Taiwan Today

On January 5, 1995, the ROC government formally approved the Plan for Developing Taiwan as an Asia-Pacific Regional Operations Center, also known as the APROC plan. The plan envisions the development of operations centers in six categories: manufacturing, sea transpor­tation, air transportation, financial serv­ices, telecommunications, and media.

A sense of urgency has surrounded the plan since its adoption. Multinational businesspeople have repeatedly indicated to the government that because of the rapid pace of economic change, they have a very short time frame in which to make decisions about where to locate their op­erations centers in the region. Air and sea transportation services face a particu­larly tight schedule. If Taiwan is to be competitive with other major sites, the government must improve the island’s in­frastructure, laws and regulations, and overall business attractiveness.

Government policy on cross-Straits relations between Taiwan and Mainland China is particularly relevant to the plan’s success. For instance, many businesspeople have pointed out that if there are no direct transportation links between Taiwan and the region’s largest market, it would not be practical to set up operations on the island.

Cross-Straits policy has high visibil­ity. The government and private sector have been carrying on a continuing dia­logue with the goal of coordinating politi­cal decisions with economic realities. One example is a recent seminar held by the Straits Exchange Foundation (SEF), a quasi-official organization that maintains contacts with the mainland through meet­ings with its counterpart, the Association for Relations Across the Taiwan Strait (ARATS). The SEF seminar, held in mid­-February, was hosted by Chiao Jen-ho(焦仁和), secretary-general of the foundation.

“The relationship between Taiwan and Mainland China will no doubt have an impact on the scale of the APROC plan and the speed of its implementation, “ Chiao said in his opening remarks. “For instance, the ROC government has held to certain limitations on direct exchange across the Taiwan Straits based upon concerns for security and national dig­nity. The plan is also complicated by the bid by both Taiwan and the mainland to join the World Trade Organization [WTO], and by the mainland’s scheduled takeover of Hong Kong in 1997. Today, we have invited businessmen, scholars, and officials to express their opinions on the APROC plan.”

The following excerpts were translated from the seminar proceedings published in the March 1995 issue of Exchange, the SEF’s monthly magazine. Quoted are Wu Rong-i (吳榮義), presi­dent, Taiwan Institute of Economic Re­search; Tu Jenn-hwa (杜震華), professor, Graduate Institute of the Three Principles of the People, National Taiwan Univer­sity; Pan Shiuh-haw (潘序浩), section chief, Coordination and Service Office for the Asia-Pacific Regional Operations Center (also called the APROC Window), Council for Economic Planning & Devel­opment (CEPD); Tsai Horng-min (蔡宏明), executive secretary, Chinese National Federation of Industries; and David C.S. Yang (楊璟璇), chairman of the Nan Tai Group, which includes some of Taiwan’s largest shipping firms.

Wu Rong-i

Taiwan Institute of Economic Research

I think the actual goal of the APROC plan is multidimensional economic con­struction. It doesn’t just involve cross-Straits relations. Since 1988, with the appreciation of the New Taiwan dollar, many small- and medium-sized labor­intensive businesses have been forced to move offshore. This has caused a decline in our exports and has affected our eco­nomic development. In response to these circumstances, the government proposal is a way of promoting new industries, such as service and high-tech, with the hope that these will take the lead in Tai­wan’s economic development.

Because of our closer cross-Straits economic links, the APROC plan will natu­rally have some tie-in. But I don’t think these ties to the mainland are absolutely essential. For example, some people claim that without direct cross-Straits transportation, the plan will fail. I disa­gree because the United States is still a huge trade partner and our business with Japan, South Korea, and Southeast Asian countries is increasing. It isn’t necessary for us to treat relations with the Mainland China as the only influential factor in the plan.

The plan’s main goal is to encourage multinational enterprises to set up branches or operations centers in Taiwan. In fact, some companies have done this, but only a few. We need to create a better environ­ment and provide better services to attract more. Such enterprises choose a base be­cause of the comparative benefits a place can offer. When certain conditions are better here than in Hong Kong and Singa­pore, more international enterprises will move at least part of their business here.

At present, Taiwan doesn’t offer enough. For instance, the legislation process has been too slow in passing the necessary laws, we don’t have enough bi­lingual workers, and there are too few foreign-language explanations of govern­ment administrative measures. In the past, Taiwan’s industry was well-protected by laws and regulations. Our government and people have to realize that interna­tionalization is absolutely necessary, that foreign investment should be welcomed, and that old business concepts are no longer practical.

