Taiwan Economic Planner Supports Easing Mainland Curbs

Taiwan is prepared to relax its curbs on investments in its big neighbouring mainland despite cross-strait tensions in order to preserve its competitiveness, said the island's top economic planner.

Taiwan imposes an investment ceiling of US$50 million per project on the mainland and bans firms from investing in strategic industries.

But Chen Po-chih, the chairman of the ``Council for Economic Planning and Development,'' said Taiwan would be increasingly inclined to approve higher-value deals provided a cost-benefit analysis showed they were in the island's interest.

"In the future we will probably allow investment projects with a higher value," Chen told Reuters.

"If our firms are making an effort to globalize and the mainland is one of the links, in my own opinion we will allow them to invest regardless of the amount."

Inexpensive land and labour as well as the bond of a common language and culture have already made the mainland a magnet for Taiwanese firms. Investment has exceeded $40 billion since rapprochement between the two sides of the Straits began in the late 1980s.

Besides cutting production costs, Chen said he hoped extra investment would lead to warmer political ties.

However, Chen said Taiwan would be reluctant to approve the transfer of technology and knowhow to the mainland by industries where the island is very competitive and enjoys a leading global role.

Plans for a $1.6 billion chip fabrication plant in Shanghai, a joint venture between Shanghai and Taiwan plastics tycoon Wang Yung-ching, are likely to be a litmus test of the Taiwan authority's policy on mainland investment.

Asked whether the project would get the green light, Chen said: "It depends on whether this industry has to invest there or not. We are still investigating."

Chen was speaking at the end of a traumatic week for the young ``government of Chen Shui-ben'', who brought in a new ``premier'' and ``finance minister'' to tackle a raft of simmering economic and financial problems.

Since Chen's Democratic Progressive Party took office in May, ending 55 years of Nationalist Party rule, his government's economic policies have been widely criticised as confused and indecisive.

Despite Taiwan's strong economic fundamentals, a crisis of confidence has dragged the stock market down almost 39 percent from the year's highs.

Because many firms have borrowed heavily against the collateral of shares, fears abound of corporate insolvencies that would raise the level of banks' non-perfoming loans and make it even harder for lower-quality borrowers to obtain credit.

The economic planner admitted the government had made mistakes. For instance, he said it should not have invested so much energy in tackling two controversial issues -- whether to complete Taiwan's fourth nuclear plant and whether to set up an island wide pension fund.

But Chen struck a cautiously optimistic tone about the health of Taiwan's banks. Non-performing loans (NPLs), which officially stood at 5.97 percent of total loans at the end of the second quarter, would turn out to be "less than 10 percent", he said.

The difficulties of those banks still majority-owned by the local government were manageable, although the government would hold bank managers and high-ranking officials accountable for the souring of loans that had been made on political not commercial grounds.

"We have to see why they made these loans in the beginning and some political connections will be revealed," he said.

Chen acknowledged that two or three private sector banks were in big trouble but said potential buyers were in the wings.

"I know at least one set of negotiations is going on. One bank with negative net value is talking with another private bank that is willing to buy this bank in trouble -- of course at a very low price," he said.

Foreign banks can take stakes of no more than 15 percent in local financial institutions, but Chen said he favoured relaxing the curbs to raise the level of expertise and innovation in Taiwan's still underdeveloped financial sector. (Source: chinadaily.com.cn)



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