Taiwan Lifts Investment Threshold In China

The Executive Cabinet of Taiwan raised the threshold on offshore investments going to China, last Thursday, in an attempt to broaden investment opportunities for Taiwanese companies, specifically in how they use their capital.

Under the previous legislation, companies that had their headquarters in Taiwan and were worth over NT$5 billion were allowed to invest up to 40% of their net value in China, and companies whose headquarters were not in Taiwan and were worth over NT$5 billion and over NT$10 billion, were allowed to invest up to 20% and 30%.

However the Ministry of Economic Affiars (MOEA) had listed over 50 companies that had gone over the allowed investment cap, with another 131 very close to the threshold.

As of the 1st of August, companies will be able to invest up to 60% of their total net value, as will small to medium businesses (SMEs), and individual investors. This 60% threshold applies to all capital raised inside of Taiwan, however any capital that a company raises outside of the country is free to be invested overseas. Before the new rules, companies where not allowed to invest any capital gained in Taiwan overseas.

Individual investors will be able to invest up to up to NT$150 million in China, where they used to be able to invest only NT$80 million. The investment level for SMEs has been raised to 60% of their total worth, or up to NT$80 million, whichever is the higher amount.

Companies who keep their headquarters in Taiwan will have no limit for investments in China, nor will any multinational subsidiaries established in Taiwan.

Currently there are 577 companies who have kept their base of operations in Taiwan even after making substantial Chinese investments. Analysts at the MOEA are expecting that number to climb to 800 by the end of 2009, and 1,100 by the end of 2010.

The Financial Supervisory Commission has announced their approval of the Cabinet’s intentions to raise the threshold, saying that they agree that the cap has had a negative impact on the Taiwanese economy.

Taiwan’s President, Ma Ying-jeou, has stated his intention to buoy the country’s economy through closer ties to China. This alteration of legislation is a major component of the president’s plan.

Stocks for Taiwanese companies with strong ties to China went up on Wall Street after the announcement of the threshold raise, including TSMC, Uni-President, and Giant Manufacturing Co.

The alteration has had some criticism, mainly from the opposition party in Taiwan, the Democratic Progressive Party, who said that this could lead to too much capital leaving the country,

There is still tension between Taiwan and China, however that has not stopped Taiwanese businesses from investing US$150 billion since the early 1990s, when Taiwan last adjusted their Chinese investment legislation.

Last year over 40% of Taiwan’s exports went into China.

Story link: Taiwan Lifts Investment Threshold In China