Chinese Managers Stir Taiwan

They’re crossing the strait to hawk fried chicken, market cellphones and raise tasty Taiwanese pigs. And they’re making Taiwanese wonder whether the economic walls distancing their island from its powerhouse neighbor -- which has 800 missiles pointed in their direction -- should be higher.

As China’s wealth and economic clout expand, a growing number of mainland-born managers are turning up on Taiwan’s shores, many as captains of industry.

The trend bucks the long-standing pattern of Taiwanese managers and investment moving to China. It’s also accentuating a long-simmering debate here about the future of Taiwanese manufacturing, the risk of economic “hollowing out” and ensuring that the island doesn’t become a victim of Chinese economic blackmail.

“These senior managers are tough, aggressive and don’t give up until they win,” read a recent issue of Taiwan’s Business Weekly magazine. “They’re like Tibetan mastiffs, the king of dogs.”

Asian nations are generally willing to let business flow even when political relations deteriorate.

China attracts about 70% of Taiwan’s outbound investment and at any given time is hosting an estimated 1 million of the island’s businesspeople. Even as the two governments squabble -- they separated in 1949 after a protracted civil war -- Chinese communities trip over one another to lay out the red carpet for their counterparts from across the strait.

“We welcome Taiwanese businessmen and hope we can build up our friendship like brothers,” said Liu Zhiqiang, the mayor of Jinzhou, at the opening of a recent Taiwan Week in the northern province of Liaoning that attracted 400 Taiwanese and $104 million in new investment. “Come visit us often.”

The number of mainland-born managers in Taiwan is difficult to pin down, especially because many have U.S. or other foreign passports. Some published reports put the population at nearly 3,000, although that almost certainly includes many people on short-term training visas.

According to Taiwan’s immigration department, 86,785 holders of Chinese passports have residency visas. That includes workers’ family members and other groups.

Many work for multinational companies -- which are relatively free to bring over mainland staff -- including fast food giant KFC, wireless communications company UTStarcom, New York Life Insurance and Thailand’s Charoen Pokphand Group, a producer of ham, bacon and garlic chicken.

“We’re warning our companies to step up to the competition and advising workers that they should get used to having a mainland manager,” said Luo Huai-jia, vice president of the Taiwan Electrical and Electronic Manufacturers Assn., which has been lobbying the government to relax immigration restrictions. “We’re going to see more and more coming.”

Wary of being overrun, the government has kept a tight rein on visas. Executives grouse at delays and inflexible rules, contending that the government should embrace the trend.

“The reality is, there are 1.3 billion people in China and 23 million in Taiwan,” said Peter Sutton, head of Taiwan research with brokerage firm CLSA. “It’s inevitable if you run a regional business, you’re going to transfer them around. We’re not going to stop it. And they’re going to have to live with it.”

Ye Zhou doesn’t look threatening. The Shanghai native, who holds a Chinese passport, lives in Taiwan and works as Asia-Pacific vice president of Alameda, Calif.-based UTStarcom.

Ye greets visitors to his Taipei office with a smile. He jokes about his golf game, talks about his love of Taiwanese food and recounts the good-natured arguments he has with his Taiwanese wife over politics.

When Ye arrived several years ago to set up Starcom’s Taiwan operation, he said, some Taiwanese put up their guard upon learning that he was from the mainland.

Over time, however, as people get to know you personally, they relax, he said.

“We’re all just people,” he said at home in an office with a large fish tank and makeshift putting green. “It’s about getting the best person for the job, no matter what passport they have.”

Ye believes that it is human nature to look at outsiders warily. However, the reputation of mainlanders is improving, he added, especially compared with a decade ago, when they were often portrayed in movies as hicks. China is coming on strong, he continued, adding that Taiwan needs to sharpen its economic edge and stop wasting energy on political infighting.

“If your management team argues every day, how can you get anything done?” he said. “You’re like a spider with legs moving in different directions.”

Taiwanese officials say they’re trying to ease cross-strait immigration and investment restrictions gradually but remain hesitant to snuggle up too closely to their giant neighbor.

“We don’t want to put all our eggs in the China basket,” said Yu Shyi-kuen, chairman of the ruling Democratic Progressive Party. “There’s a view that as long as you invest in China, everything will be all right. Of course, that’s not to say we’re inflexible.”

