Taiwan Business Taiwan Business Taiwan

American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce In Taipei In Taipei Published by the by Published Published by the by Published

NT$150 NT$150 American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce 移民政策省思移民政策省思維持嚇阻實力維持嚇阻實力 ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS

Topics Topics

NT$150 NT$150 移民政策省思移民政策省思維持嚇阻實力維持嚇阻實力

%&5&33&/$& %&5&33&/$& ."*/5"*/*/( ."*/5"*/*/(

%&5&33&/$& %&5&33&/$& ."*/5"*/*/( ."*/5"*/*/( t7FHFUBCMF$FOUFS t(.0GPPET t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t7FHFUBCMF$FOUFS t(.0GPPET t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT

Taiwan Business

Taiwan Business Taiwan

Topics Topics

中華郵政北台字第號執照登記為雜誌交寄號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 中華郵政北台字第 5000 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 5000 5_2015_Cover.indd 1 5_2015_Cover.indd 1 號執照登記為雜誌交寄中華郵政北台字第號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 中華郵政北台字第 5000 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 5000 5_2015_Cover.indd 1 5_2015_Cover.indd 1

2015/5/7 3:02:35 PM 2015/5/7 3:02:35 PM 2015/5/7 3:02:35 PM 2015/5/7 3:02:35 PM ISSUE SPONSOR ISSUE SPONSOR www.amcham.com.tw www.amcham.com.tw ISSUE SPONSOR ISSUE SPONSOR www.amcham.com.tw www.amcham.com.tw May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May In Taipei In Taipei Published by the by Published Published by the by Published American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce In Taipei In Taipei Published by the by Published Published by the by Published NT$150 NT$150 American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce 移民政策省思移民政策省思維持嚇阻實力維持嚇阻實力 ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS Taiwan Business Taiwan Business Taiwan Topics Topics NT$150 NT$150 移民政策省思移民政策省思維持嚇阻實力維持嚇阻實力 ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS Taiwan Business Taiwan Business Taiwan Topics Topics 中華郵政北台字第號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 中華郵政北台字第 5000 號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 5000 5_2015_Cover.indd 1 5_2015_Cover.indd 1 中華郵政北台字第號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 中華郵政北台字第 5000 號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 5000 5_2015_Cover.indd 1 5_2015_Cover.indd 1 2015/5/7 3:02:35 PM 2015/5/7 3:02:35 PM ISSUE SPONSOR ISSUE SPONSOR www.amcham.com.tw www.amcham.com.tw May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May In Taipei In Taipei Published by the by Published Published by the by Published

American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce

NT$150 NT$150 移民政策省思移民政策省思維持嚇阻實力維持嚇阻實力 ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS Taiwan Business

Taiwan Business Taiwan Topics Topics

CONTENTS NEWS AND VIEWS

6 Editorial May 2015 vOluME 45, NuMbEr 5 TPP Grows Closer to Reality 一○四年五月號跨太平洋夥伴協定(TPP)指日可待

Publisher 發行人 7 Taiwan Briefs Andrea Wu 吳王小珍 By Timothy Ferry Editor-in-Chief 總編輯 Don Shapiro 沙蕩 Associate Editor 副主編 11 Issues 法緹姆 Tim Ferry Reviewing the U.S.-Taiwan Trade 檢視美台貿易議；提升政府資訊服務 Art Director/ 美術主任/ Production Coordinator 後製統籌 Agenda; Improving Government 採購程序；制定錯誤標準 Katia Chen 陳國梅 Contracts for IT Services; Setting the By Don Shapiro Manager, Publications Sales & Marketing 廣告行銷經理 Caroline Lee 李佳紋 Wrong Standard Translation 翻譯 Jay Chen, Yichun Chen, Agnes Chiu, Charlize Hung COVER SECTION 陳正杰, 陳宜君, 邱意豪, 洪兆怡 15 Maintaining Deterrence 維持嚇阻實力 American Chamber of Commerce in Taipei 129 MinSheng East Road, Section 3, 7F, Suite 706, Taipei 10596, Taiwan Despite improved cross-Strait rela- P.O. Box 17-277, Taipei, 10419 Taiwan Tel: 2718-8226 Fax: 2718-8182 tions, China is continuing massive e-mail: [email protected] spending to build up its military capa- website: http://www.amcham.com.tw 名稱：台北市美國商會工商雜誌 bility, with Taiwan remaining promi- 發行所：台北市美國商會 nently in the PLA’s crosshairs. Can 臺北市10596民生東路三段129號七樓706室電話：2718-8226 傳真：2718-8182 advanced weapons procurement and

Taiwan Business TOPICS is a publication of the American Chamber of the implementation of “asymmetrical Commerce in Taipei, ROC. Contents are independent of and do not necessarily reflect the views of the Officers, Board of Governors, strategies” enable Taiwan to meet Supervisors or members. © Copyright 2015 by the American Chamber of Commerce in Taipei, the challenge of providing sufficient ROC. All rights reserved. Permission to reprint original material must be requested in writing from AmCham. Production done in-house, defensive strength? Printing by Farn Mei Printing Co., Ltd. By Timothy Ferry 登記字號：台誌第一零九六九號印刷所：帆美印刷股份有限公司經銷商：台灣英文雜誌社台北市108台北市萬華區長沙街二段66號發行日期：中華民國一○四年五月中華郵政北台字第5000號執照登記為雜誌交寄 23 Fighters, Submarines, and ISSN 1818-1961 Railguns With constrained budgets and few Chairman/ Thomas Fann allies, Taiwan struggles to acquire the Vice Chairmen/ Scott Meikle / Dan Silver 25 Volunteer Army Shift Called Treasurer: Cosmas Lu weapons it wants and needs for self- Secretary: Fupei Wang defense. into Question 2014-2015 Governors: William E. Bryson Jr., Sean Chao, Rodney Van Dooren, Cosmas Lu, Scott Meikle, Dan Silver, Gordon Stewart, Ken Wu. BEHIND THE NEWS INTERVIEW 2015-2016 Governors: Margaret Driscoll, Thomas Fann, Ajit Nayak, Vincent Shih, Stephen Tan, Fupei Wang, Lee Wood. 28 Taiwan Pursuing AIIB 44 Observations on the Retail

2015 Supervisors: Arthur Cozad, Kai Speth, Neal Stovicek, Participation Sector Wern-Yuen Tan, Neil Waters. Rebuffed in its bid to be among Beverage industry executive Doug COMMITTEES: the bank’s founders, Taiwan is Klein shares insights based on long Agro-Chemical/ Melody Wang; Asset Management/ Christine Jih, Derek Yung; Banking/ Victor Kuan; Capital Markets/ C.P. expected to apply for regular experience in the Taiwan market. Liu, Shirley Tsai; Chemical Manufacturers/ Michael Wong; CSR/ Lume Liao, Fupei Wang; Customs & International membership. As told to Don Shapiro Trade/ Stephen Tan; Education & Training/ Robert Lin, William Zyzo; Greater China Business/ Helen Chou, Cosmas By Philip Liu Lu; Human Resources/ Richard Lin, Seraphim Mar, Vickie FEATURE Chen; Infrastructure/ L.C. Chen, Paul Lee; Insurance/ Arthur Cozad, Joseph Day, Dan Ting; Intellectual Property BACKGROUNDER & Licensing/ Jason Chen, Peter Dernbach, Jeffrey Harris, 47 The World Vegetable Center is Vincent Shih; Marketing & Distribution/ Wei Hsiang, Gordon Stewart; Medical Devices/ Cyndi Chang, Tse-Mau Ng, Dan 30 Genetically Modified in Tainan Silver; Pharmaceutical/ Margaret E. Driscoll, David Lin, Jun Hong Park; Private Equity/ William Bryson; Public Health/ Foods: Savior or Destroyer? The institute, the only Taiwan- Jeffrey Chen, Dennis Lin; Real Estate/ Tony Chao; Retail/ Prudence Jang, Ajit Nayak, Wern-Yuen Tan; Sustainable Proponents see an answer to based international organization, Development/ Kenny Jeng, Kernel Wang; Tax/ Stella Lai/ world hunger; critics fear risk to contributes to the global fight Cheli Liaw, Josephine Peng; Technology/ Revital Golan, Scott Meikle, Jeanne Wang; Telecommunications & Media/ Thomas human health and the environ- against malnutrition and poverty. Ee, Joanne Tsai, Ken Wu; Transportation/ Michael Chu; Travel & Tourism/ Anita Chen, Pauline Leung, Achim v. Hake. ment. By Steven Crook By Timothy Ferry

cover photo: ap/wally santana

4 taiwan business topics • may 2015

5 Contents.indd 4 2015/5/7 5:32:25 PM may 2015 • Volume 45 number 5 COvEr SpONSOr iNDuSTrY F CuS CITI: OFFERING WORLD-CLASS BANKING TO TAIWAN

A Report on the Financial Services Sector

Opening New Opportunities Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. By Matt Fulco 34 Smoother Sailing for Taiwan’s Citi is proud to have had a strong presence in Taiwan since 1965. Being Banks Offshore the leader in Taiwan’s banking industry, Citibank Taiwan Limited (CTL) has been recognized as the Best Foreign Commercial Bank in Taiwan for The sector netted record profits in 2014 the past 18 consecutive years by FinanceAsia and as the Most Admired on the back of burgeoning offshore busi- Bank in Taiwan for 20 consecutive years by CommonWealth Magazine. ness, especially in China.

CTL's Institutional Clients Group provides top-tier corporations with a full 37 The Formosa Bond Market range of value-added local and cross-border products and services. Ignites Taiwan’s offshore RMB bond market is Leveraging Citi’s world-class banking platform, CTL acts as clients’ part- growing rapidly after investment was ner to support and grow their businesses to the next level by delivering opened to domestic insurers. cost effective solutions with a flexibility that is unmatched by Citi’s competitors. 39 Promoting the Onshore Mutual CTL’s Consumer Banking leads the market by pioneering Wealth Manage- Fund Business ment banking service, providing wealth advisory service, local and multi- Regulators are tightening the screws on currency deposits to premium accounts, OBU products and services offshore fund managers in an effort to and a variety of mutual funds, bonds, HK and U.S. stocks. By providing strengthen the asset-management sector customers with value-added services, CTL’s Cards business enjoys high at home. customer satisfaction and strong brand recognition in the market.

41 Taiwan’s Payment Plan Citi aims to become the world’s digital bank. In addition to introducing The introduction of mobile and third-party smart banking branches in 2010 and launching advanced mobile banking payment platforms is expected to bolster services in 2011 that include location-based offers and premium search, the nation’s burgeoning e-commerce Citi possesses the innovative culture that positions it to lead the digital market. trend and deliver more effective, dynamic, and convenient approaches to better serve clients. AMCHAM EVENTS Citi believes strongly in its responsibility to both Taiwan and the global 51 The 47th annual Hsieh Nien Fan community. Since 1995, CTL has been actively involved in educating the banquet next generation, community care, financial education, and environmental protection in Taiwan. Over the past 20 years, the Citi-United Way Fundraising Campaign has benefited more than one million disadvantaged people in Taiwan. taiwan business topics • may 2015 5

5 Contents.indd 5 2015/5/6 10:23:37 PM E d i t o r i a l TPP Grows Closer to Reality

s regular readers of this publication are well aware, of TPP membership for members of both the manufacturing the American Chamber of Commerce in Taipei is and service sectors. Many more such events are planned. The Aconvinced that Taiwan’s participation in the emerging National Development Council has also been continuing its regional trade grouping known as the Trans-Pacific Partner- efforts to bring regulatory activity throughout government in ship (TPP) will be absolutely essential for the future well-being line with international standards and practices. of this economy. Exclusion from the TPP in the years ahead These initiatives are coming at a crucial time. Just a few will diminish the competitiveness of Taiwan-made products in months ago, given the sharp political differences in the United many important markets, decrease Taiwan’s attractiveness as States on trade policy and the many remaining points for the 12 a destination for investment, and induce many export-oriented negotiating teams to reach agreement on, there was still some domestic manufacturers who still produce on the island to shift reason for skepticism about the chances for the TPP to actually operations to offshore locations covered by the TPP in order to come to fruition. enjoy tariff breaks and other benefits. But the situation has now changed significantly. Bills are Until fairly recently, AmCham was growing concerned that moving forward in both houses of Congress to provide Presi- Taiwan was not moving rapidly enough to prepare its candi- dent Obama with Trade Promotion Authority (TPA) – the fast- dacy for inclusion in a second round of TPP negotiations. To track channel considered vital for TPP to win ultimate approval gain necessary support for their bid from the 12 current nego- by U.S. legislators. While passage of TPA is still by no means tiating parties, would-be new candidates will need to take assured, its proponents have been increasingly optimistic that it concrete steps to show that they are fully committed to broad- will take place within the coming several weeks. based liberalization of their economies. For that case to be Enactment of TPA would then change the entire environment convincing, moreover, they will also need to demonstrate that for the TPP negotiations. Countries that have been reluctant to they have mobilized wide support from influential domestic show their hand until the end-game is in sight would suddenly constituencies, providing assurance that particular interest become more flexible and willing to compromise in the interest groups will not be able to shut down the accession process. of bringing about a final agreement. And once that agreement Lately there have been positive signs that the government has been concluded, the 12 current players will be able to start is starting to take appropriate action. A recent forum spon- thinking about who else deserves to join the group. sored by the Ministry of Economic Affairs with help from the The likely timetable is beginning to take shape; 2016 Chung-Hwa Institution for Economic Research, for example, – which now seems just around the corner – could be the provided members of the business community and other inter- make or break year for Taiwan’s TPP participation. Will this ested parties with valuable information on the importance country be ready?

跨太平洋夥伴協定(TPP)指日可待

如定期收看本刊的讀者所知，台北美國商會相信，力，讓政府的法規管制活動能夠更符合國際標準與實務。臺灣能否加入作為新興區域貿易協定之跨太平洋夥這些行動來的正是時候，因為就在幾個月前，針對貿易政正伴協定(TPP)，對臺灣未來經濟的健全至關重要。策及其他目前12個協商成員國尚未達成共識的事項，美國若未來幾年臺灣被排除在TPP之外，將會導致臺灣製品在許國內政治意見仍嚴重分歧，因此大家對於TPP是否真能開花多重要市場的競爭力下滑、減低臺灣作為目標投資地的吸引結果仍持保留態度。力、並導致許多製造地仍根留台灣且以出口為導向的國內製不過，這個情況目前已經大大改變了。法案目前在美國參造商，為了享受相同的關稅減免及其他優惠，將臺灣的營運眾兩議院都有所進展，這樣一來就可以提供貿易促進授權法據點外移到其他有參與TPP的國家。案(TPA)的支持給美國總統歐巴馬；貿易促進授權法案又被近期，美國商會更因臺灣對爭取成為第二輪TPP談判的候稱作貿易授權的重要快車道，且被認為是TPP能否得到美國選國不夠積極而日漸憂心。為了要得到現行參與談判的12 國會最終同意的重要關鍵。雖然現在仍不確定貿易促進授權國的支持，所有可能成為新候選國的國家必須採取具體行法案一定會通過，但支持者目前愈來愈樂觀，相信該法案在動，以展現他們致力將該國經濟全面自由化的誠意。此外，未來幾個星期內就可過關。為了取信於外界，他們也必須證明他們已經獲得國內各方有貿易促進授權法案的制定將會改變整個TPP的談判環境。力人士的支持，且確保上述支持不致遭特定利益團體的阻屆時，在結果明朗化之前原本不願攤牌表明立場的國家，預擋。料將會突然變得更願意談條件，且願意為了達成最終協議而近來，有正面跡象顯示政府已開始採取適當行動。最近一有所妥協；而一旦協議達成，目前的12個成員國就能開始場由經濟部出資舉辦、中華經濟研究院協辦的論壇，即針對思考哪些其他國家有資格加入他們。取得TPP會員資格對於製造業及服務業的重要性，提供珍貴大致的時程表已經有點眉目，而即將到來的2016，亦有資訊給企業界人士及其他有興趣的團體，而未來有關單位也可能是臺灣能否加入TPP的成敗關鍵年。到時候臺灣是否會會持續規畫更多類似活動。此外，國家發展委員會也持續努準備好了呢?

6 taiwan business topics • may 2015

5_Editorial.indd 6 2015/5/6 10:33:01 PM t a i w a n b r i e f s

— by TIMOTHy ferry —

Economic indicators (YEar EarliEr) MACROECONOMIC

DesPite eXPOrt DrOP, Current Account Balance (Q4 2014)p 19.18 16.33 Foreign Trade Balance (Jan.-Mar.) 13.42 6.48 GrOwtH stiLL steaDY New Export Orders (Mar.) 38.43 37.94 Taiwan saw declines in March in Foreign Exchange Reserves (end Mar.) 414.69 420 everything from housing sales to inflation to unemployment and exports. One thing Unemployment (Feb.) 3.69% 4.09% that didn’t decline, however, was the Discount Rate (Apr.) 1.875% 1.875% economic growth forecast. The Chung- Economic Growth Rate Q4 2014p 3.35% 3.40% Hua Institution for Economic Research Annual Change in Industrial Output (Feb.)p 3.32% 7.36% (CIER) raised its forecast for GDP Annual Change in Industrial Output (Jan.-Feb.) 5.59% growth in 2015 from 3.5% to 3.56%, Annual Change in Consumer Price Index (Feb.) -0.19% 0.04% based on rising private consumption and Annual Change in Consumer Price Index (Jan.-Feb.) -0.56%

investment. CIER sees private consump- p=preliminary sources: moea, DGbas,cbc, boFt tion rising this year by 3.02% (up from its earlier forecast of 2.78%) and private low, however, analysts expect demand ers index (PMI) recovered in March, investment by 4.37% (compared to the from both the United States and Europe jumping to 59.1 from 47.8 in Febru- earlier 3.27%) because of low fuel costs to recover in the second quarter. ary, reflecting rising export orders and and low inflation. The price of oil has With exports down across the industrial production. Export orders declined 26.5% from last year, lead- board, even Taiwan’s IT sector has seen rose by an unremarkable 1.3% year-on- ing to the third straight month of year- declines. The value of shipments over- year to US$38.43 billion in March, with on-year declines in the Consumer Price seas in the Machinery and Electrical analysts pointing to the sluggish demand Index. The CPI fell by 0.8% in March. Equipment category of Taiwan’s trade for smartphones. CIER emphasized that Taiwan doesn’t ledger, at US$12.69 billion, was down by Government finances are improv- face a deflationary situation as consumer 1.7% for the month, although the sector ing due to increased taxes on earnings markets are robust. Removing the price rose by 4% for the quarter to reach by financial firms, which the Minis- of fuel from the calculation reveals a US$35.52 billion. try of Finance says it expects will help 0.96% rise in consumer prices, with food Even Taiwan’s vital semiconductor boost tax revenues this year by 3.8% prices alone up more than 3%. industry may be looking at a lacklus- over 2014. As a result, Taiwan’s budget Exports in March plummeted by ter year, with analytics firm Gartner deficit this year is expected to come to 8.9% from a year earlier to amount to Inc. cutting its 2015 growth forecast for NT$158 billion (US$5.1 billion), a steep US$25.27 billion, for a total in the first semiconductor shipments from 5.4% drop from last year’s NT$209 billion. quarter of US$70.24 billion, a 4.2% to 4% due to growing inventory and decline. That drop was mitigated by an changes in exchange rates. Gartner sees INTERNATIONAL even steeper decline in imports, which depreciating currency values relative to fell by a precipitous 17.8% in March to the US dollar, as well as excess invento- U.s. fiGHter Jets US$21.2 billion. At US$56.82 billion, ries in the semiconductor and electronic LanD in tainan imports were down 15% for the quar- supply chains electronic supply chains, While en route to Singapore to ter, giving Taiwan a US$13 billion trade as impacting revenues. Nevertheless, the participate in a military exercise, two surplus. The decline in exports is attrib- Taiwan Semiconductor Manufacturing Okinawa-based F/A-18 fighter jets uted to continuing lackluster growth Co. (TSMC) in March reported a 44.7% with the U.S. Marines Fighter Attack in China, as well as a pause in the increase in sales from the same month Squadron made an emergency land- expansion of the U.S. economy. While last year to NT$72.27 billion (US$2.31 ing at Taiwan’s Tainan Air Force Base Taiwan’s exports to the United States billion). TSMC said it will be reducing on April 1 due to a mechanical prob- were flat, they fell by 8.8% to China, its capital expenditure budget this year lem experienced by one of the planes. 11.6% to Japan, and 13.6% to Europe. by US$1 billion, to US$11 billion, as a Guided to the base by jets from the Global trade has also been impacted by result of lower demand for smartphone ROC Air Force’s 443 Tactical Fighter the ongoing conflict in Ukraine and a chips and increases in capital efficiency. Wing, the F/A-18s were the first Amer- weakening euro. Since oil prices remain The official purchasing manag- ican fighter planes to land in Taiwan

taiwan business topics • may 2015 7

5_Briefs.indd 7 2015/5/6 10:34:43 PM t a i w a n b r i e f s

since the United States and Taiwan ses conducted by the city showed that ended formal diplomatic relations in the expansion of the shopping mall at 1979. The planes departed two days the site means that in the event of an later after repair work was completed emergency, more than an hour would by U.S. maintenance personnel. China’s be needed to complete an evacuation. foreign ministry lodged “solemn repre- According to the city, the complex could sentations” of complaint with the United safely hold a maximum of only 60,000 States over the episode, while political people, less than half the 140,000 capac- observers in both Taiwan and the United ity it is being built to accommodate, and States pointed to it as an example of the fire trucks would have insufficient space warm relations between the two coun- to access the site. tries despite the absence of formal ties. General Manager Tang Chia-feng of the Farglory Construction Co., builder CROSS-STRAIT of the Taipei Dome, responded that “we have received full marks in safety simu- PartY LeaDers Meet HISTORIC HANDSHAKE — KMT Chair- lations, so there’s absolutely no reason to man Eric Chu, left, and Chinese Com- at fOrUM in beiJinG munist Party leader Xi Jinping, meet in tear down a single wall.” The construc- Beijing. Eric Chu, chairman of the Kuomin- photo:cna tion work has also been blamed for tang (KMT), met with China’s President cracks in structures at the nearby Song- Xi Jinping in Xi’s capacity as leader of shan Cultural and Creative Park, a the Chinese Communist Party (CCP) as saying “the two sides can consult historical site. The Taipei Dome has on May 4 at Beijing’s Great Hall of the each other on an equal basis under the been controversial from the date of its People. Chu was in China as leader of principle of ‘one China’ and reach a proposal nearly a decade ago. Critics his party’s delegation to a KMT-CCP reasonable arrangement.” have raised concerns that it will cause forum held in Shanghai. The two party The opposition Democratic Progres- severe traffic congestion and damage heads agreed to maintain economic sive Party (DPP) rejects the “1992 the environment, and the project expe- cooperation under the “1992 Consen- Consensus” as a convenient fiction rienced several delays in construction sus,” the term for an understanding that invented to smooth over relations across related to its Environmental Impact there is only one China but that the two the Taiwan Strait. The director of the Assessment. Despite its US$500 million sides may have different interpretations DPP’s department of Chinese affairs, price tag, many citizens are calling for of what that one China entails. Chao Tien-lin, condemned Chu’s visit to the dome to be torn down. During the meeting, Chu expressed the mainland as compromising Taiwan’s the hope that within the framework sovereignty. DPP’s tsai aCCePts of the 1992 Consensus, Taiwan can 2016 nOMinatiOn broaden its international participa- DOMESTIC Saying she is determined to “turn tion, for example by gaining entry tears to laughter” for her supporters into the proposed Asian Infrastructure taiPei DOMe PrOJeCt after her failed 2012 bid, DPP chairper- Investment Bank (AIIB), as well as the UnDer HeaVY fire son Tsai Ing-wen on April 15 formally Regional Comprehensive Economic Part- Taipei Deputy Mayor Charles Lin accepted her party’s nomination for nership (RCEP), two organizations for said that either the Taipei Dome or the the 2016 presidential elections. Tsai which China is a major architect. Xi shopping mall being constructed beside announced her candidacy in February said China would welcome Taiwan’s bid it will need to be torn down in light of and ran for the party nomination unop- to join the AIIB as well as to invest in safety evaluations revealing that the site posed. Although the KMT has not yet China’s “One Belt, One Road” initia- could not be evacuated within the neces- chosen a candidate, she currently is tive, which seeks to create rail and sea sary 15 minutes. The project – a multi- leading in polls against expected chal- links toward central Asia and ultimately use stadium complex that includes a lengers. KMT Chairman Eric Chu, who the Middle East. Reportedly, Xi said shopping mall, movie theater, hotel, is also mayor of New Taipei City, has the KMT and CCP should continue to and office space – is being built at a site repeatedly confirmed that he will not expand exchanges across the Taiwan near Taipei’s Sun Yat-Sen Memorial Hall be contesting the presidential election. Strait and explore new visions to benefit on the corner of GuangFu North and The KMT has no clear frontrunner, but the people on both sides. He was quoted ZhongXiao East Roads. Safety analy- deputy legislative speaker Hung Hsiu-

