World Trade Organization membership could help thaw the chilly relationship that's endured for years between China and Taiwan, as mutual investments and a small but growing shared manufacturing base pull the two markets closer.
Last week's Senate approval of Permanent Normal Trade Relations with China provided additional opportunity for the Asian trading partners to foster closer ties, given the scope of Taiwan's involvement in enabling U.S. companies to serve their global customers. Having secured a broader and more equitable foundation from which to ship goods into the Chinese mainland, the U.S. electronics industry will require Taiwan to supply it an ever greater influx of motherboards, I/O and passive components, displays, and services ranging from PC to telecommunications-equipment assembly, according to observers.
In addition to PNTR status, China's impending admission to the WTO enables Taiwan to join as a separate trading zone. Taiwan, which meets all conditions for WTO membership, was kept waiting in the wings as part of a political concession that dictated China must be admitted first.
Taiwan already has a burgeoning, if strained, trade relationship with China that is punctuated by frequent sparring over the island's national affiliation. Exports to China jumped 16%, to $21.2 billion, from 1998 to 1999, while Chinese import levels rose 10% during the same period, according to the Taiwan Board of Foreign Trade.
Taiwan has invested heavily in establishing operations in China, either as individual companies or through joint-venture Chinese partners. The Taiwan government estimated that in the last decade, the island's technology industry has invested more than $40 billion in ventures in China. Taiwanese investment on the mainland is expected to increase after both become WTO members.
To evolve their relationship, Taiwanese government restrictions relating to domestic investment in China will likely have to be modified to conform to WTO open trade policies. At present, Taiwanese companies seeking more than 20% ownership of a mainland operation must get government approval on a case-by-case basis. Taiwanese corporate investments generally are limited to a $50 million ceiling per project, and high-tech investments, especially in the area of semiconductors, are severely restricted.
Two projects, previously reported, may quickly test the Taiwan government's control over chip investments in China.
Relatives of Formosa Plastics Group tycoon Y.C. Wang, and sons of China's premier, Jiang Zemin, are slated to build an 8-in.-wafer foundry in Shanghai. It has no connection with Nanya Technology Corp., the Taiwanese chip maker in which Formosa Plastics is the major investor.
As private investors, Wang family members might not be subjected to corporate restrictions, said Danny Lam, an analyst at Fisher-Holstein Inc., Wilmington, Del. "They can raise capital outside Taiwan and obtain leading-edge technology from Japan, which circumvents both technology controls of Taiwan and the U.S.," Lam said.
A second fab, also slated for Shanghai, is reportedly being planned by Richard Chang, former head of World Wide Semiconductor Manufacturing Co., also as a private investment.
If WTO membership forces the Taiwan government to relax its curbs on investments in China, the two fabs could be followed by more Taiwanese foundries looking to expand capacity outside their borders, according to analysts. Taiwan's contract manufacturers similarly plan to join the rush of foreign companies opening plants to tap China's huge pool of low-cost labor.