Taiwan Focus: Interview - facilitating cross-strait investments

Taiwan Focus: Interview - facilitating cross-strait investments

C Y Huang, Chairman of the Taiwan Mergers & Acquisitions and Private Equity Council (MAPE) spoke to David Tring about the Council’s role in assisting cross-strait investments, the deals they have worked on and outlook for relations

Issue: January/February 2013

What is the history and mission of the Council?

The Council was founded three and half years ago and its main purpose is to promote general understanding of Taiwan M&A and PE. We also lobby on behalf of members with the regulatory authorities. For example, in 2011 we assisted Kohlberg Kravis Roberts (KKR), when they were trying to take the electronics component manufacturer Yageo private. We lobbied very hard with the government authorities. The Council also interacts with counterpart organisations in mainland China, Hong Kong, Japan and other places.

What is the role of the Council when it comes to cross-strait investments?

We are actively promoting PRC investments into Taiwan. Last year, we published a book on how to invest in Taiwan. The book comprises 57 chapters covering every aspect of investments from regulatory to financial and legal. The Council helps PRC companies find partners for their investments in Taiwan. For example, we worked on a leading deal between an SOE that invested and formed a joint venture (JV) with a Taiwanese company. The JV involved Beijing Enterprise Holdings, which manufactures the popular brand Yanjing Beer. The company came to Taiwan about two years ago and the Council helped them locate the Taiwanese partner AGV, one of the leading food and beverage companies in Taiwan. AGV helps to distribute Yanjing Beer in Taiwan and at the same time Beijing Enterprise also formed a joint venture with AGV’s subsidiary in Beijing, producing dairy products.

How has the Investor Protection Agreement changed investments?

The Investor Protection Agreement was signed in August last year and it is a significant step for cross-strait investments. The Agreement provides PRC investors with more confidence to invest in Taiwan. This is one of the reasons we are have seen three leading PRC companies make sizable investments in Taiwan recently. For example, the Foshan Group in Shanghai paid $12 million for a 20% stake in the pineapple pastry company Vigor. China’s largest LED manufacturer based in Fujian province, San An, invested $80 million into FOREPI. The A-Share-listed company LUXSHARE-ICT also invested $15 million into Taiwan’s SpeedTech, which makes connectors.

I would not say the increase in investments is a direct result of the Investor Protection Agreement, but it has had the effect of boosting PRC investors’ confidence. In the past three years the Taiwanese government has announced three batches of investments, which opened more industries to PRC investment. But the results were pretty minimal. What has happened in the last month or so is quite significant, as leading private sector companies, who are more sizeable, are finally making substantial investments into Taiwan.

What is the outlook for investments?

The trend is definitely that there will be more deals. We are still at the beginning stage for investment. The PRC government is supportive and we are seeing the Taiwan Affairs Office and the Ministry of Commerce urging Taiwan to open-up to investments. The problem is more on the Taiwan side. While Taiwan is welcoming the inflow of capital from the PRC, there are also different voices in Taiwan that are afraid this could be an economic threat. They fear Taiwan will become too dependent or reliant on China. But considering the longer term, it is a non-stop trend when it comes to investment.

What are some of the main issues investors face?

PRC companies do not always understand Taiwan and they do not always have the need to invest in Taiwan. What they are interested in is Taiwan’s knowledge, management skills and technology, not the market, because it is too small. However, if Taiwan becomes too restrictive, two things will happen. Firstly, PRC companies will choose to form JVs with Taiwanese companies overseas like in Hong Kong or the Cayman Islands, rather than remitting money into Taiwan. Secondly, PRC companies will poach people from Taiwan. This has negative consequences, because without the expertise and experience of Taiwanese talents, Taiwan’s overall value is diminished. One example is last year when TCL’s subsidiary CSOT in Shenzhen poached 200 people from Honghai group, owner of Chi Mei Optical, which manufactures LCD panels.

Another issue is that the trade flow is not equal. Taiwanese companies can invest in mainland China with almost no restrictions at all, but PRC companies investing in Taiwan face strict regulations, making investments unbalanced. One of the restrictions, for example, is that PRC banks can only take 5% equity stake in a Taiwan bank. Taiwan should really open up more and we should not be afraid of being controlled by PRC investment. The problem is also that Taiwan only allows PRC enterprises to invest in the outdated industries like textiles, but restricts investments in the emerging industries like LEDs or LCD panels. Taiwan believes these industries are so unique and special that investment should be restricted. It is only when Taiwan gets into trouble that things change. Last year Taiwan was criticised for its LCD panel investment restrictions and government officials are now talking about a relaxation in policy to potentially allow PRC investors to take majority control. But a lot of investors are annoyed – they do not have to invest in Taiwan and when it is so difficult, investors do not want to bother.

What can Taiwan do to attract mainland investment?

There definitely has to be greater opening of the industries and fewer restrictions – this is the major issue. Another thing Taiwan can do and has started, but needs to address more seriously, relates to human capital. Taiwan is facing a so-called brain drain, where Taiwanese talent is moving abroad. But Taiwan has also been discriminating against PRC citizens to work here. However, the government is promoting a free economic zone that would allow PRC citizens to enter and work in Taiwan. It is not just a free trade of money, but also a free trade of people that is needed. Mentality is also a problem. There is still this mentality in Taiwan that anything related with China is taboo. The opposition party talks about the negatives and government officials are afraid of making decisions. This will ultimately hurt Taiwan. The first thing the government will look at with any foreign investment is if there are any Chinese elements within the company. If a Chinese company bought into a US company, even a 5% stake, the Investment Commission will scrutinise the investment and could stop or delay the application. More international companies will have Chinese elements in the future and if Taiwan continues as it has done in the past, the economy will suffer and will not be able to compete with other emerging economies in Asia.

By David Tring

Taiwan Focus 2013:

M&A opportunities and challenges

Sourcing funds through IPOs

Gateway to investments in greater China

Dismissing employees

Amended Patent Act brings key changes

How to comply with the Personal Information Protection Act

Resolving cross-strait investments

Data resource:
http://www.chinalawandpractice.com/Article/3142328/Channel/203650/Taiwan-Focus-Interview-facilitating-cross-strait-investments.html