When you enter the reception area of the Ministry of Economic Affairs (MOEA), a pink "Taiwan Super Boy" figurine – the mascot for "Made in Taiwan" (or "MIT") – sits jauntily on the coffee table waiting to greet you. This is the latest PR innovation to roll out of the MOEA, a smiling symbol intended to make "Made in Taiwan" a synonym for good quality and safety. With the flood of Chinese companies and consumer goods expected to enter Taiwan in the wake of the recently signed Economic Cooperation Framework Agreement, raising the profile of the Made in Taiwan brand has become even more imperative. What follows are highlights from CommonWealth Magazine’s interview with Economics Minister Shih Yen-shiang:

---

Q: As Chinese investment capital flows into Taiwan, what will be the impact on Taiwanese industry? Will it threaten the Taiwanese supply chain?

A: How did you come up with that one? I’m really curious. Aren’t you assigning too big a role to Chinese capital? Foreign capital and Chinese capital must be viewed separately.

Foreign capital – Japanese, European, American – is the lion’s share and vital to Taiwan, bringing in new technology, new management techniques and new concepts. This has directly played a major role in the process of Taiwan’s industrial upgrading. For instance, early on lots of Japanese capital came in to invest in export processing, and 7-Eleven completely changed the face of Taiwan’s distribution industry.

The common element here was that these were areas where they were more advanced than Taiwan. Taiwan managed these investments through a negative investment list, excluding specific areas of the economy through written regulations. For Chinese capital, we’ve adopted a positive list, allowing them to invest only in areas listed in the regulations, each time opening up a few dozen items, then a few dozen more.

Q: What structural changes in Taiwanese industry will the arrival of Chinese investment capital bring?

A: Can you tell me what industry of theirs has had massive changes on Taiwan’s basic structure? There is too big a proportional gap between the two sides. Taiwanese investment capital has been flowing into China for nearly 30 years now and totals more than US$100 billion. Chinese investment capital in Taiwan to date totals barely US$140 million. Whatever future increase there may be, the proportional change will be limited.

Taiwanese society is rather more advanced than China in terms of industry. It’s just like Taiwanese investment capital flowing into Japan, which is considerably less than the amount of Japanese investment capital coming into Taiwan.

Q: What’s the upside for Taiwan vis-a-vis Chinese investment capital coming in?

A: First, in theory we should employ a negative investment list to all incoming capital from anywhere in the world, but we’re taking the opposite approach toward Chinese capital, due to the longstanding enmity between the two sides. What would happen were we to directly take the negative listing approach with Chinese capital? (Both fists clenched.) The impact would be too strong. The opening must be smooth and stable.

To be sure, a number of Chinese companies that have become quite big look at Taiwan’s comprehensive supply chain and realize that if they had operations in Taiwan, they would be more competitive than if they stayed in China, so they want to come here. Additionally, China has gone from being the factory of the world to being an important market – not the only one, but one of the world’s major markets. Developing that market also has to be among our considerations.

Cross-strait Strategic Alliance?

Q: Will the arrival of Chinese companies investing in Taiwan cause Taiwan’s supply chain to be integrated into the Chinese economy?

A: Take flat screen panels, for example, something with which everyone is familiar and the two sides can complement one another.

China wants to move toward upstream integration, while Taiwan wants to keep the plants here, so in this area the two sides can strategically ally.

For example, as Taiwanese flat screen panel makers continue to upgrade and bring costs down, they could ship components to China for final assembly. This would be more beneficial for Taiwan.

Downstream Chinese companies, like some home electronics manufacturers that need to buy flat screen panels for television production, hope to secure a reliable supplier. When we recently allowed them to invest in Taiwan and become shareholders here, we gave them an opportunity to move toward upstream integration in an arrangement beneficial to both sides.

Q: Chinese investment is a small fraction of Taiwan’s total foreign investment, but in specific industries, sectors or areas where it may be relatively higher, such as in retail sales where it’s quite concentrated, would the government consider any sort of special restrictions?

A: There will only be something like an upper limit in certain strategic industries. For example, flat screen panel makers investing in China still have an upper limit of three plants and the same is true for semiconductor makers.

When Chinese capital comes into Taiwan, it’s regulated in a different way. Investment in certain strategic industries is subject to restrictions, with a 20-percent cap on equity in certain strategic industries and prohibitions on holding a controlling interest.

Yet where there is no strategic designation, such as in opening restaurants or tourist hotels, there is no overall investment cap.

Q: Chinese capital investment in Kinmen, while quite small compared with Taiwan, is rather substantial for Kinmen. Are there worries that the impact on the regional economies of the outlying islands will be too great? Will there be inordinate changes in the retail sector?

A: We currently don’t have any special restrictions as regards the outlying islands. No one has previously mentioned any sort of regional impact. Thanks for bringing it up.

The retail sector has been discussed and some large-scale Chinese importers have made direct investments in setting up operations in Taiwan. Distribution channels for Taiwanese agricultural and fisheries products will be shortened as these Chinese trading companies ship directly to home markets.

More openness means more competition. With such fragmented distribution of goods in the past, there were a lot of inherent restrictions. As distribution channels shrink, competitiveness goes up, bringing on a process of elimination.

Q: After the opening to Chinese investment capital, will there be a supervisory mechanism?

A: I think the wording "supervisory" is a little too strong, but it’s still okay. That’s the government’s role. Basically, it’s about understanding the operational situations of Chinese companies coming to Taiwan.

Q: Have you seen any instances of Chinese capital exceeding the scope of this opening?

A: As far as the current projects underway, that hasn’t happened, as they’re proceeding with caution. Our restrictions are many. In the event someone exceeds the scope of their investment project’s original objective in a way that is actually bad for society, their investment authorization can be immediately revoked. For instance, "violating the objective of investment" – that’s a big enough crime in itself. (Laughs.) It still hasn’t been put to use, though.

We’re hoping this sort of thing will not occur. Current projects have not been so strategic in nature. But in the future, it’s hard to say.

Translated from the Chinese by Brian Kennedy