Towards a Safer Food Supply 陳又銘, 王先棠強化食品安全

2017/9/8 11:44:40 AM ISSUE SPONSOR September 2017 | Vol. 47 | Issue 9 Issue | 47 Vol. | 2017 September Published by the by Published Commerce Commerce In Taipei American Chamber Of NT$150 強化食品安全 Towards a Safer a Towards Supply Food TAIWAN BUSINESS TAIWAN SUCCESSION CORPORATE INDUSTRY FOCUS FINANCIAL SERVICES Read TOPICS Online at topics.amcham.com.tw Online at TOPICS Read 號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS September 2017 | Vol. 47 | Issue 9 中華郵政北台字第 5000 9_2017_Cover.indd 1

CONTENTS

NEWS AND VIEWS 6 Editorial SEPTEMBER 2017 VOLUME 47, NUMBER 9 In Support of the Taiwan Travel Act 一○六年九月號支持《台灣旅行法》 7 Taiwan Briefs Publisher 發行人 By Timothy Ferry Andrea Wu 吳王小珍 Editor-in-Chief 總編輯 12 Issues Don Shapiro 沙蕩 Tackling White Paper Issues Associate Editor 副主編執續追蹤白皮書議題 Tim Ferry 法緹姆 By Don Shapiro Art Director/ 美術主任/ Production Coordinator 後製統籌 Katia Chen 陳國梅 Manager, Publications Sales & Marketing 廣告行銷經理 Caroline Lee 李佳紋 COVER SECTION Translation 翻譯 Kevin Chen, Andrew Wang 14 Towards a Safer Food Supply 陳又銘, 王先棠強化食品安全

American Chamber of Commerce in Taipei The recent incident of large numbers of 129 MinSheng East Road, Section 3, 7F, Suite 706, Taipei 10596, Taiwan eggs contaminated by pesticide use is but P.O. Box 17-277, Taipei, 10419 Taiwan the most recent of a series of food scan- Tel: 2718-8226 Fax: 2718-8182 e-mail: [email protected] dals in recent years that have shaken con- website: http://www.amcham.com.tw sumer confidence. The government has 名稱：台北市美國商會工商雜誌發行所：台北市美國商會 instituted a number of regulatory reforms 臺北市10596民生東路三段129號七樓706室電話：2718-8226 傳真：2718-8182 in an effort to deal with the issue, but it

Taiwan Business TOPICS is a publication of the American Chamber of remains uncertain whether the current Commerce in Taipei, ROC. Contents are independent of and do not necessarily reflect the views of the Officers, Board of Governors, system is sufficient to stem the problem. Supervisors or members. © Copyright 2017 by the American Chamber of Commerce in Taipei, By Timothy Ferry ROC. All rights reserved. Permission to reprint original material must be requested in writing from AmCham. Production done in-house, Printing by Farn Mei Printing Co., Ltd. 21 Taiwan Turns to Healthy Eating 22 Prison Sentences for 登記字號：台誌第一零九六九號 As consumer interest in organic foods 印刷所：帆美印刷股份有限公司 Food-safety Violators 經銷商：台灣英文雜誌社台北市108台北市萬華區長沙街二段66號 grows, major food companies are entering By Philip Liu 發行日期：中華民國一○六年八月中華郵政北台字第5000號執照登記為雜誌交寄 this market segment. ISSN 1818-1961 By Timothy Ferry

Chairman/ Albert Chang Vice Chairmen/ Dan Silver / Daniel Tseng Secretary: Vincent Shih TAIWAN BUSINESS Treasurer: Al Chang

2016-2017 Governors: Al Chang, Christine Jih, Joseph Lin, 26 Confronting the Edward Shober, Dan Silver, Joanne Tsai, Daniel Tseng, Neil Waters. Succession Issue

2017-2018 Governors: Who will take up the baton Albert Chang, William Farrell, Revital Golan, Tim Ju, Seraphim Ma, Vincent Shih, Leo Seewald. from the current generation

2017 Supervisors: Anita Chen, Nadia Chen, Nick Chen, of Taiwan’s corporate leaders? Bimal Kapoor, Shenoy Raghavendra. By Keith Menconi COMMITTEES: Agro-Chemical/ Melody Wang; Asset Management/ Christine Jih, Derek Yung; Banking/ Victor Kuan; Capital Markets/ Mandy Huang, C.P. Liu; Chemical Manufacturers/ Charles Liang, Michael Wong; Cosmetics/ Shirley Chen, Julien Jacquet, Abigail Lin; CSR/ Lume Liao, Fupei Wang; Energy/ Tina Chen, C.W. Chin; Greater China Business/ Helen ANALYSIS Chou; Human Resources/ Vickie Chen, Richard Lin, Monica Han, Seraphim Ma; Infrastructure/ Wayne Chin, Paul Lee; Insurance/ Paul Low, Dan Ting, Linda Tsou; Intellectual 41 Despite Cross-Strait Property & Licensing/ Jason Chen, Peter Dernbach, Jeffrey Harris, Vincent Shih; Marketing & Distribution/ Wei Hsiang, Political Standstill, Gordon Stewart; Medical Devices/ Terry Lin, Raghavendra Shenoy, Joanne Yao; Pharmaceutical/ Petra Jumpers, Lai Li Trade as Usual Pang, Jenny Zheng; Private Equity/ William Bryson; Public Health/ Joyce Lee, Dennis Lin; Real Estate/ Tony Chao; Where business has slowed, Retail/ Ceasar Chen, Mark Chen, Prudence Jang; Sustainable Development/ Kenny Jeng, Cosmas Lu, Kernel Wang; Tax/ the main reason appears to be Stella Lai/ Cheli Liaw, Josephine Peng; Technology/ Revital Golan, Connie Wang; Telecommunications & Media/ Thomas economic factors. Ee, Joanne Tsai; Transportation & Logistics/ Nick Chen; By Jane Rickards Travel & Tourism/ Anita Chen, Pauline Leung, Achim v. Hake.

cover photo: cna

4 taiwan business topics • september 2017

9 Contents.indd 4 2017/9/8 12:06:56 PM september 2017 • Volume 47 number 9

Eli Lilly and Company

InDustrY F Cus

A Report on the Financial Service Sector Following the Money

By Matthew Fulco

30 Taiwan Banks See an Opening in Southeast Asia Exposure declines in China, though the mainland remains an important market for serving Taiwanese SMEs. By Matthew Fulco 33 Potential Opportunities for Foreign Banks Taiwan’s ambitious plans to develop off- - shore wind power bring the need for project financing. By Marina Finley 35 Building a Domestic Footprint By Don Shapiro - 36 Taiwan Reforms Money- -- laundering Controls -- New York regulators’ fining of Mega Bank last year for lax compliance practices was a - wake-up call. By Matthew Fulco 38 Getting Taiwanese to Engage in Retirement Planning More education is needed on the importance of investment and savings for old age. By Marina Finley

&*$-XO taiwan business topics • september 2017 5

9 Contents.indd 5 2017/9/8 5:23:32 PM E D I T O R I A L In Support of the Taiwan Travel Act ach year in recent years, the “Messages to Washington” Act has been introduced in both houses of the U.S. Congress to section of AmCham Taipei’s annual Taiwan White Paper “encourage visits between the United States and Taiwan at all Ehas strongly argued in favor of more frequent high-level levels.” At a time when bipartisan cooperation in Congress is visits to Taiwan by U.S. government officials. As stated in the rare, it is also gratifying that these bills have generated backing 2017 White Paper, “it has been the Chamber’s experience that from members of both major political parties. periodic visits by high-level officials can make a huge difference The bill in the House of Representatives – co-sponsored in building a strong bilateral relationship and in supporting the by Republicans Steve Chabot and Ed Royce and by Democrat interests of American companies operating in Taiwan.” Brad Sherman – has already been passed by the Foreign Affairs Over the span of the past 17 years, it is remarkable that Committee’s Subcommittee on Asia and the Pacific and sent on only one such trip by a Cabinet-rank official has occurred – the to the full Committee for consideration. In the Senate, a similar April 2014 visit by Environmental Protection Agency Adminis- bill has been proposed by Republicans Marco Rubio, Jim Inhofe, trator Gina McCarthy. By way of comparison, in the single year and Cory Gardner, together with Democrats Sherrod Brown, of 2015 a total of six American Cabinet members made official Robert Menendez, and Gary Peters. visits to India. Passage of the bills would assert the sense of Congress that As large and important a nation as India may be, its volume officials of all levels of the U.S. government are allowed to travel of trade with the United States is not significantly greater than to Taiwan to meet their Taiwanese counterparts, and that high- Taiwan’s. Last year when India ranked as America’s ninth biggest level officials of Taiwan may enter the United States, “under trading partner with a total of US$67.7 billion in imports and conditions that demonstrate appropriate respect for the dignity exports, Taiwan was just slightly behind, in tenth place with a of such officials, to meet with officials of the United States, total of US$65.4 billion. including officials from the Department of State, the Department The logical conclusion is that the disparity in treatment of of Defense, and other cabinet agencies.” these two major trading partners of the United States has more The Senate version of the legislation would further require to do with politics than economics. Clearly China can be counted the Secretary of State to submit a semiannual report to the on to raise a fuss whenever the U.S. government does anything Senate Foreign Relations Committee and House Foreign Affairs that Beijing deems to be treating Taiwan too much like a normal Committee on the status of travel by U.S. executive branch offi- country. cials to Taiwan. Although decisions on the dispatch of U.S. officials abroad are AmCham Taipei urges members of Congress to support the the prerogative of the Executive Branch, the voice of Congress Taiwan Travel Act in the interest of solidifying relations with a can be highly influential. AmCham Taipei is therefore pleased major trading partner, and one that shares American values of to note that this year legislation known as the Taiwan Travel democracy and human rights. 支持《台灣旅行法》

台《台灣白皮《台灣旅行法》法書》題台灣台灣法白皮書議支持台灣台支持議法議台議台議議台法議法台台灣台台灣台灣灣台台灣議法行台灣台灣題台議支持《台灣旅行行法》台

6 taiwan business topics • september 2017

9_Editorial.indd 6 2017/9/8 9:33:43 AM T A I W A N B R I E F S

— BY TIMOTHY FERRY —

MACROECONOMICS ECONOMIC INDICATORS

TAIWAN’S ECONOMY: Unit: US$ billion Year Earlier WHY SO BLUE? Current Account Balance (Q2 2017)p 17.65 16.97 Foreign Trade Balance (Jan.-July) 28.2 27.8 By nearly all measures, Taiwan’s New Export Orders (July) 38.7 35 economy is performing well. Exports Foreign Exchange Reserves (end July) 444.5 434.1 – crucial drivers of growth – are up

12.5% through July in annual compari- Unemployment (June) 3.74% 3.92% sons, according to data from the Bureau Discount Rate (July) 1.375% 1.375% of Foreign Trade of the Ministry of Economic Growth Rate Q1 2017p 2.60% -0.23% Economic Affairs (MOEA). Equally Annual Change in Industrial Output (June)p 3.13% 1.21% important, so are export orders, an Annual Change in Industrial Output (Jan.-June) 3.24% indicator of future sales, which rose in Annual Change in Consumer Price Index (June) 1% 0.91% July by 10.5% year-on-year to reach Annual Change in Consumer Price Index (Jan.-June) 0.67% US$38.72 billion, the 12th consecutive ppreiminar sources: moea bascbc bot month of gains, according to MOEA. Unemployment is also up, climb- never breached that mark). on the strength of Taiwan’s electron- ing to 3.84% in July from June’s 3.74%, Most private and public economic ics exports. Some of Taiwan’s largest as noted by the Directorate-General research organizations have raised their customers for electronic components, of Budget, Accounting and Statistics estimates for GDP growth in 2017. For particularly Apple, are set to introduce (DGBAS), but so is the stock market, example, Academia Sinica, Taiwan’s top new products in the third quarter. which has remained above the 10,000- academic research institution, is fore- Assuming the Korean crisis doesn’t point benchmark for over 70 days – casting 2.18%, up from its previous escalate further, “the monitor still has a a record – and which is credited with projection of 1.68%, while the DGBAS fair chance of turning green this quar- boosting consumer confidence. National predicts a 2.05% rise. ter,” says NDC research director Wu Central University’s Research Center for So why is the government’s business Ming-huei. Taiwan Economic Development, which climate monitor signaling blue-green – tracks consumer confidence, reported an indicator of sluggishness? DOMESTIC that the index gained 1.76 points in The government’s National Devel- July, rising to 79.95. The index is on a opment Council (NDC), which oversees BLACKOUT CAUSED 200-point scale, and anything below 100 the business climate monitor, uses a five- BY HUMAN ERROR is considered pessimistic (the index has color system to indicate the general state Human error involved in the replace- of the economy, with green indicating ment of equipment at the Tatan power

TAIWAN STOCK EXCHANGE PERFORMANCE growth, red signifying overheating, and plant by state-owned CPC Corp. and blue pointing to recession. Yellow-blue is its supplier forced Taiwan’s largest gas- THE YELLOW LINE SHOWS CHANGES IN TRADE VALUE AND THE SHADED AREA CHANGES IN THE TAIEX INDEX. one step away from blue. fired power plant to shut down, causing 11000 180 Several factors were blamed for the a massive power outage that impacted 10750 160 gloomy barometer, including a stronger more than half of the nation’s 13 million 10500 140 NT dollar, which is currently trading power users on August 15. The inci- 10250 120 at NT$30.8 to the US dollar, making dent occurred during a heat wave in 10000 100 Taiwan’s exports less competitive on which the Taiwan Power Co. was strug- 9750 80 the global marketplace, as well as U.S. gling to keep the lights on amid ever- 9500 60 monetary policy changes, interna- shrinking reserve margins. The outage 9250 40 tional trade conflicts, and geopolitical lasted for five hours and caused at least 9000 20 tensions such as the crisis over North US$3 million in damages as over 150 8750 0 Korean missile testing. companies, including Hon Hai Preci- July On the other hand, the NDC fore- sion Industry Co., Quanta Computer casts that the monitor will change to Inc., Siliconware Precision Industries

ata source: twse unit: nt biion green before the third quarter is out Co. (SPIL), and Advanced Semicon-

taiwan business topics • september 2017 7

9_Briefs.indd 7 2017/9/8 11:38:08 AM T A I W A N B R I E F S

ductor Engineering Inc. (ASE) all an altitude of 720 kilometers, the satel- Taipei athletes broke several records, experienced power outages. Both Minis- lite over its five-year mission will collect including Cheng Chao-tsun’s Asian ter of Economic Affairs Lee Chih- data for disaster evaluation, national record-breaking javelin throw of 91.36 kung and Chen Chin-te, the chairman security, and scientific research. The meters and weightlifter Kuo Hsin-chun’s of gas supplier CPC Corp., resigned to Formosat-2 was considered a vital 142-kilogram clean-and-jerk, a record in take responsibility for the mishap. The eye-in-the-sky helping evaluate and coor- the women’s 58-kg class. power outage has reignited debate over dinate disaster relief during Hurricane The Universiade saw few problems in Taiwan’s energy policy, with former Katrina in the United States in 2005, the its daily operations, although the open- Premier Lin Chuan suggesting that 2008 Sichuan earthquake in China, and ing ceremonies were marred by anti- nuclear power plants that are currently Typhoon Morakot in Taiwan in 2009. government protestors who blocked shutdown could be brought back online With higher resolution cameras and athletes from entering the Taipei Munici- if needed. smart technologies, the Formosat-5 is pal Stadium. expected to perform even better. FORMOSAT-5 POLITICS FLIES INTO ORBIT TAIWAN WOWS WORLD Taiwan first domestically devel- WITH UNIVERSIADE WILLIAM LAI SUCCEEDS oped satellite was successfully launched Taiwan impressed the world with its LIN CHUAN AS PREMIER into orbit on August 25 from Vanden- successful hosting of the 2017 Summer Two-term Tainan Mayor William berg Air Force Base in California at 2:51 Universiade, the foremost global univer- Lai (Lai Ching-te), considered one of the a.m. Taiwan time aboard a Space Explo- sity athletics event, from August 19 to rising stars in the Democratic Progres- ration Technologies Corp. (SpaceX) 30. Featuring 7,639 athletes from 145 sive Party (DPP), was appointed to the Falcon 9 rocket. Developed by Taiwan’s nations competing in 271 events and 21 premiership in early September. Lai, who National Space Organization (NSPO) sports, the 2017 Summer Universiade turns 58 next month, holds a master’s over six years at a cost of NT$5.65 was held at venues throughout Taiwan in public health from Harvard and billion (US$186.8 million at the current but centered in Taipei City. At the end previously served as a member of the exchange rate), the Formosat-5 replaces of the events, Japan led the tally in both Legislative Yuan. He takes over from the decommissioned Formosat-2. The gold medals and total medals won, at 37 finance specialist Lin Chuan, who said satellite first communicated with a and 101 respectively. Taiwan, compet- he was stepping down after slightly less ground station in Norway about 83 ing as Chinese Taipei, came in third for than 15 months in the post because he minutes into its flight and a ground gold medals, with 30, just behind South had completed the major tasks he had station in Jongli District of Taoyuan at Korea, and third for total medals as well, set for himself, including preparation 11:10 a.m. Encircling the earth from with 90, just behind Russia. Chinese of the 5+2 Innovative Industries Plan, long-term care policy, revision of the Electricity Act, proposed tax reform, and infrastructure development plan. Lin, 65, said that with the approach of next year’s mayoral elections, it was appropriate to turn the reins over to a new premier with sharper political consciousness. Lai appointed Taiwan Stock Exchange Corp. Chairman Shih Jun-ji as his vice premier. In addition, Cabi- net Secretary-general Chen Mei-ling will replace Chen Tain-jy as Minister of the National Development Council, and prominent attorney Wellington Koo, chairman of the Ill-gotten Party assets Settlement Committee, will become MEET THE PRESS — After arriving in Taipei from Tainan by High Speed Rail, incoming premier William Lai was mobbed by journalists inquiring about his chairman of the Financial Supervisory plans for his cabinet. Commission. photo: cna