Officials cite China’s problematic human rights record and say the rule of law is nonexistent. They also worry about the risk of civil unrest and say Beijing might use economic leverage against Taiwanese companies in its ideological battle with the island.

“If China were a democracy, we wouldn’t worry,” said Tsai Ing-wen, deputy prime minister. “They’re still authoritarian, have a powerful propaganda machine and want to see their people stick to certain beliefs.”

Government and industry officials say there have been cases of Taiwanese executives being threatened with tax audits, regulatory pressure and lost contracts for favoring pro-independence candidates in Taiwanese elections. Taiwanese business associations in China have at least one employee assigned to spy on them, they say.

In a case that was widely covered in the Taiwanese media, Chinese officials reportedly pressured managers of Chi Mei Corp., a Taiwanese maker of plastics and semiconductors that has a large plant in China’s Jiangsu province, to renounce their pro-independence stance.

Faced with the loss of lucrative contracts, the reports said, Chi Mei’s founder resigned in 2004 to protect the company’s interests. Last year, Chi Mei published a newspaper ad in support of Beijing’s pro-unification views.

The Taiwanese government prohibits companies from investing more than 40% of their assets in China, hoping to reduce economic vulnerability and better diversify the economy. It forbids “strategic” industries, mostly military-related high-tech sectors, from making any mainland investments. And it blocks Chinese-owned companies from investing in Taiwan.

As part of its diversification agenda, Taiwan also encourages its companies to invest more outside of China, including east Asia, India and America. The authorities use a combination of moral suasion, education, loans and other incentives.

Many companies bridle under the restrictions, however, contending that they’re ineffective and ill-conceived.

The government shouldn’t be trying to route private investment, some say, particularly given its dismal track record. Critics cite the Go initiative of the 1990s, in which dozens of Taiwanese companies were persuaded to set up resource-processing plants in east Asia. All of the operations went under.

“In fact, whenever the government promotes projects, they’ve failed,” said Luo of the electronics association.

Although investing in India looks good on paper as a way to marry Taiwanese hardware and Indian software, that nation’s bureaucracy, underdeveloped manufacturing, poor infrastructure and labor issues make it a tough choice, some say.

“I don’t think by cooperating with India we can diversify away from China,” said Ku Ying-hua, a research fellow with the Chung-Hua Institution for Economic Research in Taipei. “If the government continues using political influence to obstruct or limit investment in China, it won’t change anything. I think Taiwan needs to focus on upgrading its economy and stop blaming our reliance on China.”

Taiwan’s 40% investment restriction is at most a troublesome speed bump, some executives add. Taiwan’s official figures for total investment in China are, at $49 billion, a little more than half of what China records from Taiwan. The difference may be explained by the large number of Taiwanese companies that route money through the Virgin Islands, the Cayman Islands and other tax havens to circumvent restrictions.

New investment in China reached $2.87 billion in the first five months of 2006, a 46% jump over the same period in 2005, Taiwan said in late June.

For larger companies, Taiwan’s rules aren’t so much an impediment as an added expense. However, the rules may frustrate the plans of smaller, low-margin, labor-intensive industries that arguably should relocate.

“Sometimes if you don’t leave, you die,” Ku said. “It’s like holding someone’s neck and preventing them from breathing.”

Taiwanese companies manufacture 84% of the world’s laptopcomputers. Last year, the last factory moved from Taiwan to China under relentless competitive pressure, part of the reason prices have fallen about 25% in recent years.

Mindful of growing demands from the marketplace, business leaders and opposition politicians, the government is reviewing its cross-strait investment, labor and immigration rules with an eye to flexibility.

It’s also scheduled a conference for Thursday and Friday to discuss structural reform, employment, globalization and easing the transition to a service economy. But government doesn’t move as fast as industry does, officials warn, nor should it necessarily do so.

“We want to promote executives coming to Taiwan, improve the living environment and extend work permits and visas,” said Thomas M.F. Yeh, vice chairman of the Council for Economic Planning and Development. But “mainland policy can be quite political. It takes time.”

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Special correspondent Tsai Ting-I contributed to this report.