Mon, May 04, 2009 page8

• EDITORIAL: The politics behind the money

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  After an agreement was reached at the latest round of talks between the Straits Exchange Foundation (SEF) and the Association for Relations Across the Taiwan Strait (ARATS) to open Taiwan to Chinese investment, the Ministry of Economic Affairs said the government planned to allow Chinese investment in 98 categories, including air and sea ports, infrastructure, manufacturing and the service sector. The Financial Supervisory Commission said Chinese institutional investors could purchase up to 10 percent of stakes in companies listed on the Taiwan Stock Exchange. The TAIEX stock index has risen 6.47 percent on speculation about potential investment, including China Mobile’s (中國移動) move to invest in Far EasTone (遠傳電信).

  The rise in stock prices is heartening, but as the bourse reflects the state of the economy, any ups and downs that stray from the fundamentals won’t last long. Right now, those fundamentals are worse than ever — there is a recession, unemployment is soaring, exports are down and the fiscal deficit is troubling. Last month, the IMF predicted negative 7.5 percent growth for Taiwan this year and zero growth next year.

  Before Taiwan’s fundamentals improve, any rebound on the stock market can only be the short-term result of speculation. Even if Chinese companies are eyeing Taiwan’s stock market and China-based Taiwanese businesspeople want to invest at home, this will not be sufficient to turn the economy around. Meanwhile, attributing the rise in the stock market to cross-strait reconciliation could lead to unrealistic expectations and slacken efforts to revive the economy.

  Taiwan has no lack of funds, so attracting Chinese capital is not needed, nor will opening up to Chinese investors necessarily be good for Taiwan. Chinese investment will not be purely business — the ultimate goal from Beijing’s perspective is to trap Taiwan. China has enormous foreign currency reserves — more than enough for a spending spree in Taiwan. The purpose may be to obtain key technologies or secure a controlling interest in Taiwanese financial, telecommunications, aeronautics, media, construction and high-tech companies. Once China has a hold on these economic lifelines, Taiwan will find itself in the same position as Hong Kong in the 1990s — shackled by China, with no way out.

  Now that the government has thrown open the doors, Chinese investment will pour in. Although the government says there will be limits on this investment, past experience shows that such constraints have limited effect.

  Former president Lee Teng-hui (李登輝) instituted a policy of “go slow and be patient,” and his successor, Chen Shui-bian (陳水扁), called for “effective management and active opening.” Lee and Chen’s policies were both meant to keep out Chinese capital, but it arrived nonetheless, disguised as foreign or Hong Kong capital or investment by China-based Taiwanese businesses. Now Ma has opened Pandora’s box.

  In the short term, it has boosted stock prices, but as time goes by there will be negative consequences. There will be friction and competition between the two sides and there will be mergers. Rather than rejoicing, the public should ask where Ma’s policies will take Taiwan in the long term.
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