Taiwan Restricts Chinese Investment Amid Trade Pact Review

Taiwan announced stricter rules for investment projects by Chinese companies as President Ma Ying-jeou seeks to overcome lawmaker resistance to legislation that would boost economic ties with China.

In new rules effective today, the Ministry of Economic Affairs’ Investment Commission, which vets proposals for China investments, said it won’t approve transactions deemed politically sensitive and will now require more Chinese-invested companies to report financial information, according to a commission statement yesterday.

The new restrictions come as lawmakers prepare to consider a trade accord signed between Taiwan and China in June that would open up as many as 80 sectors, including banking, brokerages and e-commerce. The government is refining existing rules on Chinese investment based on input from various groups, said Chu Ping, a director at Taiwan’s Investment Commission.

“As the services pact is still under legislative review, the government wants to reduce space for opposition,” said Leon Chu, a Taipei-based economist at Jih Sun Securities Co.

Taiwan’s opposition party, concerned that Chinese competition will hurt domestic industries, called for a detailed review of each provision of the trade agreement, which allows certain industries to hold controlling stakes in joint ventures across the Taiwan Strait. Ma’s administration has offered support to industries such as traditional Chinese medicine and beauty salons as part of its outreach campaign for the deal.

Sensitive Enterprises

Enterprises judged by the commission to be politically, socially or culturally sensitive will have their investment licenses revoked, the Investment Commission said yesterday. The rule also applies to companies that create monopolies, threaten national security, or damage economic development or financial stability.

Chinese companies with paid-in capital of more than NT$30 million ($1 million) must now submit financial statements to regulators, compared with a previous threshold of NT$80 million, according to yesterday’s statement.

The commission also said the government won’t approve any stake sales by Chinese-invested corporates if they affect national security or the public interest.

Deal Collapses

Existing restrictions on telecommunications assets caused the collapse of China Mobile Ltd.’s plan to buy part of Far EasTone Telecommunications Co., the first investment by a Chinese state-owned company in Taiwan in six decades. The companies waited four years for Taiwan to lift the bans before abandoning the plan.

The planned $670 million deal by China’s biggest bank by assets, Industrial & Commercial Bank of China Ltd., to take a 20 percent stake in Taiwan’s Sinopac Financial Holdings Co. is in limbo, pending pending passage of the services trade pact and regulatory sign-off.

The Taipei-based Economic Daily News reported Oct. 25 the trade agreement is unlikely to pass the legislature by the end of this year based on the schedule of public hearings.

Tensions between China and Taiwan eased after Ma took office in 2008 and worked to build cross-strait economic ties. The governments have ruled in parallel since 1949, when the Kuomintang government fled to Taiwan during a civil war against Communist forces. There are currently 275 China-invested projects in Taiwan, according to the Investment Commission’s statement.

China President Xi Jinping said in October at the Asia-Pacific Economic Cooperation summit that the two sides should resolve their political disagreements and avoid passing the problem onto future generations, the official Xinhua News Agency reported. Taiwan’s defense ministry last month predicted China’s military will be able to successfully invade Taiwan by 2020.

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