The New Hong Kong? Don't Hold Your Breath

For five years, Federal Express Corp. has been trying to set up a $100 million regional distribution center in Taiwan. Although the project has attracted some supporters within the government, Taiwan's creaky bureaucracy has yet to approve it. FedEx is losing patience: It is setting up a branch in the Philippines while negotiations with Taipei continue. "If they sit too long," warns Tim Ichinose, managing director for FedEx Taiwan, "they're going to lose."

With Hong Kong facing an uncertain future after its return to Chinese rule just two years from now, Taiwanese officials are promoting their island as a natural business hub for the fast-growing Pacific Rim. But as the FedEx case shows, they still have a long way to go. Multinationals, many of which are being wooed with attractive offers from other countries in the region, are skeptical about moving to a country where the telecommunications, finance, and service sectors in many cases remain closed to foreign companies.

To help convince them, the government of Taiwan is trying to pass dozens of laws to make it easier for foreigners to use the island as a regional headquarters. The new rules would reduce restrictions on foreign investment and would let foreign companies issue bonds in Taiwan. The government also wants to lift visa restrictions on expatriate workers. One move already announced: Taipei is lifting its 45-year ban on direct transportation links with China.

PORT OF CALL. The ban's end is significant because Taipei realizes that the nation's future as a regional center hinges on direct transportation and telecom links with its communist neighbor. Under a plan passed in January, the southern Taiwanese port of Kaohsiung will be the first of several harbors to serve as transshipment centers for ships on their way to China. The plan is expected to go into effect by yearend, with direct air links close behind.

The huge Chinese market has attracted Germany's Bayer to Taiwan. The chemical giant wants to build a $338 million polyurethane factory in Taichung, Taiwan's closest major port to China. Top officials have thrown their support behind the investment proposal--but locals have yet to get on board. That means Bayer has been unable to acquire the public land it needs.

Another Taiwanese attraction is its large base of middle-class consumers. For instance, Citibank has more than 700,000 active bank-card users in Taiwan, second only to the U.S. The size of the market helped Citibank decide to set up a regional credit-card processing center in Taiwan. Starting in early 1996, an office in Taiwan and another in Singapore will authorize purchases for Citibank's 4 million cardholders in 14 Asian countries.

The Taiwan market appeals to other companies that see it as a stepping- stone to China. Taiwan's cable-television industry has lured the likes of Time Warner Inc. and Turner Broadcasting System Inc., which are using the island's consumers to test Chinese-language programs. Turner launched its 24-hour Cartoon Network in Taiwan last October, the first in Asia. The company eventually wants to air in China the dubbed cartoons it originally created for Taiwan.

As multinationals are quick to point out, though, many restrictions on foreigners must be eased before Taiwan can seriously claim to be a regional center. Foreign banks and securities firms are not satisfied by changes that have been made, including lifting the cap on foreign investment in the Taiwan Stock Exchange from 10% of company equity to 12%. The liberalization pace is too slow, says Christian Murck, managing director at Chemical Bank Taiwan. "Taiwan has been a self-contained, closed market for a long time," he says.

NOW OR NEVER. Some officials know that they need to act faster. On Mar. 6, the Cabinet-level Council for Economic Planning & Development (CEPD) launched a new service center to help multinationals looking to expand operations in Taiwan. The center's establishment was a key recommendation included in a study by McKinsey & Co. that the CEPD commissioned. The report warns that Taiwan has just three to five years to open its economy and become a regional center. "If we don't do this now, it's not going to happen," says Paul Hsu, a prominent Taipei lawyer who worked on the McKinsey report.

For some, the message still hasn't gotten through. Tuition at the Taipei American School, favored by expats, may soon jump drastically because the state-owned Bank of Taiwan now claims the school owes it $9 million in back rent. In their effort to woo foreigners, Taiwan's officials are finding that sometimes bureaucracy may be their own worst enemy.

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