8 taiwan business topics • september 2017

9_Briefs.indd 8 2017/9/8 11:38:09 AM T A I W A N B R I E F S

COMMISSION TO BE TAIWAN'S JAN.-JULY TRADE FIGURES (YEAR-ON-YEAR COMPARISON) ABSORBED BY MAC After nearly a century in existence, HK/China Japan ASEAN TOTAL

the Mongolian and Tibetan Affairs 69.5 Commission will cease to exist by the 59.9 174.8

end of 2017 and most of its responsi- 32.9 28.3 28.7 155.4 25.4 24.1 22.5 146.6 18

bilities and staff will be shifted to the 14.8 11.8 11.2 Ministry of Culture or the Mainland 127.6 Affairs Commission (MAC). Six of the 2017 2016 2017 2016 2017 2016

commission’s 49 staff will be trans- U.S.A Europe ferred to the MAC, while the remaining

employees will handle Mongolian and 20.7 18.8 17.1 17.6 16.2 16.4 16.4 15.2 Tibetan affairs under the Ministry of Culture, according to a spokesperson 2017 2016 2017 2016 2017 2016 for the Executive Yuan. The commis- UNIT: US$ Billion Exports Imports sion was established in 1928 when SOURCE: BOFT/MOEA the ROC government was located in China, and currently provides services nel between Taiwan and the Philippines management of the company, it will not for the 472 Mongolians and 648 Tibet- before turning northeast and continu- delist Vivotek from the Taiwan Stock ans permanently residing in Taiwan. ing on near to Japan’s Miyako Islands, Exchange and will not initiate layoffs. The commission had repeatedly weath- while the second aircraft flew southeast Delta, which is rapidly expanding in ered calls for its termination, mostly after passing through the channel. These the realm of building automation, last from DPP legislators on the grounds that flybys reportedly occurred regularly year acquired two companies in that field Taiwan’s government has no authority during the Ma administration, which did in Austria and Canada for US$82 million over either Mongolia or Tibet, and the not disclose them, but the Tsai adminis- and US$175.7 million respectively. move was a top priority for this year’s tration has chosen to publicize them in budget. order to make the public aware of the WINBOND PLANS state of security in the region. TAIWAN EXPANSION CROSS STRAIT The world’s third-largest NOR flash BUSINESS memorychip supplier, Winbond Electron- CHINA FLIES SPY ics Corp., on September 5 announced PLANES NEAR TAIWAN DELTA TO TAKE STAKE its intention to build a NT$335 billion On at least four occasions in August, IN IP SECURITY FIRM (US$11.14 billion) fab in Kaohsiung to Chinese surveillance aircraft were Leading electronics firm Delta Elec- produce memory chips to meet strong observed close to Taiwan, prompting tronics Inc. on August 8 announced a customer demand. The Hsinchu-based concerns that the flybys were intended bid to acquire between 35% and 55% chipmaker has not invested in new to familiarize Chinese aircraft with mari- of IP security provider Vivotek Inc. in manufacturing capacity in more than time routes across the Pacific Ocean that order to beef up its building automa- a decade as the industry has been in a can avoid U.S. surveillance and to proj- tion solutions capabilities. A company chronic state of overcapacity. Recent ect power in the region. spokesperson said Delta offered NT$98 demand spikes, however, have spurred The Ministry of National Defense per outstanding common share, an 18% price increases. With its Taichung plant (MND) said in a statement on August premium over Vivotek’s 60-day aver- nearing full utilization, “Winbond has 13 that, for the third consecutive day age stock price of NT$83.47, which applied to the Southern Science Park and the fourth time that month, Chinese will cost Delta between NT$2.8 billion administration for permission to build Shaanxi Y-8 surveillance aircraft skirted and NT$4.4 billion (US$92.7 million a new factory to meet business growth Taiwan’s airspace as they returned to and US$145.7 million). “This is a and to satisfy customer demand,” the their base in China following mari- friendly takeover. Delta lacks capabil- company said in a statement. The park time training missions. According to ity in providing IP security solutions, administration greenlighted the invest- the MND, one of the aircraft edged and the purchase in Vivotek will help fill ment proposal, enabling the creation up to Taiwan’s airspace in the south the gap,” said Delta spokesman Jessie of more than 1,000 jobs in Kaohsiung, as it passed through the Bashi Chan- Chou. Delta said while it will control the Winbond stated.

taiwan business topics • september 2017 9

9_Briefs.indd 9 2017/9/8 11:38:10 AM ADVERTORIAL

Taiwanese Stock Market at the Juncture of Change

n order to develop Taiwan’s stock In May, for instance, Chairman Shih market into a world-class bourse, led a delegation consisting of represen- I the Taiwan Stock Exchange Corp. tatives from more than 10 large and (TWSE) has been making a concerted emerging enterprises to visit New York effort to encourage Taiwanese-invested and London, where they held investors’ companies abroad to return to Taiwan conferences for institutional inves- for share listing. The results so far have tors to promote the investment value of been very promising. Taiwanese stocks. In 2008, the government began Also to increase the trading value, permitting foreign enterprises to carry the Legislative Yuan in April passed a out initial public offerings (IPOs) in 50% reduction in the stock transac- Taiwan, and by the end of June this year tion tax for day trading, lowering the Chairman Shih Jun-ji, Taiwan Stock 64 foreign enterprises had listed their rate to 0.15%, effective for one year. Exchange Corporation 灣 shares on the Taiwan Stock Exchange, “The tax cut has considerably expanded PHOTO: TWSE accounting for 7% of the total listings the trading value, in line with our during that period. These enterprises expectation,” says Shih. Average daily were mostly Taiwanese-invested compa- trading value on the TWSE had topped will include blue-chip corporations, nies, including 55 operating in mainland NT$91.9 billion of the end of July, a such as TSMC and Samsung, as constit- China and six–due in part to the significant increase from the NT$77.5 uents. government’s New Southbound Poli- billion for the entire 2016, the lowest In order to boost the transparency cy–from Southeast Asia. Another two level since 2006. of corporate information, a key element companies were from the United States. Further, the Taiwan ETF market in corporate governance, the TWSE The TWSE notes that major reasons has seen enormous growth in the past announced in March this year that listed for the appeal of the Taiwanese bourse three years. In addition to plain vanilla companies should hold an institutional for the Taiwanese-invested companies, ETFs, investors can make profits or investors’ conference at least once a which are mostly small- and medi- hedge through the trading of lever- year, instead of once every three years as um-sized enterprises, are the relatively aged and inverse ETFs, and efficiently before. “It’s mandatory for local listed mature capital market, stable and trans- diversify investment risk and increase companies to disclose information on parent financial regulations, competitive returns through the trading of futures their major happenings immediately, criteria for share listing, high efficiency ETFs with multiple assets such as gold making it very difficult for international in conducting IPOs, and reasonable or crude oil. Also, investing in ETFs short sellers to ‘raise winds and waves’ fund-raising cost. So far, foreign enter- tracking foreign markets can fulfill here,” Shih points out. prises have raised funds from the investors’ needs of asset allocation in Similarly, next year it will become local bourse equal to NT$150 billion, multi-markets. mandatory for all listed companies including NT$64 billion from IPOs. TWSE has been encouraging insti- to embrace e-voting for items on the “While our door is wide open to tutional investors to invest in ETFs agenda of shareholders’ meetings. The foreign enterprises seeking share listing tracking the Taiwan market through aim is to encourage more participa- in Taiwan, we carefully screen those the dollar cost averaging investment tion among shareholders, including applicants,” stresses TWSE Chairman method, aiming to enhance the effi- those who could not attend the meetings Shih Jun-ji. “Share listing by Taiwan- ciency of fund operations and attract in person, regarding major corporate ese-invested enterprises will expand more funds to invest in Taiwan. issues. A total of 1,141 listed compa- the scale of our market, facilitating our Furthermore, the Taiwan Index Plus nies on both the main board and the effort to solicit share listing by other Corp. (TIP), a 100%-owned subsidiary over-the-counter market have already foreign enterprises, which will greatly of TWSE, is actively developing new adopted this measure. boost our image.” indices that are suitable to be tracked Meanwhile, the TWSE has been To further expand the trading by ETFs. Chairman Shih notes that spearheading the application of tech- volume, which is critical for a healthy TIP is developing a high-tech index, nology in stock trading in the interest of market, the TWSE is endeavoring to covering constituents from Taiwan and augmenting both efficiency and security. arouse the interest and boost the confi- Korea, in cooperation with the Korea Currently the TWSE’s priority task is dence of both foreign and domestic Exchange (KRX). The index is sched- to launch a continuous trading mecha- investors in Taiwanese stocks. uled to be launched in September, and nism, replacing the existing call-auction

10 taiwan business topics • september 2017

9 TWSE.indd 10 2017/9/8 9:43:55 AM ADVERTORIAL

mechanism. The new mechanism would more types of orders – all reasons the mainframe, thereby greatly boosting enable the immediate matching of practice has been embraced by major network transmission efficiency. buying and selling orders for the same bourses worldwide, including those in “Our goal is to raise the local bourse stock, instead of the existing practice New York, London, Tokyo, Hong Kong to a level, in terms of governance and of continuous call-auction aggregate and Singapore. efficiency, rivaling major interna- matching every five seconds of bunches In addition, the TWSE will kick tional markets such as New York and of buying and selling orders, with off co-location service by the end of London,” states Shih. “Stock markets priority determined by price offers. The the year, allowing securities firms and are typical of the platform economy. new mechanism will provide higher effi- market information companies to We offer plentiful quality investment ciency, higher market fluidity, greater install computer systems in a common opportunities, so as to arouse investors’ transparency and continuity, and space provided by the TWSE, for direct interest and confidence in participating expandability to cover commission of connection with the TWSE’s trading in the market.”

灣灣台台台台灣法法台灣台議議題台台台灣台灣行法台續法台台灣灣台行追蹤行法灣追蹤

taiwan business topics • september 2017 11

9 TWSE.indd 11 2017/9/8 9:44:04 AM ISSUES Tackling White Paper Issues

鑒於台北市美國商會各委員會在2016年 hen it became evident that none of the 80 issues raised by AmCham 《台灣白皮書》列出80項需要解決的議 Taipei’s various committees in the 2016 Taiwan White Paper had 有題中沒有任何一項獲得完全解決，台灣政 been fully resolved, the Taiwan government took action in hopes of W 府便採取行動，希望確保今年6月發表的新版《台 assuring greater progress in the coming year on the current White Paper issues 灣白皮書》當中所列的問題，在未來一年能取得 released in June. Deputy Minister Kung Ming-hsin of the National Development 較大進展。因而，行政院國家發展委員會副主任 Council (NDC) was assigned to oversee a new process for coordination between 委員龔明鑫奉派負責督導政府與美國商會之間有 the government and AmCham to drive issue resolution. 新的協調程序，以推動議題的解決。 The first of what are scheduled to be quarterly review meetings was held 這個程序包括每季召開檢討會議，其中首次會 at the NDC conference room on August 30. Over the course of more than 議於8月30日在國發會會議室舉行。會議長達4個 four hours, with Deputy Minister Kung presiding, representatives from six 多小時，龔副主委全程主持，台北市美國商會6個 AmCham committees had the opportunity to exchange views with officials 委員會的代表藉此機會與相關主管部門的官員交 from the relevant regulatory agencies. The committees and their issues were: 換意見。這6個委員會與他們所提的問題分別是： Travel and Tourism, regarding Taiwan’s policy of requiring refunds for 旅遊與觀光委員會指出，即使在特別促銷活動 canceled hotel reservations, even when customers agreed to non-cancellability 期間，訂房者接受不得取消訂房的條件，台灣政 as part of special promotional offers. The government offices involved – the 府依然要求業者在客人取消訂房時必須退費。針 Tourism Bureau under the Ministry of Communications and Transportation 對這個問題，政府相關部門交通部觀光局與行政 and the Executive Yuan’s Consumer Protection Committee – agreed to review 院消費者保護會經協調，同意進一步檢討這項政 the policy further. 策。 Intellectual Property, on proposed revisions to the Copyright Act. The 智慧財產權委員會談的是著作權法修正草案。 Taiwan Intellectual Property Office of the Ministry of Economic Affairs 經濟部智慧財產局提出保證說，目前的修法草案 (MOEA) provided assurance that the current draft amendments maintain the 維持先前對盜版光碟產品的罰則。經濟部將進一 previous penalties for piracy of optical-disc products. MOEA will give further 步研究美國商會智慧財產委員會的其他要求，包 study to the committee’s other requests: removal of the proposed exemption 括刪除擬議中允許利用「家用設施」傳送影音內 allowing content retransmission from “home-use facilities” (objected to on the 容的例外條款（委員會反對這項條款的原因是規 grounds of vagueness), extension of copyright protection to 70 years consis- 定過於模糊）、依全球趨勢，將著作權保護年限 tent with the global trend, and an increase in the minimum compensation to 延長為70年、在估算對著作權擁有人的損害賠償 NT$30,000 per infringement when calculating damages to be paid the copy- 時，將每次侵權行為的最低賠償金額調高為新台 right owner. 幣3萬元。 Retail, concerning problems with mandatory inspection of various imported 零售委員會所提的問題，涉及各種進口產品 products in certified domestic laboratories. The NDC committed to work with 必須在經過認證的台灣實驗室進行檢驗的強制規 the Taiwan Food and Drug Administration to find a way to inform companies 定。國發會將繼續與食藥署找尋一個可行方案讓 of more detailed test results as well as the testing methodology. It also agreed 受檢公司能收到詳細檢驗結果及檢驗方式，並決 to help find funding for translation of the lab reports into English to facilitate 議協助找尋經費以便將檢驗報告翻譯成為英文， companies’ communication with their overseas suppliers and head offices. 幫助企業與在海外的供應商和總公司進行溝通。 Insurance, on suggested measures to incentivize insurers to offer protection 保險委員會談的是提供誘因，促使保險業者提 insurance. Prior to the August 30 meeting, the Financial Supervisory Commis- 供保障型保單的建議。在8月30日的會議之前， sion responded to one committee request by making it possible for brokers and 金融管理委員會對保險委員會的一項要求做出回 agency companies to connect with insurance companies’ e-commerce systems. 應，讓保險仲介與仲介公司得以連結到保險業者 Capital Markets, on proposals to relax existing securities investment rules 的電子商務系統。 to permit broader participation. The local industry associations will be asked 資本市場委員會談鬆綁現行證券投資法規，讓 to provide input on allowing brokers to provide short-term trading strategies 更多人參與投資的提議。有關當局將請本地行業 to professional investors and on developing a system for foreign institutional 組織針對允許券商提供短期交易策略予專業投資 investors to participate in competitive auction IPO/SPO activity. 人、發展適合外資的首次公開發行/現金增資的競 Banking, regarding regulatory restrictions on the onshore wealth-man- 價拍賣系統提供意見。 agement business. The Banking Bureau expressed interest in exploring new 銀行委員會談的是境內財富管理業務受到的法 approaches with the aim of enhancing Taiwan’s status as a financial-services 規限制。金管會銀行局對於探尋新做法以提升台 center. It also agreed to a 2016 White Paper request for “double-hatting”: 灣做為金融服務中心地位的努力表達興趣，並同 allowing bank personnel to take charge of bond agency and derivative infor- 意2016《台灣白皮書》的要求，開放「代理買賣 mation and advisory functions concurrently. 外國債券」及「提供境外衍生性金融商品資訊及 “The meeting was a great start for the new post-White Paper process, but 諮詢服務」兩項業務得共用人員。 much still remains in flux,” says AmCham Taipei President Andrea Wu. “We 台北市美國商會執行長吳王小珍表示：「這次 appreciate the Taiwan government’s efforts to actively address our issues, and 會議為白皮書發佈後一項新的溝通程序，但諸多 hope to see early resolution to many of these longstanding challenges.” 不確定性依然存在。感謝政府積極回應這些長久以來待克服的議題，我們期待儘早得到解決。」 — By Don Shapiro — 撰文／沙蕩

12 taiwan business topics • september 2017

9_Issues.indd 12 2017/9/8 9:35:32 AM

COVER STORY

FOOD SAFETY Towards a Safer Food Supply 強化食品安全

BY TIMOTHY FERRY

14 taiwan business topics • september 2017 PHOTO: CNA

9_CoverStory.indd 14 2017/9/8 12:08:31 PM FOOD SAFETY

The recent incident of large n the latest in a series of food- the COA blocked 1.5 million eggs from safety incidents that have unnerved reaching the market. numbers of eggs contaminated I Taiwanese consumers in recent The incident sent downstream food by pesticide use is but the most years, Council of Agriculture (COA) suppliers – food factories, bakeries, and inspectors in late August discovered restaurants – scrambling to ensure that recent of a series of food scan- contamination in the country’s egg their own products were free of contam- supply. A pesticide containing fipronil, ination. Gaps in communication and dals in recent years that have commonly used for the control of fleas, coordination between the government shaken consumer confidence. lice, and mites on animals, including and industry resulted in uncertainty pets, was found to have been used at a over which egg suppliers tested posi- The government has instituted number of egg farms in central Taiwan, tive for fipronil and which were free despite its having been banned for use of contamination. To protect consum- a number of regulatory reforms on any animals intended for the human- ers, many food makers pulled all their in an effort to deal with the food supply chain. Fipronil is consid- products off the shelves while awaiting ered “moderately hazardous” by the test results. Those tests took as long as issue, but it remains uncertain World Health Organization, which two weeks to be confirmed, resulting in notes its potential to impact the central significant losses. whether the current system is nervous systems of all species. “Overall, the government could sufficient to stem the problem. Taiwan amended its regulations improve its communication and coordi- regarding pesticides last year and now nation with business,” says Echo Chen, follows the European Union standard commercial director for General Mills for a Maximum Residue Limit (MRL) Taiwan. 最近有大量雞蛋被發現含農藥 of five parts per billion (ppb) of fipronil Meanwhile, food makers needed to in eggs, while Japan and South Korea find new sources for eggs confirmed to 成分的問題，只是台灣近年多 allow 20ppb and the United States be free of contamination. “I use eggs 起打擊消費者信心的食安醜聞 30ppb. Nevertheless, the contamina- every day and in very big quantities, tion in Taiwan exceeded all available but when the scandal broke I only had 之一。政府為強化食品安全， standards, reaching as high as 153ppb two days to find another supplier,” says at one farm, according to COA Deputy Dan Co, factory manager for interna- 已進行多項法規的改革，但目 Minister Chen Chi-chung. tional bakery Aunt Stella’s Handmade 前的制度能否足以解決問題， Subsequent inspections by the cabi- Cookies and Cakes. “It was really a net-level COA of some 2,000 egg farms big challenge.” More significantly, Co 仍不確定。 throughout Taiwan revealed another 44 observes, “I need to face similar situa- farms using fipronil. Tens of thousands tions all the time.” of tainted eggs were recalled off store Food scandals in Taiwan are seem- shelves in Taipei after being discovered ingly a regular occurrence. This year by the city’s Department of Health, and alone – besides the problem with eggs

