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(originally published by Booz & Company)


Taiwan Is Open for Business

A heightened level of access to Taiwan from mainland China means new opportunities for foreign investors.

In early November 2008, at the ornate Grand Hotel on a hillside overlooking downtown Taipei, negotiators from Taiwan and China struck a historic deal. Expanding on a previous pact, they agreed to triple the number of direct flights between Taiwan and the mainland, and to allow direct cargo and express mail to travel across the Taiwan Strait for the first time in more than half a century.

Since 1949, when General Chiang Kai-shek and his Kuomintang forces fled to Taiwan ahead of the advancing Communist army, mainland tourists and businesspeople had been forbidden to visit the island. Flights carrying the roughly 1 million Taiwanese who currently work and do business on mainland China — permitted since 1987 — had to travel circuitously through Hong Kong or Manila, adding at least six hours to the trip. Some 10 million pieces of express mail per year also had to stop in Hong Kong or Japan to be restamped before delivery to China’s major cities, taking five to seven days to arrive instead of two. Cargo ships had to sail north to Okinawa or another Japanese island before turning west to China, adding 16 hours to the journey and as much as 30 percent to the cost. By some economists’ reckoning, the toll — including the economic isolation that Taiwan suffered as the rest of Asia experienced phenomenal growth — cost the island as much as 1.5 percent in GDP growth every year.

That’s now changing. Under the guidance of Taiwan’s new president, Ma Ying-jeou, who took office in May 2008, the direct links are providing the one bright spot in an otherwise tough time for Taiwan’s economy. These links, and the people and opportunities they will bring to Taiwan, are lowering the cost of doing business, increasing Taiwan’s attractiveness as a base for business in China, and attracting investors to help develop Taiwan’s tourism and infrastructure sectors to prepare for a potential boom.

More than 20,000 mainland Chinese tourists visited Taiwan in the three months after direct flights were first allowed, in early July. Thanks to the November agreement, which increases the number of flights per week from 36 to 108, tens of thousands more mainland tourists could begin arriving weekly as of mid-December. At an average spending rate of more than US$1,700 per person per trip, according to Taiwan’s United Daily News, that will mean millions in tourism revenue for the country’s ailing economy, which is suffering the effects of the global downturn. Merrill Lynch forecasts growth of 3.2 percent this year, down from more than 5 percent predicted prior to September, and expects a recession next year resulting in a 1 percent fall in GDP. It’s hardly a rousing endorsement, but it’s to be expected in light of global circumstances — and according to UBS, it may be 0.5 percent better than it otherwise would have been without the lifting of restrictions.

Because of the worldwide financial crisis and dampened investor sentiment, investors haven’t rushed to take advantage of the opportunity just yet. “It’s still early to see concrete results, but we are hearing anecdotally from some members that they represent interested parties looking for investment opportunities,” says Andrea W. Wu, president of the American Chamber of Commerce in Taipei (AmCham). In addition, according to a study by the European Chamber of Commerce Taipei (ECCT) released in October, the new cross-strait ties could deliver considerable gains to European businesses and consumers. “The improvement in the relations between Taiwan and mainland China gives Europe a window of opportunity to improve its market access in Asia significantly,” the ECCT report said, noting that enhanced trade with Taiwan — especially if the remaining non-tariff barriers are now removed — could boost European GDP by up to €20 billion ($25.6 billion) over 10 years.

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  1. American Chamber of Commerce Taipei, “Aviation City: Time for Take-Off,” Topics, vol. 38, no. 10: Articles on transportation opportunities in Taiwan as a result of cross-strait ties. Previous issues in the archives explore opportunities in other sectors. 
  2. American Chamber of Commerce Taipei, white papers, June 25, 2008: Annual review by sector of impediments to American companies’ opportunities in Taiwan and suggestions to Taipei for improvement. 
  3. European Chamber of Commerce Taipei, “EU-Taiwan Trade Enhancement Study,” October 6, 2008: The European trade opportunities to be created by cross-strait ties and removal of non-tariff barriers.
  4. Taiwan External Trade Development Council Web site: Helps foreign companies navigate business opportunities in Taiwan.
  5. Taiwan Government Information Office Web site: Provides official government information on changing laws, regulations, and announcements of new projects providing investment opportunities.
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