8 taiwan business topics • may 2015

5_Briefs.indd 8 2015/5/7 5:25:53 PM t a i w a n b r i e f s

chu threw her hat into the ring, seeking (DORTS), which is responsible for the considered among the world’s top the party’s nod in primary elections. Green Line construction, cited human contemporary dance troupes, inaugu- Legislative speaker Wang Jin-pyng is error by supervisors and workers at the rated a new theater on April 19, nearly being urged by many to enter the race, site as the cause of the accident. Prosecu- seven years after a fire destroyed its orig- but so far has demurred. Other candi- tors are investigating further. inal home. The new site, located in the dates are expected to announce soon for Tamsui District of New Taipei City, will the primary, which will take place May water ratiOninG not only showcase Cloud Gate produc- 17 and 18. Gets a rePrieVe tions but also works by young artists, Following heavy rains in northern said Lin Hwai-min, Cloud Gate founder 6.3 eartHQUaKe Taiwan in early May, phase-three water and artistic director. The complex rOCKs tHe isLanD rationing in Taoyuan and parts of New consists of a 450-seat theater, two An earthquake registering at 6.3 on Taipei City and Hsinchu County has studios, offices, and an outdoor theater the Richter scale shook northern Taiwan been suspended until at least mid-May. with the capacity to seat 1,500 people. on the morning of April 20, followed Since early April, water supply to house- The location – in between a historic fort shortly afterward by a 5.0-magnitude holds in the affected areas has been cut and a golf course – will enable the public aftershock and that evening by a number off two days per week on a rotational to simultaneously “enjoy the trees, of smaller tremors. The Central Weather basis. This year northern Taiwan has ocean, and performances,” said Lin. Bureau said the earthquake epicenter received its lowest rainfall levels since was off the coast of Hualien, and cate- 1947 and reservoirs are at record lows. BUSINESS gorized it as a shallow earthquake with But the recent rains reportedly added a hypocenter 17.5 kilometers below the 12 million cubic meters of water to the tea anD JaPanese surface. The explosion of an electric- Shimen Reservoir, which serves much of fOOD in tHe news ity transformer box damaged during the area that was under rationing; that Food safety issues emerged once the quake killed an 84-year-old man in volume equals 11 days of water supply. again last month with the revelation New Taipei City. Minor damage was Besides this year’s low precipitation, that potentially radioactive food has also reported, including 11 cars that fell other factors contributing to the water been imported into Taiwan. Taiwan’s from a parking tower in Taipei, flooding shortage are reservoir silting, leaky infra- Food and Drug Administration (TFDA) that resulted from a water-main break structure, and cheap water prices. announced on April 16 that it will in New Taipei City’s Shulin District, and tighten rules on food imports from Japan structural damage at some schools. CLOUD Gate DanCe after it was revealed that bogus labels trOUPe in new HOMe on certain products misidentified the traGeDY striKes The Cloud Gate Dance Troupe, origin of the products. In the wake of the taiCHUnG Mrt Four people were killed and four others injured in Taichung when a massive steel girder suspended over an MRT construction site fell the height of three stories, crushing a car and killing its driver and three construction workers. The four injured were also construction workers. Witnesses said that no traffic control was in place at the time the girder was being moved, and that the 43-meter-long, 209-ton girder appeared to be unbalanced before the accident, raining debris onto the street below. The accident happened on the site of the Green Line, the first of three

proposed MRT lines in Taichung. A CLOUD GATE’S NEW THEATRE — Under a BOT contract with the New Taipei City preliminary report issued by the Taipei government, the famed dance troupe received 40-year operating rights to public land if it could raise its own construction funds. It received 4,155 donations, Department of Rapid Transit Systems including US$5 million from the Alphawood Foundation Chicago. photo: cna

taiwan business topics • may 2015 9

5_Briefs.indd 9 2015/5/7 5:26:31 PM t a i w a n b r i e f s

taiWan's JanUarY - march 2015 tradE FiGUrEs March 2011 Fukushima nuclear reac- (YEar-on-YEar comParison) tor disaster, Taiwan banned the import hk/china Japan asEan totaL of food manufactured or grown in several Japanese prefectures, including 28.68 Fukushima, over concerns of radia- 27.42 14.1 12.65 9.7 11.1 10.91 10.1 7.8

tion poisoning. TFDA will now require 7.38 4.79 73.3 4.78 70.25

all food items imported from Japan to 66.8

carry an official document certifying the 2015 2014 2015 2014 2015 2014 56.83 prefecture of origin. The new rules will also require radiation tests for certain U.s.a Europe higher-risk areas. 8.3 7 7.66 7.76 6.89 6.6 6.28 In related food safety news, high 5.95 concentrations of pesticide residues, including long banned DDT, were found 2015 2014 2015 2014 2015 2014

in teas offered in central Taiwan by Unit: US$ billion Exports imports chain store Stornaway. Pesticide resi- SoURCE: boFt/MoEA dues were also found in teas sold by the 50 Lan and A Tea chains. The authori- of NT$30.3 billion (about US$1 billion) local shares worth a net total of ties ordered the cessation of sales of the – meaning that is the amount it will NT$21.57 billion. The New Taiwan products pending the results of further receive from the government to take dollar also strengthened that same day, testing. A series of food-related scandals over the two companies. Both of the reaching NT$30.551 against the green- in recent years has involved cooking oils acquired firms were taken into receiv- back, its highest level in five months. made from waste oil, illegal colorants, ership last year by the government’s Analysts expect the index to regain the and the use of feed-grade ingredients Taiwan Insurance Guaranty Fund, due 10,000 point peak later this year, backed used in making food products. to their mismanagement and insolvency. by a government stimulus plan and Global Life had accumulated NT$25.2 strong liquidity. CatHaY Life bUYs billion in losses and Singfor NT$23.9 trOUbLeD insUrers billion. Financial Supervisory Commis- HtC COntinUes tO Cathay Life Insurance won the sion Chairman William Ming-chung see faLLinG saLes reverse auction to acquire troubled Tseng called the bid a “milestone in the HTC Chairwoman Cher Wang firms Global Life Insurance Co. and insurance industry” and thanked Cathay faced some disappointing news as she Singfor Life Insurance Co., with a bid Life for helping reduce the government’s closed her first month concurrently serv- expense. The government had been ing as CEO of the local smartphone expected to incur some NT$60 billion in maker, which she co-founded in 1997. taiWan stock ExchanGE PErFormancE costs to bail out the troubled firms, but For April, HTC reported a steep 39%

THE RED LINE SHOWS CHANGES IN TRADE VALUE AND the strong bid by Cathay is expected to year-on-year drop in sales and a 2% THE SHADED AREA CHANGES IN THE TAIEX INDEX. reduce the amount to NT$22.3 billion. drop in share price. April income came 10,000 135 to NT$13.5 billion (US$440 million), 9750 120 taieX Hits 15-Year which represented a 33% monthly 9500 105 reCOrD: 10,000 POints decline. Once among the world’s top 9250 90 On April 28, the TAIEX benchmark three makers of smartphones, HTC 9000 75 index briefly touched 10,002.58 points has been confronted by keen competi- 8750 60 – the first time it had surpassed the tion at the high end of the market from 8500 45 10,000-point mark in 15 years – mainly Samsung and Apple, and at the low 8250 30 due to stock purchases by foreign inves- end from Chinese upstarts Xiaomi and 8000 15 tors. While the index retreated later in Huawei. HTC recently introduced the 7750 0 the morning to close at 9,973.12, it was Re camera and is entering the market March the highest close since April 11, 2000. for wearable devices. But in light of the Daily turnover came to NT$130.16 monthly declines, analysts aren’t expect- Data source: twse Unit: nt$ billion billion (US$4.22 billion), and foreign ing a quick turnaround for the struggling investors are reported to have bought tech company.

10 taiwan business topics • may 2015

5_Briefs.indd 10 2015/5/6 10:34:44 PM Issues

Reviewing the U.S.-Taiwan Trade Agenda

The latest annual USTR report provides an item-by-item update on the status of trade issues.

ach year at the end of March, the Office of the U.S. Trade Representative (USTR) issues a National Trade Estimate E Report on Foreign Trade Barriers, assessing the state of market access for American goods and services in countries around the world. The nine-page Taiwan section in the just-released 2015 report identifies areas in which meaningful progress has been made, 檢視美台貿易議題 as well as providing insight into continuing irritants in the bilat- eral economic relationship – issues likely to be raised in the annual high-level TIFA (Trade and Investment Framework Agreement) 美國貿易代表署的最新年度報告逐項檢視 negotiations. Among the topics cited as examples of positive developments: 貿易議題的最新進展。 Banking. After previously insisting that foreign banks holding both branch and subsidiary licenses would have to relinquish the branch license, the Financial Supervisory Commission in 2013 indicated that banks would be allowed to keep both operations as long 國貿易代表署（USTR）每年三月底都會 as the primary business scope of the branches is limited to areas, 發表《外國貿易障礙評估報告（National such as corporate finance and derivate services for large companies, 美Trade Estimate Report on Foreign Trade that do not overlap with those of the subsidiaries. In May 2014, the Barriers）》，評估各國市場對美國商品與服務的 FSC also lifted previous requirements that both local and foreign 開放程度。甫公布的2015年報告中，台灣部分占 banks maintain stand-alone onshore data centers. 9頁篇幅，除列出已達成重要進展的領域，還深 Foreign Direct Investment. An amendment proposed by the 入探討雙邊經濟關係中持續存在的問題。這些議 government to the Statute for Investment by Foreign Nationals 題可能會在美台高層的年度貿易暨投資架構協定 would eliminate the need for pre-investment approval for cases （TIFA）談判中提出討論。 worth less than US$1 million, while an amendment to the Busi- 報告認為出現正面進展的領域包括： ness Mergers and Acquisitions Act would clarify criteria and review 銀行：台灣金管會過去堅持，外國銀行若同時 procedures affecting foreign investment in domestic companies. Both 擁有分行和子行營業執照，就須放棄分行執照， measures are currently pending approval by the Legislative Yuan. 不過2013年改變規定，只要分行的主要業務範 Intellectual Property Rights. Following revisions to the Trade 圍限於針對大型企業的企業金融、衍生性商品等 Secrets Law in 2013 to increase penalties to help deter misappropria- 領域，未和子行業務重疊，就可同時保有兩類執 tion of trade secrets, the Legislative Yuan last year passed additional 照。此外金管會在2014年5月解除過去要求本國和 legislation to provide law-enforcement agencies with enhanced 外國銀行都須設置獨立境內資料中心的規定。 enforcement tools to deal with trade secret theft and to oblige defen- 外來直接投資：台灣政府的外國人投資條例修 dants in trade-secrets lawsuits to submit a substantive defense. 正草案中，刪除金額低於100萬美元投資案須事先 Another bill, still awaiting legislative action, would extend coverage 申請批准的規定。企業併購法修正草案則明確規 under the Witness Protection Act to witnesses in trade secrets cases. 定外資投資本國企業的準則和審查程序。這兩項 USTR also noted positive steps in 2014 to enhance patent and 草案目前都在立法院等候審議。 test-data protection for pharmaceutical products. The Taiwan 智慧財產權：立法院在2013年修訂營業秘密 government has committed to establish a patent linkage system for 法，加重罰則，以助嚇阻竊取營業秘密，接著去 pharmaceuticals and to study expansion of the scope of regulatory 年又通過相關立法，強化執法機構處置竊取營業 data protection for innovative drugs, including biologics. 秘密者的執法工具，並迫使營業秘密訴訟案被告 At the same time, the report cited areas of continued IPR 負起具體答辯的義務。另一項仍待立院通過的法 concern, including infringement of copyrighted material on the 案將把證人保護法的適用範圍擴及營業秘密案 Internet, end-user software piracy, cable TV signal theft, and illegal 件。 textbook copying. It noted that Taiwan has yet to effectively imple- 美國貿易代表署還指出，台灣在2014年採取

taiwan business topics • may 2015 11

5_Issues.indd 11 2015/5/6 9:54:04 PM Issues

ment 2009 amendments to the Copyright Act to require Internet 正面作法，強化對製藥產品的專利和檢測資料保 service providers (ISPs) to undertake notice-and-takedown action 護。台灣政府承諾會建立藥品專利連結制度，並 against online infringers as a condition for avoiding liability for 研究讓資料保護規定適用範圍擴及創新藥品，包 such infringement. 括生物製劑在內。 A number of other problems were listed in the report under the 報告還提到一直令人關切的智慧財產權問題， heading “Technical Barriers to Trade.” Among them: 包括網路侵權、終端用戶使用盜版軟體、盜接有 Agricultural issues. USTR reminds Taiwan that largely because 線電視訊號，以及非法影印教科書等。報告指 of controls legislated in 2010 without regard to scientific evidence 出，台灣在2009年通過著作權法修正案，要求網 and risk analysis, Taiwan has not met its commitment under a 2009 路服務供應商（ISP）負起通報和打擊網路侵權的 protocol with the United States to provide fuller market access 責任，作為交換民事免責的條件，但至今仍未貫 to U.S. beef products. Pork is also an issue, because of Taiwan’s 徹實施。 failure to adopt a Maximum Residue Level for the feed additive 報告還特地在「技術性貿易障礙（Technical ractopamine in pork despite having notified the World Trade Orga- Barriers to Trade）」章節中，列出許多其它問題， nization in 2007 of its intent to do so. 包括： Mandatory biotechnology labeling. This category refers to the 農業議題：美國貿易代表署特別點出，台灣在 regulation of genetically modified (GM) food products. According 2010年無視於科學證據和風險分析，針對美牛 to USTR, “Taiwan’s current practices and contemplated stricter 通過管控規定，卻未履行2009年和美國簽署議定 policies on biotech labeling do not appear to be based on science, 書時同意對美牛產品擴大開放市場的承諾。美豬 impose significant burdens on U.S. stakeholders, and may serve to 也是貿易障礙，儘管世界貿易組織（WTO）已在 increase costs and cause concern among consumers.” 2007年表示有意訂定豬肉中的飼料添加物萊克多 Toys. The United States has raised concerns that new inspection 巴胺最大殘留安全容許量（MRL），台灣並未因而 requirements in Taiwan for formamide in foam toys and phthalates 採納。 in children’s products do not correspond to international practice 生技成分強制標示：這部分是針對基改食品 The USTR report notes that requiring testing “for formamide in 的規定。據美國貿易代表署指出：「台灣現行的 toys where it is likely not present is an onerous and costly task for 生技成分標示作法和考慮採取的較嚴格政策，似 manufacturers.” 乎並非以科學為基礎，對美國相關業者構成龐大 In several other categories, USTR appeared to be adopting a 負擔，且可能因此造成成本上升，引發消費者關 stance of continued monitoring and observation of the situation: 切。」 Cosmetics. Proposed amendments to the Cosmetic Hygiene 玩具：台灣針對泡綿玩具的甲醯胺含量和兒童 Control Act have prompted industry concerns about requirements 用品的鄰苯二甲酸酯含量採取新檢驗規定，引發 governing the product approval process, product claims and adver- 美國關切，認為並不符合國際慣例。美國貿易代 tising, and the treatment of medicated cosmetic products, including 表署報告指出，要求檢驗「玩具中可能並不存在 toothpaste, breath fresheners, and sunscreen. 的甲醯胺，對製造商而言是既麻煩又所費不貲的 Chemicals. Both the Environmental Protection Administration 任務」。 and the Ministry of Labor have recently adopted new registration 美國貿易代表署對下列其它數項議題採取繼續 systems for chemical substances. The report said the U.S. govern- 監控與觀察事態發展的立場。 ment has raised questions about the scope of coverage of the 化妝品：台灣化粧品衛生管理條例修正草案 regulations and the protection afforded confidential business infor- 中有關產品批准程序、產品宣稱和廣告，以及牙 mation, and in addition will continue to engage with the Taiwan 膏、口腔芳香劑、防曬乳等含藥化妝品效能的規 agencies to urge harmonization of the two regulatory systems “to 定，引發業界關切。 the extent possible.” 化學製品：台灣環保署和勞動部最近採行新的 Medical devices. According to the report, “U.S. stakeholders and 化學物質登錄系統。美國貿易代表署報告指出， trade officials have encouraged Taiwan to adopt a flexible mecha- 美國政府對於法規適用範圍和商業機密保護都有 nism that would 1) reduce the stringency regarding which products 所疑慮，此外也將繼續和台灣相關機關交涉，促 may enter the market as self-pay or balance-billing devices, 2) 使前述兩套監管系統能「盡可能」協調一致。 provide Taiwan consumers a greater choice of advanced medical 醫療器材：美國貿易代表署報告指出：「美國 devices, and 3) provide clear self-payment guidelines to allow 相關業者和貿易官員都鼓勵台灣採行彈性機制， earlier access to new devices prior to the establishment of a reim- 以達成下列目標：一、放寬產品以自費或差額負 bursement price.” 擔器材上市的限制；二、提供台灣消費者使用先 Dates have not yet been set for the 2015 TIFA Council meeting, 進醫療器材的多種選擇；三、制定清楚易懂的自 which is slated to take place in Taipei. 費指南，讓病患能在健保給付價格確定前就先使用新器材。」 — By Don Shapiro 美台2015年貿易暨投資架構協定聯席委員會（TIFA Council）會議預定在台北舉行，但召開時間仍未定。

— 撰文／沙蕩

12 taiwan business topics • may 2015

5_Issues.indd 12 2015/5/6 9:54:04 PM Issues

Improving Government 提升政府資訊服務 Contracts for IT Services 採購程序

n its Taiwan White Paper submissions in recent years, AmCham 北市美國商會科技委員會在近幾年的白 Taipei’s Technology Committee has called on the government to 皮書當中，呼籲政府適切在資訊服務採 I better define the scope and limitation of damages and service-level 台購契約裡定義廠商損害賠償與服務績效 penalties in its model contract for IT services, as well as to determine 違約金的範圍及限制，並且依廠商建議書個案 the copyright ownership of vendor proposals based on the nature of the 的性質決定其著作權歸屬。經多次討論，政府 project. After numerous discussions, the government has now agreed to 已同意在一年之內修訂資訊服務採購契約範本 revise the clauses in the model contract related to limitation of liability 有關賠償責任的條文。委員會對於修訂採購契 within one year. The Committee’s proposal for amending the model 約範本的建議，在於規定損害賠償不應超過契 contract has been to stipulate that damages should not exceed the total 約總金額，而且廠商的責任不應包含其他衍生 contract amount and that the IT service vendor’s liability should not 性損失之賠償。 include derivative losses of the contractor. 但到目前為止，政府尚未表明將一併重新考 But so far the government has not indicated that copyright owner- 量廠商建議書的著作權歸屬問題。現行契約範 ship of vendor proposals will also be reconsidered. The current 本明確規定，一旦廠商的建議書經機關核定， model contract clearly defines that the copyright ownership of vendor 建議書的著作權應屬政府所有。但有些建議書 proposals should belong to the government, once the bid has been 來自於廠商原有的技術與著作權，在這種情況 granted. But some proposals originate from vendors’ existing knowhow 下，由廠商保有著作權是合理的做法。委員會 and copyrights. When that is the case, it is reasonable that owner- 指出，在這方面欠缺彈性，已使得台灣公部門 ship of the copyright should be retained by the vendor. The Committee 採納新的資訊科技的能力受到限制。 has pointed out that lack of flexibility on this point has held back the Taiwan public sector’s ability to adopt new IT technologies. — 撰文/沙蕩

— By Don Shapiro

Setting the Wrong Standard

The proposed approach to regulating meal replacement foods would create some serious problems. 制定錯誤標準 eal replacement formula foods and beverages are used most commonly by dieters looking to shed some weight. The product is intended to be only a partial replacement for M 規範代餐食品標準的草案可能造成嚴 conventional meals – not the sole contributor to one’s daily intake. Since the purpose is to substitute for only one or two meals a day, 重問題。 partial meal replacement foods are not formulated to provide 100% of all essential nutrients needed in the diet. Used as directed, such products have been clinically demonstrated in many countries as a safe and 餐配方食品和飲料是節食者最常用來減 effective strategy for losing weight and for weight management. This 重的方法，代餐的用意都是作為替代常 approach helps to ensure an adequate supply of essential nutrients while 代規膳食的一部分，而非作為個人每日攝 limiting caloric intake. 食的單一來源。 In Taiwan, Meal Replacement Formula Food (abbreviated as MR) 既然其目的是替代一日膳食的一到兩餐，部 has been classified under the Food Act as a “Special Nutrient Food.” 分取代餐食品配方就不會提供每日膳食所需的 Under the law, any food product with the claim of “Meal Replacement” 百分百營養素。只要依照產品指示食用，這類 must be registered with the Taiwan Food and Drug Administration 產品在許多國家經臨床上證實，已可作為減重 (TFDA), and before being imported and sold in Taiwan must undergo 和體重管理安全有效的策略。使用取代餐的方 human clinical trials to confirm their safety and efficacy, and then obtain 法有助於確保充分供應必需營養素，同時限制 TFDA pre-market approval. 熱量攝取。

taiwan business topics • may 2015 13

5_Issues.indd 13 2015/5/6 9:54:05 PM Issues

TFDA is now preparing to establish a Taiwan Meal Replace- 在台灣，代餐配方食品（簡稱代餐）已被規範 ment Standard. But to the dismay of multinational companies 於食品法的「特殊營養食品」之下。根據法律規 marketing MR products in Taiwan, the standard as currently 定，任何宣稱為「代餐」的食品必須向台灣衛生 drafted sets highly complicated regulatory requirements, seem- 福利部食品藥物管理署（TFDA）辦理查驗登記， ingly based on the assumption that the formula food would be the 並在食品進口到台灣及販售之前，通過人體臨床 consumer’s sole source of nutrients over a long period of use. For 試驗，以確定其安全性及效果，最後取得台灣衛 example, each serving would have to provide one-third of all the 生福利部食品藥物管理署上市前核准。 nutrients in the Taiwan Daily Reference Intake Table, as well as a 台灣衛生福利部食品藥物管理署目前正著手建 large amount of dietary fiber (which is not found in any other MR 立台灣取代餐標準。但令在台行銷代餐配方產品 standard in the world). 的跨國企業氣餒的是，依照目前所擬定的草案要 Under the proposed MR Standard, in addition, the formula 求，高度複雜的規範，似乎把配方食品當成消費 itself would have to provide all the required nutrients, whereas in 者長期食用的唯一營養來源。例如，每一份代餐 most countries it can be mixed with milk or other foods to meet the 必須提供台灣每日建議攝取量1/3的營養素，並提 requirement. 供大量膳食纖維（這部分在世界各國取代餐配方 Multinational companies cannot be expected to reformu- 食品標準都未見）。 late their products simply to fulfill the regulations of a relatively 此外，根據草案所提的代餐標準，配方本身必 small market such as Taiwan’s. Consequently, implementation of 須提供所有必需營養素，但多數國家的做法是， the Taiwan MR Standard as drafted would inevitably mean that 取代餐可以與牛奶或其他食物混合食用以達到這 international meal replacement foods will be pushed out from the 部分要求。 Taiwan marketplace. 訂定一套只適用於台灣單一市場的奇特規範， Besides the inconvenience to consumers of losing access to 有關單位不應指望跨國企業為滿足像台灣這類相 known brands with well-established track records, the TFDA’s 對較小的市而重新訂定產品配方。因此，若推行 policy – by in effect discriminating against foreign products – argu- 目前已草擬的台灣代餐標準，將意味著國際代餐 ably could also constitute a technical barrier to trade subject to 食品會被逼退出台灣市場。 dispute in the World Trade Organization. The draft standard also 除了讓消費者失去具備完善追溯追蹤系統知名 appears to be totally out of sync with the government’s recent 品牌的不便之外，食品藥物管理局實際上歧視外 efforts to burnish Taiwan’s qualifications for inclusion in the 國產品的政策，也可能構成貿易技術性壁壘，在 Trans-Pacific Partnership free-trade grouping by bringing domestic 世界貿易組織引起爭議。該草案標準似乎也與政 regulations into greater conformity with international standards and 府近來努力使國內法規更符合國際標準慣例，讓 practices. 台灣被列入跨太平洋夥伴關係的自由貿易分組資 — By Don Shapiro 格完全不同調。 — 撰文／沙蕩

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: ______

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.) Subscriptions

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

5_Issues.indd 14 2015/5/6 9:54:05 PM Cover story Defense

Maintaining Deterrence 維持嚇阻實力

BY timothY ferrY 撰文 / 法緹姆

photo: ap/wally santana taiwan business topics • may 2015 15

5_CoverStory.indd 15 2015/5/7 5:20:01 PM Cover story

Defense

n the face of it, Taiwan’s States – “remains the focus and primary chances of prevail- driver of China’s military investment.” ing in an outright mili- In stark contrast, Taiwan’s defense O tary conflict with China budget stands at a mere NT$319.3 would not seem very promising. billion (US$10.7 billion), according to Despite improved cross-Strait China’s economic might, with a GDP of Taiwan’s Ministry of National Defense US$10.36 trillion – US$17.63 trillion in (MND). Taiwan struggles to keep its relations, China is continuing Purchasing Power Parity (PPP) terms, aging air force airborne, with nearly a massive spending to build up its according to the CIA – enables it to quarter of the fleet comprised of Viet- afford a defense budget that is now the nam War-era F-5 fighter jets or hard- military capability, with taiwan second largest in the world, behind only to-maintain French-built Mirage 2000s, remaining prominently in the the United States. Beijing’s announced while two of the nation’s four subma- defense budget will rise by 10% in rines date back to World War II and the PLA’s crosshairs. Can advanced 2015, to about US$145 billion, the fifth other two are not much newer. At one weapons procurement and the straight year of double-digit increases. time Taiwan could offset its smaller size The true expenditure is likely with advanced weaponry, but China implementation of “asymmetrical far higher, and China has launched has closed the technological gap in strategies” enable taiwan to meet modernization programs throughout many regards and now employs many its forces in order to “fight and win weapons systems that are newer, more the challenge of providing suffi- short-duration, high-intensity, regional sophisticated, and more numerous than cient defensive strength? contingencies,” according to the 2014 what Taiwan has available. China Report of the U.S. Department Military analysts in Taiwan say a of Defense, which states that China’s Chinese invasion could be staved off 儘管台海兩岸關係改善，中國仍繼 weapons buildup includes fifth-gener- for weeks or a month, providing time ation fighter aircraft, advanced missile for the United States to come to the 續投入巨額國防經費，提升軍力， technology, and even the launch of an rescue. But many pundits question 解放軍也依然以台灣為建軍的重要 aircraft carrier. whether the United States would have In line with the longstanding aim of the stomach for an armed conflict with 目標。採購先進武器與採行「非對 the People’s Republic of China (PRC) China. They say that China’s advances 稱戰略」，能否讓台灣克服提供足 to bring Taiwan under its rule, the in ballistic missile technology would report adds that “preparing for poten- now enable it to hit U.S. air bases in 夠防衛力量的挑戰？ tial conflict in the Taiwan Strait, which Okinawa and even Guam, along with includes deterring or defeating third- aircraft carriers and other naval vessels. party intervention,” – that is, the United In 2009, defense research organiza-

