Taiwan: A bonanza from the old enemy.

Taiwan: A bonanza from the old enemy. - Direct exports to China are still officially banned but they are rocketing. Peter Wickenden reports.

Last Updated: 31 Aug 2010

Direct exports to China are still officially banned but they are rocketing. Peter Wickenden reports.

Taiwan, for 40 years one of the most staunchly anti-communist countries, is now having to face the uncomfortable fact that its economy is becoming hooked on China. This year has seen a dramatic twisting of the island's US$120 billion a year foreign trade away from traditional markets in North America towards China and other neighbours.

After a weak performance (by its own standards) last year when export growth dropped from 9% to 2%, and the economy expanded only 5.29%, the Government is confident of a new burst of growth averaging 6% for the next five years. It recently raised its forecast for this year to 7%.

Exports have reached new monthly highs in the past three months in a row, topping US$7 billion for July. Over the first seven months exports have surged by 14.5% from last year to US$43 billion and imports have risen by 14% to US$36.3 billion. Its overall trade surplus so far this year is up nearly 9% at US$6.92 billion.

However, a closer look at the figures reveals that the surplus with the United States is down by over 20% this year, and exports to the Chinese mainland are rocketing on the back of China's own export boom. Indirect trade with China has soared from virtually nothing five years ago to US$4.04 billion last year, and is expected to top US$5 billion this year. Taiwanese companies escaping rising labour costs and ever stricter pollution controls at home have invested more than US$2 billion in China in the past three years.

Much to Taipei's consternation, the island has thus become a major source of machine tools, electrical and electronic components, textiles and upstream plastic raw materials to Chinese exporters, even though direct trade is still banned. But Taiwanese companies are also positioning themselves to gain from China's expanding domestic market, particularly for consumer goods, motorcycles and processed foods. Faced with increasing pressure from powerful industrial groups, Taipei is likely to open up direct trade across the Taiwan Strait in the next two to three years.

Exports will support strong economic growth over the next few years, and many European companies are looking at forming joint ventures with Taiwanese partners to tap the Chinese market. In addition, the island's dynamic economy will be boosted by the Government's massive public spending plans, and there are opportunities for British companies that are sufficiently aggressive. The Six Year National Development Plan, which officially got underway on July 1, calls for the spending of no less than US$303 billion on improving the country's transport infrastructure, power generation, communications, sanitation and leisure facilities.

Boasting the world's second largest pile of foreign exchange reserves at more than US$73 billion, little foreign debt and a top-notch credit rating, Taiwan should have no problem funding its ambitious plan. The Anglo-Taiwan Trade Committee (ATTC), Britain's semi-official representative office in Taipei, sees a host of direct business opportunities for British companies in the Plan. These include rolling stock, signalling and other railway equipment, power generation, waste water treatment and other pollution control technology, and heavy and light precision engineering and construction.

If the Plan generates the economic boom that the Government is hoping for, per capita GNP should rise from US$7,997 last year to around US$15,000 by 1996. There should therefore be a further spin-off for British business in high quality consumer goods, processed foods, wearing apparel and cars. During a short-lived but frenzied consumer boom driven largely by gains from the island's rampant stock market in 1988-89, cash-flush Taiwanese consumers shunned locally made products for imported goods of the best quality.

On the services side, there are potential opportunities in consumer and investment banking, insurance, financial consulting and the securities industry, but European activity in these fields is rather restricted. Liberalisation is moving ahead but there is no timetable. Generally speaking, the Taiwanese would rather buy European than Japanese for historical reasons, but whether they buy British depends on how aggressive the British are. For any British businessman arriving in Taipei, the first stop should be the ATTC, which, though it is loth to admit it (due to the lack of diplomatic relations with Taiwan), is backed by the UK Department of Trade and Industry.

Expert advice and assistance are available from the ATTC up to a point. It helps to sponsor promotions of British goods at leading department stores and conducts at least 10 British trade missions to Taiwan a year. The British Business Group Taiwan (BBGT), a semi-formal forum of 50 UK companies operating in Taiwan, and the European Council of Commerce and Trade (ECCT) may also provide useful contacts, the latter for a fee.

Taiwan owes much of its "economic miracle" to foreign investment, and though these days it is more selective, it still tries very hard to attract it. The Industrial Development and Investment Centre, a branch of the Economics Ministry, is a professional and efficient place to start.

Taipei is home to at least half a dozen five-star international hotels. They are all very expensive, with good food, reasonable business centres but somewhat parochial and inferior service in restaurants and rooms. Long-term residence in rooms equipped with basic office equipment is fairly common practice, and a number of companies also offer so-called "instant offices" with secretarial services.

Small country though it is, getting to other parts of Taiwan for business meetings is best done by air. Trains are slow and crowded, while the single north-south expressway is frequently jammed solid for hours at a time due to both lunatic driving habits and sheer volume of traffic.

The island's tourism industry is still in the early stages of development, and is geared chiefly to catering for large groups of Japanese on coach trips. Chaotic and polluted, Taipei has but a handful of cultural and historical sites worth seeing, and this can be arranged by hotels. With more than 40 mountains over 10,000 feet high, the possibilities for guided trekking are among the best in Asia, as is white water rafting and scuba-diving. There is stunning mountain scenery, and excellent beaches in the south and east. For those with time and their own vehicle, it is well worth the trip.

(Peter Wickenden is a Financial Times correspondent.)

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