Ma Sees Want Want in China Bring Prosperity as Shares Surge 39%
Ma Ying-jeou, Taiwan's president, arrives for an interview at the presidential office in Taipei, July 31, 2009.
Photographer: Maurice Tsai/Bloomberg
In a wood-paneled boardroom in downtown Shanghai, Everett Chu pauses from his job overseeing the finances of snack food giant Want Want China Holdings Ltd. to marvel at the fickleness of history.
Sixty years ago, Chu’s father, an officer in Chiang Kai-shek’s army, was on the losing Nationalist side in China’s civil war. When Chiang escaped to the island stronghold of Taiwan, the elder Chu was among the troops trapped on the mainland by Mao Zedong’s victorious Communists.
Chu, who was wounded, and 10,000 other survivors crossed into the Golden Triangle, the opium-growing region of Burma, Laos and Thailand. Many became kingpins in the heroin trade.
“Had my dad stayed, I would have become a drug dealer,” his son says.
Instead, the senior Chu chose evacuation to Taiwan and made it the family home. Today, his son is Want Want’s chief financial officer and is living and working in the land his father fled. Want Want, which is controlled by Taiwanese billionaire Tsai Eng-meng, has grown into the world’s largest maker of rice crackers by running 34 factories and generating more than 90 percent of its $1.53 billion in sales last year in mainland China.
“We share the same culture and language and ancestors,” Chu, 44, says. “As long as the political situation remains very friendly, we have a unique opportunity to become the No. 1 food and beverage company in the world.”
Ma Ying-jeou, Taiwan’s new president, is pressing to make ties even closer. He’s easing investment and travel barriers that have impeded Want Want and 100,000 other Taiwanese companies that do business on the mainland -- angering opponents who say he’s playing into the hands of Chinese President Hu Jintao.
Since 1988, when Taiwan lifted a ban on its citizens’ visiting China, Taiwanese enterprises have invested as much as $200 billion in their giant neighbor.
Ma’s predecessors enforced restrictions to slow the loss of capital, jobs and technology. Since Ma took office in May 2008, he has relaxed those rules by re-establishing direct air, sea and postal links severed in 1949.
Beijing eased its ban on Taiwan-based tourism, and the two sides are now freer to invest in each other’s banking, insurance and securities industries.
For Ma, whose government still calls the country the Republic of China despite the 1949 defeat, reaching across the Taiwan Strait is a high-risk, high-reward strategy.
He hopes that hitching Taiwan’s economic fortunes to the world’s fastest-growing major economy can lift his nation out of recession. His critics say China’s leaders may use economic integration to ultimately bring the island they regard as a Chinese province under Beijing’s control.
Investors so far have endorsed the cross-strait thaw. Taiwan’s Taiex index jumped 62 percent this year through Sept. 29 after a 46 percent plunge in 2008. That’s better than the 46 percent rise in the benchmark Hang Seng Index in Hong Kong, the biggest Chinese market for foreign capital.
This year, overseas investors pumped an additional $11 billion into Taiwanese stocks as of Sept. 29 compared with a net outflow of $14.4 billion in 2008, according to data from the Taiwan Stock Exchange.
Want Want Rallies
Chu and Tsai took advantage of one of Ma’s relaxed rules in April. Want Want, whose Chinese characters signify prosperity, became the first company to sell shares in Taipei after the Taiwan exchange lifted a ban on capital raising by companies whose investment in mainland China exceeds 40 percent of their net worth.
Want Want shares promptly surged 39 percent from April 27 to Sept. 29 -- more than double their 17 percent rise in Hong Kong, the special administrative region of China where Want Want has its primary listing.
Shares of Ju Teng International Holdings Ltd., a Taiwanese company that makes notebook computer casings on the mainland, soared 169 percent since the company sold stock in Taipei in May. Its Hong Kong shares climbed 34 percent.
“Warm cross-strait ties will create, long term, a more benign business environment for Taiwanese companies as they further penetrate the China market,” says Wang Lei, who helps manage $44 billion, including Taiwanese shares, at Thornburg Investment Management Inc. in Santa Fe, New Mexico.
It has taken six decades for the two Chinas to get this far. Beijing’s communist regime celebrates the 60th anniversary of Mao’s victory on Oct. 1. For 59 of those years, relations across the 90-mile-wide (145-kilometer-wide) strait ranged from bad to terrible.
