Amid Enmity, Taiwan Profits From China : Asia: Business ties, transfer of capital are uniting the economies of the Nationalists and the mainland Communists.
Chen Chien-nan, the dapper president of a textile company, represents a historic shift in relations between his native Taiwan and its longtime archenemy, the People’s Republic of China.
Four years ago, the 53-year-old Taiwanese industrialist spent $50 million and moved his business from Taipei, the capital of Taiwan, to Fuzhou on the Chinese mainland.
Except for a few minor complaints about Fuzhou night life--which is not nearly as lively as in Taipei--and the difficulty in obtaining parts for his European and Japanese machinery, Chen said, he has no regrets about the move. The language, food and culture in China’s Fujian province are almost the same as back home. And the profits are much, much bigger.
“Labor in Taiwan is 10 times more expensive than here in China,” said Chen, resplendent on a recent afternoon in a hand-tailored blue suit and designer gold watch.
The 700 workers at his Fuhua Textile mill, mostly recruited from poorer areas of the coastal province, earn an average of $80 a month. Moreover, the move to China has opened up a huge market that dwarfs the one back home. About half of Chen’s $25-million annual sales of polyester fabrics are on the mainland. Next year, he plans to open a factory in Shanghai.
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Since the Taiwan government began easing restrictions on business dealings with the Communist mainland in 1988, an estimated 30,000 Taiwanese businesses have established footholds in China. The massive transfer of Taiwanese business and capital to the mainland has changed the economic balance of the region. Most of Taiwan’s labor-intensive industries--its shoe factories, textile mills and small-scale electronics industries--have made the move.
Officially, the businesses represent nearly $30 billion in investment on the mainland. But because much of the investment is done through Hong Kong or offshore “front” companies, the actual figure is much higher, as much as twice that amount.
This “hollowing out” of the Taiwanese manufacturing base and its re-establishment on the mainland, in the view of many Chinese and Taiwanese economists, has produced a classic maodun , or contradiction: At a time when Taiwan is building an impressive democracy--the island’s first presidential elections are set for spring--and when it is pushing for recognition as an independent country in the United Nations, Taiwan finds itself increasingly dependent economically on the mainland.
In the last two years, even some of Taiwan’s larger, blue-chip industries have also invested heavily in China. According to a September report by the Taiwan Stock Exchange, about one-third of Taiwan’s top 331 companies have made direct or indirect investments across the straits to what only a decade ago was labeled “enemy-held territory.”
Among the investors are Taiwan’s largest firms: Formosa Plastics, the huge chemical and plastics maker, and Evergreen Marine, one of the world’s largest container shipping companies. The biggest single investor, President Enterprise, is one of several major food processing companies that have moved to the mainland with an eye on the huge market formed by China’s increasingly affluent 1.2 billion population.
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Instant noodles, fruit juices, chewing gum, cereal, cookies and canned seafood are among foodstuffs made by Taiwanese companies that line the shelves of mainland Chinese stores. Recently, a Taiwanese firm opened China’s two largest manufacturing plants for monosodium glutamate, or MSG, the taste-enhancing additive often used in Chinese cuisine.
Because of massive exports of raw materials and machinery needed to support the Taiwanese industries on the mainland, China has replaced the United States as Taiwan’s top export market.
This has produced an unsettling reaction among some of Taiwan’s leaders. Taiwan, one of Asia’s “Four Little Dragons,” now finds itself more dependent on an old foe than on its staunchest ally.
On an official political and military level, Taiwan and the People’s Republic of China remain bitter and volatile opponents.
Earlier this year, Beijing assailed what it said was an American violation of the U.S. “one-China policy” in allowing Taiwanese President Lee Teng-hui to visit Upstate New York. China then staged military exercises in the Taiwan straits designed to show its resolve to recapture the island by force if the Taipei government advocates independence.
But in economic terms, the two historic rivals, split by the 1945-1949 civil war between the Nationalists and the Communists, are rapidly combining their capital, labor and resources.
This economic reunification has been largely masked by the constant exchange of political polemic and military brinkmanship by the two regimes. But it has far-reaching political consequences that will probably shape how Taiwan proceeds with its democratization and how China enters the post-Communist era.
In the longer term, the historic shift could alter half a century of a hostile political relationship between China and Taiwan.
“As Taiwan investment on the mainland has increased,” said Thomas Chen, director of China Economic Research Consulting Co. in Hong Kong, “the mainland, Taiwan and Hong Kong have become more closely linked together, and it is already difficult for any man-made factor to split them apart.”
Not surprisingly, Communist Party officials on the mainland have latched upon the linkage as the fulfillment of a Marxist prophecy.
“Marxism teaches that economics is fundamental,” said Liao Caifang, a trade official in Fujian province. “There are still some restrictions on the Taiwan side, but economic reunification is taking place.”
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According to Chung Chin, an economist at the Chung Hua Institute of Economic Research in Taipei, the migration of Taiwanese capital and businesses to the mainland has come in two waves. The first, starting in 1989, involved the movement of labor-intensive industries such as shoe manufacturing and textiles. That was mainly the result of Taiwan’s rapidly rising standard of living.
With a 1995 per capita income exceeding $12,000, Taiwan has priced itself out of labor-intensive manufacturing. For many companies, it was either move to a cheaper labor market or die.
A typical example of a “first wave” company is the Taiwanese Ching Luh Group Co., which manufactures sports shoes for Reebok, Adidas and Mizuna. Originally based entirely in Taiwan, Ching Luh moved most of its manufacturing to China in 1989. The company now employs 10,000 in two plants, one in Guangdong province and another near Fuzhou in the Mawei High-Tech Development Zone.
In one month, the two Ching Luh factories produce 900,000 pairs of shoes destined for markets in the United States and Europe. Almost all the raw materials and “inputs” are imported from Taiwan and Japan before they are sewn together in China. Hsiao Chiu-tsai, assistant manager of the Ching Luh plant in Mawei, said the company once employed 3,000 workers in Taiwan. In recent years, he said, the number has dwindled to fewer than 700.
Alarmed by the rate and extent of Taiwanese business investment on the mainland, the Taiwan government encouraged companies to diversify investments in other parts of Asia, as well as in Mexico and Central America.
But after an initial flurry of Taiwanese investment in Malaysia, Thailand and Indonesia from 1990 to 1993, the main destination for Taiwanese capital has shifted back to China. A 1994 survey by the Taiwan Economic Daily newspaper showed that nearly 60% of Taiwanese manufacturers preferred China and Hong Kong for investments.
“China is easier because both sides speak the same language,” said James Lin, a vice president of the Bank of California in Taipei.
According to economist Chung Chin, the second wave of Taiwanese investment began about two years ago. In this wave, some of the biggest names in Taiwanese industry have committed to major investments on the mainland.
Unlike the earlier export-oriented investments, concentrated in mainland coastal areas opposite Taiwan, the new projects are mostly in the interior and aimed at the Chinese market.
“As investment in the mainland increased in amount,” said Hong Kong consultant Chen, “its composition changed from short-term, low-risk, labor-intensive processing enterprises in the coastal areas to petrochemicals, machinery, electronics . . . and other capital- and technology-intensive ventures, further and further inland.”
Ultimately, Chen said, the high stakes involved in the mainland investment will create allies for China among Taiwanese executives.
“Politics follows economic interests,” he said. “You will see a gradual shifting in their loyalty away from the Taiwanese government because their market is now in China.”
