How attractive is today's China to Taiwanese investors?

l  The recent plunges in stock markets worldwide have made investors nervous and uncertain of the economic climate in the months ahead. As such, changing socioeconomic conditions on the Chinese mainland have led some Taiwanese businesses to reassess their investment and operation decisions there.

l  To most, China does not appear to be as attractive as it once was. More importantly this “new China” is being hit with eight shortages--namely water, power, labor, capital, work ethics, confidence, rising wages, and dwindling profits. Though these problems have been around for some time, most of the Taiwanese businesses did not feel the heat until early 2010.

l  Although China might have become less attractive to some investors, China's 2011-2015 development plans and last year’s “Cross-Strait Economic Cooperation Framework Agreement (ECFA)” should offer plenty of opportunities for Taiwanese businesses. Therefore, it remains the top priority for both sides to sign the investment protection agreement at the next summit between China’s Association for Relations Across the Taiwan Strait (ARATS) and Taiwan’s Straits Exchange Foundation (SEF), which may take place in mid- to late September in Tianjin.

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The recent slow down in Taiwan's property market

l  Housing transactions in Taiwan in the second quarter of this year decreased by around 20 percent in Taipei and New Taipei Cities compared with the same period last year, primarily as a result of the June 1 luxury tax. Since the luxury tax—imposed on non-self-use homes sold within two years of purchase—was intended to curb short-term speculation of real properties in Taiwan, the Ma administration believes this policy has proved to be successful and helped stabilize the island’s property market, particularly in northern Taiwan.

l  Though the number of total houses sold around Taiwan—at 200,445—between January and June was roughly the same as last year’s level, the number of houses sold in the second quarter, during which the luxury tax was hotly debated in the legislature and enacted on June 1, actually declined 8.76 percent, indicating a slowdown in the housing market. The decline was more evident in northern Taiwan than in the south since most of the short-term speculation concentrated in northern cities like Taipei and New Taipei Cities.

l  While the number of property transactions has suffered a decline in the second quarter, the average housing prices have remained relatively the same since the implementation of the luxury tax. Without a significant drop in housing prices, many young people and their families still cannot afford to buy a house in Taiwan’s leading metropolitan areas.

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Back to basics

l  Taiwan's 2012 presidential campaign returned to basics in early August as both the ruling Kuomintang (KMT) and the opposition Democratic Progressive Party (DPP) began to talk more about the issues.

l  For President Ma Ying-jeou and the KMT, the objective is to make sure that, first and foremost, people understand and appreciate the policies and reforms which were implemented in the last three years. From the breakthroughs in cross-Strait economic relations, the second-generation national health insurance plan, to the luxury tax, Ma would like to emphasize the measures pursued by his administration to address problems like Taiwan’s economic marginalization and domestic socioeconomic inequality.

l  The DPP, on the other hand, has identified the widening wealth gap, socioeconomic inequality, and the “erosion” of Taiwan’s sovereignty as the major campaign issues. Although the DPP’s cross-Strait policy will remain important, the 2012 presidential election could be the first time that the opposition will concentrate more on domestic “quality-of-life” issues instead.

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When expectations fell below aspirations

l  There were undoubtedly high expectations in Taiwan before the free individual travelers (FIT) program for Chinese tourists kicked off at the end of June, particularly among the island’s retail, food, and hospitality industries.

l  However, since the policy became effective on June 28, only 587 Chinese FITs have visited Taiwan in the first month. Some have interpreted the disappointing figure as a gloomy forecast for the FIT program, but it would be premature to declare the policy a failure.

l  On the other hand, according to Taiwan’s Tourism Bureau, more than 3 million visitors have traveled to Taiwan since the island opened its doors to Chinese tour groups three years ago. That decision has generated NT$195.8 billion, or US$6.57 billion, in tourism revenue since 2008.

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The role for the People First Party in Taiwan's 2012 elections

l  The difficult relationship between the ruling Kuomintang (KMT) and the People First Party (PFP)—once considered close allies in the pan-Blue—deteriorated to a new low in late July as the latter unveiled plans that essentially eliminated any likelihood of interparty cooperation in the 2012 elections.

 l  In fact, PFP Chairman James Soong may personally lead party nominees and run in the Legislative Yuan (LY) election next January. The list of PFP nominees are scheduled to be made public in early August.

l  The short-term goal for the PFP is to make itself the third largest party in the LY. With skillful maneuvering reminiscent of his days as Taiwanese provincial governor, Soong will forge alliances with the independents and other “centrist” legislators to make the PFP politically viable again.

l  More importantly, Soong and the PFP will have a platform to express views and voice opinions on policies ranging from cross-Strait relations to “quality-of-life” issues—a luxury that they never had since late 2006.

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