表面上看來，如果與中國發生全面的然是中國軍事投資的焦點及主要的驅動因素」。軍事衝突，台灣要占上風的機會似乎根據台灣國防部的數據，台灣的國防預算僅新不是很大。根據美國中央情報局的資台幣3,193億元（107億美元），與中國相形見從料，中國國內生產毛額達到10.36兆絀。台灣空軍戰機的妥善率僅能勉強維持，機隊美元（以購買力平價估算是17.63兆美元），以當中有將近1/4是越戰時期的F-5或者是難以維修這樣的經濟實力，中國在國防方面所能投下的預的法國製幻象2000型戰機。台灣有四艘潛艇，算在全球居第二位，僅次於美國。北京公布的其中兩艘建於二次大戰期間，另外兩艘的年份也 2015年國防預算達到1,450億美元，比去年增加差不多。台灣軍力規模較小，這點過去曾因武器 10%，這是中國國防預算連續第五年出現兩位數相對先進獲得彌補，但在許多方面，台灣在軍事的成長。中國實際的國防經費可能比這個數字高科技領先的差距已經被中國趕上。中國如今有許出許多，而且據美國國防部發布的2014年中國多更新、更精密的武器，數量也比台灣更多。軍力報告，中國在全軍推動現代化，以便能「在台灣的軍事分析家說，台灣可能抵擋中國的攻短時間、高強度的區域事端中作戰，並且取得勝勢達幾個星期或一個月，讓美國有時間可以馳援利」。這份報告說，中國拓展軍力的作為包括發台灣。但許多評論員懷疑美國會願意與中國發生展第五代戰機、先進飛彈科技，甚至將有航空母軍事衝突。他們並且指出，中國在彈道飛彈科技艦下水。取得的進展，如今讓他們可以攻擊琉球甚至關島中華人民共和國長期的目標是要將台灣收歸的美軍基地，還有美國的航空母艦與其他海軍艦北京統治，美國國防部的報告說，依據這個目艇。美國國防研究機構蘭德公司在2009年做成標，「為台灣海峽可能的衝突預做準備，包括嚇結論說，中國憑藉俄製蘇愷27型戰機和國產的阻或擊敗第三方（也就是美國）的干預作為，依殲10多功能戰機，加上霹靂12型空對空飛彈與

16 taiwan business topics • may 2015

5_CoverStory.indd 16 2015/5/6 10:38:04 PM Defense

tion RAND Corporation concluded that with its Russian-made Su-27 and domestically produced J-10 multi-role fighter jets, along with PL-12 air-to-air missiles and short-range ballistic missiles (SRBM), China could prevail against even the latest in U.S. technology, the F-22 stealth tactical fighter jet. RAND estimates that despite higher kill ratios for U.S. fighters (as high as 27:1 for the F-22), China would be able to launch 3.7 times more sorties and win the war of attrition. Since that report was issued, the threat from China’s People’s Liberation Army (PLA) Air Force and Second Artil- lery, the unit in charge of the missile arsenal, has only increased as even more advanced weapons have come online. “The stark reality is that these days, there is not much the U.S. can realistically do to help Taipei stand up to serious pressure from Beijing,” argues Hugh White, professor of strategic studies at the Austra- lian National University in Canberra, in a widely circulated op-ed piece in the South China Morning Post.“China is simply too important economically, and too powerful militarily, for anyone to confront it on Taiwan's behalf.” The above is the bleak assessment of Taiwan’s defense situation given by many experts in military and international affairs. But are Taiwan’s chances in a military confrontation really so hopeless? inFoGRapHic by James cHaRD

短程彈道飛彈，可能可以戰勝美國最新的F-22匿蹤戰術有好幾個因素可以讓較弱的一方獲勝。較弱的國家如果戰鬥機。蘭德公司估計，美國戰機擊落敵機的比率雖然有較強的動機，而且很願意為了保衛本身的自治而受比較高（F-22達到27比1），但中國可以出動的架次是苦，就是獲勝的關鍵因素，此外還有較強的一方缺乏決美國的3.7倍，可藉此贏得消耗戰。心或承擔對峙成本的意願，如果這較強的一方如果是個這份報告發布之後，中國解放軍空軍與二砲部隊（即民主國家，就更容易出現這種情況。如果較弱的一方有飛彈部隊）的威脅有增無減，因為有更多的先進武器已更有力的友邦出面協助，也會是個因素。經部署。但楊少華指出，最關鍵的因素是較弱的一方所採取的坎培拉澳洲國立大學略研究教授懷特在南華早報發表戰略。他寫道：「在非對稱的衝突中，較弱的一方選擇的一篇文章，被廣為流傳。他在文章中說：「明顯的何種戰略，對最後的結果具有關鍵的決定性。如果較弱事實在於，當前美國沒有什麼實際的辦法，能幫台北抗的一方採取非對稱戰略，則獲勝的比率達到91.7%。」拒來自北京的嚴重壓力。」他說：「中國經濟地位太重「非對稱戰略」常用來指游擊戰或恐怖行動，但其要，軍力太強，沒有人會因為台灣不惜跟中國對抗。」實可以指許多不同的做法。2008年，美國海軍戰爭學以上是多位軍事與國際事務專家針對台灣國防形勢院教授莫瑞發表論文，題目是「重新探討台灣的國防戰所做的悲觀評估。但如果發生軍事對峙的局面，台灣是略」，文章在軍事圈引發諸多討論。他在文章中說，台否真的如此沒有希望？有好幾個理由可以不必悲觀。事灣不應該為了直接因應中國的空襲，投資購買高能見度實上，雖然中國針對台灣部署眾多武器，但近代歷史顯的武器，而應該以更多經費購買能讓台灣在海岸附近擊示，在一方的力量遠大於對方的「非對稱性戰爭」中，退進犯敵軍的武器系統。較弱的一方往往可能獲得勝利。他舉中國的潛艦能力與進步的飛彈為例說：「中國近中國軍事理論家楊少華在《中國國際政治》期刊發表來的軍事現代化已根本改變台灣的安全選項。」他並寫一篇標題為「弱國如何取勝」的論文。他在文章中說，道，中國已有能力以海軍包圍台灣，並且以彈道及巡弋

taiwan business topics • may 2015 17

5_CoverStory.indd 17 2015/5/7 5:18:10 PM cover story

Defense

There are several reasons to think not. In on the part of weaker powers in defense weak power opts for an asymmetric strat- fact, despite the massive arsenal poised of their autonomy are critical factors, as egy, its ratio of victory reaches 91.7%.” against Taiwan, recent history suggests is the lack of resolve or willingness to Though the term “asymmetric strat- that in an “asymmetrical war,” in which bear the costs of a confrontation on the egy” is often used to refer to guerilla one power is far stronger than the other, part of the strong state, particularly if the warfare or terrorism, it can actually the weaker power is often likely to come strong state is a democracy. Help for the mean a number of different kinds of out on top. weak actor from more powerful friends is approaches. In 2008, William Murray, a Chinese military theorist Yang also a factor. professor at the U.S. Naval War College, Shaohua, in a paper for the Chinese But Yang notes that the most critical published a paper entitled “Revisiting Journal of International Politics enti- element is the strategy employed by the Taiwan’s Defense Strategy” that shook tled “How Can Weaker Powers Win,” weak power. “The type of strategy the up the defense world by saying that observes several factors that can contrib- weaker power selects is critical to deter- rather than invest in high-profile weap- ute to success for the weaker side. Higher mining the final outcome of an asym- onry aimed at countering a Chinese motivation and great willingness to suffer metric conflict,” Yang writes. “When the aerial bombardment head-on, Taiwan should invest more in weapon systems aimed at repelling an invasion near Taiwan’s shores. “China’s recent military modernization has fundamentally altered Taiwan’s security options,” he wrote, citing China’s submarine capabilities and advanced missiles. He added that China’s ability to encircle the island with its navy and hit targets accurately with ballistic and cruise missiles have deprived the island of the advantage of geographic distance from China. Murray there- fore suggests that Taiwan can no longer counter these threats in a “symmetri- cal manner” with anti-missile defense The PRC’s China Aerospace Science and Technology Corp. showed off its newly devel- systems, submarines, warships, fighter oped CX-1 supersonic anti-ship cruise missile (shown here) and M20 ground-to-ground jets, and P-3 maritime patrol aircraft. missile weapon system at last December’s Zhuhai Air Show. Instead, he wrote, Taiwan must “rethink photo: cna

飛彈精準打擊目標，使台灣失去地理距離的優勢。他因的能力，並且要能夠在敵軍從空中和海上到達台灣之前此認為，台灣不能再以反飛彈系統、潛艇、軍艦、戰機予以反擊。刺蝟戰略的目標是要讓北京相信進犯台灣肯和P-3海面巡邏機等「對稱方式」因應這些威脅。他寫定會失敗，藉以達到嚇阻的效果，但如果沒有高科技的道，台灣必須「重新思考並規劃它的國防戰略，強調防長程武器系統，北京領導階層有可能因為台灣高科技防守方的非對稱優勢，設法不讓中國達成它的戰略目標，禦能力降低，而加速他們進犯台灣的計畫。」而不是企圖摧毀對方的武器系統。」他主張，這樣的「刺蝟戰略」可讓台灣以低廉許多有效嚇阻的代價，獲得較高的安全性。但這個觀念並未被廣泛接受，例如美國國防智庫2049計畫研究所的研究員伊斯頓中華民國國軍的戰略構想是「防衛固守，有效嚇以電子郵件告訴Taiwan Business TOPICS說，「刺蝟戰略阻」。台灣與美國許多熟悉情況的評論員認為，台灣是要給最後會打敗仗的國家。」他寫道：「這個概念比其實有良好的軍備，可以針對中國的攻擊展開堅強的較適合北韓和伊朗，因此台灣沒有接受這個概念，也不防禦。伊斯頓去年在為2049計畫研究所撰寫的文章中會接受。」說：「外界說法與事實相反，台灣有能力不讓中國取得但另一方面，國防專家費學禮表示，許多分析家認為空中優勢，而且可能在未來很長時間維持這個能力。台莫瑞的建議是「常識」，而且台灣在美國國防部的鼓勵灣讓中國無法完全掌握空優，就可以提高中國對台灣進之下，已經採納莫瑞的多項建議，例如採購小型攻擊快行海上封鎖或兩棲進犯的代價，使得中國不敢有這些企艇與快速修補跑道的設備、強化機棚與指揮管制中心等圖。」伊斯頓這篇文章的題目是《神射手：精準打擊時關鍵設施，以及自主研發非對稱性武器。費學禮等多位代的台灣防衛策略》。分析家認為，有關高科技或低科技的辯論，「對台灣來據伊斯頓說，台灣在美國協助下，正在建立「可能是說是個不存在的問題」。全球最堅強的防空及飛彈防禦網路」，包括早期預警雷他在電子郵件中表示：「台灣肯定需要實力足以擊退達、情報偵察與蒐集設備、飛彈防禦系統、戰機升級、進犯敵軍的陸軍與民兵，但也需要對抗飛彈與敵機攻擊強化空軍基地防禦與韌性的措施，甚至無人飛機等。台

18 taiwan business topics • may 2015

5_CoverStory.indd 18 2015/5/7 5:46:09 PM Defense

and redesign its defense strategy, empha- choice for Taiwan.” domain, Taiwan can raise the costs of a sizing the asymmetrical advantage of “To be sure, Taiwan requires an Army maritime blockade or amphibious inva- being the defender, seeking to deny the and Militia powerful enough to repel sion attempt to a prohibitive level.” People’s Republic its strategic objec- an invader but it also requires the abil- According to Easton, Taiwan, with tives rather than attempting to destroy its ity to repel missile and air attacks and help from the United States, is building weapons systems.” counter air and seaborne invasion forces “what may be the world’s most robust Murray contends that such a “porcu- before they reach the island,” he noted air and missile defense network,” includ- pine strategy” would provide Taiwan in an email. “The goal of Porcupine is to ing early-warning radar, intelligence with greater security at a far lower price achieve deterrence by convincing Beijing surveillance and reconnaissance (ISR) tag. But the concept has hardly been that an invasion will surely fail, but by assets, missile defense systems, fighter jet universally accepted. Ian Easton, for removing high-tech long-range combat upgrades, airbase hardening and resil- example, research fellow at the Proj- systems, there is a danger that Beijing’s iency, and even UAVs (unmanned aerial ect 2049 Institute, a U.S.-based defense leadership will regard any reductions vehicles). Taiwan also plans to acquire think-tank, told Taiwan Business in high-tech defenses as an invitation to next-generation stealth combat aircraft TOPICS by email that “porcupine strat- accelerate their invasion plans.” and seems intent on building its own egies are for countries that will lose in a submarines. “Improved air and missile war.” Wrote Easton: “It’s an idea better Credible deterrent defense is crucial to undermining poten- fit for North Korea and Iran.” tial PRC aggression,” Easton notes. On the other hand, defense special- The ROC armed forces operate under More needs to be done, though. ist Richard Fisher says that many analysts the doctrine of “resolute defense, cred- Despite the clear threat presented by consider Murray’s proposals to be ible deterrent,” and many knowledge- China, Taiwan’s defense spending “common sense,” and that Taiwan – with able commentators in Taiwan and the between 2009 and 2014 declined by an the encouragement of the U.S. Depart- United States consider that Taiwan in average of 1.6% annually, while the 2015 ment of Defense – has undertaken many fact is well-equipped to mount a staunch defense budget submitted by MND calls of Murray’s recommendations such as the defense against a PRC attack. “Contrary for a modest 2.6% increase. With a GDP procurement of small, fast attack boats to reports, Taiwan has the capacity to of US$505 billion (US$1.02 trillion PPP), and Rapid Runway Repair kits, the hard- deny air superiority to China, and it is a small fraction of the PRC’s, Taiwan ening of critical facilities such as airbase likely to maintain this capability well cannot afford to bridge the gap in defense hangars and Command and Control (2C) into the future,” Easton wrote last year spending. Still, the relative declines in centers, and the development of indige- in a paper for Project 2049 entitled Able Taiwan’s military spending worry interna- nous asymmetric weapons. Fisher, along Archers: Taiwan Defense Strategy in an tional defense experts for several reasons. with many analysts, considers the debate Age of Precision Strikes. “By denying The Asia Maritime Transpar- between high- and low-tech “a false China uncontested control over the air ency Initiative and the Center for Stra-

灣也計劃採購下一代匿蹤戰機，而且似乎決心自行建造 7年更趨密切，兩岸開始直航和簽署經濟合作架構協議潛艦。他指出：「增強空防與飛彈防禦，對於抵消中國可為例證。中國如今是台灣的最主要貿易夥伴，台灣外對台灣可能發動的攻擊來說極為重要。」來觀光客也以中國民眾占最大宗。中國在南海主張主權但台灣需要更加努力。雖然中國的威脅十分明顯，但的動作越來越大，而美國與菲律賓進行聯合演習以展示台灣2009到2014年的國防支出卻平均每年減少1.6%，武力做為回應，相較之下，台海做為潛在衝突點的嚴重國防部所提的2015年預算也只增加2.6%。台灣的國內性，近來已經有所降低。生產毛額為5,050億美元（以購買力平價計算是1.02兆要因應中國的威脅，似乎是非常嚴竣的挑戰，而毫無美元），與中國相比是小巫見大巫，因此無法趕上中國疑問，這是另一個會影響台灣民眾態度的重大因素。據在軍事方面的支出，但基於好幾個理由，台灣國防支出說中國以1,100枚短程彈道飛彈和200到500枚攻擊地面相對下滑的現象，讓國際軍事專家感到憂心。巡弋飛彈對準台灣，此外還有少數中程彈道飛彈也以台亞洲海事透明計畫與戰略暨國際研究中心去年聯合灣為目標。中國也在部署配備武器的無人飛機，並且大發表一篇文章，題目是《台灣國防支出：先經濟、後國幅提升反艦巡弋飛彈能力，其中有許多飛彈可以從潛艇防對安全的後果」。文章主旨在於說明台灣國防經費減發射。伊斯頓說，中國的武裝無人飛機可能當成誘餌，少，會「使台灣較難維持有效嚇阻攻擊的能力」，因此目的是在台灣的防禦系統製造空隙。可能「對北京提供迫使台灣統一的誘因」。國防支出減中國可以利用飛彈對台灣的空軍基地、軍港和指揮管少也會「讓人質疑台灣自衛的決心」。這篇文章說，如制中心展開第一回合攻擊，造成嚴重的破壞。中國沿岸果有這樣的質疑，有可能「影響」美國在台灣遭到攻擊部署的短程飛彈射程達300公里，幾乎涵蓋台灣每個角時採取因應措施的意願。落，可以在6分鐘以內打到目標。台灣在面對中國強大的威脅時，是否過於安逸？中國攻擊台灣最可能採取的方式，是先以飛彈對軍港經過民主進步黨籍陳水扁總統2000到2008年任期的和空軍基地發動閃電攻勢。有鑑於此，台灣在最近幾年風風雨雨，馬英九總統的中國國民黨政府努力緩和台海對空軍基地進行強化，做法是在山腳下挖鑿停機棚，或兩岸之間的關係。台灣與中國的經濟與社會關係在過去在機棚上覆蓋鋼筋混凝土。台灣有460架戰機，包括64

taiwan business topics • may 2015 19

5_CoverStory.indd 19 2015/5/6 10:38:05 PM cover story

Defense

Framework Agreement (ECFA) exem- plify the increased economic and social ties of the past seven years. China is now Taiwan’s largest trade partner and also sends the biggest contingent of tourists to the island, surely signs of continuing good relations. With American and Philippine forces engaged in war games described as a show of force against China’s increasingly aggressive assertion of maritime claims in the South China Sea, the Taiwan Strait has drifted into the background as a potential flashpoint of late. Another significant factor in shaping public attitudes in Taiwan is undoubtedly the seemingly huge scale of the challenge. China reportedly has 1,100 short-range Taiwan’s National Chung-Shan Institute of Science and Technology last December gave the ballistic missiles (SRBM) and 200-500 media a look at its “Skybow” missile defense system and Hsiung Feng anti-ship missiles. land attack cruise missiles (LACM) aimed photo: cna at Taiwan, along with a small number of medium-range ballistic missiles tegic and International Studies last the paper suggests could have “implica- (MRBM). The PRC is also deploying year jointly published a paper enti- tions” for U.S. willingness to respond to armed Unmanned Aerial Vehicles (UAV), tled, “Taiwan’s Defense Spending: Secu- an attack upon Taiwan. which Easton theorizes might be used as rity Consequences of Choosing Butter Has Taiwan become too complacent decoys to create gaps in Taiwan’s defense over Guns.” The theme is that reduced in the face of such a powerful threat? network, and has dramatically increased defense spending could “provide incen- After the tumultuous presidency of its anti-ship cruise missile (ASCM) capa- tives for Beijing to pressure Taiwan” for the Democratic Progressive Party’s Chen bilities, many of which are launched from unification by “diminishing Taiwan’s Shui-bian from 2000 to 2008, the Kuo- submarine platforms. ability to maintain a credible deterrent mintang administration of Ma Ying-jeou China’s missile arsenal provides it against an attack.” Low defense spend- has striven for détente across the Strait. with the ability to launch a devastating also “raises questions about Taiwan’s The opening of direct aviation links and ing first-round attack against Taiwan’s commitment to its own defense,” which signing of an Economic Cooperation airbases, naval ports, and command-and-

架幻象2000型戰機、160架F-16和123架台灣自行建造灣的目標機場，為了因應這種無法避免的情況，台灣已的IDF經國號戰機，它們可能可以在第一波飛彈攻擊之投入可觀經費購買美國研發的跑道快速修補裝備，台灣後存活，但如果機場跑道受損，戰機將無法起飛，或者的部隊已接受美國廠商的訓練，到時可以有效使用這些如果戰機已經升空，將會無法降落。繼飛彈攻擊之後，裝備。中國的多層飽和式攻擊可能包括以戰機和轟炸機進行空襲，最後派兵登陸。威脅評估其實台灣已經採取重要步驟，以因應這些潛在威脅。第一個步驟是情報作為，包括信號情報、電子情報、雷每當有跟台灣的國防有關的新聞報導出現時，部落格達系統、網際網路偵察以及情報人員網路。2012年，評論與報導的讀者回應往往是以一項假設為出發點，那台灣在早期預警系統中增加了新的超高頻雷達。它位就是台灣對美國外交政策的戰略重要性不高，而且中國在台灣西北部山區的一個戰略位置，據說是美國「鋪路的軍力強到無法超越。爪」彈道飛彈防禦雷達的改裝版。伊斯頓說，這可能連真正的軍事專家，也強調美軍馳援台灣必須付出的是「史上最強大的地面雷達系統」。代價，而且許多人懷疑美國民眾是否會支持介入。美國台灣也投入大筆經費建構彈道飛彈防禦系統，包括空軍少校麥卡錫曾為美國海軍戰爭學院寫過一篇文章，地對空飛彈，特別是美製愛國者3型高性能飛彈防禦系題目是《反介入／區域阻絕：現代戰爭的演進》。他在統。台灣北部目前已經部署3套愛國者3型飛彈，不久文中指出，雖然中國的國防預算與戰力不如美國，但之後將為中部和南部添購6套。台灣也有自製的天弓地它已建立的防衛傘 -- 包括從地面與利用潛艦發射的飛對空飛彈系統。立法院最近並同意撥款新台幣748億元彈，射程遠達關島等西太平洋目標 -- 代表中國「具有將天弓系統提升到被認為可以媲美愛國者飛彈的第三在戰爭史上從來沒有其他國家面對過的防禦能力，包括代。台灣還有其他反飛彈武器，包括配備在驅逐艦、巡美國在內」。防艦、直升機與部署在地面上的飛彈。麥卡錫的結論是，雖然有可能在與中國交戰時取得上中國對台灣發射的飛彈當中，至少會有一些將擊中台風，「要想在這個戰區部署並取得空中及海上優勢，可

20 taiwan business topics • may 2015

5_CoverStory.indd 20 2015/5/7 5:45:42 PM Defense

control centers. SRBMs launched from modified version of the U.S. “Pave Paws” American contractors on how to use coastal China, with a 300-kilometer ballistic missile defense radar. Easton them effectively. range that includes nearly all of Taiwan, observes that it may be “the most power- The numerous armchair defense could reach their targets within less than ful ground-based radar system ever built.” analysts pervading the blogosphere and six minutes. the comment section of any online news The most likely scenario for an attack Missile defense systems story on Taiwan’s defense often start on Taiwan involves a lightning missile from the assumption that Taiwan is not strike on naval ports and airfields. In view Taiwan is also investing heavily in its strategically significant to U.S. foreign of that threat, Taiwan in recent years has ballistic-missile defense systems, includ- policy concerns and that China’s military hardened its airbases by burying hangars ing SAMs (surface-to-air missiles) and power is insurmountable. under mountains or tons of reinforced especially Patriot Advanced Capabili- Even genuine military experts stress concrete. Taiwan’s fleet of 380 aircraft – ty-3 (PAC-3) missile defense systems from the cost that the United States would including 64 Mirage-2000 fighters, 160 the United States. Three of these units have to bear in coming to Taiwan’s F-16s, and 123 locally made IDFs – might have already been deployed in north- rescue, and many wonder whether the survive the bombardment, but if runways ern Taiwan, and six more will soon be American public would support the are unavailable they could not take off, or acquired for the central and southern effort. In a paper for the U.S. Naval if already in the air, would have nowhere parts of the island. Taiwan also has its War College entitled “Anti-Access/ to land. The multi-layered saturation own indigenously produced Tien Kung Area Denial: The Evolution of Modern bombing would likely be followed by (Skybow) SAM systems. The Legisla- Warfare,” U.S. Air Force Major Chris- further aerial bombardment from fighter tive Yuan recently appropriated NT$74.8 topher J. McCarthy notes that while jets and bombers, and then ultimately the billion (US$2.5 billion) for upgrading to China’s defense budget and fighting capa- landing of Chinese troops. the third-generation Tien Kung (TK-3), bilities trail those of the United States, Taiwan has in fact taken major steps which is considered comparable to the the defense umbrella it has built up – to counter these potential threats. The PAC system. Other antimissile weaponry comprised of surface- and submarine- first step is intelligence, including signal in the Taiwan arsenal include missiles launched missiles that can reach as far intelligence (SIGINT), electronic intel- mounted on destroyers and frigates, on into the Western Pacific as Guam – repre- ligence (ELINT), radar systems, cyber helicopters, and on the ground. sents “a level of defensive capability not reconnaissance, and human intelligence To counter the inevitable prospect experienced by any military in the history networks. In 2012 Taiwan introduced a of at least some SRBM warheads reach- of warfare, including the U.S.” new ultra-high frequency (UHF) radar ing their targeted airfields, Taiwan has McCarthy concludes that while it is into its early warning system. Strategi- further invested heavily in U.S.-devel- possible to successfully engage China, cally situated in a mountain in northwest oped Rapid Runway Repair kits, and “attempts to deploy into the theater and Taiwan, this radar system reportedly is a Taiwanese troops have been trained by gain air and maritime superiority likely