The shortage of specialists is another problem. For example, when the govern­ment allowed new banks to be estab­lished, there weren’t enough trained personnel to staff them. Recently, the government allowed local banks to set up branches overseas, and the same problem arose. We don’t have enough qualified international bankers. We also don’t have enough international lawyers and ac­countants. The government has to train more talent.

As for the six centers included in the plan, I think manufacturing has the best chance of success because our manufac­turing industry is superior to Hong Kong’s and Singapore’s. But our banking services are far behind both places. Moreover, the construction needed for a telecommunications center and for sea and air transportation centers will require a great deal of money. Given its current financial condition, the government may not be able to pay for these. It might be best to open some projects to private investment.

The experience of fully modernized countries shows that service industries are the engine of economic development. For example, agricultural production in the United States represents only 2 percent of its economy and the manufacturing sector accounts for only 20 percent. More than 70 percent is service industries. In Taiwan, agriculture accounts for 3 percent and manufacturing is around 30 percent. It’s clear that services are going to be the core of our future economic development. The APROC plan can help expedite this. The trend cannot be ignored. To do so would make further economic development in Taiwan impossible.

Tu Jenn-hwa

National Taiwan University

Dr. Wu just mentioned that the APROC plan doesn’t have to include inter­actions between Mainland China and Taiwan, but our efforts in implementing the plan will influence cross-Straits interac­tion. Since 1986, due to increasing wages and appreciation of the NT dollar, entrepreneurs have been forced to shift their investment to Southeast Asia and Main­land China. We have to find a way to solve the economic predicament of outflowing investment. The APROC plan is a solution.

Our businesspeople already have a good commercial network in Southeast Asia and Mainland China. The question is how to upgrade our industries and make the best use of this network and Taiwan’s good location. Studies have shown that if people regard Taiwan as an entry point into East and Southeast Asia, then the dream of the island becoming an Asia­ Pacific operations center can come true.

It’s still uncertain whether Taiwan can replace Hong Kong. And Singapore leads in almost all the categories pointed out in international reports on competi­tiveness. But we still could gain the upper hand because our manufacturing sector is stronger than Singapore’s.

The plan is supposed to bring about overall change in our economic structure, but this can hardly be achieved without direct transportation links between the mainland and Taiwan. Direct transporta­tion will also influence the scale of the op­erations centers. This is a politically challenging issue. We also have to moni­tor the mainland’s attitude toward the APROC plan. For now, they are profit-oriented. They calculate what they can earn from direct transportation.

The longer we wait in establishing Taiwan as an Asia-Pacific operations center, the more we lose. Take a look at our rivals. Singapore has been aggressively developing air routes to the mainland for years. It aims to replace the position of Hong Kong after 1997. I often compare the APROC plan to a championship match without any warm-up. The match has already started and our rivals are gaining strength day by day, yet we still stand by as observers. By the time we get ready, the match may be over. We must realize there is only one winner in this competition. Very few multinational companies will choose two places for op­erations hubs. So we either win or we are eliminated.

The plan could bring tremendous financial benefits, but these are not our main objective. We are really pursuing the management skills that multinationals can introduce—abilities in manufacturing and research, which can gradually be transferred to local enterprises. These benefits are colossal.

Because multinationals also require the most modern and healthy environment, this demand would also stimulate improvement in our quality of life. When we achieve this, foreign businesses and local enterprises will all benefit. And an im­proved living and economic environment will encourage others to invest here. I think this is the cycle we are really seek­ing to establish.

Certainly, some disadvantageous conditions still exist here. For example, we haven’t yet become sufficiently liberalized and internationalized. Compared to Hong Kong and Singapore, doing busi­ness here is inconvenient. Our adminis­trative system is much less efficient­—in some areas it is even worse than in Malaysia—and our mainland policy is still unclear.

In fact, the degree to which our main­land policy will influence the APROC plan is an important question. We have to ac­knowledge that successful access to the mainland market is the magic ingredient for transforming Taiwan into an opera­tions center. So I think the priority is to sustain good interactions between the mainland and Taiwan. Also, our government and private businesses should be serious about free markets and interna­tionalization. All of us should have a consensus on this. Without free and inter­national markets, the future of Taiwan cannot be promising.