委會場行行委員市會員市售委會市保產場與場場產保產本與委會委員與

taiwan business topics • september 2017 15

9_CoverStory.indd 15 2017/9/8 12:08:32 PM COVER STORY

FOOD SAFETY

– harmful bacteria were discovered in a better job of safeguarding the nation’s versial pension reform and infrastruc- 60% of cold drinks tested in Taipei City, food supply than had the previous admin- ture development projects. “How can a banned chemicals turned up in tons of istration. Following the discovery of the government say that it prioritizes food bean sprouts in New Taipei City, and tainted eggs, the President Tsai quickly safety when it cannot even handle eggs?” the country was shocked to learn of a pledged to raise the budget for food safety asked KMT Legislator Alicia Wang. number of cases in which expired meat by 50%, from NT$920 million (US$29 Industry insiders note that violations and seafood, some of it years old, had million) to NT$1.37 billion, according to of food safety laws are generally inspired been relabeled with current dates and media reports. by greed, and that no food safety system sold at retail outlets. The opposition Kuomingtang (KMT) is perfect. “Food safety is not a perfect When it took office last year, the wasted no time in criticizing the govern- science. It’s an always evolving process Democratic Progressive Party (DPP) ment, saying it had risked the health of of self-development and there’s always government of Tsai Ing-wen pledged to do the people by focusing only on contro- room for improvement,” observes Louie Silveira, regional general manager for Costco Wholesale Taiwan. “Food scandals are big, but they happen everywhere. It’s not just a Taiwan problem.” The egg contamination scandal actually broke first in Germany and the Neth- erlands in early August before spark- ing investigations around the world that led to the discovery of fipronil in the egg supply in at least 17 countries.

Substantial reforms

In 2013, the discovery of a rogue factory in Pingtung County that produced food oils derived from such exotic sources as roadkill and kitchen drains set off a chain of inquiries into the BE CAREFUL WHAT YOU DRINK — The Consumer Foundation found high levels of bacteria in 60% of the cold beverages it tested in Taipei. food oil market that uncovered numer- PHOTO: CNA ous instances of contaminated and fraud-

與會光與光市具體改革市售市場產與員會與委會保與與保委員場市保員

16 taiwan business topics • september 2017

9_CoverStory.indd 16 2017/9/8 12:08:33 PM FOOD SAFETY

ulent oils. In the wake of the scandal, the utive Yuan, with its head reporting however, are not registered because government enacted significant reforms directly to the deputy premier. they do not pay taxes and are essen- to its food-monitoring system, including But food-safety scandals contin- tially illegal.) amendment of the Act Governing Food ued to plague Taiwan even after these “Each year we set the goal for every Safety and Sanitation to impose higher reforms, prompting President Tsai to local health department to register the fines and harsher prison sentences for proclaim a “Five-point Food Safety” food businesses in its district, and we violators. The Taiwan Food and Drug policy in which the government promises give them a lot of support to reach the Administration (TFDA) hired more than to 1) “strengthen source control manage- goal,” explains Hsu Chao-kai, deputy 70 new inspectors. ment,” 2) “re-establish the food produc- director of the TFDA’s Food Safety Divi- However, responsibility for food tion-management system,” 3) “strengthen sion. “Now we know the food busi- safety is shared across an array of minis- government market-inspection capabil- nesses in Taiwan and what they are doing tries and agencies, including the TFDA, ities,” 4) “increase liability for produc- – whether they are importers, sellers, COA, Environmental Protection Admin- ers and vendors,” and 5) “encourage and restaurants, or whatever.” istration (EPA), Ministry of Health create oversight platforms.” The registration of these businesses and Welfare, Ministry of Education The cloud-located database called allows the TFDA to better manage them (related to school lunches), as well as the “food cloud” created under the Ma – ensuring, for example, that food-re- local bureaus of health and environmen- administration has been expanded to lated production lines are safely isolated tal protection. Inadequate coordination include more comprehensive data. For from industrial production lines, and that among the various government bodies example, since the government needs to larger firms have onsite government-cer- was found to be a major reason why the be able to locate food sources in order tified Quality Assurance officers to moni- pirate food-oil producer in Pingtung was to manage them properly, the TFDA has tor and test the product to guarantee able to evade detection for years. The collaborated closely with the Ministry of that the product is safe and that the label factory had in fact been inspected by the Finance (MOF) as well as local bureaus reflects the actual contents. local bureau of environmental protection of health to vastly expand the national Besides the business registrations, which, seeing no environmental issues, registry of food businesses located on the various databases in the food cloud took no action, despite the fact that the the food cloud. From the 170,000 busi- include a tremendous amount of detailed, plant was not licensed to produce food nesses listed in 2015, the number is now searchable information that can be cross- oils and contained large quantities of 440,000 – nearly all such operations, says referenced. Food-grade oils and feed- industrial chemicals. the TFDA. grade oils can be traced throughout To better coordinate the efforts of These food businesses range from the system by means of their customs various agencies, the Office of Food farms to manufacturers to restaurants codes, allowing the government to track Safety (OFS) was created under the Exec- and night-market stalls. (Street vendors, whether food producers are importing

行零售行保產產保產保產產產市場資產資與資資保資與財產與資資場市會資

taiwan business topics • september 2017 17

9_CoverStory.indd 17 2017/9/8 12:08:33 PM COVER STORY

FOOD SAFETY

Left, food testing facilities of the Tai- wan Food and Drug Administration; right, a demonstration of how QR codes can be used to verify agricultural product certification. PHOTOS: CNA

feed-grade oils. “The government is becoming The role of inspectors In addition, a “chemical cloud” main- stricter,” says Frank Chung, vice general tained by the EPA has a database of over manager of Kimlan Foods Co., one of The inspection regimen has been 600,000 materials that might be used in Taiwan’s largest soy sauce makers. “They expanded and improved, according to the chemical industry as well as in food want us to list a lot of ingredients and the TFDA, which recently added another processing. By cross-referencing the data where they come from. They want to 80 trained inspectors, bringing the total on the chemical cloud with information have credentials for everything.” to 170, for inspection of 18,000 food on databases maintained by other agen- No system is ideal, however, and food companies. cies, “we can see if some food companies makers complain that the data entry now Deputy Director Hsu notes that TFDA are using chemicals or other materials required by the government is time- and inspectors work closely with local depart- that are not supposed to be used in food, labor-consuming and question its util- ments of health on projects in high-risk and then check them to see what is going ity or effectiveness. The pesticide with sectors such as food oil and fish and meat on and potentially stop them,” says the fipronil, for example, seems to have product factories, as well as larger enter- TFDA’s Hsu. evaded the system. prises (those with at least NT$30 billion

稽查人員的角色員產保產售員與險行資本行與會行本產資與市場產與產與與險員員員智慧財財產

18 taiwan business topics • september 2017

9_CoverStory.indd 18 2017/9/8 12:08:34 PM FOOD SAFETY

in paid-in capital) where violations are safety violations can now result in fines of numerous investigations, one of which likely to have greater impact. of NT$2 million to $6 million, or even accused the firm of using feed-grade lard The inspections are aimed at rooting higher based on prosecutors’ determina- in its food products. Prosecutors at the out violations and promoting good prac- tion of the extent of illegal profit-making. time suggested that Wei might face 30 tices such as Hazard Analysis and Crit- This year Yuyang Co. manipulated the years in prison. ical Control Points(HACCP), the basic expiry date labels on its aquatic products Wei was given a final conviction last production standards used around the and was fined NT$15.48 million, while April by the Intellectual Property Court, world. The U.S. FDA defines HACCP Lichin Co. was found to have also sold which handles cases of food fraud at the as a “management system in which food expired food with false labels and was appellate level. safety is addressed through the analy- fined NT$12 million. It is under on-going The government has also established a sis and control of biological, chemical, criminal investigation. food-safety hotline for whistleblowers to and physical hazards from raw material “If they were violating regulations report cases of food-safety violations or production, procurement and handling, governing human safety, food safety, or fraud. The TFDA has fielded some 83,000 to manufacturing, distribution and food adultery and the use of illegal addi- calls to the 1919 hotline, which have consumption of the finished product.” tives, then they can face criminal charges,” resulted in exposing significant violations The quality of the inspectors has been says the TFDA head, noting that such of food-safety laws. Most of the cases of called into question, however, as they charges are brought by prosecutors. expired meat and fish that had been rela- are government employees hired through In one of the highest profile cases, beled were exposed by whistleblowers. a civil service exam and generally lack Wei Ying-chung, former chairman of Under the new policy, whistleblowers are industry experience. The absence of prac- the Ting Hsin Oil and Fat Industrial Co. rewarded for their vigilance. tical food-industry experience hampers and one of Taiwan’s wealthiest people, Industry insiders praise the govern- their ability to ferret out malfeasance began a two-year prison term in July for ment’s efforts to work with industry to effectively, says Aunt Stella’s Dan Co. “If ordering employees to adulterate food ensure a safer food supply. Neverthe- you hire people who are experienced in oil products and providing false informa- less, some observers point to inefficien- the food industry, in five or ten years all tion to consumers. The company is part cies in the system that both create gaps of the problems that are being seen could of Ting Hsin International Group, one of in the monitoring of the food supply and be solved. Experienced people can see the Taiwan’s largest companies, with inter- hamper businesses’ efforts to operate in problems right away.” ests as varied as instant noodles in China the Taiwan market. They caution that if The Ma administration raised penal- and a stake in the Taipei 101 build- compliance is too onerous, many people ties for food-safety violations, and the ing. The company was implicated indi- will seek ways to skirt the regulations. Tsai administration has one-upped them rectly in the initial waste oil scandal of The complexity of deftly deploying with even stricter penalties. Serious food- 2013, and quickly found itself the target a system involving at least six different

會與售與會行會員與員會與觀市場政治因素會行會會行本員員行會行員委員本

taiwan business topics • september 2017 19

9_CoverStory.indd 19 2017/9/8 12:08:34 PM COVER STORY

FOOD SAFETY

cabinet-level ministries and agencies as is also a concern for many in the indus- tional companies offering products in well as local bureaus of health and sani- try. Josephine Chen, director of corporate several markets with the same labels. In tation continues to be a challenge. The affairs for Mars Taiwan, notes that when some cases, companies have decided to overlapping jurisdictions sometimes result the public demands action following the simply pull the product from the market in contradictory policies, confusing enter- eruption of a food scandal, understand- rather than go through the time and prises and adding to operating costs. “It ably “public health officials have to show expense of developing a new label. can be hard to get a straight answer,” that they are doing something about it.” Many companies cite products that says Frank Chung of Kimlan. “If there Unfortunately, however, the action is not are available in most other markets but could be more standardization or just one always “done in a rational manner or that cannot be imported into Taiwan agency to oversee the entire system, that based on science,” she observes, echo- because of Taiwan-unique standards. For would help a lot.” ing the opinion of numerous other food instance, Mars refers to its peanut butter The Office of Food Safety has not industry professionals. M&Ms that cannot be imported because lived up to expectations, report numer- To demonstrate their commitment the government bans the use of antioxi- ous industry executives, who see little to food safety, government officials and dants in chocolate, even though antiox- leadership or coordination emerging legislators tend to respond by revis- idants are present in the peanut butter, from the office. ing laws and regulations to make them which use is permitted. Aunt Stella’s Dan Co views the egg ever stricter and more thorough. Conse- Further, the government has recently contamination issue as a case in point quently, industry says it is overburdened begun making increasing demands for for this lack of coordination. “Basically by constantly shifting regulations. “The quality and safety testing of imported this problem has been passed around and biggest challenge we face is that they product in domestic laboratories, no one wants to take responsibility,” he change the rules very quickly and require although testing has already been done in observes. implementation in a short period of time” the home market. This requirement raises In an effort to enable the various agen- without a grace period to prepare and the cost of doing business and report- cies to work together effectively, high-level adjust, says Michelle Chiang, scientific edly also often delays the time to market representatives from each of the central and regulatory affairs manager for Wrig- because of backlogs at some of the desig- government’s offices involved in food ley, a subsidiary of Mars. nated laboratories. For perishable items, safety meet once every two months in Standards for products sold in Taiwan the delays may mean a seriously short- the Executive Yuan. Gaining cooperation often differ from global or regional ened shelf life. from local governments is also impor- norms, resulting in difficulties for import- Nevertheless, industry is optimis- tant, as that is the level at which policies ers to bring product into Taiwan. “There tic that government officials are seri- are implemented. Every three months the are a lot of regulations that are unique to ous about both food safety and enabling TFDA meets with local departments to set Taiwan, which makes it a challenge when an efficient market. “I’ve seen progress up projects and goals, offering substantial the rest of the world is doing it one way in the government’s willingness to work bonuses to the local bureaus that prove to and Taiwan is doing it another way,” says with industry,” says Costco’s Silveira. “I be the most effective. Costco’s Silveira. know that we can pick up the phone and For example, Taiwan’s labeling find somebody to speak with about our Political factors requirements have changed several times issues. It’s complicated to get an answer, in the past few years, often on very short but we get there. And there’s a willing- The politicization of food-safety issues notice, creating difficulties for multina- ness to get there.”

產產市場本市場市產行與本會產市市場產售售產本市場售觀員與市場市產市場

20 taiwan business topics • september 2017

9_CoverStory.indd 20 2017/9/8 12:08:35 PM FOOD SAFETY

TAIWAN TURNS TO HEALTHY EATING

As consumer interest in organic foods grows, major food companies are entering this market segment.

BY TIMOTHY FERRY

round the world, consumers are expressing greater interest in A healthier diets that include more natural and organic ingredients without artificial additives and preservatives. Global sales of organic food have surged 200% over the last decade, according to research institutes, and more than 65 countries – including the United States – have enacted labeling requirements to identify foods containing Genetically Modified (GM) ingredients to consumers. Major food suppliers are also seeing significant demand for “clean deck” foods featuring labeling that lists only readily identifiable ingredients rather than naming a long string of chemicals. Organic products now account for over 5% of all food sold in the United States, totaling nearly US$50 billion in sales in 2016, according to the Washing- Green and Safe's Farm Table restaurant specializes in organic offerings. ton DC-based Organic Trade Association PHOTO: GREEN AND SAFE (OTA). This trend can be seen in Taiwan as well, as consumers respond to the seem- organic packaged food and beverages in changed,” explains Peggy Chang of the ingly endless stream of food scandals Taiwan of about US$1. marketing department of YFY Biotech, by seeking out healthier, less processed, Green and Safe, a purveyor of organic the parent company of Green and Safe. natural and organic foods from trusted foods for over a decade in Taiwan, has Customers are no longer content to wait sources. Consumers are also increasingly shifted its business model to keep up with for a delivery but want to see, touch, and selecting organic foods that are deemed demand as the market has grown. Previ- even taste the product before making a safer than their conventional counter- ously the company sourced organic vege- purchase, she notes. “Also, we notice parts, and this trend is likely to mount as tables from farms for sale in “organic that our customers’ age is getting younger the market broadens to include not only boxes” that were delivered to custom- and younger, and they don’t cook every the more affluent but also more young ers’ doors complete with recipes and meal day – maybe only once a week – so they people and middle-income families. ideas. The model was aimed at work- don’t need an organic box because it’s too The government estimates the Taiwan ing mothers concerned about the qual- much.” organic market to be worth over US$156 ity of food that they were providing for Now, in addition to continuing offer million, mostly in locally grown organic their families but unable to find the time delivery of its “organic box,” Green rice. The total market size for pack- to seek out quality organic ingredients by and Safe is focused on its five organic aged organic food and beverages in 2015 themselves. grocery stores scattered around Taipei was US$24.2 million, according to OTA “Around two years ago we found City, three of which are bundled with estimates, with per capita spending on that our customers’ habits and needs had an organic restaurant. “If you eat some-