The rivals maneuvered militarily and diplomatically over which was China’s rightful government. In 1971, mainland China won the United Nations seat previously held by Taiwan, sidelining Taipei from international forums. In 1979, the U.S. switched diplomatic recognition to Beijing.
Ma, 59, who as a marine had patrolled the strait on warships during the early 1970s before graduating from Harvard Law School, has reaffirmed the “One China” principle: Each side accepts that there is only one China while agreeing to differ over the precise definition of “One China.” So far, the compromise has defused Beijing’s long-standing threat to invade should Taiwan declare itself an independent state.
‘No. 2 Economy’
After Ma’s overtures, China offered a hand to Taiwan. It agreed to help mainland companies invest in the island to balance what until now has been a largely one-way flow of capital.
Beijing also lifted a ban on tourist visits to Taiwan last year, resulting in more than 375,000 trips by mainlanders. And it announced it would purchase $2 billion worth of flat-panel displays from Taiwanese companies.
“The mainland is rapidly becoming the No. 2 economy in the world and is almost the No. 1 exporter,” says Ma, who has knocked off 65 sit-ups and jogged 3 miles before meeting reporters in July in the 90-year-old presidential office, where a bronze bust of Chiang still greets visitors in a domed entrance hall. “It’s the way for Taiwan’s survival.”
Ma’s opponents say his stance opens the door for China -- with its $4.4 trillion economy last year -- to swamp the island and win economic control. Beijing also boasts the world’s biggest army and has as many as 1,150 short-range missiles pointed across the strait, according to the U.S. Defense Department.
‘A Lot of Mistrust’
“There’s a lot of mistrust in Taiwan over China’s intentions,” says Hsiao Bi-khim, director of the international relations department of the Democratic Progressive Party, which ruled Taiwan from 2000 to 2008. “Ma is moving too fast.”
Ma’s policy is helping Chinese President Hu, who came to power in 2003, says Huang Jing, author of “Inseparable Separation: The Making of China’s Taiwan Policy” (World Scientific Publishing, 2009).
“The endgame is to make Taiwan’s independence realistically impossible so it has no other way to go,” Huang says. “Hu Jintao makes economic concessions so he gains politically.”
Sun Zhe, a senior adviser to the Taiwan Affairs Office, China’s agency for Taiwanese policy, calls that approach a case of killing two birds with one stone.
“The first bird is, you can win the heart of the Taiwanese people because you have a favorable policy toward them,” he says. “Another bird is to try to enmesh Taiwan’s economy so it will be more difficult for Taiwan’s independence.”
For Taiwan, which foreigners once called Formosa, the world’s third-largest economy offers a potential lifeline. The territory, which is the size of the Netherlands, is battling its worst economic slump on record.
Gross domestic product contracted by 10.1 percent in the first quarter, the poorest performance since record keeping began in 1952. The second quarter was marginally better with a 7.54 percent decline. Unemployment was a record 6.07 percent in August. Exports, which account for 70 percent of GDP, may tumble 21 percent this year, the statistics bureau forecasts.
To make things worse, a typhoon killed more than 600 people in August and caused $3.3 billion in damage, leaving Ma’s administration fighting charges it had bungled disaster prevention and relief operations.
The president, who appeared confident as he outlined his China strategy in July, was forced to bow for seven seconds in a public apology just two weeks later.
Opposition DPP chiefs wasted no time in further embarrassing Ma by inviting Beijing’s nemesis, the Dalai Lama, to visit Taiwan to pray for victims.
Ma, whose popularity after the typhoon tumbled to as low as 29 percent before rebounding to 40 percent in September, allowed the trip but declined to meet the exiled Tibetan leader.
Then, on Sept. 7, Liu Chao-shiuan, Taiwan’s premier, and the entire cabinet resigned over government handling of the typhoon aftermath. Ma replaced Liu with Nationalist Party Secretary-General Wu Den-yih.
“Ma should have been more responsive,” says Hugh Simon, who oversees $1.8 billion, including Taiwan stocks, as Hong Kong-based chief executive officer of Hamon Investment Management. “He didn’t learn from the mistakes America made when Hurricane Katrina hit New Orleans.”
The country’s pro-independence opposition suffered a blow of its own in September: Former Taiwanese President Chen Shui-bian of the DPP was jailed for life for corruption during his eight years in office.
Ma, who served as Taiwan’s youngest justice minister from 1993 to 1996, says he understands people’s concerns that China’s economic machine could subsume Taiwan. He says his government is moving cautiously by continuing to restrict investments in telecommunications, semiconductors and other strategic industries.
