Taiwan will for the first time allow Chinese investors to take stakes in its prized technology companies, a major step towards opening its economy to mainland China as cross-Strait relations improve.
Taiwan's Ministry of Economic Affairs has proposed allowing Chinese investment of up to 10 per cent in Taiwanese technology companies, and up to 50 per cent in new technology-sector joint ventures, one person familiar with the situation said.
The proposal is set to be approved by the cabinet and would soon be announced publicly, the person added. Another person confirmed that the proposals had been sent to the cabinet.
The new rules would give Chinese investors access to some of Taiwan's most globally competitive companies. Taiwanese manufacturers, for example, make 9 out of every 10 notebook computers in the world. Taiwan Semiconductor Manufacturing Company is the world's biggest contract chipmaker, while Hon Hai, the Taiwan-listed parent of Foxconn, is the world's largest electronics manufacturing services provider.
For Taiwanese companies, the new rules will make it easier to forge strategic alliances with their customers or suppliers in China, which is already by far Taiwan's biggest export market. AU Optronics, the world's third-biggest flat-panel maker, is for example increasingly selling to Chinese TV brands such as Haier and Changhong and recently received approval from Taipei to set up its first-ever plant in China.
One senior Taipei-based banker, who hailed the move as positive for Taiwan, said: "Technology is a capital intensive business and China definitely has the downstream [manufacturers] and the end market, so these new rules could lead to more alliances".
Politically, it is also a sign of greater comfort in Taiwan with establishing closer economic ties with mainland China. Taiwan has long viewed its technology sector as a 'national champion' and a matter of national security and had previously been wary of Chinese participation in the sector.
A deal in 2009 by China Mobile to take a 12 per cent stake in Far Eastone, a Taiwan telecom operator, was blocked and would remain illegal even under the new rules.
While Taiwanese businessmen have long invested in China, Chinese investment was forbidden in Taiwan until the first-ever round of opening in 2009.
Even then, the liberalisation was limited to just 99 sectors, and led to only $137m of Chinese investment into Taiwan, versus a cumulative total of more than $200bn of Taiwanese investment into China.
Chen Yunlin, China's top negotiator to Taiwan said last week that Chinese investment in Taiwan "has not been very ideal ... we need to re-evaluate this" and make a bigger effort.
One senior Taiwanese official said the government was more cautious in the first round of opening but is now acting more boldly because "events proved that [opening to Chinese investment] is a positive move".
However, bankers and industry executives caution that it is too early to say, – besides is symbolic significance – whether the rules would actually unleash a flurry of cross-Strait deals. One executive at a big Taiwanese tech company pointed out that "we have so many foreign investors, who knows if some of them are already Chinese money?"