能得付出二次大戰以來最高的人命與物質代價」。軍事行擴張。」他說：「台灣是世界第19大經濟體，如果分析家稱這個防禦傘戰略為「反介入／區域阻絕」，它遭到中國併吞，中國的國力將進一步提升，並且將在廣的起源是中國對美國在1990到1991年對伊拉克展開「闊的西太平洋取得一艘『不沈的航空母艦』。」寇謐將沙漠風暴」行動的觀察。當時美軍充分掌握空中與海上是民進黨主席蔡英文旗下小英教育基金會的一位高層主優勢，地面的作戰行動毫不費力。麥卡錫寫道：「（中管，他認為，如果台灣被中國併吞，「中國將會有一個國）軍方領導人相信，一旦與美國開戰，必須阻斷或消新的陣線，可以對付日本和菲律賓，遑論美國在區域除美軍的部署行動，並且要研發和部署能夠達成這項任內部署的軍力」。務的能力。」他說，中國在部署這些戰略資源的作為相費學禮認為，放棄台灣會是使東亞情勢出現不穩的重當成功，「就像1940年德軍的閃電攻勢使戰爭改觀，大事件，對美國的安全將會有直接影響。他以電子郵件反介入／區域阻絕的技術和戰略也為現代戰爭的性質提向TOPICS指出：「摧毀台灣的民主之後，中國可能開始供了新的定義」。決定在全球與民主對抗。」他並說：「中國已經在與全根據分析家對非對稱戰爭本質的看法，如果衝突的戰球多數的獨裁政權結為盟友。」略價值存有疑義，美國這樣的民主國家就很難承擔戰爭更重要的是，台灣如果遭到併吞，可能使這個區域陷的代價。捍衛亞洲民主的動機，可能沒有強到足以讓美入新的核武競賽。費學禮說：「中國如果拿下台灣，將國持續對中國作戰。把它變成核武基地，以及向全球投射武力的基地。」因但支持台灣的分析家指出，台灣其實依然是美國的核此，「日本和南韓將會發展他們自己的核武，澳洲、越心戰略利益所在，如果放任台灣遭中國侵略，不但不會南將會跟進，此外可能還會有其他國家。中國到時將加讓實力逐漸竄升的中國感到滿足，反而會助長中國的侵強打造核武實力，並且認為它可以在核戰中取勝，導致略野心，使整個區域陷入不穩的情勢。核武衝突的可能性大為升高。」國防專家寇謐將最近在《國家利益》雜誌發表文章，他說，到時美國必須決定「是要幫盟友發展核武，或題為《別讓中國吞下台灣》。他警告說：「放棄台灣可者放棄盟友」；「美國的領導者從1945年以來，始終能會激勵中國的擴張野心，同時讓它有更多工具可以進讓亞洲不致出現戰略混亂的狀態」，但如果台灣被中國

taiwan business topics • may 2015 21

5_CoverStory.indd 21 2015/5/6 10:38:05 PM Cover story

Defense

will result in loss of life and material to tegic asset for the United States and that email, observing that China “is already levels not experienced since World War abandoning Taiwan to Chinese aggres- allying itself with most of the world’s II.” This defensive shield strategy, dubbed sion, rather than serving to appease the dictatorships.” “Anti-Access/Area Denial” (A2/D2) by rising superpower, would in fact fuel its Even more significantly, Taiwan’s military analysts, was born of China’s appetite for further expansionism, desta- fall could thrust the region into a new observation of the ease with which bilizing the region. nuclear arms race. “After taking Taiwan, the United States invaded Iraq during “Abandoning Taiwan would likely China will then turn it into a nuclear Desert Storm in 1990-91, due to the full encourage Chinese expansionism while weapons base and a base for global control U.S. forces exercised over the giving it more tools to do so,” warns power projection,” he wrote. Conse- air and maritime space. “Military lead- defense expert J. Michael Cole in the quently, “Japan and South Korea ers concluded that in the event of a war recent article, “Don’t Let China Swal- would build their own nuclear weap- with the United States, the U.S. military low Taiwan,” for The National Interest. ons, followed by Australia, Vietnam, and deployment process must be disrupted “The annexation of Taiwan would further perhaps others. China will then redou- or neutralized, and have successfully contribute to China’s might by adding ble its nuclear weapon building, thinking developed and fielded military capabili- the world’s 19th largest economy to its it could win a nuclear exchange, making ties designed to fulfill this need,” writes national power while providing Beijing such conflicts far more possible.” McCarthy. China has been so successful with an ‘unsinkable carrier’ facing an At that point, the United States would in deploying these strategic resources that open Western Pacific.” Cole, a senior offi- have to decide “whether to help its allies “just as Blitzkrieg changed combat in cer of the Thinking Taiwan Foundation to nuclearize or to abandon them,” 1940, anti-access/area denial technologies led by DPP Chairperson Tsai Ing-wen, Fisher continued. It would be faced with and strategies have re-defined the charac- views this eventuality as providing “China the challenge of how to defend American ter of modern warfare,” he argues. with a new front from which to confront interests “in a period of strategic chaos in In line with analysts’ observations Japan and the Philippines, not to mention Asia which its leadership had prevented of the nature of asymmetrical warfare, U.S. forces deployed in the region.” since 1945.” a democratic power such as the United Richard Fisher sees abandoning China’s rising power has made a States would have great difficulty sustain- Taiwan as a significant destabilizing event strong impression on the world, but ing such losses from a conflict whose strain East Asia that would have direct impli- many in the pro-Taiwan camp say that tegic value was questionable. Defending cations for the security of the United Chinese propaganda has led to a major democracy in Asia might not be enough States. “Destroying Taiwan’s democracy over-estimation of its war-fighting capac- motivation to continue such operations. could mark the beginning of the Chinese ity, and consequently diminished expecta- Pro-Taiwan analysts, however, note Communist Party’s decision to coun- tions regarding the ROC military. that in fact Taiwan remains a core stra- ter democracy globally,” he noted in an “Sustained propaganda/political

併吞，美國將必須面對如何在這種狀態中捍衛美國利益艦上搬下碼頭的畫面，中國彼此緊密連結而且中產階級的挑戰。性質越來越強化的社會將會有何反應？中國實力竄升讓世界各國留下深刻印象，但許多支持最終的問題不在於中國受到的限制，而是在於中國的台灣的人士表示，中國的宣傳攻勢讓外界高估解放軍的長程戰略目標。台北淡江大學戰略研究教授黃介正說，作戰能力，也降低了對中華民國國軍的期待。中國外表看起來很強大，但其實尚未達到超級強國的地寇謐將在專為小英基金會撰寫的報告中說，「北京位，中國領導階層對此心知肚明。他以中國各地區發展對台灣進行持續的宣傳與政治作戰攻勢」，目的在「打程度的重大差異為例說，中國經濟尚未完全起飛。他擊台灣軍隊的士氣，破壞國軍在國內與海外的名聲，並說：「中國瞭解，要維持一黨專政，並且確保民眾『喜且讓台灣的民眾和台灣的盟友認為抵擋中國將徒勞無歡』獨裁，就必須要有持續的經濟成長。軍事衝突將會功」。他這份報告的題目是《台灣軍事改革與人民解放扼殺外來直接投資和商機。」軍的政治作戰》。他說，在此同時，北京也希望向世界顯示，中國不再伊斯頓在他的電子郵件中也說，中國企圖表現出的是個弱國。他指出：「中國想要展現它的軍力，但不希自信度，遠遠超過他們實際的信心。他說：「你必須深望它的軍力受到測試。」入一些，才能真正瞭解解放軍對台灣的看法。你看得深黃介正說，中國需要進一步發展，因此台灣還有一些入，就會知道解放軍怕中華民國的軍隊，也怕太平洋美時間，但威脅並未消失。台灣要如何運用剩餘的時間，軍司令部。」以緩和未來來自於中國的威脅？無論中國是以弱國的角色打非對稱戰爭，例如跟美他提出兩個建議和一項警告。他說，台灣應該「採國較量，或者是以強國的地位跟台灣作戰，評論員往往取大膽的步驟，把台灣的經濟提升到另一個層次」，並預期中國可以打贏，可能的原因在於他們高估了中國的且「透過募兵制度把軍隊改革成為真正能夠打仗的武作戰能力。美國做為民主國家，對於死傷的敏感度肯定力」。他的警告是，在做這些努力的時候，「台灣在美遠超過中國當局，但中國是否就可以不用面對民眾的反國與中國之間必須有巧妙的拿捏，確保我們在與其中一彈？特別是在一胎化政策的背景下，一旦與台灣發生衝方打交道的時候，不致激怒另一方，或使美國與中國的突，當微博和其他社群媒體平台開始流傳屍袋從中國軍關係受到不利影響」。

22 taiwan business topics • may 2015

5_CoverStory.indd 22 2015/5/6 10:38:06 PM Defense

warfare campaigns unleashed by Beijing” ger power, as in a conflict with Taiwan. continual economic growth,” he observes. toward Taiwan are intended to “under- Certainly a democratic United States “Military conflict will kill foreign direct mine morale in the troops, destroy the would be far more sensitive to losses investment and business opportunities.” reputation of the military at home and than authoritarian China, but is China At the same time, Huang says, Beijing abroad, and convince the Taiwanese immune from public reaction? How wants to show the world that it is no population, as well as Taiwan’s allies, would China’s hyper-connected, increas- longer a weak power. “China wants to that resistance is futile,” Cole wrote in ingly middle-class society react when posture its military might, but not test its a special report for Thinking Taiwan, images of body bags offloaded from military might,” he notes. “Taiwanese Military Reform and PLA Chinese naval vessels start circulating on China’s need for further development Political Warfare.” Weibo and other social media platforms buys Taiwan some time, but doesn’t elim- Easton added in email correspondence during a conflict with Taiwan, particu- inate the threat, Huang concludes. How that China is actually far less confident larly in light of the one-child policy? can Taiwan best use that time to mitigate than it seeks to appear. “To really know Ultimately, the question comes down the future threat from China? how the PLA sees Taiwan, you have to not to China’s restraint but to its long- He offers two suggestions and one dig deeper,” he advised. “When you do, term strategic goals. Alexander Huang, caution. Taiwan should “make bold you find that the PLA is scared of the a professor of strategic studies at Taipei’s moves to increase or upgrade Taiwan’s ROC military, and they are scared of the Tamkang University, says that despite economy to another level,” he says, and U.S. Pacific Command.” appearances, China has not reached it should “reform the military through An overestimation of China’s war- authentic superpower status, and its lead- a volunteer system to make it into a real fighting capability might explain why ership knows it. He points to extreme fighting force.” In so doing, he warns, commentators tend to expect China to disparities in regional development as “Taiwan needs to walk a very fine line emerge victorious, both in asymmetri- indicative of China’s incomplete economic between the U.S. and China – and make cal war scenarios in which China is the rise. “China understands that to main- sure that when we engage with one party weaker power, as in a conflict with the tain one-party rule and make sure people we don’t antagonize the other or make United States, or when it is the stron- ‘enjoy’ a dictatorship, you need to bring the U.S.-China relationship suffer.”

FiGHteRs, submaRines, anD RaiLGuns

ith constrained budgets and few allies, Taiwan struggles to acquire the weapons it wants and needs for W self-defense. Matching – or even coming close to matching – China in defense spending is clearly not an option for Taiwan. But as noted in the paper “Taiwan’s Defense Spending: The Secu- rity Consequences of Choosing Butter Over Guns,” published jointly by the Asia Maritime Transparency Initiative and the Center for Strategic and International Studies, simply maintaining a strong defense capability “can raise the cost and risk to the PRC of an attack, which would likely reduce the possibility that Beijing will opt to use military force to achieve its goals.” Critics, however, question whether Taiwan is doing enough to strengthen its armed forces to raise the deterrence level. Taiwan devotes slightly more than 2% of total GDP to the military; Fighter jets practice highway takeoffs and landings in the event defense analysts urge that the level be brought closer to 3%. of a bombardment that destroys runways during the annual "Han Kuang" war games in Taiwan last September, 2014. Building Taiwan’s arsenal is not simply a matter of spend- pHoto: ap/waLLy santana ing more money, however. Taiwan’s unique diplomatic circumstances mean that the only country that will sell it weapons is than a decade between the first request for a particular weap- the United States. Under the Taiwan Relations Act, the United ons system and the final contract. Wendell Minnick, Asia bureau States is obligated to provide defensive weapons to Taiwan. But chief of Defense News, notes that by the time weapons are actu- while the island is among the top five markets for U.S. weapons, ally delivered, they are “normally 10 to 15 years too late.” But the United States is generally cautious about such sales so as not he says that despite the lag, the weapons systems procurements to aggravate China, as evidenced by the usual time lag of more are still significant as a signal of U.S. support for Taiwan.

taiwan business topics • may 2015 23

5_CoverStory.indd 23 2015/5/7 5:24:14 PM Cover story

Defense

The F-16 saga is a case in point. Taiwan’s Ministry of fully build submarines. As one defense specialist observed, a National Defense (MND) first requested new F-16 C/Ds to submarine fleet would provide Taiwan with an excellent deter- augment its fleet of fighters in 2007. Taiwan already has some rent for Taiwan – but a sub that sinks, killing all on board on its 380 fighter jets, including 145 F-16 A/Bs acquired from the maiden voyage, would have the exact opposite effect. United States in the late 1990s, and the MND hoped that the On the other hand, many technologically backward nations more advanced version of the aircraft would give it fourth-gen- have succeeded in building submarines, even Colombian drug eration capabilities to take on China’s growing fleet of advanced lords. “Those who say it’s infeasible for Taiwan to develop fighters. In addition, Taiwan’s air force hopes to retire its fleet of indigenous submarines grossly underestimate the island’s engi- 60 costly Mirage 2000s and outdated F5s by the mid-2020s. neering talent,” notes one Washington-based defense expert. The United States deferred the decision on sales of the C/ Taiwan has produced a number of its own weapon systems, Ds for years. As a compromise, the United States has under- mostly through MND’s National Chung-Shan Institute of taken to upgrade the F-16 A/Bs that Taiwan already owns to a Science and Technology, including the highly rated Tien Kung level known as the F-16S variant, with performance and weap- “Skybow” missile defense systems, Hsiung Feng-II anti-ship ons systems equal to or exceeding the F-16 C/D. Unfortunately, missiles, and BVR Tien Chien-II (Sky Sword-II) missiles. Some these upgrades don’t address the issue of insufficient total of the indigenous weapons systems were developed in close numbers of fighters. collaboration with U.S. defense contractors. Creation of the Nevertheless, Taiwan and the United States have managed to Indigenous Defense Fighter (IDF) fighter jet was the result of complete a number of defense deals over recent years. Accord- cooperation with General Dynamics and Westinghouse, for ing to the U.S. Department of Defense, more than US$12 billion example, and the submarine program will also need the help of in arms sales to Taiwan have taken place since 2010. Many numerous contractors. of the acquisitions reflect the influence of William Murray of Among other priorities for Taiwan’s defense, military special- the U.S. Naval War College, who has advocated a more local- ist Richard Fisher recommends advanced ISR (information, ized defensive strategy. The MND, for example, has procured reconnaissance, and surveillance) capabilities. He sees Taiwan’s Rapid Runway Repair kits, along with the associated training, new UHF radar systems as a good start, but considers that in an effort to keep planes operational even after airfields are this capability would be safer offshore. He also recommends bombarded by Chinese ballistic missiles. “theater strike and theater combat” weapon systems that would Last year the army took final delivery of 31 Boeing Apache give Taiwan the ability to destroy a gathering invasion force, and AH-64 attack helicopters, the most advanced version of the further suggests investing in railguns. Apache, costing some US$26 million each. Taiwan also began Railguns use electromagnetic energy rather than explosives taking delivery of 60 UH-60M Blackhawk utility helicopters, to hurl projectiles as fast as seven times the speed of sound. The the all-weather workhorse of militaries around the world. In line concept of railguns actually dates back nearly a century, but with President Ma Ying-jeou’s decision to expand the role of the recent technological developments have allowed this concept military into disaster response in the wake of Typhoon Morakot to become a reality. The latest version of a railgun, unveiled by in 2009, 15 of these Blackhawks will be diverted to the Minis- the U.S. Navy this past February, reportedly can fire a projectile try of Interior to be used purely for search and rescue. Taiwan every six seconds at a range of up to 350 kilometers. “With rail has also made significant upgrades to its radar systems, includ- guns, it becomes feasible to consider that Taiwan could take out ing PAC-3 radar, has procured Stinger missiles, and taken deliv- half of China’s incoming missiles,” says Fisher. “Such a capa- ery of the first three of an eventual 12 P-3C Orion antisubma- bility by Taiwan could extend realistic military deterrence for a rine surveillance aircraft. considerable period.” These acquisitions will go a long way in bolstering Taiwan’s He adds that Taiwan still needs greater “strategic depth” by defense against an invasion, but many analysts say they need to expanding international military exchanges “via informal mili- be supplemented by other weapons systems, particularly subma- tary cooperative arrangements,” and by “giving high firepower rines. A deal originally proposed by the Bush administration in to police and militia forces” for a potential last-ditch effort 2001 fell through, and today Taiwan still has only four subs, to resist an actual invasion – the last stage of the “porcupine basically obsolete relics of the Cold War and even World War II defense strategy.” eras. Recently MND announced that Taiwan will proceed with Rupert Hammond-Chambers, president of the Washing- its own program to build submarines. In support of the plan, ton-based U.S.-Taiwan Business Council, adds THAAD missile President Ma was quoted in the media as saying “the submarine defense systems to the list. THAAD stands for “terminal is the most significant weapon for a country in building its naval (formerly theatre) high-altitude area defense” and has the advan- defense capabilities. The military absolutely needs to acquire tage of being able to knock out ballistic missiles at a range of (new) submarines,” 200 kilometers and altitude of up to 150 kilometers, 20 to 100 Skeptics question whether Taiwan actually has the techno- times higher than a PAC-3. Hammond-Chambers, a frequent logical capability to build its own submarine fleet. Although commentator on Taiwan-related defense issues, says that the island has one major shipbuilder – CSBC Corp., formerly THAAD “would broaden the U.S., Japan, and Korea umbrella the state-owned China Shipbuilding Corp. – and several yacht presently being created” and is “the final main piece of Taiwan- makers, building a submarine requires very specific technical theater missile defense infrastructure.” capabilities. Australia’s problems building its Collins-class subs in the 1980s shows that even advanced nations struggle to success- — By Timothy Ferry

24 taiwan business topics • may 2015

5_CoverStory.indd 24 2015/5/6 10:38:06 PM Defense

VoLunteeR aRmy sHiFt CALLED INTO QUESTION

aiwan is attempting to shift from a conscript military to a volunteer, professional military in a very short time T frame. Can the army recruit enough personnel to maintain a credible defense? In 1973, when United States began its transition from a conscript army to an all-volunteer force, no one was sure whether the move would succeed. Forty years on, the U.S. Army is considered the most agile, advanced, and lethal in the world, and has earned a high degree of regard and trust from U.S. citizens. Now as Taiwan tries to make this same transition with Chinese missiles staring down on it from across the Taiwan Strait, it doesn’t have the luxury of time. Instead, it would need to complete the project in as little as three or four years.

Taiwan’s complex relationship with China and volatile domes- An honor guard performs during a recruitment program held tic political environment, as well as the numerous scandals last year in the square in front of the New Taipei City Govern- that have affected the military, only increase the complexity of ment building. pHoto: cna recruiting and fielding a modern and effective armed forces. Volunteer armies are also costlier than conscript armies, as may need more time to be carried out. it takes better benefits and higher salaries to recruit soldiers. The obvious success of the U.S. military in creating a volun- Taiwan has raised both benefits and pay, but is still lagging in teer army provides some encouragement for Taiwan. But with recruitment – and with so few recruits, the army risks becoming only half of one percent of Americans having served during top-heavy with officers. the previous 10 years of continuous conflict, the Pew Research As explained by defense expert J. Michael Cole in a recent Center in 2011 warned of a growing disconnect between the story for The Diplomat, originally the Ministry of National U.S. citizenry and their military. Defense (MND) set a goal of some 28,000 recruits annually, but A conscript army is often seen as building national identity in 2013, the first year of its recruitment drive, it only reached through the universally shared experience of helping defend the about one-third of that number. As a result, MND lowered country. Considering that the endgame of an “asymmetric strat- its target to 10,000 soldiers in 2014 and actually managed to egy” is a local militia engaged in guerrilla warfare, can a popu- recruit 15,000. This year’s goal is 14,000, and as of April a lation distanced from its military engage in armed resistance third of the target had already been achieved. to an invader? In apparent acknowledgement of this poten- The low recruitment numbers have forced the MND to post- tial weakness, Taiwan actually is not eliminating conscrip- pone conclusion of the transition from the original date of 2015 tion entirely. Instead, draftees will undergo a four-month train- to 2017. Also, the planned total number of military personnel ing program to at least become familiar with firearms and gain has been reduced. In 2012, Taiwan had 270,000 personnel in some combat training. its armed forces, and the initial proposal called for an eventual Alexander Huang, a specialist in military strategy, says force of 215,000. The revised target is 170,000 to 180,000. the instilling of patriotism is not simply a matter of whether These reduced numbers have prompted some to question the the military is conscript-based or volunteer, but of how those wisdom of the transition. A survey released in April conducted recruits are trained. “If you have a training program with by Academia Sinica reveals that a majority of Taiwanese in all commanders who know what their troops need and give them age brackets want to return to the conscript-based system to the right kind of education, then the young men and women “enhance (Taiwan’s) military strength.” will feel honored to wear that uniform,” he says. “But if you are “Now the military has the problem of too many command- wearing that uniform but are treated like a house helper, that ing officers and too few soldiers,” said Democratic Progres- will actually undermine patriotism.” sive Party Legislator Hsiao Bi-khim in widely reported press Huang is a strong proponent of the transition to a volunteer comments. “According to the government’s current fiscal army, citing the needs of modern warfare for extensive training constraints and staff planning, it is not possible to convert to an in advanced weapons systems. Professional soldiers would serve all-volunteer military.” longer terms, perhaps even whole careers, providing the time The MND responded by saying the process was irreversible, needed to develop weapons systems proficiency. Military educa- and Tsai Ing-wen, the DPP party chair and presidential candi- tion likewise needs deep reform. date, later qualified that she supports the transition but thinks it — By Timothy Ferry

taiwan business topics • may 2015 25

5_CoverStory.indd 25 2015/5/7 5:24:46 PM advertorial From Jti

Preventing Unintended Consequences from Tobacco Tax Increases

ith the aim of further ucts otherwise available. For a market important factor is that the situation reducing the incidence of such as Taiwan – an island with scores severely damages the investment envi- W smoking in Taiwan, bills of small fishing ports, and with huge ronment for legitimate businesses, currently being considered in the volumes of goods passing through who find it difficult to remain compet- Legislative Yuan would raise the tax Customs every day – preventing smug- itive. The illegal trade undermines the on cigarettes by NT$25 per pack, a gled products is a massive challenge. investments in R&D made by legit- 79% increase. The health objective is And when income levels are fairly stag- imate tobacco manufacturers and laudable, however the experience of nant, as has been the case in Taiwan suppliers, with negative effect on the other markets clearly shows that the in recent years given limited economic market’s overall reputation in interna- suggested approach will not achieve growth, consumers are likely to tional business circles. the desired purpose – and more likely respond to hefty price increases by JTI has consistently supported a will even be counterproductive. accepting less-costly options. policy of moderate, reasonable, and Whenever steep increases in tobacco “The resulting erosion of the legiti- predictable increases in the tobacco taxes are put into effect, leading to mate market brings some very serious excise tax and health surtax. Such higher prices for tobacco products (and unintended consequences that poli- an approach would avoid any radi- often even earlier in anticipation of cymakers often don’t think about cal tax “shocks” that are likely to spur such price boosts), illegal traders rush when planning tax increases,” says the illegal trade, and would enable the in to increase their share of the market Kuys. One is the loss of fiscal revenue government to achieve its public health by offering non tax paid cigarettes at for the government, as illegal traders and revenue-collection objectives with- much lower prices. “Consumption is manage to avoid paying import duties, out causing any of the unintended reduced, but mainly of legal cigarettes, tobacco taxes, as well as other taxes. consequences mentioned above. The and they are replaced by the illegal According to a report by the Inter- goal should be to bolster market stabil- products, so limited decline occurs national Tax and Investment Center ity, while at the same time clamping in the overall smoking rates,” says and Oxford Economics, Taiwan lost down on the illegal trade in tobacco Marchant Kuys, general manager of JT NT$4.8 billion in 2012 and NT$5.5 products. Tobacco International Taiwan Corp. billion in 2013 in tobacco tax revenue In the fight against illegal trade, JTI (JTI). He notes that Brunei increased as a result of the negative impact of is committed to cooperating fully with its tobacco tax by 339% in 2010, and illegal trade. This at a time when the government regulators and law-en- in 2013 the illegal trade accounted for Taiwan government is already under forcement agencies. JTI’s initiatives in 97.6% of the market. In the same year, financial strain as demand for social that effort include providing law-en- Malaysia raised its tax by 15% and in services rises. A second frequently forcement agencies with information 2013, 35.6% of the trade was illegal overlooked consideration is the derived from professional investiga- and remains significantly high today. broader impact of the illegal trade in tions, training in the identification A large chunk of the illegal trade tobacco products on criminal activity, of counterfeit products, and foren- consists of brands that are manufac- tobacco smuggling serves to finance sic examinations of seized or suspect tured legitimately in one country but international criminal organizations products, along with programs to raise are smuggled into another country involved other unwelcome undertak- public awareness on the negative impli- to provide consumers with a cheaper ings such as the drug and weapons cations of the illegal trade in tobacco alternative to the highly taxed prod- trade and human trafficking. A third products.

