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Taiwan Considers Removal of Economic Limits - 2001-08-14

Taiwan's slumping economy is causing the Taipei government to seriously consider a proposal to remove limits on how much a Taiwan-based company can invest in mainland China. The move could pave the way for politically significant talks to restore direct transport, commercial and postal links, which have been cut off for more than five decades.

The recently-formed Presidential Economic Development Advisory Council has told the government that the investment cap of $50 million imposed on every Taiwanese company should be removed immediately.

The advisory council made up of academics, government representatives and businessmen says the limit is stifling the growth of Taiwan firms wishing to take full advantage of China's low costs and booming economy. The council believes the annual $10 billion Taiwanese companies now invest in the mainland is not enough to spur economic growth at home.

Taipei imposed the investment limit in 1996, not for political reasons, but as a way to ensure that enough investment money stayed in Taiwan to further develop its high-flying technology sector. Thanks to strong demand from the United States, Taiwan, at the time, had one of the strongest economies in Asia. But the current global slowdown has severely battered Taiwan. Its industrial output in June was the worst in 26 years. Last month, exports were down 28 percent compared to last July's figure.

Economist Chi Lo at Standard Chartered Bank in Hong Kong says for many Taiwan companies, the move to China is now a matter of survival. "Overall business costs in China are much lower than in Taiwan. Taiwanese companies can have a low-cost production base from which they can export, either back to Taiwan or to other economies," he said. " Also, China has a big domestic market that will feed Taiwanese investments in China. So, the long-term impact is positive. But in the short term, there will be some pain because the leakage of investment from Taiwan to China is going to be a drag on the economy and increase the unemployment rate."

Mr. Lo believes the cap on investment eventually would have been lifted even without an economic crisis. He says Taiwan's likely entry into the World Trade Organization - along with China's expected entry later this year would have forced Taipei to fully open its doors to mainland trade and investments.

The increased contact could then open serious bilateral talks to restore transport and communication links, severed when Chinese nationalists fled to Taiwan after their defeat by the Communists in 1949. But political tensions between Beijing and Taipei have hampered attempts to begin such talks. The situation was aggravated last year after Taiwan elected President Chen Shui-bian on a pro-independence platform. Beijing claims Taiwan is part of a sovereign China.