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China offers protection to Taiwan investors

Protests outside the meeting where the investment deal was signed. (AP Photo)

Financial Times | August 9, 2012

China offers protection to Taiwan investors

By Sarah Mishkin in Taipei

China and Taiwan have signed their first investor-protection agreement in the latest sign of the momentum behind President Ma Ying-jeou’s drive to strengthen his country’s relationship with China, its biggest trade partner and frequent political adversary.

The pact, signed on Thursday in a hotel picketed by anti-China protesters, is designed to address Taiwanese concerns about resolving business disputes in China as well as questions about their rights if detained there.

The agreement provides, among other measures, a way for companies to settle some business disputes out of court.

It is also an important sign of progress in long-running trade talks between the two governments that could expand cross-strait business and lead to new tie-ups between Chinese and Taiwanese companies, businessmen and analysts said. That, they add, could give a much-needed boost to Taiwan’s export-oriented economy, which has suffered from falling consumer demand in Europe and the US.

A previous agreement between the two countries in 2010 lifted some tariffs, and negotiations continue with regard to a follow-up agreement about investments in services and other sectors.

“By [China] granting Taiwan an investment-protection agreement, the Taiwanese might now be inclined to lower their trade barriers, especially in sensitive industries,” said Waiho Leong, an economist with Barclay’s covering Taiwan.

Further liberalisation could lead to “some interesting moves in M&A” as Chinese companies look to buy intellectual property and gain manufacturing knowhow from Taiwanese producers, said Mr Leong.

For Taiwan, further investment from China could boost its economy, analysts say. The country fell into a temporary recession last year, and its exports have fallen for the past five straight months. Trade with China has begun to flag as its economy has begun to slow, but many businesses and economists hope expanded trade ties could reinvigorate that.

But the new investor-protection agreement itself will not be much help to those businesses from Taiwan having trouble in China, say many who work for and with companies engaged in cross-strait deals.

Provisions in the new agreement to allow third-party mediation of disputes would be “basically not possible” because of difficulties enforcing decisions, said Yang Cheng-hsien, a lawyer for Sogo Pacific, a large department store operator.

Sogo has had a long-running dispute with its landlord in the northern city of Dalian. The store there went without electricity for two months because of the disagreement, said its lawyer.

“They always say they will respect the contract, and at the end of the day, it’s just saying,” he said.

Taiwanese companies were some of the earliest foreign investors in China, many are also among those most affected by its drive to modernise its manufacturing base, said Yang Ming Hsun, a senior partner at the Weiser law firm in Taipei, who handles many cases involving cross-straits business.

Beijing has urged Taiwanese companies to move from manufacturing centres in the south of the country to lesser-developed areas in the west and central China.

Additional reporting Jason Liu, Taipei

 source: FT