Rebuilding A Tiger: Who'll Get The Lion's Share?

With cash reserves at $75 billion, Taiwan boasts the second-richest treasury in the world after Japan. But you'd never know it walking through central Taipei, the capital. Here, cars are triple-parked on narrow streets, and traffic jams are so horrible that motorcycles barrel down broken sidewalks. The exhaust fumes create a brown haze that's so gritty you have to wash up each time you come inside. Piles of garbage dot the capital's leafy boulevards, and to call a friend from a public phone can mean a five-minute wait for a dial tone.

Now, all that's going to change. In January, the island's Cabinet approved a plan to pump $303 billion into the country's roads, phones, transit services, and environmental facilities over the next six years (table). This huge project is roughly three times the size of rebuilding war-torn Kuwait. It has already set off an international scramble to win potentially lucrative contracts.

RUNDOWN. Taiwan's Premier, General Hau Pei-tsun, is convinced the mammoth investment will stimulate Taiwan's slowing export-oriented economy and transform this Asian tiger of 19 million into a high-tech dynamo. With 779 projects in everything from an extensive subway system to nuclear reactors, Hau is ready to lead Taiwan into its most ambitious renewal program ever.

If all goes as planned, the backward Taiwan will rank among the 20 countries with the highest standards of living by the end of the decade. Taipei's heavily used tarmacs will get a facelift, as the country expands nine airport facilities. The smog, among Asia's worst, will be filtered by the latest environmental equipment. By creating new jobs, government officials expect per-capita income to rise 75%, to $14,000.

Moreover, young couples who cannot afford to pay an average of $200,000 for a two-bedroom apartment will be able to purchase a house after the government invests a massive $42.4 billion in public housing. Business executives shuttling from Taipei to the southern city of Kaohsiung will cut their travel time from five hours to 90 minutes on a high-speed railway. Within Taipei itself, commuting could be cut from two hours during rush hour to a five-minute subway ride.

Taiwan also hopes its $303 billion bonanza will improve its often prickly relations with the U. S., Japan, and Western Europe. That could help Taiwan break out of the diplomatic isolation that the rival Communist government in Beijing has imposed on it.

In this carefully honed balancing act, Taiwan is calculating how to dole out chunks of its megaprogram to foreign competitors. If American contractors and suppliers get a good portion of the work, that could ease Taiwan's perennial trade friction with Washington. Taipei has a standing "Buy America" policy left over from when Taiwan's trade surplus peaked at $17.2 billion five years ago. It hovered at $11.2 billion last year.

PRO-AMERICAN? The Taiwanese are also planning to throw business to the French as a way to secure imports once Europe becomes a single market in 1992. At the same time, Taiwan's officials have a "Don't Buy Japan" policy--at least on paper. Taipei is eager to reduce its record $8 billion deficit with Japan, which nevertheless shows every sign of wanting a big piece of the action.

Hau's vision for remaking the island has its critics. Some officials of Taiwan's Finance Ministry claim the program is too grandiose and needs scaling back. Others say it may be too late to relieve critical problems such as air pollution and transportation bottlenecks. The plan will also result in a record budget deficit of $11 billion in the first year alone. Taiwan's legislature will begin debating the scheme soon.

But most officials insist the program is on track. Up to 60% of the projects already have received approval or are in the works. "We can afford this relatively easily," says Shirley Kuo, director of the government's Council for Economic Planning & Development. Taipei intends to finance up to $150 billion with government bonds.

Government officials argue that the spending will counter fears of recession that have gripped the country after a decade of nearly double-digit growth from its export boom. That boom sputtered last year in the face of a strong currency, higher domestic labor costs, and an $11 billion rush into offshore manufacturing by thousands of Taiwanese companies. In a kind of wealth crisis, tons of nervous money sent the stock market soaring and then crashing. Overall, the economy suffered an eight-year low of 5.3% growth last year.

For its part, the U. S. is looking for clues to just how favorable the Buy America policy will be. In some cases, the Taiwanese are showing signs of leaning to U. S. companies. De Leuw, Cather International in Washington, D. C., recently won a $35 million contact to serve as consultants for the $6.5 billion mass-transit system in Kaohsiung over two other U. S. finalists: Bechtel Group and Louis Berger International Inc., of East Orange, N. J.

To make it big in Taiwan, however, U. S. businesses will have to sharpen their act so they can take on European and Japanese groups that are able to offer packages of services and products. Even though Parsons Brinckerhoff Inc. designed part of Taipei's metro system, a small Pittsburgh company called Allegheny Rail Products Inc. couldn't get a piece of the action because no U. S. contractors bid for the deal. Instead the French and their suppliers walked off with the plum.

The biggest plus for the U. S. is Taiwan's stated desire to keep Japan out. Taipei officials worry that huge Japanese gains would allow Tokyo to corner key sectors of Taiwan's economy. But there are many locally born Taiwanese, particularly those over 60 years of age, who feel comfortable with the Japanese because they were educated during five decades of Japanese occupation. Prominent Taiwanese companies, including Evergreen, Formosa Plastics, and Tatung, have partnerships with Japanese companies and could now act as official bidders for deals, circumventing the government's Don't Buy Japan policy.

The Japanese have cultivated these relationships "from the ground up," explains Tsui Tsu-kan, vice-chairman of the Council for Economic Planning & Development. That differs from the American "top-down" approach, using members of Congress and U. S. trade officials to press deals with Taipei. "While the U. S. Trade Representative is chasing after turkey parts and Marlboro sales, the Japanese companies are making friends with the low-level engineers drawing up the specifications," says one U. S. energy executive in Taiwan.

As a result, the Japanese are likely to gain at least a portion of the new program. Mitsubishi Heavy Industries Ltd. in January won a contract to build two trash incinerators over U. S. heavyweights Bechtel and Westinghouse, both disqualified early on technicalities. Mysteriously, however, the Mitsubishi bid was larger than the amount Taiwan had budgeted for the project. The fact that Japanese companies can win deals even though they are not the low bidders is a source of frustration to the Americans.

SWEETENING THE DEAL. To get a piece of the boom, the French are holding out the prospect of big diplomatic and economic gains for Taiwan in Europe. Guy Kramer, senior vice-president of France's Matra-Transport, says Taiwan realizes that "if you don't buy from Europe, you can't expect to sell there." There are also French promises of landing rights for Taiwan's China Airlines. In addition, the French are sweetening the deal with the possibility of arms sales to Taiwan, according to American defense industry executives.

Without a doubt, Taiwan will spend its $303 billion so as to maximize its diplomatic bang, and that means it will make gains on the world stage. Equally important, the megaprogram will increase confidence at home. It also will help Taiwan keep pace with Japan and much of the rest of East Asia, which are launching major infrastructure programs of their own. Perhaps the island's ultimate statement is directed at China. Come 1997, when Beijing is scheduled to reclaim control of a shaky Hong Kong, Taiwan will be transforming itself into a new Asian powerhouse.