In DepthColumnsLuring them (or their money) back


Posted on Friday, 21 November 2008 01:00

Luring them (or their money) back

By Charles Moré
Gemma Ware


Unlike India, China has made it easy for people who had left or fled the country to invest on the mainland, using foreign knowledge and capital to build up the manufacturing base

China is once again the Middle Kingdom. Both feared and fawned over, it has posted decades of unprecedented economic growth.?But 30 years ago, China was poor and dysfunctional, envying the success of Hong Kong, a British colony carved from Chinese territory and a vibrant manufacturing and financial centre. Further offshore, the authoritarian Kuomintang government, arch-enemy of China, had transformed the island of Taiwan into an economic powerhouse.?


Change began in 1978. Deng Xiaoping became chairman of China’s Communist Party, a post vacant since Mao Zedong’s death two years earlier. Deng intended to salvage his country with ‘market socialism’ – to do that, he reached out to China’s estranged family.?Hong Kong’s large population of mainland migrants fled China during the 1940s civil war, and many had since thrived in business. They were well-placed to capitalise on their ancestral links.


Hong Kong’s labour-intensive industries rushed to the Pearl River Delta. By the late 1980s, Hong Kong was the largest direct investor in China, accounting for more than half of inbound investment. The ardour has not abated.


?It was a richer, more confident China that regained Hong Kong in 1997. Taiwan, on the other hand, has proved a trickier catch. Beijing hopes that economic integration will lead to political submission of the island it has claimed since 1949 but has never ruled.?


In the 1990s, China lured enormous sums of Taiwanese capital to low- or no-tariff investment zones. From 1991 through 2007, it snared more than 55% of Taiwan’s outward investment. ?


There are believed to be about a million Taiwan citizens on the mainland. Aside from the rare political defection and (rather more common) gangster-on-the-lam, most are Taishang (Taiwan businesspeople). They are the executives, engineers and entrepreneurs who have delivered the expertise and international perspective that China needed for its transition from planned to market economy, from low-tech producer to high-tech manufacturer of iPods and semiconductors. Sixty percent of China’s high-technology exports are produced by Taiwanese-operated factories.?


But far from integrating into Chinese society, the Taishang formed enclaves. Typical of them is Kunshan or ‘Little Taipei’, a city 55 km from Shanghai. A dense concentration of Taiwanese companies brought white-collar workers with them. Their families followed, then restaurants and schools that cater to them.


?From 1994, Taiwan investors enjoyed preferential treatment. They could remit profits and wages, purchase Chinese real estate, and send their children to local schools. Taiwan students pay home fees in mainland universities and have access to special scholarships. Bureaucratic tangles persist, though: border crossings require a permit, though the application is now less cumbersome, and driving licences cannot be freely exchanged.?


Sometimes business is just business?


And sometimes there is unwelcome attention. In December 2003, in the run-up to Taiwan’s presidential election, China rounded up 24 Taishang on charges of espionage; the following day Chinese President Hu Jintao gave unprecedented face-time to a group of Taiwan’s business leaders. The two events were seen as a carrot-and-stick attempt to turn them against Chen Shui-bian’s re-election. (The strategy either backfired or more likely overestimated the influence of the Taishang in Taiwan’s politics: Chen won.)?


Taishang can be relied upon to lobby against investment restrictions and little else. They face pressure on the mainland, then return home to accusations of disloyalty. Most would rather avoid politics entirely.?


Manufacturing brought most Taishang to China, and manufacturing could take them away, should China’s comparative advantage of low-cost labour disappear—as may already be happening. l?Charles Moré

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