The Taiwan Banker

Taiwanese investment into Southeast Asia has always been dominated by manufacturing. In the medium-to-long term, though, services – particularly FinTech, telecommunications infrastructure, real estate, medicine, and even premium agriculture, will be the main growth drivers in ASEAN countries. All of which are areas where Taiwan can invest.The government is conspicuously publicizing the results of its New Southbound Policy. In 2017, trade with “New Southbound” countries grew 15.6％, higher the 12.9％ growth of Taiwan’s global trade. In terms of investment, Taiwan’s investment in these countries grew 54.5％, while reverse investment grew 15.8％.The Investment Review Committee of the Ministry of Economy’s 2017 Investigation and Analysis Report on the Operating Conditions of Overseas Investments states that Taiwan’s traditional industries have tended to invest in Vietnam, making up 28.52％ of its investments. Service sector investments, making up 24.73％ of its investments, have been concentrated in Malaysia, Singapore, Indonesia, and the Philippines. Each year from 2012-2016, Vietnam was listed as a top 10 foreign Taiwan investment destination.As for industry classifications, the service industry – particularly FinTech, telecommunications infrastructure, transport, real estate, medicine, and even premium agriculture – will be the main driver for growth in ASEAN economies in the mid-to-long term. All of these areas have been strongly supported by local governments, and are open to foreign capital. Taiwanese businesses must carefully measure the openness and domestic demand levels of different countries to catch business opportunities in New Southbound countries.The rise of Vietnamese market demand: the promise of retail technology financingThe population of Vietnam is about 93,700,000, of which 60% is under age 30. Its young labor force and huge consumer markets, plus an annual growth rate over 6％, have attracted a large amount of foreign investment, including from Taiwan. Aside from its economic strength, Vietnam is also one of the few ASEAN members who have joined both the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). It is also an important partner of China in promoting the Asian Infrastructure Investment Bank and the Belt and Road initiative.Taiwanese business has long been involved with Taiwan, investing and setting up plants as early as the late 1980’s. According to statistics from the Ministry of Economic Affairs Bureau of Foreign Trade, in 1992, Taiwan’s investment in Vietnam approached US$1 billion, reaching US$30.9 billion in 2017, a multiple of nearly 31. Taiwan ranks fourth in Vietnam’s foreign capital contribution, behind only Korea at US$57.7 billion, Japan at US$49.5 billion, and Singapore at US$42.2 billion.Notably, more than 80% of Taiwan’s investment in Vietnam is in manufacturing and production, higher than for its other main sources of foreign capital. Textiles, shoes, food processing, rubber and plastic, wood furniture, paper, machinery, and agriculture, forestry and aquatic products make up the bulk of this category. In recent years, some Taiwanese investment has gradually moved towards the technology and service industries.Investment is mainly concentrated in Ho Chi Minh City and Binh Duong and Dong Nai Provinces in the south of Vietnam, and Ha Tinh Province in central Vietnam. Small and medium-sized manufacturers are mainly concentrated in Binh Duong, while larger manufacturing and construction investments are mainly found in Ho Chi Minh and Dong Nai. As the South is becoming increasingly saturated, since 2006, northern areas around Hanoi, Taiwanese investment has gradually increased. Investment has been dominated by capital- and technology-intensive industries, especially IT and electronics. After technology giants such as Hon Hai gradually entered Vietnam, other manufacturers followed. In central Vietnam, the Formosa Plastics Group invested US$10.3 billion in Ha Tinh to establish the longest continuously operating steel plant.With Vietnam’s per capita income rising by year, retail consumption, food chains, financial services, and housing is bound to generate new demand. With active investment marketing from local governments, Vietnam is shifting from its past focus on traditional manufacturing to tech and domestic service markets. How can Taiwan find opportunities to grow in Vietnam? Aside from retail, food chains, financial services, real estate, and entertainment industries, industries related to high-end agriculture, medicine, education, and infrastructure are also promising investment areas.Relaxed controls in Cambodia; good prospects for land and property developmentThe population of Cambodia is about 15,960,000, of which one-fifth is concentrated in Phnom Penh, the capital. Among the ASEAN countries, Cambodia is recognized as having the least investment control. In order to attract foreign investment, its government recently adopted liberalization measures including relaxed foreign exchange controls and limits on profit repatriation, simultaneous circulation of American dollars and Cambodian riel, establishment of foreign-funded companies with 100% equity, and preferential tax cuts for foreign investment.Cambodia is also one of the most promising ASEAN economies. Since 2010, it has grown over 7％ each year. The Overall 2017 Economic and Financial Performance and 2018 Outlook report published by the National Bank of Cambodia (NBC), forecasts its growth to reach 6.9％in 2018. Other international organizations, such as the International Monetary Fund (IMF), World Bank (WB), and Asian Development Bank (ADB) have forecasted 6.8％, 6.9％, and 7.1％ growth, respectively.Taiwanese business started entering into Cambodia for investment in 1989. According to statistics from the Cambodian Development Council (CDC), from 1994 until the end of 2015, Taiwan made 335 investments in Cambodia, for an investment amount of US$3.919 billion, making it Cambodia’s 7th largest foreign investor, after China, Korea, Malaysia, the U.K., Vietnam, and the