Taiwan investors leery of northeastern China

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Taiwan investors leery of northeastern China
By Ting-I Tsai
SHENYANG - Taiwanese investors have mixed feelings toward China's "rust belt" northeast. Some are cashing in on Beijing's policy to rejuvenate the area, while others are pulling out their investments, citing an unfriendly investment environment.
Last July, Shenyang Jinhersheen Auto Parts Co began to remove most of its manufacturing equipment to its base in southern China's Fuzhou city, the provincial capital of
[color=]Fujian
, and downsized its workforce in Shenyang, capital of the northeastern
[color=]Liaoning
province, from some 50 to 20, after two years of frustrating operations.
Jinhersheen, which decided to establish a production line in Shenyang after the Shenyang-based Brilliance Jinbei Auto signed a contract with it in 2003, was one of those Taiwanese companies based in northeastern China that have been unable to adapt to the area's long winter, higher production costs, and bureaucratic red tape. The Taiwanese investors' pullout suggests that Beijing's hopes to revitalize the "rust belt" northeast might not be so easy to realize.
Northeastern China, historically known as Manchuria, consists of three provinces:
[color=]Jilin
,
[color=]Heilongjiang
, and Liaoning; it has been one of the few major areas not swept along by China's rapid economic growth. This is despite the fact that, under the socialist command economy, the northeast used to be the most developed area in China, with a gross domestic product (GDP) more than double that of
[color=]Guangdong
in the south.
In March 2003, the central government in Beijing initiated a policy of "rejuvenating the northeast", partly in an effort to ease growing public anger sparked by the then-high unemployment rate, which was said to be between 15% and 25%. The Chinese government hoped to draw foreign investment to revive the area's economy.
But after three years of development, many Taiwanese companies now regret their decision to invest there, and some observers have become pessimistic that foreign investment in the northeast could continue to decline due to a misguided policy and insufficient resources allocated by Beijing to help the area's development.
"It is great, at least, that local government officials helped us to relocate our machinery to Fuzhou," said Huang Ruei-hsin, Jinhersheen's general manager. He explained the company had to pull out because purchase orders from Brilliance Jinbei had never been stable.
Because of a shared language and a similar cultural background, Taiwanese investment has been a top priority for Chinese officials in the northeast. Each of the three northeastern provinces now has at least one designated zone awaiting Taiwanese investors to pour in capital. The zones include: Liaoning's Tiexi Taiwanese industrial park, Heilingjiang's cross-strait agricultural cooperation district, and Jilin's Changchun Taiwanese industrial park.
Local government officials at various levels from the three provinces have traveled down the Pearl River Delta and Yangtze River Delta, where about 80% of Taiwanese investment in China is concentrated, to promote their home towns in hopes of luring Taiwanese capital. And Taiwanese chambers of commerce both on the island and in mainland China have been invited to inspect the area.
The efforts, however, have not been particularly fruitful. According to figures from Taiwan's Investment Commission, as of January, Taiwanese investment in Liaoning totaled US$390.2 million, accounting for just 0.82% of Taiwan's total investment in China. Figures on Jilin and Heilingjiang were too small even to be shown. China's figures, on the other hand, suggest Taiwanese investment had reached some $600 million in Shenyang alone, as of the end of last year. It is unclear whether the difference is due to the unreliability of Chinese government figures, or because the Taiwanese statistics do not take into account Taiwanese capital flowing into mainland China via third parties such as
[color=]Hong Kong
.
"The government here is too corrupt, the winter is too long, and workers are comparatively inefficient," said a Shenyang-based Taiwanese businessman, on condition of anonymity, as he was concerned that his criticism could create trouble with the local government. The businessman, who has been based in Shenyang since the early 1990s, alleged that local government officials have failed to satisfy investors' fundamental demands, and to provide proper preferential treatment.
"They should put in more efforts and be more flexible," said Luo Huai-jia, executive director of the Taiwan Electrical and Electronic Manufacturers' Association. Luo doesn't think the northeast is ready for large-scale investment by Taiwan's electronics industry.
Acknowledging the weaknesses, Song Donglin, an economics professor at Jilin University, who had submitted a proposal to the provincial government on how to solicit greater investment from
[color=]Taiwan
, suggested the government authorize Taiwanese to operate and manage the Taiwanese investment parks, since "Taiwanese would know better what Taiwan investors want".
Furthermore, he suggested the government lift the ban the local operation of Taiwanese banks so as to facilitate the financing of small and medium-sized Taiwanese enterprises, which he believes would be able to boost the local economy best. He emphasized that weather should not be a big problem, saying, "It is not that cold in winter anymore. It is only 20-odd degrees Centigrade below zero nowadays but not something below minus-30 degrees." The Liaoning provincial government, meanwhile, is likely to review his proposal in a seminar in August.
It does appear, however, that at least some Taiwanese companies regard the northeast as a good place for investment. Because of increasing land and labor costs and chronic power shortages, many Taiwanese investors based in southern China, the Pearl River Delta for example, have been seeking to move to other places. The northeast is one of the favored areas.
Since the region borders Russia, North Korea and Mongolia, it has been regarded as a strategically useful spot for expanding business into those three countries. And Taiwanese investors have now reached a consensus that the northeast is suitable for large enterprises to invest in since local government bodies normally avoid harassing big businesses. The area, they say, is also good for investment in the service and retail industries because local consumption is quite strong.
Hong Kong-listed Samson Holdings furniture is a Taiwanese company considering investing in the northeast. Samson chief executive officer Kuo Shan-hui said a decision on setting up a factory in Shenyang would be made very soon, as the area is crucial in the company's China strategy.
Other Taiwanese companies that have chosen to embrace the northeast include Ten Fu Tea group, which operates more than 500 branches around China, and Uni-president Shenyang, which manufactures instant noodles and beverages. "Whoever is interested in this area should allocate their investments now," said Wu Jiun-you, manager of Ten Fu's Shenyang branch.
According to Chinese government figures, the three provinces received US$7 billion in contracted investments between January to August 2005, of which about $4 billion was realized.
Despite figures from China that might point to a bright future, longtime observer David Wall, a London-based economist doing a research on the development of northeastern China, is pessimistic about the area's economic development, suggesting Beijing's policy should have been on boosting trade growth instead of focusing on the revitalization of the aged state-owned enterprises in the area, which he termed "hopeless".
Furthermore, "The central government's allocation of resources to sort out the social security and public investment in infrastructure reform is chicken feed compared to the requirements ... so watch the continued decline," Wall said.
[I][B]Ting-I Tsai[/B] is a Taipei-based freelance writer.[/I]