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PRC capital inflow will hike Taiwan risks

PRC capital inflow will hike Taiwan risks

The question of whether and how to allow capital investment from the People's Republic of China into Taiwan's equity and portfolio markets has long been a subject of sharp debate as advocates and proponents but has now turned into a potentially ominous reality as shown by the purchase of a nearly 20 percent share in the firm that owns Taipei 101 by a China-based company.
The high-profile acquisition followed on the heels of a decision by President Ma Ying-jeou's restored Chinese Nationalist Party (Kuomintang) to arbitrarily announce on June 30 that PRC investment would be allowed in over 100 categories of Taiwan manufacturing and services, real estate and even commercial port facilities, even though Beijing has not abandoned its threats to use force against Taiwan.
Ma maintains that the one-way flow of Taiwan capital into the Chinese market over the past two decades has been "inequitable" and believes the rapid liberalization of PRC investment into the Taiwan market will not jeopardize our nation's national security.
Not surprisingly, the opposition Democratic Progressive Party regarded this announcement as an arrogant and foolhardy act which displayed the KMT's cavalier refusal to take seriously the concerns of many citizens for the potential impact on Taiwan's national security and economic prosperity and autonomy.
Nevertheless, the question of how to cope with the potential impact of PRC investment is no longer an abstract ideological or academic issue and requires a holistic diagnosis and policy formation that must start with an appreciation for the nature of PRC capital and the structural and "non-economic" issues involved in Chinese investments into Taiwan.
There is no doubt that the PRC government is eager to boost offshore direct and portfolio investment to ease a structural oversupply of capital.
The PRC's foreign reserves have continued to soar from US$1.845 trillion by June 30, 2008 to US$1.946 trillion at the end of 2008 and to US$1.953 trillion in the first three months of this year despite plunging trade, largely due to inflows of "hot money."
In order to ease inflationary pressures, the PRC government has adopted a variety of measures to divert "excess savings" to alternative or emerging markets, including opening a special window in Tianjin for PRC citizens to invest in Hong Kong's stock market.
Hong Kong's relatively sound monetary system and access to the PRC market has turned the special administrative region into a refuge for Chinese capital since the outbreak of financial meltdown in September 2008, but this blessing already shows signs of turning into a curse as financial regulators now openly worry about the unwelcome surfacing of an asset "bubble," as shown by double-digit rises in real estate prices.
The key to our city
Taiwan's slumping economy may also well prove to be an attractive market for cash-flushed PRC investors to snap up productive and real estate assets, a prospect that KMT government officials and free market economists believe we should welcome.
Nevertheless, besides the fact that the last thing that our economy needs now is another financial bubble, the nature of the PRC economy adds another grave concern which does not exist in our economic and financial relations with other nations, namely the likelihood of political purposes behind asset purchases and other investments.
This likelihood is quite strong because the virtually all of PRC capital is state owned and therefore directly or indirectly subject to "guidance" by the ruling Chinese Communist Party, as amply shown by the past experience of Hong Kong.
In the wake of the KMT government's rash June 30 announcement, we can only hope that the Financial Supervisory Commission will take special care over the proposed cross-strait financial supervisory memorandum of understanding (MOU).
Several former FSC chairpersons have already warned of the dangerous potential for cash-rich PRC state-owned banks to gain substantive influence if not control over our banking system and access to financial information of Taiwan companies and citizens if the KMT persists in its naive faith that "economics and politics are separate" in dealing with the Chinese Communist Party-ruled PRC.
Even the United States does not believe that political factors can be ignored in dealing with the PRC, as shown by the July 2007 revision of the Exon-Florio Amendment to require investigation by the inter-agency Committee on Foreign Investment in the United States (CFIUS) of the national security implications of any acquisitions by state-owned foreign entities, notably PRC firms.
While incoming investments do need to be approved by the MOEA Board of Investment, the current limitation of foreign investment to no more than a 50 percent capital share in Taiwan firms is totally inadequate to safeguard our economic and financial systems and our citizens from the political dangers as well as the economic risks posed by PRC capital inflows.
At a minimum, the KMT government should establish a new bipartisan commission with greater investigative powers and resources to supercede the BOI in relation to PRC capital inflows instead of rushing to hand the key to control our economy and financial system to the agents of a hostile power.


Updated : 2021-05-12 03:06 GMT+08:00