taiwan business topics • september 2017 21

9_CoverStory.indd 21 2017/9/8 12:08:36 PM COVER STORY

FOOD SAFETY

continues to deter many price-conscious ers lack the marketing savvy to get their customers. products to market, and the special “Because we want to let our requirements of organic food – shorter customer know us, we have lowered our shelf life, for one – make moving the prices and changed the size of our prod- product that much more challenging. ucts to meet the needs of smaller fami- Green and Safe supplies roughly half lies – and smaller sizes mean cheaper of the vegetables available in its stores prices,” says Green and Safe’s Chang. – mostly green leaf vegetables, as well “So consumers won’t think that organic as white and sweet potatoes, and taro – is very expensive.” from its two organic farms in Yilan with Nevertheless, the premium pric- a combined area of 50 hectares. But for ing attached to organic foods is seen in the remainder of its locally sourced prod- all markets and in many respects simply ucts, it works with a network of around reflects the higher costs of producing 400 organic farmers scattered through- foods organically, without artificial fertil- out Taiwan who rely on Green and Safe izers and pesticides. A study by Univer- to provide the channel for getting their sity of California Berkeley researchers, produce to market. published in the British biology journal “There are a lot of retail channels in Proceedings of the Royal Society B, found Taiwan but farmers often aren’t able to that yields from organic farms averaged connect with them, maybe because they 19.2% lower than in conventional farm- don’t know the right person to contact” ing – a smaller difference than previously or the price offered is too low, observes suspected, but still significant. The lack of Green and Safe’s Chang. Green and Safe sources its pork from preservatives also means shorter shelf life Silveira says that Costco has been Chinese heritage breeds raised on organic diets. and more complex storage and shipping, working with local farmers to make more PHOTO: GREEN AND SAFE likewise adding to costs. organic foods available to consumers. A survey in 2015 of popular retailers “We are in the infancy in Taiwan in terms thing in the restaurant that you like, we in the United States by Consumer Reports of organic,” he says. “We do organics will tell you what the ingredients are and noted that organic foods were on average events a couple of times a year in which how to make it yourself,” Chang says. 47% more expensive than their conven- we will put as many organic foods as Frozen prepared foods comprise a sizable tional counterparts, although it also possible in the store at one time. The portion of Green and Safe’s revenues, as noted that the price ranges varied consid- idea is to wake up the consumer to the do imported packaged organic food. erably and that in several instances the fact that they can get organic oolong tea, Taiwan’s largest food manufacturers, organic version was actually cheaper. The organic honey, and many other choices.” including Uni-President Enterprises and recent acquisition of organic supermarket Certification of organic farms is done Union Rice Co., have taken advantage chain Whole Foods by online retail giant by the Tse-Xin Organic Agriculture Foun- of this trend by launching organic lines. Amazon has many analysts predicting dation (TOAF) under the auspices of At Ying Chuan Food Co., organic pack- that prices for organic food in the United the government’s Council of Agricul- aged foods and drinks account for 8.2% States will soon start dropping. ture (COA), which stipulates that a farm of total sales. The number of organic A bigger problem for Taiwan, must cease using synthetic pesticides and retailers has expanded, and online sales however, is simply that “there’s not fertilizers for three years before becoming continue to grow. enough organics in the market,” says certified. Supporting these farmers during Louie Silveira, regional general manager this transition is considered critical for Regional comparison for Costco Taiwan. He notes that in the their success. “If they cannot get through United States, organics comprise some this three-year transition period, then Yet, despite these trends and the clear 20% of sales, while in Taiwan “we’re they will never go organic,” says Chang. concern among consumers over food lucky to get 1%.” A major reason for Costco likewise takes pains to support safety, Taiwan actually lags behind global the low number, he says, is “because we farmers during this stage. and regional markets in the uptake of aren’t able to get foods in on time.” Adding to the lack of available organic and natural foods. OTA estimates Currently, less than 1% of Taiwan’s organic product on the market are that Taiwan will see growth in organic total agricultural land of 830,000 hect- regulatory restrictions that importers packaged and prepared foods of less than ares is considered organic. The Execu- complain are overly rigorous and out of 6% annually from 2015 to 2020 – trail- tive Yuan has submitted a bill to the legis- step with global standards. AmCham’s ing the rest of the Asia Pacific region, lature that would seek to increase the Retail Committee, for example, notes which is forecast to rise by 13% annu- amount of farmland certified as organic that the Taiwan Food and Drug Adminis- ally. The association notes that although to 2% by 2020 by offering advice and tration has set permissible maximum resi- concerns over food safety are driving subsidies to the nation’s mostly small due limits (MRL) for organic imports at sales in organic foods, premium pricing organic farmers. Many of these farm- zero. Deeming this policy “an impossi-

22 taiwan business topics • september 2017

9_CoverStory.indd 22 2017/9/8 12:08:36 PM FOOD SAFETY

ble standard” that ignores “background tific evidence that GM foods are safe, and mix of both GM and non-GM to entirely contamination in organic products,” the therefore acts as a trade barrier. Taiwan- non-GM. “We were one of the first to committee has urged the TFDA to follow ese are heavy consumers of soy prod- test out non-GM, and then we were the the more reasonable U.S. standard of ucts, including tofu and soy sauce, and first to switch the entire production line MRLs below 5% of the limit for conven- due to the insufficient agricultural land to non-GM,” notes Min Chung, the tional products. in Taiwan, nearly all of its soybeans are company president. He notes that the imported, particularly from the United move was motivated both by customer Dealing with the GM issue States, where up to 94% of the total requests and the new labeling require- soybean crop is GM, according to the ments enacted by the government. Government policy has had more U.S. Department of Agriculture. Whether these shifts in the market of an impact on the acceptance of GM The anti-GM sentiment extends to away from GM foods and towards foods and ingredients in this market the general consumer market, and the organics will actually result in health- than on promoting organic foods. In late government now forces producers to ier consumers remains an open question. 2015, urged on by a campaign by the prominently label foods that contain at Many studies indicate that organic foods civic group Homemakers United Foun- least 3% GM ingredients. Even foods are no more nutritionally advantageous dation and several legislators, an amend- that use genetically modified soy as a than conventional foods, while GM foods ment was passed to the School Health processing agent or blended ingredient are often indistinguishable from non-GM Act that banned all foods containing GM must label their products as GM, even if foods, although advocates can cite other ingredients from school lunches, which no trace of GM can be found in the final studies that link both non-organic and constitute a big business in Taiwan. The product. GM foods to increases in allergens and ban was opposed by many of the major Kimlan Foods Co., one of Taiwan’s cancer rates. Regardless, the focus on safe food importers and manufacturers on the leading soy sauce makers, consequently foods hopefully will at least minimize the grounds that it flies in the face of scien- changed its entire production line from a incidence of food scandals in the market.

PRISON SENTENCES FOR FOOD-SAFETY VIOLATORS

n the morning of July 28, Wei Ying-chung, former chairman of Wei Chuan Foods Corp., reported to the O Taipei Prosecutors Office to begin a two-year prison sentence for his involvement in the 2013 edible-oil scandal that dealt a fatal blow to his company, once one of Taiwan’s leading foodstuff manufacturers. In late April, the appellate Intellectual Property Court upheld Wei’s conviction for having instructed employees of Ting Hsin Oil and Fat Industrial Co., a Wei Chuan affiliate of which Wei also served as chairman, to raise the share of palm oil in blended oil to 97%, leaving only 3% for soybean oil, in order to slash production costs. In finding Wei guilty of false labeling and Wei Ying-chung, former chairman of Ting Hsin Oil and Fat Industrial Co. and Wei Chuan Foods Corp., before starting a fraud, the court noted that long-term excessive intake of palm two-year prison term for fraud in a 2013 food scandal. oil, with its high content of fatty acid, may lead to clogged arter- PHOTO: CNA ies. The court also confiscated NT$32.9 million in gains by Wei Chuan from the illicit business. premium 100% pure olive oil imported from Spain. In fact, half The case was the most prominent in a series of food-safety the content of the product consisted of other inferior oils. Kao scandals that occurred in 2013-2014, sending shockwaves Chen-li, then chairman of the company, is now serving a 12-year throughout the society. Another major case, which came to light prison term and the company was fined NT$38 million. in October 2013, involved the addition by the Tatung Chang The harshest verdict in a food-safety case so far was brought Chi Food Co. of copper chlorophyll to what it claimed was by the Kaohsiung branch of the Taiwan High Court, which in

taiwan business topics • september 2017 23

9_CoverStory.indd 23 2017/9/8 12:08:37 PM COVER STORY

FOOD SAFETY

August 2016 sentenced two executives of the Chiangguan Co. to substantially increase the penalties for incorporating unap- – former chairman Yeh Hsiang-wen and former vice general proved additives or engaging in illicit blending or false label- manager Tai Chi-chuan – to imprisonment of 22 years and ing of food products. The law now calls for punishments of up 18 years respectively (based on multiple convictions). In addi- to seven years’ imprisonment, plus a maximum fine of NT$80 tion, the court confiscated NT$81.5 million in illegal gains and million, per violation. Before the law was amended, many food- fined the company NT$120 million. Then a leading producer of safety offenders had to be tried on charges of fraud, which carry pork oil, Chiangguan was accused of blending inferior oils such much lighter penalties. as pigskin oil, chicken oil, fish oil, and feed oil into its product In addition, the amendment removed the condition that viola- before selling as pure pork oil. The case is still pending a ruling tions must involve “causing harm to human health.” But when a on the defendants’ final appeal. health risk is suspected, the burden of proof is now on the manu- In another key case, the Tainan district court in June 2016 facturer to show that the product is safe for consumption. sentenced Wu Jung-he, chairman of the Hsinhao Co., to six In December 2016, for instance, the Taiwan High Court’s years and six months of imprisonment for fraud and violation Taichung branch reversed a district court verdict acquitting of the Act Governing Food Safety and Sanitation. The sentence Tatung Chang Chi Food of the charge of damaging the brand also included confiscation of the company’s NT$13.4 million of its customer, the Taiwan Sugar Corp., through its addition of in illegal gains and a fine of NT$5 million. Wu was accused copper chlorophyll to the olive oil sold to Taisugar. The lower of importing 1,400 metric tons of feed oil from Vietnam and court’s rationale was that Taisugar could not prove that the Hong Kong between 2012 and 2014 for sale to the Cheng I addition posed a health hazard, but the High Court ruled that Co., another subsidiary of Wei Chuan, for refining before being regardless of the health-risk issue, Tatung Chang Chi should marketed as edible pig oil. compensate Taisugar NT$11 million for injuring its brand value. In response to the wave of scandals, the Legislative Yuan in June 2014 revised the Act Governing Food Safety and Sanitation — By Philip Liu

TOPICS can be found in the Eslite, Kingstone, Caves and Hess bookstores in Taipei, Taichung and Kaohsiung. But why wait until we’re on the stands? Make sure of getting a copy by filling in the subscription form below.

Fill out this form and post or fax to 886-2-2718-8182 with your payment or receipt. AmCham will begin your subscription upon receipt of payment.

Taiwan q1 year = NT$1,500 q2 years = NT$2,700 Elsewhere in Asia q1 year = US$75 q2 years = US$140 HK/PRC q1 year = US$68 q2 years = US$130 USA/Europe q1 year = US$90 q2 years = US$170

Name: ______Membership ID#: (if applicable)______

Company: ______Telephone: ______

Mailing address:______

Email Address: ______qBill to Account (members only) qAMEX qMaster qVISA qCheck qTelegraphic Transfer

Credit card number: ______Cardholder’s name: ______

Subscriptions Expiration date: ______Total amount (NT$/US$): ______

Signature: ______Date: ______

• Please make checks payable to: American Chamber of Commerce in Taipei • Please direct telegraphic transfers to: American Chamber of Commerce in Taipei • Acct. #: 018-1-093665-6 Standard Chartered Bank, Tunpei Branch (Please fax your transfer receipt to AmCham.)

American Chamber of Commerce in Taipei Tel : 886-2-2718-8226 E-mail: [email protected]

9_CoverStory.indd 24 2017/9/8 12:08:37 PM ADVERTORIAL Bridging the Inspiration Gap

Skyrock Projects aims to inspire action and initiative in technology and the arts.

merging technologies are already reshaping the world, and the pace of change is increasing, with everything E from Artificial Intelligence, workplace automation, financial technology, autonomous vehicles, and advanced material science impacting home and work. Today’s learners will need to be educated to take advantage of the opportunities and solve the problems presented by emerging technologies. Yet, many experts see mainstream education failing to keep pace with speed of change, and in many regards, failing to adequately prepare their students to achieve their full potential. “Mainstream education is very slow to catch on to the demands of the economy or the demands of technology, and is very slow to adopt emerging technologies,” observes Simon and above. Within these broad sections, Skyrock offers a Thomas, a science and mathematics teacher from the United number of courses, each consisting of 30 hours of classroom Kingdom who has taught at the Taipei European School (TES) experience, with classes held for two hours per week for 15 for the past few years. weeks. The programs are divided into six hours of instruc- Thomas, along with fellow UK citizen and TES teacher tion in the basics of the technologies or systems, which the Tony Cornes, has launched a startup, Skyrock Projects, which students then apply to two separate projects of 12 hours each. promises to bridge the gap between emerging technologies Skyrock Mini offers classes on 3D modeling and creative and conventional education systems. prototyping, and a recent visit to the school found students “We want to encourage students and educators alike to busy scanning their heads, and then using the 3D computer embrace interdisciplinary learning and emerging technologies models to shape and manipulate the form before eventually as classroom tools and guides,” he says. printing out the model on 3D printers. This program allows Skyrock Projects is inspired by the STEAM approach students to gain experience in the use of CAD (computer to interdisciplinary education, with its heavy emphasis on assisted design) software and technologies and to learn the Science, Technology, Engineering, Math, and even Arts, which science behind 3D printers. Other Mini programs include has become popular in modern school systems. wearable technologies, autonomous vehicles, and App A quality STEAM education program integrates in-depth development. knowledge of math and science and deploys that knowledge “You need to do stuff that shows that learning can be fun to real world problem solving. Because they are real-world and engaging. It needs to resonate with them,” notes Cornes. oriented, quality STEAM programs are more engaging for “In my experience as a high school teacher, there aren’t enough students, thereby advancing initiative and creativity, as well as experiences that are done just for the sake of inspiration.” critical thinking and problem solving. Skyrock+ programs introduce high school students to “How to create original solutions to novel problems – multiple different career paths in technology and creativ- that’s the massive skill needed by students and society alike,” ity, helping students develop their creative portfolio that will observes Thomas. “The question is, in which subjects do you help them stand out during the college application process. get taught that? There’s no textbook for that.” Courses in Skyrock+ include Data Visualization, Analysis and Initiative and creativity are the buzz words of the modern Creativity with Python, as well as music creation, Javascript, world, but Thomas cautions that “employing initiative and physical computing and human-computer interaction. showing creativity is impossible without inspiration.” Skyrock++ meanwhile is aimed at college students/grad- “If you want your kids to do well with math and sciences uates preparing for their dream master’s program or job you need to inspire them,” says Thomas. “If you want to application, as well as professionals in need of a skills top-up, have creativity, you need to inspire creative work – that’s or simply anyone with a desire to learn something new and to what we do.” challenge themselves both technically and creatively. To this purpose, Skyrock Projects has created a series of The partners at Skyrock Projects applaud the quality programs that are aimed at not just advancing learning in education in Math and Science available in Taiwan, and note technology, but putting that learning towards fun, enriching that they are augmenting this education with fun, engaging, projects that inspire students to find their own interests and and creative learning programs. capabilities. “The teachers in conventional education do a bang-up Skyrock Projects has three main sections of learning: job delivering the basic chemistry and physics curriculum,” Skyrock Mini for junior high school aged students, Skyrock+ says Thomas. “Our role is getting students engaged in the for high school students, and Skyrock++ for university age first place.”

www.skyrockprojects.com | +886.228.746.252 | [email protected] | Zhongshan N. Rd, Sec 6, Ln 405, #64

taiwan business topics • september 2017 25

9 skyrock.indd 25 2017/9/8 9:46:40 AM TAIWAN BUSINESS

conrontin the succession issue

Who will take up the baton from the current generation of Taiwan’s corporate leaders?

BY KEITH MENCONI

orporate succession is a sen- Filling that gap, more and more executives working at Taiwan’s largest sitive topic in Taiwan, where external advisers are stepping in to help 100 listed companies are over the age C many top business leaders take guide companies of all sizes through the of 61. CCIS found the average age of on larger-than-life roles in their firms, complex set of personnel and corpo- the top companies themselves to be just often opting to continue working well rate-governance issues involved in the over 31 years. In addition, observers say into their eighties. Strong family and succession process. This growing eco- that more than half of these companies personal connections often complicate system includes professional service are still being run by the ﬁrst generation the transfer of company leadership. providers, consultants, private bankers, of executives, and given these demo- The business community well investors, academics, and non-profits, graphic realities, many predict the next remembers the years-long, chaotic with each addressing a slightly different decade to see a rolling wave of corpo- family feud that ensued when Formosa angle of the succession challenge. rate successions. Plastics Group Chairman Wang Yung- As succession becomes critical at The bulk of these successions have ching passed away in 2008 without many Taiwanese businesses, the success yet to take place, and as long as the old leaving any known will. More recently, or failure in many cases will depend on guard remains, Tsai and others worry the sudden passing in January of the insights and guidance provided by that conservative attitudes toward busi- Taiwan Cement Corp. Chairman Leslie this emerging group of advisers. ness strategy will dominate, blunting Koo after a fall down a flight of stairs Allen Tsai, who heads the invest- Taiwan’s competitive edge. “They served as a clear reminder that a com- ment banking arm of BNP Paribas don’t really innovate,” he says. “They pany may be forced to face a leadership in Taiwan, is a zealous advocate of operate.” succession at any time. improved corporate governance. Five Both family-run and non-family years ago, he founded the Taiwan All in the family businesses face the risk. Analysts point Institute of Directors as a nonprofit out that tech manufacturing behemoth knowledge-sharing platform for mem- A large share of Taiwan’s firms are Hon Hai (Foxconn) is still very much bers of Taiwan’s corporate boards. He family owned and operated, which dependent on the business genius of its quickly found that many of these direc- brings an additional set of succession founder and chairman, Terry Gou, who tors were facing succession issues, challenges. is often described as a micromanager. and governance in family enterprises Professor Joseph Fan of the Chi- At Taiwan Semiconductor Manufac- became a primary focus. “I think the nese University of Hong Kong Business turing Co. (TSMC), founder Morris most pressing issue for these companies School has focused his research on the Chang continues as chairman at the age right now is succession,” he says. many ways in which corporate succes- of 86, although he has twice shed the Tsai is concerned about the aging sion can damage the value of family role of CEO. demographic of Taiwan’s corporate firms. In one study, Fan tracked the Even with a huge generation of leaders, many of whom first rose to value of more than 200 publicly traded Taiwan’s corporate leadership now prominence leading the surge of new family-run companies in Hong Kong, at or approaching retirement age, companies that emerged in the 1970s Singapore, and Taiwan both before and though, few companies are taking on and ’80s. after the year in which a transfer of the difficult work of training the next According to 2014 figures from the power took place. He found an overall generation or formulating credible suc- Taipei-based China Credit Information average loss of about 60% in market cession plans. Service (CCIS), more than half of the value over the course of the transition.