I’m especially concerned about administrative efficiency. I’m not optimistic because many of our current civil servants are second-class talents receiving third-class wages. It’s impossible to ask them suddenly to reach first-class adminis­trative efficiency. For its middle and long­-term planning, I hope our government will hire first-class talents and pay them first-class salaries. Both Singapore and Hong Kong are doing this. If we don’t, our administrative efficiency can never attain the standard required by the APROC plan.

As far as the offshore transportation center is concerned, I hope the government can fix a short-, middle-, and long­-term schedule that will help local and multinational enterprises plan ahead. Otherwise, local and multinational enter­prises will be skeptical about choosing Taiwan as an Asia-Pacific hub. Many foreign companies have already sent us ultimatums. If we don’t allow offshore transportation operations by June or July, they will move elsewhere. We should take this message seriously. These com­panies are watching our policy and plan­ning. It’s necessary to provide them a clear schedule. At the same time, the prospects for direct cross-Straits transportation should be integrated into the schedule.

We know the advantages of our posi­tion in the region are gradually weaken­ing. Unless the Legislative Yuan and the Executive Yuan can build a consensus on the plan, Taiwan is likely to be beaten by Singapore in the competition for the Asia­-Pacific operations center.

Pan Shiuh-haw

APROC Window

It seems that everyone looks at the APROC plan from a competitive point of view. Many people involved in the planning stage, myself included, also put high value on the competitive approach at first. We wanted to compete against Hong Kong and Singapore. But later, we realized that we were heading in the wrong direction. It would be much better to look at the issue from a cooperative point of view.

Take the financial services center as an example. There are many kinds of fi­nancial centers. Chicago is a financial center for commodities, and Singapore offers services to transnational enterprises. Before Taiwan develops into a fi­nancial services center, we first have to know what kind of services we can best offer. In the planning stage, we therefore designated Taiwan as a funding center because of its rich foreign exchange reserves. In developing such a center, Tai­wan should work with Singapore instead of competing with it. Both places have valuable assets.

As for the offshore shipping center, we have to wait for the mainland’s response and then decide what we’re going to do next. According to the original plan, the offshore shipping center was also supposed to serve as a value-added process­ing center. This function, however, is now often neglected. But simply shipping cargo in and out doesn’t create much eco­nomic value. A production line behind the harbors to do some simple processing or assembly work could form new produc­tion centers. It would also promote the development of warehouse and distribu­tion businesses, thus creating higher added value than just transport cargo. I think this is the real goal for establishing a transportation center.

In execution of the APROC plan, what worries people most is low government efficiency. This problem must be solved quickly. It will be too late if we depend on mid- or long-term planning. Our immedi­ate solution is to establish a coordination and service center [the APROC Window], and a promotion team chaired by Premier Lien Chan. These will organize and coor­dinate the involvement of different agen­cies and make the plan’s execution more efficient.

Tsai Horng-min

Chinese National Federation of Industries

Taiwan has been a manufacturing center since the 1950s, when we were de­veloping our economy through export processing. Forty years later, we face a transition in our entire economic structure. Through the APROC plan, we hope to make our manufacturing industries more high-tech and our service industries more internationalized.

In the next ten years, Mainland China will become a newly industrialized coun­try. Unless Taiwan can make some economic breakthroughs by then, we won’t be competitive in next century’s global market. Therefore, our internationaliza­tion strategy is of vital importance. And if we can become an operations center for many transnational enterprises, Taiwan will have more autonomy in Taiwan­mainland relations.

But many foreign in­vestors are still hesitant about setting up operations here. Their main considerations are Tai­wan’s low administrative efficiency, insufficient harbor infrastructure, and the poor quality of life. They won’t be willing to come—even if there is direct shipping between Taiwan and the mainland—until these prob­lems are solved.

I agree that there might be a good chance for Taiwan to develop as an operations center because Hong Kong is facing 1997. But the chance depends primarily on how deeply the mainland will be involved in Hong Kong’s political and economic develop­ment. If the mainland lets Hong Kong stay the way it is now, Taiwan will be able to take only part of Hong Kong’s place.

Also, we shouldn’t be too optimistic that Taiwan will become Northeast and Southeast Asia’s transit center to the U.S. and Europe. When merchants choose transit centers, costs are their most basic consid­erations. There are many harbors with lower costs than Kaohsiung Harbor [in southern Taiwan]. In addition, there are already harbors in Northeast Asia with good infrastructures. It’s difficult for Taiwan to compete with them. I think the main area our transit center would cover is the area south of the Yangtze River.