26 taiwan business topics • may 2015

JTI advertorial_1 photo.indd 26 2015/5/6 9:49:29 PM advertorial From Jti

政府考慮調漲菸品稅捐時，應避免造成非預期的後果

了使國人的吸菸率持續下降，目前立法院正在研議為相關修正草案，預計將每包菸品的稅捐調漲新台幣25元，漲幅高達79%。此政策之制訂係基於健康因素的考量，看似值得嘉許；然而從其他市場的經驗可清楚地顯示，增稅措施並不能達成預期之目的，甚至很可能還會帶來反效果。每當菸品稅捐大幅增加，菸品價格通常亦會隨之上揚（甚至常因預期心理，使菸品在菸品稅捐調漲前就預先漲價）；非法貿易商則因不須依法繳納任何稅捐，藉由銷售價格低廉的菸品，擴大非法菸品的市占率。傑太日煙國際股份有限公司（下稱傑太日煙）總經理柯邁謙指出，「菸品的消費量主要只有合法 A shipment of contraband cigarettes intercepted at the port of Kaohsiung. 高雄港走私菸品查緝現場菸品的部分減少，合法菸品的市場 photo provided by Finance bureau oF Kaohsiung city government 被非法菸品所取代，因此整體吸菸照片由高雄市財政局提供率下降的幅度很有限。」他指出，汶萊在2010年調漲菸稅，其幅度高即是政府財政收入的損失，因為非造商及供應商對於研發所挹注的投達339%；到了2013年，汶萊的非法菸品貿易商總能想方設法規避關資效益，同時對台灣市場在國際產法菸品市占率已增加至97.6%。同稅、菸品稅捐和其他稅捐。根據國業界的聲望產生負面影響。時，在2010年，馬來西亞將菸稅調際租稅及投資中心與牛津經濟學院傑太日煙一直以來，都支持「合漲15%，到了2013年，馬來西亞的的報告指出，由於非法菸品貿易的理、漸進、可預期」的菸稅及菸捐調菸品市場有35.6%是非法菸品，且至負面衝擊，台灣政府所損失的菸品漲。「合理、漸進、可預期」的稅捐今非法菸品交易量仍居高不下。稅捐收入在2012年高達新台幣48億調整手段可以避免菸品稅捐飆升所帶非法菸品的來源主要是來自某國元、在2013年更高達新台幣55億來的衝擊以及其所可能引發的非法菸合法生產的菸品，卻被走私至菸稅極元，而此正值台灣政府因社會福利品貿易，並且能讓政府在達成公共衛高、菸品價格昂貴的他國，以提供需求增加、國家財政面臨極大壓力生及稅收目標的同時，亦不會引發任該國消費者低價菸品的選擇。以台灣的時期。何上述非預期的後果。政府的目標應市場而言，這樣一個擁有許多小型漁另一個常被輕忽的因素，乃菸著重於提升市場的穩定性，並同時打港，且每天都有大量貨品要通過海關品的非法交易對犯罪活動所產生的擊非法菸品的貿易。的島嶼，要避免走私商品流入實為一巨大影響。因為非法菸品走私所獲在這場對抗非法菸品貿易的戰役巨大的挑戰。尤其近年來，台灣經濟利益往往是國際犯罪組織的資金來中，傑太日煙承諾會與政府當局及執成長有限、國民薪資水平相對停滯不源，而這些組織與其他不法行為牽法單位密切合作。傑太日煙所做的前，面對菸品價格飆漲，消費者很可連緊密，包括毒品交易、武器交易努力包括：提供透過專業調查所得到能傾向於價格便宜的選項。和人口販運等。第三個重要的因的資訊給執法單位參考，提供執法單柯邁謙指出，「合法菸品市場素，則是非法菸品猖獗會嚴重破壞位辨別仿冒商品、鑑識檢驗所查緝扣的破壞，會造成一些非預期的嚴重合法企業的投資環境，合法企業將押商品或疑似走私商品的教育訓練課後果，而這些往往是決策者在規劃更難維持其市場競爭力。此外，非程，並讓大眾更了解非法菸品貿易所增稅時所沒有想到的。」其中之一法菸品交易將嚴重削減合法菸品製產生的負面影響。

taiwan business topics • may 2015 27

JTI advertorial_1 photo.indd 27 2015/5/6 9:49:30 PM BEHIND THE NEWS

TAIWAN PURSUING AIIB PARTICIPATION

Rebuffed in its bid to be among the bank’s founders, Taiwan is expected to apply for regular membership

BY PHILIP LIU

everal hours before the midnight deadline on the eve- tions in 2016, mainly as a funding source for China’s “Belt ning of March 31, Minister of Finance Chang Sheng- and Road” project. The ambitious plan calls for building S ford sent a fax to the preparatory office for the Asian transportation links – one terrestrial and the other mari- Infrastructure Investment Bank (AIIB) in Beijing expressing time – to facilitate close economic ties among nations along Taiwan’s desire to join the proposed institution as a founding the routes. It has been attracting increasing attention interna- member. tionally since being introduced by Chinese leader Xi Jinping Taiwan made the last-minute overture after sensing that during overseas visits in September and October 2013. the U.S. government had relaxed its opposition to the Chi- The “Belt” portion of the project, also known as the “Silk na-led initiative in the wake of Britain’s announcement on Road Economic Belt,” will follow the path of the traditional March 12 that it would join the project, prompting other Silk Road, starting from Xinjiang and other western regions major U.S. allies – including Germany, France, and Italy – to of China and passing through central Asia and Russia before follow suit. Relevant government units had already conducted reaching Europe. The “Road” part – also called the “21st an evaluation as early as last November, concluding that AIIB Century Maritime Silk Road” – envisions a shipping route participation as a founding member would be to Taiwan’s originating from China’s coastal provinces (notably Fujian advantage. and Guangdong) and passing by Southeast and South Asia, Just two weeks after the application was submitted, how- the Middle East, and North Africa before hitting the shores of ever, word came back from Beijing that Taiwan’s bid had Europe on the Mediterranean. been rejected. Responding to queries from legislators, Main- The “Belt and Road” project has entered the implemen- land Affairs Council Minister Andrew Hsia explained that tation stage. During the annual meetings of the People’s the obstacle was Beijing’s stipulation that founding AIIB National Congress and Chinese People’s Political Consul- members must be sovereign states. China certainly does not tative Conference in March this year, various provinces put include Taiwan in that category. forth “Belt and Road”-related projects totaling more than At the same time, Beijing held out hope that Taiwan could one trillion yuan in value. The Beijing-based, Chinese-lan- reapply later for ordinary membership “under an appropriate guage China Times reports that hundreds of “Belt and Road”- name.” Taipei is likely to do so, following the same logic that related projects will be signed or break ground in the next led to the decision to seek charter membership. In addition several years – mainly in the fields of rail, highways, energy, to the business potential that involvement in the bank could information technology, and industrial parks – in China, Cen- bring to Taiwanese companies, the government generally tral Asia, and South Asia. The investment value in 2015 is welcomes any opportunity for Taiwan to enjoy greater partici- estimated at 300-400 billion yuan. pation and visibility in the international arena. During the 2105 Boao Forum for Asia, held in China’s As of mid-April, 57 countries had enlisted as prospec- Hainan Province in late March, Xi Jinping reported that more tive founding members (PFMs) of the AIIB. Among them are than 60 countries and international bodies had expressed a four G7 members (the U.K., Germany, France, and Italy), five desire to take part in the project. Among the infrastructure ASEAN members (Indonesia, Malaysia, Singapore, Vietnam, projects to be included under the aegis of the “Belt and Road” and Thailand), Australia, India, South Korea, Russia, Pak- plan are a 1,000 kilometer-railway in eastern Africa, high- istan, and Saudi Arabia. With projected initial registered speed rail project in Thailand, Sino-Myanmar railway, harbor capital of US$100 billion, the AIIB is slated to begin opera- project in Sri Lanka’s Colombo, and Pakistan-Iran gas pipeline.

28 taiwan business topics • may 2015

5 AIIB.indd 28 2015/5/6 10:35:47 PM BEHIND THE NEWS

To fund this enormous undertaking, China came up with the bank can comply with international standards in terms the AIIB concept, which is designed as a multilateral inter- of environmental protection, labor conditions, and the pro- government development institution. The plan was unveiled curement mechanism, according to Jim Yong Kim, the World by Xi Jinping during a meeting with General Susilo Bam- Bank president. “We have so much need for infrastructure bang Yudhoyono, then the Indonesian president, in Jakarta in that we would welcome any new player,” Kim told the audi- October 2013. ence at a forum in Washington on April 7. The AIIB will come on the heels of the US$40 billion Silk So far, the United States and Japan have stayed aloof from Road Fund, which was established on December 29 last year, the AIIB project, citing concern over its operating mode and and the founding of the Silk Road Fund Corp. with initial the mechanism for screening loan applications. The Kyodo capital of US$10 billion. Both the AIIB and Silk Road Fund news agency reports that Japan may take part in the AIIB at a are backed by China’s forex reserves, which currently exceed later stage, on condition that it wins the understanding of the US$3.8 trillion. United States and that the AIIB can assure compliance with international standards in its operations. Alternative financial system Observers note that the AIIB represents a major advancement for China in the international arena, enabling it to The AIIB reflects China’s desire to create an alternative carve out a leading role outside the U.S.-led global financial global financial system to supplement the existing Interna- system that has been in place since World War II. It could tional Monetary Fund (IMF) and World Bank, which it has facilitate the formation of an Asian-European economic bloc regarded as too dominated by the United States. AIIB aims to that would rival, if not eventually eclipse, the U.S.-Euro- raise initial funds of US$50 billion, 70-75% of which would pean bloc that has been the longstanding axis of the global be contributed by Asian members according to the weighting economy. of their GDPs. To ensure the success of that effort, China has The Taiwanese government’s bid to join the AIIB received pledged to contribute up to 50% of the initial fund, if neces- considerable support domestically. Yu Chun-yien, chairman sary. At the same time, to overcome the reservations of some of CTCI Corp., a large engineering and construction com- prospective members, China has stressed that the AIIB will pany, points out that many Taiwanese construction firms operate on the basis of consultation and consensus among have strong management expertise and abundant experience members, rather than making decisions based on voting rights in overseas civil-engineering work, capable of partnering as is done in the World Bank and IMF. with mainland Chinese firms in tapping the “Belt and Road” The infrastructure-oriented AIIB is expected to supplement market. Lee Jih-chu, chairperson of Taiwan Financial Hold- the function of the ADB, which takes the reduction of pov- ings, adds that AIIB membership could help Taiwanese erty in Asia as its primary objective. With registered capital of banks tap the global market by joining international syndi- US$165 billion, the 67-member ADB provides some US$13 cated loans. billion in loans to member nations annually. That is a far cry Roy Chun Lee, deputy director of the Taiwan WTO from the US$776 billion needed in the region for infrastruc- and RTA Center at the Chung-Hua Institution for Eco- tural investments each year, notably in the fields of power, nomic Research (CIER), while agreeing that the government transportation, and telecommunications, according to the should apply for AIIB membership so as to keep all options ADB’s own estimate. open, cautions against harboring too high a level of expec- Members of the AIIB will have opportunities to profit tations about the potential benefits, citing Taiwan’s from participating in loan extensions and contracts for var- experience with the ADB. “Taiwan has been a member of ious aspects of infrastructure projects, including technology the ADB for 40 years but has hardly obtained any substan- transfer, engineering work, and supply of materials, while tial business opportunities from the membership,” he says. reducing risk exposure due to the bank’s presumed greater “The chances for the Belt and Road project may be even expertise and stricter procedures in screening loan applica- slimmer, in view of the acute competition for infrastructural tions. In case of bad debt, in addition, the loss is shared by all projects, not only from China’s construction groups but members, rather than a single nation. also European firms.” China is likely to be the biggest beneficiary of the AIIB, Although Taiwan was a founding member of the ADB generating business opportunities for its companies while under its formal name of the Republic of China, in 1986 lessening the risk involved in overseas projects. In the past, it was forced to change the title of its ADB membership to Beijing has had problems with bad debt on overseas loans; “Taipei, China” following China’s accession to the organi- for example, Venezuela defaulted on loans from China in the zation. It has continued to participate in the bank, but has wake of the plunge in global oil prices. “A multilateral insti- issued a protest against the new title every year ever since. For tution like AIIB can help China control the risks for overseas AIIB membership, the government has vowed to reject any loans,” notes Pang Zhong-yin, a professor of international title it deems detrimental to national dignity. relations at Renmin University of China. The opposition Democratic Progressive Party DPP appears The World Bank has also pledged to join hands with the willing to support AIIB membership for Taiwan as long as the AIIB in combating the world’s poverty problem, as long as title and other conditions for entry are not demeaning.

taiwan business topics • may 2015 29

5 AIIB.indd 29 2015/5/6 10:35:48 PM BACKGROUNDER

GeneticaLLy moDiFieD FooDs: saVioR oR DestRoyeR?

Proponents see an answer to world hunger; critics fear risk to human health and the environment.

BY TIMOTHY FERRY

oncern over the safety of con- Drug Administration (TFDA) came to The new rule is not scheduled to suming food with genetically a compromise decision regarding the take effect until December 31 and will C modified organisms (GMO) labeling of highly refined foods that need to withstand more comments has increased in Taiwan, as it has in may be derived from GM raw mate- from industry and civic groups, but the much of the world. Taiwan is a major rials but do not contain proteins or issue seems to have been resolved – for consumer of soy, annually importing DNA and so cannot be definitively now. With pressure on governments an average of 8 million bushels of soy- tested as GM. Originally legislators from consumer rights and environ- beans, 95% from the United States, the demanded that any processed food that mental groups to more tightly regulate vast majority of which are genetically used highly refined ingredients made or even ban GM foods entirely, how- modified (GM). In all, Taiwan imports from GM materials should be required ever, the broader issue is not likely stay around 67 types of GM food products, to bear a GM label. Industry countered quiet for long. mostly from the United States. that such a rule would be very difficult Few technologies raise emotions In response to the urging of leg- to implement, as these foods contain no like GMOs in the food supply. Argu- islators and consumer groups, the traces of GM DNA, and so verification ments pro and con regarding genetic government has tightened up rules on would require manufacturers to trace engineering in foods range from predic- GM labeling to ensure that consumers back every ingredient to its origin, an tions that the technology will save the are well informed about what they arduous if not impossible task. world from certain famine, to warnings are eating. Since last year, food prod- Further, as not even the EU requires that GM foods cause disease and could ucts must be labeled if the GM content labeling for trace GM ingredients in even result in global “ecocide” ending represents at least 3% of the total, highly refined foods, industry also all life on the planet. Conspiracy theo- rather than the previous 5%, thereby pointed out the problem of creating Tai- ries abound, and headlines about GM increasing the number of products that wan-unique regulations that would be foods always seem to include the phrase will bear GM labels. The new rules are very difficult and expensive for mul- “shocking truth.” more lenient than the 0.9% threshold tinational companies to comply with. “Big Ag” in general and Mon- seen in the EU or the 1% threshold in The eventual compromise solution calls santo in particular have replaced “Big Australia and New Zealand, but are for labeling to identify first-level highly Tobacco” and “Big Oil” as the main consistent with Malaysia’s and South refined products, such as vegetable oils villain for environmental and social Korea’s 3% threshold and are actually and soy sauce, made from genetically welfare NGOs and pundits. In Europe, tighter than Japan’s 5%. The United engineered materials. Second-tier prod- widespread disdain for “Frankenfoods” States and Canada do not require GM ucts made from corn syrup or soy oil, and strict labeling requirements have labels. including soft drinks or potato chips, resulted in the almost complete absence More recently, Taiwan’s Food and would be exempt from the requirement. of GM foods from the market.

30 taiwan business topics • may 2015

5 GMO.indd 30 2015/5/6 10:02:00 PM backgrounder

At the same time, GM foods have to withstand higher temperatures and transferring DNA. Another method contributed to increasing the global require less water as a key strategy employs a “gene gun” that shoots food supply, with the United States towards maintaining food supplies. microscopic gold pellets covered with leading in both production and con- GM foods on the consumer market copies of the gene into the recipient. sumption of GM foods. Americans have been certified by various testing The manipulated gene could come on average consume an estimated 200 organizations including the U.S. Food from any living organism, and an pounds (90 kilograms) of GM foods and Drug Administration, the U.S. animal with the desired trait could annually, according to the advocacy Department of Agriculture, and the supply the gene for a food crop as organization Environmental Working Environmental Protection Agency as readily as any other organism. Lin Group (EWG). Some 94% of corn, 96% being safe for consumption and for admits that this fact might seem of soybeans, and 95% of sugar beets the environment. According to a Pew shocking to non-experts, but adds that grown in the United States are now GM, Research Center study done in con- all living things have DNA and genes, as are significant proportions of apples, junction with the American Association and that many of these genes are shared coffee, grapefruit, papayas, sugarcane, for the Advancement of Science, 89% across species. In fact, humans share strawberries, and many more foods. of scientists believe that GM foods are 98% of our genes with chimpanzees, Of the processed food sold in America, safe, a higher concurrence than those 60% with bananas, 44% with fruit 80% contain GM ingredients. who attribute global climate change to flies, and 26% with yeast, according to Lin Ji-shing, researcher with the human actions. the European Molecular Biology Lab- Executive Yuan’s Office of Science oratory. Scientists note that it is the and Technology, says that GM tech- Genetic engineering entirety of the genome that makes each nology offers clear advantages over species distinct, not any particular gene. conventional crop breeding. With cli- Genes are small segments of DNA Nevertheless, critics of genetic engi- mate change raising the likelihood of that are instructions for building pro- neering term the process “interspecies drought, for example, scientists will teins, which in turn build cells and rape,” describing it as a violation of the want to create crops that are more heat finally organisms. Genetic engineering species barrier that maintains the nat- resistant and use less water, he explains. is the process of manually adding genes ural order. Actually, it remains unclear By inserting the exact gene directly into to an organism in the hope of including whether animal genes are used in com- cells, genetic engineering enables scien- one or more traits, creating a “trans- mercially available seed crops. tists to more precisely develop specific genic” or genetically modified organism. While most transfers of DNA occur traits in food crops than when done The process begins with determining within a species through reproduction, through conventional breeding, which what traits are to be included in a the transfer of DNA across species, requires multiple generations of cross crop, then searching for an organism called horizontal gene transfer, also breeds. “Conventional breeding is very that exhibits the desired trait and ana- occurs naturally. Recent studies indicate time and resource consuming, very low lyzing the genome of that organism. The that a bacterium called agrobacte- efficiency,” says Lin. “Genetic engi- gene responsible for the trait is cloned rium is able to naturally incorporate its neering is very efficient. This technology and then transferred into the host via DNA into plants such as sweet pota- is very much needed.” modified bacteria or virus capable of toes, for example. Bacterial, fungal, and Proponents of GM foods note that the world’s population will exceed nine billion by 2050, some two billion more than today. Yet the amount of arable land available for food production is rapidly being lost to urbanization, salinization, desertification, and overall degradation, and no more virgin arable land exists to be developed. Every day, 2,000 hectares of agricultural land is lost due to saltwater degradation alone, according to the United Nations’ Institute for Water, Environment and Health, and 800 million people in the world currently suffer from malnutrition. The effects of climate change are also likely to result in changing weather patterns and increasing drought. Pro- ponents see GM crops that are able

taiwan business topics • may 2015 31

5 GMO.indd 31 2015/5/6 10:02:01 PM backgrounder

viral DNA can insert themselves into the genomes of plants or animals, and 145 of the 20,000 genes that make up the human genome actually derive from nonhuman species. Through genetic engineering, scientists have created crops that are herbicide resistant (such as Monsanto’s Roundup Ready soybeans), generate their own insecticides, produce their own vitamins to alleviate vitamin deficiency in poor countries, and may produce bigger yields under less favorable climate circumstances. GM corn is able to tolerate herbicides and express a protein that kills certain insects, while GM potatoes have been developed to resist blight. Hawaii’s papaya industry was rescued from devastating ringspot virus through genetic engineering, and An assortment of products on the Taiwan market labeled as not including any GM ingredients. Arctic Apples approved this year don’t photo: cna turn brown when exposed to the air. Critics of GM food counter that the genetic engineering process is inexact, that GM foods are safe to human cians and Scientists for Responsible as engineers can’t easily control where health and the environment include Application of Science and Technology the gene is inserted into the genome. the World Health Organization, U.S. (PSRAST), “We can definitely say today And as genes don’t operate indepen- National Academy of Sciences, Euro- that there is no scientific basis for main- dently of each other, but in response pean Commission, U.K. Royal Society taining that harmful substances may and reaction to one another, scientists of Medicine, and the French Academy not appear or are very unlikely.” cannot predict what mutations might of Sciences. A paper in the journal Crit- Economist Nassim Nicholas Taleb, emerge. By tampering with the basic ical Reviews in Biotechnology in 2013 professor of risk engineering at New building blocks of life, critics say, sci- evaluated research into the safety of York University and author of the book entists risk unleashing unseen human GM foods spanning the decade from Black Swans that famously predicted the health and environmental dangers on 2002 to 2012 – some 1,783 studies financial collapse of 2008, is co-author the world. in all – and concluded: “the scien- of a paper that warns of looming “eco- Proponents respond that GM crops tific research conducted so far has not cide” if the genetic engineering of crops are tested extensively before being detected any significant hazards directly is allowed to continue. The paper sug- released on the market. “GM foods are connected with the use of genetically gests that GM foods present a “systemic the most examined, most scrutinized engineered crops.” risk” to human health and the environ- foods in existence,” says the Executive Many anti-GM foods organiza- ment, since each change to an organism’s Yuan’s Lin, noting that unlike conven- tions are not persuaded, with this genome carries a slight risk of dangerous tional foods, GM foods are subject to year’s annual March Against Mon- mutation, with the risk compounded by testing similar to pharmaceuticals. santo claiming that “research studies each genetic modification. “GMOs have In a written response to a query have shown that Monsanto’s genetical- the propensity to spread uncontrollably, from Taiwan Business TOPICS, the ly-modified foods can lead to serious and thus their risks cannot be localized,” Taisun Group, a major importer of GM health conditions such as the develop- the authors write. soy for its vegetable oils, notes that “all ment of cancer tumors, infertility, and Taisun Group chairman Ken Chan GM crops in the market were tested birth defects.” sees more prosaic risks posed by GM in animal studies, proven GRAS (gen- Other GM skeptics note that the foods. Genetic engineering has made erally regarded as safe) and registered absence of evidence is not necessarily corn and soybean crops more plen- before releasing.” The reply notes that evidence of absence – in other words, tiful, for example, “so the derivatives in Taiwan, agencies follow interna- the fact that science has not yet found like starch and flour are also becoming tional standards to inspect for DNA or evidence of harm from GM crops cheaper, making processed foods protein fragments, to identify whether doesn’t by itself guarantee that prob- cheaper and leading to massive over- certain crops are GM or not. lems won’t one day become evident. consumption,” he notes, resulting in the Organizations that have concluded According to advocacy group Physi- growing global obesity epidemic.