26 taiwan business topics • september 2017

9 succession.indd 26 2017/9/8 11:55:40 AM TAIWAN BUSINESS

In Taiwan, the effect was less severe than in the other two areas, but still amounted to an average loss of about one-third. According to Fan, these losses have many causes, including family infighting, unprepared leadership in the second generation, and the difficulties inherent in passing on important relationships and connections. Despite the high stakes, though, corporate leaders often studiously avoid succession decisions. They do so for a host of practical reasons, but also for the very human reason that facing succession means contemplating one’s own mortality. Many experts advise that FAMILY FEUD — Winston Wong (right), son of Formosa Plastics Group founder Wang Yung- starting the process early is extremely ching who died while in the United States, enters New Jersey Superior Court with an aide in 2009 to dispute inheritance claims by his half-siblings. important, as successful transitions photo: cna require years of preparation, and in some cases training new leadership can the service providers and investors now Last year’s high-profile family spat take a decade or more. However, very turning their attention to succession. within the Evergreen Group, following often no one in the company is in a “This is a totally new market,” he the death of founder Chang Yung-fa, position to press leadership on the issue says. “We will become a platform for saw members of the Chang family bat- and move the process forward. the demand and supply sides to meet tling over top leadership positions, in “A significant issue in Taiwan con- each other.” the process creating chaos and perhaps tinues to be the reluctance by senior Professional services firm Pricewater- even future business rivals. management or independent directors houseCoopers Taiwan (PwC) first began In that case too many people wanted to challenge the controlling family, even turning its attention to the succession the job, but the reverse situation is in the face of poor decision-making or issue in the run-up to a major reduc- common as well. In many small- and illegal behavior,” says Ross Feingold, tion in Taiwan’s inheritance and gift tax medium-sized enterprises, frequently no a longtime Taipei-based lawyer and that passed in 2009. “In Taiwan, we one in the second generation has any business consultant. “In a society that are probably the first firm to educate interest in carrying on the family busi- highly values personal relationships, our clients and tell them this is an issue ness. When the founder does not accept and where the senior level of business you need to be very careful about,” says the second generation’s refusal, such and politics is populated by a relatively Ryan Lee, a financial consultant and a disputes can drag on for years, creating small group with longstanding personal leading member of PwC’s family busi- tension within the family and gumming relationships, independent directors ness team. up an already difficult process. can be reluctant to question or chal- Anticipating the tax reduction, one PwC aims to help move this process lenge corporate behavior.” Independent major client with a large family asked along by offering an additional perspec- directors who do openly oppose corpo- PwC for consulting on the inheritance tive with a bit more distance from the rate leadership run the risk of damaging issue. At the same time, the fami- raw emotions felt within the family. In their relationships and may even face ly’s next generation was getting old doing so, the line between consultant legal challenges, he adds. enough to enter the family business, but and close family confidant can some- Allen Tsai’s Taiwan Institute of it remained unclear who would take times blur. “We have to be very trusted Directors is in many ways an attempt which job. With the big questions of because that’s a family issue rather than to address the succession inertia. “We inheritance and succession hanging in a business issue,” says Lee. make the founders and chairmen face the air and creating internal friction, In one instance, PwC went so far as the issue,” Tsai says. “You know, no the need for well-planned family gover- to arrange a large dinner that brought one lives forever.” nance became urgent. everyone in a client’s family together to To that end, the group holds meet- PwC began to dig into this ques- finally face the succession issue. With ings, workshops, gatherings, and small tion in earnest, analyzing how best to ample wine on hand to loosen up the seminars that often feature expert advice hold family meetings, make strategic conversation, the evening hit its emo- from U.S. and European family busi- decisions, and set up voting procedures tional climax when the eldest son, who nesses as a means to facilitate sharing – all in an effort to create a more sys- had been reluctant to assume corpo- among peers. Tsai says he hopes that tematic way of resolving corporate rate leadership, declared that he would his organization will help raise aware- family disputes. indeed give it his best. ness and in the process drive demand for Such disputes come in many forms. The father was moved to tears.

taiwan business topics • september 2017 27

9 succession.indd 27 2017/9/8 11:55:41 AM TAIWAN BUSINESS

Talent development will be key to centralization of decision-making at Their broad experience and managerial addressing the challenges of succession. the top of Taiwan’s companies makes expertise enable them to act as a knowl- In the case of family firms, results from management transitions all the more edgeable, neutral third-party, assisting a 2016 PwC survey of several dozen challenging. Of the founding genera- with the tricky process of transitioning businesses in Taiwan showed that 58% tion, she says: “They probably came in a new management team, he says. of those surveyed plan to pass on both through a lot of hardship to build up This injection of experience can ownership and management rights to their businesses. They themselves have be crucial, as most Taiwanese com- the next generation. Globally, the same very good capabilities, and so over time panies facing a succession are doing survey found that percentage to be they’ve gotten used to making a lot of so for the first time. Lee Ji-ren, the only 39%. decisions on their own.” National Taiwan University man- “As this proportion increases, so “They never delegated, and now agement professor, says that current does the overall risk for family busi- that they are thinking about retirement, executives, incoming management, and nesses,” says Howard Kuo, who heads they haven’t built up a management even corporate boards all lack succes- PwC Taiwan’s family business ser- team around them with the capabilities sion experience. Consequently they vices. Kuo doubts that 58% of Taiwan’s of taking on the whole business,” says may either fail to anticipate potential family businesses have qualified mana- Chen. dangers or adopt an overly cautious gerial talent waiting in the wings who At one such company with a domi- approach that draws out the process. are both willing and able to take on a nant leader, McKinsey worked with 30 The PE specialist says he believes leadership role. top executives, providing both collective successions spurred by investments can training and fieldwork in the form of set good examples for successful tran- Closing the talent gap personally assigned business challenges sitions. “Once we set those examples, to broaden their skill base and, ideally, other people will follow,” he says. Those who are not ready will need prepare them to shoulder the burden of Then there are shareholders. While help to get up to speed. According to leadership when the founder departs. local shareholders in Taiwan tradition- the same PwC survey, 29% of sur- McKinsey approaches the succes- ally have seldom become involved in veyed family firms in Taiwan say they sion issue only indirectly. “Nobody is succession issues due to widespread plan to transfer ownership rights to the saying come and help me with my suc- reluctance to challenge corporate younger generation, but will install a cession plan,” says Chen, perhaps leadership, this hesitation may be professional to manage the company. reflecting the highly sensitive nature of changing. “The pressure is coming,” Qualified professional management will the topic. However, succession casts a says Alex Lee, CEO of capital market also be difficult to locate, though, as long shadow, and when McKinsey is service provider Quantum Interna- Taiwan faces a shortage of top execu- called upon to assist clients with talent tional Corp. If he is right, investors tive talent, exacerbated by a common or business development, oftentimes a may begin to push more aggressively reluctance to recruit outside of Taiwan. succession issue is looming in the back- for written succession plans and more Filling out the executive bench can ground. talent development. be just as important – and sometimes Returning once again to PwC’s Lee predicts that as more and more just as challenging – as filling the top job survey results, 11% of surveyed com- foreign investors enter the Taiwan itself. Lee Ji-ren, a professor at National panies expect to sell off full or partial market, and as their investment strat- Taiwan University’s College of Manage- ownership of the business to inves- egies begin to be adopted by local ment, assisted Hon Hai in 2008 with tors. Of those, fewer than 1% say they investors, market forces will push com- the creation of a “talent development expect to sell to a private equity (PE) panies to address succession as well program” aimed at creating a team of firm. Nevertheless, one private equity as other corporate-governance issues. capable top executives to spread out specialist focused on greater China says “The local guys will start learning from management responsibilities. the succession issue quite often serves as them and changing,” he says. “This is not the kind of thing you a catalyst for deal making. With many companies underper- can just build overnight,” says Lee. “It gives us our opening,” he says, forming in the market due to poor “You need a development process that creating awareness that there is a poten- corporate governance, he says the situa- includes project-based assignments tial deal to be done. “If ownership tion represents an invitation to investors. along with rotation among depart- may be undergoing a potential change, “What would you do? Attack! Take ments. That’s the only way these somebody needs to help them with over the company when the stock price executives will gain the ability to work the succession planning. That’s some- is not reflecting its true value,” he says. across products, functions, and geo- thing we can use to talk to the company The range of advisers offering assis- graphic areas.” about.” tance for succession-related issues may International management con- While many business owners remain be increasing, but for those compa- sulting firm McKinsey & Company has suspicious of private equity inves- nies still unwilling to take on the issues also begun assisting clients with exec- tors, the industry insider stresses that themselves, the market may soon find a utive talent development in Taiwan. PE firms are in fact well-positioned to way to resolve the succession quandary Associate Principal Tina Chen says the help with the reorganization process. whether they like it or not.

28 taiwan business topics • september 2017

9 succession.indd 28 2017/9/8 11:55:41 AM INDUSTRY F CUS A Report on the Financial Service Sector

Following the Money

taiwan business topics • september 2017 29

9 IF.indd 29 2017/9/8 12:04:01 PM INDUSTRY F CUS

TAIWAN BANKS SEE AN OPENING IN SOUTHEAST ASIA

Exposure declines in China, though it remains an important market for serving Taiwanese SMEs.

BY MATTHEW FULCO

IN THIS REPORT

aiwan has long suffered from mission (FSC) has encouraged the a saturated domestic banking state-owned Export-Import Bank market, prompting its banks of the Republic of China to provide • Taiwan Banks See an Opening in T to foray abroad for new business guarantees and insurance for trade Southeast Asia p30 opportunities. Under the administra- contracts. As a result, banks have tion of former President Ma Ying- been more inclined to lend to Tai- jeou, banks took advantage of the wanese firms engaged in business cross-Strait detente to open numerous deals in the region. • Potential Opportunities for Foreign Banks branches in China. In an email response to Taiwan p33 More recently, Taiwanese banks Business TOPICS, the FSC noted that have targeted Southeast Asia, and it has approved the establishment of they now have a presence in every 10 new outlets of Taiwanese banks ASEAN country. The accelerated this year in Australia, Southeast • Building a Domestic Footprint p35 push into Southeast Asia is part of Asia, and India. Taiwan Cooperative the Tsai Ing-wen administration’s Bank will open a branch in Mel- New Southbound Policy aimed at bourne; Taiwan Cooperative Bank, reducing Taiwan’s economic reliance Chang Hwa Commercial Bank, and on China. First Commercial Bank will open • Taiwan Reforms Money-laundering Controls Government officials say that the new branches in Cambodia; Chang p36 New Southbound Policy is bearing Hwa Bank and Taiwan Business Bank fruit for the financial sector. In the will add branches in the Philippines; first quarter of this year, Taiwan Bank of Taiwan has permission to set banks posted record earnings of up representative offices in Vietnam, • Getting Taiwanese to Engage in Retirement NT$1.72 billion (US$56.95 mil- Thailand, and Indonesia; and the Planning p38 lion) in countries included within the Export-Import Bank will open an scope of the policy, which besides office in Mumbai. ASEAN nations also includes India, Local regulations will play an Pakistan, Australia, and New Zea- important role in the ability of land. The highest earnings were Taiwan banks to grow their market recorded in Vietnam (NT$700 mil- share in ASEAN countries, observes lion), Cambodia (NT$400 million), Cherry Huang, a director at Fitch and Australia (NT$200 million). Ratings in Taipei. “In countries The Financial Supervisory Com- where foreign banks are permitted to

30 taiwan business topics • september 2017

9 IF.indd 30 2017/9/8 12:04:03 PM A Report on the Financial Service Sector

have full ownership of local banks, it’s by Taiwan Business TOPICS about the Huang says. possible to gain a stronger foothold than reasons for the decline, the FSC said: Nor have Taiwanese banks been able when only partial ownership is allowed,” “Taiwanese banks decide for themselves to grow their presence in China through she says. whether to invest in the mainland market M&A. A recent deal that would have For instance, Yuanta Securities last based on an evaluation of global market seen Taiwan’s CTBC Bank acquire a September acquired full ownership of conditions. The FSC respects their deci- 100% stake in Hong Kong’s CITIC Bank Tong Yong Savings Bank in the Philip- sion.” The FSC added that investment International, a subsidiary of China’s pines, which includes headquarters in conditions for Taiwanese banks in China CITIC International Financial Hold- Manila and two branches in Alabang and remain normal. ings, for NT$11.67 billion (US$368.63 Ortigas. The acquisition “not only repre- million), and CITIC Bank take a 3.8% sents an important milestone in our entry Approaches to the China market stake in CTCB, fell through last August. into the Southeast Asian market, but also Reportedly, the deal collapsed because a foundation for our future development Taiwan’s state-owned and private CITIC did not meet Taiwan’s require- in the region,” said Yuanta Commercial banks approach the Chinese market ment that any Chinese bank investing in Bank Taiwan president Dan T.Y. Chang differently, observes Huang of Fitch Rat- a Taiwanese counterpart must have had in a press release. ings. “For political reasons, state banks branches in OECD countries for more Chang lauded the Philippines’ close need to be very careful about their China than five years. economic ties with Taiwan and said it “is exposure, but for private banks, it’s At a Beijing press conference, CITIC the ASEAN member nation with the most natural for them to serve Taiwanese cor- president Sun Deshun attributed the stable economic growth.” The Philippines porates in China.” collapse of the deal to regulatory tra- currently has seven Taiwanese bank out- For Taiwan’s SMEs operating in vails and an inability to agree on certain lets, as does Cambodia. Within Southeast China, it is difficult to get a loan from commercial terms. He said that politics Asia, Taiwanese banks have the most out- Chinese banks, which historically prefer did not play a role in the banks’ deci- lets in Vietnam (12), Singapore (12), and to lend to large firms, Huang notes. sion to pull out of the deal. “There is Myanmar (12). Taiwan banks thus play a valuable role not a single political element to it. We Singapore is a unique case, Huang in the China market for Taiwanese busi- are a commercial bank. We can’t play a observes. While Taiwanese banks are nesses, who can use their assets in Taiwan leading role in politics,” he was quoted generally following their manufacturing as collateral for loans. as saying by Reuters. customers to ASEAN markets or seeking Still, Taiwanese banks have not been Sun’s statement could be seen as mis- opportunities within the region’s overseas able to gain significant market share in leading. CITIC Bank International is Chinese communities, in Singapore they China despite a concerted push into the part of the mammoth state-owned CITIC are involved in regional loan syndication market during Ma Ying-jeou’s presidency. Group, founded in 1979 by billionaire and wealth management because of the The primary problem is that “it’s very (and later Chinese vice president) Rong city state’s strength as a financial hub. difficult to get the proper licenses for con- Yiren. CITIC was established with the Meanwhile, Cathay Financial Holding ducting RMB business that allow a bank blessing of former Chinese paramount Co., Taiwan’s largest financial group, will to penetrate the local retail market,” leader Deng Xiaoping and has long gain a foothold in the Malaysian market with the acquisition of the Bank of Nova Scotia’s Malaysia unit. The FSC approved the 1.1 billion ringgit (US$258.58 million) deal in June. Since the Scotiabank unit holds a commercial banking license, Cathay will become the first Taiwanese bank able to conduct business in the local currency. That’s a major accomplishment, as Malaysia rarely issues commercial banking licenses. They were last issued in 2010 to five foreign financial groups. The surge of interest among Tai- wanese banks in ASEAN markets comes as exposure to China steadily falls. In the quarter ended March 2017, lending and investment – as well as inter-bank loans and deposits by Taiwanese banks in China – totaled NT$1.54 trillion, down from NT$1.62 trillion a year earlier, according to the FSC. In an emailed response to a query

taiwan business topics • september 2017 31

9 IF.indd 31 2017/9/8 12:04:03 PM INDUSTRY F CUS

worked closely with the Chinese govern- and Finance. “For the most part, they Nomura failed to provide its US$9 mil- ment on major economic initiatives. simply serve the same manufacturing cus- lion portion of the loan, according to It is hard to imagine the ruling tomers as in Taiwan. Relying on these a June 2016 report in the English-lan- Democratic Progressive Party (DPP) gov- customers is not a strategy for sustainable guage Taipei Times. Instead, Ultrasonic ernment giving the green light to a tie-up international expansion.” Shoes provided the cash after Nomura between a local bank and a Chinese In ASEAN there are opportunities for allegedly told the firm that such practice counterpart with such deep ties to the Taiwanese banks, but they will need to was standard in international syndicated Communist Party establishment. adapt to local culture – which is different loans in China. If Ultrasonic Shoes failed Liang Kuo-yuan, chairman of the in each Southeast Asian country – and vie to put up the funds, the deal would col- Yuanta-Polaris Research Institute, says with global competitors for market share, lapse, Nomura reportedly informed the that Taiwanese regulators are also con- he observes. company. cerned about China’s mounting debt – Taiwanese banks can initially serve the By email, the FSC said that Taiwanese more than 300% of GDP, according to local market in Southeast Asia by focusing banks will need to strengthen compliance the Institute of International Finance – on syndicated loans for state banks with controls and embrace financial tech- and how it could affect Taiwan banks acceptable investment ratings, says Fitch nology (fintech) as they expand overseas. with China exposure. Liang notes that Ratings’ Huang. In that case, “the level of The banking industry should use fintech Chinese President Xi Jinping highlighted risk is manageable,” she says. to improve the efficiency of its services, the Chinese Communist Party’s concerns Meanwhile, lending to less reputable the FSC said. about the issue in a July speech. “We can entities in the region is fraught with risk. The FSC also said that the banking be certain China’s debt situation is wor- “There are transparency problems; fraud industry should “actively cultivate inter- risome when the Chinese president is and embezzlement are not uncommon,” national financial talent.” Yuanta- talking about it this directly,” he says. she says. “It’s very similar to China.” Polaris’s Liang agrees. “We need to ask In the case of China, Taiwanese ourselves why Taiwan’s first push into Becoming globally competitive banks found that out the hard way Southeast Asia [during the mid-1990s when a flagging Chinese footwear maker under President Lee Teng-hui] was unsuc- One of the main reasons Taiwanese defaulted on a US$60 million syndi- cessful,” he says. banks have focused on the China market cated loan in 2014. Cathay United Bank Liang acknowledges that the Asian is that the two sides of the Taiwan Strait and five other Taiwanese counterparts Financial Crisis gave some businesses share a common language and culture. To participated in the unsecured loan to cold feet about Southeast Asia, but he be sure, the political and business envi- Fujian Ultrasonic Shoes Co. arranged by notes that Taiwanese businesspeople ronment is different in China, but that has Nomura Hong Kong. Shortly after Ultra- struggled with the foreign languages not deterred Taiwanese businesspeople. sonic Shoes received the funds, the CEO and cultures of ASEAN countries. Over- “Taiwanese banks haven’t had to and COO absconded with most of the coming that challenge is not something develop a global mindset to do business company’s cash. that will happen overnight, but utilizing in China,” says Hank Huang, vice presi- The Chinese footwear maker wasn’t global talent can make an important dif- dent of the Taiwan Academy of Banking the only party guilty of wrongdoing. ference, he concludes.

