Straits talk

Higher costs for energy and land, labor shortages, and a strengthening currency are jeopardizing China's hold on the title of the world's lowest-cost producer - challenges that will force Taiwanese businesses to change their approach on the mainland, says Felix S.T. Chen, former chairman of Sampo Group, one of Taiwan's leading home appliance makers.

"Many Taiwanese companies long viewed the mainland as a cheap production base for their exports. That business model is nearing its end," Chen says.

One of the first businessmen from Taiwan to invest on the mainland, Chen has since 1990 formed 15 joint ventures and wholly owned subsidiaries in the Pearl and Yangtze River Deltas. His businesses cover a wide range of products, from air conditioner compressors to flat TVs, from refrigerators to washing machines, most of which are made for export.

As China plays an increasingly important role in the global economy, Taiwanese companies now have to compete with not only international giants but also fast-growing local mainland companies.

Chen says the best way for Taiwanese companies to remain competitive and move forward is to look inside the mainland - no longer only outward - to make full use of its abundant resources and vast domestic market.

The first challenge for Taiwanese businesses 10 years ago was to turn the mainland into their preferred manufacturing base, making products that were then exported around the world. Chen says in today's global market the key is to carefully study the mainland itself.

Tens of thousands of businesspeople from the island have traversed the Taiwan Straits over the past two decades to cash in on the Chinese government's favorable policies and the mainland's low production costs.

China approved 75,146 mainland projects funded by Taiwanese companies since 1989, according to figures from the Ministry of Commerce, reaching a total of $45.76 billion in direct investment by the end of last year.

Taiwanese investment accounts for 6 percent of the mainland's total from overseas, while its trade with the mainland has reached $124.48 billion, rising 15.4 percent year-on-year. The island is now the mainland's seventh-largest trading partner.

Investors from Taiwan first made landfall on the mainland in Fujian province in the 1980s and later concentrated on Guangdong province in the Pearl River Delta region. In the mid-1990s their attention moved to the Yangtze River Delta as the eastern region became an enormous manufacturing center.

Chen says the Bohai Bay area in the north will become the next focus.

"The Bohai Bay area is like a piece of virgin land, as many companies are facing increasing challenges in the overcrowded southern region, such as labor shortages and rising electricity and water costs," Chen says, adding that the northern region also boasts a solid industrial base and excellent harbors in Qingdao, Dalian and Tianjin.

"With new policies, new management and new investors, the Bohai Bay area is expected to become a new growth engine of China," Chen says.

His confidence is further enhanced by the Chinese government's announcement in June 2006 that it will introduce comprehensive reforms to create a new powerhouse in North China rivaling Shenzhen in the south and Shanghai in the east. Binhai New Area, a State-level development zone 50 km from Tianjin, will become an experimental zone for those reforms.

'China heart'

"Taiwan's economy would never have prospered if it had isolated itself from the mainland," says 60-year-old Chen, who has handed the management of Sampo to his younger brother. He now lives in Beijing and spends most of his time promoting relations across the Taiwan Straits.

Born in Taiwan, Chen says his first impression of the mainland came from a picture album his father showed him at the age of 10.

"He showed the book to me, page by page, and told me lots of interesting stories about the beautiful scenery and customs of the mainland," Chen recalls. "My parents always told me I should be proud of being Chinese."

He made his first trip to the mainland in 1988, one year after he succeeded his father, Sampo's founder, as general manager of the company.

"When the plane was ready to land in Beijing, I was overwhelmed with the strong feeling of coming home and almost burst into tears," says Chen, who still remembers his first meal on the mainland was shuanyangrou, or instant boiled mutton, at the famous Donglaishun restaurant.

The State Council issued a policy called Provisions for the Encouragement of Taiwan Investment in 1988 as the mainland's economy was set to take off due to a series of opening up and reform policies.

"Sampo knew it must catch the opportunity and jump onboard to grow faster," Chen recalls.

With support from Vice-Premier Wu Yi, who was Beijing's vice-mayor at that time, Chen set up a 50-50 joint venture in 1990 with a State-owned washing machine factory in Beijing to produce microwaves, 70 percent of which were exported. He later expanded his business to Tianjin, Shanghai, Jiangsu and Guangdong provinces.

Chen has been active in promoting exchanges between young people on both sides of the Taiwan Straits. He is one of the first Taiwan businesspeople to award scholarships to university students, beginning in 1991. More than 4,000 students from Beijing, Tianjin and Suzhou, usually among the top three at science and engineering departments, have been recipients. He has also organized university students from the mainland to visit the island since 1995 and sponsored Taiwanese students to visit the mainland since 2001. Hundreds have participated in the programs.

"These young people will become the elite of society. I hope, little by little, the barriers across the Straits will be removed through exchanges," Chen says.

Chen, 60, is now learning to sing Peking Opera.

"Chinese people believe 60 years form a big cycle, called jiazi. To me, turning 60 is like getting young again and I can do things I could not do before," Chen says.

(China Daily 03/03/2008 page12)