Taiwan’s efforts at internationaliza­tion and liberalization in order to enter the WTO are closely related to the APROC plan. The government needs an overall strategy for both goals. For example, according to the plan, many laws and regulations will be passed by 1997. But it’s possible that Tai­wan will enter the WTO by the end of this year. If so, it has to make certain commit­ments concerning finance and investment, the stock market, foreign currency manage­ment, and intellectual property rights. The Executive Yuan plans to send draft bills concerning the APROC plan to the Legisla­tive Yuan for package voting. Among these bills, those on stock market, transportation, and communications are also relevant to the WTO negotiations. The Legislative Yuan should be aware of the relevance of these for both APROC and the WTO and consider their passage an urgent priority. They are essential for the success of both goals.

David C.S. Yang

Nan Tai Group

Since I’m in the shipping business, I want to talk about the proposed transpor­tation center. Ever since sea transportation became containerized, owners have operated differently. They often gather containers together at large harbors by using big container ships, then transship the containers to smaller harbors on smaller ships. The large harbors naturally become regional transportation centers.

For example, Thailand, Malaysia, and Indonesia lack large harbors with good equipment for anchoring oceangoing freighters, so these countries trans­port goods to Singapore first and then export them to Europe and America. Singapore is their main transportation center. Each year, Singapore earns about one-third of its total tax revenues from taxes and other earnings from transporta­tion. So it’s clear that a transportation center can greatly influence national finances and economic development.

Kaohsiung Harbor used to be the largest transport harbor in Asia. But in recent years it has been outpaced by Hong Kong and Singapore, particularly Hong Kong. Hong Kong’s harbors have developed very rapidly because Taiwan businesspeople have invested in the mainland and they export goods through Hong Kong. In addi­tion, two transportation centers in the northeastern part of the region are forming—one at Kobe, Japan, and the other at Pusan, South Korea. Kobe already trans­ports many goods from Shanghai, and Pusan transports goods from the northern part of the mainland. Taiwan will have several competitors to deal with in becoming a transportation center.

Hong Kong has become Taiwan’s second largest trade partner. The annual trade volume is over US$2 billion. About 60 to 70 percent of the goods are transshipped to the mainland. These materials are processed and then shipped around the world. We must face this fact; we can’t avoid it.

Let me give some examples of the obstacles Taiwan will encounter on the way to becoming a transportation center. Although Taiwan has some attractive conditions for a transportation center, it has a few geographical limits. For exam­ple, Singapore is closer to Malaysia and Thailand. In general, these countries do not transport their goods to Taiwan. I think it’s possible for Taiwan to be able to attract these countries, but first we must improve the equipment and administra­tion of our harbors.

According to current law, interna­tional commercial ports must be super­vised by the Ministry of Transportation and Communications. But the Taiwan Provincial Assembly doesn’t agree, and at present it supervises these harbors. Five or six years ago, shipping businesses strongly recommended that the govern­ment establish a bureau of shipping ad­ministration to solve the unsatisfactory administrative system. But nothing has changed. Some people have proposed combining the harbors with city administrations. But this would make the admin­istration of international trading ports even more complex. The government has to solve this problem soon.

For example, dockworkers at Kaohsiung Harbor don’t work for the Harbor Bureau, but they are paid by it. Every dockworker earns an average of NT$100,000 to $200,000 per month [US$5,000 to $10,000]. Because of this, the harbor fees in Kaohsiung are much higher than those in Hong Kong and Ja­pan. Moreover, the administration is not good and efficiency is low. Given these facts, who would use this harbor as a transportation center?

Fortunately, the Council for Eco­nomic Planning & Development [CEPD] is actively backing the idea of establishing a bureau of shipping administration. But I also hear that the proposal has not been acted on because of the problem of com­bining city and harbor administrations. If the proposal is held up, how can Taiwan be promoted as a transportation opera­tions center? Moreover, the equipment in Taiwan’s harbors must be improved be­cause it is too old. Even though Keelung Harbor turns over about NT$4 billion [US$157.5 million] in revenue to the pro­vincial treasury every year, the Provincial Assembly still refuses to spend NT$100 million to $200 million [US$3.9 million to $7.9 million] on new equipment. This is a serious problem.

The recent plan to establish an off­shore transportation center is a good step. In the future, Taiwan businesspeople in the mainland should be able to transship goods here before exporting them. Now, the first thing for us to do is to establish a workable method of operation.