He won’t discuss reunification with China during his presidency, which would run until 2016 if he’s re-elected for a second term in 2012. He says he would never enter peace talks with missiles pointed at Taiwan.
“Our policy is to minimize the threat and maximize the opportunity,” he says.
Taiwan’s leaders have seized opportunity in the past. Under Chiang and his successors, the economy has expanded an average of 7.64 percent a year for 50 years.
The government has amassed $325.4 billion in foreign reserves -- a fraction of China’s $2.1 trillion but still the world’s fourth-biggest stockpile and more than the euro zone and U.S. combined, according to data compiled by Bloomberg. GDP per capita is $17,000 -- more than five times that of the mainland.
Over the years, Taiwan has transformed itself from a sweatshop producing Barbie dolls and toy cars into a technology powerhouse centered in the Silicon Valley-like Hsinchu Science Park outside Taipei.
Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp., the world’s biggest producers of made-to-order chips; Quanta Computer Inc., the largest notebook computer maker; Acer Inc., the No. 3 computer supplier; and Hon Hai Precision Industry Co. anchor the tech economy. Hon Hai makes iPhones for Apple Inc., computers for Hewlett-Packard Co. and mobile phones for Nokia Oyj.
“The U.S. invented the computer, but Taiwan made the computer very popular,” Acer founder Stan Shih says.
Taipei, a city of 2.6 million on the northern tip of the island, has become more international and less of a shrine to Chiang Kai-shek. In 2006, the then-ruling DPP renamed the airport to remove Chiang’s name; so far, Ma hasn’t restored it.
This year, the government did return Chiang’s name to the 70-meter-high (230-foot-high) monument to him that the DPP had renamed Taiwan Democracy Memorial Hall. Even so, the hall is no longer the dominant landmark in a dowdy, low-rise city. Since 2004, it has been overshadowed by Taipei 101, a 500-meter-high office tower with pagodalike flourishes that is the world’s second-tallest building.
Growth on the mainland has been even more rapid. China’s GDP has surged an average of 10 percent a year for the past three decades, lifting more than 300 million people out of poverty, according to the United Nations.
“You could say both sides have emerged winners,” says Jonathan Fenby, director of China research at London-based Trusted Sources Ltd. and author of “The Penguin History of Modern China” (Allen Lane, 2008).
‘Dangerous Flash Point’
Taiwan’s ultimate fate will have ramifications around the globe. The island is a key ally of the U.S., which is committed to selling it weapons for defense under the provisions of the 1979 Taiwan Relations Act.
“The Taiwan Strait is the most dangerous flash point in East Asia, more dangerous than the Korean peninsula,” Ma says.
Taiwan is also crucial in checking Chinese military expansion in the Pacific, says Andrew Yang, Taiwan’s deputy defense minister and former president of the Taipei-based Chinese Council for Advanced Policy Studies.
“If Taiwan is integrated with Beijing, the security umbrella the U.S. has built up over the past 60 years stretching down from Korea, Japan, Taiwan to the Philippines will be ineffective,” he says. Yang doesn’t expect that to happen in the foreseeable future.
Hamon Asset Management’s Simon says Taiwan’s strength as a technology hub will give it a unique and profitable role in China’s development.
“Just as Hong Kong became China’s offshore financial center, Taiwan could become its offshore technology center,” Simon says.
For that to happen, much will depend on the likes of Morris Chang, the urbane, pipe-smoking founder and CEO of Taiwan Semiconductor. Chang, 78, has lived through the disasters and triumphs of modern China and Taiwan.
When he was born in Ningbo, south of Shanghai, in 1931, China was in turmoil. The last emperor of the Qing dynasty had been overthrown in 1911 by Sun Yat-sen’s Nationalists. Successor Chiang Kai-shek was still battling local warlords and communists for control of the country. Taiwan was a Japanese colony.
Japan invaded the mainland in 1937. Chang’s family fled to Hong Kong, where respite was brief. In December 1941, a day after the attack on Pearl Harbor, the Japanese invaded Hong Kong. When Japan was defeated in 1945, the Changs moved back to China. As the civil war intensified, the family once again sought sanctuary in Hong Kong, from which they found their way to the U.S.
While Chiang was establishing a Nationalist dictatorship in Taiwan, Chang was studying at Massachusetts Institute of Technology. He graduated with a master’s degree in 1953.