The ribbon-cutting ceremony in Manila in September 2016 for Yuanta Savings Bank (Philippines), the new name for what had previously been the Tong Yong Savings Bank. PHOTO: CNA

32 taiwan business topics • september 2017

9 IF.indd 32 2017/9/8 12:04:04 PM A Report on the Financial Service Sector

POTENTIAL OPPORTUNITIES FOR FOREIGN BANKS

Taiwan’s ambitious plans to develop offshore wind power spur a need for project financing.

BY MARINA FINLEY

nternational banks have held a rather limited market share in I Taiwan, but one area in which they have a potential competitive edge by virtue of their technical expertise in the financing of major projects. In recent years, such projects have been scarce, but that may soon change as a result of the Taiwan government’s determination to develop green energy. Taiwan aims to meet 20% of the island’s energy needs with renewable sources by 2025 and has been high- lighting the development of solar and offshore wind power as means to achieve that goal. While regulatory holdups and environmental impact concerns have A Citi Taiwan ceremony marking the upgrading of its Chungcheng Branch in Taipei delayed progress, projects requiring early this year to provide more digital financial services. financing are gradually getting underway. PHOTO: CITI BANK “It’s the first time in maybe five or six years that there are actually things chase agreements must be in line with the development of offshore wind power that need to be financed,” says Godwin international banking standards, and cau- “provides a lot of business opportuni- Chang, Group Country Head of Société tions that the government will have to ties for banking institutions like us who Générale (SG). “Local banks don’t have show flexibility in designing incentives to can provide various funding options, the expertise or the appetite to handle attract both foreign and local investors to [including] acting as underwriter or risk assessment for offshore wind proj- build the necessary infrastructure for the adviser for foreign issuers of Formosa ects on a project-finance basis, but many offshore wind projects. Green Bonds.” of the foreign banks like SG do. We “Foreign banks can help in developing In July, Crédit Agricole Corporate and know how to assess the risk and how the local expertise in project finance and Investment Bank became the first for- to package and structure the project take part in the financing, but they must eign issuer of a Formosa Green Bond. financing. These projects offer the oppor- also involve the local banks, because The US$120 million issuance was joint- tunity of combining the foreign banks’ most of the financing will be done in NT lead managed by domestic underwriters project-finance expertise with the very dollars,” Chang explains. “There are a including Cathay United Bank, Cap- strong funding capabilities of the local few projects already getting started. Once ital Securities Corp., E.Sun Commercial banks.” one or two projects are done and we Bank, KGI Bank, Mega Securities, and The government will need to provide develop a workable template, things will Taipei Fubon Commercial Bank. steady guidance to steer these projects in start to move very quickly. There’s a lot As leaders setting the bar in banking the right direction, creating the founda- of foreign money ready to pour into these around the world, foreign banks in tion for them to be clearly financeable projects.” Taiwan are committed to sustainable from an international perspective, says Cynthia Chan, Chief Country Officer investment. “Most international banks Chang. He emphasizes that power pur- of Deutsche Bank in Taiwan, notes that today will not, for example, finance coal-

taiwan business topics • september 2017 33

9 IF.indd 33 2017/9/8 12:04:05 PM INDUSTRY F CUS

fired plants, because of the environmental constant appetite for yields across asset Regulation vs. innovation impact,” says Godwin Chang. “So if classes and currencies. This brings a lot you’re not financing coal-fired plants, you of business and innovation opportuni- In many ways, Taiwan offers a favor- need to find other business to do. These ties for financial services institutions who able environment for the banking renewable projects are perfect: good for can structure products to bridge the two business. “Taiwan is a mature market in the economy, good for the environment.” sides of the markets: companies seeking terms of well-established regulations and “Expertise is really needed to prop- financing and investors seeking returns.” strong government stability,” says SG’s erly structure the financing,” says Chang. Foreign banks, with their worldwide Chang. “The transparency is quite good, “There’s a lot of appetite by the foreign network of products and solutions, excel with strong IP protection and good rule banks to do that, and many international at serving as that bridge. Their scope of of law.” developers obviously want to do a project financial services runs the gamut from Chang also credits the government in Taiwan, because it’s a new area where cross-border trade financing and for- with realizing about a decade ago that the they can grow very quickly. The money eign exchange deals to M&A advisory, banking industry needed to consolidate, and the willingness to invest in Taiwan offshore investment, and cash manage- and consequently allowing foreign banks are there, provided the structure is sound. ment. “I see foreign banks’ importance to expand their market reach by buying Unfortunately, we’re not quite there yet.” in Taiwan continuing to deepen as local banks. “All the multinational banks the country becomes more and more that have retail operations in Taiwan A crowded market embedded in the intra-regional and global didn’t start it from scratch – they bought trade and investment flows,” Chan adds. a local bank,” he says. “This helped In what is a highly crowded and com- Paulus Mok, Country Officer of Cit- improve the local banking environment, petitive market dominated by state- igroup in Taiwan, says “the roles that as the foreign banks were able to bring owned financial institutions and marked foreign banks have been playing in in international best practices and global by tight profit margins, the opportuni- Taiwan include initiating product inno- access to new products.” ties for foreign banks are based on their vation, providing top service quality Yet as rapid advances in technology global connections and unique products and global connectivity, and introducing radically transform how banks interact and services. investment into Taiwan.” He notes that with consumers, Chang sees the need for Anthony Lin, who moved from Citi has maintained a leading position in government policy to respond more rap- Shanghai to Taipei in February to become the market. idly. “What’s hindering the growth of CEO of Standard Chartered Bank “Taiwanese companies are emerging Taiwan is conservative policymaking,” he (Taiwan), says he is undaunted by the as champions in many industries and we says. “It’s too difficult for the government crowded banking landscape since “we play a very significant role in helping to adapt quickly to the changing environ- can find our niche, find our strength, and them continue to expand overseas,” ments by revising regulations. The biggest play it well.” Noting that Taiwan is an says Mok. “We provide a full range of hindrance to growth is that regulators” attractive market of 23 million people financial services to help them build tend to be overly protective of inves- and over 1.3 million small and medium competitive and efficient businesses by tors. “For that reason, they are reluctant enterprises (SMEs), he says the task is to supporting their efforts to scale glob- to open things up quickly and allow “align and adjust ourselves to capture the ally. Such services include capital markets market forces to operate fully. Without right opportunities.” financing, hedging and cash management that, it will be very difficult for Taiwan to The market is crowded in part because solutions, M&A advisory, etc.” become a financial hub.” it boasts unique assets. “Taiwan inves- Global banks are important part- Multiple banking executives inter- tors are very sophisticated, and investors ners for global companies, Mok says. viewed by Taiwan Business TOPICS here structure their investment options “Citi is a truly global financial institution cited regulatory obstacles to needed for an enhanced yield,” observes Godwin with an unprecedented network around expansion of product development and Chang. Internationally it is quite rare the world. If Taiwanese companies want distribution opportunities as a crucial for banks to have departments devoted to expand their businesses no matter in issue. They cited currency- and interest- specifically to structured investment prod- the U.S., Europe, Latin America or Asia, rate-linked products as well as offshore ucts, he says, but in Taiwan most banks we’re there to support and would like to bonds and bond platforms as areas in maintain such specialized departments. become their most important and most which business innovation is stifled by Customers look to foreign banks to bring trusted bank.” conservative regulations. new product ideas and innovative services Major foreign banks are also well-po- At the same time, Citibank’s Mok to the Taiwan market. sitioned to provide regional services to considers the regulatory environment The Taiwanese investors also have Taiwanese companies, Mok says. “Our could also be a strategic opportunity the resources to invest. “One of the SME clients, which have factories outside for foreign banks. “The world after most important characteristics of the of Taiwan, are served by Citi in China, the financial crisis is definitely a place Taiwanese financial market is its abun- Vietnam, Indonesia, and other countries. with much more stringent regulatory dant liquidity,” explains Cynthia Chan We have Mandarin-speaking teams in requirements for financial institutions,” of Deutsche Bank. “With deep pockets those areas who can support them in their he says. “Foreign banks operating in to dip into, Taiwanese investors have a own language.” Taiwan must meet both the local regu-

34 taiwan business topics • september 2017

9 IF.indd 34 2017/9/8 12:04:05 PM A Report on the Financial Service Sector

lator’s requirements and certain global been moving in the opposite direction connected to the world with products standards. For example, the standards since the financial crisis of a decade ago. and solutions that can truly serve them of cybersecurity and AML (anti money- “Before the crisis, many banks used to in a very effective way.” laundering) are emerging quickly around provide a rather wide variety of prod- Global financial institutions have the world. Being one of the leading insti- ucts and services to clients, more like a revamped their structures to priori- tutions in observing these standards, Citi financial supermarket. But today insti- tize financial prudence and security, can make a contribution on sharing best tutions likes ourselves focus on going Mok says. “In the last few years, we’ve practices with our Taiwan regulators and back to the basics of banking. Citi’s mis- become simpler, smaller, safer, and banking peers.” sion is to serve as a trusted partner to stronger. Whether you look at our Mok notes that while many local our clients by responsibly providing liquidity positions or capital adequacy banks are expanding their scope of ser- financial services that enable growth and leverage ratios, it is evident that vices by becoming financial holding and economic progress. We are deeply we are championing those values in the companies, foreign banks have generally committed to helping our clients get industry.”

BUILDING A DOMESTIC FOOTPRINT

When is a foreign bank not a foreign bank? Answer: When it establishes a domestic subsidiary. Standard Chartered Bank executives were joined by Taiwan government officials and Catherine Nettleton, the British Representative to Taiwan, in celebrating the 10th anniver- sary of Standard Chartered's acquisition of Hsinchu Interna- tional Bank. photo: stanar chartere ban

etween 2007 and 2013, five leading international banks with Hsinchu-based Hsinchu International bank. It now oper- – Standard Chartered, Citi, HSBC, DBS, and ANZ ates a total of 74 branches around the island. B – received approval from the financial authorities to In the same year, Citibank Taiwan created a subsidiary after expand their presence in Taiwan’s retail banking market by merging with the Bank of Overseas Chinese. The enlarged bank taking over the operations of local banks. In two cases the local has 38 branches located in Taiwan’s six major municipalities. entities involved were distressed banks, and the government Two more subsidiaries were formed in 2008 through gov- paid subsidies to the acquiring institutions through the Financial ernment-assisted takeovers of troubled banks. HSBC (the Hong Restructuring Fund as a means of stabilizing the financial system Kong and Shanghai Banking Corp., headquartered in the UK) and supporting the troubled banks’ depositors. acquired The Chinese Bank in March of that year, and DBS (the As part of the process, the enlarged banks obtained licenses Development Bank of Singapore) assumed control of Taiwan’s as domestically registered subsidiaries, in addition to their pre- Bowa Bank that May. The HSBC branch network now extends vious status as branches of their parent companies overseas. But to 58 locations and DBS’ to 39. the bulk of their business is now run through the subsidiaries, In 2009 ANZ (the Australia and New Zealand Banking which under the law are regarded as domestic institutions. Group) purchased the banking units of RBS (the former Royal Counting those subsidiaries, Taiwan now has 38 domestic Bank of Scotland) in several markets, including Taiwan, and in banks, plus such other domestic financial institutions as credit 2013 incorporated the operation as a subsidiary. Late last year cooperatives and the credit departments of farmers’ and fisher- ANZ announced that it was selling its retail and wealth manage- men’s associations. There are also 30 local branches of foreign ment operations in Taiwan and certain other markets to DBS in banks, which are primarily involved in corporate banking. order to concentrate on corporate business. Standard Chartered Bank (Taiwan) became the first locally incorporated foreign-bank subsidiary in 2007 after it merged — By Don Shapiro

taiwan business topics • september 2017 35

9 IF.indd 35 2017/9/8 12:04:06 PM INDUSTRY F CUS

TAIWAN REFORMS MONEY-LAUNDERING CONTROLS

New York regulators’ fining of Mega Bank last year for lax compliance practices was a wake-up call.

BY MATTHEW FULCO

n a victory for the nation’s regula- APG deemed Taiwan’s system to prevent tors, Taiwan in July was removed money laundering non-compliant with I from a regional list of countries FATF standards. A subsequent audit in judged to have insufficient money-laun- 2011 landed Taiwan on a reinforced fol- dering controls. Taiwan had spent low-up list. months revising legislation and pushing “Taiwan is not a place where foreign its financial institutions to crack down on drug dealers and gun runners would be money laundering as it sought to be elim- expected to launder money earned from inated from a list that put it in the same illicit activities, or terrorists would be category as Afghanistan, Pakistan, and expected to seek financing,” says Thomas Papua New Guinea. McGowan, an expert in financial-ser- “We revised anti-money laundering vices law and a foreign legal consultant in legislation and enacted a law to prevent the law firm of Russin & Vecchi Taipei. terrorism financing, bringing Taiwan “Actual money-laundering issues as they into line with international standards,” relate to Taiwan are more likely to arise Hugh Hung, an auditor in the Banking in the context of wealthy Taiwanese Bureau of the Financial Supervisory receiving or routing funds offshore for Commission (FSC), said by email. The the purpose of avoiding taxes.” government this March also established Although in the past Taiwan’s system an Anti-Money Laundering Office under to combat money laundering and ter- the Executive Yuan, directed by a min- rorism financing was not as robust as it Mega Financial Holding's Executive Vice ister without portfolio. President and Compliance Officer Chen should have been, Taiwan has also suf- Deputy Minister of Justice Tsai Pi- Chung-hsing at an August 2016 news fered from undeserved perceptions, chung lauded Taiwan’s removal from conference about the scandal. McGowan observes. For example, pres- PHOTO: CNA the watchlist of the Asia/Pacific Group sure from China has kept Taiwan from on Money Laundering (APG). “All of becoming a member of FATF, which cur- our revised legal standards have demon- As much as removal from the list rently has 37 member countries. “The strated our determination to fight money deserves celebration, how did Taiwan result is that Taiwan’s name appears on laundering and carry out reforms,” he end up there in the first place? The a list of non-FATF members alongside was quoted as saying by Reuters. island, after all, is hardly a hub for illicit rogue states actively involved in global Founded in Thailand in 1997, the financial flows. In fact, in 1996 Taiwan financial crime and creates a pre-con- APG is an international organization that became the first Asian country to pass a ceived notion that Taiwan’s anti-money uses a mutual evaluation or peer review Money Laundering Control Act. laundering regime is much more defec- program to evaluate the compliance of According to a statement on the Exec- tive than it really is,” he says. “Taiwan is its members with the anti-money-laun- utive Yuan website, Taiwan’s efforts always fighting to prove that it is FATF dering standards set by the Financial to combat money laundering in subse- equivalent.” Action Task Force (FATF). FATF was set quent years focused more on criminal After the 2011 audit, “some of the up at the G-7 summit in 1989 to combat prosecution than moving into line with issues in the banking and regulatory money laundering. global standards. As a result, in 2007 system were fixed or partially fixed,

