The Tendency and Relationship of Foreign Direct Investment between Taiwan and China

• Main Authors: Chi-Shen Chang, 張企申
• Other Authors: Hsu, Jen-Hui
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/60857135135762987230

碩士 === 世新大學 === 經濟學研究所(含碩專班) === 91 === Abstract The purpose of Direct Investment (FDI) is to obtain or extend the control over the productive asset for the so-called transnational expenditure. In a strict sense, FDI is not merely a transition of asset across countries but also tangible and intangible transitions of production and management technology, enterprise image, trademarks, know-how, and production facilities. Due to short supply of resources, insufficient savings, and deficient asset in developing countries, FDI plays an important role in the early economic development stage in those developing countries. FDI not only supplements capitals but also attributes multifaceted benefits to the economic development, such as increasing tax revenue, improving employment, technology transfer, enhancing management technology, and promoting establishment of related industries through chain effects. Since its economic reform in 1978, Mainland China has had average GDP growth of 9.8\% between 1979 and 1997, during which 7.9\% between 1986 and 1990 and 11.2\% between 1991 and 1997. Its economic growth rate during the recent five years ranked number one in the world. In 2001, the GDP was 115.9 billion USD and the yearly growth was 7.3\%; the 46.8 billion USD FDI was 70\% of total FDI in Asia, and ranked number two in the world and number two in the emerging market countries. Furthermore, according to General of Budget, Accounting, and Statistics, the FDI in Taiwan was on an average of 1.8 billion USD per year between 1996 and 1999, and ranked number seven in the East Asian countries. The FDI in Mainland China was on an average of 42.2 billion USD per year, and ranked number one in the East Asian countries. Has FDI in Mainland China resulted in exclusion of FDI in neighboring Asian countries? Was the fact that the discrepancy between FDI in Taiwan and Mainland widened as the economic development in Mainland soared caused by special attractive condition offered by Mainland China? Or was it caused by revolutionary transition in the economic structure in Taiwan, so that it was no longer attractive to foreign investors? Or was it caused by changes in the nature of investment decisions made by the foreign investors? In this respect, this research study intended to probe the abovementioned factors. Historical analysis was used in this research study. Horizontal analysis and comparison were employed to identify the features and development in FDI and statistical charts were graphs to describe the changes and trends in FDI. This research study concluded that regardless of the motive behind FDI, defensive model to obtain the production resources or aggressive model to increase the market, the purpose of FDI was to increase the asset return rate through effective resource allocation. The method of market trade was not considered because the incompletion of the market resulted in higher trade cost than the management cost from the investment. Based on the economic development phases of a country, Taiwan and Mainland China both utilized inexpensive labor as the main attraction to FDI. However, due to increasing interest arbitragers, overflow of learning efficiency, maturity of the market, economic growth, and continuous open market, FDI had adjusted its industry distribution. In addition, from the perspective of FDI source, the international culture in Taiwan was more developed than in Mainland China, and the FDI by overseas Chinese was 5.93\% and 60.99\% of the total FDI, respectively. From the perspective of management behavior, at the early stage of open market, FDI by overseas Chinese could maintain lower management cost than other foreign investors given the similar language and cultural background; hence, the FDI by overseas Chinese remained high. The language and cultural factors were substitutable to overseas Chinese in Taiwan and Mainland. With vast resources and advantages in the domestic market, Mainland China then became the winner in FDI by overseas Chinese. The study into the advantages and disadvantages of Taiwan and Mainland China revealed that the wage rate was more advantageous in Mainland China. Although the wage rate was negatively correlated with FDI, it may not be the absolute index to FDI because the wage rate also reflected the quality of labor. According to the case study in this research study, the quality of labor in Taiwan and Mainland China differed in different industries and job functions. Rubber, ceramics, and kitchenware industries, the so-called traditional industries, required low level of technology; labors in Mainland China were able to replace the labors in Taiwan in terms of production and R&D. However, labors in Taiwan prevailed in the high-tech and electronic R&D industry. In addition, in an incomplete currency exchange market, the production cost in countries of hard currency would be higher than the countries of weak currency. Thus, Taiwan and Mainland China government depreciated the currency as a policy tool to attract FDI during the early years. However, since the currency exchange now became reflection of forecast, the long-time overestimated or underestimated currency values had no effect on the asset return discount rate. As a result, this research concluded that the exchange rate only had short-term effect, and the effect of exchange rate may diminish as the foreign exchange market opens and matures, and the selection of hedging tools increases. Although the scholars were unable to reach definite answer in researches concerning FDI, the policy employed by the government exhibited significant effect on FDI. Since the policy on the market type and trade methods had decisive effect over FDI, the interviewed enterprises in this research study expressed clear policy and government efficiency are critical factors in FDI. In conclusion, the purpose of FDI is to increase the market. Due to different economic structure, the scale of market effect in Taiwan and Mainland China may be very different. As an export-oriented economic entity, Taiwan was heavily affected by the global market, especially the American market, while the effect of FDI remained low. On another hand, as an import-oriented economic entity, the domestic market of Mainland China exhibited certain attractions to the foreign investors. Along with economic development and free market, Mainland China would soon become the battlefield of the global enterprises. Those who lost the market would be hindered in the business growth.