32 taiwan business topics • may 2015

5 GMO.indd 32 2015/5/7 5:28:35 PM INDUSTRY F CUS A Report on the Financial Services Sector

Opening New Opportunities

BY MATT FULCO

taiwan business topics • MayMay 2015 33

5 IF.indd 33 2015/5/6 10:29:44 PM INDUSTRY F CUS

SMOOTheR SAILINg FOR TAIwAN’S BANkS OFFShORe

The sector netted record profits in 2014 on the back of burgeoning offshore business, especially in China.

he crowded Taiwan banking at 0.28% as of the end of February, IN THIS SURVEY sector is finding room down from 0.35% a year earlier, T to breathe at last. Rapid while all 39 of Taiwan’s banks had an expansion of offshore business amid NPL ratio of 2% or lower, according deregulation and improving asset to the FSC. quality helped banks post a record “Taiwan’s banking sector has NT$332.8 billion (US$10.7 billion) become much more productive,” • Smoother Sailing for Taiwan’s Banks in profits in 2014, according to the says Tony Phoo, senior economist at Offshore p34 Financial Supervisory Commission Standard Chartered Bank in Taipei, (FSC). noting that net profit per employee Banks’ annual return on equity rose from NT$1 million to NT$1.77 • The Formosa Bond Market Ignites p37 (ROE) surged from 9.4% in 2013 to million between 2010 and 2014. 12.6% in the third quarter of 2014, “But the sector remains hyper-com- according to Taipei-based Primasia petitive and has difficulty finding • Promoting the Onshore Mutual Fund Securities. In 2010, by comparison, revenue drivers,” he adds. Business p39 ROE came to only 7.5%. Consolidation at home, mean- Fitch Ratings ascribes the healthy while, once thought essential for • Taiwan’s Payment Plan p41 profitability mainly to Taiwan reinvigorating the saturated sector, banks’ growing exposure in China, still seems unlikely for the foresee- including yuan deposit placements able future. “There remains a great and foreign-currency loans. Net need for consolidation in Taiwan profits from the China operations of because overbanking still exists in the Taiwanese banks rose 88% last year market,” says an analyst with a local to reach NT$5.2 billion (US$164 securities house who spoke on condi- million), the FSC said. In addition, tion of anonymity. “But the process analysts say, the credit-card crisis of has decelerated and it will continue 2005 taught Taiwanese banks impor- to do so. The authorities are instead tant lessons in risk management; the encouraging banks to look offshore, banks now pay greater attention to where return on equity (ROE) is asset quality and engage in more pru- much higher than in Taiwan.” dent lending practices. At the same time, Taiwanese The China factor banks have taken aggressive measures to write off non-performing loans Because of oversupply in Tai- (NPLs) and recover bad debts. The wan’s domestic lending market, the NPL ratio for domestic banks stood loan-to-deposit spread – the differ-

34 taiwan business topics • May 2015

5 IF.indd 34 2015/5/6 10:29:45 PM A Report on the Financial Services Sector

ence between the lending rate charged to portfolios, particularly if Chinese assets The financial sector would be one of borrowers and the deposit rate paid to grow excessively without generating sus- the top beneficiaries of the pact, market savers – is low, making offshore expan- tainable profit growth or if Taiwanese observers say. Under the agreement, sion a critical vehicle for growth. As the banks fail to maintain sufficient capital China would give “special treatment” to recipient of more than 60% of outward to withstand possible shocks linked to Taiwanese banks in China, says Cheng Taiwanese investment, China has been China’s economic slowdown. At the end Cheng-Mount, president of the Taiwan an obvious choice for that expansion. As of December 2014, the total risk expo- Academy of Banking and Finance of the end of January, a total of 13 Tai- sure of Taiwanese banks in China came (TABF). Perks would include a single wanese banks had 18 branches, eight to NT$1.75 trillion (US$56.3 billion), license to operate anywhere in Fujian sub-branches, and two subsidiaries in or about 68% of the NT$2.58 trillion Province and the ability to undertake full China, according to the FSC. (US$83 billion) net worth of domestic RMB business after showing two years The FSC’s decision in 2011 to dereg- banks, according to the FSC. of profitability. “We need to ratify the ulate Taiwan’s offshore banking units For purposes of risk management, Cross-Strait Service Trade Agreement,” (OBUs), making it possible for Taiwanese Taiwan requires that its banks’ aggregate he says. “If we can do that, it will be firms registered in China to borrow from China exposure not exceed their book very good for our banking sector’s pros- the island’s banks, was a key catalyst for value. Fubon Bank has already hit that pects in China.” the current surge in growth, experts say. limit; its China exposure was US$4.9 bil- Taiwanese companies doing business in lion as of mid-January, Global Finance expansion in ASeAN China previously borrowed from banks Magazine reported in April. (Fubon did in Hong Kong or China, but switched not respond to Taiwan Business TOPICS’ Despite the importance of the China over to Taiwanese banks because they request for comment.) market, the FSC is also encouraging Tai- offered lower-interest US$-denominated Another challenge facing Taiwanese wanese banks to expand to fast-growing loans, says the local securities analyst. banks’ China business is the holdup in Southeast Asia. “China is a huge basket,” “As a net exporter, Taiwan has a surplus the Legislative Yuan in considering the says FSC Vice Chairperson Thomas of US dollars to fund the loans in China,” Cross-Strait Service Trade Agreement Tien-mu Huang. “We should put some of he explains. (CSSTA), part of the Economic Coopera- our eggs in it, but not all.” Offshore lending has since become a tion Framework Agreement (ECFA). The To encourage broader expansion, major growth driver for several large Tai- proposed free-trade arrangement in ser- Taiwan this January raised the limit on wanese banks, including Cathay United vices was concluded between Taiwan and its banks’ overseas investments to 40% and Fubon, and has significantly out- China in June 2013, but remains stalled of net worth. The previous limit had been paced the growth of local lending, says in the Taiwan legislature. The govern- 40% of paid-in capital. The change is Cherry Huang, director of Fitch Ratings ment has so far been unable to assuage expected to free up NT$400 billion-$500 in Taiwan. “Taiwanese banks have been the fears of the deal’s opponents, who billion (US$13.3 billion- $16.7 billion) in targeting China in particular to boost believe it will harm Taiwan’s economy capital throughout the banking sector for growth,” she notes. “Credit demand is and make the island more susceptible to offshore acquisitions. much stronger there than in Taiwan.” political pressure from Beijing. “The regulator wants to moderate the In 2014, the branches and sub- branches of Taiwanese banks in China earned profits of NT$2.9 billion (US$93 million), up 113% year-on-year, while subsidiaries on the mainland posted earnings of NT$2.3 billion (US$73.8 million), an increase of 63% over 2013, according to the FSC. Fitch forecasts that loans by Taiwanese banks’ offshore units will represent 19% of total loans by the end of 2016, up from 15% in mid-2014, with loans in China alone accounting for 14% of the total. Overall China exposure – including loans, interbank exposures, and securities investments – is predicted to reach 15% of total assets over the same timeframe. Huang cautions that increased offshore lending will heighten the risk of overconcentration on China in the banks’

taiwan business topics • May 2015 35

5 IF.indd 35 2015/5/6 10:29:46 PM INDUSTRY F CUS

concentration of risk in China, but the USDbn Taiwanese banks’ claims on China ambition goes beyond that,” says Phoo 90 of Standard Chartered. “They hope Tai- 80 wanese banks can become regional Asian 70 banks.” 60 50 Cathay Financial Holding Co., Tai- 40 wan’s largest financial-services provider 30 by assets, has been expanding rapidly 20 in Southeast Asia. Since 2013, its sub- 10 0 sidiary Cathay United Bank has set 2008 2009 2010 2011 2012 2013 2014 up branches in Singapore, Malaysia, NOTE: data on ultimate risk basis and Vietnam, as well as representative SOURCE: Central Bank of the Republic of China (Taiwan) offices in the Philippines, Thailand, and Myanmar. In 2013, Cathay acquired Sin- gapore Banking Corporation Cambodia, ficial relations with the leaders of many says, noting that management at Tai- becoming the first Taiwanese bank with ASEAN countries. Now they just need to wanese banks has limited experience with a fully owned Cambodian operation. stay on top.” cross-border acquisitions or earning sus- Cathay also applied in July 2014 to set Taiwan’s state banks are eying South- tainable profits offshore. The banks’ up a branch in Laos. east Asia as well. In February, state-run largest Southeast Asian subsidiaries, pri- “Cathay is coming from behind,” says Mega International Commercial Bank, marily in the Philippines and Vietnam, Cheng of TABF. “They have fewer for- the main subsidiary of Mega Financial have posted either losses or only modest eign branches than Chinatrust [a major Holdings Co., opened its second branch profitability for the past five years, competitor] and are trying to catch in Cambodia. Taiwan Financial Holding according to Fitch Ratings. Thus far, up.” Cathay is also “asset-rich,” Cheng Co., the parent company of the Bank those subsidiaries have accounted for notes. “Their main business is life insur- of Taiwan, is also mulling investment only a small proportion of the parents’ ance. They need somewhere for all that opportunities in Southeast Asia and may total assets. liquidity to go.” open a Myanmar office, chairwoman Lee At the same time, says Cheng For growth-starved Taiwanese banks, Jih-chu said in February. of TABF, Taiwanese banks need to Indonesia is looking increasingly attrac- strengthen their due diligence in China. tive, analysts say. The Organization for Prudent risk management He cites the sudden insolvency of the Economic Cooperation and Develop- Fujian-based Chinese footwear maker ment (OECD) forecasts the Indonesian As their offshore expansion acceler- UltraSonic as an example, noting that economy to grow at an average rate of ates, Taiwanese banks need to ensure Cathay United Bank led a US$60 million 6% annually from 2014 to 2018, outper- prudent risk management, experts say. syndicated loan to the company. forming the regional average of 5.4%. “Risk management is always our first UltraSonic’s chief executive Wi In January, Cathay FHC entered the priority,” stresses Thomas Huang of the Qingyong and his son, chief operating Indonesian market by acquiring a 40% FSC. “We need to strengthen the risk officer Wu Minghong, were reported to stake in Bank Mayapada Internasional management mechanism.” have absconded with millions of dol- for US$280 million. Cathay was moti- Taiwanese banks also need to pay lars of company cash in September vated by Bank Mayapada’s stable returns careful attention to the risks posed by 2014. Although they resurfaced several and its potential to benefit from Indo- expansion in Southeast Asia, Cherry days later and denied taking the money, nesia’s rapid economic growth, market Huang of Fitch Ratings says. “There UltraSonic, which is listed on the Frank- observers say. are a lot of low sovereign rating coun- furt Stock Exchange, still defaulted on CTBC Financial Holding Co., Taiwan’s tries in the region,” she says. “Indonesia, the loan. third largest publicly traded financial firm which is dependent on commodities, is “We will definitely be more careful by market value, is also active in South- vulnerable to a global liquidity shock. when reviewing related cases in the east Asia. Its subsidiary CTBC Bank Governance deficiency is a problem in the future... We have learned a lesson from (formerly Chinatrust) has 11 branches Philippines.” the incident,” Cathay Financial president in Indonesia, 24 in the Philippines, and At the same time, Taiwan banks are Lee Chang-ken said after a November offices in Singapore and Vietnam. generally less capitalized – or more lever- investors’ conference. Overall, CTBC is considered the aged – than other international banks in “It’s a costly lesson, but it’s not sur- market leader in Southeast Asia among the region. That limits their relative capa- prising,” Cheng says. “Fraudulent Taiwanese financial institutions. “The bility to withstand potential economic or accounting is common in China. Tai- FSC chose them to be a pioneer in the other credit-quality shocks, she says. wanese banks need to be especially region,” says Cheng. “Chinatrust’s In addition, Southeast Asia poses careful when choosing their Chinese cus- former leadership had very strong unof- operational challenges, Cherry Huang tomers.”

36 taiwan business topics • May 2015

5 IF.indd 36 2015/5/6 10:29:46 PM A Report on the Financial Services Sector

The FORMOSA BOND MARkeT IgNITeS

Taiwan’s offshore RMB bond market is growing rapidly after investment was opened to domestic insurers.

aiwan’s Formosa bond market is overseas investment ceiling. Under the cantly,” the analyst says. “The yields of surging on the back of deregu- revised regulation, insurance investors more than 4% on Formosa bonds look T lation measures that have made can count a foreign-currency bond listed very attractive.” the renminbi-denominated notes more in Taiwan as a domestic investment even By Taipei-based CTBC Bank’s esti- accessible to the island’s cash-rich insur- if the issuer is based offshore and the mates, the removal of foreign-currency ance firms. In the first quarter of 2015, security is cleared outside Taiwan. bonds from life insurers’ overseas invest- issuance totaled 11.35 billion yuan, up Taiwan’s life insurers are flush with ment quota could free up between US$12 132% from 1.5 yuan billion a year ear- cash. Their assets have grown to US$600 billion and US$15 billion for Formosa lier, according to Standard Chartered. billion as annual premium income bond purchases in 2015. Formosa bonds are issued in Taiwan more than doubled from NT$1.2 tril- The Formosa bond market is also and listed on the Taipei Stock Exchange lion in 2003 to NT$2.7 trillion in 2013, benefiting from attractive cross-cur- (formerly the GreTai Securities Market), according to the FSC. Now the insurers rency basis swaps, which allow foreign which provides an over-the-counter system are looking for 3.5-4% returns on those issuers to price deals within their US for trading. “We see plenty of room for assets in the Formosa bond market, dollar funding costs, provided they can the Formosa bond market to grow in according to Standard Chartered, the find investors. On February 16, the three- 2015,” says Tony Phoo, a senior econo- second largest underwriter of offshore year offshore yuan cross-currency swap mist at Standard Chartered in Taipei. He yuan bonds last year. rose 125 basis points to 4.18%, reaching forecasts that the regulatory loosening “Life insurers are focused on meeting its highest point in at least four years, will enable the yuan-denominated market their minimum yield target,” says Wu according to Bloomberg. to reach 50-60 billion yuan this year, up Soushan, chair of the Taipei Exchange. With cross currency basis swaps from 20.8 billion yuan in 2014. “They are also concerned about tenor between the US dollar and renminbi The upper end of that forecast and have a preference for duration.” at historical highs, issuers are able to matches the 60 billion yuan target set by achieve cost savings of 30-40 basis points the Financial Supervisory Commission Swaps and yields over their USD funding curve by issuing (FSC) in June 2014. If the goal is reached, Formosa bonds and swapping the pro- Taiwan would become the world’s second But Taiwan’s life insurers cannot find ceeds into US dollars, according to a largest offshore trading market for such high yields in government bonds research note in March by Becky Liu, a yuan-denominated bonds, surpassing Sin- or other NT$-denominated invest- Hong Kong-based senior rates strategist gapore, the FSC says. ment-grade notes. A one-year NT$- at Standard Chartered. A broad swath of international denominated government bond offers Foreign issuers’ appetite for Formosa banks has been selecting Taiwan as an a coupon rate of about 1.12%, while bonds is growing as converting yuan pro- alternative offshore renminbi-funding its five-year benchmark has a yield of ceeds into US dollars becomes less costly. destination. Issuers are coming from a 1.62%. Assets in Taiwan’s domestic Deals have already been priced this year number of newly appointed offshore market have offered poor returns for over from Air Liquide, the Export-Import yuan hubs, including France, Germany, a decade as the Central Bank has main- Bank of Korea (Kexim), Société Générale, the U.K., South Korea, and Malaysia. tained a low benchmark interest rate (it Deutsche Bank, Goldman Sachs, Morgan The speed of the turnaround in the has stayed at 1.875% since June 2011). Stanley, and Maybank. All of the issu- Formosa bond market is striking. It The removal of foreign-currency ances were inaugural except for those had been anemic in its first two years of bonds from life-insurance firms’ over- coming from Deutsche and Kexim. Japa- existence, with little primary market issu- seas investment cap is “super important” nese and U.K. banks are also considering ance and just 21 deals. The catalyst for for the insurers, says an analyst at a local deals, market insiders say. the market’s takeoff came in May 2014 brokerage, speaking on condition of Yield rates, meanwhile, have climbed when the FSC removed onshore foreign- anonymity. “It’s going to allow them to to 4% or higher, as offshore renminbi currency bonds from life insurers’ 45% increase their investment spread signifi- funding costs have risen amidst fears

taiwan business topics • May 2015 37

5 IF.indd 37 2015/5/6 10:29:47 PM INDUSTRY F CUS

of further RMB depreciation and tight- the renminbi-denominated notes. Formosa bonds issued by Chinese banks ening liquidity. In January, Kexim issued Because of the substantial risks tied in the first half of 2015. However, once three-year and seven-year notes, priced at to China exposure, the FSC has yet to retail investors are permitted to buy the 4.05% and 4.20% respectively, followed relax the restrictions for Chinese issuers, bonds, the FSC expects it will take longer by a three-year note with a coupon rate market insiders say. “It is difficult for to review each Formosa bond issuer’s of 4.4% in February. That same month, Taiwanese investors to monitor Chi- application “to provide more protection Morgan Stanley became the first U.S. nese firms’ credit risk, and they are also to retail investors,” Tseng said in Beijing. bank to issue a Formosa bond, selling exposed to systematic risks brought by Some market players question that five-year notes priced at 4%. Then in China’s economic slowdown and over- approach. “The regulator will ‘protect’ March, Deutsche Bank, Maybank, and capacity,” says an analyst at a local retail investors at any cost,” says an exec- Société Générale debuted in the Formosa securities house, who spoke on condition utive with a foreign brokerage, who market with three-year, five-year, and of anonymity. spoke on condition of anonymity. “Some three-year deals respectively, with coupon “The fact that not all Chinese firms retail investors complain to Taiwan’s leg- rates of 4%, 4.12%, and 4.03%. can issue Formosa bonds is not a big islators – who control the FSC’s budget – problem right now as the market is still when their investments do not work out Chinese lenders in its infancy,” notes the analyst. “But the as planned. It would be better if there regulator will be able to expand the size were more education for retail investors In a further bid to develop Taiwan’s of the market significantly by allowing about the securities market than ‘protec- offshore renminbi market, the FSC in more types of Chinese companies to issue tion.’ March raised the ceiling of yuan-de- the bonds.” The FSC has yet to announce when nominated bonds issued by Chinese With regard to increasing Chinese par- it will allow retail investors to pur- banks to 45 billion yuan (US$7.25 bil- ticipation in the Formosa bond market, chase notes issued by Chinese banks. But lion), boosting the former limit of 25 the Taipei Exchange “is going step by Taiwan will launch a yield curve for one billion yuan by 80%. Chinese lenders step,” says Chairman Wu. “We are grad- to ten-year Formosa bonds on May 25; currently have renminbi-denominated ually building a larger offshore RMB 10 to 15 financial institutions will be notes totaling 23 billion yuan in Taiwan, center in Taiwan.” market makers based on their share of according to the FSC, and may sell more the Formosa bond market, according to following the raising of their Formosa-is- Further liberalization the Taipei Exchange. suance cap, analysts say. “The curve is very complete,” says But the FSC has not commented on The FSC also plans to allow retail Wu of the Taipei Exchange, adding that when it will expand the scope of Chinese investors to invest in Formosa bonds with pricing reference points and credit firms permitted to issue Formosa bonds. issued by Chinese banks, citing the rising ratings for issuers, it “will make the For- Since March 2013, China-based banks, demand among retail investors for finan- mosa bond market efficient and more branches, and subsidiaries of Taiwanese cial products. During a trip to Beijing in transparent.” banks operating in China, as well as sub- December 2014, FSC Chairman Tseng According to Reuters, the financial sidiaries of China-registered Taiwanese Ming-chung said that the Commission institutions selected to be market makers companies, have been permitted to issue was likely to allow retail investors to buy are MasterLink Securities, Taipei Fubon Bank, Yuanta Securities, SinoPac Securi- ties, Capital Securities, Bank of Taiwan, Mega Bank, KGI Securities, CTBC Bank, and HSBC (Taiwan). Further liberalization is important for the Formosa bond market to continue growing, says Phoo of Standard Char- tered. “Hong Kong is a preferred offshore renminbi center, but that should not undermine Taiwan’s ambitions,” he says, noting that in the first two months of the year, Taiwan’s RMB-denominated bond market attracted more issuers than Hong Kong’s. But for the Formosa bond market to grow sustainably, he adds, “Taiwan must leverage its current foundation to FSC Chairman William Ming-chung Tseng, left, and Wu Yuqun, head of China’s securities get more international investors to par- and futures bureau, while meeting in Beijing in December 2014. ticipate, and not just focus on mainland

photo: cna Chinese and Taiwanese corporates.”

38 taiwan business topics • May 2015

5 IF.indd 38 2015/5/7 5:30:05 PM A Report on the Financial Services Sector

PROMOTINg The ONShORe MUTUAL FUND BUSINeSS

Regulators are tightening the screws on offshore fund managers in an effort to strengthen the asset-management sector at home.

aiwan punches above its weight in the asset-manage- distribution, according to Keystone Intelligence. This differen- ment sector. The island of 23 million people had over tial has led to complaints from onshore managers that banks give T US$167 billion assets under management (AUM) at the priority to offshore funds because of the higher commission fees. end of 2014, according to the Taipei-based consultancy Key- “The Taiwanese regulators feel they made it too easy for stone Intelligence. cross-border business,” says Thomas McGowan, a Taipei- Offshore funds – funds domiciled outside of Taiwan issued by based attorney at the law firm Russin & Vecchi and an expert foreign asset management companies – dominate the burgeoning in banking and finance law. “It has been very successful, but the market, comprising about US$105 billion, or 65% of AUM, skill sets for everything besides sales are outside of Taiwan.” compared to roughly US$63 billion for onshore funds, Keystone says. Onshore funds are registered in Taiwan by domestic groups More stick than carrot as well as by foreign managers with onshore subsidiaries. Taiwanese investors have tended to prefer offshore funds As it seeks to build a stronger Taiwan-based asset-manage- because they offer a wider variety of products and the exper- ment sector, the FSC is using a carrot-and-stick approach. “On tise of global fund managers, experts say. They are also widely the one hand, the system works like a platinum card for an air- believed to offer more consistent returns than onshore funds. line,” says McGowan. “Offshore entities who move business “Foreign fund managers are more capable of adopting a mul- into Taiwan can cash in points for benefits.” Those include tiple income strategy or managing a global fund,” says Derek fewer restrictions on new product launches and the ability to Yung, chairman of AllianceBernstein Investments Taiwan. apply for more fund authorizations, McGowan notes, adding: But from the perspective of Taiwan’s Financial Supervisory “When you combine that with arm twisting, you see there are a Commission (FSC), offshore funds have benefited dispropor- number of pressures to come onshore.” tionately to their contributions to the Taiwan market, while Thus far, restrictions outnumber incentives. For instance, in onshore funds have faced stricter regulations. “The FSC’s goal 2013 the FSC reduced the number of offshore funds permitted is to narrow the current gap of operating conditions between to be included in a single registration application from three to offshore funds and onshore funds and ensure that operators one, with applications taking three to six months to complete. develop on a fair and equitable basis,” says Thomas Tien-mu As a result, latecomers to the Taiwan market now need three Huang, vice chairperson of the FSC. “The FSC will keep com- to five years to build a complete product line. “It’s effectively municating with offshore fund institutions, and encourage them creating an oligopoly for the offshore market players who are to devote more resources in Taiwan and endeavor to develop the here,” McGowan says. asset management industry,” he adds. The FSC has also placed restrictions on high-yield bond Ironically, it was an earlier government policy decision that funds, which can offer yearly returns of 7-8% and are among allowed the offshore funds market to flourish beginning in the the most popular offshore funds with Taiwanese investors. mid-2000s. The 2004 Securities Investment Trust and Con- The regulations favor onshore funds, which can launch mul- sulting Law, which formalized the registration and distribution tiple high-yield bond funds yearly as long as two such funds are of cross-border funds, established a system under which asset not introduced in succession. But for offshore funds, a master managers could act as master agents, allowing them to avoid the agent is permitted to distribute only one high-yield bond fund in costly process of building local distribution networks. Taiwan per year. The savings accrued by offshore fund managers enabled them “The regulator doesn’t want investments concentrated into to reward the major distributing banks with higher commis- one asset class,” says Andrew Wang, chief investment officer sion fees, sometimes up to 3% per sale, compared to 1.5-2% for of Manulife Asset Management (Taiwan). “If there is a mone- onshore funds. As a result, banks now account for almost 60% tary tightening cycle and liquidity falls, high-yield bonds and the of offshore fund distribution, but for only 30% of onshore fund investors holding them will be hurt disproportionately.”

taiwan business topics • May 2015 39

5 IF.indd 39 2015/5/6 10:29:47 PM INDUSTRY F CUS

AUM In Different Asset Types Some older Taiwanese investors like to buy high-yield bond

180 funds and use the regular dividend payments as a major source 167.7 of income, notes Donna Chen, president of Keystone Intelli- 156.3 157.1 gence. “But it can be a bit distorted in that they don’t know 143.4 whether the dividend comes from their principal,” she says. 131.2 Still, global high-yield bond funds remain popular with Tai- wanese investors. They were among the top-selling offshore 120 funds in Taiwan in 2014, with net sales of US$6.2 billion, according to Keystone Intelligence. High-yield bond funds also comprised 36% of total offshore AUM – a figure amounting to US$38.43 billion – as of the end of 2014, according to the Taipei-based Securities Investment Trust and Consulting Associ- 60 ation (SITCA). In another move to curtail offshore business, the FSC announced in November 2014 that sales to Taiwanese investors of each offshore fund may not exceed 50% of the fund’s assets, 0 down from the previous limit of 70%. The new rule, which will 2010 2011 2012 2013 2014 take effect on January 1, 2016, will affect about 20 offshore funds out of more than a thousand, Chen says. Fund managers Offshore Funds 80.3 73.4 92.4 91.0 105.1 affected by the new policy will likely need to suspend or dis- Onshore Funds 63.1 57.8 63.9 66.1 62.7 courage new subscriptions to meet the FSC’s requirements by US$bn SOURCE: SITCA / Keystone Intelligence Inc. the end of 2015.