U.S.Successful Taiwanese projects in Cambodia currently include textiles, footwear, agricultural development, agricultural processing, and wood processing. Garments and footwear are the largest among these categories, making up 70% of its exports, earning Cambodia much foreign exchange. Well-known textile companies listed in Taiwan, including Nien Hsing, Everest, and Eclat all have factories in Cambodia. QMI Group, the largest garment manufacturer in the region, is also the only Taiwanese-funded company listed on the Cambodian stock market.More recently, Taiwan has expanded its investments in Cambodia to services such as restaurants, hotels, tourism, medical services, finance, and real estate development. Some Taiwanese businesses have even cooperated with local businesses to enter real estate. For example Taiwan’s well-known multinational footwear company Jigi Group set up factories in Cambodia as early as the 1990’s, and recently established J&L Property Development’s associated companies Wenchuang Real Estate and Songying International Real Estate, and transformed them into developers. It launching SKYTREE in Phnom Penh, receiving US$35,000,000 in syndicated loans from six domestic banks including the Phnom Penh branch of Taiwan Cooperative bank, making it not only become the first international joint civil engineering project in Cambodia, but also the first large-scale joint loan since the government started promoting the New Southbound Policy.Riding the Philippine train: technology and premium agricultureWith a total population of more than 100 million, the Philippines has an abundant demographic dividend and offers substantial potential for domestic demand. With the government’s rigorous promotion of construction, its growth rate has exceeded 6％ for six consecutive years, second in Asia only to China and Vietnam.Taiwan invests across multiple sectors in the Philippines, including automotive, sanitary wares, textiles and garments, agriculture, fisheries, and aquatic products, electronics, metallic and non-metallic products, pulp and paper, rubber and plastics, chemicals, foodstuffs, financial insurance, solar power plants, real estate, and construction. In May 2017, Asus celebrated its 10th anniversary in the Philippine market. Over the past five years, its Philippine sales have tripled in size. In January 2017, despite having exported mobile phones to the Philippines for only 3 years, its sales have already entered the top 5, its computers were in 2nd place, and its high-end notebooks were in 1st place. Sales prices of its computers were higher than for their gaming devices, taking up 47％ of the Philippine market share.Under the New Southbound Policy, using the Philippines as a manufacturing base, Taiwan should enter the Philippine market in order to create new benefits. Projects like high-end agriculture, bicycles, sightseeing, high-tech, and real estate development are all areas of potential cooperation. The Philippines can provide Taiwan with low tariffs and professional human resources for products for sale in Europe and America, and Taiwan can help them upgrade them upgrade their technology and gain experience – creating a win-win situation.Three ways for banks to assist in the New Southbound PolicyHow can banks help the government in its rigorous promotion of the New Southbound Policy? Huang Bo-Yi, Chairman of Taiwan Business Bank (TBB), pointed out that banks can assist on three levels. The first is “going out,” adding branches, providing local financing; the second is “deepening,” extensively combining external resources to help develop and take advantage of domestic demand in New Southbound countries; and the third is “bringing in,” building an environment that will attract companies and individuals in New Southbound countries to come to Taiwan for investment and exchange.Huang said that the New Southbound Policy is way for Taiwan to establish a foothold and move towards the world. Not only can it create a path forward for Taiwan, but it can also help rescue its banking industry. Therefore, banks should adopt new strategic thinking to support the policy, shifting from a mindset of traditional manufacturing to long-term services, not just setting up branches in these countries, but also playing other roles.In other words, they will play an overall supporting role. Aside from providing funds, they should also assist with corporate coaching and consulting, to help competitive small and medium enterprises (SMEs) to internationalize. Taking TBB as an example, they cooperated with agencies such as credit insurance funds and foreign trade associations to help their clients step onto the international stage.In addition, cultural development and exports are good catalysts to help companies enter New Southbound markets, and to attract their business and individuals to Taiwan. Huang suggested taking the experiences of Japan and South Korea as reference, injecting capital into the cultural and creative industries, and cultivating the attitude of New Southbound countries towards Taiwanese companies and products then through this cultural output, to help Taiwanese companies more smoothly enter local markets, and attract their counterparts to Taiwan.Huang said that TBB has spared no effort to support the cultural and creative industries. In the past, they have successfully supported high-quality Taiwanese films such as Cape No. 7, Warriors of the Rainbow: Seediq Bale, and Night Market Hero, promoting Taiwanese culture abroad. In the future, TBB will continue to support high-quality Taiwanese creative works, and it will encourage creations fusing the cultures of Taiwan and New Southbound countries.Aside from assisting companies to develop in New Southbound countries, the Taiwanese banking sector can also help create an environment to attract its counterparts to Taiwan. Taking TBB as an example, Huang will soon launch “New resident individual and business startup concessional loans,” not only showing his concern for new residents, but also helping them to develop their dreams in Taiwan.