Over the past decade or so, Taiwanese businesses have been responding to the changes in the domestic economic environment and the competitive pressure from globalization by investing overseas to develop new production bases and markets. Much of this investment has been concentrated in mainland China due to the abundant labor supply, low land rent, and expanding domestic market there, as well as due to the various tax incentives offered by China to Taiwanese investors. As of the end of November 2007, the amount of China-bound investment from Taiwan reached US$63.35 billion, and the number of approved investment cases reached 36,459. Currently, about 15% of the companies in Taiwan are approaching or exceeding the government-imposed limit on China-bound investment from Taiwan, increasing calls for the government to ease these restrictions. At the Conference on Sustaining Taiwan''s Economic Development held in Taipei in July 2006, different views were expressed on the topic of easing restrictions on China-bound investment from Taiwan. Those supporting looser restrictions reasoned that cross-strait economic and trade relations should be viewed as a part of Taiwan''s overall global business development. Advocates of this view also believe that the government should respect market mechanisms, encourage and support China-bound investment from Taiwan, and lift the 40% ceiling on such investment. Representatives of the opposing position maintain that the lifting of the 40% limit cannot be discussed until China relinquishes the possibility of using force against Taiwan and until the risk of investing in the mainland has been assessed. Furthermore, the Chinese Nationalist Party (KMT) and Democratic Progressive Party candidates in the 2008 presidential race both advocate the easing of the 40% limit, indicating that this issue is closely watched by the governing and opposition parties and in the government and private sectors. It is therefore worthy of closer study.
This paper uses document analysis and a general inductive method to explore development trends in Taiwanese business investment in the mainland area. It further considers industrial risk, economic security, and the changing internal and external environments, and conducts a quantitative analysis of related statistical data. Graduate and postgraduate thesis papers by related academic institutions and various graduate institutes were also considered in analyzing the feasibility of lifting the ceiling restrictions on China-bound investment and the influence of such adjustments.
The results of this study indicate the following: First, China-bound investment from Taiwan has entered an expansionary external investment phase, in which Taiwanese business are investing in China mainly to expand market share, establish operations closer to customers, spread business risk, and access international resources. Secondly, cross-strait economic and trade interactions cannot be ignores in the global economy. Government restrictions have been distancing Taiwanese business from Taiwan. The government should face up to the source of this problem and cautiously promote and implement an appropriate and pragmatic policy on cross-strait economic and trade relations. This would achieve the win-win outcome of helping Taiwanese business expand their operations, while also stimulating growth in the currently weak domestic economy. Thirdly, the United States and Japan have been adjusting their overseas investment activities. The response measures adopted by their companies and governments could provide an invaluable reference for Taiwan as its overseas investment activity warms up. Fourthly, the ceilings on the amount of China-bound investment should be differentiated according to industry type to soften the impact of such limits. It is proposed that in the initial period, the government continue to make phased adjustments to the specific investment ratios, or alternatively consider allowing flexible adjustments to the investment amount ceilings in special individual cases. Fifthly, the investment environment in mainland China is changing with the introduction of new tax rates next year, rising wage levels, and stricter environmental protection controls. The government should act at this critical moment to improve Taiwan''s investment environment and formulate concrete preferential measures to encourage Taiwanese businesses abroad to invest back in Taiwan.