment in the mainland is also expected to continue expanding in 2004 as manufacturing firms are forced to move to the other side of the Taiwan Strait to cut production and transportation costs as well as to save on tariffs. In contrast, its investment in other foreign countries has been in constant decline since 2000.

Many Taiwanese manufacturers are moving into China in a bid to get the drop on their competitors in establishing a presence there. The majority of them have already made the move, so most Taiwanese investment in the mainland is now for the purpose of boosting production capacity there.

Although Taiwan's investment in the mainland will continue growing, the rate of growth will slow down as a result of "overlapping" investment in the same industries, says Huang Chin-tan, executive secretary of the Investment Commission of the Ministry of Economic Affairs (MOEA).

The mainland authorities, for their part, are trying to cool off the fever for investment from Taiwan. For example, they are reducing the number of economic and technology zones, which were once used as magnets to attract foreign investment.

An insufficient supply of electrical power also puts a damper on investment, Huang says.

In coming years, Taiwan's investors may be more selective about where they send their capital. Attractive destinations right now, according to Huang, are Eastern Europe, Africa, and Latin America; the top choice, however, remains mainland China.

In total, China attracted US$52.7 billion in foreign investment in 2002, taking over from the United States the position of No. 1 destination for foreign investment. China kept that position in 2003, and is expected to do so this year as well.

The "hollowing out" effect on Taiwan's economy as a result of mainland investment is not so serious as once predicted, according to a report prepared by the China Institute for Economic Research (CIER), because even as the island's enterprises invest in China they are also increasing their domestic investment. The institute was commissioned by the Industrial Development Bureau (IDB) of the MOEA to study the effects of the lifting of Taiwan's ban on investment in the mainland.

The CIER's study indicates that investment overseas facilitates the continued survival and expansion of private enterprises in Taiwan. Of the total revenues of the 100,000 Taiwan enterprises included in the institute's study, the ratio going to enterprises with investments overseas rose from 33.1% in 1993 to 41.5% in 1999.

In addition, the revenues of companies with overseas investments expanded 114.3% from 1993 through 2000. Revenues of companies investing only in mainland China grew by 47.89% over that period, while those with no overseas investment at all increased by only 33.3%.