Cross-strait flows to gather pace after Taiwan poll
Wednesday, 26 March 2008

The flow of tourists, trade and capital between Taiwan and China is set to shift into higher gear after the opposition’s presidential win yesterday, with a slew of cross-strait investment and travel curbs expected to ease, reports Reuters.

Taiwan president-elect Ma Ying-jeou of the more China- friendly Nationalist Party, or Kuomintang (KMT), has pledged to boost business ties with rival China to jumpstart the economy of the self-ruled island Beijing claims as its own.

Major potential measures include allowing direct flights across the Taiwan Strait, and allowing more Chinese tourists and real estate buyers to visit or invest in Taiwan, which could trigger a wave of spending and fund inflows to the island.

Top Taiwan carrier China Airlines, hoteliers such as Formosa International Hotels and retailers selling goods to China could be major beneficiaries, even though imports of workers and agriculture products from China remain unlikely.

“In 2008, the biggest dream is the opening across the strait and it’s time to invest now,” said Billy Yen, Taiwan head of UK property services firm DTZ Holdings Such optimism boosted Taiwan’s main TAIEX share index to a two- week closing high on Friday, with financials, tourism, transport and construction shares leading the way.

The Taiwan dollar also closed at an eight-year high on Friday, after rallying more than 5 percent this year on hopes for improved China ties after the election.

Taiwan’ financial account, including direct investments in the island and abroad, was a deficit in the past two years partly as investors placed large amounts of money overseas amid tense cross-strait relations and low domestic returns.

But that tide is beginning to change and the return of capital could accelerate under the new administration. Taiwan’s financial account deficit halved to $7.1 billion in the fourth quarter of 2007 from a record in the third quarter, and KGI Securities said it could return to a surplus this year.

Ma has pledged to open Taiwan to mainland investors, including real estate buyers, within six months of taking office in May. Ma also promised to relax cross-strait charter flights aimed at bringing more Chinese tourists to Taiwan as soon as July.

Under a new presidency, Citigroup said direct flights will bring more human inflows rather than outflows, as the number of Chinese visitors, mainly tourists, will nearly double to around 600,000 in 2008 and balloon to 1.7 million in 2010.

Direct flights have been banned since the defeated Nationalists fled to Taiwan at the end of a civil war in 1949, though in recent years a limited number of charter flights have been permitted. In addition, if Taiwan’s government loosens further or scraps a rule that restricts Taiwan firms from having no more than 40 percent of their net assets in China, exports to the mainland could rise, boosting the trade surplus by at least 10 percent from last year’s $34.4 billion, KGI Securities said. “Without the investment quota, companies which are at or have exceeded the quota can start to invest in China again at an accelerated pace,” Citi analyst Andre Chang said in a note. Domestic banks were recently allowed to invest in Chinese lenders, while TSMC and other chipmakers that have big exposure to China are set to beef up presence on the mainland to compete with foreign firms there, though some others might think twice.

Laptop PC maker Compal Electronics Inc and electronics parts maker Hon Hai Precision Industry Co, another big investor in China, are shifting part of manufacturing to Vietnam, where labour costs are cheaper than in China. Changes may take time and many of Ma’s China policies still need agreement from Beijing.

And a peace deal to end more than 50 years of hostility will be a slow process, with Ma saying he would only consider an agreement if China stopped aiming missiles at the island.

“Sovereignty and real interests are connected and how to handle it is the new government’s biggest challenge,” said Johnny Chiang, economist at the Taiwan Institute of Economic Research. ($1=T$30.5)

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