Coming onshore Asset Weighting in Asset Management Industry At the same time as it is crimping the offshore fund market, the FSC is rolling out incentives for foreign fund managers to develop their businesses onshore. An incentive scheme introduced in February 2013 is designed to reward foreign firms that commit to building an asset- management business in Taiwan. The scheme includes faster approval for retail launches and waivers of derivative product restrictions. Other benefits are the ability to apply for more fund authorizations, relaxed restrictions on fund distribution, and 2010 2011 2012 2013 2014 permission to launch new products such as index-tracking and Offshore Funds 43.84% 41.08% 43.98% 42.06% 44.89% fixed-income funds. Participating foreign fund managers are Onshore Funds 34.46% 32.33% 30.40% 30.55% 26.78% also exempted from the new 50% AUM requirement. Domestic Mandates 14.20% 18.32% 16.01% 16.76% 16.92% But so far, only two foreign fund managers have been quali- Global Mandates 7.50% 8.28% 9.61% 10.63% 11.41% fied under the scheme: JP Morgan and Allianz Global Investors, SOURCE: SITCA / Keystone Intelligence Inc. which received FSC approval in September 2014. The FSC stated that the performances the two companies delivered in 2013 fulfilled the plan’s criteria, including having AUM among the top third of the industry and operating incomes that exceed Number of Funds by Asset Type the median. 2100 Chen of Keystone Intelligence says few foreign fund man- 1686 1720 1733 1716 1730 agers are likely to qualify under the scheme. “The threshold the regulator has set is very high,” she says. 1400 The FSC is also channeling the allure of the large China equities market to bolster onshore funds. Since 2012, onshore 700 players have been permitted to launch funds that can invest 100% of their assets in China A-shares – renminbi-denominated 0 stocks of companies incorporated in mainland China that trade 2010 2011 2012 2013 2014 on the Shanghai and Shenzhen exchanges. By contrast, offshore

Offshore Funds 1026 1025 1023 1016 1025 funds can invest a maximum of 10% of their assets in A-shares. There are eight onshore funds with specific A-shares in their Onshore Funds 660 695 710 700 705 SOURCE: SITCA / Keystone Intelligence Inc. fund names, managing a total of NT$28.2 billion as of this Feb-

40 taiwan business topics • May 2015

5 IF.indd 40 2015/5/6 10:29:47 PM A Report on the Financial Services Sector

ruary, according to Keystone Intelligence. manage it for them. In addition, local asset managers may issue renminbi-denom- “We have high hopes that workers will soon be allowed to inated funds in Taiwan while foreign fund managers may not. decide how they want to invest their pensions,” says Christine Wang of Manulife says the RMB-denominated fund platform Jih, chairman and chief executive officer of BNP Investment Part- has strong potential to perform well amid the international- ners in Taiwan. Taiwanese authorities have indicated that the ization and appreciation of the Chinese currency. Manulife’s new pension plan, known as the Employee Choice Scheme Pen- Investor Sentiment Index survey for the second quarter of 2014 sion, could be launched in early 2016, she adds. showed about 45% of Taiwanese respondents having exposure In another new initiative, in December 2014 the FSC issued to RMB-denominated assets. These same investors indicated a ruling that allows securities investment consulting enterprises that RMB-denominated assets comprised 30% to 40% of their (SICEs) and securities investment trust enterprises (SITEs) with total investment allocation. master agent qualifications to sell unregistered funds in Taiwan to institutional investors. The ruling gives such alternative Deep-rooted strategy investment vehicles as hedge funds and feeder funds a chance to enter the Taiwan market, notes Chen of Keystone Intelligence. Looking ahead, opportunities remain abundant for both Overall, however, industry players concur that the FSC will onshore and offshore fund managers in Taiwan. A major continue working to drive Taiwan’s asset-management business reason is that Taiwan’s pension funds are gradually out- onshore. “The regulator has a deep-rooted strategy,” says Jih of sourcing more of their assets to external managers. In March BNP Paribas. “They want to cultivate local Taiwanese invest- 2014, Taiwan’s Public Service Pension Fund hired BlackRock, ment expertise.” UBS, and Allianz Global Investors to manage a total of US$1 “It’s natural to want a more vibrant onshore market,” says billion in foreign mandates. Yung of AllianceBernstein, who sees Taiwan as having strong Reform of Taiwan’s labor-pension plan could help make potential to become a hub for regional asset-management oper- pension funds a larger source of revenue for asset managers. A ations. “The workforce is highly educated, costs are reasonable, proposed reform would entail adopting a “self-directed defined- and there is a demand for greater manpower on the operations contribution plan” such as the U.S.’s 401K or Singapore’s CPF. side of the business.” Workers would have the option to stay with the current scheme At the same time, however, many foreign fund managers – under which the fund will be managed by the government with are less than pleased about the FSC’s push to bring business a minimum guaranteed earning equivalent to two-year fixed onshore, says Chen of Keystone intelligence. “Of course they deposit interest – or select an asset-management company to don’t like it,” she says. “But they can’t fight it.”

TAIwAN’S PAYMeNT PLAN

The introduction of mobile and third-party payment platforms is expected to bolster the nation’s burgeoning e-commerce market.

aiwan’s payments industry is get- market, and also increase competition in to the research firm IDC. ting a needed shakeup with the the payments sector. “We believe Taiwan is ready to grow T adoption of contactless tech- Rising e-commerce growth and its mobile wallet business,” says Peipei nology to facilitate mobile transactions rapid smartphone penetration are Wu, a senior analyst with research firm and the passage new legislation to legalize driving the campaign to augment con- IDC in Taipei. “The rising popularity third-party electronic payment services. nectivity. E-commerce transactions in of smart devices, introduction of new Those changes will not fundamentally 2014 increased year-on-year by 15% to mobile payment standards, and favorable alter the island’s payments landscape, over NT$900 billion (US$28.5 billion), regulations will facilitate this trend.” which is dominated by big banks and according to Taiwan’s Financial Super- IDC estimates that mobile payments in credit card companies. But they will visory Commission (FSC). At the end Taiwan will increase by 42% to NT$89 make it easier for Taiwanese consumers of 2014, total smartphone shipments billion (US$2.84 billion) this year and to to make purchases on their mobile expanded to 22.58 million units, nearly NT$160 billion in 2017, with most trans- phones, giving a boost to the e-commerce equaling Taiwan’s population, according actions coming from mobile commerce.

taiwan business topics • May 2015 41

5 IF.indd 41 2015/5/6 10:29:47 PM INDUSTRY F CUS

Mobile payment platforms

The arrival of large-scale mobile payment platforms is expected to provide a strong foundation for the development of mobile payments in Taiwan, spurring growth in the e-commerce industry, analysts say. The biggest of these platforms is the Taiwan Mobile Payment Co. (TWMP), a consortium of more than 30 banks together with the state-backed Finan- cial Information Service Co., National Credit Card Center, and Taiwan Pay- ments Clearing System Development Foundation. Launched in December 2014, TWMP is a near-field communi- cation (NFC) mobile payment service. NFC-enabled devices use electromagnetic radio fields to send and read information The WAVE beep-beep bear, TWMP’s audio jack plug-in NFC payment solution. without contact. photo: cna To access TWMP’s service, users download the t wallet interface app, which is currently compatible with conference to mark its launch, chair- cessing Institutions Act will do so by about 20 smartphones. With an NFC-en- person Chao Yang-ching said the permitting both banks and non-banks abled SIM, a handset can function as a company has set a target of NT$10 bil- to offer third-party payment services, debit card, credit card, and public transit lion (US$314.8 million) in transactions including open collection and payment, ticket. Users simply tap the handset on a via smart cards and smartphones over the deposits, and remittances. card reader at participating retailers. next three years. The FSC forecasts that enactment TWMP processes payments over its TWMP has two main competitors: of the legislation will increase Taiwan’s trusted service manager (TSM) platform, Smart Catch International Co., which e-commerce market transactions from which provides security for contactless began offering mobile payments last NT$880 billion (US$28.9 billion) in 2014 service over mobile networks. September through Union Bank, and Alli- to between NT$1.2 trillion and NT$2 Security issues have frustrated pre- ance Digital Tech Co., a joint venture trillion (US$39.3 billion and US$65.6 bil- vious efforts to develop mobile payment between Taiwan’s major telecoms, smart- lion) in 2015, making online shopping in systems in Taiwan, Wu of IDC notes, but card issuer EasyCard Corp. and several Taiwan a “trillion-dollar industry.” TSM is helping to resolve that problem. local banks. AllianceDigital plans to ini- The FSC has not confirmed when “Risks related to fraudulent transactions tially issue 300,000 NFC-enabled SIM the law will come into effect, but most can result in big losses both for mer- cards during its second-quarter launch, observers believe it will be in the first half chants and card companies,” she says, increasing that number to 500,000 cards of the year. adding that as payments go mobile, it is by the end of the year. Marco Ma, Visa’s Taiwan country necessary to develop new risk manage- “TWMP has big backers from the manager, welcomes the new legislation. ment tools for the new platform. TSM standpoint of authority and backend “We should encourage more alternative mitigates risk in mobile commerce by architecture support,” Wu says. “But payments,” he says. introducing interoperability and setting we believe there is room for other ser- But Jamie Lu, marketing manager of common standards for telecom providers vice providers as there are many market PChome, Taiwan’s largest e-commerce and merchants, Wu says. niches to address, especially in fraud company, is skeptical. “The minimum Among Taiwan’s mobile operators, management and corporate services.” capital requirements are too high, Chunghwa Telecom was the first to which will deter many potential market adopt mobile payments using the TWMP Third-party payments entrants,” she says, noting that the leg- platform. Other carriers including islation requires electronic payment Taiwan Mobile, Far EasTone and Asia Meanwhile, long-awaited legislation institutions to have paid-in capital of at Pacific Telecom will launch the service on third-party payments passed in Feb- least NT$500 million (US$15.9 million), soon, analysts say. ruary is expected to provide another and firms engaging in third-party pay- TWMP has ambitious plans for the impetus for growth in the e-commerce ment collection and transfer businesses Taiwan market. At a December press sector. The Electronic Payments Pro- to have a minimum paid-in capital of

42 taiwan business topics • May 2015

5 IF.indd 42 2015/5/7 5:30:47 PM A Report on the Financial Services Sector

NT$100 million (US$3.2 million). the bar too high for new entrants to the Taiwanese consumers to warm to them The legislation works in favor of third-party payment business but that the gradually. Currently, only 50% of the banks with their ample liquidity, Lu reason is straightforward: “They want to island’s mobile users surf the Internet notes. “The banks are happy about this,” protect consumers,” she says. with their smartphones, despite a smart- she says. “They don’t want competitors.” phone penetration rate close to 100%, Nor will it be easy for foreign third- gradual evolution according to MCI. That odd situation party payment providers to enter the is a legacy of Taiwan’s poor 3G connec- market. While big firms like PayPal and Perhaps the greatest challenge facing tivity, which made browsing the Web on AliPay – a subsidiary of Chinese e-com- Taiwan’s new payment technologies and a handset arduous without a Wi-Fi con- merce giant Alibaba – would have no platforms is persuading consumers of nection, she says. trouble meeting the FSC’s capital require- their benefits. To begin, cash remains The nationwide implementation of ments, the bill requires foreign companies king in Taiwan. It accounts for 75% of 4G networks will boost mobile Internet to set up a local subsidiary, which would overall payment transactions, compared browsing and ultimately mobile pay- have to obtain approval from the reg- to just 30% in Hong Kong and South ments as well, Tsai adds. Currently, 4G ulator to operate in Taiwan. That may Korea, according to TWMP. The number subscribers account for 13% of Taiwan’s deter PayPal and AliPay from entering the of merchants accepting credit cards is overall telecom service users, according to market, analysts say. rising yearly, notes Ma of Visa, but many research firm DigiTimes. PChome chairman Jan Hung-tze has small businesses still deal only in cash. Taiwan is well poised to adopt sharply criticized the FSC’s handling of “Cash is expensive to print and hard to mobile payments due to its “solid third-party payment legislation. When keep track of,” he says. “The government financial services foundation, a recep- the FSC assigned the Bankers Associa- wants transparency, so we should help tive regulatory environment, and key tion of the Republic of China to draft Taiwan move away from cash.” partnerships beginning to emerge,” the bill in December, Jan accused them Emily Tsai, an analyst at the govern- according to MasterCard’s Mobile Pay- of “cutting backroom deals.” Banks had ment-backed Marketing & Consulting ments Readiness Index, which assesses reason to skew the legislation in their Institute (MCI), says third-party pay- 34 markets worldwide. Taiwan ranked favor because third-party payment pro- ment providers will need to offer strong 11th overall, behind China (10th), Japan viders would be their competitors, he incentives to win business. Even if cash (6th), South Korea (5th) and Singapore, argued. dominates overall payments in Taiwan, which finished first. The FSC requested the Bankers Asso- credit cards account for 90% of online MasterCard found that Taiwanese ciation to draft the bill “for reasons transactions, according to MCI data. consumers lack familiarity with mobile of efficiency,” says Thomas Tien-mu “For people too young or without payments, suggesting that robust mar- Huang, an FSC vice chairperson. After enough income to apply for credit cards, keting will be needed before significant the first draft of the proposal was com- third-party payments will be appealing,” adoption occurs. At present, about 8% of pleted, the FSC invited third-party she says. “It will become more convenient Taiwanese consumers use a mobile device payment providers and government for them to shop online. But for everyone to make purchases online, according to agencies “to hold relevant meetings,” else, there will have to be a good reason the credit card giant’s data. during which participants were “able to to use a third-party payment service “Mobile payments have strong poten- fully participate in the discussion and instead of a credit card.” tial in Taiwan, but consumer habits are express their views,” he says. Tsai is more sanguine about the pros- not going to change overnight,” con- Wu of IDC believes the FSC is setting pects for mobile payments, but expects cludes Wu of IDC.

Country Comparison Taiwan Mobile Payments by Method Accumulated smart-phone units shipped as a % of population, 2012-2014

SOURCE: IDC FINANCIAL INSIGHTS

taiwan business topics • May 2015 43

5 IF.indd 43 2015/5/6 10:29:49 PM interview

OBSERVATIONS ON THE RETAIL SECTOR

A beverage industry executive shares insights based on long experience in the Taiwan market.

AS TOLD TO DOn ShApirO

oug Klein has lived in Taiwan motion, and media buying to handle the of the AmCham Taipei Board for six for 17 of the past 28 years, on Coke account in Taipei. Klein applied, years and as co-chair of the Retail Com- D three different tours of duty was offered the position, and arrived in mittee for seven years. separated by stints in Hong Kong. In Taipei for what was to be a two-year Currently General Manager for Busi- 1987, Klein was working for McCann assignment. ness Development at Swire Beverages, Erickson Advertising in his native Perth, His career path then took him to Klein reaches the company’s mandatory Australia, assigned to the Coca-Cola The Coca-Cola Company and subse- retirement age of 60 at the end of this account, when he became aware of an quently to Swire Beverages, the Coke month, but plans to remain in Taiwan internal job posting that seemed per- bottler in the region. From 2005 until in another capacity. Klein recently sat fectly suited to his talents and interests. last year, he was Director and General down with Taiwan Business TOPICS to The agency was looking for someone Manager of Swire Coca-Cola Taiwan, talk about the changes he has witnessed with a background in marketing, pro- and since 2008 has served as a member in Taiwan.

On the development of the local retail sector

When I came in the 80s, more modern retailing was just coming to Taiwan, including the introduction of convenience stores, McDonald’s, and Wellcome, Carrefour, and Makro (which later moved on). A whole revo- lution in the business took place in that era, so it’s now a very, very different world for the companies supplying those retailers. The general trade – the mom and pop stores and the independent supermarkets – used to be a very significant part of the market. That’s Last November, Klein spoke to business students at Fu Jen Catholic University as part of a CEO not the case anymore. Lecture series sponsored by AmCham’s Innovation Council. Instead, you’ve got much more pro-

44 taiwan business topics • may 2015

5 interview.indd 44 2015/5/6 10:32:19 PM interview

fessional retailers and a greater Interestingly, everyone thinks concentration of retailers. For of Coca-Cola in terms of sparkling Coca-Cola, over half of our busi- drinks having plenty of calories, ness now is with just 10 customers. but 20% of our sales today have And if I were at Procter & Gamble no calories at all, between the two or Nestle or Unilever, it would be Japanese teas, Coke Zero, and even more concentrated, because water. That’s a huge change from Coca-Cola also sells to restaurants, just a few years ago. entertainment, vending and other One of the challenges here, of on-premise channels. course, is that the demographics Retailing has become better in are working against us. As the many ways for the consumer in population ages, our core target terms of variety, safety and clean- – the age group between 12 and liness, while from a supplier point 24 – is smaller every year. As that of view it’s more challenging – and shrinks, you’ve got to compen- of course this is a worldwide trend. sate for it in some way, and that Retailers now have much better comes back to putting a lot of knowledge and they’re rightly stress on marketing. That includes more demanding than they used to developing new channels, new be, so the suppliers have had to lift packaging, and linking with food

their game Klein with some of his company’s products, – for example, we do a lot of pro- In other ways, though, things including Coke in bottles and cans, as well as Min- motion with food occasions. It also haven’t changed all that much. ute Maid orange juice and Japanese green tea. entails a lot of work with social When I first arrived and was under- media. It’s all about how to take going orientation, I was told that an old brand and keep it relevant. this is a very competitive market, with you’re doing business. It means you The other interesting thing for bev- 200 new beverage products introduced have to work harder on your marketing erages in Taiwan is the popularity of in the previous year, and that the situ- and cost control. bubble tea, which is massive here, and ation couldn’t last. There had to be a brewed coffee. In fact, the two biggest shakeout, there had to be consolidation On changes in the beverage developments for Taiwan beverages in after a while. Well, 28 years later it still market the last 15 years have been the growth looks the same. of brewed coffee and bubble tea. Not Almost the same list of companies In our case, our original, core brands so many years ago, Taiwan wasn’t a is still here. A few have disappeared, are centered on sparkling beverages. coffee market at all. When I first came a couple have come in, but for the You have to keep refreshing those and here, coffee was either Mr. Brown, most part it’s the same cast of charac- giving consumers a reason to keep which was a coffee-flavored soft drink, ters. That makes for a very fragmented coming back to them. At the same time or sweet and creamy 3-in-1, which was market, with the result that many com- you’ve got to extend into other cate- invented for the Taiwan market. The panies struggle to achieve economies gories. In many ways we follow what whole brewed coffee culture is really a of scale. Each one holds just their little Coke does in Japan, where we com- phenomenon of this century. Last year piece of the pie, and it’s hard to get a pete in many non-sparkling categories. a BBC article even included Taipei on significant share of the market. The Coca-Cola Company sells the a list of the six top coffee cities in the Whereas in the huge market of number one coffee, the number one world, along with Seattle, Melbourne, China we compete against five or six sports drink, the number one green tea, and a few others. It’s incredible, con- major companies, in Taiwan I can and the number one blended tea. We’ve sidering that Taiwan is so strong on tea think of 30 competitors. In our system tried to adapt some of those products and came to coffee so late. But it’s just Taiwan is recognized as one of the most into Taiwan. embraced coffee in a big way. challenging markets in Asia. And the We really have had to transform And there’s still a lot of tea con- fact that we’ve had such little inflation the portfolio over the years. Since I sumption. Visitors from abroad are adds to the problem. Prices are very low came back in 2005 for my third time just amazed at how much tea is con- for what is really a developed country in Taiwan, we’ve initiated many new sumed. In most soft-drink markets, our and haven’t gone up for a long time, products. We’ve gone into juice with colleagues talk about the number of while a lot of our raw material costs are Minute Maid, and we’ve introduced “black doors” in a convenience store, international and are rising. So margins various Japanese teas since 2010 – and exclusive for Coke and Pepsi. Here you are always under pressure. That’s great we’ve also had Nestea lemon tea going have “green doors.” And perhaps one for the consumer, but not so easy when back 20 years. shelf of soft drinks.

taiwan business topics • may 2015 45

5 interview.indd 45 2015/5/6 10:32:19 PM interview

On the spate of food-safety for good people to go into govern- very clean and quiet city, Perth, it was incidents in recent years ment service. Ministers come into office rather off-putting. Plus, I was alone knowing that if a problem comes up and everything seemed so foreign and If you go back to the melamine epi- they’ll have to fall on their swords, unfamiliar. But if you got through the sode of 2008, that was a serious health whether or not the problem really had first six to nine months, you were okay. issue. Babies died – not here, but in anything to do with them. You got a different perspective, and China. But a lot of the “crises” since The food issue is really symptom- what you at first had considered crazy haven’t proven to be so serious in atic of larger issues in Taiwan. In the or at least disconcerting became the terms of their effects. A lack of leader- U.S., if there was a food crisis and the charm of the place. ship and a lack of respect for science leading government scientists and aca- The living conditions these days allows them to become a scare, and demics gave reassurances, 95% of the are so much better. In the early days, everyone panics. Too many of the people would listen. Such authorities my wife and I would say ‘let’s fly over people in the media and in politics would have credibility, and that applies to Hong Kong for some fresh air and and NGOs are interested in turning it in many countries. But here those same cheap meals out.’ Not now. Taiwan into a bigger issue instead of trying to types of people aren’t accorded a sim- today is so much cleaner and nicer, exert a calming influence. It becomes ilar level of respect. partly due to positive initiatives and a contest over who can grab the latest With its aggressive media, heated partly because many industries have headline with the latest scare tactic. opposition politics, and active NGOs relocated offshore. The traffic is much I don’t think you can blame a partic- and Legislative Yuan, Taiwan is very better, the air quality is better, and the ular political party or individuals, but it different from what it used to be. introduction of the MRT in the 90s has rather reflects the changing social envi- Maybe some of the problems just stem made Taipei a much easier place to live. ronment and shifts in the power base from this being a learning curve for a I’ve also enjoyed working with the among stakeholders. young democracy. Adding to that now people – employees, customers, sup- Unfortunately all these little things is the existence of social media and the pliers, the whole network. Despite the become distractions, causing some big 24-hour news cycle. There’s a world- bureaucratic problems, Taiwan really is things to be ignored. Taiwan has some wide phenomenon of shorter attention very welcoming to foreigners. Our com- major long term infrastructure chal- spans, and Taiwan democracy, without pany has brought a number of people in lenges, such as the water supply, which a lot of history behind it, is developing from other countries and they all settle we’ve known was a problem for a long within that cauldron. It becomes hard in very well, from singles to people with time but haven’t addressed. Electrical for government to come out and make families and kids. power supply is another major crisis long-term commitments. Hong Kong in many ways is oper- coming up. It doesn’t help to allow dis- ationally more efficient, but you don’t tractions to keep you from dealing with On living in Taiwan have the same personal relationships. such major infrastructure challenges. I’ve enjoyed that opportunity to build How could the process be managed On my first trip to Taiwan, I was relationships, and it’s possible to do better? Right now there’s too much of staying in what was the Hilton Hotel, that even when you may not have a lan- a tendency to point fingers and blame now the Caesar Park, opposite the train guage in common. people. Something goes wrong and you station, with four lanes of traffic each I’ve just recently received my Per- change the premier and reshuffle the way and buses belching exhaust fumes manent ARC, and so look forward to cabinet. It becomes a real disincentive into the air. Having just come from a many more happy years in Taiwan.

Klein served as master of ceremonies at AmCham’s Creativity Night last October. Here he poses with the top team in identifying CLIO-award- winning advertisements and ad campaigns.

5 interview.indd 46 2015/5/6 10:32:20 PM F E A T U R E

THE WORLD VEGETABLE CENTER IS IN TAINAN

The institute, the only Taiwan-based international organization, contributes to the global fight against malnutrition and poverty.

