20100613 Bringing businesses back to Taiwan

Bringing businesses back to Taiwan

Sunday, Jun 13, 2010, Page 8

Recent strikes at some foreign-owned Chinese factories to demand wage increases have drawn a lot of attention in the business world.

Chinese policymakers are worried higher wages will deter foreign investment. The Chinese State Council’s Taiwan Affairs Office Director Wang Yi (王毅) was reportedly to meet representatives of Taiwanese business associations from various provinces this weekend to discuss the matter.

Across the Taiwan Strait, however, officials in Taipei are wondering if China-based Taiwanese companies will now choose to invest in their home market.

Taiwan’s government obviously senses an opportunity to help boost the nation’s economy. The Ministry of Economic Affairs said on Friday that it was planning to organize an investment summit on Tuesday to brief overseas Taiwanese businesses about the changing domestic investment environment and to offer them customized assistance to invest back home.

Premier Wu Den-yih (吳敦義) is also scheduled to dine with leaders of the nation’s six major business associations on Tuesday night, accompanied by his economic and finance ministers, to discuss how to encourage more Taiwanese companies to return from China.

As business challenges are now rising in China, including surges in wages and land prices, as well as rampant intellectual property theft and other violations, the government’s quick response shows it is sensitive to issues that have concerned businesses recently.

The problem is that the government needs a reality check. It must think seriously about what type of investments it wants from overseas Taiwanese businesses.

By any account, Taiwan’s land and labor costs, as well as other operating expenses, are higher than those in China and other Southeast Asian countries. Even though the government has in recent years lowered land prices in major industrial parks to make it easier for prospective investors to acquire factory space, many businesses are not suitable for Taiwan if they plan to provide the same low-paying, physically demanding and environmentally damaging work that they offer in China.

The government will not find it easy to get overseas Taiwanese companies to return home unless it moves fast to relax restrictive regulations on businesses, especially those regarding the quota for foreign labor and the minimum wage in free-trade port areas and special economic zones.

The government plans to set up several free-trade port areas and special economic zones to accommodate overseas Taiwanese companies, as it believes made-in-Taiwan goods will have higher added value than those made in China.

But if the free-trade port areas and special economic zones cannot provide better incentives in terms of foreign labor quotas and a lower minimum wage cap, they will not interest overseas Taiwanese businesses. What has complicated this issue, however, is growing pressure from labor rights groups to relax foreign labor regulations inside the special trade zones.

Finally, over the past two years, the government has lowered inheritance and gift taxes, as well as personal and business income taxes, to generate a substantial increase in the inflow of capital from overseas Taiwanese businesses.

However, much of this capital has been invested in the real estate and stock markets, causing concerns about asset bubbles and indicating a lack of interest among overseas Taiwanese businesses in contributing to the real economy. Is the government ready to welcome them this time?