Two years later, he joined Dallas-based Texas Instruments Inc., rising to head of the global semiconductor business. He got a Ph.D. in electrical engineering from Stanford University in California in 1964. In his spare time, he became a top bridge player.
After Taiwanese leader Chiang died in 1975, his son Chiang Ching-kuo succeeded him, ended martial law and set about creating a technology-based Asian tiger. The government headhunted Chang in 1985 to lead Taiwan’s Industrial Technology Research Institute.
“I was tired of the rat race and financially independent,” Chang says of life in the U.S. “They invited me with all the sincerity and earnestness at their disposal.”
Chang founded Taiwan Semiconductor with a staff of 120. The company grew as Taiwan evolved into a democracy despite muscle flexing across the strait. In his headquarters at Hsinchu, Chang says Ma is doing the right thing in building bridges to the mainland.
‘We Can Help’
Under Taiwanese law, Taiwan Semiconductor, which has a plant in China, is restricted in what it can manufacture because the government wants to keep production of sophisticated technology at home.
In June, Ma said Taiwan hadn’t ruled out letting tech companies build factories to make 12-inch silicon wafers on the mainland instead of the current plants, which make 8-inch wafers. The larger wafers help companies cut costs.
Chang says he’s ready for any opportunity that Ma’s leadership brings. Taiwan Semiconductor became the top custom chipmaker, with a workforce of 20,000, by supplying Qualcomm Inc. and other U.S. companies that don’t have their own fabrication factories. He sees the chance to work with so-called fabless semiconductor makers on the mainland.
“China needs the same kind of help that the U.S. got from us 20 years ago,” Chang says. “We can help them the same way.”
Pioneers in industries from banks to airlines, to food are already pouring resources into China. Philip Wei, chairman of China Airlines Ltd., Taiwan’s biggest carrier, reckons he’s a global rarity -- an airline boss whose business is growing. Until last year, the lack of direct flights meant that what should have been a 90-minute trip from Taipei to Shanghai became a daylong ordeal with a stopover in Hong Kong, Seoul or Tokyo.
Last year, China Airlines lost 32.4 billion Taiwan dollars -- almost $1 billion. After Ma lifted the direct-flight ban, the airline reported an $18 million profit in the second quarter -- the first in seven quarters -- mainly from gains from fuel price hedging. Wei is adding six new China routes to seven existing ones. “We are actually expanding,” Wei, 67, says. “We are very optimistic for future growth.”
Billionaire Tsai Ming-chung, chairman of Taipei-based Fubon Financial Holding Co., has acquired a 20 percent stake in China’s Xiamen City Commercial Bank. Xiamen is one of the biggest cities in Fujian, a province of 35 million people directly across the strait from Taiwan. Taiwanese and Fujianese from Xiamen share the same dialect.
‘Front Line of Peace’
Xiamen became a symbol of warming ties in August. Taiwan tore down wartime defenses and swept for land mines on the island of Kinmen, also known as Quemoy, to let 50 competitors from each side swim between it and Xiamen. The Chinese had bombarded Kinmen with 470,000 artillery shells in one 44-day period in 1958.
“We shelled them, and they shelled us,” Fubon President Victor Kung says. “Now, Xiamen is on the front line of peace. They treat us like brothers.”
The two erstwhile enemies are even exchanging furry animals. China gave Taiwan two giant pandas, Tuantuan and Yuanyuan, whose names together form the Chinese words for unity. In return, Taiwan said it would send the mainland a pair of sika deer and two Formosa antelopes, naming the animals with the words for forever.
An exhibition of Chinese antiquities will follow the pandas to Taiwan in October. In 1949, when Chiang fled China, he infuriated Mao by removing treasures and displaying them in Taipei’s National Palace Museum. Now, China has put more of them on loan until January. And China, which normally blocks Taiwan’s attempts to assert its identity, didn’t veto a World Health Assembly invitation.
What would Chiang make of rapprochement with the mainland communists?
“He would support it,” Ma says from his vantage point in the presidential office where Chiang once ruled. “He fought a bloody civil war and lost. He rebuilt the Republic of China. But we have established a full democracy, which is something he was unable to do.”
Now Ma must rekindle the growth that propelled Taiwan to become one of Asia’s first tiger economies. As he encourages Want Want’s Chu and like-minded entrepreneurs to embrace a land where their fathers fought and lost, he’s gambling that Taiwan can forge economic ties with China without falling into that country’s political clutches.