108.06台灣銀行家雜誌第114期 / By Hank Huang (黃崇哲)
Taiwan Must Optimize the Utilization of its Abundant CapitalEditor’s note
As the Sino-U.S. trade war has escalated, the dispute has gradually expanded from tariffs to competition in key industries. Starting last year, Taiwanese businesses located in China began considering how to reallocate some of their production capacity away from China to mitigate tariff-related risks. The government, keen to capture this business, issued the timely Welcoming the Return of Taiwanese Investment Initiative Act. The policy includes three-year land, tax and other incentives to bring home Taiwanese manufacturers from China. Thus far, businesses have responded positively, Furthermore, the Executive Yuan proposed the draft Regulations on the Management and Use of Returned Overseas Funds, addressing the issue of nationals’ funds which were previously stranded overseas. This legislation, which partially forgives taxes on personal funds and overseas business investments, hopes to strengthen the incentives to repatriate funds, thereby injecting money into the domestic economy and capital markets. Unfortunately, though, these policies have not yet addressed a longstanding bottleneck: a lack of worthy investment targets. Taiwan has excessive investment in real estate, which has caused property prices to skyrocket, and insufficient investment in areas that would boost economic productivity. The government must figure out a way to better use the large amount of idle capital in the Taiwanese financial system. There have been several calls in Taiwan to establish a sovereign wealth fund. Since the main source of funds for these projects was overseas, however, these initiatives did not bear fruit. After all, the Taiwanese central bank, holding Taiwan dollar reserves, is not like Singapore’s or Abu Dhabi’s sovereign wealth funds, which require safer operations, and are not suited for high-risk investments. In contrast, although funds including labor insurance, labor pension, national pension, and retirement pension are not called sovereign wealth funds, they already embody their strengths. Nevertheless, these funds only pursue growth in existing financial markets. There is no clear national strategy for them to boost large-scale infrastructure development, contribute to the growth of capital markets, or hedge risks. Therefore, if the government can assume a greater role in guiding these returned funds, it may be able to finally take steps to boost economic productivity. Venture capital investments, long-term national infrastructure debt, and international cooperation are all good ways for big capital to share profits and spread risks. From the perspective of overall fund usage, the success stories of sovereign funds in financial products and planning are worthy of careful study.More importantly, the international supply chain restructuring caused by the trade war is bound to increase the intensity of global capital competition. In the past, Taiwan was overly focused on manufacturing, processing, and exports, while the international competitiveness of its financial services received less attention. It’s rare to see outstanding Taiwanese financial brands; due to the lack of local investment targets, the life insurance industry has invested nearly NT$ 20 trillion overseas. The industry has repeatedly missed opportunities to add value for domestic savers. If Taiwan wishes for these capital inflows to go somewhere besides real estate speculation, the industry must seize the opportunity for transformation, and prioritize creation of a larger variety of investment products.In the Chinese classic The Mencius, Duke Wen of Teng asked Mencius, “Teng is a small state, squeezed between the large countries of Qi and Chu. To whom should we submit?” Mencius wisely replied, “Being in the middle, you are not small.” Only through self-reliance could Teng achieve great results. Taiwan, likewise sandwiched between two great powers, is likely to have to choose sides in the aftermath of the trade war – and to face the consequences that arise. Its abundant pool of funds, combined with a flexible overall strategy, may prove to be one of its most important assets.