36 taiwan business topics • september 2017

9 IF.indd 36 2017/9/8 12:04:07 PM A Report on the Financial Service Sector

but at more of a form rather than sub- City as Panama’s attorney general began Ratings in Taipei. She notes that Mega’s stance level,” he says. As a result, Taiwan an investigation into their possible brush with the New York financial regu- remained on the APG transitional fol- connections with Brazil’s Lava Jato cor- lator has not hurt its business in Taiwan, low-up list. ruption scandal. where the company’s share of SME In a statement, the DFS censured lending has risen over the past year. A jarring wake-up call Mega New York’s compliance deficien- To be sure, Taiwanese regulators will cies. “The compliance failures that DFS increase scrutiny of Mega, as it has the The impetus for Taiwan to overhaul found at the New York branch of Mega largest offshore network of any local its anti-money laundering controls came Bank are serious, persistent and affected bank and is a key part of the Taiwanese in August 2016 when the New York State the entire Mega banking enterprise and financial system. “Mega Bank is too big Department of Financial Services (DFS) they indicate a fundamental lack of to fail,” she says. slapped a US$180 million fine on govern- understanding of the need for a vigorous The FSC did punish Mega after the ment-invested Mega Bank’s New York compliance infrastructure,” said Financial scandal broke, fining it NT$10 million branch. The DFS found that the branch Services Superintendent Maria T. Vullo. (about US$315,000), mandating the ouster had breached the United States’ Bank Indeed, these were mega compliance of six executives and barring the bank Secrecy Act, which requires financial failures. The New York branch’s Bank from opening new branches overseas. institutions operating in the United States Secrecy Act and Anti-Money Laun- to cooperate with authorities in cases of dering officer and its chief compliance Regulatory renaissance suspected money laundering and fraud. officer were unfamiliar with U.S. regula- “There had been repeated efforts on tory requirements; the chief compliance In the wake of the Mega Bank the part of the regulator to engage Mega offer had business, operational and scandal, Taiwan moved swiftly to address prior to the issuance of the fine,” says compliance responsibilies, creating a underlying weaknesses in the nation’s Ross Darrell Feingold, a senior advisor conflict of interest; and compliance staff money-laundering controls. The Exec- at consultancy firm D.C. International at both headquarters and in New York utive Yuan website notes that the Advisory. “Mega provided poor or defi- failed to regularly monitor suspicious government began working to amend the cient explanations of the transactions in transactions. Money Laundering Control Act in 2013, question, suggesting a lack of situational This was not the first time Mega but it does not say why Taiwan failed to awareness, and prompting the regulator had fallen afoul of financial regulators make significant headway in the process to take punitive action.” abroad. In 2012, Hong Kong’s Securities over the next three years. The incident was a major embarrass- and Futures Commission (SFC) revoked It would seem that the fallout from ment for Taiwan given Mega’s stature the license of Mega Capital (Asia) – a the Mega debacle shocked the island’s in the banking system. Created from the subsidiary of Mega Securities – to advise bureaucracy out of its torpor. A statement merger of two state-run local banks more on corporate finance, and fined it US$42 on the website of the Executive Yuan’s than a decade ago, it is one of Taiwan’s million for its misconduct during the new Anti-Money Laundering Office says largest banks by asset size. listing application of the chemical-fiber that the scandal harmed “our country’s The major red flags that prompted manufacturer Hontex. international financing reputation...and DFS’s investigation were suspicious trans- In a statement, the SFC panned Mega also indirectly damaged the whole actions between Mega Bank’s New York for performing poor due diligence, failing country’s development potential and and Panama branches. For instance, to act independently and impartially, opportunities.” Mega New York acted as an intermediary and filing an untrue declaration with the Compared to previous efforts to paying bank in connection with question- Stock Exchange of Hong Kong. “Mega reform the nation’s money-laundering able “debit authorizations” (or payment Capital’s failure in discharging its spon- controls, “the current round of post- reversals) received from its Panama sor’s duties prejudiced the regulatory Mega revisions are very much substantive branches that reversed wire payments assessment of Hontex’s suitability for and the actual implementation steps are processed on behalf of remitters. In a listing and jeopardized the interests of robust and visible,” says Russin & Vec- statement, DFS noted that the “suspicious the investing public,” Mark Steward, the chi’s McGowan. nature of this activity is compounded by SFC’s Executive Director of Enforcement, Sweeping changes to the Money Laun- the fact” that many of the remitters and said in the statement. dering Control Act were promulgated in beneficiaries associated with the payment “Mega has suffered two embarrassing December 2016 and became effective this reversals were identical parties. incidents outside of their home market June. Crucially, the Act now stipulates The investigation further deter- in five years,” Feingold says. “It comes that it is a crime to permit another person mined that many “customer entities” down to sloppy management, which to use one’s name in property or shell- were formed with the assistance of the hasn’t shown itself to be serious about company transactions. This change aligns Mossack Fonseca law firm in Panama, meeting global compliance standards.” Taiwan’s definition of money-laundering known for its frequent engagement in Still, from a fiscal standpoint, Mega crime with global standards. shell-company activity. In February, the remains in solid condition. “The financial To boost transparency in money firm’s founders Juergen Mossack and impact of the recent fine is manageable,” flows, financial institutions must now Ramon Fonseca were arrested in Panama says Cherry Huang, a director at Fitch perform customer due diligence, keep

taiwan business topics • september 2017 37

9 IF.indd 37 2017/9/8 12:04:07 PM INDUSTRY F CUS

records, and report suspicious transac- Financing and Prevention Law last year is insufficient. The statement called for tions. They also are obligated to “apply as part of its efforts to fight money laun- heightened public awareness of money a risk-based approach when performing dering. The new law imposes penalties for laundering and terrorism-financing due diligence on politically exposed per- the financing of terrorist activities, organi- crimes, and for the public to “join forces sons and substantive beneficial owners.” zations, and individuals, and emphasizes with the government.” Border controls over cash and gold that those infractions are classified as By doing so, “Taiwan will showcase have also been tightened through man- “serious crimes” under the Money Laun- the excellence of its financial structure, datory customs declarations for New dering Prevention and Control Act. contribute to anti-money laundering Taiwan dollars and gold over a cer- In a January statement, the Executive and counter-terrorist financing efforts tain value. It is also obligatory to declare Yuan stressed the government’s deter- worldwide, and build its reputation as items mailed or sent by express delivery. mination to combat money laundering, a global financial hub,” the statement Taiwan also enacted the Terrorism but pointed out that legislation alone concluded.

GETTING TAIWANESE TO ENGAGE IN RETIREMENT PLANNING

More education is needed on the importance of investment and savings for old age.

BY MARINA FINLEY

aiwan will soon join the ranks believe their pension income would be of “super aged” societies, with enough to live on. T one in five Taiwanese 65 years As Louis Yen, Managing Director old or older by 2025. Among the fac- of Aon Taiwan, notes, income from the tors regarded as contributing to Taiwan’s government-run pension system is not extremely low birth rate are stagnant intended to cover all post-retirement wage levels, which have made young financial needs. “Government-sponsored people less likely to start a family. benefits can only cover part of finan- As the working age (15-64) popu- cial need after retirement,” he explains. lation declines and the elderly (65 and “Employee- and government-sponsored over) population increases, the depen- benefits make up what is called income dency ratio – the proportion of non- replacement ratio (IRR) and ideally can working people dependent on those in cover about 50% of financial need after the workforce – is skyrocketing. In 2016, retirement.” the ratio was 18 elderly for every 100 Yen adds that while the IRR for gov- working-age people. The National Devel- ernment employees (teachers, civil opment Council predicts that in 2060, elderly, support from the working-age servants, and military personnel) can be every 100 working age individuals will population, and coordinated mea- quite high – often around 80% and some- need to support 74 elderly people. The sures from Taiwan’s financial-planning times even over 100% – private-sector problem is intensified by longer lifespans; industry. employees find themselves struggling the retirement age is 65, and life expec- In June, a survey by American invest- to make ends meet. “A private-sector tancy now averages 80 years. ment management firm Legg Mason, worker can receive old-age benefits Coping with Taiwan’s aged will Inc. found that the “retirement plan” of from the labor-insurance system which require a concerted effort that includes roughly half of Taiwanese is simply to can account for 15-20% of the income comprehensive pension restructuring by “not retire.” A mere 13% of respondents replacement ratio, and the pension the government, calculated savings and said they expected their pension to be suf- income from the Labor Standards Law investment strategies by the aging and ficient, while upward of 85% did not or Labor Pension Act probably covers

38 taiwan business topics • september 2017

9 IF.indd 38 2017/9/8 12:04:07 PM A Report on the Financial Service Sector

another 20-25% of the IRR, so the total notes that while people have the tax-in- the churning – it’s almost like monthly equals 35-45%,” says Yen. centivized option to contribute up to trading,” she observes. 6% of their income on top of manda- In addition, the current financial Saving early, saving smart tory employer contribution, less than 6% framework has popularized high-dividend of Taiwanese choose to contribute that products. “A high monthly dividend is Not enough Taiwanese are properly amount. the basic requirement in Taiwan when it planning for retirement through sav- The root of the problem, says Seewald, comes to fixed-income fund investments, ings and investments. Increased longevity is a financial mindset lacking personal but the obsession with high dividends can exacerbates this issue, says Christine responsibility. The solution, he maintains, in fact harm investors,” says Jih. “The Jih, Chairman and CEO of BNP Paribas is a member-choice pension scheme. monthly dividend rate can be as high as Investment Partners Taiwan. “If you “You want people to get skin in the 9-10% or more, but when people stretch live longer, you’ve got to prepare more game; you want people to want to con- demand for dividends too far, it can hurt money. You have to work earlier, retire tribute that 6% to their retirement,” says their capital principal.” later, and start saving and planning your Seewald. “If you implement a member Particularly with regards to retirement retirement earlier.” choice where people actually can decide planning, the fixation with high dividends At the same time, as discussed by what to invest in, you get them to take is fool’s gold, warns Jih. “In the pre-re- AmCham Taipei’s Insurance Committee part in their retirement. The minute tirement stage, the most important thing in the 2017 Taiwan White Paper, further people think government is respon- is to accumulate your wealth, not to con- efforts are needed to gear the domestic sible for their retirement, they just relax. sume. People are so interested in high life-insurance market more toward pro- That’s what we are seeing now.” dividends because they want to spend tection products. Taiwan is regarded as BlackRock’s 2017 Investor Pulse the payments and increase consumption, facing a serious “protection gap” – the survey for Taiwan found that while 76% not because they are reinvesting the divi- disparity between the amount of insur- of Taiwanese have started saving for dend proceeds. People should be focused ance consumers need in order to be retirement, on average they save only on sustainable returns and long-term adequately covered in the event of a 10% of their monthly income for retire- growth, but with the investment practice serious issue such as critical illness, acci- ment, the lowest monthly retirement and investment style I’ve seen in Taiwan, dent, or death, and the amount they savings in Asia. I don’t feel comfortable that people can actually have purchased. Many financial-planning sector achieve that.” “The financial industry is highly reg- leaders interviewed by Taiwan Business According to the 2016 Allianz Global ulated, constraining financial institutions TOPICS support the move to a member- Wealth Report, Taiwan is set to replace from providing a variety of choices in choice system. A senior banking executive Japan as the nation with the highest terms of retirement vehicles/products who requested anonymity observes that net per capita financial assets. But the to offer the population,” explains RGA the issue has been discussed for years, high level of liquidity in Taiwan is not Global Reinsurance Co. Ltd. in a written and ascribes the holdup to bureaucracy translated into an adequate level of statement to Taiwan Business TOPICS. surrounding the pension system. “The investment. “People are sitting on huge “Furthermore, existing policies governing government’s pension track record is not cash positions and they don’t dare invest retirement savings and labor insurance great, and in about 15 years, they’ll prob- in other things,” notes BlackRock’s See- offer consumers minimal tax incentives ably go bankrupt,” he asserts. “They wald.” “Given the low interest rate we for saving for retirement.” cannot deliver their promise of achieving have in Taiwan and globally, that’s a mis- “A significant portion of the public 2% returns. A lot of the Ministry of take – particularly when the interest rate prefers not to take investment risk, even Labor’s pension people don’t have a is so low that the return you get from if their circumstances permit, and does financial background. If you can’t do the cash in the bank will not outpace the not appreciate the concept of insurance job, why do you still insist on doing it?” inflation rate. You think you’re being risk pooling,” adds RGA. “This steers BNP Paribas’ Jih notes that Taiwanese conservative and safe but you’re actually financial institutions’ energy and effort people tend to invest their money in trad- losing money every day.” toward developing products with guar- ing-oriented investments. “Taiwanese are Seewald finds that many Taiwanese anteed investment return and minimal not used to long-term planning, long- have a paradoxical mindset about finan- insurance risk. Consequently, it indi- term investment,” she says. “It’s very cial planning. On the one hand, they’re rectly limits potential avenues for those in sad, because people never win if they are reluctant to invest and instead hold their lower-income groups to fully fund their trading-oriented. Sooner or later, you assets in cash. On the other hand, when retirements.” will lose.” they do invest, they expect unrealisti- In the current pension system, all con- Jih attributes this tendency in large cally high yields. “People definitely need tributions made by individuals and their part to the structure of Taiwan’s finan- to adjust their expectations for returns employers are pooled into the Labor Pen- cial system. Since banks earn a front-end for their retirement portfolios,” he says. sion Fund, and investment is managed commission, they continuously advise “That’s a fundamental issue that only by a supervisory committee. Leo See- their customers to buy different products, education by our industry and by our wald, Managing Director of BlackRock whether mutual funds, insurance, struc- government can resolve.” Investment Management (Taiwan) Ltd., tured notes, or whatever. “Then you see Whether your retirement is five years

taiwan business topics • september 2017 39

9 IF.indd 39 2017/9/8 12:04:07 PM INDUSTRY F CUS

or 50 years away, it’s never too late to to invest in your government pension product offers guaranteed returns. But in positively impact your retirement, says fund is very little, and the amount you’re the end it’s the customer’s decision.” Seewald. You just need the right finan- going to get after you retire is very little. Timothy Shields, General Manager cial knowledge and tools to do so. The only way you can supplement that is and CEO of Cigna Taiwan, expresses “Getting more people out of those cash to buy life insurance as a savings vehicle. concern about the protection gap. “There positions and into investments will be I don’t foresee any huge changes in the are 37 million insurance policies in the opportunity to help Taiwan’s people coming years, so insurance companies and Taiwan but only 23 million people; how- save for their retirement,” he argues. banks will continue to play a big role in ever, the average sum assured is only [the “Right now, there’s not enough educa- people saving money for retirement.” equivalent of] US$40 and the protection tion to do that – the government doesn’t Danny Lam, President and CEO of gap is still huge in terms of future needs have the manpower or the ability. Allianz Taiwan Life Insurance Co. Ltd., for protection, illness, etc.” But if you were to open up the retire- cites the low interest rate environment as Public healthcare coverage is under ment segment to the industry, I believe a key obstacle impeding the development pressure, a factor which will further all the industry players would be out of a robust retirement planning landscape complicate the retirement landscape, there helping with that education pro- in Taiwan. “There’s a strong demand for notes Shields. “The NHI [National cess, telling people, ‘Look, you’ve got retirement planning, but we still face key Health Insurance], up until recently, has to start investing this 6% – or whatever challenges in providing retirement plan- been in surplus…but looking forward, it’s going to be – into your retirement. ning solutions. Because the interest rate as the population ages, with less growth You’ve got to start saving now.’” in Taiwan is low and has been low for and tax revenue changing, NHI expen- a long time, it’s difficult for us to offer diture will have to have a cap on it… Life insurance for savings attractive NT dollar retirement planning What we’re seeing now is out-of-pocket products to customers. Long-term sav- expenses are growing.” With bank interest rates at a low ings products in NT dollars were quite BlackRock’s 2017 Investor Pulse 1.5%, many Taiwanese use life insurance popular before, but now the rates are not survey for Taiwan found that of the as a savings tool, because they can garner attractive.” financial priorities surveyed, paying for higher interest rates of around 2%. While Lam says that savings products have healthcare saw the highest year-over-year this trend has led to Taiwan being one of boomed in the last few years as pen- increase in importance (+13%), driven the world’s most highly penetrated insur- sion reform has become a contentious by older investors aged 55 to74. Cigna’s ance markets, in reality people are still and agonizing debate, and as people have 2017 360° Well-being Score found that of acutely under-protected, because they are become increasingly aware of the need to 1,001 people in Taiwan surveyed, 50% buying savings products, not protection fund retirement with their own private do not have sufficient insurance to cover insurance. resources. post-retirement medical costs. Moreover, people are not able, through “Yes, a lot of people who buy life The development of broad, accessible the pension system, to create enough insurance in Taiwan do so for savings financial-planning education and a culture wealth for their retirement, says Société purposes,” says Lam. “Some products of personal responsibility may be nec- Générale Group Country Head Godwin actually don’t have a lot of insurance pro- essary first steps in helping Taiwanese – Chang. “Why the local insurance industry tection, just guaranteed return. Such a both the elderly population and the young is so vibrant is because your pension is product, of course, is very easy to sell, workforce that will one day have to sup- not sufficient, the amount you’re allowed because interest rates are very low and the port them – prepare for the future.

40 taiwan business topics • september 2017

9 IF.indd 40 2017/9/8 12:04:08 PM A N A L Y S I S

espite crossstrait poitica stansti trae as usua

Where business has slowed, the main reason appears to be economic factors.

