Economy

First pandas, then phones

“Historic” agreement sees China and Taiwan boost economic ties

Tuan Tuan and Yuan Yuan recently crossed the strait on a goodwill mission

It says a lot about the historical relationship between China and Taiwan that the two sides cannot even agree on what to call the giant panda. In mainland China pandas are called xiong mao (bear cats) and in Taiwan they call them mao xiong (cat bears). But thankfully, panda politics have been looking up recently. China even sent two goodwill bears as gifts across the strait in December.

The gift actually marked a strategic turning point in relations. President Hu Jintao had offered Taiwan the bears back in 2005, but Taiwan’s then-president, Chen Shui-bian rejected the gift.

Why? Well, the pandas have quite symbolic names. They are called Tuan Tuan and Yuan Yuan. Put the two names together and you get the Chinese word ‘unification’. Chen Shui-bian spent most of his time in office trying to further Taiwan’s claim to independent nationhood – so a present that even hinted at unification was bound to rile.

But Taiwan’s current president, Ma Ying-jeou was elected on a ticket of improving the island’s ties with the mainland. And things have warmed up considerably since.

Relations hit a new high on Sunday when the two sides signed a major agreement that the China Daily described as “history in the making”.

What was such a big deal? The major news was that – for the first time in six decades – Chinese companies can now invest in Taiwan. The Taipei government’s agreement to this principle signals a quantum leap in cross-straits’ ties.

Taiwanese firms have been able to invest in China since 1979 – and by unofficial estimates have invested at least $150 billion – but till now Taipei has forbidden Chinese investment on the island. “This will turn a one-way investment process into a two- way affair,” says Zhang Guanhua, deputy director of the Chinese Academy of Social Sciences’ Institute of Taiwan studies.

Words were quickly followed by action. On Wednesday China Mobile announced it will buy 12% of the Taiwanese mobile carrier, Far EasTone for $533 million. The deal marks the first ever investment by a Chinese firm in a Taiwan-listed company. Should it get the regulators’ approval, it will mark another historic milestone.

The other major agreement inked on Sunday related to direct flights. Towards the end of last year the two sides agreed to allow 108 weekly flights between Taiwanese and Chinese airports. This will now be boosted to 270. The Chinese government estimates that more than 500,000 mainland tourists will visit Taiwan by the end of this year.

It may not sound like much, but the direct flights deal is a major one – and not just in terms of symbolism. Previously, a trip from Taipei to Tianjin – routed via Hong Kong – could take as long as flying from Taiwan to America. Ding Kun-ha, director of the Association of Taiwan Investment Enterprises on the Mainland, reckons direct routings could massively aid Taiwan’s businesses – particularly high-tech firms (most of which have factories in China). Shortening freight journey times helps companies increase their inventory turnovers by up to 20%, with welcome benefits for working capital.

The other major breakthrough that has occurred since Ma’s election last May is direct sea links. Between 1949 and December 2008, the shipment of goods from China to Taiwan were routed via Hong Kong or Ishigaki Island in Japan. A typical vessel would take 48 hours to reach Taiwan’s Keelung port from Tianjin. This can now be achieved in a day, with a saving for a mid-size container ship of 140 tonnes of fuel.

China has been going out of its way to foster better relations with Taiwan’s new government. And given that Taiwan has suffered more than most from the current economic crisis, much of its largesse has been financial. For example, it has offered to buy $2 billion worth of flat screen TVs from Taiwanese manufacturers. In addition, China has said that three of its banks will extend Rmb130 billion ($18.9 billion) of credit to Taiwanese businesses on the mainland – to help them ride out the current turmoil.

As for Taiwan, many of its more nonsensical anti-Chinese regulations are being stripped away. The recent listing of Want Want China is a case in point. Want Want is a Taiwanese firm that also happens to be the largest rice cracker maker in China. In a groundbreaking move, it just became the first overseas listed Taiwanese company to list in Taipei.

Previously, the rules prevented Taiwanese firms with major assets in mainland China from listing at home. This meant they tended to list in other markets instead, such as Hong Kong. It is hoped that the new regulations will see a host of Taiwan’s China-focused businesses return to their home market to list shares – and boost Taipei’s ambitions as a financial centre.

Which leads nicely to the other major agreement made on Sunday. A 12 point financial services agreement will see a clearing system set up to facilitate the conversion of the Chinese and Taiwanese currencies. It will also allow financial services firms, such as bank and insurers, to do business – and invest – in each other’s territory.

It’s all enough to make Tuan Tuan and Yuan Yuan proud.


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