Far EasTone Telecommunications announced on Wednesday that it was establishing a strategic alliance with China Mobile, China’s biggest mobile phone company, and would sell 12 percent of its shares to the firm, making China Mobile the first Chinese state-owned company to invest in Taiwan in six decades.
If the transaction proceeds, it would encourage more Chinese investment in Taiwan’s larger companies. Investment in Taiwan’s financial and aviation sectors, which are considered to have similar weight in terms of political sensitivity and market importance, is sure to follow.
Buoyed by positive factors such as the successful trading debut of the Hong Kong-listed Want Want China Holdings via an issue of Taiwan depositary receipts (TDR) and a relaxed policy on China’s qualified domestic institutional investors (QDII) that allows direct investment in Taiwan’s equity markets, local equities the next day rallied by nearly 7 percent — the maximum allowed in one day — and in doing so registered the highest gain the local bourse has seen since 1991.
However, amid the unabated threat to national security and the nation’s growing economic dependence on China, the Far EasTone deal calls into question the program of President Ma Ying-jeou’s (馬英九) government to facilitate cross-strait trade and economic exchanges.
Far EasTone said it was hoping to seek shareholder approval for the deal next month and to complete the transaction by the end of this year. But the deal, as it stands, is not permissible under current regulations because Far EasTone belongs to a category of service industry in which Chinese capital may not invest.
Wednesday’s announcement therefore reflects intensifying attempts by local companies to push for greater engagement with China amid hopes that market forces will make the government amend the regulations.
Taiwan’s government has been under consistent pressure from business to loosen barriers to direct cross-strait economic exchange since former president Chen Shui-bian (陳水扁) was in office. The main difference now is that the pace of cross-strait liberalization is accelerating under Ma.
The Far EasTone deal is not the only example of a Taiwanese company encroaching on government authority rather than playing by the rules. United Microelectronics Corp last week said it wanted to take over Chinese chipmaker He Jian Technology (Suzhou), even though the plan is unlikely to gain government approval.
The government has determined that local semiconductor companies can only operate three eight-inch fabs in China using the less advanced 0.25-micron processing technology — and this quota has already been filled.
UMC’s takeover bid for He Jian, which has one eight-inch fab with 0.18-micron processing technology, is therefore not likely to succeed unless the government amends or lifts this restriction.
A bigger concern associated with the Far EasTone and UMC deals is that the government is exhibiting a wishy-washy attitude and has not formally expressed how it intends to deal with this issue.
While improved cross-strait relations are welcome overall, the Far EasTone and UMC cases show that the Ma government is beginning to face a true test of how it will handle the principles of market fairness and the rule of law in relation to cross-strait trade.
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