BY STEVEN CROOK Cold work in the AVRDC gene bank.

pHOTO: AVRDC

short distance from the so as to be especially rich in nutri- sive and convenient food-preparation Southern Taiwan Science Park ents – offer an alternative to vitamin methods that retain vegetables’ nutri- Aand its cluster of optoelec- supplements. “The golden tomatoes tional value, and devise ways in which tronics and green-energy companies, an developed here are rich in vitamin A,” vegetables can be profitably processed institute quietly engages in vital work he notes by way of example. “However, and marketed by farming house- in an entirely different sphere. What is because their color is different from holds and small-scale entrepreneurs. In now known as “AVRDC – The World normal tomatoes, winning over con- Keatinge’s opinion, improving human- Vegetable Center” aims to alleviate both sumers took some effort.” ity’s diet requires cooperation between malnutrition and poverty around the Since 1978, the Center has released the public and private sectors. “Pre- world by increasing the production and 184 tomato varieties (also called breeding, hybridization work is very consumption of nutritious vegetables. “lines”) in 44 countries, including 22 expensive. No private-sector body “The world depends on 15 to 20 varieties in Taiwan and 17 in India. can afford it,” he says. “The private staple crops, but there are thousands Besides improving diet, some of these sector has the distribution networks of vegetables which can be eaten,” says have reduced “food miles.” Until that enable us to share new lines with Dyno Keatinge, the center’s director- recently, for instance, Tanzania’s big- farmers in a timely manner.” general. gest tomato processor and producer “Our work is very multidisciplinary, Citing the World Health Organiza- of ketchup had to import most of the and goes all the way from the farm tion’s recommendation that people eat tomato pulp it uses from China. But to the table,” says Maureen Mecozzi, at least 400 grams of fruits and vege- since the Center introduced a new cul- AVRDC’s head of communications and tables per day, excluding starchy foods tivar with thicker skins (making for information. In the Philippines, which like potatoes and cassava, he says: “The easier shipping and lasting much longer currently has the lowest rate of vege- nutrient value of most vegetables has without refrigeration after harvesting), table consumption in Asia, the Center fallen over the past 50 years because the company has undertaken to source works with celebrities to encourage they’ve been bred for shelf-life and tomatoes from 3,800 local smallholders people to eat more vegetables. Seed appearance. If people are to eat a more and hopes to increase this number in kits are given to families in South Asia, balanced diet, we need to have much the future. where small home gardens have been more investment in vegetables. The lack The Center’s efforts go far beyond found to dramatically increase veg- of research is a major problem.” improving vegetable varieties and etable consumption while cutting Keatinge points out that “biofor- helping farmers maximize yields. grocery bills. The Center’s scientists tified” crops – those selectively bred Researchers also identify inexpen- search for biocontrol agents, such as

taiwan business topics • may 2015 47

5 Veggie.indd 47 2015/5/6 9:42:06 PM FEATURE

sums are far from sufficient. “We’re spread very thinly over so many dis- ciplines,” he explains. “A budget of US$100 million per year, comparable to that of the International Rice Research Institute (IRRI), would be appropriate.” According to its website, in 2013 the Philippines-based IRRI received US$93.5 million in grants, with more than 40% of that total coming from the Consultative Group for Interna- tional Agricultural Research (CGIAR), a global partnership of national governments and philanthropic foundations. Beijing has blocked the Center’s efforts to join CGIAR. “Long-term, this has impacted the funding we can receive,” laments Keatinge. The lion’s share of the Cen- ter’s budget comes from donor nations, flies and wasps that prey on Maruca Organization] simply because its head- with NGOs and for-profit companies vitrata, a moth whose larvae can deci- quarters are in Taiwan.” The Center’s chipping in for specific projects, he says. mate legume crops. status, he explains, means it is ineligible In 2012, the Center became a for UN or UN-derived funds. The Asian founding member of the Association of Taiwan location Development Bank no longer provides International Research and Develop- direct assistance. ment Centers for Agriculture (AIRCA), The Center is unique in being an Throughout the 1980s, the Center’s a grouping of nine institutions. Keatinge international organization based in annual budget hovered around US$5 is the current chairman of AIRCA, Taiwan. Cars driven by its expatriate millon. During the 1990s it averaged which includes the Beijing-based Inter- staff carry quasi-diplomatic license a little over US$8 million, and by the national Network for Bamboo and plates, leading some Taiwanese to following decade had reached approx- Rattan (INBAR). mistakenly believe the Center is con- imately US$11 million. In the calendar “The politics is beyond our connected to the United Nations. In fact, year 2014, AVRDC received US$19.34 trol,” says Keatinge. Moving AVRDC AVRDC was set up as an intergovern- million in grants and other revenues, up to a country holding UN membership mental organization just as the Republic from US$17.59 million in 2013. has been considered, “but not seriously of China government in Taipei was Keatinge, an Irishman, believes these and not recently,” he adds. “Taiwan has leaving the UN. As the Asian Vegetable Research and Development Center, it was founded on May 22, 1971 by the United States, the Asian Develop- ment Bank, and six Asian governments: Japan, the Philippines, South Korea, South Vietnam, Taiwan, and Thailand. The Taiwan government donated 116 hectares of sugarcane fields in what is now Tainan City’s Shanhua District. The main campus was dedicated on October 17, 1973. To better reflect its global role – it is active in Africa and Oceania as well as most of Asia – in 2008 the center rebranded itself as “AVRDC – The World Vegetable Center.” Keatinge describes AVRDC as “a UN-style agency, but not recognized by the UN Left: Harvesting tomatoes at AVRDC headquarters in Shanhua. Right: Blackjack leaves and or the FAO [Food and Agriculture various types of eggplant. pHOTOS: AVRDC

48 taiwan business topics • may 2015

5 Veggie.indd 48 2015/5/6 9:42:08 PM FEATURE

been very loyal to us, and we’ve been beans, sweet potatoes, white potatoes, very loyal to it.” and Chinese cabbage. In purely botan- Director-general since 2008, ical terms, a tomato is a fruit, but it is Keatinge holds a Ph.D. in Crop Phys- classed as a vegetable by, among others, iology from Queen’s University in U.S. Customs and Border Protection. Northern Ireland. He previously held In the 1980s, research began on research and teaching positions in India, additional crops, including cauliflower, Nigeria, Pakistan, Syria, Turkey, and radishes, and peppers. Work on both Trinidad. He plans to retire in April white potato and sweet potato strains 2016, and later this year the Center’s has ceased, in large part because those 15-member board will choose a suc- staples are being thoroughly researched cessor. If the job goes to a Taiwanese, it at the International Potato Center in will not be the first time, as from 1994 Lima, Peru. However, AVRDC still to 2002 the post was held by Samson works on sweet potato varieties grown Packaging seeds at the AVRDC gene bank.

C.S. Tsou. not for their roots but for their leaves. pHOTO: AVRDC Despite a degree of decentralization, In Taiwan, the latter (a rich source of Shanhua continues to be where most vitamins C and B6) are often boiled or of the Center’s work is done. There, stir-fried for human consumption. tial food because they contain useful 29 international staff (among them six These days, the World Vegetable amounts of vitamins C and E as well as Americans) work alongside 186 Tai- Center concentrates its efforts on six beta-carotene. Nipple fruit (Solanum wanese. In all, the organization has 353 vegetables groups: Solanaceous crops mammosum) is another unusual veg- employees from 33 countries. Eight (tomatoes, sweet peppers, chilis, and etable which Center researchers are Taiwanese work for the Center outside eggplants); bulb alliums (onions, shal- studying for use as a valuable root- Taiwan. lots, and garlic); crucifers (the cabbage stock for vegetable grafting. “We hire qualified people no matter family); cucurbits (cucumbers and The garden contains examples of what country they’re from,” says pumpkins); legumes (mung beans and low-cost drip-irrigation systems, plus Mecozzi. “However, in some instances, soybeans); and traditional vegetables. two alternatives to pesticides. One, project donors may indicate that only The traditional-vegetable group called “farmscaping,” is the embedding nationals of specific countries can be includes amaranth (sometimes known among crops of certain plants known hired for particular positions.” as Chinese spinach), bitter gourd (which to attract birds and bats, which then eat Because their passports contain has excited researchers because of its troublesome insects. The other is use courtesy visas issued by Taiwan’s antidiabetic effects), okra, and spider of sticky traps, which are like flypaper. authorities, Shanhua-based non-Tai- plant (an herb whose shoots pro- Most are yellow, but blue has been wanese staff cannot enter the People’s vide protein, beta-carotene, ascorbic found to be especially effective at coun- Republic of China. “Taiwanese staff acid, calcium, and iron). Falling into tering tiny insects called thrips. can visit the mainland, however, and the same category is African eggplant, The Center’s grafting chamber PRC delegations come here very often,” specimens of which can be seen in the enables visitors to gain a better under- Keatinge says. Over the past two Center’s Demonstration Garden. Unlike standing how this technique can benefit decades, China has consistently ranked the tubular purple eggplants familiar farmers unable to make large invest- among the top five countries worldwide to Western and Taiwanese consumers, ments. In the tropics, grafting tomato receiving germplasm (vegetable seeds African eggplants are shorter and a scions onto eggplant rootstock allows or tissue preserved for cultivation or vivid red-orange. They contain beta- the tomatoes to be grown during the research) from AVRDC, which distrib- carotene, calcium, vitamin C, and iron. hot-wet season, as eggplant roots can utes seed to any country that requests Some of the little-known vegetables the survive in waterlogged soils. After it. “We share everything with them, but Center is studying are featured on its grafting, seedlings must spend about they’ve never given any germplasm to Facebook page: www.facebook.com/ a week in a grafting chamber, where us,” he explains. China behaves in a WorldVegetableCenter the reduced light, higher humidity, and similar “all take and no give” manner Elsewhere in the Demonstra- cooler temperatures help them harden. toward other agricultural research tion Garden there is Bidens pilosa, a bodies, he adds. plant also known as blackjack or cob- The gene bank bler’s pegs. In Taiwan and many other A wide range of vegetables places, Bidens pilosa is considered an The Center’s Genetic Resources invasive weed, although some people and Seed Unit, or gene bank, houses At the end of 1973, the Center make tea from the leaves. According the world’s biggest collection of veg- decided to focus its efforts on six veg- to AVRDC scientists, however, the etable seeds. “We’re the guardians of etables: Tomatoes, soybeans, mung young shoots and leaves are a poten- this germplasm. We preserve it and

taiwan business topics • may 2015 49

5 Veggie.indd 49 2015/5/6 9:42:09 PM FEATURE

share it,” says Keatinge. Companies or research institutes that ask for vegetable germplasm are charged only for shipping, and bona fide requests are never refused. Seed transfers are governed by the rules of the International Treaty on Plant Genetic Resources for Food and Agriculture, which guarantees access to such materials unrestricted by intellectual property rights. Each unique member of a plant species is known as an accession, and is assigned a unique number. To date, the Center’s Seed Unit has gathered 61,280 accessions, including 15,476 soybean variants, 8,261 of various kinds of tomatoes, 8,235 of peppers, 6,742 of mung beans, and 3,713 of eggplants. All Dyno Keatinge (left), then Deputy Agriculture Minister Hu Sing-Hwa (center), and ROC Vice in all, 172 genera and 440 species from President Wu Den-Yih (right).

155 different countries are represented. pHOTO: AVRDC Seeds that have been properly dried and packaged can be kept for extremely cally alerted and security staff intervene. Keatinge supports using genetic engi- long periods. “One scientist has calcu- The seed collection, which started in neering techniques where appropriate lated that dried mung bean seeds can 1972, exceeded 23,000 accessions by to bolster pest- or disease-resistance, or be stored for hundreds of years,” says 1985. By the early 21st century, it was to enhance nutritional value in crops Huang Yung-kuang, an assistant spe- clear that more space would soon be [see the separate article in this issue on cialist in the unit. Seeds are first placed needed. An expansion project funded GM crops]. He describes the testing in a chamber where the RH (relative by Taiwan’s Ministry of Foreign Affairs regime for GM crops in many countries humidity) is 5-10% – drier than the was completed in 2011. “We won’t as “ludicrously strict,” reducing oppor- Sahara Desert. The drying process takes have to worry about storage space for tunities for consumers to benefit from up to three weeks, depending on the size the next 30 or 40 years,” says Huang, GM breakthroughs. But because of the of the seeds and their moisture content. who also notes that the newest cham- controversy surrounding GM food, After packing in airtight 100-gram bers have been built approximately 1 no GM crops have been planted in the bags, the seeds are placed in either meter above ground level to be safe recent past in AVRDC’s fields. medium-term or long-term storage. The from flooding. By 2013, agriculture’s share of Tai- medium-term storage conditions are To date, samples of almost 20% wan’s GDP had shrunk to just 1.7%. around 5 degrees Celsius (41 degrees of the accessions stored in Shanhua Nonetheless, Keatinge is full of praise Fahrenheit) and 45% RH, while the have been dispatched to the Sval- for the training and marketing assis- long-term storage is much colder at no bard Global Seed Vault, located on a tance farmers receive from the more than minus 15 degrees Celsius (5 frigid Norwegian-ruled island 1,300 government’s Council of Agriculture degrees Fahrenheit). kilometers from the North Pole. The (COA) and local farmers’ associations. Because exposure to such cold tem- Seed Vault serves as a backup facility “The level of collaboration is splendid, peratures can be fatal, Huang and his for gene banks around the world. In and I fully agree with the ‘Small Land- team follow safety protocols. In addition recent years, seed banks in Iraq and holder, Big Tenant policy,” he says. to donning extra-warm clothes, staff Afghanistan have been destroyed by Under that program, started in 2009, members always work in pairs. One warfare, while the major gene bank in the COA has been encouraging land- enters the storage area while the other the Philippines was destroyed by fire in owners unable or unwilling to engage waits outside. A timer is set. After 15 January 2012, just six years after it suf- in farming to lease their fields long- minutes, it sounds to remind the person fered serious flood damage. term to professional farmers. inside to leave the storage chamber. If About once a year, the World Veg- “Of course, it would be nice if the the work is not finished, the partner etable Center adds to its deposit in younger generation could regard agri- takes over. In case the person inside has Svalbard. Because the Center’s collec- culture as a profitable sector and a good not exited after 20 minutes, an alarm tions of tomato and mung bean seeds career choice,” says Keatinge. “Nev- sounds in the unit’s office, and if a fur- are probably the world’s most complete, ertheless, Taiwan is the world’s best ther five minutes elapses without an exit, sending samples of those seeds is con- exemplar of high-tech, mechanized the center’s security office is automati- sidered a priority, Huang says. small-plot agriculture.”

50 taiwan business topics • may 2015

5 Veggie.indd 50 2015/5/6 9:42:10 PM amcham event

Offering Thanks through Hsieh Nien Fan

ach year for the past 47 years, the American Chamber of Com- E merce in Taipei has held its Hsieh Nien Fan banquet as a way to express gratitude to the Taiwan government and members of the local business community for their cooperation and support during the past year. The 2015 edition of the gala event took place April 9 in the Grand Ballroom of the Grand Hyatt Hotel, with nearly 700 AmCham members and guests in attendance. As he has done every year that he has been in office, President Ma Ying-jeou served as the keynote speaker and stayed for dinner and to greet and toast each table. Director Christopher Marut of the American Institute in

Taiwan (AIT) also delivered remarks, President Ma Ying-jeou on stage, together with AIT Director Christopher Marut and and Peter Dernbach reprised his last AmCham Taipei Chairman Thomas Fann. year’s role as master of ceremonies. The evening was opened by a speech to cementing its role in the evolving To bolster Taiwan’s TPP candidacy, by AmCham Taipei Chairman Thomas international trade framework for the Fann stressed, “it will be vital to send Fann, who expressed thanks to both Asia Pacific” known as the Trans-Pa- clear signals in the months ahead that the Taiwan government and AIT for cific Partnership or TPP. He noted that Taiwan is dedicated to liberalizing its helping to promote a positive business “perhaps the Chamber’s number-one regulatory regimes and to ensuring that environment in Taiwan. Fann said that current theme is the absolute necessity it is fully in conformity with interna- “AmCham’s fervent wish is that the of assuring eventual membership for tional standards and practices. There year to come will bring Taiwan closer Taiwan in the TPP.” is no clearer signal than taking concrete measures to resolve certain areas of contention. And it’s also critical that robust communications with the public takes place in timely fashion.” Fann cited forward-looking policies adopted by the Financial Supervisory Commission (FSC) under Chairman Tseng Ming-chung as a model for other agencies. He also stressed the need for the Legislative Yuan’s support in the effort to demonstrate Taiwan’s commitment to free trade and regulatory coherence. In his keynote address, Presi- dent Ma noted that the following day would be the 36th anniversary of pas-

taiwan business topics • may 2015 51

5 HNF.indd 51 2015/5/6 10:37:17 PM amcham event

sage of the Taiwan Relations Act by the U.S. Congress. He went on to stress the longstanding warm relationship between the Republic of China and the government and people of the United States. He referred to the two countries as continuing “partners in progress.” Director Marut noted the “positive trajectory of the U.S.-Taiwan economic relationship,” reflected in the fact that Taiwan last year reclaimed its position as the United States’ 10th- largest trading partner, while the United States reclaimed its position as Tai- wan’s second-largest trading partner. At the same time, he praised AmCham’s annual White Paper and Business Cli- mate Survey for “highlighting structural weaknesses that imperil the sus- tainability of recent growth trends” Among the dignitaries at the head table was former Vice President Vincent Siew, seated on the left. and offering solutions. He said that “improved regulatory coherence in Taiwan and harmonization with inter- tration Minister Wei Kuo-yen, FSC Wine & Liquor Sponsor Royal Salute national standards” would go a long Chairman Tseng Ming-chung, and var- Scotch Whisky by Pernod Ricard; Gold way toward improving Taiwan’s attrac- ious vice ministers and department Sponsors Corning Display, Franklin tiveness as an investment destination. directors-general. Templeton Investments, and Stan- Besides the President, other high- Attendees enjoyed a sumptuous dard Chartered Bank; Silver Sponsors level dignitaries in attendance included meal featuring barbecued U.S. beef 3M, HSBC, JTI, and Micron; Bronze former Vice President Vincent Siew, ribs, accompanied by Jacob’s Creek Sponsors Air Products, Alcatel-Lucent, National Security Council Deputy Sec- Sparkling Chardonnay Pinot Noir, American Express, Baker & McKenzie, retaries-General Jacob Chang and Liu Jacob’s Creek Shiraz Cabernet, Jacob’s K&L Gates, Philip Morris, Siemens, Da-Nien, Minister of Foreign Affairs Creek Chardonnay, and Royal Salute and Synopsys; General Sponsors Audi, David Lin, Minister of Economic 21-Year-old Scotch Whisky. Dun & Bradstreet, Ford Lio Ho, Grand Affairs John Deng, National Develop- Making the event possible was the Hyatt Taipei, IBM, Procter & Gamble, ment Council Minister Duh Tyzz-jiun, generosity of the 2015 Hsieh Nien Fan Samsung, and the Tobacco Institute of Environmental Protection Adminis- sponsors: Platinum Sponsor Citibank; the Republic of China.

52 taiwan business topics • may 2015

5 HNF.indd 52 2015/5/6 10:37:19 PM seeing taiwan

those days, the skies above Magong’s Guanyin Temple erupt with 15 minutes Festivals Add Excitement of fireworks displays sponsored by the Penghu National Scenic Area Adminis- tration (www.penghu-nsa.gov.tw). to Springtime in Taiwan By May, the weather throughout Taiwan is warm. Not surprisingly, many people head to beaches such as pend a week in Taiwan, and you families mark weddings and other Baishawan and Fulong near Taipei, or are likely to have the chance to happy occasions with barrages of rock- Kending on Taiwan’s southernmost tip. S see a festival of some kind. Some ets and strings of firecrackers. No Running from May 2 until the final are traditional yet raucous expres- wonder fireworks displays are much day of June, the 2015 Fulong Interna- sions of the folk beliefs that, combining loved by Taiwan’s people. tional Sand Sculpting Festival will be the Buddhism and Taoism, give the island The Penghu Ocean Fireworks Festi- eighth edition of an event that draws a uniquely colorful religious landscape. val, now in its 12th year, enlivens visits crowds to Taiwan’s northern coast. Others are of much more recent origin, to the Penghu archipelago. This clus- Fulong’s three-kilometer-long beach has and have been organized to promote a ter of 90 islands, around 45 kilometers soft quartz sand that sticks together very particular place or industry. from Taiwan’s southwest coast, offers well when wet. The conditions are thus Taiwan’s rich and diverse festival pristine beaches and ancient, semi- culture is one of the country’s unique abandoned villages such as Erkan. The characteristics, and to help potential first Chinese settlers came here almost visitors plan itineraries around events a thousand years ago, and many of that interest them, Taiwan’s Tourism the very old and intensely photogenic Bureau is highlighting 35 world-class homes they made using local coral stone activities between late 2014 and the still stand. The archipelago also boasts end of this year as part of its “Time for excellent seafood and a thoroughly Celebration” promotion. relaxing vibe. In Taiwan, as in all ethnic Chinese Many tourists find themselves societies, fireworks have a cultural imitating the islanders’ early-to-bed, significance far exceeding that in West- early-to-rise habits, but each Monday ern countries. Massive quantities are and Thursday evening between April shot off during temple parades and 20 and June 25 there is a good reason deities’ birthday celebrations, while to stay out a little later. At 9 p.m. on

交通部觀光局廣告 TTB AD

taiwan business topics • may 2015 53

5_SeeTW.indd 53 2015/5/6 9:47:44 PM seeing taiwan

perfect for creating works of art, some Lugang is not the only of which are as big as an SUV. Draw- place where tourists can ing inspiration from myths and legends enjoy dragon-boat races, as well as movies and cartoons, the sand as similar events are held sculptors – both Taiwanese artists and in Taipei, Tainan, and else- professionals from overseas – will shape where. Even if you cannot on-the-spot masterpieces, hoping to attend the town’s dragon- scoop cash prizes as well as the adula- boat events, do make sure tion of visitors. Lugang is on your itinerary. The annual Taiwan Balloon Festi- Once Taiwan’s second-larg- val offers chances to see Taiwan’s est settlement and a major stunning East Rift Valley from high trading port, it remains jam- above. Running from June 27 through packed with genuine culture to August 9, the festival features the but one of the older sports on the island and antiquity. launching of balloons from Luye High is dragon-boat racing. Traditionally, A different kind of watery fun can Terrace, a plateau that is also one of these races are held at the time of the be had on June 21 and 22 at the 2015 Taiwan’s top paragliding spots. A short Dragon Boat (Duanwu) Festival, which Xiuguluan River Rafting Activity. The video on the event’s website (http:// is celebrated on the fifth day of the fifth Xiuguluan River in the eastern county balloontaiwan.taitung.gov.tw) shows lunar month (June 20 in 2015). of Hualien is Taiwan’s most popular off the area’s magnificent scenery. This year the major boat races whitewater rafting location. It is calm Even those with no interest in will take place in the town of Lugang enough to be safe for first-timers, yet balloon rides or paragliding should from June 19 to 21, and will feature has enough eddies, rapids, and drops to consider heading east to sample the teams from overseas as well as around guarantee excitement for all. region’s scenic, ecological, and cultural Taiwan. Each boat is guided by a drum- To encourage visitors to make the treasures. Sights on the eastern coast mer whose beats help the 20 paddlers most of summer’s long days and uplift- such as Sanxiantai (Terraces of the synchronize their strokes. The vessels ing sunshine, the 2015 edition of Three Immortals) have been on the get their name from dragon-head deco- “Taiwan Fun on the Tropic of Cancer” tour-group circuit for many years. Far rations at the bow and a dragon tail at will run from June 22 to September 30. less well-known, and ideal for nature the stern. As in previous years, the festival offers lovers, is Baibao Creek. In addition The races, as well as the sticky rice an enticing combination of refresh- to rich flora, the banks of this inland dumplings (zongzi in Mandarin) on ing local delicacies best enjoyed in the waterway host an exceptional butterfly which Taiwanese people feast at this summer, as well as exciting outdoor population. The low wooden weirs here time of year, commemorate the death activities. are specially designed to allow freshwa- of Qu Yuan. A great poet and patri- For further details of these and ter fish species to thrive. otic government official, Qu served the other events, plus general travel infor- State of Chu more than 2,300 years ago mation about Taiwan, visit the website during China’s Warring States Period. of Taiwan’s Tourism Bureau (www. He was in exile when he learned that taiwan.net.tw). Alternatively, call the the State of Qin had captured the Chu 24-hour tourist information hotline capital. Distraught, he tied rocks to his (0800-011-765). It is toll free within feet and ended his life by jumping into Taiwan, and those picking up the a river in what is now China’s Hunan phones speak English and Japanese in province. addition to Chinese. The boat races originated from the efforts of people who took to their boats in an unsuccessful bid to save Qu’s life. When news of Qu’s demise spread, friends and supporters rushed One in six of the 557,000 people to the riverside and began throwing rice residing in the counties of Hualien and balls into the water, so that his body Taitung are indigenous. Aboriginal would not be eaten by the fish. That is traditions are evident in villages inhab- how the custom got started of eating ited by the Amis, Paiwan, and Truku rice dumplings, which are usually filled minorities, among others. with pork, mushrooms, and peanuts, All forms of exercise have grown in and then wrapped in bamboo leaves for popularity in Taiwan in recent years, steaming.

54 taiwan business topics • may 2015

5_SeeTW.indd 54 2015/5/6 9:47:45 PM 2015/5/7 3:02:35 PM 2015/5/7 3:02:35 PM 2015/5/7 3:02:35 PM 2015/5/7 3:02:35 PM ISSUE SPONSOR ISSUE SPONSOR www.amcham.com.tw www.amcham.com.tw ISSUE SPONSOR ISSUE SPONSOR www.amcham.com.tw www.amcham.com.tw May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May In Taipei In Taipei Published by the by Published Published by the by Published American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce In Taipei In Taipei Published by the by Published Published by the by Published NT$150 NT$150 American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce 移民政策省思移民政策省思維持嚇阻實力維持嚇阻實力 ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS Taiwan Business Taiwan Business Taiwan Topics Topics NT$150 NT$150 移民政策省思移民政策省思維持嚇阻實力維持嚇阻實力 ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS Taiwan Business Taiwan Business Taiwan Topics Topics 中華郵政北台字第號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 中華郵政北台字第 5000 號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 5000 5_2015_Cover.indd 1 5_2015_Cover.indd 1 中華郵政北台字第號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 中華郵政北台字第 5000 號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 5000 5_2015_Cover.indd 1 5_2015_Cover.indd 1 2015/5/7 3:02:35 PM 2015/5/7 3:02:35 PM ISSUE SPONSOR ISSUE SPONSOR www.amcham.com.tw www.amcham.com.tw May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May May 2015 | Vol. 45 | Issue 5 Vol. 2015 | May In Taipei In Taipei Published by the by Published Published by the by Published American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce American Chamber Of Commerce NT$150 NT$150 移民政策省思移民政策省思維持嚇阻實力維持嚇阻實力 ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& ."*/5"*/*/( ."*/5"*/*/( %&5&33&/$& %&5&33&/$& t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS t*OEVTUSZ'PDVT'JOBODJBM4FSWJDFT t(.0GPPET t7FHFUBCMF$FOUFS Taiwan Business Taiwan Business Taiwan Topics Topics 中華郵政北台字第號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 中華郵政北台字第 5000 號執照登記為雜誌交寄 THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI TAIWAN BUSINESS TOPICS May 2015 | Vol. 45 | Issue 5 5000 5_2015_Cover.indd 1 5_2015_Cover.indd 1