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HK as staging post for Taiwan businessmen
China Daily HK Edition  Updated: 2004-11-22 10:57

Chen Shui-bian's recent erratic behaviour has sent a clear, but unintended, message: he is desperate. He is under great pressure from the US to explain what he is up to, but at the same time, he still wants to stir up separatist sentiments at home in order to win more seats in the Legislative Yuan during next month's election. He is thus acting and talking at cross purposes, sending out conflicting signals. In the end, he still refuses to accept the very basic principle of "one China", and whatever antics he performs fool nobody.

With Chen at the helm and the separatist pan-green alliance expected to gain a majority in the legislature, cross-Straits relations are expected to get more tense in the coming years. With separatist sentiments being deliberately fanned by the ruling DPP, descendants of those who arrived more recently from the mainland are now being discriminated. With the revision of history textbooks, even Dr Sun Yat-sun, the founding father of the Republic of China is being classified as a "foreigner".

This together with a depressed economy with no sign of a recovery and an over-sized arms budget has led to a wave of outflow of both talent and capital.

Investments on the Chinese mainland by Taiwan companies grew 68.18 per cent in the first half of the year to US$3.39 billion, according to the Investment Commission of the Ministry of Economic Affairs. And in the first three quarters, total investment by Taiwan businessmen on the mainland increased by over 40 per cent over the corresponding period last year.

Basically, both the figures reveal the same story: Taiwan investment is flooding the mainland. The increase is attributed to the large investments made by IT companies and electronics manufacturers. Most of Taiwan's investments favour Jiangsu, Guangdong, Zhejiang, Fujian and Hebei provinces with Jiangsu and Shanghai being the hot spots.

The political and economic situation in Taiwan is expected to worsen in the coming years if the separatist movement is allowed to flourish. The wave of capital and talent outflow will quickly gather momentum. As direct commercial interaction between the mainland and Taiwan remains impossible in the near future, Hong Kong is the major gateway to the mainland for most Taiwan enterprises in both trading and investment.

Theoretically, Taiwan companies can benefit greatly if the island signs a CEPA agreement with the mainland, but it is impossible under the current tense relations. Without agreeing to the "one China" principle, the negotiations cannot even start; or they could be very long-drawn, being hindered by politics, so that by the time an agreement is reached, the head-start element is gone, and it will become completely meaningless.

Under CEPA II with Hong Kong, the mainland agrees to let in products made by newly-incorporated Hong Kong companies duty free provided they satisfy the prescribed requirements. The market-entry requirements for many service sectors are also much lowered in Hong Kong's favour. Taiwan investors can make good use of such provisions to enjoy all the benefits of CEPA immediately if they just spend some HK$10,000 to buy off-the-shelf Hong Kong companies and start up right away.

To Taiwan businessmen and professionals, though not to Taiwan, this is as good as a cross-Straits CEPA arrangement. Should these Taiwan investors want to invest on the mainland as well, they can use the Hong Kong companies as vehicles to maximize tax benefits in the three different regions.

Unlike Macao, Hong Kong has always chosen to play a quiet and passive role in its relations with Taiwan. But Hong Kong businessmen can be more active in promoting the above-mentioned quasi-CEPA arrangement. They can help in offering consultancy services, company formation, and secretarial and tax services. The more entrepreneurial ones can invite Taiwan partners to form joint ventures here. This is perfectly legal both in Hong Kong as well as in Taiwan. In Hong Kong, foreign investment is always welcome; and in Taiwan, direct investment on the mainland has been formally liberalized since November, 2001.

In line with above rationale, Hong Kong's real-estate developers should direct more effort to wooing Taiwan buyers. If they buy a flat here for over HK$6 million, which is the price for an average flat, they will formally acquire a residential address and a residential status that comes along with the investment.

Hong Kong flats, though expensive by any standard, are quite attractive to Taiwan investors. Many upper-middle class and rich people want to leave Taiwan, or want an escape route should something happen there; and would find living and working in Hong Kong quite an attractive proposition. We can easily envisage a Taiwan lawyer stationed in Hong Kong serving clients on the mainland, Hong Kong and Taiwan, blending seamlessly into each society, enjoying high-quality free education and medical services for the entire family, and paying low tax. This is, in fact, what Hong Kong is supposed to be, the metropolitan city of China.

CEPA gives Hong Kong, and, from the above analysis, Taiwan companies a few years' time lead to break into the mainland market. It is a now-or-never opportunity that both Hong Kong and Taiwan should not miss. Buy a company, buy a flat, and be a Hong Kong resident - this sounds like a good TV commercial slogan, and in fact, it is not a bad idea.

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