TAIPEI — Long-time political rivals China and Taiwan signed a deal on Thursday that offers the first-ever legal guarantees to each other’s investors. The agreements reached by top negotiators in Taipei clear the way for wealthy-but-so-far-wary mainland Chinese investors to pump money into Taiwan.
Beijing negotiator Chen Yunlin and his Taiwanese counterpart, Chiang Pin-kung, signed accords to up an arbitration mechanism, gradually open new investment areas and agree to notify the other side within 24 hours if an investor is arrested.
Talks on the protection deals had dragged in the past two years as China and Taiwan, with different legal systems, could not agree on arbitration details. China and Taiwan have no diplomatic relations, giving the protection accord crucial weight.
Chinese institutions interested in Taiwan had held back on fears that a change in the island government from pro-Beijing to anti-Beijing could threaten any investments. Tony Phoo, economist with Standard Chartered Bank in Taipei, says the protection deals will open doors to important Chinese investors.
“That’s definitely going to be helpful in terms of Taiwan’s ability for attracting more Chinese investment, especially from state-owned enterprises," he says. "Given the sensitivity of cross-Strait relations, we are of the view that the IPAs [investment protection agreements] serve as a push for the state-owned enterprises from China, especially those serious investors who are looking to invest in Taiwan.”
Market analysts expect Chinese investors to buy shares of listed Taiwanese companies. High-tech and tourism, a sector that depends largely on Chinese arrivals, would attract investors looking for quick gains. Taiwanese share prices are seen as undervalued despite strong company performances. Jack Huang, partner at the Jones Day law firm in Taipei, says China will buy stocks as well as seek partnerships with efficiently run Taiwanese companies, especially in technology.
“Quite a bit of the investment dollars, either from the Chinese companies or from the Chinese government wealth fund, they will find a decent percentage of that include Taiwan stocks," says Huang. "All things considered, Taiwan stocks are undervalued, Taiwan companies are fundamentally sound. There are Chinese companies and Taiwanese companies in the same line of business and, if they can join hands in one way or another, the scale increases.”
Analysts in Taiwan believe Beijing wants its money pumped into the island’s $431 billion economy to sell a later bid for political reunification. Beijing has claimed sovereignty over Taiwan since the Chinese civil war of the 1940s, when Mao Zedong’s Communists routed Chiang Kai-shek’s Nationalists. Taiwan has been self-ruled since then.
After the island’s president, Ma Ying-jeou, took office in 2008, he shelved political differences to focus on trade and economic deals. He sees business ties with the world's second-leading economy, China, as a way to keep Taiwan competitive against Asian countries that earlier had signed their own investment deals with Beijing. Since 2008, Taiwan and China have built up tourism and cut import tariffs on about 800 items.
Ma’s government has allowed Chinese investors to buy directly into Taiwanese firms in 247 sectors. They can also buy stocks -- up to a 10 percent share in most local firms.
Taiwan’s chief opposition party, which ruled from 2000 to 2008, fears that Chinese investment could force the island to depend too heavily on a political rival. China invested $1 billion in Taiwan in 2010 following a tariff reduction deal signed that year. However, the amount fell in 2011 during a presidential campaign that could have returned the opposition to power. Ma Ying-jeou won a second term in January.
Taiwanese firms have been allowed to do business in China since the 1980s. For them, the accords signed on Thursday will extend protection in usually tough disputes about land rights and worker compensation claims. The agreements are expected to take effect by year’s end.