BY JANE RICKARDS

ver since Beijing angrily termi- nated official communications E with Taiwan’s then newly installed Tsai Ing-wen government in June last year, political relations with China have plunged to their coolest point in nearly a decade. But the cross- Strait political chill over Taiwan’s unwillingness to accept a one-China formula so far seems to be having relatively little impact on the island’s economy. China remains Taiwan’s number-one trading partner, and the trade volumes continue to rise. Exports to the mainland in the first seven months of this year grew 21.3% to reach US$47.2 billion, while imports increased 10.6% to US$28.3 billion. Together with Hong FEWER TOURISTS — The number of Chinese visitors to Taiwan dropped by more than 40% in Kong, China takes almost 40% of Tai- the first half of this year, though total inbound tourism was down by only 5.7%. PHOTO: AP wan’s total exports. The bulk of those exports are electronic parts, including nomic Research (TIER). The Investment countries such as the British Virgin components for assembly into Apple Commission under the Ministry of Islands and Hong Kong, for reasons and other finished products destineed Economic Affairs puts Taiwan’s accu- ranging from avoiding Taiwan govern- eventually for overseas markets. mulated approved investment in China ment scrutiny to taking advantage of Taiwan is also the second-largest at US$167.4 billion, but the real figure other nations’ free-trade regimes (owing foreign investor in China after Hong is certainly much higher. Since China’s to Chinese diplomatic pressure, most Kong, notes Tan Ching-yu, director economic opening in 1979, Taiwanese countries have been reluctant to sign of the Emerging Market Development companies have tended to invest in free trade agreements with Taiwan). Center at the Taiwan Institute of Eco- China through subsidiaries in other Largely as a result of that invest-

taiwan business topics • september 2017 41

9 xstrait.indd 41 2017/9/8 9:40:49 AM ANALYSIS

ment, as many as 1.5-2 million to the increased direct and indirect pro- development, Tan says. Now those Taiwanese businesspeople (known as duction costs, Kao predicts a steady inducements tend to be limited to com- Taishang) and their families are believed decrease in future in Taiwan’s economic panies possessing what China regards to be living in China, says Tan. dependency on China. as needed techology. For years, China has been the Further, technological advances in leading destination for Taiwan’s foreign China are challenging the advanta- Future impact direct investment, as companies have geous position Taiwan long enjoyed in sought to lower production costs while international supply chains for more Although the political standstill still operating within a familiar cultural sophisticated products. has not yet had much effect on the and linguistic environment. According In what has been a common busi- economy, the economic pressures may to figures from China’s Ministry of ness model, Taiwan takes orders from heighten over time. China’s regional Commerce, Jiangsu Province, adjacent branded Western ICT companies, per- and global economic influence seems to Shanghai, has attracted a full 31% forms design work and the production set to expand, especially after the U.S. of the Taiwanese investment by value, of key parts, then sends the compo- pullout from the Trans-Pacific Partner- followed by Guangdong Province with nents to China for final assembly and ship (TPP) free trade arrangement. With 19%, Shanghai 15%, Fujian Province export. But as Chinese companies catch the TPP in limbo, the only other pro- 8%, and Zhejiang Province 6%. up technologically in various indus- spective regional free-trade group is the Although most of the investment tries, this sort of cooperation is being China-backed Regional Comprehensive is in manufacturing, an increasing replaced by a competitive relation- Economic Partnership (RCEP), whose amount has been going into Chi- ship. Tan cites the rivalry playing out in member economies cover about 70% of na’s service sector. Financial services, Southeast Asia, where Chinese smart- Taiwan’s trade. including insurance, account for 7% of phone brands including Xiaomi and Kristy Hsu, director of the the Taiwanese investment, and whole- Oppo now have international repu- Taiwan ASEAN Studies Center at the saling for 6%. tations and are squaring off against Chung-Hua Institution for Economic Recently, however, the rate of Tai- Taiwan’s HTC. Research (CIER), says she expects the wanese investment in China has been China also is becoming more selec- pact to be signed at the end of next slowing. Last year’s US$9.67 bil- tive about the types of Taiwanese year at the earliest. Because of the Tsai lion worth of new projects was down businesses it welcomes. In the past, administration’s rejection of Beijing’s 11.9% from a year earlier, according to virtually any Taiwanese company one-China principle, Taiwan is con- Taiwan’s statistics, and a further drop willing to set up shop in China would sidered to have little chance of joining of 22.2% occurred from January to receive tax breaks and other preferen- RCEP. Tan notes that exclusion from May this year. tial treatment in the interest of national the pact could bring the risk of entire The main factors behind the slow- down appears to be economic rather than political, especially the rising wages in China that are causing Tai- wanese manufacturers in more labor- intensive industries like textiles and furniture to seek cheaper overseas bases such as Southeast Asia. Bloomberg col- umnist Noah Smith has noted China no longer has its once unbeatable cost advantage driven by cheap labor, cheap energy, and lax environmental regulations. A decade ago, Chinese workers made less than a tenth of what their U.S. counterparts did. Today it is about a quarter. Worker benefits have also been expanding. China’s Social Insurance Law, enacted in 2011, for example, requires employers to contribute to ﬁve kinds of social insurance, notes Kao Koong-liang, a Soochow University Chair Professor and former Secretary CROSS-STRAIT HIGH POINT — The cross-Strait détente during Ma Ying-jeou’s administra- General of the Straits Exchange Foun- tion made it possible for him to meet with his Chinese counterpart Xi Jinping in Singapore in dation, the organization tasked with November 2015. Taiwan’s negotiations with China. Due photo: aposeph nair

42 taiwan business topics • september 2017

9 xstrait.indd 42 2017/9/8 9:40:50 AM ANALYSIS

STALLED TRADE AGREEMENTS — The Sun- flower Movement demonstrations in 2014 blocked ratification of the cross-Strait trade in services pact and caused negotiations on a merchandise trade pact to be suspended.

photo: apwa santana

of International Relations, notes that while the Chinese central government has not issued a clear directive to reduce such contacts, many Chinese local governments, along with universities and travel agencies, have been adjusting their practices to ﬁt what they believe to be the government’s wishes. Last year Taiwan managed to offset the Chinese tourism losses by increasing the number of travelers from Southeast Asia and elsewhere. While Chinese visitors were down 16%, inbound tourism overall rose by 2.4% to set a new supply chains shifting out of Taiwan hoped to work with China on a new record of nearly 10.7 million. – for example, the loss of auto parts model for interaction. Until some new Lately, however, the situation has orders to Vietnam as certain buyers understanding can be reached, it would not looked so rosy. In the first six seek to take advantage of tariff breaks seem impossible to make progress on months of this year, there were 5.7% under RCEP. Without Beijing’s acquies- any further cross-Strait negotiations, fewer visitors than a year earlier, with cence, in addition, Taiwan undoubtedly including an agreement to improve the number of Chinese visitors down will find it hard to enter into bilat- investment protection. by a massive 40.1%. But the CIER’s eral free trade agreements with other In any case, nothing is likely to Liu notes that while some sectors of trading partners. happen before the Chinese Communist the local tourism industry, such as Former President Ma Ying-jeou, Party’s upcoming 19th Party Congress pineapple-cake manufacturers and Tsai’s predecessor, was able to sign over this fall that will determine the leader- night markets, may be suffering from a score of cross-Strait agreements in ship line-up under President Xi Jinping the drop, the overall impact on the a détente based on his acceptance of for the next five years and influence economy is still “very minor.” a formula known as the “1992 con- the succession beyond that. During the TIER’s Tan adds that the declining sensus,” which refers to an informal internal jockeying for power before the number of Chinese university students agreement the Kuomintang considers Congress, concessions towards Taiwan is even less significant economically, was reached between Taiwan and China could be interpreted as a sign of weak- although some private universities, in 1992 in which both sides recog- ness. But some analysts suggest that already facing smaller domestic enroll- nize the existence of “One China” but Xi, who is expected to retain his status ments for demographic reasons, are may have their own interpretations of as a strongman, may have more room feeling the pinch. The more prestigious exactly what that entails. to maneuver with Taiwan afterwards, public universities are hardly affected, The consensus made it possible for although the possibility of full resump- she says. Taiwan and China to sign an Economic tion of cross-Strait talks is still thought Cooperation Framework Agreement to be remote as long as the “One Stagnation since ECFA (ECFA) in 2010, and established the China” issue remains unresolved. basis for the landmark meeting between Meanwhile, China has sought to The “early harvest” provisions of Ma and Chinese President Xi Jinping in pressure Taiwan politically by poaching ECFA introduced tariff concessions for Singapore in November 2015. diplomatic allies such as Panama and 539 categories of Taiwanese goods and Tsai’s current challenge is to find a blocking Taiwan’s participation as an 267 items of Chinese products. But the new formula to replace the 1992 con- observer in international organizations real meat of the pact was expected to sensus, one that is acceptable to China such as the World Health Assembly. come from separate preferential agree- but does not disappoint her supporters, Economically, the punishment has ments on trade in services and goods including the hardline pro-independence chiefly focused on limiting the number to be negotiated later under the ECFA faction in her Democratic Progressive of Chinese tourists and students coming framework. The Cross-Strait Agree- Party (DPP). Tsai last month told the to Taiwan. Yen Chen-shen, a scholar at ment on Trade in Services was signed Asia-Pacific Security Dialogue that she National Chengchi University’s Institute in Shanghai in 2013, but immediately

taiwan business topics • september 2017 43

9 xstrait.indd 43 2017/9/8 9:40:51 AM ANALYSIS

ran into domestic opposition on the But CIER’s Liu says that resump- Development Bank (ADB). Neverthe- grounds that it had been negotiated tion of the cross-Strait dialogue appears less, Cheng views the impact on Taiwan in secret and would harm certain Tai- to be much less of a priority for the is “quite minimal,” as Taiwan is already wanese industries. Taishang than it was last year, largely a member of the ADB and can access its In what became known as the Sun- because the economy is performing services and expertise. flower Movement, protesters consisting better than expected. In terms of inward foreign direct of students and civic groups occupied Two other prominent Chinese initia- investment in Taiwan, China is not a the main chamber of the Legislative tives, the Belt and Road project and the major player, with a total last year of Yuan for over three weeks to prevent Asian Infrastructure Investment Bank just US$247.6 million, a small increase ratification of the agreement, ulti- (AIIB), are not expected to have much of 1.5% over the previous year. Taiwan mately leaving the deal in limbo. At impact on Taiwan, economists say. The opened the doors to Chinese investment the time, the Ma administration was Belt and Road initiative is China’s US$1 in 2009 on a limited basis, but more close to finalizing a second deal for lib- trillion plan for infrastructure projects than two-thirds of industrial categories eralization of merchandise trade, but and trade deals connecting Africa, Asia, are now available for Chinese investors. negotiations were discontinued when and Europe. China has pledged to spend Chinese nationals are still prohib- the services agreement was stalled. hundreds of billion of dollars building ited from serving as a chief executive Completion of these or similar deals ports, railways, airports, and power officer in a Taiwanese company, and will be impossible as long as China plants, providing business for Chinese investments in the media or advanced refrains from formal contact with the construction companies and opening technology sectors are blocked for Tsai government. But there is also economic opportunities for China in national security reasons. Most notably, another hurdle. In response to the Sun- regions where labor costs are cheaper. restrictions are in place in the prized flower Movement protesters’ demand Chinese officials have said that semiconductor sector with an eye to for greater transparency in cross-Strait Taiwan is welcome to participate, protecting trade secrets and other negotiations, the government promised and they are encouraging invest- intellectual property, and there is an that a law giving monitoring authority ment from the Taishang. The initiative outright ban on Chinese takeovers of to the legislature would be enacted would allow Taiwanese companies to Taiwanese integrated circuit design before any new talks with China begin take part in projects in Southeast Asia companies. Three large deals in which or any pending agreements ratified. and elsewhere that have been nego- Chinese state-backed giant Tsinghua No such legislation has yet been tiated between foreign governments Unigroup sought a controlling interest passed. The topic is highly contro- and China. But the FSC’s Cheng notes in Taiwanese chip packaging and versial, as seen in squabbles among that Taiwan’s is a free economy, and testing firms ChipMOS Technologies, legislators earlier this year about pro- despite politics, there are no restric- Siliconware Precision Industries, and posed wording for the bill, when New tions preventing Taiwanese businesses Powertech Technology all fell through Power Party lawmakers objected to a from seeking opportunities overseas. after President Tsai took office. pragmatic DPP draft that referred to They already have a strong presence in Another recent Chinese policy that Taiwan as the “Taiwan area” rather Southeast Asia. worries the government on national than a nation. In addition, the legis- Tan adds that the Belt and Road security grounds is Beijing’s attempt lative agenda is flooded with other initiative is led by Chinese state-run to attract young Taiwanese, frustrated high-priority bills relating to economic enterprises, so in the early stages it will with low wages, to go to the mainland development, adding to uncertainties probably be of most benefit to Tai- to create innovative startups. about the bill’s future. wanese companies that already have a The future of China-Taiwan busi- Until the monitoring bill is passed, presence in China and connections with ness links will depend on the future another pact favored by the Taishang, these companies. But it is also unclear direction and performance of the the Cross-Strait Agreement on Double how successful this initiative will be, Chinese economy, says TIER’s Tan, Taxation and Enhancement of Tax given suggestions of risky credit prac- including how successful China is in Cooperation signed in 2015, is not tices by Chinese banks. managing industrial restructuring and expected to take effect. Taiwan was unsuccessful in its bid overheated investments and hidden Cheng Cheng-mount, a leading to be a founding member of the Chi- debts in the system. Another key factor economist currently serving as vice na-backed AIIB that came into being will be the degree of success of new chairman of the Financial Supervisory last year, and the current political freeze policies such as the Belt and Road ini- Commission, says that of the various means it is unlikely to be admitted as a tiative, and whether they will offer pending cross-Strait deals, the agree- regular member. The bank was estab- Taiwan companies new opportunities. ment on trade in services is the one lished to finance major infrastructure Most Taiwanese companies still most desired by the business commu- projects across Asia, including Belt prefer to do business in China owing nity because it would enable Taiwan’s and Road projects, and is regarded by to a common language and culture. As financial institutions to expand in some analysts as a potential rival to long as the economic opportunities are China, for example allowing banks to institutions such as the International evident, interest in cross-Strait business open sub-branches in Fujian. Monetary Fund (IMF) and the Asian ties will be strong, Tan says.

44 taiwan business topics • september 2017

9 xstrait.indd 44 2017/9/8 9:40:52 AM SEEINGSEEING TAIWAN TAIWAN

points of interest, but are also accom- panied by knowledgeable guides who speak English, Japanese, or Chinese. Those who sign up need not worry about mistakenly buying a ticket for the wrong destination, or missing their stop. The price of each tour includes all admission charges and insurance. Because many of the tours last an entire day, a lunch featuring scrumptious local dishes is often also part of the deal. Before finalizing their itinerary, those planning to visit Taiwan in the fall can choose from more than 100 Taiwan Tour Bus routes, including one to Tai- pingshan, a place deep in the mountains that is said to have some of the island’s most magnificent autumnal scenery. Covering 12,631 hectares, Taipingshan is the largest national forest recreation area in Taiwan. Some of the woodlands here are a mere 500 meters or so above sea level, while other tracts shiver at an altitude of 2,000 meters. Almost every winter, there are one or two heavy snowfalls. The forest recreation area encompasses a range of Autumn is a Magnificent ecosystems, and visitors will find themselves studying the plants and insects right in front of them at least as often as Season to Visit Taiwan they gaze at far-away mountain peaks. Whether conditions are foggy or crys- tal clear, Taipingshan’s network of eight all is the favorite time of year for Taichung or Tataka near Alishan, and hiking trails can satisfy the strongest many people in Taiwan. In the understanding the services can be diffi- yearning for the great outdoors. F lowlands, the heat of summer cult without a decent grasp of Chinese. The Taiwan Tour Bus’s Yilan Tai- has abated, but there is still plenty of For solo travelers and couples, shar- pingshan Nature Tour sets out from sunshine. ing a taxi with a few strangers is a Taipei at 7:30 in the morning. Passen- In October and November, the reasonably inexpensive option in many gers can board at various locations, weather is superbly comfortable. Taipei’s places. However, first-time visitors are including the main railway station and daytime temperatures average 19 to 25 unlikely to be aware of such potential Songshan Airport. As with all Taiwan degrees Celsius (66 to 77 degrees Fahr- arrangements unless a friendly local or enheit). In a typical year, November is homestay owner helps them out. the capital’s second driest month and Recognizing the challenges that October is the fourth driest. Nighttime may confront independent travel- in the mountains is not too chilly, while ers, Taiwan’s Tourism Bureau has the days are still reasonably long. come up with mechanisms to enable Although public transportation in them to enjoy every facet of this fabu- Taipei and some other cities is largely lously diverse island. One innovative bilingual, tourists who wish to take and long-running solution is called the advantage of the excellent weather Taiwan Tour Bus (www.taiwantour- to explore the more remote parts of bus.com.tw). This coalition of carefully Taiwan may well struggle to get around. chosen and fully licensed tour compa- Very few regular buses connect the nies offers excursions to almost every lowlands with popular tourist destina- part of the country. tions in the hills like Lishan in Greater Visitors are not only delivered to

交通部觀光局廣告 TTB AD

taiwan business topics • september 2017 45

9 ST.indd 45 2017/9/8 10:34:43 AM SEEING TAIWAN

the mountains that cover two-thirds of Taiwan. After lunch, excursionists get a chance to explore Qingjing Farm, a sprawling high-altitude pasture with a fascinating history. After relocating to Taiwan in 1949, Chiang Kai-shek’s government had to resettle well over a million refu- gees from the Chinese mainland. Some of those who had fought for Chiang in China’s southwest (and belonged to ethnic minorities from that region) were assigned to an area between Wushe and Mount Hehuan, where they reared livestock and formed a distinctive community-in-exile. Tourism came later, and the area is now thick with accommodation options. In terms of food and drink, it is possible to get everything from a hearty meal featuring Yunnanese delicacies to a simple cup of coffee to sip while gazing at mountains near and far. For detailed information about Taiwan’s climate, including weather Tour Bus trips, booking in advance is charged NT$300). forecasts for all 300-plus urban districts essential, with details easy to find on This excursion packs in a lot. The and rural townships, visit the Central the website. The bus heads through first stop is Puli Winery, where the Weather Bureau’s website (www.cwb. one of the world’s longest road tunnels, most famous product is Shaoxing, a gov.tw). To find out which national emerging on the other side of the rice wine both enjoyed as a tipple and forest recreation areas are currently mountains that long hindered the devel- used in cooking. Next up is Chung Tai open (and for background reading on opment of northeast Taiwan. Chan Monastery, designed by C.Y. Lee fauna and flora), see http://recreation. Once inside the recreation area, (the architect behind Taipei 101) and forest.gov.tw. participants are given a guided tour of completed in 2001. In addition to being For additional information about the principal attractions. Among these one of Taiwan’s architectural high- Taiwan’s attractions, visit the Tourism are remnants of the miniature rail- lights, this is an excellent place to learn Bureau’s website (www.taiwan.net.tw), way system used to move felled trees about the role of Buddhism in modern or call the 24-hour tourist information to the lowlands, and what was called Taiwanese society. hotline 0800-011-765 (toll free within the ropeway. The latter, a kind of cable The tour then heads deeper into the country). car, carried loggers and their supplies up and down the mountain. Natural highlights include Baling Giant Tree (a Taiwan Cypress believed to be at least 2,500 years old), and Cuifeng Lake, a beguilingly beautiful alpine pool. The tour costs NT$1,400 per person on weekends and national holidays, and NT$1,200 on other days. Children aged three or under not requiring a separate seat are charged just NT$200. If you expect to spend much of your visit in or near Taichung in central Taiwan, you should consider joining the Taiwan Tour Bus’s Wushe and Qingjing Farm jaunt (NT$1,850 per person; children three years old and under are

46 taiwan business topics • september 2017

9 ST.indd 46 2017/9/8 10:34:44 AM

Towards a Safer Food Supply 陳又銘, 王先棠 強化食品安全

Towards a Safer Food Supply 陳又銘, 王先棠強化食品安全